Accelerating
our potential
as a pure-play
Components
business
Annual Report
& Accounts
2022
I am excited to be leading Essentra into 2023,
the only global Components business to combine
the expertise and flexibility of a manufacturer
with the broad range and customer centricity
of a distributor.”
SCOTT FAWCETT
Chief Executive
We are
Essentra
Our vision
To be the world’s leading
responsible hassle-free
supplier of essential
industrial components
Global footprint balancing customer service with operational scale
Essentra at a glance
Hub Warehouse
Manufacturing
Local Sales Centre
Strategic Report
Essentra at a glance 1
Chair’s statement 4
Our strategic journey 6
Our business model 8
Investment case 9
Chief Executive’s review 10
The Components business journey 14
Market trends 15
Components Operational review 16
Key performance indicators 20
Environment, social and governance 22
Non-financial key performance indicators 36
Stakeholder engagement 38
Task Force on Climate-Related Financial Disclosures 40
Financial review 47
Alternative Performance Measures 50
Risk management report 52
Group Executive Committee 66
Directors’ Report 68
Chair’s Corporate Governance statement 69
Board of Directors 70
Corporate Governance report 72
Sustainability Committee report 88
Nomination Committee report 91
Chair of the Audit and Risk Committee’s letter 95
Audit and Risk Committee report 98
Chair of the Remuneration Committee’s letter 105
Remuneration at a glance 110
Annual Report on Remuneration 111
The Directors’ Remuneration Policy report 122
Other statutory information 126
Statement of Directors’ responsibilities
in respect of the Financial Statements 132
Independent Assurance Statements to Essentra plc 133
Financial Statements
Consolidated Income Statement 138
Consolidated Statement of Comprehensive Income 139
Consolidated Balance Sheet 140
Consolidated Statement of Changes in Equity 141
Consolidated Statement of Cash Flows 142
Critical Accounting Judgements and Estimates 150
Notes to the Consolidated Financial Statements 152
Essentra plc Company Balance Sheet 184
Essentra plc Company Statement of Changes
in Equity 185
Essentra plc Company Notes 186
Independent auditors’ report to the members
of Essentra plc 193
13
manufacturing
sites
80m
parts produced
per week
24
distribution
centres
1bn
parts in stock
c.3,000
employees
worldwide
33
sales and service
locations
1.8m
order lines per
year
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
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ESSENTRA AT A GLANCE CONTINUED
Revenue
£337.9m
(2021*: £301.7m)
Components adjusted
operating profit
£63.7m
(2021: £56.9m)
* Prior year has been re-presented to
show the Group on a continuing
basis only
Adjusted measures
Adjusted results exclude certain items
because, if included, these items could
distort the understanding of Essentra’s
performance for the year and the
comparability between periods. In
management’s view, such alternative
performance measures (APMs) reflect
the underlying performance of the
business and provide a more
meaningful comparison of how the
business is managed and measured on
a periodic basis. Our APMs and KPIs are
aligned to our strategy and business
segments, and are used to measure
the performance of the Company and
form the basis of the performance
measures for remuneration. See page
20 for KPIs and page 50 for APMs.
Cautionary forward-looking
statement
This Annual Report contains
forward-looking statements based
on current expectations and
assumptions. Various known and
unknown risks, uncertainties and
other factors may cause actual results
to dier from any future results or
developments expressed or implied by
the forward-looking statement.
Each forward-looking statement
speaks only as of the date of
this Annual Report. The Company
accepts no obligation to revise
or publicly update these forward-
looking statements or adjust them
to future events or developments,
whether as a result of new
information, future events or
otherwise, except to the extent
legally required.
Components adjusted
operating margin
18.9%
(2021: 18.9%)
Reported operating
(loss) / profit
(£11.3m)
(2021*: £7.7m)
Adjusted basic
earnings per share
1.9p
(2021*: 3.7p)
Reported loss per
share
(10.3)p
(2021*: (1.6)p)
Dividend per share
3.3p
(2021: 6.0p)
Adjusted operating
cash conversion
80%
(2021*: 67%)
Net funding surplus /
(debt) ratio
2.3x¹
(2021: 1.7x net debt)
Net funding surplus /
(debt)
£113.8m
(2021: (£234.7m) net debt)
Financial highlights Operational highlights
• Realisation of strategic
goal to become a
pure-play Components
business operating
from 1 January 2023
• Sale of the Filters
business to a wholly
owned subsidiary of
Centaury Management
Limited for an enterprise
value of approximately
£262.1m including initial
cash consideration of
£200m
1
• Sale of the Packaging
business to Mayr-
Melnhof Group, a leading
producer of carton board
and folding cartons
based in Austria, for a
cash consideration of
£312m
1
• Strong balance sheet
supporting organic
growth and driving a
bolt-on M&A strategy
• Value enhancing
acquisition of Wixroyd
Holdings Limited, a
leading UK supplier of
industrial parts for
the automation
sector, for an initial
consideration of £29.5m
2
.
Integration plans are
on track
• Continued improvement
in customer satisfaction
and service levels
through ongoing focus
on enhancing hassle-free
proposition
• Continued progress in
all areas of ESG and a
refreshed strategy
to better align with a
Components-focused
business
• Successful pricing
and proactive cost
management actions
1 Before £150m shareholder return announced 2 February 2023
The numbers presented in
this Strategic Report reflect
the continuing operations
of the Company unless
otherwise stated.
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1 On a cash-free, debt-free basis subject to customary adjustments
2 £27.9m, net of cash acquired
ESSENTRA AT A GLANCE CONTINUED
A resilient and diversified business
Revenue by region Revenue by channel
Revenue by customer segment
Revenue by oer type
Europe
and Rest
of World
51%
Americas
35%
End users
79%
Standard
64%
Industrial
manufacturers
67%
Industrial
manufacturers
72%
Configured
28%
Larger
consumer
manufacturers
2%
Larger
consumer
manufacturers
21%
Distributors
21%
Custom
8%
SME
consumers
31%
SME consumers
7%
Sales
Customers
Asia
14%
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
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PAUL LESTER,
CBE
Chair
CHAIR’S STATEMENT
Chair’s
statement
The next chapter for Essentra is now
underway with a clear ambition to
accelerate our potential as a pure-
play Components business using
our unique manufacturing and
distribution capabilities.”
Our strategic journey
2022 has been a significant year for
Essentra and a very busy one for the Board,
management team and all employees.
Towards the end of 2021, the Board decided
to undertake a strategic review process to
decide the best ownership structure for Filters
and Packaging. In October 2021, we therefore
announced a strategic review of the Filters
business, followed by a further announcement
in November 2021, to do the same with
the Packaging business. The Board had
concluded that it was in the best interests of
shareholders and stakeholders, for Essentra to
become a pure-play Components business.
By the time 2022 drew to a close, the Board
was pleased to have announced that both
businesses had successfully completed
their strategic reviews, with the Packaging
business having been sold to Mayr-Melnhof
Group for £312m on a cash-free, debt-free
basis subject to customary adjustments and
the Filters business sold to Frank Acquisition
Four Limited, a wholly owned subsidiary
of Centaury Management Limited, for an
enterprise value of approximately £262.1m,
including an initial consideration of £200m
(on a cash-free, debt-free basis subject to
customary adjustments) and up to £20m
deferred earn-out consideration and amounts
attributable to non-controlling interests.
The Board reviewed the options for each
business, evaluated the bids for each of the
businesses and took full account of not only
the financial terms but also the impact on
all stakeholders, from employees to suppliers
and customers, as well as shareholders. It was
important to the Board that the new owners
would be able to fully support these businesses,
and you can learn more about how we made
those decisions in the Principal Decisions
section, on page 78 as well as our Stakeholder
engagement section on page 38.
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CHAIR’S STATEMENT CONTINUED
For the Packaging business, as you can read in
the Audit and Risk section (from page 95), the
Board considered the eect of accounting for
the discontinued operations and unfortunately
considered it necessary to recognise an
impairment charge of £182.7m, in respect of
the carrying amount of goodwill (£181.6m) and
intangible assets held in India (£1.1m) relating
to the packaging business prior to its disposal.
Our use of proceeds
Having put in place the essential building
blocks for the future Essentra, the final
significant step for the Board was to consider
the use of proceeds from the sale of the
Filters and Packaging businesses. When we
announced the sale of the Packaging business,
we explained that we intended to reduce
Essentra’s debt position, which we have now
completed, repaying $247m Private Placement
notes. The remaining portion of the funds
would be returned to shareholders. Following
consultation with shareholders and advisors,
the Board decided to pay a Special Dividend
of £90m and undertake a Share Buyback
programme for up to £60m, which was
announced on 2 February 2023.
Our sustainable growth
The sale of the Filters and Packaging
businesses provided Essentra with a unique
opportunity to focus on achieving its full
potential as a pure-play Components
business. Scott Fawcett, and the new Group
Executive Committee (GEC), held a Capital
Markets Event in November 2022 where they
set out their plan on how, over the next five
years, they intend to double the revenue and
triple operating profit of the business through
both organic and inorganic growth. We were
pleased to demonstrate the commitment
that the team have to this ambition with the
acquisition of Wixroyd Group, a UK supplier
of industrial parts for the automation sector,
which was announced on 1 December 2022.
The acquisition expands Essentra’s capabilities
in hardware components and creates
significant cross selling opportunities across a
range of Essentra’s current end markets with
the initial focus on Essentra’s customer base
in Continental Europe.
Essentra believes that its approach to
sustainability is a competitive advantage.
There is significant opportunity to
dierentiate Essentra from its competitors
through the use of recycled content and
providing assurance over the end-to-end
supply chain. The business has made good
progress in this area and will continue driving
this forward to achieve meaningful change.
One of the ways in which Essentra will do
this is through its commitment, made in
September 2022, to set Science Based Targets
for GHG emission reductions in scope 1,2 and
3 within a two-year time frame.
Our people
Essentra’s footprint means that it has always
had a diverse and culturally rich community.
As well as bringing cultural insights, this
community provides employees with comfort
and support.
Each year there are more examples of this,
often brought about due to external crises,
but nonetheless, the sense of community
shared by employees is clear. In the last
year, our Polish site showed their support for
their Ukrainian neighbours, fund-raising and
using their distribution capabilities to ensure
key supplies were delivered where they were
needed most. Following the earthquake in
Turkey at the start of 2023, which fortunately
did not aect our site, employees reached out
to support each other where family members
were impacted and contributed funds to
local charities. Fund-raising provides the
opportunity for the Essentra community to
come together and give back to the causes
that matter the most to employees.
Our performance
Whilst I have so far focused on the
transformation of the business, I would
also like to briefly reflect on the results. The
continuing business achieved revenue growth
of 9.5% on a full year constant currency
basis. More information on the business
performance can be found page 18.
Our Board: Welcomes and farewells
Our Board and the leadership of Essentra
more broadly has seen two significant
changes, with the departure of Paul Forman,
and appointment of Scott Fawcett as Chief
Executive from the start of 2023, and also
the arrival of Jack Clarke in 2022, as
Chief Financial Ocer, following Lily Liu’s
resignation. The Board would like to thank
both Paul and Lily for their considerable
contribution and leadership of this business.
Paul worked closely with Scott over a number
of months to ensure a smooth and seamless
transition and our thanks go to Paul for his
leadership and vision in setting Essentra on its
course to become a pure-play Components
business. As planned and previously
communicated, Nicki Demby retired from
her role as Remuneration Committee Chair
and Non-Executive Director following the
Company’s 2022 AGM on 19 May 2022.
Ralf K. Wunderlich has been appointed as
Remuneration Committee Chair, adding to
his existing role as ESG Committee Chair.
In addition, we welcomed Dupsy Abiola, our
former Board Trainee, as a Non-Executive
Director and continue to find her insights
very valuable. As a result, and as promised
in our 2021 Annual Report, we have started
recruitment for a new Board Trainee and look
forward to reporting on this in due course.
We also announced the appointment of Kath
Durrant as a Non-Executive Director at the
end of 2022, and we look forward to working
with Kath in 2023 as we continue our work
on our social initiatives and ensuring our
approach to remuneration is both challenging
but rewarding for all of our employees. We
also announced the appointment of Emma
Reid as Company Secretary, with eect from
1 January 2023.
Our future
Essentra has a clear focus on its future
and over the next five years, the business
has laid out its ambition to create strong
returns for shareholders through increased
profit margins, capitalising on expansion
opportunities and eciencies, dierentiating
itself through its approach to operating
sustainably, driving organic and inorganic
growth and market share gains. The Board is
confident that the resilience of the business
and motivation of the team will support
its ambitions to create a world-leading
Components business.
Thank you to our employees, shareholders,
customers and other stakeholders for their
ongoing support.
Paul Lester, CBE
Chair
28 March 2023
Essentra believes that its
approach to sustainability is a
competitive advantage. There
is significant opportunity to
dierentiate Essentra from its
competitors through the use of
recycled content and providing
assurance over the end to end
supply chain.”
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Revenue
2
Adjusted
1
operating
profit
3
Adjusted
1
operating
margin
4
£302m £57m
before central costs
18.9%
before central costs
Revenue Adjusted
1
operating
profit
Adjusted
1
operating
margin
£338m £64m
before central costs
18.9%
before central costs
FY2022
Components
only
FY2021
Components
only
OUR STRATEGIC JOURNEY
Our destination
By 2021 Essentra was comprised of
three strong distinct divisions that were
leaders in their respective markets but
were at dierent stages of their
development and with limited overlap.
Reflecting on this context and the
existing size and scale of Components,
in October 2021 the Essentra Board
concluded that shareholder value was
likely to be maximised by Essentra
becoming a pure-play Components
business over time. The Board believed
that Filters and Packaging were likely
to thrive under a dierent ownership
structure where they would be better
able to access the specific markets and
investments they would need to grow.
1 Please refer to page 50 for further information on Adjusted Performance Measures.
2 2021 Total Group revenue as reported £960m.
3 2021 Total Group adjusted operating profit as reported £84m.
4 2021 Total Group adjusted operating margin 8.7% as reported.
Our strategic journey so far
1940s
Austrian business
Bunzl commenced its
manufacturing operations in
Jarrow, United Kingdom
1950s
Filtrona Corporation formed in
the United States
2005
Filtrona demerged from Bunzl
plc and becomes a separately
listed company on the London
Stock Exchange
2013
Filtrona plc rebranded as
Essentra plc
Our strategic journey
Essentra has grown and developed over the last eighty
years through a combination of organic growth and
acquisition activity.
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CHAIR’S STATEMENT CONTINUED
2019
2020
2021 20222017
Paul Forman appointed as
Chief Executive
Introduction of Stability,
Strategy, Growth roadmap
and Six Principles (values)
Acquisition of Micro Plastics
2018
Acquisition of Hertila
Divestment of Swiftbrook
Acquisition of Innovative
Components Inc. and
Componentes Innovadores
Limitada
Acquisition of Nekicesa
Packaging S.L
Divestment of the Card
Solutions, Extrusion, Speciality
Tapes and Pipe Protection
Acquisition of 49% minority
interest in the Filters joint
venture, Essentra (MEA) Pte. Ltd
Focus on response to
COVID-19 pandemic
Acquisition of
3C! Packaging, Inc
Establishment of Filters JV
in China, China Tobacco
Essentra (Xiamen) Filters Co.,
Ltd
Strategic reviews of Filters and
Packaging businesses
launched
Announcement of strategic
goal to become a pure-play
Components business
Acquisition of
Jiangxi Hengzhu Electrical
Cabinet Lock Co., Ltd.
Sale of Packaging business to
Mayr-Melnhof Group
Sale of Filters business to a
wholly owned subsidiary of
Centaury Management
Limited
Acquisition of Wixroyd
Holdings Limited
Components
Components
Porous
Technologies
Packaging
Specialist
Components
Filters
Components
Packaging
Specialist
Components
Filters
Components
Packaging Filters
2017 2019 2020 2023
Our five-year journey
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ESSENTRA PLC ANNUAL REPORT 2022
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Automotive
and EV
charging
Renewable
energy
Medical
devices
ConAgg
Automation
Telecomms
Consumer
equipment
Other
Industrial
equipment
Protective
caps and plugs
Access
hardware
Cable
management
Plastic
fasteners
Electronics
hardware
Other
hardware
Security seals
Other
Our purpose Our values What we do Our products Who we serve Our vision
We care about
our customers
We care about
each other
We deliver
We are an
eective team
Our vision
is to be the
world’s leading
responsible
hassle-free
supplier of
essential
industrial
components
Our purpose
is to help
customers build
a sustainable
future
We manufacture
We have the capacity and expertise to
manufacture a wide range of products
13 80m 45,000+
manufacturing
sites globally
parts produced
per week
SKUs
We distribute
Our global scale and market knowledge
means that we are able to anticipate
and meet the needs of our customers,
whether large or small, in a wide variety
of end-markets and geographies
24 1bn 17k
distribution
centres
parts in stock orders shipped
per week
We support
Our customers are manufacturers and
our products are a small but critical part
of their manufacturing bill of materials
33 c.74k 1.8m
sales and
service
locations
customers order lines
per year
OUR BUSINESS MODEL
Our business model
Our model is unique in the market. We combine the
expertise and flexibility of a manufacturer with the
service and range of a distributor.
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Investment case
Our target is to double revenue and triple operating profit
in the medium term.
1
Market leader with a
unique proposition in a
large but fragmented
market.
2
Clear strategy to drive
organic growth and
market share gains
supported by digitalisation
and sustainability.
3
High margin business
with scope to expand.
4
Strong returns and cash
conversion enabling value
enhancing M&A.
Essentra’s unique model combines
the expertise and flexibility of a
manufacturer with the service and
range of a distributor.
We operate in a highly fragmented
£8-£10bn addressable market, with over
one million potential customers.
The breadth and depth of our oer is
also unique, and enables us to serve a
broad range of industrial customers,
whilst our global manufacturing and
distribution footprint balances local
customer service with operational scale.
Our committed and engaged
employees, extensive network, deep
industry expertise and strong focus on
innovation and sustainability are key
dierentiators.
Our hassle-free approach is supported
by our range, availability and on-going
investment in our digital oering to
support the customer experience.
The implementation of CRM solutions,
AI prompts and the upskilling of our
commercial teams enables Essentra to
drive cross-selling opportunities.
Essentra’s focus on sustainability is a
source of competitive advantage, by
focusing on the sustainability of our own
operations and the components we
manufacture, we will be able to support
our customers to achieve their own
sustainability goals.
Essentra has significant margin
expansion opportunities driven
through scale eciencies, operational
eectiveness and pricing.
We continue to optimise our global
footprint for growth, balancing our
costs with our commitment to service.
Our scale also allows us to focus on
buying better and operating eciently.
We are transforming our sourcing and
purchasing capabilities and improving
our processes and technology,
underpinned by an improved ERP
platform to drive eciencies and
support margin expansion.
Essentra also continues to deliver
successful pricing management and
cost control actions which enable us
to mitigate cost inflation and enhance
margin.
A strong financial framework and
healthy balance sheet provides Essentra
with significant scope to pursue value
creating opportunities.
After the initial shareholder return we
expect to be operating between 0x -
1.0x net debt / EBITDA leverage which
is within our medium term targeted
gearing range of 0x – 1.5x, providing a
platform from which we can explore and
drive further strategic opportunities.
The strength of our balance sheet
means we are well positioned to
invest in organic development such
as accelerating digitalisation and
expanding our sustainable product
oering.
We continue to develop our healthy
pipeline of opportunities and to look
for value enhancing and strategic
acquisitions, including new product
capabilities to support our organic
growth initiatives.
INVESTMENT CASE
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SCOTT
FAWCETT
Chief
Executive
The new
Essentra
Accelerating our
potential as a pure-play
Components business
I am incredibly proud that the
Components business is the rock on
which the new Essentra has been built.
I have no doubt that the next chapter
will bring us even greater opportunities
for future growth.”
CHIEF EXECUTIVE’S REVIEW
Medium term targets
Revenue (CAGR)
Total
Revenue (CAGR)
Organic
Net debt to EBITDA
>10% >5% 0x –1.5x
Adjusted operating
margin
Net Working Capital
% Sales
c.18% c.18%
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2022
2
020
2
019
2
018
2
017
2
016
2
015
2
014
2
013
2
012
2
011
2
010
2
009
2
021
337.9m
301.7m
255.0m
£283.1m
£279.3m
£249.3m
1
£224.2m
£209.4m
£196.6m
£224.2m
£169.9m
£104.7m
£83.6m
£67.0m
As reported, pre-2019 restated to include the transfer of
Reid from the dissolved Specialist Components division
CHIEF EXECUTIVE’S REVIEW CONTINUED
I am excited to be leading Essentra into
2023 having formally joined the Board and
taken over as Chief Executive on 1 January.
While the last year has brought a lot of
change for the organisation as whole, for
the Components business it has seen the
culmination of a journey on which we have
been for some time and which is outlined on
page 14.
As part of the wider Essentra group and
under the strong and clear leadership of
Paul Forman, we have been able to build a
strong and resilient business with significant
potential for future growth. As we now enter
the next phase of our journey, we will benefit
from a pure focus on Components, enabling
us to accelerate our potential even further.
A unique business model
The business model we have developed
(outlined on page 8) makes us truly unique.
We are the only global Components business
to combine the expertise and flexibility of
a manufacturer with the broad range and
customer centricity of a distributor. The
breadth and depth of our oering is therefore
a key dierentiator.
Furthermore, we bring these unique
characteristics together within a market
that is highly fragmented, allowing us to
create value for both our customers and our
shareholders, demonstrating the opportunity
for future market share gains.
A service led proposition
Our annual customer survey confirms what
our broad base of customers value from
us, with one theme in common; they want
us to be easy to do business with. Service is
important for our customers, and this is why
innovating to be “hassle-free” is a key priority
for us.
As manufacturers themselves, the cost
of supply disruption can be costly for our
customers. Therefore our products need to
arrive on time and we are focusing much
of our innovation on processes and skills to
facilitate this service-led proposition.
We are innovating digitally both the front
and back end of our proposition, not least
with the continued roll out and development
of new generation websites across the globe
and a new ERP system, as well as investing in
sustainability as a great source of advantage –
both in terms of our operations and products.
A resilient business with potential for
future growth
Our business has a strong track record of
resilience, delivering strong operating margins
and cash conversion through the cycle thanks
to a clear focus on managing the cost base.
Indeed, over the last ten years we have not
only remained resilient but have also shown
our ability to expand margins and deliver
strong returns, including the completion of
11 acquisitions. Therefore, we feel confident
in our ability to double revenue and triple
operating profit as we go forward.
This growth will be built on both organic
and inorganic initiatives and underpinned
by the continued strong engagement of
our employees and customers. We will
further embed our investment in digital and
sustainability as well as cross-selling tools and
sales eectiveness. The acquisition of Wixroyd
in December 2022 shows our continued
commitment and discipline to invest
in value-adding bolt-ons, broadening our
product range and deepening our market
expertise.
All of this has been made possible by
our continued high levels of employee
engagement which at 83% (78% in 2020)
now exceeds the industry benchmark by 7
percentage points, allowing us to further
increase our NPS by 11 points to 34.
As we look forward, I am incredibly proud that
the Components business is the rock on which
the new Essentra has been built. We have a
strong platform, and I have no doubt that
the next chapter will bring us even greater
opportunities for future growth.
Scott Fawcett
Chief Executive
28 March 2023
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Proven track record of revenue growth
Q&A
Scott Fawcett joined Essentra in 2010 and has led the
Components business since January 2014. As the newly
appointed Chief Executive from 1 January 2023, Scott
reflects on both the business he has built and the
one he and the team will grow in the future.
Q
What was your proudest achievement
of 2022?
A
2022 was a year of significant strategic
change for Essentra as we transitioned
from three global divisions to becoming a
pure-play Components business. I’m really
proud of the way the whole organisation,
under the leadership of our outgoing
Chief Executive Paul Forman, delivered
two significant disposals and undertook
significant separation work to deliver on
this strategic intention.
I’m also really proud of how we managed
to not only maintain, but improve our
already leading employee engagement
scores through this process. This confirms
to me that we have a fantastic global
team who are aligned behind our vision
to be “the world’s leading responsible
hassle-free supplier of essential industrial
components”.
Q
What do you mean by “world leading”?
A
I truly believe that world-leading employee
engagement leads to world-leading
customer service which in turn leads to
world-leading financial results. Therefore
for me as Chief Executive, this is all
about listening and recieving feedback
from our people and from our customers
about what we can do to shape the future
that they want to see.
Based on this feedback we will
be a Company that leads in the
responsible production and supply
of industrial components. This will
include understanding and responding
to opportunities to help create more
sustainable products and processes and
developing a work environment where
our employees are valued as part of a
diverse team.
Q
What will be your focus areas for 2023?
A
We have a clear organic growth strategy
to get more customers, grow them by
cross-selling and keep them by delivering
a “hassle-free” service. Therefore, our
focus areas for 2023 are around enabling
this strategy. This means continuing
our programme of digital investment to
support customer acquisition, the launch
and embedding of cross-selling and
sales eectiveness tools and continuing
to improve and enhance the customer
experience.
Clearly we will need to be alert to current
market conditions and the challenges
these present for the Components
business, such as potential further
lockdowns in China, economic inflation
and continued supply chain challenges.
Our disciplined approach to pricing will
be central to osetting these challenges
as well as our experience in remaining
resilient through recent cycles.
Q
Will M&A continue to be part of the
strategy going forward?
A
Absolutely, we have a successful record of
acquiring new businesses, most recently
welcoming Wixroyd in 2022, and this will
continue to be an important way to grow
the business as we move forward. Our
pipeline is healthy and based on a clear
criteria where targets oer new product
capabilities that can be cross-sold.
Q
What excites you most as you move
Essentra forward as a pure-play
Components business?
A
The strategic position of our business
means the potential is huge - the
production of low cost but critical
components in a highly fragmented
market that will only grow, as we move
into new product ranges and customer
categories. We also see significant margin
expansion opportunities through a
programme of incremental improvements
underpinned by our new ERP. We have
a strong financial framework with clear
metrics to achieve our strategy and I am
confident in our ability to double revenue
and triple operating profit.
Our strategy has been consistent for
a number of years and we are well
positioned to take advantage of the
opportunities ahead of us. We have highly
engaged employees and customers which
together with our unique business model
and track record of resilience make us an
attractive investment.
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From left to right:
• Gabriele Hannen, Chief Strategy Ocer
• Oshin Cassidy, Chief People
and Culture Ocer
• Scott Fawcett, Chief Executive
• Lynne Vandeveer, Chief Marketing Ocer
and President, Americas
• Emma Reid, Company Secretary
• Jack Clarke, Chief Financial Ocer
• Hugues Delcourt, Chief Sales Ocer
and Director, EMEA
• Sam Edwards, Chief Digital
Information Ocer
• Rob Baker, Chief Operating Ocer
New Group Executive Committee
We have spent much of 2022 building a strong
executive team to lead the business into
the plc phase, as a pure-play Components
business. Some members of the team have
moved “up” from the former Components
division such as Gabriele, Hugues, Rob and
Sam. Others bring with them significant plc
experience either at Essentra, like Oshin and
Emma, or externally such as Jack. We have
also gone to market to find more specific
expertise matching our strategic journey
looking forward, such as Lynne who brings
considerable consumer and B2B experience.
We expect to appoint a new Chief People and
Culture Ocer once Oshin has seen us fully
through the transition.
CHIEF EXECUTIVE’S REVIEW CONTINUED
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The Components
business journey
Continued investment for organic growth
Successful track record of acquisitions – adding expertise and range
Over the last ten years we have been evolving our global manufacturing
and distribution footprint, building a new ERP platform, developing new
generation websites across the globe, embedding cross-selling and sales
eectiveness tools and prioritising sustainability as source of competitive
advantage – both in our products and operations.
2011 2013 2013 2014 2014 2017 2018 2019 2021 2022
Electronics
hardware
Protective
caps and plugs
Access
hardware
Security seals Protective
caps and plugs
Plastic
fasteners
Protective
caps and plugs
Other
hardware
Access
hardware
Industrial
parts
Cable
management
THE COMPONENTS BUSINESS JOURNEY
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Market trends
Monitoring and responding to key trends in our
markets is important to us being able to help our
customers build a sustainable future. We have
multiple product expertise and a broad range of
customer categories, creating opportunities in a
wide variety of industrial markets.
We remain agile to help
our customers build a
sustainable future in a
volatile environment.”
In 2022, we saw a challenging broader
economic landscape, which impacted the
macro environment and labour markets. We
will continue to monitor these trends into
2023 and respond accordingly, remaining
agile to help our customers build a sustainable
future in a volatile environment.
There continues to be an increased
customer focus on ESG. Our customers in
electrification and renewable energy markets
saw an acceleration of growth. Sales to
manufacturers of heat pumps, electric vehicle
charging stations and solar panels registered
double-digit growth, reflecting the conversion
from fossil fuel to greener sources. This proved
very beneficial for our European business as it
boosted demand for our access hardware and
cable management ranges.
We expect the move to electrification,
renewable energy and digitalisation to further
accelerate towards 2025.
Automotive and industrial electronics
markets continued to face a shortage of
electronic components in 2022, reducing their
outputs and negatively impacting purchasing
volumes, resulting in more subdued demand
in the sector.
We continue to see the telecoms and medical
markets as areas of focus and strength, with
opportunities to further cross-sell.
Geographically, through 2022 we have
continued to serve our customers deploying
on-shoring or near-shoring strategies in
Europe and North America. We will continue
to build on our strong presence while
strengthening our position in selective fast
growing Middle East and Asian countries.
MARKET TRENDS
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• We have a robust business model which
has delivered strong operating margins
and cash conversion through the cycle
• We have a track record of growth, and
have historically accelerated out of a
downturn cycle, as seen after 2009 and
in 2021
• Our organic growth strategy enhanced
by M&A has expanded product, market
and geographic diversity increasing
resilience
Operating margin % (before central costs)
Organic revenue growth
1 Divisional operating margins are presented before central costs. Adjusted for currency movements
Components
Operational review
The breadth and depth of our oering
is a key dierentiator as we launch as
a standalone business with a service
led proposition, innovating through
digitalisation and sustainability. We have
a clear strategy to accelerate growth
organically and inorganically to grow our
market share and to expand the total
addressable market.
Who we are and what we do
Our components serve a very broad and fragmented
industrial manufacturing market. We make and
distribute small but essential industrial components,
that are used by our customers in the production of
industrial and consumer equipment. Typically catering
to B2B manufacturers, our core markets range from
data cabinet and telecoms station manufacturers to
automotive suppliers and manufacturers.
Uniquely, we combine the range and service of a
distributor with the expertise and flexibility of a
manufacturer. This brings the customer a hassle-free
experience when buying components that are relatively
low in cost, but have a high propensity to cause
disruption if there is a problem with either delivery or
quality.
19
1715 16
18 20 21 2022
13 1411
121009082007
35%
25%
15%
5%
-5%
-15%
-25%
-35%
Resilience through the cycle
COMPONENTS OPERATIONAL REVIEW
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Automotive
and EV
charging
Renewable
energy
Medical
devices
ConAgg
Automation
Telecomms
Consumer
equipment
Other
Industrial
equipment
Who we serve Financial KPIs Non-Financial KPIs
Revenue
£337.9m
(2021: £301.7m)
Components
adjusted operating
profit
1
£63.7m
(2021: £56.9m)
Components
adjusted operating
margin
1
18.9%
(2021: 18.9%)
1 Excluding amortisation of
acquired intangible assets and
adjusting items. Presented for the
Components business, excluding
central costs. Adjusted measures
have been used to reflect the
underlying performance of the
business. Please refer to page 50
for further detail of Alternative
Performance Measures (APMs)
Europe and
Rest of World
51%
Americas
35%
Asia
14%
Revenue by region
Active
customers
74k
(2021: 79k)
Why we measure it
Reflects marketing eectiveness and
measures the potential population for
further growth opportunities.
How we have done
We maintain focus on mid-size, scalable
customers and we are deploying a
focused digital marketing strategy.
Net Promoter
Score (NPS)
34
(2021: 23)
Why we measure it
Reflects our customers’ overall
satisfaction with our products and
service, as well as loyalty to our brand.
How we have done
The increase of 11 points reflects our
continued focus on service recovery
following recent global supply challenges
and commitment to our hassle-free
proposition. We remain focused on our
customers and continue to work towards
our target of 50.
On Time in Full
78.2%
(2021: 54.1%)
Why we measure it
Demonstrates the ability to meet delivery
demand.
How we have done
We have seen improvements to our
global supply chains and have focused on
rebuilding our inventory levels to service
customers. Our 2022 OTIF exit rate was
82.4%, and we continue to work towards
pre-pandemic levels of >95%.
Lost Time
Incidents
22
(2021: 22)
Why we measure it
Indicates our overriding commitment
to health, safety and welfare in the
workplace.
How we have done
Our number of incidents remained high
in 2022, although there has been a
reduction in the severity rate. Action plans
at three focus sites and the introduction
of the safety leadership commitment
showed a positive trend as the year
progressed.
COMPONENTS OPERATIONAL REVIEW CONTINUED
Industrial
manufacturers
72%
Larger
consumer
manufacturers
21%
SME /
Consumers
7%
Revenue by customer segment
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2022 performance summary
In 2022 Essentra realised its strategic goal
of becoming a pure-play Components
business. Whilst it has been a year of
transformation for the Group, we have
continued to take steps towards the
delivery of our vision and have made
great progress with our financial and
non-financial KPIs.
2022 was a contrasted year. The first quarter
started with the same pace as H2 2021 with
strong demand from most industry sectors
and an element of global supply chain
disruptions as the world emerged in a post-
pandemic recovery phase. The latter part of
the year saw a change in business climate,
with inflationary pressures rising sharply
and devastating impacts of the war in
Ukraine. The geo-political situation including
local lockdown restrictions in China, which
remained in eect until Q4 2022, led to
customers reviewing their supply chain and
go-to-market strategies.
We responded by adjusting our capacity and
maintained an agile approach to changing
circumstances. Our global manufacturing,
procurement and distribution footprint
gave us the flexibility to de-risk supply
chains, minimise inflationary impacts and
increasingly support our customers in a
volatile environment.
Our order book backlog gradually reduced
throughout the year to reach pre-pandemic
2019 levels and we were able to oset
cost inflation as a result of our consistent
and disciplined pricing activities. These
improvements were reflected in our
customer OTIF (On Time In Full) exit rate
which was 82.4% and our 2022 NPS (Net
Promoter Score) improving by 11pts vs 2021.
In terms of our digital presence, a new
generation of websites have now been
implemented globally with the roll-out of
our remaining websites in Asia completed
at the start of the year. Our next generation
websites are now live in 26 sites and
17 languages. A large majority of our
customers’ journey starts online, and a
strong digital front end has allowed us to
generate more organic trac and improve
our customer conversion rates.
This year, we recommenced the roll-out
of the new ERP platform after initially facing
challenges as previously communicated in
the 2021 Annual Report. Using learnings
from our review of the programme including
new resources, in-house talent and a revised
Components focused approach, we have
seen a more successful implementation in
France. After taking the time to reassess our
approach, confidence has increased moving
forward. We now plan to accelerate the
roll-out in 2023 using a phased deployment
approach, targeting completion of the ERP
implementation in 2024, leading to
enhanced pricing and operational eciencies
that will support margin expansion.
The business saw costs of c.£12m in 2022
related to the ERP implementation, we
anticipate further spend of c.£12m in 2023
and £8m-£10m in 2024, in line with previous
guidance.
Cross-sell is an important element of our
organic growth strategy and we have further
developed our digital expertise to enhance
opportunities.
We have continued to develop a learning
management system to upskill commercial
teams, as well as using AI solutions to deliver
cross-selling prompts via our websites and
CRM platforms. It is important for us to
continue to digitalise our expertise as we
expand our product oer organically and
through M&A in 2023.
Our service driven distribution model has
been enhanced, with the opening of a
new Eastern Europe hub in Łódź, Poland in
September. The new facility includes both
an oce and warehouse, services 20,000
product lines and strengthens our service,
expanding market presence. This has allowed
us to merge the legacy Łódź warehouse and
Bratislava warehouse into a purpose-built
hub. The products previously held across
multiple locations have now been
centralised, enabling Essentra to distribute
complete orders from a single source,
improving service through improved lead
times and reducing carbon footprint.
On 1 December, we were pleased to
announce the acquisition of Wixroyd Group
for an initial consideration of £29.5m. This
was the first acquisition to be announced
since outlining our new strategy, and
continues a successful track record of
acquisitions in the Components business
over the last ten years. Wixroyd is a leading
UK supplier of industrial parts for the
automation sector and will expand Essentra’s
capabilities in hardware components and
create additional cross-selling opportunities
across a range of Essentra’s current end
markets.
We also took time in 2022 to reassess
ESG progress, and in particular how we
could better shape and apply our strategy
COMPONENTS OPERATIONAL REVIEW CONTINUED
to a standalone Components business.
This means reducing our impact on the
environment, working with customers and
suppliers to innovate our products as well as
maintaining our ability to attract and retain
talent, maximising colleague engagement
and wellbeing. We have created five pillars
which will help us to fulfil our sustainability
ambitions. These pillars link closely to the
UN Sustainable Development Goals. Further
detail can be found on page 23.
Financial Performance
Revenue for the year increased by 12.0% to
£337.9m.
The Components business had a strong
start to the year building on the positive
momentum seen throughout 2021. Whilst the
business delivered 12.7% LFL growth for H1 as
a whole, there were signs of moderation with
tough comparatives and a more challenging
economic backdrop moving into H2.
Adjusted operating profit
1
increased by 12.0%
to £63.7m, equating to a margin of 18.9%
(2021: 18.9%). The stability in margin is a
result of disciplined pricing actions, which
oset cost inflation for the year. The related
profit impact of the reduction in volume
through H2 was also oset by mitigating
actions, including managing the cost base
proactively.
Looking ahead to 2023, and as demonstrated
on page 16, the business has a robust business
model, which delivers profit margin resilience
through the cycle. It has a clear strategy to
drive organic growth and market share gains
as well as a strong balance to sheet enabling
it to pursue value enhancing M&A.
1 Adjusted measures have been used to reflect the underlying
performance of the business. Please refer to page 50 for
further detail of Alternative Performance Measures (APMs).
2 £27.9m, net of cash acquired
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COMPONENTS OPERATIONAL REVIEW CONTINUED
DISCONTINUED
OPERATION
DISCONTINUED
OPERATION
On 3 October 2022, Essentra announced the
completion of the sale of Essentra Packaging
to Mayr-Melnhof Group. As a result, for
the period 1 January 2022 to 30 September
2022 the business was accounted for as
a discontinued operation. The Packaging
business was sold for a total consideration of
£312.0m, on a cash-free, debt-free basis, and
subject to customary adjustments.
Revenue for the nine months to September
2022 was £319.1m. The pharmaceutical
market continued to recover in Europe and
the US throughout 2022, following on from
the increased demand for prescriptions and
elective surgeries seen towards the latter part
of 2021. This led to strong quarter vs prior year
quarter growth in the first nine months of the
year: (Q1: 11.1%, Q2: 8.2% and Q3: 30.4%).
Q3 saw particularly strong growth as a result
of price initiatives and a softer prior year
comparative.
Whilst labour availability and retention in
the US stabilised, the business faced new
challenges including global supply chain
disruption and raw material supplies,
exacerbated by strikes at paper mills in
Europe, driving up costs and availability of
supply. Whilst H1 2022 margins declined
from the previously reported FY21 position,
Q3 profitability saw an improvement, led by
an increase in pricing osetting input cost
inflation.
Operational performance remained robust
with a continued focus on service, quality,
sustainability and innovation, deepening the
strength of our customer relationships, and
the division was pleased to announce two
new strategic partnerships in the year.
Packaging
On 5 December 2022, Essentra announced
the completion of the sale of Essentra Filters
to Frank Acquisition Four Limited, a wholly
owned subsidiary of Centaury Management
Limited. As a result, for the period 1 January
2022 to 30 November 2022 the business was
accounted for as a discontinued operation.
The Filters business was sold for an enterprise
value of approximately £262.1m, including
an initial consideration of £200.0m (on
a cash free, debt free basis, and subject
to customary adjustments), up to £20m
deferred earn-out consideration and amounts
attributable to non-controlling interests.
Revenue for eleven months to November
2022 was £334.8m, owing to three strong
quarterly performances. The division saw
positive growth and pricing surcharges agreed
with customers mitigated cost inflation.
Strategically, the division remained focused
on its organic growth strategy of developing
and launching ECO and Tobacco Heated
Products with three customers placing
commercial orders in H1. The division secured
new outsourcing opportunities through 2022
at good margin. The China JV continued to
gain momentum across the year, increasing
production volumes in line with expectation.
In Q2 the China JV achieved profitability,
12 months after initial launch of the joint
venture. In addition, Filters was able to provide
support for multi-national businesses with
operations in Ukraine and their continuity
plans.
The business achieved LFL quarterly revenue
growth compared to the prior year quarter
of: Q1: 15.9%; Q2: 14.9%; and Q3: 34.7%,
the latter owing to a softer prior year
comparative.
The increased revenues drove operational
gearing in the period, alongside an increase
in outsourcing contracts and business wins
at higher margin, enhancing profitability
mix. Profitability in the period was further
improved through the successful pass through
of cost inflation to customers.
As seen in prior year, operational metrics and
agility remained class leading, helping to
successfully navigate supply disruption in the
market. The Tapes business was also able to
reduce the reliance on tobacco in the period,
with over 50% of revenue generated in
non-tobacco markets for the first time.
Filters
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2022
2
021
1.9
3.7
4
2022
2
021
25.1
26.4
Key performance indicators
The delivery of Essentra’s
strategic priorities is
underpinned by a focus on
Key Performance Indicators
(KPIs) which measure
Essentra’s progress in the
delivery of value.
Adjusted operating cash flow
from continuing operations (£)
£ 20.2m
(2021: £17.8 m)
Like-for-like revenue growth,
continuing operations
(%)
How we measure it
Revenue at constant exchange rates,
excluding acquisitions and disposals
Why this is important
Measures the ability of the Company to grow
sales by operating in selected geographies
and categories, and oering dierentiated,
cost-competitive products and services
Net working capital
2
ratio from
continuing operations (%)
How we measure it
Average net working capital
2
per month,
as a % of revenue
Why this is important
Measures the ability of the Company
to finance its expansion and release
cash from working capital
Components adjusted
operating profit
(£m)
How we measure it
Components operating, excluding the
impact of amortisation of acquired
intangible assets and adjusting items
Why this is important
Measures the profitability of the Company
Adjusted operating cash flow from
continuing operations
1,3
(£m)
How we measure it
Adjusted operating profit less non-cash/
other items, net working capital and net
capital expenditure
Why this is important
Measures the cash generation
capability of the Company
Adjusted basic earnings per share
1
from continuing operations
(p)
How we measure it
Earnings per share at constant exchange
rates, excluding the impact of amortisation of
acquired intangible assets and adjusting items
Why this is important
Measures the benefits generated for
shareholders from the Company’s
overall performance
Adjusted operating profit
(£m)
How we measure it
Operating profit excluding the impact of
acquired intangible assets and adjusting
items.
Why this is important
Measures the profitability of the Company
Alignment of KPIs to executive
remuneration
Performance measures for the executive
Annual Bonus Plan
Performance measures for the executive
Long-Term Incentive Plan
1 Excluding impact of amortisation of acquired
intangible assets and adjusting items.
2 As defined in the Financial review on page 47.
3 As defined in the Alternative Performance Measures
on page 50.
4 Prior year re-presentation required to show the
business on a continuing operations basis.
5 Includes an allocation of central service costs
to Components.
2022
2
021
2
020
6.5
21.7
4
-10.1
4
2022
2
021
2
020
56.9
45.5
63.7
2022
2
021
2
020
15.9
11.6
4
16.3
4
2022
2
021 17.8
4
20.2
KEY PERFORMANCE INDICATORS
Re-presenting comparatives to reflect the continuing business
To provide a like-for-like position, a number of KPIs have been re-presented to reflect
the continuing business operations. Comparatives have been updated for 2020 and
2021 where appropriate.
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Adjusted operating cash conversion
from continuing operations
1
(%)
How we measure it
Adjusted operating cash flow
3
as a
percentage of adjusted operating profit
2
Why this is important
Measures how the Company converts
its profit into cash/quality of the
Company’s earnings
Return on Invested Capital,
continuing operations
(%)
How we measure it
Adjusted operating profit
1
after tax
including an allocation of central service
costs, divided by capital employed plus
intangible assets
Why this is important
Measures the Company’s ability to eectively
deploy capital
Dividend per share (p)
How we measure it
Total dividends paid divided by the number of
relevant shares in issue
Why this is important
Measures the amount of cash per share
which the Company returns to shareholders
Total Shareholder Return
(%)
How we measure it
Total annual increase in value. Based on
the increase in share price and the dividend
paid to shareholders
Why this is important
Measures the Company’s ability to generate
long-term value
Return on Capital Employed,
continuing operations
5
(%)
How we measure it
Adjusted operating profit
1
including an
allocation of central service costs, divided by
tangible fixed assets and net working capital
Why this is important
Measures how eectively the Company
uses its operational assets
Performance measures for the executive
Long-Term Incentive Plan
1 Excluding impact of amortisation of acquired
intangible assets and adjusting items.
2 As defined in the Financial review on page 47.
3 As defined in the Alternative Performance Measures
on page 50.
4 Prior year re-presentation required to show the
business on a continuing operations basis.
5 Includes an allocation of central service costs
to Components.
Adjusted operating
cash conversion
from continuing
operations (%)
80%
(2021: 67%)
Dividend per
share (p)
3.3p
(2021: 6.0p)
67
802022
2021
3.3
6.0
3.3
2022
2021
2020
29.5
33.4
16.6
2022
2
021
2
020
13.3
14.3
7.6
2022
2
021
2
020
-29.8
-29.7
14.7
2022
2021
2020
KEY PERFORMANCE INDICATORS CONTINUED
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Environment, social
and governance
In 2022 we invested in reassessing Essentra’s ESG
progress and in particular how we could better shape
and apply our strategy to a pure-play Components
business. We recognise that our valued customers are
seeking increasingly sustainable products, and having
the trust and confidence of the people we do business
with is one of our most valuable assets and a clear
source of competitive advantage.
ENVIRONMENT, SOCIAL AND GOVERNANCE
Our Planet 24
Our Components 29
Our Culture 30
Our Communities 33
Our Customers 35
IN THIS
SECTION
1. Physical pollution and end of life disposal 11. Transparency
2.
Changes in legislation /regulation on
material use and environment 12.
Impact of extreme weather and climate
action failure
3. Rejection of single-use plastics 13. Ethical supply chain
4. Greenhouse gases 14. Use of renewable energy
5.
Mental and physical health, safety
and wellbeing 15. Access to sucient clean water
6. Circular economy principles 16. Atmospheric pollution
7. Manufacturing waste streams 17. Traceability, origin, conflict materials etc
8.
Natural environment including marine
ecosystems 18. Availability of raw materials (recyclate)
9. Resource eciency 19. Community relations
10. Diversity and inclusion
Importance to Essentra Components
Perceived Importance to stakeholders
17
15
19
16
18
14
11
13 12
10
8 7
9 6
3
5
2
1
4
Moderate
Moderate
Major
Major
Critical
Critical
Minor
Minor
Significant
Significant
Essentra Components sustainability priority topics
Our Culture Our Communities Our Components Our Planet
Environmental, social and governance (ESG)
topics are crucial to our ability to eectively
and responsibly accelerate our potential as
a pure-play Components business whilst
meeting the increasing expectations of all our
stakeholders, including employees, customers
and investors. Indeed, for us to continue to
create shareholder value and build for the
future, we must secure our ability to thrive
in a sustainable future. This means reducing
our impact on the environment, working
with customers and suppliers to innovate our
products as well as maintaining our ability to
attract and retain talent and ensuring their
engagement and wellbeing.
In 2020, as a business at the time with three
global divisions, we carried out an assessment
to identify the materiality of key sustainability
topics to each division. Therefore as we
transitioned to a pure-play Components
business we took as our starting point the
Component’s specific sustainability matrix
as the basis for prioritisation and decision
making in the formulation of our refreshed
ESG strategy.
The following pages set out our new ESG
strategy, which is aligned to five key pillars.
Within each pillar we have aligned our existing
targets, and developed new targets to
support our priorities within each of these key
focus areas for Essentra. We recognise that
we are in the early stages of our journey so
having these focus areas provides a structure
around which we can engage and learn from
stakeholders. Our approach to governance
of ESG matters is designed to ensure that we
remain true to our purpose “to help customers
build a sustainable future” by creating fora for
discussion and challenge, for example through
a dedicated ESG Committee and as a
standing agenda item on every GEC agenda.
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Our refreshed
ESG framework
As a response to the priority topics identified in our
materiality matrix, during 2022 we created five pillars
which will help us to fulfil our sustainability ambitions.
Under each pillar we outline our commitments to
achieving our ambitions. These pillars link closely to
the UN Sustainable Development Goals (SDGs), with
nine goals having a strong and direct link to Essentra’s
business. These are outlined below as the areas where
we have the ability to make the greatest impact.
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
Our
Planet
Driving resource and
energy eciency,
reducing emissions
and embracing
renewables.
Our
Culture
A safe, supportive
work environment
that champions
equality and
celebrates diversity.
Our
Communities
Working with
suppliers to ensure
ethical practices
and contribute to
equitable economies.
Volunteering our
time and supporting
good causes.
Our
Components
Developing
innovative products
using renewables,
recyclables, reusables
and biodegradables.
Our
Customers
Providing a hassle-
free service that
helps customers
achieve their
sustainability goals.
UN Sustainable
Development
Goals (SDGs)
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We want to end our dependency on virgin
fossil materials and fuels, making significant
emissions reductions across our value chain
through energy eciency, renewables,
material and transport choices.
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
Our
Planet
Our mid-term targets
• Reduce our Scope 1 and 2 emissions
intensity by 25% by 2025 (against a
2019 baseline)
• Reduce our Scope 3 emissions across our
value chain and set a target in line with
science-based thinking
• All sites to achieve Zero Waste to Landfill
(ZWTL) by 2030 at the latest
• Reduce overall waste volumes by 20% by
2030 (2019 baseline)
• Components direct emissions have
reduced by 27% and emissions intensity
35% against our 2019 baseline
• We established a baseline for Scope 3
emissions and are developing our Scope
3 science-based target
• Components waste intensity has
reduced 25% against 2019 baseline
• 12 Components sites achieved ZWTL in
2022
Reducing our emissions
We are committed to continuing to reduce
our Scope 1 and 2 emissions, and setting a
target for reducing our Scope 3 emissions.
Since 2019, we have reduced our Components
absolute Scope 1 and 2 CO
2
e emissions by
27%. Indexed to revenue, emissions intensity
has declined by 35% against our baseline
year, and 23% since 2021, meeting our target
set in 2020 three years early.
In 2022, as a result of our continued transition
to renewable energy across our sites,
renewable electricity now accounts for 31% of
total electricity usage across the Components
business, an increase of 15% compared to 2021.
2022 also saw our first solar project commence
in Rayong, Thailand. We have also continued
our energy eciency projects, including eight
machine replacements globally, energy audits
and the installation of energy monitoring
software at our Kidlington site.
In 2022 we also committed to resetting our
near– and long-term Company-wide emission
reductions in line with science-based net zero
with the SBTi, including Scope 3, and plan to
submit our targets for validation in 2023.
Building a net zero action plan
In August 2020 we announced our ambition
to become carbon neutral in our direct
operations by 2040, alongside a 25%
reduction in emissions intensity by 2025.
In 2022, when reassessing our ESG strategy
as a pure-play Components business, we
refreshed this ambition in line with the latest
scientific thinking by committing to reach
net zero in our direct operations by 2040;
and in our value chain by 2050, as well as a
commitment to submit our net zero targets
alongside new near-term emissions targets
to SBTi.
This means in 2023 we will develop a new
near-term absolute emissions target for 2030,
alongside a Scope 3 emissions target, to
reduce our direct absolute emissions and the
emissions in our value chain. These targets will
align to the requirements of the Corporate
Net Zero Standard.
During 2023 we will also be developing
the detailed plans we need to guide our
progress across our manufacturing facilities,
distribution centres, oces and fleet on our
net zero journey.
CDP
2022 ratings:
B Climate Change,
B- Water Security,
C Forests
EcoVadis
Bronze Medal 2022
SBTI
In 2022 we
committed to
resetting our near-
and long-term
emission reductions
targets with the SBTi
MSCI
AA Rating 2021
To drive collaboration and industry-wide
action, in 2022 we joined the UN Global
Compact’s Business Ambition for 1.5°C and
the UN Race to Zero, aligning to best-practice
guidelines and to drive positive change.
To support the delivery of our target, we will
develop a Climate Transition Plan in line with
the UK Government’s new Sustainability
Disclosure Requirements.
Our disclosures and ratings
Our progress
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ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
We have reviewed the Transition Plan
Taskforce consultation documents and will
review the standards for transition plans
when published to ensure our approach is fully
aligned.
We are also working on a net zero target
for our Scope 3 emissions by including our
products and their distribution. In 2021 we
started by baselining our Scope 3 emissions,
and in 2022 we developed a Components
Scope 3 baseline to support the new business.
In 2023 we are finalising our Scope 3 net zero
targets and will be submitting these alongside
our refreshed direct emissions net zero targets
to the SBTi for verification.
Waste management and reduction
We aim to be Zero Waste to Landfill (ZWTL)
across our operations, as well as minimising
the waste we generate across the product
lifecycle. In 2022 a further 12 sites achieved
ZWTL, taking our total across three
divisions to 34. Six of these sites are within
Components, taking the new total for sites
to 12 or 33% of all sites from 2023 onwards.
Overall, 76% of waste is diverted from landfill
across Components.
Our waste intensity in Components has
reduced by 25% against our 2019 baseline
meeting our 2030 target. However, it has
increased significantly compared to 2021.
This is mainly due to the acquisition of
Hengzhu, and we are developing an action
plan to reduce waste volumes further across
sites in 2023.
Water usage
Water use across our manufacturing
processes is low as our products do not
contain water. However, we have seen
an increase in total water usage across
operations as site operations increased post-
pandemic, and due to growth through the
acquisition of Hengzhu.
Scope 1 and 2 GHG intensity
Total CO
2
e per £mln revenue
Waste intensity
Total tonnes per £mln revenue
Number of sites at Zero Waste
to Landfill (ZWTL)
% of raw materials from
sustainable sources across our
polymer ranges
Our target
25% reduction in emissions intensity by 2025
(2019 baseline)
Our target
20% reduction by 2030, or sooner
(vs 2019 baseline)
Our target
All sites at ZWTL by 2030 (or sooner)
Our target
20% of raw materials from sustainable
sources by 2025 across our polymer ranges
2022
2
020
2
021
69.1
62.1
47.9
2022
2
020
2
021
12
6
5
2022
2
020
2
021
11.0
9.4
11.0
2022
2
020
2
021
10.8
8.5
2
In 2022 we refreshed our targets to bring
them in line with both our position as a
pure-play Components business as well
as the latest scientific thinking.”
SCOTT FAWCETT
Chief Executive
We have identified two water basins in
water stressed regions where we have
manufacturing sites (Istanbul in Turkey, and
Kidlington in the UK), and will be focusing our
water eciency actions on these sites in 2023.
Key Performance Indicators (Components)
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ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
CASE
STUDY
Increasing on-site renewable
electricity generation
The installation of a 6,000m
2
solar array at
one of our largest global manufacturing
sites located in Rayong, Thailand
commenced in December 2022. Once
complete, the solar panels will generate
824kW and provide around 20% of the
annual electricity requirements of our
manufacturing operations in Thailand.
This investment in providing renewable
energy directly to the site reduces our
reliance on fossil fuel-generated electricity.
We estimate that the solar array will avoid
annual greenhouse gas emissions (GHG)
generated by the site by over 450 tonnes
of CO
2
e each year, contributing to our
progress to reduce our GHG emissions
intensity by 25% by 2025 or sooner, and
contributing to our plan to reach net zero
across our direct operations by 2040.
Reducing emissions in our manufacturing
operations supports our commitment to
provide products with a lower carbon
intensity to our customers.
This project, together with our recycled
material projects, provides us with the
capability to reduce the carbon intensity in
both the materials we buy and during the
manufacturing of our products.
This exciting step forward represents
progress towards our goal of net zero.
Through continued investment in
renewable energy we can ensure we
deliver increasingly sustainable product
lines to our customers.”
RICHARD SEDERMAN
Strategy and M&A Director, Essentra
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Measurement and reporting
(Group)
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
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ERM CVS has assured the following environmental data for 2022: Total Scope 1 and total Scope
2 greenhouse gas emissions, total solid and total liquid waste volumes by destination, total
water usage, the percentage of raw materials from sustainable sources across our polymer
ranges and the number of sites that have achieved Zero Waste to Landfill (ZWTL) status. Full
details of the scope, activities, limitations and conclusions of ERM CVS’ assurance engagement
are included in the Assurance Statement on pages 133 and 134.
Essentra Plc Group – Streamlined Energy and Carbon Reporting (SECR) data
Tonnes CO
2
e 2019 2020 2021 2022
% change
between 2021
and 2022
Scope 1 and 2 emissions
Scope 1 10,264 7,603 8,307 7,586 -9%
Scope 2 – Location 62,111 55,327 53,070 50,312 -5%
Total Scope 1 and 2 Emissions Location 72,375 62,930 61,377 57,898 -6%
Total CO
2
eq per £m revenue (location) 74.3 70.2 64.4 58.4 -9%
Scope 2 – Market
2
52,581
2
44,931 -15%
Total Scope 1 and 2 Emissions Market 60,888 52,517 -14%
Total CO
2
eq per £m revenue Market 63.9 52.9 -17%
Scope 3 emissions 2021 Notes
Purchased goods and services
206,588 Raw materials only
Capital goods 35,633
Fuel and energy-related activities 18,778
Upstream transportation and distribution 59,932 Components only
Waste generated in operations 1,519
Upstream Leased Assets 1,199
Downstream transportation and distribution – Calculated in Category 1
End of life treatment of sold products 66,349
Downstream leased assets 76
Total Scope 3 emissions 390,074
Zero Waste to Landfill 2019 2020 2021 2022
Number of Sites at ZWTL 8 20 22 34
Materials from sustainable sources 2019 2020 2021 2022
% of raw materials from sustainable sources in polymer ranges 2% 2% 8.5% 10.8%
Energy (MWh) 2019 2020 2021 2022 TCO2e 2022
Total Electricity
Procured
UK 22,040 19,392 18,918 14,684 545
Global 140,454 137,457 144,567 128,338 44,931
Renewable Electricity
Procured
UK 19,652 16,577 16,850 13,706 –
Global 19,652 16,577 20,257 24,096 –
Natural Gas
UK 23,852 11,166 12,729 10,598 2,147
Global 44,960 30,209 34,706 31,524 6,386
Fuels
UK 1197 1,027 1164 574 190
Global 4913 6240 5420 5,111 1,200
Solid hazardous and non-hazardous waste destinations (tonnes)
2019 (1)
(restated) 2020 2021 2022
Recycling 28,775 31,773 29,938 26,419
Recovery 3,043 3,415 3,632 3,583
Incineration 284 596 541 616
Landfill 2,989 1,907 1,580 1,269
Total solid waste 35,091 37,691 35,691 31,886
% solid waste diverted from landfill 91% 95% 96% 96%
Liquid hazardous and non-hazardous waste destinations (tonnes) 2020 2021 2022
Recycling 243 449 246
Recovery 519 396 339
Incineration 89 78 76
Landfill 141 106 27
Total liquid waste 992 1029 688
% liquid waste diverted from landfill 86% 90% 96%
Water (cubic metres) 2020 2021 2022
% change
between 2021
and 2022
Water usage 166,301 198,220 272,968 38%
1. 2019 solid non-hazardous and hazardous waste data was restated in 2020 for recycling and recovery due to corrections of previously
reported data.
2. The 2021 market based emissions has been restated due to correction of previously reported data.
The organisational boundary for this Group data is an operational control approach. It includes the top 99% electricity consuming sites
in all three divisions of Essentra for the full periods where these sites were part of Essentra operations. For Packaging sites, this is up to
point of sale at end of September 2022, and for the Filters division, up to point of sale at end of November 2022. Further details on our
basis for reporting can be found at essentraplc.com/responsibility.
Scope 1 encompasses direct GHG emissions from energy generated from fossil fuels such as gas and oil at a small number of sites where
we have reliable data.
Scope 2 location – the total GHG emissions from electricity consumed, calculated using IEA emission factors.
Scope 2 market – the total GHG emissions from electricity consumed, calculated using the GHG protocol ‘market based method’
Scope 3 encompasses indirect GHG emissions in Essentra’s value chain (upstream and downstream). Excluded categories were
determined via a materiality threshold assessment to be either inapplicable due to no related activity, or excluded due to low
significance and an inability to influence reductions. 2022 Group Scope 3 figures were not calculated due to the change in ownership
structure for Filters and Packaging during the reporting year. This will be periodically reviewed.
Downstream transportation: as per the calculation methodology in the GHG Scope 3 protocol, upstream and transport and distribution is
classified on the basis of financial transactions. Consequently upstream transportation includes transport we pay for including between sites
and products to customers. Downstream transportation is captured in category one as part of our spend on materials and process inputs.
Measurement and reporting –
Components only
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
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ERM CVS has assured the following environmental data for 2019-2022: total Scope 1 and total
Scope 2 greenhouse gas emissions, total solid and total liquid waste volumes by destination,
total water usage, the percentage of raw materials from sustainable sources across our
polymer ranges and the number of sites that have achieved Zero Waste To Landfill (ZWTL)
status. Full details of the scope, activities, limitations and conclusions of ERM CVS’ assurance
engagement are included in the Assurance Statement on pages 135 and 136.
Tonnes CO
2
e 2019 2020 2021 2022
% change
between 2021
and 2022
Scope 1 and 2 emissions
Scope 1 3,422 3,379 3,628 3,435 -5%
Scope 2 – Location 22,588 18,414 18,390 17,155 -7%
Total Scope 1 and 2 Emissions Location 26,009 21,793 22,018 20,590 -6%
Scope 2 – Market 18,814 15,395 16,263 12,755 -22%
Total Scope 1 and 2 Emissions Market 22,236 18,774 19,891 16,190 -19%
Total CO
2
eq per £m revenue (market) 74.2 69.1 62.1 47.9 -23%
Scope 3 emissions 2022 Notes
Purchased goods and services
98,789
Capital goods 1,161
Fuel and energy-related activities 5,215
Upstream transportation and distribution 44,756
Waste generated in operations 479
Upstream Leased Assets N/A Included in Scope 1 and 2
Downstream transportation and distribution (downstream) -
Included in
Category 1
End of life treatment of sold products 204
Total Scope 3 Emissions 150,604
Zero Waste to Landfill 2019 2020 2021 2022
Number of Sites at ZWTL 2 5 6 12
Materials from sustainable sources 2019 2020 2021 2022
% of raw materials from sustainable sources in polymer ranges 2% 2% 8.5% 10.8%
Energy (MWh) 2019 2020 2021 2022 TCO2e 2022
Total Electricity
Procured
UK 8,055 6,560 7,359 6,477 19
Global 48,729 43,736 46,197 42,263 16,190
Renewable Electricity
Procured
UK 7,896 6,560 7,359 6,423 –
Global 7,896 6,560 7,359 13,277 –
Natural Gas
UK 14 0 0 38 8
Global 14,318 14,114 15,245 13,683 2,772
Fuels
UK 691 632 712 572 174
Global 2,206 2,179 2,292 2,503 664
Solid hazardous and non-hazardous waste destinations (tonnes) 2019
1
2020 2021 2022
Recycling 1,374 1,464 1,734 2,232
Recovery 161 215 132 199
Incineration 66 3 36 397
Landfill 2,787 1,302 1,095 896
Total solid waste 2,247 2,984 2,996 3,724
% solid waste diverted from landfill 36% 56% 63% 76%
Liquid hazardous and non-hazardous waste destinations (tonnes) 2020 2021 2022
Recycling 66 54 69
Recovery 198 0 1
Incineration 4 3 6
Landfill 3 6 –
Total liquid waste 271 63 76
% liquid waste diverted from landfill 99% 90% 100%
Water (cubic metres) 2020 2021 2022
% change
between 2021
and 2022
Water usage 135,015 139,987 158,383 13%
The organisational boundary for this Components data is an operational control approach. For 2019-2021, it includes the Components
sites which were within the top 99% electricity consuming sites of Group sites, and as per the GHG protocol guidance for acquisitions,
a recalculation of the emissions , energy and water data to incorporate Hengzhu into the historical data. The 2022 data includes all
Components sites within Essentras operational control, including Hengzhu. Further details on our basis for reporting can be found at
essentraplc.com/responsibility.
Scope 1 encompasses direct GHG emissions from energy generated from fossil fuels such as gas and oil at a small number of sites where
we have reliable data.
Scope 2 location – the total GHG emissions from electricity consumed, calculated using IEA emission factors.
Scope 2 market – the total GHG emissions from electricity consumed, calculated using the GHG protocol ‘market based method’
Scope 3 encompasses indirect GHG emissions in Essentra’s value chain (upstream and downstream). Excluded categories were
determined via a materiality threshold assessment to be either inapplicable due to no related activity, or excluded due to low
signifigance and an inability to influence reductions. This will be periodically reviewed.
Downstream trasnportation: as per the calculation methodology in the GHG Scope 3 Protocol, upstream and transport and distribution
is classified on the basis of financial transactions. Consequently upstream transportation includes transport we pay for including
between sites and products to customers. Downstream transportation is captured in category one as part of our spend on materials
and process inputs.
Upstream leased assets: as per the calculation methodology in the GHG Scope 3 Protocol, all emissions arising from activity in
upstream leased assets are included within the scope 1 and 2 emissions categories.
Our
Components
We will strive to design new products through the
innovative use of renewable, reusable, recyclable
and biodegradable materials. We will have a
centre of excellence where we can showcase
products to our customers, and provide a space
for ideas to flourish into innovative new products.
In 2020 we signed up to the Circular Plastics
Alliance commitment to use at least 20%
recycled content in our polymer ranges by
2025. We have made excellent progress in
developing our use of recycled content during
the year, with an increase to 10.8% for 2022.
Our Kidlington, UK site now includes 50%
recycled content as standard across most of
our LDPE product range, with a number of
products achieving 98% recycled content. In
2022 our Rayong plant in Thailand moved to
producing polypropylene security seals with
a minimum 45% recycled content, after a
successful 100 million piece trial. These new
seals have now been rolled-out to all our
sites globally.
By delivering this improved product through a
substitution programme Essentra has helped
customers reduce their carbon footprint
without the need for extra investment, as the
recycled material reduces product emissions
by 40%. We estimate this change will avoid
GHG emissions of over 1,000 tonnes of CO
2
e
per year.
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
Centre of Excellence
In 2022 we invested in manufacturing
infrastructure at sites in EMEA and AMERS
to support our transition to using recycled
content across our product range. In 2023,
we are launching our Centre of Excellence to
accelerate our progress. This dedicated space
at our Kidlington, UK site will be used to trial
a wide array of materials with sustainability
benefits such as recycled and bio-based,
using the latest technology.
Packaging
Packaging is an important part of our resource
usage and is key to ensuring our products
are delivered damage free. In 2022 we
implemented a reuse scheme for cardboard
packaging for product movements from our
Nettetal distribution hub in Germany, avoiding
the creation and recycling of over 2000 pallet
boxes per year. We plan to expand this in 2023.
We have also increased the recycled content in
our plastic packaging, moving to 30% recycled
content at our Kidlington site. We aim to
standardise our packaging globally to reduce
overall volumes, and increase recycled content
to reach our target of 50% by 2030.
Our
Components
CASE
STUDY
Delivering sustainable and
innovative products through
strong commercial relationships
Air France and Essentra have built a strong
commercial relationship for many years,
with Air France valuing Essentra’s ability to
provide a reliable service, delivery of high
end quality products and proximity of the
supply chain.
Using Essentra’s range of security seals, Air
France is able to identify and secure items
on board aircraft such as food trays and
crew documentation.
During a new tender release in 2022, Air
France shared the requirement that the
next contracted products should evolve
towards being more sustainable. Essentra
were able to respond successfully to this
requirement, with its range of plastic seals
that are made using 50% post-consumer
recycled material.
After product testing including lab and
practical on-board tests, Essentra’s
products were approved by Air France and
Essentra was awarded the new contract.
Essentra continue to innovate and explore
the testing of recycled and bio-based
materials and a number of products within
the LDPE range are now manufactured
almost entirely from recycled materials. We
look to continue to strengthen customer
relationships supporting the achievement
of our customers’ and our own sustainable
goals.
Our focus and targets
Our progress
• 20% of raw materials from sustainable
sources by 2025 across our polymer
ranges
• Support a circular economy by ensuring
100% of our packaging is reusable,
recyclable or compostable
by 2030
• 50% recycled content in our packaging
materials by 2030
• In 2022, 10.8% of our raw materials
were from sustainable sources (recycled
content) across our manufactured
polymer ranges
• Our teams have developed reuse
schemes for intra-company movements
at our Nettetal and Łódź sites
• At our Kidlington, UK site all plastic
packaging is 30% recycled content
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Lost Time
Incidents
(LTIs)
Number of
LTIs (like-
for-like)
Group
Number of
LTIs (like-
for-like)
Components
%
change
2020 37
*
14
2021 53
**
22
2022 42 22 -
Number of
days lost
Number of
days lost
Group
Number of
days lost
Components
%
change
2020 655
*
168
2021 954
**
518
2022 994 371 -28%
*excludes 3c
**excludes Hengzhu
Our
Culture
This pillar focuses on creating a safe, supportive
work environment that champions equality and
celebrates diversity. We know that employee
engagement is a key factor in ensuring our future
success as an organisation. In 2022 our people remained
at the heart of our journey, as we embarked on our
journey to become a pure-play Components business.
An engaged and positive workforce
In 2022 we launched an employee
engagement survey for all Components
employees. This was the first survey since
2020, as the 2021 survey was postponed
given the considerable focus on the strategic
reviews in the, now sold, Filters and Packaging
businesses. 86% of employees responded,
up from 82% in 2020. Despite a year of
considerable change the overall engagement
metric rose to 83% (78% in 2020) and
now exceeds the industry benchmark by 7
percentage points.
This improvement reflects a general positive
trend across 92% of the questions in the
survey (45 out of 49) and in particular four
questions that make up the engagement
index. While there is some regional variance,
the results are positive across all regions and
are up from 2020 in Asia and the Americas,
with Europe remaining relatively stable.
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
Championing equality and
celebrating diversity
In 2022 we progressed our work to create
a more diverse and inclusive workplace,
continuing with global recognition of Pride
and Black History Month. We also continue
to embed our global Diversity and Inclusion
Policy launched in 2019.
Reflecting on the results of our employee
survey which was conducted in late 2022, we
have improved the employee perception of
diversity, equality and inclusion. Responses
to My Company has created an environment
where people of diverse backgrounds can
succeed improved by 4 percentage points
and takes us slightly ahead of the industry
benchmark. Similarly, responses to My
organisation actively supports diversity in
the workplace; recognising and respecting
dierences between people improved by 3
percentage points bringing us in line with the
industry benchmark.
Our focus and targets
Our progress
• Zero accidents for our people and visitors
• 100% of employees trained on Ethics
Code biannually
• Healthy lifestyles campaigns at 50% of
sites by 2025
• Mental health training to 80% of leaders
by 2024
• 40% women in leadership teams by 2025
• 28% reduction in days lost in
Components in 2022
• Ethics training on track
• Healthy lifestyles on track for 2025
• Mental health training roll out
commenced
• 28% women in leadership teams in 2022,
44% on the GEC and 38% on the Board
83%
employee engagement
(78% in previous 2020 survey)
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Ethnic background of employees
responding to the 2022 Employee
survey (2668 employeees)
Gender split all employees
(% as at 31 December 2022)
Permanent/Contractor
split all employees
(% as at 31 December 2022)
Asian – Indian
sub-continent:
0.9% (25)
Asian – South East
Asia: 4.2% (112)
Black/African/
Caribbean: 1.1% (31)
Hispanic/Latino:
2.8% (74)
Middle Eastern:
0.6% (16)
Mixed/Multiple
ethnic group:
0.8% (21)
White: 31.8% (848)
Not disclosed: 36.5%
(973)
Other: 1.7% (46)
Men: 56.7% (1820)
Women: 43.3% (1389)
Permanent: 79.7% (2559)
Contractors: 20.3% (650)
We remain committed to providing all
employees with opportunities to develop and
advance, which includes giving full and fair
consideration to all employment applications
from disabled people. In the event of
employees becoming disabled, we make
every eort to ensure that the training, career
development and promotion opportunities
available are as far as possible identical to
those of non-disabled employees.
We are also working hard to improve the
gender balance across the Company and
will be submitting our 2022 Gender Pay data
in April 2023. Our guiding principle is to pay
colleagues according to their role not their
gender, providing everyone with an equal
opportunity to develop and progress.
Treating our people with dignity
and respect
The strategic changes we have made in
2022 have led to all of our people being
impacted in dierent ways. For employees
in the businesses that have been sold, they
have now left Essentra as part of that
process and are being led by new owners.
Our Components employees have made
appropriate adjustments reflecting that they
work directly in a listed Company as opposed
to a division of one.
The employees who have been impacted
most significantly are our former Group
employees, as we have worked in 2022 to
align Group activities with the new direction
of three separate businesses. We have taken
all reasonable steps to secure long-term
employment and/or career opportunities
for these employees. Some employees were
in roles that were aligned with a specific
business and have moved with those
businesses.
Alongside this, all businesses evaluated what
they would need as a standalone business and
any new roles were made available for Group
employees to apply for, on a preferential basis.
We took the approach that open and early
communication with our people was critical,
even if we did not have all the answers given
the complexities and challenges presented by
the strategic reviews and associated work. As
at 31 December 2022 we were able to secure
roles for 82% of Group employees impacted.
Our commitment to being an ethical
employer
Our Ethics Code is the core foundation of
our compliance strategy and is issued to all
employees globally, supported by annual
training and positive armation statements
by employees. The Code is available in all
Essentra languages both in hard copy for
colleagues working in factories and online, so
that employees are able to access it easily.
An ethics decision tree helps guide employees
who also have the opportunity to attend live
virtual training sessions on the Ethics Code.
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
In addition we have specific policies relating
to Anti-Bribery and Corruption, Anti-
Money Laundering and Third-Party Due
Diligence. These policies are made available
to all employees and specifically issued for
armation to senior leaders and other
employees who hold positions where such
polices are relevant to ensure best practice.
A snapshot of our employees in 2022 (Components only)
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ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
Our Right to Speak Policy and process is well
established and enables any employee to
report circumstances where they believe that
the standards of our Ethics Code, or our wider
policies and guidance, are not being upheld.
We are committed to ensuring employees
feel able to raise any concerns in good faith,
without fear of victimisation or retaliation and
with our support. Employees can report any
concerns on a confidential basis online or by
telephone.
During 2022, our Audit and Risk Committee
received updates at each of its meetings on
all Right to Speak issues raised and sought
assurance from management on the issues
and the response. The issues raised mainly
related to employment practices that were
investigated in full under HR policies and gift
disclosures. Throughout our international
operations we support and endorse human
rights – as set down by the United Nations
Declaration and its applicable International
Labour Organisation conventions – through
the active demonstration of our employment
policies, our supply chain and the responsible
provision of our products and services.
This commitment includes a mandatory
requirement at all our sites to avoid the
employment of children, as well as a
commitment to the prevention of slavery and
human tracking.
Ensuring our employees’ wellbeing
We know from our employee engagement
survey that employee perceptions of health
and safety at work have improved. My
Company is safe place to work and My
Company is an environmentally responsible
company were two of the top scoring
statements at 89% and 85%, respectively.
The former improved slightly against 2020
and takes us six points ahead of the industry
norm. The latter improved six points against
2020 and takes us in line with the broader
industry – so this will continue to be a focus
area for 2023.
We also know that perceptions of work load
and work life balance have improved. The
amount of work expected of me is reasonable
was one of our most improved scores at 74%
with a 10 point shift from 2020, taking us six
points head of the industry norm. Responses
to I can maintain a reasonable balance
between my personal and work life is one of
the highest scoring statements at 84% and is
four points of ahead of last year and 11 points
ahead of the industry benchmark.
Focus and resource has been applied to our
three sites with the highest injury rates. Third
party audits were conducted at those sites
and detailed site-specific plans developed.
The audits completed at the focus sites and
the introduction of the safety leadership
commitment showed a positive trend in 2022.
In Q1 Essentra saw 12 LTIs, in Q4 2 LTIs.
In addition, a new Safety Commitment for
site leaders and management regarding
Essentra’s approach to achieving excellence
in operational safety was introduced. The
commitment provides clarity to leading the
change in Essentra’s safety culture. In H2
2022 the actions were introduced and in
2023 those objectives are embedded into the
performance review process.
The driving force of a good safety
performance is a strong local safety culture.
Historically, Essentra’s approach was
centrally-driven, rather than sites driving their
own programme. Today, local sites own their
programmes and pull expertise from the
centre.
The 2023 Essentra health and safety
programme has specific approaches for
manufacturing sites, hubs and warehouses
with targets which include: safety supervisor
training, a safety marshal program, visible
safety messaging and a template for site
safety committees.
Flippin Community Projects
Employees at our Flippin site in the US
coordinate a variety of community
engagements throughout the year
including:
• Backpack Program for Flippin Schools:
the team donate 125 snack bags a few
times each year to help children in need
• Clothing Drives: the team collect
clothes throughout the year and sorts
and distributes to local day cares,
schools, thrift stores and shelters
• “School of New Hope”: Our facility
in Flippin outsource some secondary
processes on certain SKUs to this
organisation who provide structure and
training for developmentally disabled
people in the local community
CASE
STUDY
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Our
Communities
We work with our suppliers, local communities
and wider family to ensure our values, ethical
practices and processes provide equitable
outcomes, as well as volunteering our time
supporting good causes.
Building an ethical supply chain
We collaborate with our key international
suppliers as well as partner with a high
volume of SMEs worldwide. These relationships
are built on shared values and are often
long-lasting in nature. All are fundamental
to the quality of our products and the high
standards we set ourselves.
To ensure we work with suppliers who share
our approach to responsible business, we
conduct risk-based due diligence not only
when onboarding our partners but through
ongoing monitoring and management via our
supplier development programme.
In 2023 we will enhance and further digitalise
our supplier development programme and
publicise a refreshed global procurement
policy which will set out our supplier code
of conduct in relation to matters such as
anti-corruption, human rights, anti-slavery,
international trade compliance, environment
and allow us to deliver further transparency
across our supply chain.
During 2022, we undertook supplier
development activities covering five areas:
ethics, sustainability, risk, performance and
commercial. We will continue to develop our
methodology, supply base coverage and
activities in 2023.
Supporting good causes
We engage with our local communities to
create a positive impact through initiatives
that positively impact those in need,
improving their lives, the community and the
local economy.
In February 2022 we supported the
humanitarian relief eort in Ukraine with fund
raising and other events happening across our
businesses. We also made a donation of £100k
to the Disasters Emergency Committee (DEC)
Ukraine Appeal.
In early 2023 we similarly supported eorts in
response to the devastating earthquakes in
Turkey and Syria, donating €100k to the DEC
Turkey-Syria earthquake appeal.
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
Our focus and targets
Our progress
• Our supplier code of conduct refreshed
and launched in 2023 to all suppliers
over £100k
• Top 70% of suppliers by spend actively
risk monitored
• Community Engagement Policy in action
with a volunteer day taken by 25% of
employees during 2023
• Code of conduct refresh on track for
2023
• All suppliers over £250k actively risk
monitored
• Community engagment activites carried
out at seven Components sites in 2022
CASE
STUDY
Supporting the relief eorts
for Ukraine
Our teams in Łódź, Poland and our Mesan
business in Turkey started to organise aid
for Ukraine immediately after the start
of the war. Employees collected funds for
the purchase of essential items, organised
a collection of clothes, cleaning products,
hygiene products, food, milk for children,
medical products and medicines.
Colleagues in Italy, Spain, France, Turkey
and the UK immediately joined the action,
with dozens of pallets of humanitarian
aid for Ukraine being sent to our EMEA
East Hub in Łódź. Supplies were then
repackaged and transported to Łódź City
Hall, which dealt with their direct transport
to the regions most in need in Ukraine.
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CASE
STUDY
Our response to the earthquakes in
Turkey and Syria
In early February 2023, a series of
devastating earthquakes hit southern
Turkey and north-west Syria killing over
50,000 people and injuring many more.
Our Mesan manufacturing site near
Istanbul was outside the impact zone, so
the facility was not physically aected and
all Essentra employees were unharmed.
However, many of our colleagues in Turkey
had family and friends in the impact area
and in the days following the earthquakes
were rightly focused on moving them to
safety. We supported these eorts, and in
one example allocated a company vehicle
to travel to the region to collect family
members of an employee.
In the immediate wake of the earthquakes
our business in Turkey made a donation
to a local foundation providing essential
clothes and food to those aected. In
the following days and weeks our local
employees collected nearly €900 worth of
in-kind aid such as blankets, sleeping bags,
heaters and power banks. These provisions
were delivered directly to the impact zone
by a volunteer team of seven Essentra
employees, with the full support of our
management team.
As soon as the earthquakes hit, our
employees globally were encouraged to
donate to the International Red Cross
appeal and many of our colleagues
globally engaged with fundraising events.
In Germany our colleagues worked with
customers to raise €7,000 to relief eorts
and in March 2023 we made a Company
donation of €100,000 to the Disasters
Emergency Committee (DEC) Turkey-Syria
earthquake appeal.
Our
Customers
This pillar focuses on supporting our customers to
achieve their sustainability goals. As the only global
manufacturer and distributor of our kind, we are in
a leading position to assist customers by providing
products and services that have been developed to
provide a hassle free sustainable choice.
Our purpose is to help customers build a
sustainable future and therefore working
with them on their approach to sustainability
is a key area of activity. We are committed
to continuing to invest in developing new
products with improved sustainability
performance and lower lifecycle emissions,
and providing our customers with expert
advice on the most sustainable choice for
their needs.
In 2022 several trials were conducted with
the view to increase our recycled content
from 50% to 100% across our standard
ranges of LDPE parts. These trials were largely
successful and we now run most standard
LDPE parts at 98%-100% recycled content.
We also conducted trials on our nylon
products using recycled material and in 2023
will progress these trials.
We are currently in discussions to support
circular economy models with targeted
customers, and increasing our commercial
focus on ESG supportive categories such
as renewable energy and electrification, to
support customers’ net zero transition.
ENVIRONMENT, SOCIAL AND GOVERNANCE CONTINUED
Supporting our customers to
achieve their sustainability goals
Iracroft, one of the UK’s leading
manufacturers of rigid tube assemblies
for a variety of hydraulic, pneumatic and
coolant applications, was tasked with
helping a customer realise its sustainability
strategy. Iracroft already had a long,
historical relationship with Essentra and
knew that as a current supplier, Essentra
was capable of meeting demanding
challenges and oering a hassle-free
solution.
Essentra was able to support Iracraft
with timely samples, CADs and material
data sheets to arrive at a solution in
providing LDPE tear tab caps, a low density
polyethylene that was tough and flexible,
making an ideal material for caps needed
to protect parts from damage, dirt and
moisture.
The customer was previously using non-
recyclable PVC caps for protection during
transportation and storage. Iracroft saw the
opportunity to switch to a recyclable cap and
together with Essentra was able to oer an
o-the-shelf, product solution that would
prevent 2.5 million parts from going to landfill,
the equivalent of c.5 tonnes of waste.
Essentra Components jumped into
action with advice on how we could
achieve sustainability, and provided
samples and other resources. The fact
that the solution was o-the-shelf
proved invaluable in enabling us to
work without interruptions.”
ALAN WEBB
Company Secretary and Director, Iracroft
Our focus and targets
Our progress
• Increasing the number of products
introduced with sustainability criteria
• 29 trials completed for new products
using recycled materials in 2022
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CASE
STUDY
Non-financial
key performance indicators
Customers Environment
Why this is important
We recognise that we have a role, and interest, in environmental stewardship. This is a duty
we owe not just to our neighbours, but to future generations. We know that the way we
manage our environmental impacts aects our reputation and is a measure of the quality
of Essentra’s businesses.
Equally important to the delivery of
Essentra’s strategic priorities is
a focus on KPIs which measure our
progress against stated priorities in
terms of our customers,
communities and people.
Non-Financial information table
This table follows the requirements of
Companies Act 2016 Sections 414C(7),
414CA and 414CB and is intended to help
stakeholders understand our position on key
non-financial matters. We have a number of
Group policies and standards which govern
our approach to these matters. These are
detailed in this report in the sections shown.
Reporting
requirement
Where to
read more in
this report
Environmental matters:
Environment, social and governance
24
Employees:
Environment, social and governance
30
Health and safety:
Environment, social and governance
32
Human rights:
Environment, social and governance
32
Social matters:
Environment, social and governance
33
Anti-Bribery and Corruption:
Environment, social and governance
31
Business model:
Our business model
8
Principal risks:
Risk management report
52
KEY PERFORMANCE INDICATORS CONTINUED
Active customers
Why this is important
This reflects marketing eectiveness and
measures the potential population for further
growth opportunities. Customer numbers
can fluctuate, for example due to strategic
focus on mid-size accounts and digital
marketing strategy.
2022
2020
2021
74k
79k
82k
Net Promoter Score (NPS)
Why this is important
Reflects our customers’ overall satisfaction
with our products and service, as well as
loyalty to our brand.
2022
2020
2021
34
23
45
On Time In Full (OTIF)%
Why this is important
Our ability to deliver quality products on time
and in full demonstrates our ability to meet
our customers’ delivery demands.
2022
2020
2021
78.2
54.1
92.1
Scope 1 and 2 GHG intensity
Total CO
2
e per £mln revenue
Waste intensity
Total tonnes per £mln revenue
Number of sites at Zero Waste
to Landfill (ZWTL)
% of polymers from more
sustainable sources
Our target
25% reduction in emissions intensity by 2025
(2019 baseline)
Our target
20% reduction by 2030, or sooner
(2019 baseline)
Our target
All sites at ZWTL by 2030 (or sooner)
Our target
20% of materials from more sustainable
sources by 2025 (for Components)
2022
2020
2021
69.1
62.1
47.9
2022
2020
2021
12
6
5
2022
2020
2021
11.0
9.4
11.0
2022
2020
2021
10.8
8.5
2
Re-presenting comparatives to reflect the continuing business
To provide a like-for-like position, a number of KPIs have been re-presented to reflect
the continuing business operations. Comparatives have been updated for 2020 and
2021 where appropriate.
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Safety People
KEY PERFORMANCE INDICATORS CONTINUED
2020
2022
83
78
* 17 incidents were reported in the 2021 Annual Report
which excluded the Hengzhu acquisition
* 17 incidents were reported in the 2021 Annual Report
which excluded the Hengzhu acquisition
Why this is important
At Essentra we are committed to measuring our progress in terms of the diversity of our leadership community. We believe this diversity brings a range of outlooks
to decision-making and problem-solving as well as better representing our employee base and the communities in which we operate.
Employee engagement (%)
Why this is important
The happiness and fulfilment of our people is a key priority.
Having more engaged employees reduces sta turnover,
improves productivity and helps us serve and retain customers.
Lost Time Incidents (LTIs)
Why this is important
Our overriding commitment in the workplace
is the health, safety and welfare of our
employees and all those who visit Essentra’s
operations. Our aim is to be in the top quartile
of manufacturing companies for the lowest
Incident Frequency Rates.
Number of days lost)
Why this is important
This is a measure used to quantify the
severity of LTIs. Where incidents do result
in Lost Time, we work hard to minimise the
amount and to support the injured person in
their recovery by oering restricted or light
duties, and through a structured return to
work programme.
2022
2020
2021
22
22
*
14
2022
2020
2021
371
518
168
Board gender
diversity (%)
Board ethnic
diversity (%)
Group Executive
Committee* gender
diversity (%)
Senior Management
(Levels 6-8) gender
diversity (%)
2022
Men: 63% (5)
Women: 37% (3)
2021
Men: 57% (4)
Women: 43% (3)
2020
Men: 57% (4)
Women: 43% (3)
2022
Black: 25% (2)
White: 63% (5)
White Irish: 12% (1)
2021
Asian (Chinese): 14% (1)
Black: 14% (1)
White: 57% (4)
White Irish: 14% (1)
2022
Men: 56% (5)
Women: 44% (4)
2021
Men: 71% (5)
Women: 29% (2)
2020
Men: 70% (7)
Women: 30% (3)
* Previously known as Group
Management Committee
2022
Men: 74% (29)
Women: 26% (10)
2021
Men: 80% (74)
Women: 20% (19)
2020
Men: 82% (71)
Women: 18% (16)
* Reduction in overall size of
management team due to sale of
the Packaging and Filters businesses
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Stakeholder engagement and
Section 172(1) statement
At Essentra we actively manage a range of key stakeholder
relationships, recognising that our success and sustainability
depend on their input and involvement.
The Board understands the importance
of forming and retaining good working
relationships with all stakeholder groups.
Eective engagement enables the Board to
ensure stakeholder interests are considered
when making decisions and the feedback
helps them to identify emerging issues
which is crucial for achieving the long-
term success of the Company. The Board
receives updates at each of its scheduled
meetings on stakeholder engagement, for
example regular reports on investor relations,
employee engagement and an update on the
Chief Executive’s – and his teams’ – external
engagements. In most cases, the method of
engagement with stakeholders is meetings,
held either virtually or face-to-face. These
include the Annual General Meeting, individual
shareholder meetings, customer meetings
and employee meetings through the Voice
of the Employee initiative. These interactions
allow the Board to consider whether there are
any issues requiring further consideration.
Section 172(1) statement
The following disclosure describes how the
Board has had regard to the matters set
out in Section 172(1) (a) to (f) and forms the
Directors’ statement required under Section
414CZA of the Companies Act 2006.
Eective engagement enables
the Board to ensure stakeholder
interests are considered when
making decisions and is crucial
for achieving the long-term
success of the Company.”
PAUL LESTER, CBE
Chair
Investors Suppliers
Key topics of interest
• General updates on strategy, governance
and performance
• Sale of the Filters and Packaging businesses
• Deepening investors’ knowledge of the
Components business model and strategy
• Changes in make up of the Board, in
particular, the appointment of a new
Chief Executive
• Evolving ESG strategy and initiatives
• Acquisition of Wixroyd
How we engage
• AGM
• Full year and half year presentations and
capital market events
• One-on-one meetings with the Chair, Chief
Executive, Chief Financial Ocer, Senior
Independent Director and RemCo Chair
Outcomes of engagement
• Continued access to capital – vital
importance to Essentra’s long-term success
• Investor buy-in to our strategic objectives
and our execution of them
• Promotion of an investor base with a long-
term holding in the Essentra
Relevant KPIs
• Earnings Per Share (EPS)
• Total dividends paid
• Total Shareholder Return (TSR)
• Dividend yield and cover
Key challenges
• Timely communication during a year of
significant strategic change
• Deepening investor knowledge of business
model and strategy, given transition to
pure-play Components business
The major interests in our shares are
set out on page 127.
Key topics of interest
• Sale of the Filters and Packaging businesses
• Impact of worldwide supply chain
disruption, leading to challenges on the
price and availability of raw materials
• Impact of Brexit on business continuity in
our UK and European factories
• Sustainable procurement
How we engage
• Procurement teams run a supplier
development programme with all key
suppliers and we are looking to digitalise
this moving forward
• Supplier Code of Conduct and Modern
Slavery Statement are shared with all key
and new suppliers
Outcomes of engagement
• Long-term, strategic relationships formed
on the basis of trust and understanding
• Collaboration on key initiatives and
innovation projects – working with suppliers
to ensure ethical practices to drive ESG
progress
• Contingency plans to mitigate the impact
of supply chain challenges
Key challenges
• As a conversion business we are dependent
on our suppliers to provide our goods
ethically, within our code of conduct, on
time and to the quality required by our
customers
• Worldwide supply chain disruption
continues to be a challenge for ourselves
and our suppliers
Read more about our suppliers on
page 33.
STAKEHOLDER ENGAGEMENT
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Government and regulators Employees
Key topics of interest
• Our commitment to work with
governments at national, regional and local
level in establishing sound and transparent
working relationships
• Ensuring that the way we conduct business
with customers and suppliers, and how
we treat our people and the communities
in which we operate, meet both local
requirements and Essentra’s Code of Ethics
• Reporting obligations required by the
US Department of Justice related to the
obligations of the Deferred Prosecution
Agreement reported in the 2020 Annual
Report that the (now sold) Dubai Filters
business operates under
How we engage
• Engagement undertaken in various ways
across our global operations
• As a UK listed company, the Board and
GEC manage many of these relationships
while our global teams engage local
governments as necessary
Outcomes of engagement
• Strong and transparent dialogue with
various government and regulatory agencies
• Continued focus on continuous
improvement and monitoring the
eectiveness of our response to sanction
regimes and other compliance requirements
relevant to our international operations
• In accordance with our Ethics Code, Essentra
does not provide financial contributions to
political parties and lobby groups
Key challenges
• Timely communication given a year of
significant strategic change
Key topics of interest
• Strategic intent to become a pure-play
Components business and the related sale
of the Filters and Packaging businesses
• Organisational changes and employee
impacts relating to the above
• General updates on strategy, governance
and performance
How we engage
• Annual employee survey – relaunched in
November 2022 (postponed in 2021)
• Regular town halls – virtual and face-to-
face in sites with local management
• Global leadership team meetings
• Three Board Employee Champions, meeting
requirements of the 2018 Code
Outcomes of engagement
• Continued high levels of employee
engagement in 2022 – 83%, up from 78% in
Components in 2020
• Continued improvement in safety trends –
12 LTIs in Q1 and 2 in Q4
• Continued progress on increasing diversity
and inclusion within the Company
Relevant KPIs
• Employee engagement
• Safety KPIs: Lost Time Incidents and
Number of Days Lost
• Diversity at management levels
• Feedback gathered as part of ongoing
engagement activities
Key challenges
• Delivery of the key strategic projects during
a year of significant change for employees
Read more about our employees on
page 30.
STAKEHOLDER ENGAGEMENT CONTINUED
Customers
Key topics of interest
• Sale of the Filters and Packaging businesses
• Strategic intent for Essentra to become a
pure-play Components business
• Business continuity and supply chain
challenges
• Approach to sustainability across our
products and operations
How we engage
• Local teams manage relationships with our
broad range of customers globally
• More formal and regular feedback
gathered through NPS surveys
Outcomes of engagement
• Driving our purpose to help customers build
a sustainable future
• Long-term relationships formed on the
basis of trust and understanding
• Collaboration on key initiatives and
innovation projects eg working with
customers to help drive their ESG progress
Relevant KPIs
• On Time and In Full (OTIF)
• Quality/complaints
• Net Promoter Score (NPS)
Key challenges
• Timely communication given a year of
significant strategic change
• Reduction in customer number to
74k (2021: 79k) due to strategic focus
on mid-size accounts and digital
marketing strategy
Read more about our customers on
page 35.
Strengthening our relationships
with customers
Parker, a customer for over six years,
supply precision-engineered solutions
for commercial, mobile, industrial and
aerospace markets across a global network
of approximately 17,000 locations.
Parker needed to find a solution to
protect their hydraulic products in
international transit, meeting export
market requirements, guaranteeing quality,
delivering lead times and holding good
levels of inventory.
In response Essentra was able to utilise
product expertise across a broad range of
customer categories to source a solution
from the standard product oer. Timely
samples, CAD drawings and technical
support was provided, as well as a timely
site visit to Parker’s factory in China.
Guarantees with quality gave the customer
peace of mind that their export products
would arrive without damage protecting
their industrial products with confidence.
Essentra’s wide range of standard
products meant we could find
a solution which matched our
specification and met our timeframes
for our overseas market products.”
FRANK ZHAO
Purchasing Manager, Parker
CASE
STUDY
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Task Force on
Climate-Related
Financial Disclosures
TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES
We acknowledge the important role of the
Task Force on Climate-Related Financial
Disclosures (TCFD) in improving transparency
and driving improvements across industry.
This is the second Essentra climate report
based on the TCFD recommendations, and
the assessments, findings and conclusions
within this report supersede earlier ones.
Climate change is addressed collectively
across our Company Board committees,
providing robust governance and alignment
to all aspects of Company strategy. We
manage ESG risks and opportunities,
including climate change through a range of
dierent processes, including the Audit and
Risk Committee (ARC), the Sustainability/
ESG Committee (SC/ESGC), Group
Executive Committee (GEC) and operational
management processes. These approaches
address many of the recommendations of
TCFD.
During 2022, we have built on the work
and recommendations received from our
inaugural 2021 report developed with third-
party experts, and revised our risks and
opportunities to align with our transition
into a pure-play Components business. We
have undertaken a review of the Company’s
climate change risks and opportunities,
across various scenarios and time horizons, to
ensure management teams have a thorough
understanding of their most relevant climate
change-related risks and opportunities,
and to inform our response to TCFD
recommendations.
Compliance with TCFD requirements
Essentra expects that these disclosures
will evolve over time as we deepen our
understanding of our climate change-related
risks and opportunities and as TCFD and other
related guidance evolve.
The Essentra Board, with support from the
SC/ESGC, has dedicated a significant amount
of time to this area over the past year, and
has concluded, based on its knowledge
of the Company’s actual and expected
activities, its operating environment and
exposure to physical and transition risks,
that our disclosures are consistent with TCFD
recommendations and the recommended
disclosures.
The tables that follow discloses our response
and the outcomes of the work we have
undertaken on the TCFD recommendations,
and signposts where further relevant
information can be found within other
sections of this report.
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Governance
Disclose the organisation’s governance around climate-related risks and opportunities
Recommended disclosures Commentary
Describe the
Board’s oversight
of climate-
related risks and
opportunities
Board oversight of climate-related risks and opportunities is provided by
the Sustainability Committee (SC), and from the start of 2023, the newly
established Environmental, Social and Governance Committee (ESGC) has
taken on responsibility for climate-related risks, as well as wider responsibility
including TCFD. The ESGC succeeds the SC, acknowledging the greater focus
needed on social aspects when considering climate transition:
• details of the composition, remit and meeting frequency of the SC/ESGC
are provided on page 90
• the overall governance approach, including how the SC/ESGC integrates
and interacts with other management, is provided on page 90
Existing SC/ESGC members have operational experience in ESG and climate
change, as reported within the Directors Biographies section of the AGM Notice,
and the most recent Board appointments have experience of managing climate
change in other organisations. This has strengthened the Board’s expertise in ESG
and managing its approach to climate change which has been supported by a
third party. In addition, the SC/ESGC invites input from third parties, on a regular
basis, to improve its understanding of ESG matters – recent speakers have come
from leading industrial companies, global management consultancies and City
institutions.
The Audit and Risk Committee (ARC) has responsibility for reviewing and approving
the content of the climate-related risk disclosures. Details of the ARC and its
activities are provided from page 95.
The Remuneration Committee is responsible for determining the
remuneration policy, including how climate related risks and opportunities are
taken into account in determining rewards and incentives. The Remuneration
Committee incorporated sustainability and climate-related targets into its
remuneration strategy for executive and GMC pay. Details of this can be
found in the Remuneration Committee Report from page 111.
The Nominations Committee is responsible for Board appointments and succession
planning and takes account of experience in sustainability and climate-related
risks in fulfilling its responsibilities. Details of the Nominations Committee and its
activities are provided from page 91.
Describe
management’s
role in assessing
climate-related
risks and
opportunities
Management is involved in assessing climate-related risks and opportunities
in several dierent ways, including:
• The overall governance approach, including how Board and management
interact is provided on pages 74-75
• ESG risks are Principal Risks for Essentra, managed and discussed at both
the SC/ESGC and ARC – a description of ESG Principal Risks is detailed from
page 59
• Qualitative climate-related risks and opportunities were discussed in
strategy reviews during the year, and our work on quantification of
climate-related risks and opportunities was shared and discussed with
management
Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities
on the organisation’s businesses, strategy and financial planning where such
information is material
Recommended disclosures Commentary
Describe the
approach to
identifying
climate-related
risks and
opportunities
In 2022 we reviewed and built on the comprehensive database of climate-
related risks and opportunities established in 2021, redefining the scope to
focus on the components business post strategic review activities.
The assessment covered a wide range of our geographic scope, including all
manufacturing and distribution centres alongside strategic oces.
The time horizons used in our analysis and disclosures are short-term (2025),
medium-term (2030) and long-term (2040). The long-term time frame of
2040 is aligned with Essentra’s target of reaching net zero emissions by 2040.
The short term (2025) and medium-term (2030) time frames are aligned
with its business continuity planning.
Using a long list of 32 risks and opportunities established in 2021, a bespoke
scoring system where vulnerability and advantage of each item is assessed to
determine the most material impacts. Vulnerability is used to assess climate
risks and is defined as the degree to which the business is susceptible to,
and able to deal with, the impacts of climate change. Advantage is used
to assess climate opportunities and is defined as the degree to which the
business is able to capture the potential value from the low carbon transition
opportunity.
Physical impacts were assessed based on the analysis of the business insurers
and third party climate risk data for 26 Essentra sites , and 12 key suppliers’
sites.
Each of the most material risks and opportunities was then analysed and the
potential unmitigated impact on profit was classified as either low (<£1m),
medium (£1m-£10m) or high (>£10m).
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Strategy continued
Recommended disclosures Commentary
Describe the
resilience of the
organisation’s
strategy taking
into consideration
dierent climate
related scenarios,
including a 2ºC or
lower scenario
The qualitative and quantitative risk/opportunity identification involved three dierent scenarios, supported by third-party experts. These scenarios are outlined in the table below.
Physical Transition
Climate scenario Warming by 2100 Future emissions Energy source Scenario narrative Reference scenarios
Business as usual
(BAU)
>5C High Mostly fossil fuels Without additional eorts to reduce emissions and a continued trajectory of
slow and limited ambition climate policy, operating practices remain as they
are at present and emissions continue to rise at current rates. This results
in a severe increase of frequency and intensity of devastating extreme
weather, resulting increases in insurance premiums and economic pressure
in worst hit regions where assets are uninsurable. Global ecosystems suer
irreversible changes and significant loss of biodiversity.
IPCC AR6 5-8.5 “Fossil-fuelled Development”; IEA World
Energy Outlook 2018 “Current Policies Scenario”
Middle of the road
(MR)
~2.7C Medium A mix fossil fuels
and renewables
The world continues to decarbonise and achievement of nationally
determined contribution (NDC) under the Paris Agreement and other policy
commitments. As a result of the eventual albeit uncoordinated approach to
address climate change, there is a major increase in frequency and severity
of weather events. Parts of global ecosystems suer abrupt and irreversible
changes and loss of biodiversity.
IPCC AR6 SSP 2-4.5 “Middle of the Road”; IEA World
Energy Outlook 2021 “Stated Policies Scenario”
Low carbon (LC)
<2C Low Mostly renewables
and low-carbon
fuels
Ambitious and coordinated climate policies globally leads to transformation
of the energy system. Many advanced economies reach net zero emissions
by 2050, with the rest of the world reaching net-zero by 2070. There is a
significant increase in frequency and severity of extreme weather which
stabilises towards the latter half of the century. There remains a high risk for
vulnerable ecosystems such as coral reefs and arctic sea ice.
IPCC AR6 SSP 1-2.6 “Sustainable”; IEA World Energy
Outlook 2021 “Sustainable Development Scenario”
These three scenarios have been developed for Essentra, and draw on publicly available and widely accepted third-party scenarios. They combine elements from the International Energy
Agency (IEA)’s 2018 and 2021 World Energy Outlook for transition changes and the Intergovernmental Panel on Climate Change’s (IPCC) Sixth Assessment Report for physical changes,
alongside other literature.
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Strategy continued
Recommended disclosures Commentary
Describe the
climate related
risks and
opportunities the
organisation has
identified, and
the impact on the
businesses,
strategy and
financial planning
The gross, unmitigated potential financial impact of the ten most relevant climate-related risks and opportunities was quantified at high-level, across all three time horizons and three
scenarios, supported by third-party experts. A range of management approaches were identified, many of which the Group has in place already, to mitigate these risks and capture
opportunities. The table below maps approaches to risks and opportunities, as well as potential unmitigated profit impact in the MR scenario:
Potential unmitigated profit impact
Low Medium High
Risk/Opportunity
category Description Scenario(s) Risk management
Potential unmitigated profit
impact in MR scenario Metrics
Short
term
(2025)
Medium
term
(2030)
Long
term
(2040)
Physical Risk
Damage to physical assets and disruption at own
sites due to high-speed wind, applicable to our
Ningbo site.
BAU • Emergency plans in place at all sites.
• Site activity based on risk assessments to reduce exposure to natural hazards.
• Business continuity plans to respond to extreme weather events including
appropriate mitigation plans.
• Number of sites with
business continuity
plans
Physical Risk
Damage to physical assets and disruption at own
sites due to increased precipitation and flooding,
applicable to our Ningbo and Louisville sites.
BAU • Emergency plans in place at all sites.
• Site activity based on risk assessments to reduce exposure to natural hazards.
Business continuity plans to respond to extreme weather events including
appropriate mitigation plans.
• Number of sites with
business continuity
plans
Transition risk
Increased expenditure due to rise in fossil fuel
price
BAU,MR,LC • Transition from fossil fuel resins and films.
• Continue reducing reliance on fossil fuels in operations.
• % of materials from
sustainable sources
• Total Scope 1,2 and 3
emissions
Transition risk
Increased expenditure due to carbon pricing for
energy and power
LC,MR • Continue reducing Scope 1 and 2 emissions.
• Reduction of scope 3 emissions
• Evaluate passing cost increase through to consumers and assess price elasticity.
• Total Scope 1,2 and 3
emissions
• Total energy usage"
Transition Risk
Reduced revenue from components specific to
conventional fuel automobiles
BAU,MR,LC • Continue plan to switch from conventional vehicle to low-carbon vehicle
components.
• Periodic market analysis to prepare for market changes, such as speed of price
parity for electric vehicles; charging maturity; non-ICE vehicle penetration.
• Revenue from ICE
components
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Strategy continued
Recommended disclosures Commentary
Describe impact
of climate-
related risks and
opportunities on
the businesses,
strategy and
financial planning
(continued)
Impact on gross margin (GM)
Low Medium High
Risk/Opportunity
category Description Scenario(s) Risk management
Potential unmitigated profit
impact in MR scenario Metrics
Short
term
(2025)
Medium
term
(2030)
Long
term
(2040)
Transition Risk
Risk of increased costs due to transition from
petrochemical feedstocks and non-recyclable /
non-biodegradable materials
MR,LC • Development of centre of excellence to trial and bring to market alternative
materials.
• Close collaboration with supply chain.
• Monitoring evolving legislation on material use and labelling
• % of materials from
sustainable sources
Transition
opportunity
Increased revenue from sales of components
for electric and hydrogen-based vehicles
BAU,MR,LC • Continue plan to switch from conventional vehicle to low-carbon vehicle
components.
• Periodic market analysis to prepare for market changes, such as speed of price
parity for electric vehicles; charging maturity; non-ICE vehicle penetration.
• Revenue from EV
components
Transition
opportunity
Increased revenue from sales of components
for renewable energy, HVAC for cooling and
water pipes/pumping
MR,LC • Periodic market analysis to prepare for market changes
• Focused development of service and product oering
• Revenue from
renewable energy and
HVAC components
Transition
opportunity
Increased revenue from rising customers
preferences for circular product alternatives
(reusable/high recycled content)
MR,LC • Development of centre of excellence to trial and bring to market alternative
materials.
• Close collaboration with supply chain.
• Monitoring evolving legislation on material use and labelling
• % of materials from
sustainable sources
Transition
opportunity
Reduced energy costs through implementation
of renewable energy and adoption of energy
eciency measures
BAU,MR,LC Continue to evaluate potential savings from energy eciency measures and
implementation of renewable energy generation.
% of renewable energy
total energy usage
Transition revenue opportunities appear to outweigh Transition revenue risks, under all three scenarios, in all timeframes. Potential gross Physical risks to sites (from flooding, winds) are broadly
consistent across all three scenarios. The risk from fossil fuel price increases is much greater under ‘Business as Usual’ and ‘Middle of the Road’ scenarios, driving energy eciency, uptake
of on-site generation and renewable energy procurement. The gross impact of carbon pricing for energy and power varies in the opposite direction and is greatest under the Low Carbon
scenario, driving a similar set of activities. The cost reduction opportunity from energy eciency and implementation of renewable energy also increases under the Low Carbon scenario. We
have considered our assessment of the unmitigated, gross impacts of the identified risks and opportunities, together with existing and proposed mitigation actions, as inputs to our Long-Term
Viability Statement and impairment reviews. On the basis of our current analysis, we have concluded that the aggregate impact of the identified risks and opportunities represents less than
1% of operating profit and consequently will not be material. We will continue to review our assessment of both the individual risks and opportunities and the aggregate impact as part of our
regular risk management practices and having regard to future reporting and disclosure requirements in relation to climate change.
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Risk Management
Disclose how the organisation identifies, assesses and manages climate-related risks
Recommended disclosures Commentary
Describe the
organisation’s
processes for
identifying and
assessing
climate-related
risks
ESG risks are Principal Risks for Essentra, managed and discussed at ARC in
accordance with Essentra risk management processes. A description of the
ESG Principal Risks is provided from page 59. Details of the ARC and Essentra’s
risk management processes are provided on page 101.
Operational management teams identify and discuss site and region specific
climate related risks and opportunities in strategy reviews during the year.
The SC/ESGC considers climate-related risks and opportunities for the
company as a whole. Details of the SC/ESGC and its activities are provided
from page 88.
Company-wide and specific regional risks and opportunities are also
discussed at GEC.
Describe the
organisation’s
processes for
managing
climate-related
risks
Based on the identification and assessment of risks described above, actions
and activities are identified and managed in accordance with the Group’s risk
management processes.
Business wide activities are undertaken and managed centrally via the
Sustainability and HSE teams, working across the Company. For example to
reduce our GHG emissions:
• management of solar PV projects is done centrally to facilitate and
accelerate activity, working with sites across the company
• procurement of renewable energy is often done at site/divisional level, but
guided centrally to focus on the largest impact opportunities
Other risks are managed within operational regions and sites, e.g. for physical
risk factors, sites and regions work with our insurer to identify and reduce
exposure to natural hazard risks, and also to establish business continuity
plans (albeit against a Company framework and policy).
Progress on the management of climate-related risks is subject to regular
review by the SC/ESGC, ARC and GEC.
Describe how
processes for
identifying,
assessing and
managing
climate-related
risks are
integrated into
the organisation’s
overall risk
management
ESG risks are Principal Risks for Essentra, managed and discussed at ARC in
accordance with Essentra risk management processes. A description of the
ESG Principal Risks is provided from page 59. Details of the ARC and Essentra’s
risk management processes are provided on page 101.
Operational management teams consider site specific climate-related risks
and opportunities and report them as appropriate to the SC/ESGC, ARC and
GEC.
The SC/ESGC considers climate-related risks and opportunities for the
company as a whole and reports them as appropriate to the ARC and GEC.
Details of the SC/ESGC and its activities are provided from page 88.
Going forwards, the ten most relevant risks and opportunities identified as
part of TCFD activity will be integrated into the ESG Principal Risk coverage,
in order that Principal Risk reviews include a review and update of activity
related to these areas. This prioritisation will be updated on an annual basis,
linked to TCFD review outcomes.
Company wide or specific regional climate-related risks and opportunities are
discussed at ARC, GEC and SC/ESGC.
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Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related
risks and opportunities where such information is material
Recommended disclosures Commentary
Describe the
metrics used by
the organisation
to assess climate-
related risks and
opportunities in
line with its
strategy and risk
management
process
The KPI currently used by Essentra is Scope 1 & 2 GHG emissions intensity.
Supporting, linked metrics are absolute Scope 1 & 2 GHG emissions, energy
usage and percentage of energy from renewable sources. These metrics link to
several of the transition risks and opportunities (e.g. increased fossil fuel costs,
increased carbon pricing, reduced costs through renewable energy/energy
eciency). Progress on our emissions and energy usage can be found from
page 24.
We track and report the percentage of materials from more sustainable
sources. This supports reduced Scope 3 GHG emissions (recycled content
has a lower embodied carbon content than virgin resin). In addition, this
metric supports the opportunity of increased revenues from rising customer
preference for circular product alternatives, and mitigates the risk of
increased costs of transitioning from petrochemical feedstock. Progress on
our sustainable materials KPI can be found on page 25.
We monitor our preparedness and capability to respond to physical risks to
our assets and operations through the preparation and regular review of
business continuity plans.
Transition risks and opportunities related to the move from certain products,
such as those for ICE vehicles, to products that support electrification of
transport and heating, are tracked through regular revenue forecasts and
market analysis.
Disclose Scope 1,
Scope 2 (and if
appropriate,
Scope 3) GHG
emissions and the
related risks
Progress on our (Scope 1 & Scope 2) GHG intensity KPI can be found from
page 24. Disclosure of absolute Scope 1 & Scope 2 emissions can be found on
pages 27-28.
For the first time in this years report, we are disclosing our Scope 3 emissions
which can be found on pages 27-28. Our Scope 3 inventory has been
developed using a hybrid model of spend and activity data. The model has
been developed internally and uses life cycle analysis, industry databases and
supplier specific information where it is available. The majority of our Scope 3
emissions relate to purchased raw materials and products (hence the focus
on materials from more sustainable sources, above).
The related risks and opportunities are:
• risk of increased costs due to rises in fossil fuel prices
• risk of increased costs due to carbon pricing for energy and power
• opportunity for reduced costs through implementation of renewable energy
and adoption of energy eciency measures.
Describe the
targets used by
the organisation
to manage
climate-related
risks and
opportunities and
performance
against targets
Our current targets for our (Scope 1 & 2) GHG intensity KPI are:
• 25% reduction by 2025 (vs. 2019 baseline)
• Net zero by 2040
Progress on our (Scope 1 & Scope 2) GHG intensity metric can be found on
page 27-28.
Our current target for our sustainable materials KPI is: 20% of materials from
more sustainable sources by 2025
Progress on our sustainable materials metric can be found on page 25.
In 2022, we committed to the Science based Targets initiative (SBTi), meaning
we have committed to set our next near-term target and review our long-
term Company-wide emission reductions targets in line with science-based
net zero with the SBTi, and this work will include the setting of a Scope 3
emissions reduction target. This activity is planned in 2023, alongside the
publication of our transition plan.
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JACK CLARKE
Chief Financial Ocer
FINANCIAL REVIEW
Financial Review
2022 was a transformational year for Essentra. The Components
business delivered 12% revenue growth, and achieved operating
margins of 19% demonstrating a robust underlying financial
performance.
Trading performance
FY 2022 revenue for the continuing operations
of the business increased by 12.0% to
£337.9m. On a like-for-like (LFL) basis,
revenues increased by +6.5%, year-on-year
adjusting for FX movement and removing the
acquisitions of Wixroyd and Hengzhu.
The Components business achieved adjusted
operating profits of £63.7m, up 12.0% on prior
year. After recognising central service costs
associated with the go-forward business of
£20.7m, the pro-forma adjusted profit was
£43.0m.
The Components business achieved an
adjusted operating margin consistent with
the prior year of 18.9%. This margin resilience
reflects pricing actions and cost control,
which more than oset cost inflation for
the year.
The business saw a considerable amount of
adjusting items in 2022 totalling £26.0m,
including £10.4m restructuring of the
continuing business following the sale of the
Filters and Packaging divisions and £0.5m
acquisition integration costs.
As previously guided, £12.4m has been
recognised in relation to the customisation
and configuration costs of significant
‘software as a service’ (SaaS) arrangements.
Following the outcome of the strategic
reviews, costs of £2.0m incurred in relation to
defined benefit pension scheme charges have
also been recognised as adjusting items as
they are no longer related to the continuing
operations of the Group. Further details of
adjusting items are shown in Note 2 to the
Financial Statements.
After central costs serving all three legacy
divisions, adjusting items and amortisation
of acquired intangible assets, the reported
continuing operating loss was £11.3m.
Discontinued operations
The disposal of the Packaging and Filters
businesses have a material impact on the
presentation of the Group’s consolidated
financial statements for the year ended
31 December 2022. Unless otherwise
stated, numbers have been presented on a
continuing operations basis.
Discontinued operations recognised a post-
tax loss of £152.7m for the year, including an
impairment charge of £181.6m recognised at
30 June 2022 related to the carrying value of
goodwill allocated to the Packaging business
prior to its disposal and £1.1m related to
an impairment charge for the disposal of
the Packaging business in India. See Note
24 to the Financial Statements for more
information.
Acquisition of the Wixroyd Group
On 1 December 2022 Essentra acquired
Wixroyd Holdings Limited (Wixroyd), a
leading UK supplier of industrial parts for
the automation sector for an initial cash
consideration of £29.5m (£27.9m net of cash
acquired). Included within the consolidated
financial statements are £0.7m of revenue
and £0.1m of operating profit since
acquisition. This was the first acquisition
to be announced since outlining our new
strategy, and continues a successful track
record of acquisitions in the Components
business over the last ten years. Wixroyd will
expand Essentra’s capabilities in hardware
components and create additional cross-
selling opportunities across a range of
Essentra’s current end markets.
Central service costs
In 2022, the Group recognised £20.7m of
central overheads attributable to the go-
forward business. The Group has started to
take actions to right-size central service costs,
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FINANCIAL REVIEW CONTINUED
as part of the strategic reviews and transition
to a pure-play Components business. The
cost base will continue to be reviewed
through 2023 with the intention of reaching a
normalised position at the start of 2024.
Net finance expense
Net finance expense of £17.8m increased
compared to the prior year of £14.8m. The
interest expense is expected to reduce in 2023
as a result of the Group reducing the level of US
Private Placement debt in January 2023, using a
portion of the disposal proceeds from the sale of
Filters and Packaging to repay $247m of the loan
notes held.
Tax
The underlying eective tax rate for 2022
was 21.5% for the continuing Group which
is within our forecast tax rate range of 21%
to 22% for 2022. The previously disclosed
forecast tax range in 2021 was 19%-20%, with
the marked increase a result of some lower
tax jurisdictions in the Packaging and Filters
divisions that were previously held.
Net income
On a continuing adjusted basis, the Group
saw net income of £5.7m and adjusted basic
earnings per share of 1.9p in 2022. Including
losses on disposal of £152.7m, the total
reported net loss was £183.8m.
Net working capital
Net working capital is defined as “inventories
plus trade and other receivables less trade
and other payables, adjusted to exclude
deferred consideration receivable/payable
and interest accruals and capital payables”.
For the continuing business, the increase in
net working capital to £44.2m (2021: £38.9m)
was predominately driven by an increase in
focus on serving our customers and rebuilding
stock levels after the pandemic. The average
net working capital ratio of 15.9% increased
compared to 2021 (11.6%).
Operating cash flow
Adjusted operating cash flow for the
continuing business was £20.2m (2021:
£17.8m), equating to a cash conversion of
80% compared to 67% in 2021. This includes
an outflow of net working capital for the year
of £14.2m (2021: £15.0m) and net capital
expenditure of £12.8m (2021: £12.7m).
This net capital expenditure equated to
77.1% (2021: 85.2%) of the depreciation
charge (including amortisation of
nonacquired intangible assets) for the year
of £16.6m (2021: £14.9m). Net interest paid
was £16.2m (2021: £9.2m) and net tax inflow
£1.7m (2021: £4.7m outflow). Tax payment
figures exclude the tax paid/received in
relation to adjusting items.
The outflow in respect of pension obligations
was £nil due to payments to legacy pension
schemes being excluded(2021: £4.8m). A
higher cash outflow was recognised in 2021
due to payments of pension contributions
that were previously deferred.
Free cash flow of £5.7m compared to a free
cash outflow of £0.9m in 2021. An adjusted
cash flow reconciliation can be found in
Alternative Performance Measures (page
50). Group net cash inflow from operating
activities of £64.0m (2021: £63.2m).
Net funding and refinancing
activities
Net funding surplus at the end of the period
including lease liabilities was £113.8m. The
overall increase in net funding surplus was
driven by the disposal proceeds from sale of
Packaging and Filters business being netted
o against cash flow movements linked to
the strategic review and cash paid for the
acquisition of Wixroyd.
One of the main sources of funding for
the Company is a Revolving Credit Facility
(RCF) provided by a group of six highly-rated
banks. In October 2022, following bank
consent and as part of the strategic review
the decision was taken to repay, and reduce
the RCF facility to £200m, maintaining the
same terms. The Company previously held
$350m of medium and long-dated US private
placement debt. In January 2023, following
receipt of the proceeds from the disposal
of Filters and Packaging, the medium term
dated notes and longer term dated notes
were partly repaid resizing the total USPP
debt to $103m.
Balance sheet
At the end of 2022, the Company had
shareholders’ funds attributable to Essentra
equity holders of £404.1m (2021: £612.7). Total
capital invested in the business was £344.0m
(2021: £917.9m).
This finances non-current assets of £339.3m
(2021: £839.8m), of which £72.2m (2021:
£254.3m) is tangible fixed assets, the
remainder being intangible assets, right-of
use assets, deferred tax assets, retirement
benefit assets, derivative assets, and long-
term receivables.
Pensions
As at 31 December 2022, the Company’s
IAS 19 net pension net liability was £10.6m
(2021: net surplus of £9.0m). During the year,
the senior section of the pension scheme
purchased a buy-in policy, significantly de-
risking a proportion of the UK pension scheme
against future funding deficits. Further
information can be found in Note 18 to the
Financial Statements.
Impact of IAS 29 (Financial Reporting
in Hyperinflationary Economies)
During 2022, the Group held trade and
assets denominated in Turkish Lira where IAS
29 has been applied for the first time. The
Components business in Turkey contributes
c.6% revenue to the continuing Group.
Revenue growth
12.0%
Adjusted operating cash flow
from continuing operations
£20.2m
(2021: £17.8 m)
Read more about our financial
performance measures on page 20
Our strengthened,
unleveraged balance sheet
provides the Company with
the platform for the
investment required to deliver
our stated strategy of
doubling revenues and tripling
operating profits as
announced at our recent
capital markets event.”
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ESSENTRA PLC ANNUAL REPORT 2022
48
ESSENTRA PLC ANNUAL REPORT 2022
48
For the year ended 31 December 2022 a
monetary gain of c.£3m was included within
net finance expense, and an increase in net
assets of c.£18m has been recognised as a
result of IAS 29.
Shareholder return and ordinary
dividend
The Board has confirmed its intention to
return to shareholders, approximately £150m
of the residual net transaction proceeds from
the disposals of its Filters and Packaging
businesses, which completed in Q4 of 2022.
Following a consultation with a number of the
Company’s major shareholders, the Board
concluded that the shareholder return will be
structured by way of a special dividend and a
Share Buyback Programme.
Essentra will pay a special dividend of £90m,
representing 29.8p per ordinary share. The
Company intends to pay the special dividend
on 27 April 2023. In addition to the £90m
special dividend, the Board intends to initiate
a share buyback programme of up to £60m.
The Board of Directors recommend a final
ordinary dividend of 1.0p and therefore a total
2022 dividend of 3.3p. (2021: final 4.0p, total
6.0p). In 2022, the dividend has been adjusted
to the earnings of the continuing operations
of the business. The Board is committed to
a progressive dividend policy going forwards,
maintaining dividend cover in the order of
three times.
Treasury policies and controls
Essentra has a centralised treasury function
to control external borrowing and manage
exchange risk. Treasury policies are approved
by the Board and cover the nature of the
exposure to be hedged, the types of financial
investments that may be employed and the
criteria for investing and borrowing cash.
The Company intends on only using
derivatives to manage foreign currency and
interest rate risk arising from underlying
business activities. Whilst some transactions
may be of a more speculative nature, they are
in place to manage and mitigate exchange
rate risk only. 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 and suitable credit rating.
Essentra monitors the credit ratings of its
counterparties and credit exposure to each
counterparty.
Foreign exchange risk
The majority of Essentra’s net assets are in
currencies other than sterling. The Company’s
normal policy is to limit the translation
exposure and the resulting impact on
shareholders’ funds by borrowing in those
currencies in which the Company has
significant net assets.
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. Aside from foreign exchange risk, the
Company is also exposed to other types of
risks, including credit risk. Please see Note 19
to the Financial Statements for further details.
Jack Clarke
Chief Financial Ocer
28 March 2023
FINANCIAL REVIEW CONTINUED
The Board confirmed its
intention to return to
shareholders, approximately
£150m of the residual net
transaction proceeds from the
disposals of its Filters and
Packaging divisions,
structured by way of a special
dividend (£90m) and share
buyback programme (£60m).”
As outlined at the capital
markets event in November
2022, Essentra has committed
to a clear capital allocation
policy to support organic and
acquisitive growth.
Organic
growth
• Capital investment remains core to strategic growth
• Capex expected to be maintained between 4 – 5% of sales
Innovation
• Sustainable new product development and propositions
• Digitalising the customer experience drives cross-sell and
customer acquisition
Acquisitions
• Strong pipeline of potential acquisitions
• Addition of product adjacencies enables higher organic
growth through cross-sell
Ordinary
dividends
• Maintaining dividend cover in the order of three times
Capital allocation policy
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49
ESSENTRA PLC ANNUAL REPORT 2022
49
SCOTT FAWCETT
Chief Executive Ocer
Alternative Performance
Measures
Management uses a number of measures of financial
performance, position or cash flows of Essentra which
are not defined or specified in accordance with relevant
financial reporting standards.
In management’s view, these Alternative Performance
Measures reflect the underlying performance of the
Company and provide a more meaningful comparison of how
the business is managed and measured on a periodic basis.
ALTERNATIVE PERFORMANCE MEASURES
FY 2022 results at a glance
FY 2022
£m
FY 2021
(re-presented)
£m
% change
Actual FX
% change
Constant FX
Revenue 338 302 12 10
Pro-forma operating profit for the ongoing business
1
43 40 7 7
Adjusted operating profit 25 26 (5) (1)
Adjusted pre-tax profit 7 12 (37) (36)
Adjusted net income 6 11 (49) (48)
Adjusted basic earnings per share 1.9p 3.7p (49) (48)
Dividend per share 3.3p 6.0p (45) n/a
Reported operating (loss) / profit (11) 8 n/a n/a
Reported pre-tax profit / (loss) (29) (7) n/a n/a
Reported net loss (31) (5) n/a n/a
1 Pro-forma operating profit is an additional Alternative Performance Measure, which has been used to present the business on a
standalone basis, using historical cost allocation methodologies.
The financial information in this 2022 Annual
Report is prepared in accordance with UK-
adopted International Accounting Standards
and with the requirements of the Companies
Act 2006, and with the accounting policies
section starting on page 143 of the Financial
Statements.
Basis of preparation
Continuing and Discontinued
operations
In accordance with IFRS 5, Continuing and
Discontinuing operations are presented as
GAAP numbers.
The numbers presented in this Strategic
Report reflect the continuing operations of
the Group unless otherwise stated.
Non-GAAP measures
Throughout this FY 2022 Annual Report, the
following terms are used to describe Essentra’s
financial performance:
Constant exchange rates
Movements in exchange rates relative to
sterling aect actual results as reported.
The constant exchange rate basis adjusts
the comparative to exclude such movements,
to show the underlying performance of
the Company.
For the principal exchange rates for Essentra
for the year ended 31 December 2022 (FY
2022), see the table below. Re-translating the
FY 2022 average exchange rates increases
prior year revenue by c£7m, and reduces
adjusted operating profit by c£1m.
Principal exchange rates US$:£ €:£
Average
FY22
1.24 1.17
FY21
1.38 1.16
Closing
FY22 1.20 1.13
FY21 1.35 1.19
Like-for-like basis (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 2022 LFL results are adjusted for the
acquisition of Jiangxi Hengzhu Electrical
Cabinet Lock Co., Ltd (Hengzhu) on 2 August
2021 and the acquisition of Wixroyd Holdings
Limited (Wixroyd) on 1 December 2022.
The FY 2022 LFL results are also adjusted for
the disposal of Essentra Packaging to Mayr-
Melnhof Group announced on 3 October
2022 and the sale of Essentra Filters to Frank
Acquisition Four Limited, a wholly owned
subsidiary of Centaury Management Limited,
announced on 5 December 2022.
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50
Adjusted basis
The term “adjusted” excludes the impact of
amortisation of acquired intangible assets
and adjusting items, less any associated tax
impact. In FY 2022, amortisation of acquired
intangible assets was £10.4m (2021: £8.6m),
and there was a pre-tax charge for adjusting
items of £26.0m (2021: £10.1m).
Adjusting items are separately presented
from other items of financial performance
as this enables management to reflect the
underlying performance of the continuing
operations of the Group.
Adjusting items of £26.0m (2021: £10.1m)
have been reported in continuing operations
including £10.4m restructuring of the
continuing business following the sale of
the Filters and Packaging divisions, £0.5m
acquisition integration costs, and £12.4m
incurred in relation to the customisation and
configuration costs of significant “software
as a service” (SaaS) arrangements which,
in management’s judgement, constitute
material one-o charges to upgrade the
Group’s technical capabilities and meets
the Group’s policy for being categorised as
adjusting items.
Following the outcome of the strategic
reviews, costs of £2.0m incurred in relation
to defined benefit pension scheme charges
have also been recognised as adjusting
items as they no are no longer related to the
continuing operations of the Group.
Further details of adjusting items are shown in
Note 2 to the Financial Statements.
Constant exchange, like-for-like and
adjusted measures are provided to reflect
the underlying performance of Essentra. For
further details of the performance metrics
used by Essentra, please refer to page 20.
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Net income
£m FY 2022
FY 2021
(represented)
Adjusted net income
5.7 11.2
Amortisation of acquired intangible assets (10.4) (8.6)
Adjusting items (26.0) (10.1)
Tax on adjustments 0.4 2.6
Profit / loss after tax (31.1) (4.9)
Adjusted operating cash flow
£m
FY 2022
FY 2021
(represented)
Adjusted operating profit
25.1 26.4
Depreciation and amortisation of non-acquired intangible assets 16.6 14.9
Right of use asset depreciation 5.6 5.4
Share option expense / other movements (0.1) (1.2)
Change in working capital (14.2) (15.0)
Net capital expenditure (excluding disposal proceeds relating to adjusting items) (12.8) (12.7)
Adjusted operating cash flow from continuing operations 20.2 17.8
Tax 1.7 (4.7)
Cash outflow in respect of adjusting items (30.4) (23.9)
Pension obligations – (4.8)
Add back: net capital expenditure (excluding disposal proceeds relating to adjusting items) 12.8 12.7
Net cash inflow from continuing operating activities 4.3 (2.9)
Adjusted operating cash flow 20.2 17.8
Tax
1
1.7 (4.7)
Net interest paid (16.2) (9.2)
Pension obligations
2
- (4.8)
Free cash flow 5.7 (0.9)
1 Tax paid excludes the tax paid / received on business disposals. This is included within the cash outflow in respect
of adjusting items
2 Pension contribution of £0.7m for legacy pension schemes has been included within cash outflow in respect of adjusting items.
Pro-forma operating profit
Pro-forma operating profit has been used to
present the business on a standalone basis,
using historical cost allocation methodologies.
The Components adjusted operating profit
of £63.7m in 2022 (2021: £56.9m) has been
adjusted for the central service costs that
have been allocated to continuing operations.
In 2022, £20.7m of the £38.6m central service
costs incurred in the year were allocated to
the pro-forma adjusting operating profit
measure. (2021: £16.6m of the £30.5m
central service costs incurred in the year were
allocated).
Cash flow
Adjusted operating cash flow is net cash flow
from operating activities, excluding income
tax paid, pensions adjustments, and cash
flows relating to adjusting items, less net
capital expenditure. It is a measure of the
underlying cash generation of the business.
Net capital expenditure is included in this
measure as management regard investment
in operational assets (tangible and intangible)
as integral to the underlying cash generation
capability of the Company.
Adjusted Operating Cash Conversion
Adjusted operating cash conversion is
presented as adjusted operating cash flow as
a percentage of adjusted operating profit.
Reconciliation of GAAP to
non-GAAP measures
The following tables are presented by way of
reconciling the metrics which management
uses to evaluate the Essentra Group to GAAP
measures.
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51
Risk management report
Risk management is integral to proactively supporting
business resilience and the successful delivery of the
Company’s strategic objectives.
RISK MANAGEMENT REPORT
four Principal Risks having been retired (in
relation to: Achieving Acceptable Returns in
the Packaging Business, Tobacco Industry
Dynamics, Internal Process and Control and
the delivery of the Strategic Reviews) and two
new risks added (to reflect the need to deliver
on M&A and on the Execution of the Strategic
Plan). Other risks have been reviewed and
have evolved, to a greater of lesser extent, to
reflect the current nature of the risk and our
approach to mitigation.
Looking ahead to 2023, we anticipate that
macroeconomic uncertainty will remain, at
least for the short to medium-term; however,
the work put in to our risk management
processes and practices over the past two
years means we are well placed to continue
to deal with this in a manner that protects
profitability eciently and eectively.
Additionally, we continue to analyse and
assess the Emerging Risk landscape, with
particular focus on potential sources of
disruption and our use of plastic as a raw
material, to ensure the Company’s risk
management practices continue not only
to protect stakeholder value but to support
its creation in line with our strategic growth
objectives. Despite this focus on mitigating
the impacts of an increasing range of
disruptive risks, we continue to pay close
attention to the increasing momentum
associated with the risk agendas for ESG
and climate change along with the potential
impacts of technology-related innovations
disrupting our core markets.
We continue to see economic disruption
across our business, but our geographical
breadth, coupled with our ability to flex
operating models with a high degree of
agility means we are well placed to maintain
customer service levels whilst managing the
threats to our operations and the wellbeing of
our people.
Responding to change in 2022
During the last two years, the Company has
had to navigate and manage the disruption
caused by the pandemic, the war in Ukraine
as well as disruption across our supply chain
and workforce. These challenges largely
aected the industry as a whole, although
our response was very specific to the needs
of Essentra. In 2022, the Company’s risk
agenda was focused as much internally – as
we delivered the strategic reviews of the
Packaging and Filters businesses – as it was
at the broader disruptive economic and
geopolitical environment.
The risk management lessons we learnt
during 2020 and 2021 resulted in us being
well placed to evolve our processes to meet
the emerging needs of the business. The
strategic reviews of the Packaging and Filters
businesses, as well as broader disruption to
the business, resulted in further evolution
of our risk management framework. This
framework is now aligned to the needs of
Essentra as a pure-play Components business.
The framework supports the evolution of
our approach and considers risk at both a
strategic and an operational level with a view
to improving business resilience over the short
to long-term.
Following on from the announcements
in late 2021 in relation to the strategic
reviews, we have undertaken a series of
in-depth risk workshops and reviews with
former and current leadership and with the
support of external advisers. This work has,
following consultation with the ARC and
Board, resulted in new portfolio of Principal
and Emerging Risks which are aligned to
our new strategic direction as a pure-play
Components business. The following pages
reflect the output of these discussions with
The risk management
lessons we learnt during
2020 and 2021 resulted
in us being well placed
to evolve our processes
to meet the emerging
needs of the business.
Our framework is now
aligned to the needs of
Essentra as a pure-play
Components business.”
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52
ESSENTRA PLC ANNUAL REPORT 2022
52
Our risk
management
framework
page 55
Reviewing our
Principal Risk
profile page 57
Monitoring
Emerging
Risks
page 58
RISK MANAGEMENT REPORT CONTINUED
Identify
• Establish the process for identifying
and understanding key business risks
• Identify risks in each of our businesses
and enabling functions
• Perform risk reviews with senior
leadership
• Review Principal, Key and
Emerging Risks
Assess
• Prioritise risks through agreed
ranking criteria
• Ensure our response to risks is
consistent with the risk appetite set by
the Board
Control
• Ensure risk ownership is defined
and appropriate
• Establish key control processes
and practices
• Assess the mitigating controls in place
to manage the risk within appetite
• Monitor the operation of the controls
• Track progress of mitigation initiatives
Report
• Agree and implement measurement
and reporting standards
• Communicate with all stakeholders
Manage
• Review all aspects of the Company’s
risk profile
• Review, challenge and continuously
improve risk management practices
Roles and responsibilities of the Global Executive
Committee in respect of Risk
Our risk governance structure
The process for
identifying, assessing
and controlling material
business risks is designed
to manage within agreed
appetite, rather than to
eliminate.
ASSESSMANAGE
IDENTIFY
REPORT CONTROL
Facilitators
Risk Assurance
Divisional Risk
Champions
Enabling Function
Risk Champions
Board
Overall responsibility for assessing the Company’s Principal
Risks, setting risk appetite and monitoring risk management
performance and the framework.
Global Executive Committee (GEC)
Chaired by the Chief Executive and comprised of the Company’s
executive leadership team. The GEC meets on a monthly basis and
discusses risk as a standing agenda item with quarterly risk deep-
dive reviews also scheduled. In this context, the GEC is responsible
for monitoring key risks and ensuring the eectiveness of regional
and functional risk management and, as such, the GEC has
subsumed the former work of the Group Risk Committee (GRC).
Sites
Specific business units or sites are developing and implementing
their own risk registers, risk and action owners. Management
are responsible for managing local level risk and reporting to the
respective leadership teams.
Audit and Risk
Committee (ARC)
Responsible for reviewing
the eectiveness of
the
Company’s
risk
management systems
and processes.
Regional and Functional
Leadership Teams
Each leadership team is
responsible for ensuring their
risks are captured and are
being eectively mitigated
within business-as-usual
processes. Risk management
is a standing agenda item for
leadership team meetings.
Group Compliance
Committee (GCC)
Until the completion of the
strategic reviews, the GCC
directed and oversaw the
Company’s implementation
of compliance programmes,
policies and procedures and
reviewed risks being
considered by the GMC/GEC.
This work will now
be delivered by the Risk
Assurance, Compliance
and Control team and the
GEC directly, in a way that
supports the development of
a compliance culture across
the organisation.
ESG Committee (ESGC)
The ESG Committee is
responsible for overseeing ESG
strategy, and ensuring that it
aligns to the overall business
strategy, as well as the other
matters already idenitifed.
The Committee oversees the
Company’s ESG strategy and
its response to emerging ESG
related concerns, risks, laws
and regulations.
Direct and
monitor
Report
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ESSENTRA PLC ANNUAL REPORT 2022
53
STRATEGIC EXTERNAL OPERATIONAL DISRUPTIVE
RISK MANAGEMENT REPORT CONTINUED
Risk categories
The Company has considered the risks it is facing
under the following four risk category headings and
has identified 11 Principal Risks.
Internal risks
that may impede
achievement of
strategic goals.
Risks relating
to the
macroeconomic
climate,
political events,
competitive
pressures or
regulatory issues.
Risks that could
impact day-to-
day operations
and prevent
business-as –
usual activities.
Risks that could
impact the business
model or viability of
the Company.
Risk management approach
Our risk management activities aim to
drive performance aligned to our purpose,
encourage growth through innovation and
support the achievement of our strategic
objectives. In doing this, we take a balanced
approach that puts risk management at the
core of the senior management agenda and
more broadly across our operations. We are
committed to managing risks in a proactive,
ecient and eective manner to protect and
enhance value, and provide assurance to the
Board and our stakeholders.
We made significant progress during 2022 in
evolving our risk management processes as
our strategic reviews progressed; we continue
to ensure they are aligned with FTSE 250
upper quartile practice. Particular focus was
placed on reviewing our portfolio of Principal
and Emerging Risks in the light of our new
strategic focus and an increasingly dynamic
operating environment.
Risk categories
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54
RISK MANAGEMENT REPORT CONTINUED
The Essentra risk framework
Strategy and Culture
• Strategic
objectives
& planning
• Risk appetite • Capital
allocation
• Business model • Risk culture
Governance
• Board risk governance
• GEC – ToR in respect of risk
• Risk taxonomy
• Assurance mapping
Identify and assess
• Risk/opportunity
identification
• Profiling and categorisation
• Risk quantification
• Risk velocity
• Top-down vs. bottom-up
Respond and manage
• Response decision
• Thematic analysis
• Action tracking
• Review & revise
Continuity management
• Scenario plan
• Testing
• Respond
• Learn
Risk landscape
• Strategic risk
• Risk networks
• Individual vs. Portfolio
• Risk blind spots
• High impact, low
probability
• Emerging Risks
Resilience
• Resilience strategy
• Resilience planning &
execution
• Disruptive risks
Strategic
layer
Operational
layer
Continuous improvement
Risk
smart
Risk
aware
Monitoring
& reporting
Regions &
functions
Individuals
GEC
Sites
Board
Risk management framework
A refreshed risk management framework
was introduced in 2021. As the strategic
reviews progressed in 2022, this framework
has evolved to meet the changing needs of
the business. The framework was developed
to support the Company in identifying and
managing risk within defined appetite levels,
at both a strategic and an operational level.
The current framework was designed to
provide the GEC and the Board with a clear
line of sight over risk, to enable informed
decision-making and to deliver improved
resilience.
Our risk management framework continues
to evolve in line with best practice to ensure
that it supports the Company’s growth and
strategic objectives. A robust, but flexible,
approach to the management of risk is
fundamental to the continued success of
the Company. In 2022, the challenges the
Company faced included ongoing remote
working, temporary inaccessibility of some
business locations, raw material shortages,
supply chain disruption, volatile supply
and demand, and distribution challenges.
A clear focus was placed on ensuring the
continued operation of our risk management
framework in this dynamic and disruptive
environment. Through regular discussions
and virtual workshops with all divisional
and enabling function leadership teams,
we ensured clear accountability for the
identification, assessment and mitigation of
risks throughout the Company.
Risk can present itself in many forms and has
the potential to impact health and safety,
the environment, our communities, our
reputation, regulatory compliance, market
and financial performance and therefore the
achievement of our strategic objectives.
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55
ESSENTRA PLC ANNUAL REPORT 2022
55
Key changes in the year
During 2022 we undertook a fundamental
review of our Principal and Emerging Risks as
we executed the strategic reviews.
At the Half Year we disclosed the following
key changes to our risks:
• an increase in relation to our ‘Exposure to
the Cyclical Industrial Market’ risk as the
Company moved towards being a pure-
play Components business
• an increase in relation to our ‘Talent and
Workforce Management’ risk resulting
from the Company’s change agenda in
relation to the strategic reviews
No new Emerging Risks were noted at the
Half Year.
Since our Half Year disclosure, we continued
our review of our Principal and Emerging
Risk profiles in the context of our strategic
direction. The following key changes have
been made since then:
Retired Principal Risks:
• removal of our ‘Failure to Achieve
Acceptable Returns from the Packaging
Division’ risk following the sale of that
business
• removal of our ‘Tobacco Industry
Dynamics’ risk following the sale of that
business
• removal of our ‘Internal Processes and
Control’ risk following the completion
of our implementation of our Minimum
Control Standards. This remains a Key
Risk to the business and robust mitigation
continues to be in place however we no
longer consider it a Principal Risk
• removal of our ‘Strategic Reviews’ risk
following their completion. Whilst this
has been retired as a Principal Risk,
we continue to manage the ongoing
commitments under the sale agreements
including the delivery of transitional
services and finalisation of completion
accounts
New Principal Risks:
• a new ‘M&A Execution and Integration’
risk has been added to reflect the
importance of inorganic growth and the
need to eciently and eectively execute
transactions and integrations in a dicult
macroeconomic environment
• a new ‘Execution of Strategic plan’
risk has been added as a result of
the need to implement a portfolio of
strategic initiatives to meet our growth
commitments
Evolving Principal Risks:
• our former ‘Delivery of Strategic Projects’
risk, which was largely focused on the
delivery of the Business Process Redesign
(BPR) project in the Components business
has been developed into a ‘Digital
Transformation’ risk which now covers
both the BPR project and the underlying
digital ecosystem required for our business
to succeed
• our former ‘Exposure to the Cyclical
Industrial Market – Components’ risk has
been redefined as a new ‘Macroeconomic
Environment’ risk that considers the
impact of the macroeconomic situation
on the business more holistically
• our former ‘Talent and Workforce
Management’ risk has been redefined as
‘Leadership Talent & Capability’ to reflect
the new strategic direction and new
leadership team
All other risks have been reviewed and
updated to reflect the current nature of the
risk and mitigating activities.
By understanding and managing risk, we
provide greater certainty and confidence
to our shareholders, employees, customers,
suppliers, and the communities in which we
operate.
The Board considers the nature and extent
of the Principal Risks it is prepared to take
in achieving its strategic objectives – its risk
appetite – biannually by mapping these risks
against a sliding scale from “risk-averse” to
“risk-neutral” to “risk-tolerant”. This informs
the development and focus of mitigating
actions for each of the Principal Risks. At
a strategic level, our risk management
objectives are to:
• identify the Company’s significant risks and
appropriate mitigating actions
• formulate the risk appetite and ensure that
our business profile and plans are consistent
with it
• ensure that growth plans are properly
supported by an eective risk infrastructure
• help management teams to improve the
control and co-ordination of risk-taking
across the Company.
Strengthening our framework
To achieve the objective of implementing
FTSE 250 upper quartile risk management
practice, we have made good progress
in implementing our risk management
improvement plan in line with best practice
and ISO 31000 guidelines.
In the year ahead, the Risk Assurance
team will support regional and functional
leadership teams in the management of their
risk processes, specifically in relation to the
delivery of strategic projects. In 2022 we paid
attention to both the Principal Risks we face
as a pure-play Components business and to
potential Emerging Risks and also to ensuring
clarity across roles and responsibilities for
those risks that cut across divisions and
enabling functions.
2022
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Principal Risk movement from 2021 Annual Report
Impact
6
6
4 4
2
10
7
1
9
Rare <10%
Moderate
£2-4m
Major
£6-10m
Critical
£10m+
Minor
<£2m
Significant
£4-6m
Unlikely 10-40% Likely 60-90% Almost Certain 90%+
Principal Risks were subject to a series of
deep-dive workshops with former and current
leadership and the Board.
Risk governance structure and
oversight
The Board has established a risk and internal
control structure designed to manage the
achievement of strategic business objectives.
The Risk Assurance team, separate from
line management, enables and facilitates
the risk management process across the
Company and acts as the custodian of the
Company’s risk architecture and supports risk
management activities.
The GRC met four times in 2022, each
meeting with a full attendance. The GRC
was chaired by the Chief Executive and its
membership comprised GMC members, Head
of Risk, Head of Governance and the Group
Communications Director. Non-member
standing attendees were the Group Health,
Safety and Environment Director, the Chief
information Security Ocer and the Group
Financial Controller. Other members of senior
management were also invited to present
reports on specific risk activities. The Chair of
the ARC had a standing invitation to attend
all GRC meetings and received copies of the
minutes of every meeting. The Chair of the
ARC also meets with the Head of Risk on
a monthly basis. The work of the GRC has
now been subsumed into the GEC; risk is a
standing agenda item at every meeting and
risk deep dives will held on a quarterly basis
and will ensure that all Principal and Emerging
Risks are covered at least once per calendar
year.
The GEC’s (formerly GRC’s) responsibility is
to focus and co-ordinate risk management
activities throughout the Company and
to facilitate the appropriate identification,
evaluation, mitigation and management
of all key business risks. In addition, the
GEC reviews the risk appetite and ongoing
risk management approach and makes
recommendations on risk appetite to the
Board and oversees actions required to ensure
adequate controls and mitigating actions are
in place against identified risks.
As an important part of fulfilling its
responsibilities, the Board receives regular
reporting from the Chief Executive in relation
to risk to enable the Board to challenge and
review the GEC’s views on key risks.
The ARC engages directly with the regions
and functions, including deep dive reviews, as
part of fulfilling its oversight responsibilities in
relation to risk management processes. The
ARC, with assistance from the Risk Assurance
team, oversees compliance with risk
management processes and the adequacy
of risk management activities related to the
Company’s operations.
The regional and functional leadership teams
undertake regular reviews during the course of
the year and engage in facilitated discussions
with the Risk Assurance team to consider the
risk environment for their particular functional
or geographic area of responsibility and how
these could impact the achievement of the
Company’s strategic objectives.
Principal Risks
The GEC now has responsibility for enabling
the identification and management of
Essentra’s Principal Risks. An in-depth
assessment has been undertaken to assess
the appropriateness and adequacy of
our Principal Risks. The assessment was
performed against the four risk categories.
As part of the process, divisional and
enabling function leadership teams have
also undertaken reviews of this risk portfolio
supported, where necessary, by the Risk
Assurance team.
RISK MANAGEMENT REPORT CONTINUED
5
5
11
11
8
8
3
1,2,3
Strategic Risks
External Risks
Operational Risks
Disruptive Risks
Movement
1. Environmental
2. Social
3. Governance
4. Operational and Supply Chain Disruption
5. Digital Transformation (changed in 2022)
6. Leadership Talent and Capability
(changed in 2022)
7. M&A Execution and Integration
(new in 2022)
8. Cyber Event
9. Execution of Strategic Plan
(new in 2022)
10. Health and Safety Performance
11. Macroeconomic Environment
(changed in 2022)
As part of our top-down process, a detailed
review of Principal Risks was performed as the
strategic reviews progressed. This considered
risk from both a top-down and bottom-up
perspective as well as through the lens of
the geopolitical and economic disruption
we see today. All Principal Risks have been
assigned a GEC owner, assessed to consider
the extent to which they might impact the
company’s strategic objectives and, as a
result, the approach to mitigation defined
and documented.
The output from these considerations were
presented to the Board along with a proposal
for risk appetite, a recommendation of
Principal Risks to be included in long-term
viability modelling and overall approval.
The Board believes the Principal Risks are
specific to Essentra and reflect the risk
profile of the Company at the current time.
All Principal Risks are managed within their
individual risk appetite.
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Probability
Possible 40-60%
The Board and GEC evaluate the potential
eects of Principal Risks materialising over
a three-year period to understand how they
could impact the Company’s long-term
viability. The evaluation is based on plausible
worst-case scenarios.
To make this evaluation, the estimated
financial impact of each Principal Risk
crystallising was considered. The Board and
GEC assessed the potential impact on the
Company’s viability, based on selected severe
plausible risk scenarios. These were developed
in conjunction with senior management.
The Principal Risks that were considered to
have a potentially significant impact on the
Company’s viability are included in the Long-
Term Viability Statement on page 130.
In addition to the Principal Risks, Emerging
Risks and wider key risks have been identified
and are being monitored by the Company.
Mitigation actions in response to such
risks are an important part of business risk
reporting to the GEC and Board.
Emerging Risks
We define an Emerging Risk as a changing
risk or a novel combination of risks for which
there is no track record or previous experience
by which the impact, likelihood or costs can
be understood. Its potential impact is viewed
as being two years or more in the future.
We strongly believe that the identification
and appropriate management or mitigation
of Emerging Risks is critical to our long-term
success.
Emerging Risks have the potential to increase
in significance and aect the performance
of the Company and as such are continually
monitored through our existing risk
management processes described on page
101.
Our risk management process ensures
Emerging Risks are identified and aids the
GEC and the Board’s assessment of whether
the Company is adequately prepared for
the potential opportunities and threats they
present.
The process enables new and changing risks
to be identified at an early stage so we can
analyse them thoroughly and assess any
potential exposure.
We undertake a top-down and bottom-up
assessment to identify Emerging Risks. A
series of risk workshops with former Group
and divisional leadership teams have been
held as the strategic reviews progressed and
were facilitated by the Risk Assurance team,
the most recent of which considered the
potential sources of disruptive risk.
These workshops formed part of the ongoing
cadence of Emerging Risk identification and
were followed by further discussion at GRC
meetings. Additionally, further assessments
of potential Emerging Risks were performed
using externally sourced Emerging Risk
data. The Company’s potential exposure is
assessed against the Board’s approved risk
measurement criteria. The process enables
new and changing Emerging Risks to be
identified at an early stage so they can be
analysed thoroughly to assess potential
exposure.
The preliminary views of Emerging Risks
were consolidated and discussed initially
by the GRC and then by the GEC to reach
a consensus regarding Emerging Risks
that can seriously aect the performance,
future prospects or reputation of Essentra.
The outputs from these assessments were
presented to the Board for approval along
with the recommendation to develop
appropriate response strategies.
Emerging Risk Owner
Regulatory change Company Secretary
Risk description
The risk that Essentra does not or is unable to comply with changes in the regulatory environment.
Governments might react to prevailing economic conditions by increasing taxes and taris. Evolving
public sentiment on sustainability might result in further legislation with which the Company must
comply. The geographical breadth of the Company’s operations adds a degree of complexity to this
emerging risk.
Mitigation
We continue to proactively monitor and review developments in the regulatory environments in which
we operate. This includes leveraging the knowledge of those colleagues operating in local markets
and seeking external advice.
Emerging Risk Owner
Technology disruptors Chief Marketing Ocer and Chief Digital Information Ocer
Risk description
The risk that the Company does not manage its response to evolving technologies eectively. This
may include losing competitive advantage as rivals deploy advanced manufacturing technologies,
artificial intelligence and robotics to strengthen product development, marketing, production,
distribution and support functions. In addition, the rapid emergence of alternative materials might
aect demand for our products.
Mitigation
We continue to monitor and review developments in the external market through our networks. This
includes innovation and futures sessions with existing suppliers. We are also involved in a range of
external technical focus groups to support the identification of future technology trends.
Emerging Risk Owner
Sentiment towards
plastic
Chief Sales Ocer and Chief Marketing Ocer
Risk description
Market and stakeholder sentiment towards plastic continues to evolve at pace and could aect
medium-term demand for many of Essentra’s products.
Mitigation
We continue to work internally and with our supply chain to identify opportunities to reduce the
extent to which we use virgin plastic in our products and to use alternative materials.
RISK MANAGEMENT REPORT CONTINUED
Emerging risks
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The GEC and the Board have undertaken a
rigorous assessment of Emerging Risks during
2022 and have established procedures to
closely monitor Emerging Risks on an ongoing
basis including:
• the GEC’s responsibility to review the
Company’s ability to identify Emerging Risks
• consideration of Emerging Risks as a
standing agenda item at each GEC
meeting, and each Emerging Risk will be
subject to a deep-dive
• external specialist input is sought where
required
• identification of Emerging Risks which
have been assigned an owner who is a
GEC member. The Emerging Risk owner
is responsible for providing an update on
the development of Emerging Risks and
activities in response at each meeting.
The Board can confirm that it has completed
a robust assessment of the Company’s
Principal and Emerging Risks. The Company
continues to focus on ensuring the adequate
mitigation of risks faced by the Company to
ensure alignment with the Board-approved
risk appetite.
Essentra has no significant operations or
infrastructure in Russia or Ukraine and the
business does not have local currency exposure.
We have processes in place to ensure the
Company is compliant with all relevant
international regulations and sanctions,
continues to closely monitor the situation and
remains vigilant to changes in our risk profile
resulting from it. We continue to monitor the
situation in Ukraine, the ongoing response of
international governments and any potential
impact on the Company.
Emerging Risks and wider key risks have been
identified and are being monitored by the
Company. Mitigation actions in response
to such risks are an important part of the
Company’s risk reporting to the GEC and
the Board.
Environmental
Change in risk level
Unchanged
Ownership
Chief Operations Ocer
Relevance
Industry general
Description
Formerly a component part of our Environmental,
Social and Governance Principal Risk, this focuses
on concerns around the impact of business on the
environment, which are increasingly fundamental
for all companies and stakeholders. Essentra has
specific exposure to:
• Single Use Plastics: including potential changes
in relation to laws and regulations and the
need to increase recycled content and product
circularity. The business is actively working to
incorporate more sustainable materials and
believes it has the innovation capability to
enable future growth opportunities with the use
of such materials.
• Climate Change: given the business’s
operational footprint and, as part of our TCFD
activity, we have worked closely with third-party
consultants to understand the financial impact
of climate-change-related physical risk exposure
at key sites across seven risk areas, under three
scenarios. We have identified ten material risks
and opportunities relating to physical events,
the transition of our business resulting from
changing customer demands and the changing
input costs relating to raw materials and power.
We continue to develop mitigation activity and
management approaches to help address these
issues into our business continuity management
and planning frameworks, closely linked to
existing work with our insurers.
Failure to meet stakeholder expectations on
increasing environmental governance obligations
could lead to reputational or commercial risk
for the Company. This includes risks arising from
changing investor attitudes, developing customer
expectations, changing supply chain dynamics,
social attitudes towards the environmental impact
of our products (which may impact on our ability
to market them), along with the ability to attract
and retain talent, given increasing employee focus
on ESG more generally.
Elements of this risk that previously related to
the EU packaging directive and to the tobacco
industry have been eliminated with the divestment
of the Packaging and Filters businesses.
Mitigation
Environmental activities are managed through the
work of the Company’s ESG Committee (formerly
Board Sustainability Committee). This is chaired by
a Non-Executive Director, and comprises members
from Board, GEC and other senior management.
The role of this Committee is to:
• review and assess the Company’s exposure to
sustainability-related issues
• assess the Company’s responses to these issues
• understand whether these responses are
consistent with the risk appetite of the
Company
• identify potential gaps in approach and high-
level approaches to closing those gaps.
The ESG Committee’s recommendations, in
respect of reducing risk exposure, inform the
work of the GEC, global functions and the wider
business. Additionally, the Nomination and
Remuneration Committees cover aspects of
environmental performance.
During the year, as part of our refocusing the
business to a pure-play Components business,
a new Sustainability Strategy team has been
created to manage the delivery of the Company’s
environmental objectives.
Finally, the GEC also continues to evolve our
approach to managing climate change risk,
and we continue to work to fulfil our reporting
obligations under TCFD requirements (see page
40).
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RISK
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Governance
Change in risk level
Decreased
Ownership
Company Secretary
Relevance
Industry general
Description
The Company operates across many international
jurisdictions and engages with a wide range
of stakeholders, including a diverse employee,
customer and supplier base. Some of our locations
are considered higher risk from a regulatory
perspective, although this has reduced following
the conclusion of the strategic reviews. We
are required to comply with multiple areas of
legislation and regulation across an increasingly
broad range of areas including: Anti-Trust, Anti-
Bribery, Sanctions, Privacy and Environmental,
Social and Governance (ESG). Our operations are
subject to an external environment which is seeing
an increasing breadth of emerging regulation
and greater levels of scrutiny and oversight from
regulators, enforcement agencies and other
stakeholders.
Failure to manage eectively the scrutiny
and oversight and/or comply with laws and
regulations could result in significant fines, costs
or reputational damage to the Company and
might adversely aect our ability to operate in
certain jurisdictions.
Whilst the external environment is generating
additional compliance demands, the Company
continues to drive continuous improvements in its
approach to managing regulatory and legislative
requirements and overall the level of risk to the
Company has remained the same.
Mitigation
The Company deploys a range of mitigating
activities to support the management of
regulatory risk including:
• a clear “tone from the top” from the Board
and GEC on the importance of ethics and
compliance
• a compliance programme (including employee
training) with which we aim to conform with all
applicable laws and regulations and encourage
a culture of openness, honesty and integrity
• a mechanism that seeks to ensure all
employees complete mandatory training on a
timely basis
• improved compliance communication with “Be
smart, be sure” campaign
• continuous improvement of the compliance
framework to ensure an eective and
appropriate policies, processes, reporting and
monitoring
• a Compliance function that directs and
oversees the Company’s implementation
of compliance programmes, policies and
procedures which are required to meet legal,
compliance and regulatory requirements
(including sanctions)
• extensive focus on third party due diligence to
take account of lessons learnt from the past
• the Company’s Governance, Risk and
Compliance teams which, with support from
external advisers, continuously monitors current
and forthcoming changes to the regulatory
environment and emerging good practice
• disciplinary and IT lock-out processes to help
ensure mandatory governance training is
completed on time
• a “Right to Speak” portal is in place to
encourage the reporting of governance issues.
RISK MANAGEMENT REPORT CONTINUED
Social
Change in risk level
Unchanged
Ownership
Chief People and Culture Ocer
Relevance
Industry general
Description
Formerly a component part of our Environmental,
Social and Governance Principal Risk, this focuses
on concerns around the impact of business on
our stakeholders and the societies in which we
operate. Essentra’s risk is focused in two areas:
• Ethical Supply Chain: the breadth of our
operational supply chain results in risks in
relation to modern slavery, child labour and
safe, hygienic working environments.
• Diversity and Inclusion: the risk that we are
unsuccessful in leveraging the opportunities
that a diverse team oers the business. Strong
engagement on ethnic and gender diversity and
inclusion can also lead to improved cognitive
diversity and the avoidance of group-think.
Essentra has a global footprint and our diversity
helps us serve the geographical markets in
which we operate. We believe diversity brings
a range of outlooks to decision-making and
problem-solving as well as better representing
our employee base and the communities in
which we operate.
More generally, we remain vigilant in respect
of evolving expectations around Essentra’s
engagement with it internal and external
stakeholders more broadly.
Failure to meet our obligations to our internal
and external stakeholders and the societies in
which we operate more generally could lead to
reputational or commercial risk for the Company.
Mitigation
This Principal Risk is addressed in a number of
ways. We have a robust “Know Your Supplier”
process which continuously screens significant
suppliers for restricted parties and adverse media.
Additionally, significant suppliers are required
to confirm their compliance with Essentra’s
code of conduct. We are currently reviewing a
number of options for enhancing the breadth
of our due diligence to better understand and
mitigate the risk of modern slavery and child-
labour (along with a number of more general
ethical and operational considerations) across
our entire supply chain rather than just our direct
relationships.
We actively engage with our workforce on
diversity and inclusion and monitor key metrics
at management levels. We continue the work of
our Diversity and Inclusion network which includes
launching local and global campaigns to promote
awareness.
STRATEGIC
RISK
EXTERNAL
RISK
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Operational and Supply Chain Disruption
Change in risk level
Increased
Ownership
Chief Operations Ocer
Relevance
Industry general
Description
We operate a diverse, global operational footprint
and supply chain across our business. Ensuring
these operations and supply chains are resilient is
a fundamental part of maintaining our customer
service levels and hassle-free proposition by giving
options and alternatives, to minimise the impact
of disruption.
Disruptive events could be focused on particular
locations, driven by single points of failure in our
operations or supply chain, be localised natural
events or result from political conflict. Here,
our global footprint provides a degree of risk
diversification, through alternative manufacturing
options elsewhere in the Company. Equally,
disruptive events might be broader in nature and
impact a number of sites simultaneously, for
example an extreme weather event, or climate
change related issues in the longer term. In this
situation, our global footprint may expose us to a
broader set of potential disruption risks than more
focused businesses.
Robust business continuity planning and
management practices are required to minimise
the impact on production capability, supply chain
management, customer relationships, reputation,
revenue and profit.
We experienced continuing disruption to our China
site as a result of COVID-19 related restrictions and
outbreaks.
The Company is increasingly reliant on the
digital ecosystem within its supply chain. Some
elements are addressed in our management of our
Cyber Event risk and others more broadly by the
continuity planning activities described below.
Additionally, during 2022, as part of our TCFD
activity, we have developed the work performed
with external consultants in 2021 to better
understand the potential impact of climate
change on our business over the short, medium
and long term, both for physical and transition
risks, to enable us better to embed these
considerations in our risk management processes.
Mitigation
We continue to review and refresh our business
continuity management and planning frameworks
and processes. We also have commenced a
number of initiatives to better understand our
supply chain and identify and mitigate potential
stress points. During the last year we have
implemented a new distribution model for EMEA; a
warehouse hub is in place in Germany and another
recently went live in Poland.
In 2023, work is planned to consider the
distribution model in the Americas and Asia, to
identify and eliminate single points of failure in our
supplier base and to develop resilience plans at a
global level.
Mitigating actions that we have in place for single
location issues include:
• leveraging our global manufacturing footprint to
provide alternative manufacturing locations
• fire and other risk prevention systems
• assessing and managing operational risks via the
enterprise risk management process
• ensuring comprehensive maintenance plans are
in place for key manufacturing equipment
• ensuring resilience arrangements are in place and
are tested for key operational IT hardware and
software
• maintaining an insurance programme and
working closely with our insurers to ensure
complete and comprehensive cover to prevent
losses, along with identifying and pursuing
opportunities to improve site-level resilience to
human factor, natural disaster and fire-related
issues
• performing tests and ensuring any lessons learnt
(along with any learnt from real-world events)
are fed back into the planning process
• ensuring non-operational employees are
equipped to work from alternative locations
should the need arise.
Additional measures to mitigate against multi-site
issues include:
• enhancing our multi-site capabilities and
manufacturing flexibility
• identifying alternative sources of supply for key
raw materials and supply guarantees where
necessary and feasible
• global, standard site/network assessment
approaches for pandemic and other issues.
RISK MANAGEMENT REPORT CONTINUED
DISRUPTIVE
RISK
We continue to review
and refresh our business
continuity management and
planning frameworks and
processes.”
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Digital Transformation Leadership Talent and Capability
Change in risk level
Increased
Ownership
Chief Strategy Ocer
Relevance
Company specific
Change in risk level
Increased
Ownership
Chief People and Culture Ocer
Relevance
Company specific
Description
Our success is dependent, in part, on our ability
to deliver key digital projects on time and within
budget to realise their full potential. We continue
to invest in, and deliver, our Business Process
Redesign programme, our digital eCommerce
platforms and in the fidelity of our data to further
improve our service oering.
Failure to deliver these key initiatives could
adversely aect our ability to maintain a
competitive advantage, to deliver our digital
strategy and to leverage our data as an asset.
The roll-out of the Microsoft Dynamics 365
system as part for the Business Process Redesign
continues with significant strides made in Q4
2022. A detailed plan is now in place to accelerate
implementation throughout 2023. The completion
of this programme will provide a robust platform
from which we can further develop our digital
capabilities.
Mitigation
In early 2022, we reviewed and strengthened
governance arrangements and resources to
accelerate delivery of the Business Process
Redesign programme. A robust management
framework is now in place to support the delivery
of our digital transformation, which includes
the Business Process Redesign programme, and
during the year we opened a new Digital and Data
hub in Istanbul. These initiatives are supported by
a project management infrastructure.
We continue to maintain a strong focus on the
skills and capabilities of our employees in relation
to the delivery of our digital projects. This is
achieved by providing training and support, as
necessary and by mobilising teams which possess
the right skills to deliver. In particular, we support
project managers’ development through a
variety of training programmes and professional
qualifications.
Description
Ensuring we are able to acquire, retain, develop
and motivate the required management and
leadership necessary to evolve our business,
develop our culture and meet future customer
needs. Having recently concluded our strategic
reviews, we are now a pure-play Components
business. During the review process, the Company
has been through a significant level of change
and now has a completely new leadership team.
The level of change seen coupled with labour
market dynamics, requires us to continue our
focus on retention of key talent, avoiding burn-out
and presenteeism. Additionally, we must continue
to grow the agile skills required to support and
build our pure-play Components strategic
direction.
The experience of the past two years has clearly
indicated the eect major health events, be they
global, regional or country specific, can have
on the availability of resources. We continue to
see health related disruption in China and there
remains a risk that future major health events
could result in further labour disruption.
Mitigation
As part of our strategic reviews activity, the
leadership and talent needs of the pure-play
Components have been assessed and a new
organisation design implemented to support
them.
Additionally, a people strategy is in place and is
designed to enhance the employee experience,
drive changes needed and have skilled leaders for
the future. This strategy considers:
• ensuring the variable pay schemes are
adequate to retain key talent and reward high
performance
• building management capability across the
wider team to ensure we manage through the
change journey in an engaged and considered
way
• talent mapping and succession planning
that considers current and future business
requirements
• developing the health and wellbeing strategy
with a specific consideration of the actions
needed to aid retention of our wider workforce
• communication with employees is a critical step
to ensure engagement, drive a sense of purpose
and belonging across the workforce
• assessing what training and support we can
provide to future leaders and managers on
resilience and developing their personal career
path in a considered way.
Throughout the strategic reviews, we focused
on the retention of existing talent and also,
where it did not exist internally, on attracting the
external talent necessary to deliver our strategy
in this new pure-play environment. We continue
to review the organisation for points of failure
at which additional cross-training might be
necessary to alleviate disruption.
STRATEGIC
RISK
STRATEGIC
RISK
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RISK MANAGEMENT REPORT CONTINUED
Cyber Event
Change in risk level
Decreased
Ownership
Chief Digital Information Ocer
Relevance
Industry general
Description
The Company is dependent on its internal and
external IT systems for day-to-day operations.
Should the Company, or its key cloud service
suppliers, be aected by a cyber event (denial of
service, data breach, compromise) resulting from
an external or internal threat, this could result in
suspension of critical business services and loss of
data. Subsequently, the Company could receive
fines, suer reputational damage and be unable
to meet customer expectations (leading to a loss
of customer confidence). Prolonged outages could
further erode trust in the business resulting in
long-term reputational damage.
The change in ways of working that we have seen
over recent years has aected our operational
dynamic with significant levels of remote working
continuing to be the norm. The Company has
invested, as part of our pandemic response, in
improvements to protection of mobile devices and
remote access.
As we look to the future, maintaining cyber
security integrity in a growth environment will be
critical; disruptive cyber events remain a serious
threat to our digital ecosystem and to the smooth
running of our business. We continue to invest
in our cyber security programme which includes
mitigation and risk reduction activities across
people, process and technology.
Mitigation
The Company has an established cyber security
improvement programme which has evolved to
meet the needs of the new Essentra, which aims
to mitigate the risks and operational disruption
caused by cyber events. The programme includes:
• endpoint protection (including zero-trust
remote access), encryption of data, enhanced
cloud-based security tooling and protection,
web and email content protection
• specific focus on mitigating cyber risks in
relation to shop-floor IT infrastructure
• identity and access management
• continued cyber security awareness training for
all employees
• vulnerability and penetration testing for
external IT services and websites.
During the year, specific eort has gone into
maintaining the cyber control environment
through the separation of the Packaging and
Filters divisions and the delivery of transitional
services.
EXTERNAL
RISK
M&A Execution and Integration
Change in risk level
New
Ownership
Chief Financial Ocer
Relevance
Company specific
Description
As outlined in the November 2022 Capital Markets
Day, M&A is a key part of the Company’s growth
strategy. There is an inherent risk that there
are insucient available targets to deliver the
M&A plan. Additionally, there is a risk that the
Company is unable to successfully implement its
post-acquisition integration strategy as a result of
some of the capability and capacity constraints
noted in Leadership Talent and Capability Principal
Risk. The nature of this risk diers between bolt-on
and transformation acquisitions.
Mitigation
The level of resource available to M&A execution is
being reviewed and, if appropriate, increased. The
Company maintains an active M&A pipeline and
proactively seeks out potential targets. Work is
ongoing to refine M&A criteria, strategic priorities,
with particular focus on the diering requirements
of bolt-on and transformational M&A, and the
approach to integration.
STRATEGIC
RISK
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RISK MANAGEMENT REPORT CONTINUED
Execution of Strategic Plan
Change in risk level
New Principal Risk
Ownership
Chief Strategy Ocer
Relevance
Company specific
Description
The Company outlined ambitious plans during
the recent Capital Markets Day underpinned
by a number of strategic initiatives. These
initiatives include, but are not limited to digital
transformation, our approach to cross-selling
and product category management. Whilst
elements of this strategy are touched upon in
other Principal Risks, there is a wider risk in relation
to the Company’s ability to deliver the initiatives
that underpin the growth commitments made
to the market. Additionally, there is a risk that
the Company suers from initiative overload and
cannot eectively prioritise critical strategic tasks.
Mitigation
The Company’s “hassle-free” strategy is in
place and is underpinned by ongoing work on
Product Category management and our digital
transformation (see page 62 for further detail
on our Digital Transformation Principal Risk). The
Company already seeks to drive the cross-selling
of products across geographical and market
boundaries. This is particularly the case for some
of our more recent acquisitions. Work is ongoing
to ensure the Company’s project portfolio is
adequately scoped for the level of resource
available and prioritised towards those activities
that are critical to achieving strategic objectives.
OPERATIONAL
RISK
Health and Safety Performance
Change in risk level
Unchanged
Ownership
Chief Operations Ocer
Relevance
Industry general
Description
The safety, health and wellbeing of our employees
remains one of our highest priorities.
Essentra has many manufacturing, distribution
and administrative facilities across the world,
along with internationally mobile employees.
Manufacturing and distribution can be inherently
risky given the use of industrial machinery and
high-speed manufacturing processes. In addition,
the Company must comply with national safety
regulation in multiple jurisdictions.
Should a serious incident occur involving our
employees or visitors, or should there be any breach
of safety regulation, there is a risk of prosecution
and considerable reputational damage as well as
potentially significant financial costs.
As we seek to grow the business both organically
and inorganically, we are mindful of the aect this
might have on our risk profile. Our approach to
integration ensures early deployment of Essentra’s
safety practices. More generally we continue to
drive our safety culture through the “tone from
the top” and across the whole company.
Mitigation
The “tone from the top” continues to reinforce
safety, health and wellbeing behaviours across
all of our businesses and employees. The
establishment of appropriate Safety Management
Systems is a high priority for management teams.
Some of the key mitigations which are in place
include:
• regular reporting to the GEC and the Board on
Health, Safety and Environment (HSE) related
matters
• a Company HSE policy detailing required
standards, governance, roles and responsibilities
at all sites
• increasing use of the Health and Safety
Management system to automate our Global
“Stop, Think, Examine, Proceed” (STEP)
programme. This is a hazard identification and
process improvement initiative that empowers
the entire workforce to recognise and address
safety improvement opportunities. Corrective
actions are assigned with clear ownership and
targeted completion within 48 hours
• conducting performance monitoring and
Health and Safety Audits, incorporating
reporting and escalation arrangements to
ensure all actions are closed
• undertaking root cause analysis for any issues
identified through investigation of serious
incidents, including near misses and ensuring
lessons learnt are cascaded across the Group
• embedding our health and wellbeing strategy
with a specific workstream that considers our
leaders, managers and employees and their
physical and emotional wellbeing
• focused HSE events throughout the year to
highlight particular risks and help keep safety
at the forefront of our minds.
With the increased focus on emotional health and
wellbeing, we have introduced awareness training
for leaders and managers. We have developed
training materials for employees and are now
moving towards introducing proactive steps for
employees to manage their own wellbeing.
During 2023, we aim to make better use of the
data held within the our Health and Safety
management system and develop leading
indicators to help identify improvement areas
before issues occur. Furthermore, we will continue
to drive our safety culture across the organisation.
OPERATIONAL
RISK
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RISK MANAGEMENT REPORT CONTINUED
Macroeconomic Environment
Change in risk level
Decreased
Ownership
Chief Financial Ocer
Relevance
Industry general
Description
In previous years, this risk has been called Exposure
to the Cyclical Industrial Market (Components
Division). Now the Company has completed
its strategic reviews and is now a pure-play
Components business, we have re-framed the
risk to consider the eect of changes in the
macroeconomic environment more generally.
The Company serves a broad range of industrial
customers and, as such, is exposed to overall
industrial production trends. Global industrial
production has tended to be cyclical in nature
with major economic downturns leading to a
downturn in industrial production. From the global
financial crisis in 2008-2009 to the COVID-19
pandemic, economic cycles have aected
demand in these broad industrial markets.
The Company sells to a broad base of global
and regional end markets including automotive,
capital goods and electronics. This market and
geographical breadth provides a degree of risk
diversification; however, as we see from the
current economic climate, downturns in industrial
production are almost certain to happen, albeit
with an uncertain time frame.
The Company seeks to operate a flexible model
whereby changes to its cost base can be quickly
made to maintain operating margins against
fluctuations in demand. Whilst the Company
has been historically successful in managing
profitability through the economic cycle, there
remains a risk that the necessary changes cannot
be executed, or they are not robust enough to
minimise the impact on operating margins.
Mitigation
Key mitigating actions being undertaken to
protect the Company from future industrial
declines include the following:
• the ongoing optimisation of fixed cost base to
minimise the impact of demand fluctuations.
Specifically, the Company undertakes
continuous reviews of its operating footprint to
optimise manufacturing and distribution cost
to serve. A new distribution model for EMEA
has been implemented which provides the
opportunity for us to reduce our distribution
footprint while delivering enhanced service
levels to our customers, the models for the
Americas and Asia are currently being reviewed
• our increased investment in the automation of
production and distribution activities, enabled
by robotics, will further help to reduce fixed
costs. We also undertake ongoing reviews of our
labour management practices with a view to
striking the right balance between permanent
and temporary employees, so that we are able
to eectively manage our cost base
• diversification across the market sectors we sell
to; both within the industrial sector and also
beyond it. We continue to develop our product
category management approach to better
focus on faster growing and resilient market
segments. We continue to explore M&A and
entry opportunities in new markets to further
mitigate this risk.
We continue to invest in our innovation
capabilities to secure new opportunities, develop
our use of alternative materials and diversify our
product range.
STRATEGIC
RISK
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Oshin Cassidy
Chief People and Culture Ocer
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
January 2019
Oshin joined Essentra as Group Human
Resources Director in January 2019 and
became Chief People and Culture Ocer
in January 2023 when the Company
became a pure-play Components
business. Prior to joining Essentra, Oshin
was Group Human Resources Director
at Imagination Technologies, and has
extensive human resources experience
having previously held senior roles at
global organisations including Securitas,
ComfortDelGro, Centrica and QinetiQ.
Emma Reid
Company Secretary
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
January 2020
Emma joined Essentra in 2020 and
was appointed as Company Secretary
in 2023. Prior to becoming Company
Secretary Emma was Head of
Governance, and previously worked for
Which? and Imagination Technologies.
Emma has extensive governance
experience and is a qualified company
secretary.
Jack Clarke
Chief Financial Ocer
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
April 2021
Jack was the Group Finance and
Executive Director of Marshalls plc from
October 2014 to April 2021. Previously,
Jack served as the Strategy Director
and then CFO of AMEC (E&I) between
January 2010 and September 2014. Jack
is a qualified chartered accountant.
Scott Fawcett
Chief Executive
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
December 2010
Scott was appointed as Chief Executive
in January 2023 having joined Essentra
in 2010 as Managing Director of the
Components European business and
subsequently joined the GMC in January
2014 leading the Components business.
Prior to joining Essentra, Scott was
Head of eCommerce at RS Group
(formerly Electrocomponents plc),
where he held a variety of increasingly
senior sales, marketing and eCommerce
positions during his 17 year career there.
GROUP EXECUTIVE COMMITTEE
Group Executive
Committee
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Rob Baker
Chief Operating Ocer
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
October 2021
Rob joined Essentra in 2021 as Supply
Chain Director of the Components
business. Rob has over 25 years of
supply chain experience covering
end-to-end supply chain across both
industrial products and consumer goods
sectors. Prior to joining Essentra Rob’s
background combines both senior
operational leadership roles with business
consulting, with a focus on operational
transformation and performance
improvement.
Sam Edwards
Chief Digital Information Ocer
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
June 2014
Sam joined in 2014 and during his
time with Essentra has been primarily
responsible for digital and hassle-free
strategic programmes along with
embedding digital and data into the
business globally. Prior to joining Essentra,
Sam spent 11 years at RS Components
in a number of increasingly senior digital
and commercial roles.
GROUP EXECUTIVE COMMITTEE CONTINUED
Hugues Delcourt
Chief Sales Ocer & Director, EMEA
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
July 2019
Hugues joined Essentra in 2019 as
Managing Director of the Components
European business and was appointed
to his current role in July 2022. Prior to
joining Essentra, Hugues was Global
Commercial Director at Coats, where
he held a variety of increasingly senior
Commercial and P&L management
positions during his 16 year career there.
Hugues started his career at Moss
Plastic Parts and Alliance Plastics which
later formed part of Essentra.
Gabriele Hannen
Chief Strategy Ocer
Appointed to the Group Executive
Committee:
March 2023
Joined Essentra:
August 2019
Gabriele joined Essentra in 2019 as
Finance Director for the Components
business. Prior to joining Essentra,
she worked across Manufacturing &
Distribution, Consumer, Media and
Market Research in privately owned and
listed businesses. Gabriele held a variety
of Finance and wider leadership roles
with a focus on business growth and
change. She is a professional certified
Coach from Henley Business School.
Lynne Vandeveer
Chief Marketing Ocer
& President, Americas
Appointed to the Group Executive
Committee:
January 2023
Joined Essentra:
July 2022
Lynne joined Essentra as President
of the Americas region and global
Chief Marketing Ocer in July 2022.
Prior to joining Essentra, Lynne was
Chief Marketing Ocer at PlayPower,
a world leading manufacturer of
outdoor recreation equipment. Lynne
has extensive marketing and general
management experience having
worked at blue-chip consumer products
including SC Johnson, PepsiCo, Cadbury,
Mondelez, Kellogg’s and Campbell Soup.
Directors’
Report
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IN THIS
SECTION
Chair’s Corporate Governance statement 69
Board of Directors 70
Corporate Governance Report 72
Sustainability Committee Report 88
Nomination Committee Report 91
Chair of the Audit and Risk Committee’s Letter 95
Report of the Audit and Risk Committee 98
Chair of the Remuneration Committee’s Letter 105
Remuneration at a glance 110
Annual Report on Remuneration 111
The Directors’ Remuneration Policy report 122
Other statutory information 126
Statement of Directors’ responsibilities
in respect of the Financial Statements 132
Independent Assurance Statements to Essentra plc 133
DIRECTORS’ REPORT
Chair’s statement
PAUL LESTER,
CBE
Chair
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CHAIR’S CORPORATE GOVERNANCE STATEMENT
Dear Shareholder
The 2022 Corporate Governance statement
and report provides you with a more detailed
look into how we approach Corporate
Governance at Essentra and how it supports
our purpose and strategy. As you read
through the Corporate Governance report
you will see that we have reported on activity
over the last year, but also reflect on the
new structures we will be using, all of which
continue to meet or exceed best practice.
The Board has the highest regard for good
governance and is mindful that all its
discussions and decisions need to reflect the
principles set out in the 2018 UK Corporate
Governance Code (2018 Code). The Board
keeps under review the way it operates
and responds to changes in the business
and external environment accordingly. The
Board applies the principles of the Code to
its discussions and decision making. The
Company is very pleased to confirm that from
1 January 2023 it is in full compliance with all
aspects of the Code.
The Corporate Governance report that follows
sets out in more detail how we have observed
and applied the Code, what action we took to
achieve this and the outcomes which support
our long-term success. Additional information
has been provided where we believe this
will help better inform our stakeholders.
Information required to be reported under
the Directors’ Report is reported both here
and within the Strategic Report, and the ESG
report contains a lot of additional disclosures.
To make the reports as easy to read as
possible, we have included cross-references
throughout.
Our Section 172 Statement can be found on
page 38 which combines with our broader
reporting on stakeholder engagement. We
hope this section brings to life the work of the
Board throughout the year.
In parallel with ensuring the strategic reviews
completed on time, the Board also focused
its time, both inside and outside of formal
meetings, on supporting the organisation
as it worked towards becoming a pure-play
Components business.
The Board considered its own composition, as
well as ensuring that it worked with Scott, as
he developed the shape of the new business,
including its purpose, ambitions and strategy,
and established a new leadership team. More
information on the new leadership team, the
Group Executive Committee, can be found on
page 66 and the purpose on page 76.
The Board has been pleased to add Kath
Durrant to their number, thereby meeting
the commitment made at the 2022 Annual
General Meeting. We will continue to recruit
female non-executive directors until we
have exceeded the 40% target set by the
FTSE Women Leaders Review. We are also
pleased to have completed the voluntary
Parker Review on the ethnicity of UK boards,
for which we already exceeded the goal of
“At least One by 2021” and continue to do
so, as the Board is firmly of the view that a
successful business must have broad and
diverse thinking in place, at all levels of its
business. The Board is committed to equality
and diversity in the workplace and leading by
example is key to achieving this and ensuring
equality and diversity is upheld throughout
the organisation.
Throughout the year, the Board continued
with its oversight of all three businesses, as
well as setting aside time for the strategic
reviews. The Board and its committees
continued to receive regular reports on
progress, in key areas such as health, safety
and the environment, compliance, controls
and risk management.
We finished the year with an internal
evaluation of the Board’s eectiveness,
the results of which showed, that not
surprisingly, the Board wanted to focus on
the components business and form stronger
relationships with the Group Executive
Committee. As a consequence, the Board
agreed an action plan at the end of January
2023 to tackle the findings and details of that
are contained on pages 93-94.
Our Annual General Meeting will be held at
our Kidlington site again this year. The Board
and I hope you are able to join us and we look
forward to welcoming you on 3 May.
Paul Lester, CBE
Chair
28 March 2023
More information on
the background and
experience held by our Board
can be found in the
Notice of our Annual
General Meeting.
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BOARD OF DIRECTORS
Mary Reilly
Senior Independent Director
Independent on appointment
C
Appointed to the Board:
July 2017
Skills and experience:
Mary is currently Non-Executive Director and Chair
of the Audit Committee of Mitie Group plc, a
facilities management company, Gemfields Group
Limited, Cazoo Group Limited and Mar HoldCo Sarl.
Mary brings a wealth of accounting, finance and
international management experience to Essentra,
having previously been a Partner of Deloitte LLP for
more than 20 years, as well as serving on a number
of Boards in a Non-Executive capacity since 2000.
Mary also serves as a trustee on a range of charities.
Other current appointments:
• Non-Executive Director and Chair of the Audit
Committee, Mitie Group plc
• Non-Executive Director, Gemfields Group
Limited
• Non-Executive Director, Cazoo Group Limited
• Non-Executive Director, Mar HoldCo Sarl
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Sustainability Committee
ESG Committee
C
Committee Chair
Jack Clarke
Chief Financial Ocer
Independent on appointment
Appointed to the Board:
April 2022
Skills and experience:
Jack was the Group Finance and Executive Director
of Marshalls plc from October 2014 to April 2021.
Previously, Jack served as the Strategy Director
and then CFO of AMEC (E&I) between January
2010 and September 2014. Jack is a qualified
chartered accountant, has a diploma in treasury
management and graduated from the University
of Leeds in 1987 with a Bachelors in Economics &
Management Studies (Honours) and in 1989 with
Masters of Science (Civil Engineering).
Other current appointments:
• None
Scott Fawcett
Chief Executive
Appointed to the Board:
January 2023
Skills and experience:
Scott was appointed as Chief Executive in January
2023 having joined Essentra in 2010 as Managing
Director of the Components European business
and subsequently joined the GMC in January 2014
leading the Components Global Strategy. Prior to
joining Essentra, Scott was Head of eCommerce
at RS Group (formerly Electrocomponents plc),
where he held a variety of increasingly senior sales,
marketing and eCommerce positions during his
17 year career there.
Other current appointments:
• None
Paul Lester, CBE
Non-Executive Chair
Independent on appointment
C
Appointed to the Board:
December 2015
Skills and experience:
Following his appointment to the Board in
December 2015, Paul was made Non-Executive
Chair in May 2016. Paul brings a wealth of
experience to Essentra, gained in significantly senior
operational and strategic executive roles, and has
also served on a number of Boards in a Non-
Executive capacity for over 30 years.
Other current appointments:
• Non-Executive Chair Telent Technologies Limited,
Funeral Partners Limited & McCarthy & Stone
Limited
Board of Directors
Experienced, eective and diverse leadership – Our Business is led
by our Board of Directors, biographical details of the Directors are
available at essentraplc.com/about-us/board-of-directors.
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Adrian Peace
Non-Executive Director
Independent on appointment
Appointed to the Board:
June 2021
Skills and experience:
Adrian is currently President, Performance
Technologies at Modine Manufacturing Company,
where he is responsible for overseeing Modine’s
Powertrain Solutions, Advanced Thermal Solutions
and Coatings business. Adrian has experience of
leading full P&Ls, digitising businesses and driving
operational eciencies that have transformed the
businesses he has worked in. Adrian’s early career
included roles with General Electric (GE) which he
joined in 1990 and went on to become President
and CEO for Latin America, Consumer and Industrial
business and also a director of a joint venture with
MABE, subsequently being promoted to President
of Chemicals and Monitoring. Following GE, Adrian
worked with WW Grainger and then Republic
Services as Senior Vice President, Emerging Business
Operations, where he also led Republic’s sustainability
initiatives driving forward environmental, social and
governance issues.
Other current appointments:
• Independent Strategy Advisor & Director, AIP LLC
• President, Performance Technologies, Modine
Manufacturing Company
Dupsy Abiola
Non-Executive Director
Independent on appointment
Appointed to the Board:
March 2022
Skills and experience:
Dupsy is Vice President, Chief of Sta at Monzo Bank.
She was previously Head of Global Innovation at
International Airlines Group, one of the world’s largest
aviation groups. She is also a former commercial
lawyer by background. Dupsy has undertaken
advisory roles for large organisations, disruptive
tech companies and venture capital with a focus
on future growth and sustainability. These roles
include sitting on the Global Future Leaders Council
at the World Economic Forum. She was previously an
Advisory Board Member to F-Lane, the Global Social
Impact Accelerator for Female Founders.
Other current appointments:
• Vice President, Chief of Sta, Monzo Bank Ltd
Emma Reid
Company Secretary
Appointed to the Board:
Secretary to the Board in January 2023
As the Company Secretary, Emma is also
part of the Group Executive Committee.
For full biography, see page 66
BOARD OF DIRECTORS CONTINUED
Ralf K. Wunderlich
Non-Executive Director
Independent on appointment
C
C
C
Appointed to the Board:
July 2017
Skills and experience:
Ralf is currently a senior adviser to private equity
firms and an independent consultant. He was
previously President and Managing Director of Amcor
Flexibles – Asia Pacific and a member of the Global
Group Executive Team of Amcor, the world leader
in packaging with operations in approximately 43
countries and sales of approximately US$15bn. Ralf
brings extensive international experience in the
packaging industry gained over many years living
and working across three continents.
Other current appointments:
• Non-Executive Director and member of the
Management Development and Compensation
Committee, AptarGroup Inc.
• Non-Executive Director and member of the
HR Committee, Huhtamäki Oyj
• Non-Executive Director and member of
Audit & Risk, Nomination and Remuneration
Committees, Shepherd Building Group
Board Ltd
Kath Durrant
Non-Executive Director
Independent on appointment
Appointed to the Board:
January 2023
Skills and experience:
Kath has extensive human resource experience
having served as the Group Human Resources
Director at Rolls Royce plc and Ferguson plc, and
as Chief Human Resources Oce at CRH plc.
Kath also worked for GlaxoSmithKline plc and
AstraZeneca plc.
Other current appointments:
• Non-Executive Director, SIG plc
• Non-Executive Director, Vesuvius plc
Company purpose
Page 76
Business model
Page 8
Our people and
culture
Pages 30 to 32
Division of
responsibilities
Pages 81 to 87
Stakeholder
engagement
and Section 172(1)
Statement
Pages 38 and 39
Composition,
succession and board
evaluation
Pages 91 to 94
Audit, Risk and
internal control
Pages 95 to 104
Remuneration
Pages 105 to 125
KEY TOPICS RAISED
IN THE 2018 CODE
Board meetings during the year
Board meetings attended during the year
Paul Lester, Chair 8(8)
Paul Forman, Chief Executive Ocer 8(8)
Jack Clarke, Chief Financial Ocer 5(5)
Lily Liu, Chief Financial Ocer 3(3)
Mary Reilly, Senior Independent Director 8(8)
Nicki Demby, Non-Executive Director 3(3)
Ralf K. Wunderlich, Non-Executive Director 8(8)
Adrian Peace, Non-Executive Director 8(8)
Dupsy Abiola, Non-Executive Director 7(7)
Figures in brackets denote the maximum number of meetings could have been attended.
During the year, as deemed appropriate, as part of his induction process for becoming
Chief Executive, Scott Fawcett attended meetings.
Jack Clarke was appointed as an Executive Director on 19 May 2022.
Dupsy Abiola was appointed as a Non-Executive Director on 18 March 2022.
Lily Liu resigned from the Board on 19 May 2022.
Nicki Demby resigned from the Board on 19 May 2022.
On 31 December 2022, the Company Secretary and General Counsel, Jon Green,
stepped down from the role and from 1 January 2023, Emma Reid, was appointed
as Company Secretary.
The Board can confirm that during 2022, it
has applied all Principles and complied with
the all Provisions as set out in the 2018 UK
Corporate Governance Code, other than in
relation Provision 38 of the Code on pension
contribution rates. However, following the
appointment of Scott Fawcett as Chief
Executive, who receives the same pension
contribution as other members of the
workforce, from 1 January 2023, the Company
is in full compliance with all provisions of the
Code.
The Corporate Governance report that follows
addresses the pillars of the Code to ensure
that all stakeholders can best understand the
Company’s approach to meeting the Code.
Some of the information required by the
Code is included in the Strategic Report and
is cross-referenced here to avoid unnecessary
duplication. Where relevant and appropriate,
we also disclose additional information to
provide the fullest picture possible.
Board leadership and purpose
The Board of Directors is appointed by
shareholders who are the owners of the
Company. The Board’s primary role and
responsibility is to provide eective and
entrepreneurial leadership, to promote
the long-term sustainable success of the
Company and generate value for both
shareholders and to ensure the Company
contributes to wider society.
The Board achieves this through its annual
cycle of meetings which ensure it considers
a broad range of matters, including strategy
planning sessions at which the Company’s
purpose, values and the strategy itself are
reviewed in detail. This is achieved with
support from the Executive and the Board
ensures it achieves its role in setting long-
term sustainable objectives, through the
delegation of its authority to the Chief
Executive Ocer as well as Board committees
and management.
The Board has adopted a schedule of matters
reserved for its decision which is available on
the Essentra plc website.
Throughout the year, the Board meets with
management, both formally and informally,
to learn how individual strategies are formed
and resourced, which provides the structure
to regularly assess progress against agreed
metrics, and supports the Board in fulfilling
its role.
The formal framework used in conjunction
with informal opportunities allows the
Board to establish and monitor cultural and
behavioural norms that form the basis for the
success of the business. The Board, through
their own engagement with employees, as
well as the Chief Executive and his immediate
team, also adopt behavioural norms and
influence the culture of the business to
ensure it is aligned with the strategy. The
Board has primary responsibility for ensuring
that cultural practices are reflected in the
Company’s approach and that this is set out
for the workforce through a series of policies
and practices that are consistent with the
Company’s values and norms. The Board
supports this by a Right to Speak process,
that encourages employees to report any
concerns. A further report on this and how the
process operates can be found on page 100.
The Board listens to views from a variety of
stakeholders to help it formulate an eective
view on its strategy and this input is used to
shape the strategy and timing of its delivery.
The strategic reviews undertaken in 2022
provide an example of how the Board use
information from shareholders and other
stakeholders, in this case leading directly to
the subsequent announcements to undertake
strategic reviews of both the Filters and
Packaging businesses.
CORPORATE GOVERNANCE REPORT
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
72
Corporate
Governance
Report
Our structure
In addition to shareholder views, the Board
listens to a broad range of other stakeholders
and engages actively, whether as the Board or
through management, to ensure stakeholder
views are heard and acted upon as might
be appropriate. Valuable feedback from
stakeholders, such as customers, allows the
Company to ensure it focuses its resources in
the right way and is aligned to the long-term
strategy.
The Board considers shareholder and other
stakeholder views and the main trends
and factors which will aect the long-term
success and future viability of the Company –
and how these and the Company’s Principal
Risks, uncertainties and opportunities have
been addressed. More information on this can
be found in the Risk management report on
pages 52 to 65.
The Board reviews the risks to achieving
the Company’s long-term strategy on a
regular basis and during 2022 continued
to be supported in this by the Group Risk
Committee and the Audit & Risk Committee.
The Company’s Principal Risks and Emerging
Risks are included in the Risk Management
Report on pages 52 to 65.
The Board takes the opportunity during
the year to engage with employees on a
range of subjects and the feedback from
these sessions are fed back to the Board
during meetings. The Board has continued
to engage with employees directly through
the continued Voice of the Employee
initiative and provides employees with an
opportunity to meet and discuss any concerns
or observations directly with the appointed
representatives. More information on this
can be found in the Stakeholder engagement
section on pages 38 and 39, and a further
report on Board employee engagement on
pages 79 and 80.
Our structure
Throughout 2022, the Company continued to
use the framework previously disclosed in its
2021 Annual Report.
For 2023, the framework has evolved and is
more streamlined, reflecting the change to
becoming a pure-play Components business,
as follows:
• the introduction of a dedicated ESG
Committee at Board level which also has
oversight of TCFD disclosures
• the establishment of an executive
committee known as the Group Executive
Committee (GEC)
• reporting Risk directly to the GEC and
removal of the Group Risk Committee
• investment matters considered directly by
the GEC with support from the Treasury
Committee
• reporting of compliance issues direct to the
GEC and removal of the Group Compliance
Committee
• closure of the management level ESG
Committee reflecting the changes in the
overall shape
of the business
CORPORATE GOVERNANCE REPORT CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
73
www.essentraplc.com
The terms of reference for
each of the Audit and Risk,
Remuneration, ESG and
Nomination Committees can
be found on the Company’s
website. The terms of reference
are reviewed annually and
updated as necessary.
Social
Steering
Committee
Essentra plc
Board
Treasury
Committee
Sustainability
Steering
Committee
Audit and
Risk
Committee
Remuneration
Committee
Nomination
Committee
Group
Executive
Committee
ESG
Committee
Essentra plc Board (the Board)
In fulfilling its role, the Board:
• establishes the Company’s purpose, values
and strategy and has satisfied itself that
these and its culture are aligned
• sets, continually reviews and tests the
Company’s strategic aims
• determines the nature and extent of
acceptable risks in achieving the Company’s
strategic objectives, including its approach
to managing climate related matters
• assesses shareholder and stakeholder
interests from the perspective of the long-
term sustainable success of the Company
• oversees the establishment of formal
and transparent arrangements for the
application of corporate reporting,
risk management and internal control
requirements and principles
• ensures that the necessary financial and
human resources are in place for the
Company to meet its objectives
• reviews the performance of the Company’s
executive management
• presents a fair, balanced and
understandable assessment of the
Company’s position and prospects to its
shareholders.
Audit and Risk Committee (ARC)
The ARC supports the Board and is
responsible for:
• monitoring the integrity of the Company’s
Financial Statements
• reviewing, challenging and approving its
accounting policies
• scrutinising the eectiveness of the internal
and external auditors and the Company’s
internal control and risk management
systems.
Remuneration Committee
The Remuneration Committee is established
by the Board and is responsible for setting a
remuneration policy for Directors and senior
executives. This policy is designed to promote
the long-term success of the Company,
taking into consideration the reward,
incentives and conditions available to the
Company’s workforce, shareholders and other
stakeholders. The Remuneration Committee
determines an appropriate balance
between fixed and performance-related and
immediate and deferred remuneration. The
Remuneration Committee is also responsible
for setting the fees of the Chairman.
Nomination Committee
The Nomination Committee is responsible
for regularly reviewing the structure, size
and composition of the Board for any
changes that it considers to be appropriate.
The Nomination Committee will lead the
process for Board appointments and make
recommendations to the Board taking into
account the Company’s strategic priorities,
the main trends and factors aecting the
long-term success and future viability of
the Company and consider candidates in
accordance with the Board Diversity Policy.
The Board are appointed for
terms of three years, and each Non-
Executive Director may serve up to a
maximum of nine years. Each Director
of the Board stands for election or re-
election each year as appropriate.
The Board has considered which of the
Non-Executive Directors are considered
to be experts in specific fields as shown
below. Further information on the
background and experience of our
Board can be found on page 70 and in
the Notice of Annual General meeting.
• Risk management
Paul Lester, Ralf K. Wunderlich,
Adrian Peace, Mary Reilly
• Investor Relations
Paul Lester
• Recent Audit and Financial
Mary Reilly, Ralf K. Wunderlich
• Remuneration
Ralf K. Wunderlich, Kath Durrant
• People and social
Kath Durrant, Adrian Peace
• Innovation
Dupsy Abiola
• Technology
Dupsy Abiola, Adrian Peace
• Industry Expert
Adrian Peace
• Sustainability
Ralf K. Wunderlich, Adrian Peace
• Regulatory & Governance
Dupsy Abiola, Mary Reilly, Paul Lester,
Kath Durrant
CORPORATE GOVERNANCE REPORT CONTINUED
Sustainability Committee
During 2022, the Board level Sustainability
Committee focused on all environmental
aspects and is responsible for providing
advice on and coordinating, sustainability-
related activities across the Company. The
Sustainability Committee reviewed the
strategies, policies, management, initiatives,
targets and performance of the Company
within its sustainability framework. This
Committee has transitioned into the ESG
Committee from 2023 onwards.
ESG Committee (ESGC)
From 2023, the ESGC has oversight delegated
to it by the Board for determining the ESG
strategy and approach to ESG aairs. The
ESGC is responsible for scrutinising the
ongoing performance against sustainability
targets and measuring progress of the
ESG strategy and providing feedback
where appropriate to other committees,
including the Remuneration Committee for
ESG measures that are incorporated into
bonusable targets.
Tenure
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ESSENTRA PLC ANNUAL REPORT 2022
74
CORPORATE GOVERNANCE REPORT CONTINUED
Group Executive Committee
From January 2023 onwards, the Group
Executive Committee (GEC) provides general
executive management of the pure-play
Components business and operates within
the delegated authority limits determined by
the Board.
Group Management Committee
During 2022, the Group Management
Committee (GMC) provided general executive
management of the strategic reviews and of
the broader Essentra business, within agreed
delegated authority limits determined by
the Board. Specifically, the GMC supported
the Chief Executive in achieving Essentra’s
values and goals. Following the sale of the
Packaging and Filters businesses, the GMC
was disbanded by the year end, with the
Components leadership team forming the
GEC, as set out immediately above.
Group Risk Committee
During 2022, the Group Risk Committee
(GRC) was responsible for monitoring
Principal and Emerging Risks, and ensuring
the eectiveness of business and functional
risk management. Further details of the
Company’s risk management framework can
be found on page 55. From 2023 onwards,
Essentra’s approach to risk management
is reported on directly to the GEC in the
first instance on a quarterly basis or more
frequently if so required.
Treasury Committee
During 2022, the Treasury Committee
operated as a sub-committee of the GRC.
It set the Treasury Policy for approval by
the Board and reported to the GRC for
management of treasury related risks and to
the ARC for the eectiveness of the process
for managing those risks. From 2023, the
Treasury Committee will operate as a sub-
committee of the GEC but will continue to
report on treasury and financial operating
risks to the ARC as may be appropriate.
Investment Committee
The Investment Committee was introduced
at the start of 2020 and operated as a
sub-committee of the GMC. The Investment
Committee provided control and challenge
around major capital expenditure over £250k.
From 2023, the function of the Investment
Committee will be fulfilled by the GEC with
the support of the Treasury Committee, which
is a sub-committee of the GEC.
Group Compliance Committee
During 2022, the Group Compliance
Committee (GCC) was established to oversee
the Group’s implementation of compliance
programmes, policies and procedures required
to meet legal, compliance and regulatory
requirements. The GCC was responsible
for executive monitoring of the overall
progression of compliance activities. From
2023, compliance activity is monitored directly
by the GEC.
ESG Committee (management level)
The management level ESG Committee
was established during 2021 and operated
as a sub-committee of the GMC. It was
responsible, along with the GMC for the
Group Environmental Sustainability Policy
and developing the first report on TCFD.
During 2022, after the completion of the
year end reporting cycle and as the strategic
reviews progressed, each business was better
able to manage their own approach to
sustainability, and the committee’s work drew
to a natural conclusion. ESG matters were
reported directly to the GMC as appropriate.
From 2023, the GEC is directly responsible
for all ESG matters and is supported in its
responsibility for ESG by a Sustainability
Steering Committee and a Social Steering
Committee, that report to the GEC.
Fair, balanced and understandable
One of the key requirements is for the
Annual Report to be fair, balanced and
understandable. In coming to a conclusion
that the Annual Report is fair, balanced and
understandable the Board has the support
of the ARC, which makes recommendations
to it on this and also considers the process
adopted by the organisation in drafting the
Annual Report, which requires Company-wide
co-ordination and review. That process runs
alongside the formal audit of the Financial
Statements conducted by the External Auditor.
The Board further takes into account
representations made by management
and the views of the internal and external
auditors as to the integrity of the narrative
and financial statements. The comprehensive
review process carried out with detailed
scrutiny, assessment and reporting from
the ARC followed by further critical review
by the Board as a whole, enabled the Board
to determine that the 2022 Annual Report,
taken as a whole presents a fair, balanced
and understandable position and provides
shareholders with the information necessary
to assess the performance, strategy and the
business model of the Company.
Of the eight Board members, six are
considered to be independent as
deemed by the Code (75%). Whilst this
includes the Chair who was considered
independent upon appointment, it
is recognised the Chair is unlikely to
remain independent throughout his
tenure.
Board composition
Executive 25 %
Non-Executive 75 %
Tenure – Non Executive
Up to 3 years 50%
3–6 years 33%
6–9 years 17%
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ESSENTRA PLC ANNUAL REPORT 2022
75
In developing the purpose, vision, values and
goals, management looked to the existing
culture and norms it had been using for
some time, in conjunction with the previous
Group-wide approach. This approach allowed
the business to ensure its purpose reflected
its culture and that it could continue and
flourish.
The Board, with the support and input of the
GEC, considered the existing practices and
following in-depth consideration, agreed
the purpose “to help customers build a
sustainable future” resonated with why the
business existed and provided the meaning for
all of the business activity.
At the Capital Markets Event held in
November 2022, the GEC announced its vision
and goals for the business. The vision “to be
the world’s leading responsible, hassle-free
supplier of essential industrial components”
had been used by the Components business
for some time, and the ambition and focus
of smooth hassle-free customer service
underpins the priorities of the business.
The goals had been stated around four key
areas:
• Market leader with a unique proposition in a
fragmented £8-10bn market
• Clear strategy to drive organic growth
and market share gains supported by
digitalisation and sustainability
• High margin business with scope to expand
through scale eciencies, operational
eectiveness and pricing
• Strong returns and cash conversion
enabling value enhancing M&A
CORPORATE GOVERNANCE REPORT CONTINUED
The business had developed behavioural
norms over a period of years that had been
used in parallel with the previous Group
values, and it was agreed that certain key
norms were appropriate to become values.
The Board agreed that “living our values”
was a key way to ensure behaviours and
expectations were able to be aligned across
our footprint:
• We care about our customers
• We care about each other
• We deliver
• We are an eective team
Purpose during 2022
Reflecting on the prior purpose the Board
noted the success of the previous Essentra
House and the shared purpose enjoyed by
three dierent businesses “to responsibly
provide the products and services our
customers need to succeed” and observed
that during the year the purpose had
remained relevant and supported the
business’s approach to how it conducted
itself.
This had been seen first-hand by the Board
when the Board Employee Champions had
visited sites and been able to see the values
of safety, respect and diversity, openness,
honesty and integrity and energy for change
in use. More information on these visits can be
found on page 80.
The Board believes the previous values will
allow the Packaging and Filters businesses
to continue their transformation under new
leadership.
We help
customers
build a
sustainable
future
To be the
world’s leading
responsible,
hassle-free
supplier of
essential
components
To double
the revenue
and triple
operating
profits
Market leader with a unique proposition
in a fragmented £8-10bn market.
Clear strategy to drive organic growth
and market share gains supported by
digitalisation and sustainability.
High margin business with scope to
expand through scale eciencies,
operational eectiveness and pricing.
Strong returns and cash conversion
enabling value enhancing M&A.
We care
about our
customers
We deliver
We care
about each
other
We are
an eective
team
OUR PURPOSE OUR VISION OUR GOALS OUR AMBITION LIVING OUR VALUES
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ESSENTRA PLC ANNUAL REPORT 2022
76
Essentra purpose,
values and culture
With the newly focused business, the Board wanted
to ensure that the Company’s purpose and values
reflected its culture and beliefs. Working with the
GEC, a review was carried out to assess and agree
the Company’s purpose.
The Board’s agenda is set by the Chair and
carefully planned against the strategy to
ensure that appropriate time is given to
managing the aairs of the Company. This
ensures focus on the Company’s strategic
activities and key monitoring activities, as
well as reviewing significant issues so that
matters are considered in line with the
schedule of reserved matters. An annual
cycle of agenda items is in place to support
the work of the Board.
During 2022, the Board held eight
scheduled meetings with an additional
ten meetings formed of briefing sessions,
updates, sub-committees and formal
meetings during which various aspects of
the strategic reviews were considered.
Strategic reviews
• Considered and agreed a governance
framework to manage the strategic reviews
which included regular reviews of risks
associated with the delivery of such significant
projects, and received regular updates on
progress of each of the strategic reviews
• Approved the sale of the Filters business
to Frank Acquisition Four Limited, a direct
subsidiary of Centaury Management
Limited, which is owned and controlled by
the investment oce of the Markus family,
for an enterprise value of approximately
£262.1m including initial cash consideration
of £200m and up to £20m deferred earn-out
consideration. After deducting customary
adjustments including debt like items, and
amounts attributable to non-controlling
interests, net cash received totalled £163m
• Approved the publication of two Class
1 Circulars, which the Board potentially
acceptable and appropriate to recommend to
shareholders for approval for the sale of the
Packaging and Filters business
• Approved the sale of the Packaging business to
Mayr-Melnhof Group for a cash consideration
of £312m (on a cash-free, debt-free basis
subject to the customary adjustments) which
the Board considered potentially acceptable
• Approved a proposal for funding for the
Essentra Pension Plan as part of the sale of the
Packaging and Filters business
Strategy
• Approved the acquisition of Wixroyd Holdings
Limited, a bolt on acquisition for the
Components business
• Held a deep dive session on Components
approach to safety and proposed approach to
achieving better safety awareness ambitions
• Received regular updates, as well as held
in-depth sessions, on progress of the Business
Process Redesign (BPR) project
• Approved a lease for a new site in Mexico
• Oversaw changes to the new Group Executive
Committee
Matters considered by the Board in 2022
CORPORATE GOVERNANCE REPORT CONTINUED
Financial
• Approved the Company’s trading statements,
Full Year and Half Year results and quarterly
trading statements
• Approved the Company budget for 2023
• Approved dividend payments with 2021 final year
dividend of 4.0p per share and interim dividend
for 2022 of 2.3p per share
• Considered and agreed the ways in which
the proceeds from the sale of the Filters and
Packaging business could be used
Operational and risk
• Received regular reports from the Chief Executive
and the Chief Financial Ocer
• Received detailed presentations from senior
management across the businesses and
considered reports from functional management
about matters of material importance to the
Company
• Reviewed the impact of supply chain disruptions
across the globe
• Undertook a considered review of each Principal
Risk and Emerging Risk and approved changes to
the Principal Risks for the Half Year, and approved
a refreshed set of Principal and Emerging Risks
for the pure-play Components business
• Received regular updates on progress of the
Business Process Review project
• Continued consideration of cyber security risk
Governance and ethics
• Received updates from the Board Employee
Champions following in-person visits to sites
which were also accompanied by virtual visits to
other sites
• Participated in an internally facilitated Board
evaluation, review of the conclusions and
agreement on subsequent action plans
• Reviewed and approved the annual Modern
Slavery Statement
• Received updates from Board committees on
their respective meetings
Leadership and people
• Received regular updates on the safety and
wellbeing of our people
• Monitored performance and continued
development of Health and Safety risk and
at each meeting assessed Health and Safety
performance
• Received regular updates on the impact of the
strategic reviews on our people
• Considered proposals on how to ensure people
were correctly aligned to a business so that each
business was supported at the right level, and
that every person impacted by the strategic
reviews were treated with respect and dignity
throughout a challenging period
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ESSENTRA PLC ANNUAL REPORT 2022
77
Principal decisions are defined
as both those that are material
to the Company, but also those
that are significant to any of our key
stakeholder groups. For more detail on our
key stakeholder groups see pages 38 and 39.
In making the following principal decisions
the Board considered the views of its key
stakeholders, as well as the need
to maintain a reputation for high
standards of business conduct and
the need to act fairly between the
members of the Company.
CORPORATE GOVERNANCE REPORT CONTINUED
Principal decision 1
Sale of the Packaging business
• Following a period of due diligence and
negotiation with potential buyers, the Board
considered and agreed to the sale of the
Packaging business to Mayr-Melnhof Group
(MM Group), a Vienna based business that is a
global producer and leading player in Europe for
cartonboard and folding cartons with an oer
in kraft paper and uncoated fine papers for
various end applications, for the sum of £312m
(on a cash-free, debt-free basis subject to the
customary adjustments), which the Board
considered acceptable
• The Board considered a range of oers, and once
a range of acceptable oers had been agreed,
the Board met on several occasions to consider
which of the oers would provide the best
opportunity for Essentra, for our shareholders and
stakeholders, as well the Packaging business and
its employees, customers and suppliers and other
stakeholders
• The Board agreed that the oer from MM
Group was an appropriate and acceptable oer
and that the terms of the Sale and Purchase
Agreement and transitional arrangements were
agreeable and they would seek shareholder
approval
• The Board were mindful of the synergies between
the two businesses, alongside the growth
potential in the United States that the Packaging
business would provide MM Group and would
provide the business with the best outcome for
its long term sustainable growth
• The Board considered the impact of the
oer from MM Group on all of the Packaging
business’ stakeholders as well as Essentra’s
stakeholders and shareholders and concluded
that the synergies and MM Group’s ambitions
for growth in the pharmaceutical packaging
industry provided a good home for the Packaging
business and its employees
• As the transaction required shareholder
approval, the Board considered it appropriate
to recommend the sale to shareholders, and
approved the publication of a Class 1 Circular and
Notice of General Meeting, and at the General
Meeting were pleased that the resolution to sell
the Packaging business was passed
Principal decision 2
Sale of the Filters business
• As had been announced in 2021, the Board had
agreed previously to carry out a strategic review
of the Filters business to best consider its future
ownership structure
• The Board, with the support of advisors, identified
a range of options on how to structure the
ownership of the Filters business
• The Board considered two options to be viable
and each was progressed during the year
in parallel but at diering speeds to ensure
resources were carefully managed and that each
option was able to have the opportunity to be
fully explored
• As the options were progressed, a range of
acceptable oers for the sale of the Filters
business were received with one oer, from
Centaury Management Limited, considered
acceptable
• The Board reached the conclusion that the sale
to Centaury Management Limited was structured
in a manner that would provide Essentra and
its shareholders with the level of return that the
Board considered acceptable
• The Board also gave consideration to other
stakeholder concerns, including the buyers plans
for the business and its employees, noting that
Centaury intended to focus on the future growth
of the business
• The Board considered it appropriate to
recommend the sale to shareholders for approval
and accordingly, approved the publication of a
Class 1 Circular and Notice of General Meeting in
support of this
• The sale allowed the Board to conclude the final
step of the transition of Essentra to being a pure-
play Components business and for final steps in
respect of pension contributions and prepayment
of a portion of the US Private placement notes to
take place, which would strengthen the position
of Essentra’s balance sheet ensuring it the
flexibility needed to pursue its own value creating
organic and inorganic growth opportunities
including bolt-on acquisitions
• The Board had agreed that the remainder of
funds would be returned to shareholders
Principal decision 3
Acquisition of Wixroyd Holdings Limited
• The Board approved the acquisition of Wixroyd
Holdings Limited, a leading UK supplier of
industrial parts for the engineering sector, at the
end of November 2022 for an initial consideration
of £29.5m and up to £7.0m deferred earn-out
consideration on a cash-free, debt-free basis
• In reaching this decision, the Board considered
a range of factors and applied the sustainability
criteria that the Sustainability Committee had
reviewed during the year
• The Board agreed that the transaction would
help Essentra fulfil its organic and inorganic
growth strategy that had been launched at
the November 2022 Capital Markets Event, to
accelerate and supplement organic growth
through value enhancing bolt on acquisitions
that can expand market and geographical
breadth
• The Board agreed that the acquisition would
strengthen Essentra’s expertise and its product
portfolio bringing about benefit for customers
through cross selling opportunities through
Wixroyd’s manufacturing and supply of
innovative mechanical components, with an
extensive portfolio of over 100,000 products
Principal decisions
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78
CORPORATE GOVERNANCE REPORT CONTINUED
During the year a total of nine site visits were
undertaken by the Board Champions across
the regions.
Of the nine visits, one was held virtually
whilst eight were held in person. All Board
Champions were pleased to hold the majority
of their meetings in person and to use virtual
meetings as a tool for sites where their
geography made it challenging for in-person
visits to be arranged. This approach has
ensured that sites further away are included
and able to contribute their views and
thoughts on the business.
The Voice of the Employee in-person sessions
coincided with visits to two Components sites
in France and Spain, where BPR was being
rolled out. Voice of the Employee sessions
were arranged to allow the workforce to
engage directly on their response to the
programme. With BPR having received
significant investment over several years its
success is significant for the business and this
provided the Board with an opportunity to
exercise oversight and ensure that the regular
information it received on the programme
matched that at sites. The visits to Spain and
France provided useful insights that were
reported back to the Board and allowed the
Board to challenge management further on
its approach to BPR.
Other feedback from the visits included
comments from employees on the diering
levels of engagement they had experienced
from senior leadership and whether cascades
of company news and updates could be
carried out on a more timely basis.
The Board agreed during the second half of
the year, that whilst it had visited a mix of
sites from across all three businesses during
the year, it was not appropriate following the
announcement of the sale of the Packaging
and Filters business to continue to make
those visits. The Voice of the Employee visits
therefore focused on just Components sites
during the second half of 2022.
The Board had previously
committed to, and have restated
their commitment to:
Receive updates on employee engagement
at every meeting
Review themes from Voice of the Employee
sessions and to engage management as
appropriate where the Board have any
concerns
Review formal employee feedback for
themes that may be raised directly with
people in the sessions to ascertain their
view on those matters
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Board employee
engagement
During 2022, the Board Champions, Mary Reilly,
Ralf K. Wunderlich and Adrian Peace continued to
engage with the whole of the workforce through the
Voice of the Employee initiative. We report on the
outcomes of those meetings and how the voice of
employees was reported back to the Board and
used during discussions and decision-making.
Sites visited in 2022
Clayton,
US
Packaging
Greensboro,
US
Packaging
Kidlington,
UK
Components
Madrid,
Spain
Packaging
Barcelona,
Spain
Components
Paris,
France
Components
Nettetal,
Germany
Components
Wolfen,
Germany
Packaging
Sydney,
Australia
Components
In-person In-person In-person In-person In-person In-person In-person In-person Virtual
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Division of
responsibilities
Non-Executive Directors provide an
independent view in Board discussions
and in the development of the
Company’s strategy.
The roles of the Chair and the Chief Executive
are separate and clearly defined so as to
ensure a clear separation of responsibilities
which are set out in writing and agreed by
the Board. The Chair leads the Board and
ensures its eectiveness. The Chief Executive
is responsible for the executive management
and performance of Essentra’s operations.
The Board considers that, for the year
ended 31 December 2022, each of the Non-
Executive Directors were independent. In
making this assessment of independence,
the Board considers that the Chair and
Non-Executive Directors are independent of
management, and free from business and
other relationships which could interfere with
the exercise of independent judgement now
and in the future. The Board believes that any
shareholdings of the Chair and Non-Executive
Directors serve to align their interests with
those of shareholders.
The Board considers that the Non-Executive
Directors provide an independent view in
Board discussions and in the development
of the Company’s strategy. Non-Executive
Directors ensure a sound basis for good
corporate governance for the Company,
challenging management’s performance and,
in conjunction with the Executive Directors,
ensuring that rigorous financial controls and
systems of risk management are maintained
as appropriate to the needs of the businesses
within Essentra.
The Senior Independent Director (SID) can
be contacted via the Company’s registered
oce. During the year, this role was held by
Mary Reilly. The SID is available to shareholders
to discuss and develop an understanding of
their issues and any concerns which cannot
be resolved by discussions with the Chair, the
Chief Executive or Chief Financial Ocer, or
where such contact is inappropriate.
The Board considers that,
for the year ended 31
December 2022, each of the
Non-Executive Directors were
independent.
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All of the Board have
attended all Board and
Committee meetings this year
and with their commitment to
their roles clear, the Board is
content that the Non-Executive
Directors devote sucient time
to the business of Essentra.
External commitments
The Board is fully aware of current external
commitments for all of the Non-Executive
Directors and is satisfied these do not distract
from the time committed to Essentra.
Non-Executive Directors are also required to
discuss any additional external appointments
with the Chair prior to their acceptance.
In addition, the time commitments of the
Chair are the subject of review by the SID, in
conjunction with the other Non-Executive
Directors. The Conflicts of Interest register is
reviewed at each Board meeting.
All of the Board have attended all Board and
committee meetings this year and with their
commitment to their roles clear, the Board
is content that the Non-Executive Directors
devote sucient time to the business of
Essentra. Executive Directors may accept
outside appointments, provided that such
appointments do not in any way prejudice
the ability to perform their duties on behalf of
Essentra.
The Chief Executive, Scott Fawcett, and
Chief Financial Ocer, Jack Clarke, do not
hold any Non-Executive positions. The former
Chief Executive, Paul Forman and former
Chief Financial Ocer, Lily Liu, both held
one external Non-Executive position, and
the Board was of the view that this was not
detrimental to the performance of their duties
given the time requirements involved.
The letters of appointment for Non-Executive
Directors are available for review at the
Company’s registered oce and prior to the
AGM.
Directors’ elections
The Company’s Articles of Association
require that all new Directors seek election
to the Board at the AGM following their
appointment. In compliance with the 2018
Code, all eligible Directors will put themselves
forward for re-election on an annual basis.
The Board, including the Chair, is satisfied
that each of the Directors being put forward
for re-election continues to be independent
and eective and that their ongoing
commitment to the role is undiminished.
The Company announced that Scott Fawcett,
would become Chief Executive and Executive
Director on 1 January 2023. Scott will stand
for election at the Annual General Meeting on
3 May 2023.
The Company announced the appointment of
Kath Durrant as a Non-Executive Director on
3 January 2023, and therefore she will stand
for election also at the Company’s Annual
General Meeting.
All other Directors will stand for re-election
at the Annual General Meeting. The Notice
of Annual General Meeting includes more
detailed information on the background and
experience of all Directors and sets out the
reasons and rationale that the Board support
their election or re-election.
The conduct of Board matters
During the year, there were eight scheduled
Board meetings. In addition to these
scheduled formal meetings, the Board met
on a further ten occasions, with further
sub-committee meetings held to consider
progress made in relation to the strategic
reviews.
Informal discussions are also held between
the Chair and the Non-Executive Directors
on a regular basis and additionally prior to or
post each scheduled Board meeting. Regular
contact is also maintained with the Chief
Executive and with members of the Group
Executive Committee (GEC) and during the
year meetings between senior management
and the Board were initiated. The SID has also
held meetings with Non-Executive Directors
without the Chair present.
The Board is supported in its role by Board
committees and whilst they are a valuable
part of the Company’s corporate governance
structure, the Board, as a whole, maintains
oversight of important matters and, after
each Committee meeting, the Chairs of the
committees report on the matters which
have been reviewed. In particular the Board
looks to the Audit and Risk Committee to
undertake the majority of the work involved
in monitoring and seeking assurance as to
compliance with the internal controls and risk
management practices within this structure.
Other specific responsibilities are delegated
to the Remuneration, Nomination and ESG
Committees. The Board believes that it,
and its Committees, have the appropriate
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composition to discharge their respective
duties eectively with the appropriate level
of challenge and independence, and that the
members of the Board in conjunction with
the senior executive teams are well equipped
to drive and deliver, the Company’s strategic
objectives.
The Board is of the view that it has a highly
competent Chair who, together with each
of the other Non-Executive Directors, has
considerable international experience at a
senior level in the management of activities
broadly similar to those carried out by
Essentra and the material issues likely to arise
for the Company.
Operational matters and the responsibility
for the day-to-day management of the
business is delegated to the Chief Executive,
supported by members of senior executive
management as appropriate, within
delegated authority limits and supported
by a Schedule of Authority that ensures a
strong culture towards control is in place.
The support of the GEC ensures a strong link
between Essentra’s overall corporate strategy
and its implementation within an eective
internal control environment and robust risk
management.
The GEC is the newly formed executive
committee and from the start of 2023, they
have met on a weekly basis.
Full details of the membership of the GEC can
be found on page 66.
During 2022, the former executive committee,
the GMC, also met weekly to discuss the
strategic reviews, providing ongoing guidance
to ensure each business remained on track
and was not distracted by the strategic
reviews.
Both the former executive committee, GMC,
and the current GEC, has adopted a clear
governance framework: agendas are set
according to the framework and all matters
arising are addressed. Papers are circulated
in advance of the meetings. Both the former
and current CEO make good practice of
ensuring views of all executive members are
heard and that these behaviours are modelled
across the business.
Board papers
During 2022, some Board papers were
submitted to the Board at short notice,
reflecting the pace at which the strategic
reviews were developing. The Board were kept
up to date of all issues so they were able to
exercise oversight and issues were flagged
to them ahead of meetings. The Board
acknowledged in the 2022 Board Evaluation
that whilst papers were later than they may
have liked, they recognised the fluid nature of
the issues being presented and the need to
consult widely on some proposals. The Board
and management have agreed for 2023, that
there will be a return to Board papers being
provided well ahead of the meeting.
At the end of 2021, the Board had also
fed back that some regular papers had
become longer than necessary, and actions
were agreed to improve this in 2022. The
GEC has committed to continue making
improvements to reduce the length of papers
to make papers more concise and meetings
ecient, with a proportionate amount of
time allocated to board agenda items.
Applying Essentra’s corporate
responsibility principles
From 2023, the Chief Operating Ocer is
responsible for co-ordinating the operation
of policies on health and safety and
sustainability; the Company Secretary is
responsible for co-ordinating policies on
ethics and the Head of Risk is responsible for
compliance related policies. Further details
can be found in the ESG report on pages 22
to 35.
Diversity
During 2022, the Company continued to
ensure its approach to Diversity & Inclusion
was reflected in how it conducted business
and its approach to its employees.
Towards the end of 2021, the Nomination
Committee agreed that a thorough review
of the Diversity & Inclusion Policy should take
place during 2022. However, the Nomination
Committee agreed to defer the review until
the conclusion of the strategic reviews,
as resource was required to complete the
strategic reviews, and the outcome would
be challenging to meaningfully apply across
the three businesses given they would be
in dierent positions with regards to their
structures.
Despite this, the Board and senior
management are committed to ensuring
ethnic and gender balance across the
business to reflect the communities in which
we operate and consider it as critical to the
business’s success.
The Board were pleased to voluntarily report
on its ethnicity. Furthermore the Board also
reported on gender during 2022 in compliance
with the Companies Act and the Code.
Operational matters and
the responsibility for the
day-to-day management of
the business is delegated to
the Chief Executive, supported
by senior executives within
delegated authority limits.
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In terms of Board diversity as at 31 December
2022:
• 38% of the Board were female
• the Senior Independent Director was a
woman
• the Board membership consisted of
two individuals from a non-white ethnic
minority background
At the time of publishing this Report, the
Board are pleased to have been able to see
through the promise made at the 2022 AGM
by the Chair to recruit a further women
to the Board. As a result, the composition
of the Board made up by women has
increased to 38%. The Board have further
increased the gender diversity on the Board
by the appointment of a woman Company
Secretary. The Board recognise that the
Company Secretary is not counted in the
published statistics, but as the Board takes
an inclusive approach, it is pleased that the
appointment of a female Company Secretary
further strengthens the gender ratio on the
Board to 44%.
The Board continues to confirm a strong
commitment to diversity including, but not
limited to, gender diversity at all levels of the
Company, and considers its own composition
provides a reasonable indication of its
approach to this commitment.
The Board Diversity Policy continues to serve
to ensure that all candidates for Board
appointments are considered in accordance
with the Policy during the nomination process.
In continued support of increasing diversity
for all UK listed companies, the Board has
commenced a search for its next Board
trainee and will report on the outcome in next
year’s Annual Report. Further information on
diversity can be found on page 94 whilst more
information on ESG can be found on pages
22 to 35.
Conflicts of interest
Directors have a statutory duty to avoid
actual or potential conflicts of interest. The
Company’s Articles of Association permit
the Board to consider and, if it sees fit, to
authorise situations where a Director has
an interest that conflicts, or may possibly
conflict, with the interests of the Company.
The decision to authorise a conflict of interest
can only be made by non-conflicted Directors.
A register of Directors’ Interests is maintained
so that any potential concerns are addressed
before any material issues may arise.
The Conflicts of Interest register and the
schedule of Directors’ Interests is reviewed
at each Board meeting. During the course
of the year, there was one potential conflict
and accordingly, that Director removed
himself from the meeting returning only when
authorised to do so by the Chair. The conflict
subsequently fell away with the progression
of events and there were no other material
conflicts of interest impacting on the conduct
of the Board’s activities.
Information and professional
development
The Chair, supported by the Company
Secretary, takes responsibility for ensuring
that the Directors receive accurate, timely
and clear information.
On appointment, an induction programme
tailored to their individual needs is available
to Directors, and is designed to assist them
in their understanding of Essentra and its
operations.
Throughout a Director’s tenure, they are
encouraged to develop their knowledge of
the Company through meetings with senior
management and site visits. Directors are also
provided with updates, as appropriate, on
matters such as fiduciary duties, Companies
Act requirements, share dealing restrictions
and corporate governance matters.
All Directors have access to the advice
and services of the Company Secretary. In
the furtherance of their duties, there are
agreed procedures for the Directors to take
independent professional advice, if necessary,
at the Company’s expense. No Director took
independent professional advice during the
year in respect of Board matters other than
Paul Forman who took advice with respect
to reaching an agreement with regards
to his departure as Chief Executive. More
information relating to that is reported on
page 119.
The Board continues to confirm a strong
commitment to diversity including, but not
limited to, gender at all levels of the Group.
The Board continues
to confirm a strong
commitment to diversity
including, but not limited to,
gender at all levels of the
Group.
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Shareholder communications
The Board recognises the importance of
eective communication, and seeks to
maintain open and transparent relationships
with its shareholders and other stakeholders,
including providers of finance, customers and
suppliers. This is achieved by regular updates
through public announcements, the corporate
website and other published material.
All shareholders can meet any of the Directors
of the Company should they so wish. In
particular, the SID is available to shareholders
should they have concerns or wish to share
their views. Feedback from meetings with
shareholders is provided regularly to the Board
so they are aware of any issues or concerns,
and ensures that the Board has a balanced
view from major investors. In 2022, the
Board hosted its first hybrid AGM which was
conducted both on an in-person and virtual
basis from its registered oce, and the UK
head oce in Kidlington. No shareholders
joined the meeting virtually whilst some
shareholders did attend in person and enjoyed
visiting the site. Therefore the Board have
agreed that this year’s AGM will be held in
person only.
At the AGM, the level of proxy votes lodged on
each resolution is made available, both at the
meeting and subsequently on the Company’s
website. Each substantially separate issue is
presented as a separate resolution, and the
Chairs of the Audit and Risk, Nomination,
Remuneration and ESG Committees
are available to answer questions from
shareholders.
The Company communicates and engages
regularly with its major institutional
shareholders and ensures that all the
Directors, including the Non-Executive
Directors, understand the views and concerns
of major shareholders in relation specifically to
their views on governance and performance
of the Company against strategy. The Chief
Executive, Chief Financial Ocer and Inverstor
Relations Manager have primary responsibility
for investor relations. Virtual presentations for
analysts and shareholders were held during
the year, and virtual meetings were also
undertaken with key institutional investors to
discuss strategy, financial performance and
investment activities. Slide presentations are
made immediately available after the Full and
Half Year results, and are also available on the
Company’s website to view and download. In
November 2022, the Company held a Capital
Markets Event, to support the launch of the
pure-play Components business, which was
well attended virtually and in person. The
event laid out the strategy of the standalone
business and included presentations from
members of the GEC. The Company ensures
that any price-sensitive information is
released to all shareholders at the same time,
in accordance with regulatory requirements.
During the year the Board Chair, Chair of the
Remuneration Committee and Chair of the
Sustainability Committee (now ESG) have
held independent meetings with shareholders
and additionally, the Chair has attended
meetings with the Chief Executive and
the Chief Financial Ocer. At each Board
meeting reports are presented detailing the
engagements with shareholders to ensure
that the Board as a whole has a clear
understanding of the views of shareholders.
Financial reporting
The Directors have acknowledged, in the
Statement of Directors’ Responsibilities
set out on page 132, their responsibility for
preparing the Financial Statements of the
Company.
The Directors are responsible for preparing
the Annual Report and Accounts, and
they consider that the Annual Report and
Accounts taken as a whole are fair, balanced
and understandable. The External Auditor has
included a statement about their reporting
responsibilities in the Independent Auditors‘
Report, set out on pages 193 to 199.
Directors understand the views and concerns
of major shareholders in relation specifically
to their views on environmental, social and
governance issues and the way in which they
are embedded in strategy and measured in
the performance of the Company against the
strategy.
The Directors are also responsible for the
publication of Half Year results, as required by
the Disclosure and Transparency Rules of the
Financial Conduct Authority. This provides a
general description of the financial position
and performance of the Company during the
relevant period.
In accordance with the 2018 Code, the Board
acknowledges its overall responsibility to
shareholders to ensure that an adequate
system of risk management and internal
control is in place. The Board believe that the
Risk Assurance team continues to provide a
clear indication of, and commitment to this,
and the Board are satisfied with the strength
and depth of knowledge held by the Risk
Assurance team.
Directors understand the views and
concerns of major shareholders
in relation specifically to their
views on environmental, social
and governance issues and the
way in which they are embedded
in strategy and measured in the
performance of the Company
against strategy.
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Chair
• Sets the Board agenda
primarily focused on strategy,
performance, value creation,
culture, stakeholders and
accountability, and ensuring
that issues relevant to these
areas are reserved for Board
decision
• Shapes the culture in the
Boardroom
• Encourages Board members
to engage in Board and
committee meetings and
ensures sucient time
is allocated to promote
eective debate to support
sound decision making
• Fosters relationships based
on trust, mutual respect
and open communication
between Non-Executive
Directors and the Group
Executive Committee
• Develops a working
relationship with the Chief
Executive
• Provides guidance and
mentoring to new Directors
as appropriate
• Maintains a dialogue
with shareholders on the
governance of the Company
Company Secretary
• Maintains a record of
attendance at Board
meetings and committee
meetings
• Responsible for ensuring
good information flows
to the Board and its
committees, and between
the GEC and the Non-
Executive Directors
• Advises the Board on all
regulatory and corporate
governance matters
• Assists the Chair in ensuring
that the Directors have
suitably tailored and detailed
induction and ongoing
training and professional
development programmes
Chief Financial Ocer
• Leads, directs and oversees
all aspects of the finance and
accounting functions of the
Company
• Contributes to the
development of strategy
and management of the
Company’s business
• Manages relationships with
the external auditor and key
financial institutions and
advisors
• Ensures eective internal
controls are in place and
compliance with appropriate
accounting regulations for
financial, regulatory and tax
reporting
Chief Executive
• Proposes the strategy to the
Board and implements the
strategy which has been
approved by the Board
• Communicates to the
workforce the expectations
in respect of the Company’s
culture and ensures that
operational policies and
practices drive appropriate
behaviour
• Develops manageable goals
and priorities for the GEC
• Leads and motivates senior
management
• Ensures that the Board is
aware of the views of the
senior management team on
business issues
• Develops proposals to present
to the Board on all areas
reserved for its judgement
Non-Executive Directors
• Provides constructive and
independent challenge to
executive management
• Brings experience and
objectivity to the Board’s
discussions and decision-
making
• Monitors the delivery of the
Company’s strategy against
the governance, risk and
control framework established
by the Board
• Responsible for evaluating the
performance of the Chair, led
by the SID
Senior Independent
Director (SID)
• Provides a “sounding board”
for the Chair
• Serves as an intermediary
for the other Directors when
necessary
• Acts as an alternative point
of contact for shareholders
where contact through the
normal channels of Chair, or
other Executive Directors, has
failed to resolve any concerns,
or for which such contact is
inappropriate
• Leads the annual assessment
of the eectiveness of the
Chair
• Leads the search and
appointment process and
makes the recommendation to
the Board for a new Chair
Roles and responsibilities
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CORPORATE GOVERNANCE REPORT CONTINUED
Internal controls
In accordance with the 2018 Code, the Board
acknowledges its overall responsibility to
shareholders to ensure that an adequate
system of risk management and internal
control is in place and for reviewing the
eectiveness of this system. Such a system
can only be designed to mitigate, rather
than eliminate, the risk of failure to achieve
business objectives, and can therefore
only provide reasonable, and not absolute,
assurance against material misstatement
or loss. This is essential for reliable financial
reporting and also for the eective
management of the Group.
The internal control and risk management
process for financial reporting processes is
documented within the Essentra Accounting
Manual (the “Manual”) that is updated as
required. The Manual sets out the procedures
and processes established for internal and
external financial reporting and incorporates
accounting policies that are adopted by the
Company, as well as processes and controls
relating to tax and treasury matters. The
Manual sets out clear processes that cover,
amongst other matters, segregation of
duties, reporting responsibilities and review
and approval requirements. The Manual
prohibits management overrides and the
processes set out within the Manual are also
reflected within financial reporting systems
and the framework for financial controls
within the Group. A Delegation of Authority
is in place, that is also reviewed and updated
on a regular basis, that identifies approval
processes for dierent matters. The Manual
is applied across the entire Group and
supported by twice-yearly confirmations from
management in relation to adherence to the
Group accounting policies.
Further details on the Company’s risk
management system and internal controls
can be found on page 87.
The following enables the Board to review the
eectiveness of the system of internal control
and the financial reporting processes:
• the ARC meets regularly and reports to
the Board, no less frequently than at every
Board meeting following an ARC meeting
• the terms of reference provide a framework
for the ARC to review and oversee the
quality, integrity, appropriateness and
eectiveness of the Group’s internal control
framework
• the Board received updates from each
business whilst they remained part of the
Essentra Group, and subsequent to that,
the MD of each of the businesses, alongside
their Divisional Compliance Ocer,
provided updates on controls that were
reported to the ARC
• during the period that was relevant for
each business, every month, the three
businesses submitted detailed operating
and financial reports covering all aspects
of performance. These were reviewed by
the Chief Financial Ocer and the Group’s
central Finance function, and summary
reports are communicated to the Chief
Executive, GMC/GEC and the Board
• certificates were required from each of the
businesses (for the period during which
they were part of the Essentra Group)
to confirm compliance with the Group’s
policies (including financial) and procedures
at both the Half Year and Full Year.
Directors’ and Ocers’ insurance
In accordance with the Company’s Articles of
Association, and to the extent permitted by
the laws of England and Wales, the Directors
are granted an indemnity from the Company
in respect of those liabilities incurred as
a result of their oce. In respect of those
matters for which the Directors may not be
indemnified, the Company maintained a
Directors’ and Ocers’ Liability Insurance
Policy throughout the year. It is anticipated
this policy will be renewed. Neither the
Company’s indemnity, nor the insurance
policy provide cover, to the extent that a
Director is proven to have acted dishonestly or
fraudulently.
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Sustainability
Committee Report
RALF K. WUNDERLICH
Non-Executive Director
The Company believes that sustainability provides it with a unique
opportunity and is a source of competitive advantage whilst the output
contributes to reducing climate change. The overall approach adopted
across the business arises out of its ambition to make real change.”
Membership and attendance
Membership and attendance
Roles and responsibilities during 2022
• Reviewing and assessing the Company’s
exposure as well as identifying
opportunities for sustainability related
issues
• Assessing the Company’s responses to
these issues
• Understanding whether these responses
are consistent with the risk appetite of
the Company
• Understanding stakeholder’s expectations
with respect to sustainability
• Identifying potential gaps in approach
and determining high-level approaches
to resolve
• Monitoring the Company’s progress in
improving its sustainability record and its
sustainability targets
• Keeping under review the role and
responsibility of the Committee and
adapting the purpose of the Committee
to align with internal and external needs
Roles and responsibilities for 2023
• Overseeing the Company’s approach to
its ESG strategy and ensuring it aligns
with the overall strategic plan and
promotes the Company’s long-term
sustainable success, purpose and long-
term strategy
• Providing advice and assurance to the
Group Executive Committee and other
Board committees on developing ESG
targets and monitoring the Company’s
progress towards the achievement of
these targets
• Reviewing and advising on the Task Force
on Climate Related Disclosures (TCFD)
• Ensuring policies relating to ESG
matters are in place with onward
recommendation to other Board
committees were necessary
• Working with other Board committees
to ensure information is passed between
each committee and up to the Board to
support the Board’s responsibility for ESG
Meetings during the year
Ralf K. Wunderlich
Chair
4 (4)
Dupsy Abiola
Non-Executive Director
4 (4)
Adrian Peace
Non-Executive Director
4 (4)
Jon Green
Company Secretary and General Counsel
4 (4)
Paul Forman
Chief Executive Ocer
4 (4)
Mary Reilly
Non-Executive Director
4 (4)
Nicki Demby
Non-Executive Director
2 (2)
Lily Liu
Chief Financial Ocer
2 (2)
Nick Pennell
Group Programme Director
1 (1)
SUSTAINABILITY COMMITTEE REPORT
Figures in brackets denote the maximum number of
meetings that could have been attended. During the
year, Nick Pennell, Lily Liu and Nicki Demby stepped
down from the Committee following their departures
from Essentra and attended those meetings for which
they were eligible.
Other attendees
During 2022, Paul Lester, Chair of the Board, attended
every meeting. During the year, as deemed appropriate,
as part of his induction process for becoming Chief
Executive, Scott Fawcett attended meetings. Other
regular attendees included Jennifer Spence, Head
of Sustainability Strategy, Emma Reid, Head of
Governance, Jack Clarke, CFO and Oshin Cassidy, Chief
People and Culture Ocer.
Roles and responsibilities
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The Company believes that sustainability
provides a unique opportunity and is a source
of competitive advantage whilst the output
contributes to reducing climate change.
The overall approach adopted across the
business arises out of its ambition to make
real change. This is enabling management
to channel its resources to identify and
implement essential changes eectively and
eciently.
The targets selected are chosen because they
provide a positive and measurable impact on
the environment at the same time as being
the right thing to do for a broader range of
stakeholders including regulatory bodies.
This approach is enabling us to run a better
business for the benefit of all stakeholders.
SUSTAINABILITY COMMITTEE REPORT CONTINUED
• Monitored reporting and progress of the
sustainability targets for i) zero waste to
landfill sites ii) total waste production
iii) the percentage of packaging and raw
materials from sustainable sources and
iv) Scope 1 and 2 greenhouse gas (GHG)
emissions
• Reviewed sustainability reporting for
the 2021 Annual Report, including this
Committee report, and agreed the
approach for reporting for the 2022
Annual Report, reflecting the approach
to embedding environmental, social and
governance matters into the business
• Reviewed the regulatory disclosures on
TCFD and assessed ways in which they
can be integrated into the business to
bring about greater impact
• Considered the Company’s approach
to external benchmarking and ratings
agencies, including submission and the
outcomes for CDP and Ecovadis
• Led deep dives into the four sustainability
targets to ensure that they remained on
track and relevant to the organisation
and to understand whether they were on
target and how the Company intended
to meet its longer-term targets
• Reviewed the sustainability criteria used
when considering potential acquisitions
both during the due diligence phase and
the acquisition phase
• Approved Essentra’s commitment to
meet the Science Based Target initiative
(SBTi), committing to near-term and net-
zero targets
• Supported the development of a
sustainability strategy that could be
used post divestment for Filters and fully
integrated for Packaging
• Led discussions on how to approach
sustainability, as well as ESG topics, as
the Company transitioned into being a
pure-play Components business
• Approved and recommended to the
Board that the Committee transition to
become a broader ESG Committee, with
Terms of Reference updated to reflect
this change
• Approved ESG Pillars for the pure-play
Components business providing the
foundation for the ESG strategy
Key activities 2022
Continued sustainability progress
During the year the Committee continued its
work to ensure that each business continued
to make progress against the sustainability
targets, and as the year progressed, the
Committee recognised that reporting would
reflect the changing shape of the business. In
this respect, the Committee paid attention
to methods of analysis and reporting to
normalise the results to ensure meaningful
changes were taking place.
For example, removing the eects of using a
mix of raw materials used on assessing results.
To ensure robust plans were in place to meet
current targets, the Committee worked with
management to ensure actions were in place
to help bridge from actual achievement, to
mid-term and long-term targets, and the
Committee carefully assessed the robustness
of these bridges.
The Committee was pleased to continue
its practice of inviting guest speakers to
join meetings and over the last year was
particularly pleased to learn more about
how a Swedish-based customer had made
significant progress and advanced along their
own sustainability journey. Understanding
that sustainability requirements are
constantly evolving and how to integrate
sustainability into a business motivates
Essentra towards continuing our own journey.
The Committee also reviewed sustainability
related criteria for use when the Board and
GEC consider potential acquisitions.
The use of the sustainability M&A criteria
is pivotal for supporting the business in its
inorganic growth strategy and therefore the
criteria covers the diligence phase, and post-
acquisition integration to best assess how,
and if, an acquisition can be integrated into
the existing business as eectively as possible.
During the year the criteria was applied to
all acquisitions under consideration with the
result that it was agreed to not proceed with
one potential acquisition.
Impact of the strategic reviews
During the year, with the progress of
the strategic reviews, the Components
existing Sustainability Steering Committee
became the primary forum for managing
sustainability and other ESG related
topics at management level. With the
sale of Packaging and Filters, the former
management level ESG Committee, which
had been formed of representatives from
Packaging, Filters, Components and Group,
agreed it was appropriate to pass its duties
over to the Sustainability Steering Committee
following the divestment of the Filters and
Packaging businesses. The Sustainability
Steering Committee is attended by the Chief
Executive, Chief Operating Ocer, Company
Secretary and Head of Sustainability Strategy
and other management. The Sustainability
Steering Committee will continue its role and
escalate matters as needed to both the GEC
and the new Board level ESG Committee.
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ESSENTRA PLC ANNUAL REPORT 2022
89
Task Force on Climate Disclosure
During the year the Committee considered
its approach to TCFD and agreed that
given the in-depth work carried out during
2021, a multi-disciplinary approach would
be used. Colleagues from Sustainability,
Risk Assurance, Finance, Operations
and Governance teams reviewed the
building blocks for assessing disclosures on
governance, strategy, risk management and
metrics and targets for 2022.
As part of that review, it was noted that the
strategic reviews required the business to
consider and analyse whether the scenarios in
last year’s TCFD report remained relevant or
whether they needed to evolve. Management
and the Committee concluded that at this
stage, the scenarios were relevant and would
support the business as the output from the
TCFD report was integrated into the business
plan for the coming year. The Committee,
and management, also considered the range
of risks identified within the TCFD report
and agreed that some risks were no longer
relevant and were therefore removed.
The Committee reviewed all TCFD disclosures
in detail, including the progress made on
quantifying risk and how this impacted
the Long-Term Viability Statement, with
reporting on this also made to the Audit &
Risk Committee. The full report on TCFD is
available on pages 40 to 46.
Board ESG Committee
Each year, on an ongoing basis and formally
towards the end of the year, the Committee
evaluates its performance and whether its
Terms of Reference remain both relevant
and fit for purpose. As the last few years
have seen a significant shift in purpose-led
organisations with environmental, social and
governance related topics embedded into
an organisation’s operations, the Committee
agreed it was necessary to evolve its own role
and responsibilities.
In addition, as the strategic reviews
progressed, the Committee, as well as the
Board, acknowledged that with the business
model simplified to focus on Components
alone, the challenges that the Group had
faced in creating a cohesive ESG strategy
that could apply meaningfully to a Packaging,
Filters and Components business, would drop
away as the business moved forward. This
provided the Committee with an opportunity
to take more significant steps forward in
supporting the new GEC as they developed
their ESG approach and to incorporate Social
and Governance topics, whilst ensuring
that the Remuneration and Nomination
Committees and ARC would continue to
retain their responsibilities for those areas.
With the Board’s support and agreement, the
Committee has now transitioned to become
a Board level ESG Committee.
The ESG Committee provides the business
with the momentum required to ensure
that ESG related opportunities are used to
drive the business forward towards long-
term sustainable success. The business, and
the ESG Committee, recognise that there
are interdependencies between each of the
environmental, social and governance related
topics, such as the impact of end-to-end
supply chain governance on both individuals
and the impact that has on Scope 1, Scope
2 and Scope 3. Therefore, full oversight
and governance of this area is critical for
the Board, and to ensure this is carefully
monitored and challenged, the Board has
delegated this work to the newly formed
ESG Committee.
Through forming the ESG Committee, the
Board will be able to ensure that more time
is given to each of these areas, and that they
are monitored closely to ensure they support
the long-term strategic objectives.
The ESG Committee is chaired by Ralf K.
Wunderlich with the support of the following
colleagues:
• Kath Durrant
• Dupsy Abiola
• Adrian Peace
• Mary Reilly
• Scott Fawcett
Jennifer Spence, Head of Sustainability
Strategy, and Emma Reid, Company
Secretary, have a standing invitation to
attend every meeting, reflecting their day-to-
day responsibility for the overall ESG strategy.
Jack Clarke, CFO, also attends every meeting,
reflecting the significance of ESG to our
overall strategy.
The ESG Committee invites all members of
the Board to attend all meetings, and the
GEC are invited to join meetings when guest
speakers are present or when specific topics
are discussed. The ESG Committee also invites
subject experts from across the business to
present on their individual specialisms.
The Terms of Reference for the new ESG
Committee are available on our website
www.essentraplc.com/investors/corporate-
governance/sustainability-committee.
Ralf K. Wunderlich
Non-Executive Director
Sustainability Committee Chair
28 March 2023
To learn more about our full ESG strategy
and the goals we have set for ourselves,
refer to pages 22 to 35.
SUSTAINABILITY COMMITTEE REPORT CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
90
Nomination Committee Report
The Committee has maintained its focus on ensuring the Board’s
composition is strong and diverse, providing support and advice
to enable management to steer the Company forward a pure-
play Components business”
• Leading the process of appointments
to the Board and senior management
positions using a formal, rigorous and
transparent procedure for appointment in
accordance with the Board Diversity Policy
• Reviewing the skills of the Board to ensure
the combined skills remain appropriate
and support the long-term strategic
objectives and determining Non-Executive
Directors’ independence
• Reviewing and making recommendations
on the composition of the Board to
ensure skills and membership are regularly
refreshed
• Oversight of a diverse pipeline for
succession for the Board and other senior
positions including the executive
• Arranging the annual evaluation of the
Board, Committees, Chair and individual
Directors
• Agreeing an action plan in response to the
annual Board evaluation
• Assessing whether Directors commit
sucient time to discharging their duties
• Review the induction and training needs of
each Director and the Board as a whole
Meetings during the year
Paul Lester
Chair
4 (4)
Mary Reilly
Senior Independent Director
4 (4)
Ralf K. Wunderlich
Non-Executive Director
4 (4)
Adrian Peace
Non-Executive Director
4 (4)
Dupsy Abiola
Non-Executive Director
2 (2)
Nicki Demby
Non-Executive Director
2 (2)
Figures in brackets denote the total number of
meetings a Director could attend and reflects
directors left or joined part way through the year.
Nicki Demby retired from the Board on 19 May 2022
following the conclusion of the Annual General
Meeting. Dupsy Abiola was appointed to the Board in
March 2022 and to the Committee with eect from
the conclusion of the Annual General Meeting in May
2022, although Dupsy had attended the meetings
held earlier in the year in her capacity as Board
Trainee.
Other attendees
During the year, as deemed appropriate, as part of his
induction process for becoming Chief Executive, Scott
Fawcett attended meetings.
During 2022, the Chief People and Culture Ocer
attended by invitation as appropriate. The Company
Secretary and Head of Governance attended each
meeting
.
PAUL LESTER, CBE
Board Chair
NOMINATION COMMITTEE REPORT
Roles and responsibilities
Membership and attendance
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
91
• Reviewed the role of the Chief Executive
and considered potential candidates for
the role, recommending the appointment
of Scott Fawcett as Chief Executive
pending the outcome and completion of
the strategic reviews
• Reviewed the role and scope of the
Chief Financial Ocer and carried out
a recruitment process, recommending
the appointment of Jack Clarke as Chief
Financial Ocer
• Recommended the appointment of
Kath Durrant as Non-Executive Director
and member of the Remuneration,
Nomination and ESG Committees, to
take eect from 3 January 2023
• Recommended the appointment of
Dupsy Abiola as Non-Executive Director
and member of the Nomination,
Remuneration and Sustainability
Committees
• Recommended the appointment of
Ralf K. Wunderlich as Remuneration
Committee Chair
• Supervised an open and transparent
recruitment process for the appointment
of a new Non-Executive Director, required
in order to ensure the Board and its
committees has a suitable pipeline of
members
• Reviewed the role of Company Secretary
to ensure the role aligned appropriately
to a pure-play Components business
and recommended the appointment
of Emma Reid as Company Secretary
pending the outcome and completion of
the strategic reviews
• Kept under continuous review, the
composition, structure and size of the
Board and the committees, in view of the
changing shape of the organisation as
the strategic reviews progressed
• Reviewed the roles and structure of the
new Group Executive Committee to
ensure it would be appropriate in size,
experience and knowledge so that it is
able to properly support the pure-play
Components business
• Reviewed the potential leadership options
for the Packaging and Filters businesses
as they progressed through each of their
strategic reviews
• Oversaw the 2022 Board Evaluation
• Reviewed and approved the Nomination
Committee Report for inclusion in the
2021 Annual Report
• Reviewed and agreed revised Terms of
Reference for the Nomination Committee
• Encouraging further development of
Equality, Diversity & Inclusion initiatives
as part of the wider ESG programme and
ensuring eective reporting on progress
is captured for the Committee and for
external reporting
• Overseeing the recruitment of a future
Board Trainee
• Overseeing the induction and training
programme for Kath Durrant, the new
Non-Executive Director
• Overseeing the ongoing training and
mentoring being provided to Scott
Fawcett and all members of the Group
Executive Committee
NOMINATION COMMITTEE REPORT CONTINUED
Key activities 2022
Key activities for 2023
Chief Executive recruitment
During the year, the Committee carried out
an assessment of the skills and experience
required for the Chief Executive of a pure-
play Components business. The Committee
concluded that a Chief Executive with a
strong Components background would
be required. The assessment that the
Committee carried out concluded that
the skills required for the potential future
role diered from the existing role, and the
Committee considered the existing pipeline
for a successor. The Committee were
supported in the assessment by external
advisor, Korn Ferry, who carried out a skills
mapping exercise as part of the assessment.
Both internal and external candidates were
considered, with internal candidates having
been identified from amongst existing senior
leaders. The Committee concluded that
Scott Fawcett had the skills and experience
required for the future Chief Executive role
due to the leadership qualities he possessed,
his knowledge of the business and the
market. During the year, the Chair and
the Senior Independent Director provided
Scott with mentoring and development
opportunities and towards the end of the
year, the Committee reconvened to consider
the role. The Committee agreed that
subject to certain key factors in the strategic
reviews materialising, Scott was the most
appropriate candidate to be appointed.
Following confirmation that the sale of the
Packaging business had completed, and the
Filters business sale, the Committee agreed
to make the recommendation to the Board,
who in turn confirmed their approval of the
appointment to take eect from 1 January
2023.
NED recruitment
During the year, Nicki Demby, Chair of the
Remuneration Committee, informed the
Board that she did not intend to stand for re-
election at the 2022 AGM. When considering
how to approach recruiting a new Non-
Executive Director, the Committee were
mindful that during 2021, they had recruited
Dupsy Abiola through an open, robust
and transparent recruitment process, that
mirrored the process used for a Non-Executive
Director. The Committee considered this and
agreed that it was appropriate to recommend
that the Board appoint Dupsy as a Non-
Executive Director in March 2022.
Subsequent to that appointment, early in
2022, the Committee further agreed that
one more Non-Executive Director should be
appointed, with recruitment starting later in
the year dependent upon the progress of the
strategic reviews. The recruitment process
started in H2 2022, with The Inzito Partnership
appointed to support the search.
A long list, short list and interview process was
followed that identified suitable candidates
and the Committee were pleased that
following some further consideration, to
recommend Kath Durrant be appointed to
the Board as a Non-Executive Director.
Committee appointments
As a highly experienced remuneration expert,
Nicki’s departure left a gap in the Board’s
skills. Following a thorough review of Non-
Executive Directors’ skills, it was considered
that Ralf K. Wunderlich, was the most suitably
skilled and experienced director, having
experience of remuneration through his
Executive and Non-Executive career. Ralf has
been a Remuneration Committee member
since 2018, thereby satisfying the Code
Provision 3 of serving on the Remuneration
Committee for at least 12 months prior to
becoming Chair.
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ESSENTRA PLC ANNUAL REPORT 2022
92
The Committee was very pleased to be able
to recommend his appointment to the Board
and following the conclusion of the AGM in
2022, Ralf was appointed as Chair of the
Remuneration Committee.
The Committee also considered which
committees Kath Durrant should be
appointed to and given her extensive
experience leading people, cultures and
Human Resource teams it was agreed
to recommend to the Board that she be
appointed to the Remuneration Committee,
Nomination Committee and the new
ESG Committee given she has extensive
experience in both areas.
Group Executive Committee
appointments, talent management
and succession planning
In view of the good progress made in
executing the strategic reviews, the
Committee also considered the composition
of the future executive committee, as with
the success of the strategic reviews, existing
members of the former executive committee
(Group Management Committee) had
departed with their existing business, or
their tenure at the Company had reached
a natural
conclusion. The business would
therefore require a new executive committee,
known as the Group Executive Committee,
ready in the background to take hold of the
reins.
The Committee considered the existing
succession pipeline in place for the Group
Management Committee as well as the
composition of the existing senior leadership
team within the Components business. Led
by Scott Fawcett, with the support of Oshin
Cassidy, the Chief People and Culture Ocer,
proposals for the composition and skills
required for the Group Executive Committee
were considered.
As the composition of the Executive
Committee was agreed, roles were advertised
internally and where there was no suitably
qualified and experienced candidate, roles
were advertised externally. The final outcome
provided a mix of existing and new joiners
forming the Group Executive Committee.
The Committee was very pleased that the
succession pipeline had been able to provide
an excellent calibre of candidates.
Oshin Cassidy agreed to continue in role until
a permanent Chief People and Culture Ocer
is recruited. Oshin has provided continuity to
the new Essentra and has played a pivotal
and ongoing role in the strategic reviews and
transitional services arrangements, in addition
to her day to day responsibilities for Human
Resources across the business.
Lynne Vandeveer was successfully recruited
from an external recruitment process, and
was appointed as Chief Marketing Ocer
and President, Americas during the year, with
the role reflecting her current responsibilities,
other than membership of the Group
Executive Committee from the outset of her
appointment.
During the year, the
Committee considered what
leadership, both non-executive
and executive, would be
needed for a global pure-play
Components business
NOMINATION COMMITTEE REPORT CONTINUED
Prior role New GEC role
Length of service
with Essentra
Hugues Delcourt
Components Europe
Managing Director
Chief Sales Ocer &
Managing Director, EMEA
4 years
Sam Edwards
Components Digital and
Marketing Director
Chief Digital Information
Ocer
9 years
Rob Baker
Components Supply
Chain Director
Chief Operating Ocer 2 years
Emma Reid
Head of Governance Company Secretary 3 years
Gabriele Hannen
Components Finance
Director
Chief Strategy Ocer 3 years
Oshin Cassidy
Group HR Director Chief People and Culture
Ocer
5 years
Lynne Vandeveer
Chief Marketing Ocer
& President, AMERS,
Chief Marketing Ocer
& President, AMERS,
1 year
Group Executive Committee appointments
Board evaluation
Our Board evaluation for 2022 was internally
facilitated and included both a survey and a
one-to-one discussion. Feedback was provided
to the Chair, followed by the remainder of the
Non-Executive Directors and the Executive
Directors. The key findings of the review were:
• the Board were keen to support the new
management team and Chief Executive in
delivering their strategy
• Key Performance Indicators were required
from the outset to ensure the Board had
the information needed to meet their duties
• Board dynamics had improved as the Board
had met in person again over the past year
• committees continued to be well run
and provided the Board with the support
required to challenge and understand
challenges faced by the business, such as its
approach to sustainability.
In response, a proposal was put together to
focus on the areas that the Board believed
would bring the most benefit during the year,
and the Board agreed during 2023 to:
• ensure sucient time is provided to pursue
strategic discussions including consideration
of the skills required within the business to
deliver the strategy
• ensure a suite of KPIs were developed that
supported the Board and the business in
monitoring its progress
• develop deeper relationships between the
Board and the new executive management
through a mentoring programme between
the Board and GEC
• oversee the ESG strategy and the resources
required to support its delivery, through
establishing the ESG Committee
• assess and monitor current approaches
to stakeholder engagement, keeping this
under review both inside and outside of
Board meetings.
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ESSENTRA PLC ANNUAL REPORT 2022
93
NOMINATION COMMITTEE REPORT CONTINUED
Diversity and Inclusion
To be a world-leading business, our Board
believes diversity, inclusiveness and equality
are key to driving greater success and
providing the momentum required to produce
a superior business performance, growth and
innovation. The Board is committed to gender
diversity, and as committed to at the Annual
General Meeting in 2022, a further female
Non-Executive Director has been recruited
at the start of this year. However, Kath’s
appointment increases our total number
of Directors and therefore the percentage
remains just marginally below the target of
40%. Our target for Diversity remains 40% in
line with the targets set by the FTSE Women
Leaders Review. At present, we also intend
to use this as our target in response to the
FCA Diversity Targets, whilst for ethnicity our
target reflects that of the Parker Review, to
have at least one member of our Board from
a minority ethnic background. We intend to
keep these targets under review annually. The
Board is cognisant of the recently published
Parker Review on setting targets. We intend to
publish these during 2023 and in next year’s
Annual Report.
When recruiting Non-Executive Directors,
we use recruitment firms who have made
a commitment to diversity on boards and
reflect this within their long and short lists of
potential candidates.
Board gender diversity, Board ethnic diversity,
GEC gender diversity and Senior Management
gender diversity is reported on page 37 and
is reported in line with Code provision 23.
The Board and the Committee, believe the
more diverse Essentra is as an organisation,
the better the range of outlooks it has
and that improves the Company’s overall
decision-making and problem-solving
and ensures Essentra’s leadership better
represents the communities in which it
operates. The Committee therefore monitors
diversity and for 2023 has agreed to focus
on gender diversity at GEC-1. As at the date
of this Annual Report, the Board comprises
eight Directors, two Executive and six Non-
Executive Directors. Of those, three (37.5%)
are female; five are male (62.5%); two (25%)
represent the Black, Asian or non-white
ethnically diverse groups.
As at the date of this Annual Report, the GEC
comprises nine members, four (44%) female
and five (56%) male. The Board and GEC are
committed to improving both gender and
ethnicity at all levels, and this forms a key
part of the ESG strategy, which you can read
more about on pages 22 to 35.
Board trainee – Diversity and
Inclusion in practice
The Committee agreed towards the end of
2022, that as the Board trainee initiative
had been successful, and resulted in the
appointment of Dupsy as a Non-Executive
Director, it would run the initiative again.
The Board trainee is a unique opportunity to
increase the pool of diverse talent available
to all plcs. The Board trainee role is voluntary
with training, coaching and mentoring an
integral part of the scheme.
Paul Lester, CBE
Non-Executive Chair
Nomination Committee Chair
28 March 2023
In response to the second Board Evaluation
carried out in 2021, the Board agreed the
actions would include:
• giving appropriate time to the consideration
of strategy with separate meetings if
necessary
• development of talent alongside the
strategic review process including
consideration of skills and composition of
the Board.
The Board consider that they have made
significant progress on each of these.
The first action was met through a
combination of the Board schedule during the
year, which included its usual eight meetings.
The Board ensured it split its time between
managing oversight of the business of each
of the divisions and the strategic reviews,
through a combination of additional Board
meetings and Board Briefing meetings. In
total, the Board and its sub-committee met
on 20 occasions to ensure it discharged all of
its responsibilities in line with Section 172 of
the Companies Act 2006.
With regards to the second agreed action,
the composition of the leadership team has
evolved significantly and more detail on this
is reported on page 13 of this report and GEC
biographies are available on page 66.
To be a world-
leading business, our
Board believes diversity,
inclusiveness and equality are
key to driving greater success
and providing the momentum
required to produce a superior
business performance,
growth and innovation.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
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94
Audit, risk and internal control
During the year, the Audit and Risk Committee continued to assist the
Board in fulfilling its oversight responsibilities by monitoring and robustly
challenging the integrity of the Company’s financial reporting, reviewing
and challenging the use of accounting policies and scrutinising the systems
of internal control and its risk management framework.”
Roles and responsibilities
Financial Reporting
• Overseeing financial reporting and
internal controls to ensure the interests of
shareholders are properly protected
• Monitoring and reviewing the integrity of
the Financial Statements and any formal
announcements relating to financial
performance
• Reviewing the relevance and adequacy of
our current accounting policies
• Challenging significant accounting
judgements
Risk Management, Internal Control
and Compliance
• Reviewing regular reports from the
Group Risk Committee and reviewing risk
management processes
• Reviewing the eectiveness of internal
controls
• Monitoring the Right to Speak
arrangements and the assessment and
investigation of any claims made through
this mechanism
• Reviewing regular compliance updates
and assessing progress on the compliance
transformation programme
Internal Audit
• Overseeing the internal audit activities
• Monitoring and reviewing the eectiveness
of the Internal Audit function
• Agreeing the annual internal audit plan
and monitoring its delivery
External Audit
• Making recommendations to the
Board in relation to the appointment,
reappointment and removal of the
External Auditor
• Reviewing the relationship with the
External Auditor and monitoring their
independence and objectivity
• Continuous challenge of the eectiveness
and quality of the external audit process
• Agreeing the scope, terms of engagement
and fees for the external audit
• Initiating and supervising a competitive
tender process for the external audit when
required
• Monitoring the engagement policy of
the External Auditor to supply non-audit
services
• Reviewing and discussing reports
presented by the external auditor at each
meeting
MARY REILLY
Non-Executive Director
CHAIR OF THE AUDIT AND RISK COMMITTEE’S LETTER
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
95
Membership and attendance
Meetings during the year
Mary Reilly
Chair 5 (5)
Ralf K. Wunderlich
Non-Executive Director 5 (5)
Adrian Peace
Non-Executive Director 5 (5)
Nicki Demby
Non-Executive Director 1 (1)
Figures in brackets denote the number of meetings
that could have been attended.
Other attendees
Nicki Demby resigned as a Non-Executive Director
on 19 May 2022 and therefore only attended one
meeting. During the year, as deemed appropriate
as part of his induction process for becoming Chief
Executive, Scott Fawcett attended meetings.
The External Auditor, Chair of the Board, Chief
Executive, Chief Financial Ocer, Head of Risk
Assurance, Group Financial Controller, members of
the General Management Committee (GMC) and
divisional Finance Directors attended meetings by
invitations, as appropriate. During the year, the ARC
met the External Auditor, PricewaterhouseCoopers
LLP (PwC) and the Head of Risk Assurance without
the Executive Directors being present.
The ARC received presentations from the Chief
Executive, the Chief Financial Ocer, Group Financial
Controller, Head of Risk Assurance, Group Head of
Tax and Treasury, Head of Governance, UK Shared
Services Finance Director and the Chief Digital
Information Ocer.
During 2022, the Company Secretary and General
Counsel acted as Secretary to the ARC, with the
support of the Head of Governance who attended
all meetings.
Dear Shareholder,
As Chair of the Essentra plc Audit and Risk
Committee (ARC), I am pleased to present
my report for the year ended 31 December
2022 to shareholders.
During the year, the ARC continued to
assist the Board in fulfilling its oversight
responsibilities by monitoring and robustly
challenging the integrity of the Company’s
financial reporting the systems of internal
control and its risk management framework.
This report gives an overview of the activities
undertaken and overseen during the year
and explains how the ARC has met the
requirements placed on audit committees
by the 2018 Code and applicable guidance,
laws and regulations. In carrying out its
duties the ARC also operated in accordance
with recommendations set out in the FRC
Guidance on Audit Committees which was
published in April 2016 and remains cognisant
of updated FRC guidance, letters and reports
that are relevant to the work of the ARC.
The ARC worked largely to a recurring and
structured programme of activities, which
was adapted to ensure the strategic reviews
were included with appropriate oversight,
scrutiny and assurance provided at each
stage as the reviews progressed.
The 2022 internal audit plan was presented to
the ARC at the end of 2021, in the knowledge
that the strategic reviews would require the
team to take an agile and flexible approach
to ensure that the ARC and the Board would
have the level of assurance required to work
through often complex and dicult decisions
that the strategic reviews would present. The
internal audit plan proposed a blend of audits
that focused on the Principal Risks, strategic
initiatives and traditional site visits. Of the
12 Principal Risks presented during 2022, the
internal audit plan focused on nine of those
areas, which provided good coverage but also
allowed the internal audit team the capacity
and time required to support the strategic
reviews.
The Principal Risk areas covered during 2022
have included delivery of strategic projects,
regulatory governance, operational and
supply chain disruption, internal processes
and control, safety, health and wellbeing,
exposure to cyclical industrial markets and the
strategic reviews.
The Risk Assurance team spent considerable
time working on the Class 1 Circulars to
support the strategic reviews of each of the
Packaging and Filters business. The team
undertook reviews of the risks associated with
each of the transactions and provided input
to the Class 1 Circular documents.
The team took specific responsibility for
the preparation of Financial Position and
Prospects Procedures documentation and
preparation of Board memoranda and also
supported the preparation of historical
financial information and the pro-forma
financial information of the retained business.
The Board had an extensive role to play in
approval of these documents and the internal
audit team therefore had a significant role to
play in reviewing the detail and reporting to
the ARC on the financial information that was
being presented to shareholders.
The ARC spent time considering the impact
of the sale of the Packaging and Filters
businesses. For the Packaging business, the
ARC debated the eect of accounting for
the discontinued operations for both the
Half Year and then Full Year accounts. The
ARC noted the business’s obligations for
transparent disclosure and that it would be
necessary to recognise an impairment of the
Packaging business. Similarly, for the Filters
business, the ARC considered the impact of
the sale, including providing assurance on the
Class 1 Circular process, as well as the impact
on the financial position of the Company
following completion, and the presentation
of discontinued operations in the year-end
financial statements. In March 2022, the ARC
considered the External Auditor’s request
for additional time to complete its standard
procedures as a result of the disposals
of the Filters and Packaging businesses
during the year. This resulted in a slight
delay in the publication of the Company’s
preliminary financial results for the year ended
31 December 2022.
CHAIR OF THE AUDIT AND RISK COMMITTEE’S LETTER CONTINUED
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CHAIR OF THE AUDIT AND RISK COMMITTEE’S LETTER CONTINUED
A key role of the ARC is to support the
Board in its assessment of the Principal
and Emerging Risks and eectiveness of
mitigation plans. The ARC considered the
profile of some of the Company’s Principal
Risks which changed throughout the
year reflecting the changing shape of the
Company. By the time the year closed, each
of the strategic reviews had completed and
the Company was, as had been anticipated,
a pure-play Components business, with
a dierent risk profile. The ARC agreed to
recommend to the Board a revised set of
Principal and Emerging Risks that were
relevant to the refreshed business and
reflected its goals and ambitions.
During the year, the Company received a
letter from the FRC which had carried out
a thematic review into how companies
had reported on their judgments and
estimates disclosures. As reported under the
key activities of the ARC, the FRC had no
questions or queries to raise in relation to
the FY2021 Financial Statements. The FRC
highlighted areas to be considered during
the preparation of the FY2022 Financial
Statements where it believed the reader
would benefit from improvements to existing
disclosures. These points, where relevant,
were then adopted by the Company in these
accounts.
The ARC continued to receive regular
reports on the compliance transformation
programme. The ARC noted that each division
had continued to encourage and enhance
compliance reporting and emphasised that
the importance of compliance remained
even more relevant during a period of intense
change.
There were no material breaches during
the year and as the strategic reviews
were concluded, the Group Compliance
Committee, which had provided oversight
and assurance to the ARC, transitioned
its support to the retained business and
embedded its people and functions within
the business itself.
The ARC and the retained business recognised
the lessons learnt around the DPA agreed
with the DoJ in relation to historical non-
compliance with US trade sanction laws
arising out of the Filters business and believe
this has provided a healthy culture and
approach to compliance as a result.
During the year, Nicki Demby resigned from
the ARC and I would like to extend my thanks
to Nicki for the support and active role she
took on the ARC.
Finally, as Chair of the ARC, I am pleased to
engage with shareholders and continue to be
available to meet if asked.
Mary Reilly
Senior Independent Non-Executive Director
Audit and Risk Committee Chair
28 March 2023
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
97
Ensuring the integrity of the
Financial Statements and
associated announcements
is a fundamental responsibility
of the ARC.”
Report of the Audit
and Risk Committee
Governance
All the Audit and Risk Committee
(ARC) members are independent Non-
Executive Directors and have financial, risk
management or related business experience
gained in senior positions at other large
diverse organisations. Mary Reilly has been
the Chair of the ARC since April 2018, and the
Board is satisfied that Mary has recent and
relevant financial experience. Mary spent the
majority of her career at Deloitte and is an
experienced audit Chair. Each of the other
ARC members also have relevant experience:
Ralf K. Wunderlich has a deep understanding
of internal capital market regulations and is
a member of other firms’ audit committees
and Adrian Peace has extensive financial
experience as a manufacturing industry
expert. Biographies of the ARC members
can be found on pages 70 and 71 and in the
Notice of Annual General Meeting. As a whole
the Board believes that the members of the
ARC are competent in the business sectors
within which Essentra operates. The ARC
supports the Board and reports to it following
each of its meeting. No member of the ARC
has a connection with the current External
Auditor.
The ARC has independent access to the
Risk Assurance Team and the Head of Risk
Assurance, who also leads the Internal
Audit team and the External Auditors and
may obtain outside professional advice if
required. Risk Assurance and the External
Auditor has direct access to the Chair of the
ARC who held a number of meetings with
the Risk Assurance Team and the External
Auditor during the year outside formal ARC
meetings. The Chair of the ARC also liaises
with the Chief Financial Ocer as well as the
Company Secretary as necessary to ensure
there is robust oversight and challenge in
relation to financial control, risk management
and compliance.
An internal evaluation was carried out during
the year. The ARC continued to be considered
as a well run committee, operating in line with
the Code and of appropriate length and with
the opportunity for all members to contribute
and consider issues properly.
The ARC observes an annual cycle of items
that covers the requirement of the external
audit cycle and any other relevant matter,
as detailed in the Terms of Reference of the
ARC. The agenda cycle is reviewed annually
to ensure that the ARC remains proactive and
relevant. The current Terms of Reference for
the ARC are available at www.essentraplc.
com and are also reviewed annually.
The Terms of Reference provide a framework
for the ARC’s work to review and oversee
the quality, integrity, appropriateness and
eectiveness including the following:
• Financial Statements and external financial
reporting
• internal controls
• significant financial judgements
• Tax and Treasury function
• cyber security response
• the compliance programme
• the ecacy of the Internal Audit function
• the risk management processes and
practice
• the relationship with, and performance of
the External Auditor.
Financial Statements and external
financial reporting
Ensuring the integrity of the Financial
Statements and associated announcements
is a fundamental responsibility of the ARC. In
recommending to the Board, with regard to
the approval of the 31 December 2021 Annual
Report and the 30 June 2022 Half Year Report,
the ARC reviewed, examined and challenged
the Chief Financial Ocer and External
Auditor on their respective assessments on
such items as accounting for cloud-based
software as a service, bad debt provision,
an assessment of quantitative disclosures
relating to TCFD, whether the Packaging or
Filters businesses were held for sale at both
the Year End and Half Year, hyperinflation in
Turkey, accounting policies and disclosures,
any financial reporting issues, significant
financial judgements made and appropriate
levels of disclosures to ensure that the reports
are fair, balanced and understandable. The
ARC also challenged the External Auditor on
the appropriateness of their audit coverage
and their measure of materiality.
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As part of the year end process, the ARC
reported on its assessment of the Financial
Statements so that the Remuneration
Committee could consider whether it needed
to exercise its discretion when considering the
outturns for 2022.
The ARC also spent considerable time
considering impairment of the carrying value
of the Packaging and Filters businesses,
and the remaining entity, during the year
and concluded that an impairment of the
Packaging business was necessary. Having
concluded that no impairment was necessary
when considering the Financial Statements
for the year ended 31 December 2021, when
the ARC then met to consider the interim
financial statements for the Half Year 2022,
there had been significant changes to this
position: the economic outlook had changed
significantly since the year end and key
impairment indicators were considered in
depth by the ARC towards all businesses. As
well as the shift in the economic outlook,
the Company had also announced the sale
of the Packaging business, and entered into
a binding sale and purchase agreement
on 24 June 2022. During the latter stage of
the strategic review process, it was noted
there was a shift in the M&A market with
heightened risk aversion to COVID-19 related
adjustments that included a return to prior
levels of performance in longer term forecasts.
Alongside the challenging macroeconomic
backdrop and the recent performance of
the business, the ARC agreed that it was
necessary to recognise a discontinued
business operating impairment charge of
£181.6m. As the Packaging business has now
been sold, the factors used to assess the
impairment will not continue to be relevant to
the wider business.
During the year, the ARC also considered the
contents and suitability of the Long-Term
Viability Statement and going concern, and
challenged the risk scenarios, the range of
sensitivities applied and the potential impacts
considered in line with FRC guidance. The risk
scenarios used for the ear end 2022 reflected
the critical importance of the strategic
reviews, alongside areas regularly monitored
by the businesses, such as operational and
supply chain disruption, which remained
common concerns for all three businesses.
Following consideration of these assessments,
the ARC confirmed that the application of
the going concern basis for the preparation
of the Financial Statements continued to be
appropriate.
Tax and treasury
During the year presentations were made to
the ARC by the Group Head of Treasury and
Tax.
Particular attention in the presentations was
drawn to:
• the underlying tax rate of 19.7% at year
end 2021 (represented for continuing
group: 3.2%) and the assumptions and
judgements used to forecast the eective
tax rate during the year
• the underlying tax rate for the continuing
group of 21.4% to the half year ended 30
June 2022 with an expected range of 21-
22% for the full year
• provision for some uncertain tax positions
• a review of FX exposures which confirmed
the business was operating in line with the
Treasury Policy
• repayment of the 2017 and 2019 USPP
and the partial repayment of the 2021
USPP using the funds received from the
divestment of the Filters and Packaging
businesses
• a review and update of all Treasury process
notes and an update on the systems used
by Treasury.
The ARC considered the matters presented
and were satisfied with the approach being
taken.
Additional details on the Group Tax Strategy
can be found at www.essentraplc.com/
responsibility.
Cyber security response
During the year the Chief Information Security
Ocer, Laurence Dale, met with the ARC
Chair regularly and was also invited to attend
an ARC meeting.
As the strategic reviews progressed, the
role transitioned to the become the Chief
Digital and Information Ocer, with a new
roleholder, Sam Edwards, taking up the role.
From September 2022, the Chief Digital and
Information Security Ocer was responsible
for the Company’s approach to cyber security.
Sam attended the ARC towards the end of
the year to provide a report on the continual
improvements and controls both in place and
in progress to strengthen the position and
mitigate against the increasing risk posed to
businesses by cyber attack.
The key priorities during the year remained
an ongoing mitigation of key compliance
and control risks, alongside ensuring that
robust challenge was in place over financial
disclosures made in respect of the strategic
review.
During the year, the ARC also
considered the contents and
suitability of the Long-Term
Viability Statement and going
concern, and challenged the
risk scenarios, the range of
sensitivities applied and the
potential impacts considered
in line with FRC guidance.”
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
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Key activities 2022
• Continued review and roll out of
compliance training
• Regular discussions with each business
and their divisional Compliance Ocers
to assess and monitor their approach to
compliance
• Ongoing monitoring of the Group’s
compliance with the Deferred
Prosecution Agreement
• Transitioning responsibility for
compliance to within each of the
businesses, with the full support of the
Group compliance team to provide the
systems required to continue their own
compliance programme
• Ongoing completion of the divisional
Compliance Certification process at Full
Year and Half Year
• Continued focus on third party due
diligence
• Regular review of training completion
rates across the Group
• Risk assessments
• Development of a Components
Compliance Plan for 2023
• Monitoring and testing of the
eectiveness of the compliance
programme
• The Company reviewed a letter from the
FRC regarding a thematic review into
the disclosures reported on judgments
and estimates. The FRC had no questions
or queries but ARC has agreed to
adopt additional disclosures around
these points. The review conducted
by the FRC was based solely on the
Group’s published Annual Report and
does not provide assurance that the
Annual Report is correct in all material
respects; the FRC’s role is not to verify
the information provided but to consider
compliance with reporting requirements
Compliance
The Company’s commitment to conducting
its business activities in accordance with all
applicable laws and regulations continued
to be prioritised during the year and the
businesses were aware that maintaining
momentum and a positive compliance
culture would be critical to ensuring the
strategic reviews progressed a good
outcome. The Compliance programme
therefore operated on a business-as-
usual basis, with opportunities for raising
awareness and the requirement for training
remaining regular features during the year,
with some changes as set out below.
The Group Compliance Committee
continued its role for the first half of the
year, and was chaired by the Company
Secretary and General Counsel. Once the
sale of the Packaging business had been
announced, it was agreed to monitor
compliance directly with the remaining
businesses, with each divisional Compliance
Ocer, providing regular updates.
Each business continued their approach
to compliance, training and awareness,
and had particular regard to the impact
of the Deferred Prosecution Agreement
requirements around regulatory and
sanctions compliance, third-party due
diligence, insider dealing and data privacy
and undertook activity that supported these
key areas.
The GMC received regular reports
monitoring compliance training whilst the
ARC continued to receive broad compliance
reports which the Company Secretary
and General Counsel provided, following
consultation with the remaining Divisional
Compliance Ocer on their key compliance
risks, and their fulfilment of the programme
of activities designed to mitigate exposure.
As a result of this approach towards the
Compliance Programme, each business had
already integrated into their own capabilities
to continue their own compliance
programmes and upon the separation of
the Packaging and Filters business, they were
able to continue their compliance related
activities, including those reliant upon
compliance systems, seamlessly. Likewise,
the Components business has continued
in a similar manner, and reports on its
Compliance Programme to the GEC on a
regular basis.
Right to speak and whistleblowing
The ARC received updates at each of its
meetings on any Right to Speak issues raised
and sought assurance from management
on the issues raised and the Company’s
response. The ARC noted that the Company
has responded to each report received
through the Ethics Points reporting system
through arranging an investigation or
response protocols, depending on the nature
of the report, or by referring the case for
resolution pursuant to HR grievance protocols.
During the year, the issues raised related
primarily to specific HR concerns and where
there were particular concerns expressed, the
ARC had oversight of the actions taken in
response which it found to be appropriate.
Internal control and internal audit
The ARC supports the Board in meeting its
responsibility for maintaining and monitoring
sound risk management and internal control
systems and achieves this by assessing the
eectiveness of the risk management process
and internal control systems. The ARC is
supported in this work by the Risk Assurance
Team, who are also responsible for internal
audits.
The Risk Assurance Team made significant
progress in its approach during 2021 and
continued this in 2022, having adopted a
business partnering approach. The ARC also
agreed that for 2022, it was important for Risk
Assurance to have an agile and adaptable
mindset. Audit reviews were prioritised against
current risk exposures and alignment with
longer-term strategic objectives.
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
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100
This ensured Risk Assurance continued to
meet its core function as well as supported
the Company where it was needed the
most and accomplished its objectives
through a systematic and disciplined
approach to the evaluation, assurance and
improvement in the eectiveness of the
organisation’s risk management, internal
control and governance processes. It provided
independent assessments of key processes
and controls across the Group in support of its
business objectives and strategies. In order to
achieve this the ARC reviewed:
• the internal audit plan and its achievement
of the approved internal audit plan’s
activities
• the level and skills of the resource available
to the Risk Assurance function in line with
the budget
• the eectiveness of the Risk Assurance
function including its structure, and how
Risk Assurance would transition into
supporting a pure-play Components
business
• internal audit activities with a focus on
unsatisfactory audit results
• the adequacy of management’s response
and the necessary actions taken to address
and rectify any weaknesses identified in a
timely manner.
At the ARC meetings, Risk Assurance provided
a report on the latest position with regards to
the Company’s systems of internal control, its
eectiveness in managing principal risks and
identifying any control failings or weaknesses.
Risk Assurance also reported on resourcing
of the function, and whilst the plan was
delivered mainly through internal resource,
having recruited strong candidates to fill all
roles within the function, some work was
co-sourced where specific subject matter
expertise was required, or local language skills
and ongoing COVID-19 restrictions prevented
the internal team undertaking the review
themselves, such as at our Components
Hengzhu China site, where a co-sourced local
team visited the site in person to carry out a
review.
For Business Process Redesign (BPR) the Risk
Assurance team used a continuous auditing
approach to provide real time input for the
BPR team whilst the programme rolled out
in Spain and France, and this approach has
been integrated into the BPR programme.
The agility required of the Risk Assurance
function, also meant that they undertook
work that supported the strategic reviews and
supported the Class 1 process for each of the
Packaging and Filters sales through providing
assurance and oversight of the Financial
Position and Prospects Procedure and risk
factor disclosures.
Risk management process
The ARC’s discussions and considerations and
oversight of the risk management process
continued throughout the year working closely
with the Group Risk Committee and the Risk
Assurance function. There was a focus during
2022 on assessing the changing risk landscape
as a result of the strategic reviews, but also
from the impact of the Ukraine invasion by
Russia on the supply chain. The Risk Assurance
function worked with the Components
business to consider their Principal Risks in
anticipation of the conclusion of the strategic
reviews, recognising that whilst some of the
Group’s previous Principal and Emerging Risks
would remain, others would not apply to a
pure-play Components business.
In addition to considering new Principal and
Emerging Risks, the existing risk management
process continued to enable the ARC to assess
the quality of existing practices and processes
used to identify, assess and mitigate
responses to existing and evolving risks to the
Company achieving its long-term strategic
objectives. This approach, combined with
the risk management approach supported
the ARC’s challenge of the eectiveness of
the Company’s response, its actions and the
process used to consider the eectiveness of
the mitigations.
The ARC concluded that the process had
been very thorough and remained fit for
purpose and as the Chair of the ARC had also
been present at the Group Risk Committee
meetings when both ongoing review of
risks, and consideration of the pure-play
Components risks had been considered, the
ARC was assured that the risks had been
reviewed and challenged thoroughly, with
appropriate resilience testing of assumptions
also having been undertaken. The ARC’s work
in turn supported the Board by providing it
with the assurance it needed as to the robust
nature of the process used by the Company
to identify risk.
The ARC concluded at Half Year 2022 that
it was appropriate to change the Principal
Risks, reflecting the changes in the business,
followed by more extensive changes at year
end 2022 to reflect the transition to a pure-
play Components business.
More information on Principal and Emerging
Risks can be found on pages 52 to 65, the
Long-Term Viability Statement on page 103
and and the Risk management process on
101.
In July, the ARC approved the
new Risk Assurance Charter
which included the scope of
work for Risk Assurance and
its key role in promoting the
improvement of governance,
risk management and
control processes by
examining controls, risk
management systems and
operations to assess the
extent to which these are
eective and recommending
improvements.”
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
101
External Auditor
During the year the ARC:
• agreed to request an extension of the
Audit Partner, Nicholas Stevenson, for one
further year, being his sixth successive year.
The ARC believed this would support both
the Company and the External Auditor
in carrying out and completing the 2022
year end audit, having considered the
activity presented by the strategic reviews,
the change in Chief Financial Ocer and
Group Financial Controller, to be a risk to
audit quality. The ARC noted that the FRC’s
Ethical Standard permitted extensions for
exceptional circumstances such as those
that applied to Essentra during 2022
• sought and received assurance that
additional safeguards were in place to
guard against any threat to independence
from Nicholas Stevenson being in place for
a further year. This was discussed in both
open and private sessions between the ARC
and PwC
• agreed the terms of engagement and fees
to be paid to the External Auditor
• reviewed and agreed the scope and
strategic nature of the audit work to be
undertaken, with changes to sites in scope
reflecting the change in the shape of the
Company
• reviewed the qualifications, resources and
independence of the External Auditor and
assessed its performance with particular
regard to the overall quality of the external
audit and especially challenged the External
Auditor’s ability to carry out a robust audit
on a hybrid basis
• reviewed the level of non-audit work carried
out by the External Auditor which, during
2022, comprised of work relating to the
Class 1 Circulars arising out of the strategic
reviews. The ARC concluded this was best
carried out by the External Auditor given
their existing knowledge of the business
• the Chair of the ARC met with the External
Audit partner frequently outside of the
meeting schedule.
Assessment of the External Auditor
The ARC is dedicated to ensuring that
the Company receives a high quality and
eective external audit. Throughout the year,
the ARC is provided with reports, reviews,
information and advice, as set out in the
terms of the External Auditor’s engagement
and performance is formally assessed by the
ARC in conjunction with the GMC. The ARC
assesses the External Auditor’s independence
annually and remains satisfied that the
External Auditor is eective and provided
appropriate independent challenge to the
Company’s management.
In reaching this conclusion, the ARC
considered the additional processes that
had been observed by the External Auditor in
view of his serving for a sixth year to ensure
he maintained his independence. The ARC
were satisfied that the additional checks
introduced provided the level of scrutiny and
the ARC were appropriately reassured.
Independence of the External Auditor
The ARC believes that it is important to
maintain the objectivity and independence
of the External Auditor by minimising their
involvement in projects of a non-audit nature.
The Company policy complies with the FRC
Revised Ethical Standard 2019 which provides
a whitelist of services which may be provided
to public interest entities and reflects best
practice in relation to the engagement of the
External Auditor to supply non-audit services
in compliance with the whitelist, with defined
parameters and approval requirements.
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
The ARC Chair, without the approval of the
ARC, is authorised by the Company to engage
the External Auditor on non-audit related
work where the service is in compliance with
the whitelist of services under the Revised
Ethical Standard 2019, and the fees per
project are not considered to be significant,
provided that the annual aggregate of non
audit related fees shall not exceed 70% of the
average of the audit fees paid in the last three
consecutive financial years.
At the time of accepting non audit services
in relation to the disposal of the divisions,
a number of scenarios and a range of fees
were considered possible, all of which were
expected to be within the 70% fee cap
(calculated based on the average of the last
three years audit fees). Subsequently, there
were a number of changes to the scope of
this work and as a result the total value of
non-audit services for the financial year 2022
was expected to exceed the fee cap. The
External Auditor discussed at length with
the ARC Chair and management before
an exemption to the fee cap for non-audit
services from the FRC was requested. The
request was approved in September 2022
subject to the Company disclosing in its
Annual Report how the ARC satisfied itself
as to the continued independence of PwC to
act as auditor given the additional non-audit
services in 2022. Details on how ARC satisfied
itself can be found in other sections on this
page.
Details of the fees paid to PwC up until 31
December 2022 can be found in Note 2 of
the Notes to the Consolidated Financial
Statements, which includes fees paid to
the External Auditor and its network firms
for audit services, audit-related services
and non audit services. PwC provided a
letter confirming that it believes it remains
independent within the meaning of the
regulations on this matter and in accordance
with their professional standards.
The ARC concluded at
Half Year 2022 that it was
appropriate to change the
Principal Risks, reflecting
the changes in the business,
followed by more extensive
changes at year end 2022
to reflect the transition to
a pure-play Components
business.”
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ESSENTRA PLC ANNUAL REPORT 2022
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Goodwill and intangible assets
As required by IAS 36, the Company undertakes
an assessment of the carrying value of
intangible assets on an annual basis, or
more frequently if there is an indication of
impairment. The details of the work carried out
and the results are in Note 8 of the Notes to the
Financial Statements. The assumptions for 2023
and beyond (such as the annual growth rate
and the terminal growth rate) are based on the
2023 annual plan and management’s financial
projections in subsequent years. The impairment
reviews performed by management contain
a number of significant judgements and
estimates including
Revenue growth, profit margins and discount
rates. A change in these assumptions can
result in material changes in the valuation of
the assets and the eventual outcome of the
impairment assessment. The ARC evaluated
and challenged the methodology of the
impairment review and the assumptions on
which it was based, including the financial plans
approved by the Board.
The ARC discussed the current year assessment,
which included the impairment to the
Packaging business, which had been agreed
at Half Year, at length with the Chief Financial
Ocer, the Chief Executive and the External
Auditor, the review and assumptions presented.
After due consideration the ARC was satisfied
that the impairment assessments had been
appropriately carried out. The relevant disclosure
is set out in Notes 8 and 24 of the Notes to the
Financial Statements.
Adjusting items
The Financial Statements include certain
items which are disclosed as adjusting
items. The nature of these items is explained
within the Group Accounting Policy, and
includes transaction costs and gains or
losses relating to acquisitions and disposals
of businesses, acquisition related integration
and restructuring costs, and other items
such as impairment losses. Following an
extensive review, the ARC is satisfied that
the Company’s definition of adjusting items
remains clear and the appropriate level of
disclosure is included.
In the current year the ARC has been involved
in a rigorous review of the items presented
and following a robust discussion the ARC
agreed to adopt a de minimus approach.
The ARC challenged the Chief Financial
Ocer about the appropriateness of
items presented including impairment, the
presentation of continuing and discontinuing
operations and restructuring activities
relating to the strategic reviews to ensure
they are one-o material items rather than
incurred in the ordinary course of business
and are presented separately to allow a
better understanding of the Group’s ongoing
activities. Further details can be found in
Notes 8 and 24 of the Notes to the Financial
Statements.
Significant financial judgements
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
The ARC formally reviewed the letter
which describes arrangements in place to
identify, report, and manage any conflicts
of interests and policies and procedures
including the extent of non-audit services, to
maintain independence and the subsequent
monitoring.
Eectiveness of the External Auditor
The ARC assessed the eectiveness of the
External Auditor by reviewing:
• the External Auditor’s fulfilment of the
agreed audit plan and the quality of their
work including the depth and appropriate
challenges of management
• feedback highlighting the major issues that
arose during the course of the audit
• feedback from the businesses and
management evaluating the performance
of each assigned audit team.
Engagement of the External Auditor
The External Auditor was originally engaged
by the Company in 2017 following a
competitive tendering process. The External
Auditor is engaged to express an audit opinion
on the truth and fairness of the Financial
Statements. The external audit includes the
review and testing of the system of internal
financial controls and the data contained
in the Financial Statements to the extent
necessary. In order to protect independence
and objectivity and provide fresh challenge to
the business, the External Auditor periodically
changes the audit partners at a Group,
divisional and country level, in accordance
with professional and regulatory standards.
Such changes are carefully planned to ensure
that the Group benefits from sta continuity
without incurring undue risk of ineciency.
However, it was agreed to extend the Audit
Partner, Nicholas Stevenson’s tenure as
the audit engagement leader due to the
exceptional circumstances that the strategic
reviews presented. The Company and PwC
are comfortable that Nicholas and PwC
maintained their independence with PwC
having put in place additional safeguards to
guard against any threat to independence
given his familiarity with the Company. More
information on how ARC satisfied itself on this
can be found on page 102. The ARC has now
agreed a new Audit Partner for 2023.
The ARC has been kept up to date with the
development of regulations concerning
audit tenure and the longevity of audit firm
relationships with companies they audit. In
2016 a comprehensive competitive tender
was undertaken for the external audit and
subsequently the appointment of PwC to
replace the Company’s previous auditors was
approved by the shareholders at the 2017
AGM. As detailed above the ARC is satisfied
with the External Auditor’s eectiveness
and independence and accordingly has
recommended to the Board that PwC be
reappointed as the Company’s External
Auditor at the 2023 AGM. The Company has
discussed the rotation of the external auditor
and continues to consider,on a regular basis
any potential benefits from tendering the
audit process having regard, in particular,
to the importance of audit quality or the
continued independence of the External
Auditor. There are no contractual obligations
in place that restrict the Company’s choice of
statutory auditor.
The Company currently anticipates that it will
tender for the role of external auditor during
2025 or 2026 to ensure, that if a change is
deemed appropriate, the new external auditor
is able to familiarise themselves with the
business. The Company believes this timeline
will best serve the interests of shareholders
by minimising disruption to the business.
The Company will provide an update if this
approach changes.
The Company has complied throughout the
year with the Statutory Order 2014 issued by
the Competition and Markets Authority.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
103
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
Significant financial judgements continued
Tax liabilities
The Company is, on occasion, subject to tax
assessments that may represent potential future
tax exposures, which arise from tax authorities in
a number of the jurisdictions in which the Group
operates. The Group assesses all such exposures
in the context of specific country tax laws, where
applicable, makes provisions for any settlements
which it considers appropriate. The Company
operates in a number of tax jurisdictions, and
recognises tax based on interpretation of local
laws and regulations which are sometimes
opaque. Where the amount of tax payable is
uncertain, the Directors are required to exercise
significant judgement in determining the
appropriate amount to provide in respect of
potential tax exposures.
The ARC challenged the nature and extent of
the tax provisioning of the Company and sought
assurance that the Company was working
diligently to resolve outstanding liabilities in an
appropriate fashion. The potential tax exposures
over the Company’s transfer pricing position
and the deductibility of interest on internal
financing are also considered. The ARC reviewed
the assumptions of the tax liabilities at the
start of the year, those created during the year
and the eective tax rate. The ARC questioned
and challenged the Chief Financial Ocer and
Head of Group Tax as to the appropriateness
of the Company’s risk attitude and appetite in
this area. The ARC was satisfied that the tax
liabilities are appropriate, and that the Group’s
tax disclosures are adequate given the nature of
the Company’s activities.
Going concern and Long-Term
Viability assessment
The ARC reviewed the assumptions applied
for going concern and long-term viability
assessment. At Half Year 2022 and at Full Year
2022, an extensive process was applied to the
going concern that assessed the outcome of a
range of scenarios.
The Board has considered a downside scenario
that includes reasonably plausible changes in
macro-economic conditions and is considered
to represent a severe but plausible scenario.
The results of this scenario show that there is
sucient liquidity in the business for a period of
at least 18 months from the date of approval of
these Financial Statements, and do not indicate
any covenant breach during the test period.
The downside scenario assumes a period of
supressed revenue growth into the latter part
of 2023 and subsequently limits growth in 2024.
Further, the downside scenario assumes a high
inflationary cost environment not fully oset
by price increases, and higher than planned
cost base assuming the business does not
right-size costs in line with expectations, as the
Group transitions to a pure-play Components
business. The scenarios do not indicate a
material uncertainty which may cast significant
doubt over the Company’s and Group’s ability
to continue as a going concern. The ARC
was satisfied that the process used to assess
the Company’s going concern position was
appropriate and made a recommendation to
the Board in line with this view.
The External Auditor challenged the ARC on the
process used to make the assessment and the
outcome of the scenarios. The ARC, on behalf
of the Board, also challenged management on
the assumptions and sensitivities used within
the scenarios to ensure they captured sucient
macro and micro environmental factors, as
well as where judgement had been applied,
and sought an explanation from management
on this. Management provided this assurance
and explained to the ARC that the scenarios
had been carefully calculated with dedicated
resource provided to test the range of outcomes.
More information on the going concern can be
found on pages 129 to 130.
The ARC reviewed the long-term viability
assessment for the period to 31 December 2025
which considered a range of scenarios based
on an assessment of four risks selected from
the Principal Risks. The ARC considered the
process used to assess the long-term viability
against these risks and challenged management
on the assumptions. The External Auditor in
turn challenged the ARC on the process that
had been adopted and was satisfied that the
process used was robust and thorough. The
ARC was satisfied that they could make a
recommendation to the Board on the Group’s
long-term viability.
The ARC acknowledges that there have been a
number of new accounting assessments relating
to the transactions undertaken during the year.
These are detailed in the Critical Accounting
Judgments and Estimates section of the
Financial Statements on pages 150 to 151.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
104
Chair of the Remuneration
Committee’s Letter
RALF K. WUNDERLICH
Non-Executive Director
CHAIR OF THE REMUNERATION COMMITTEE LETTER
This report includes
• The Annual Directors’ Remuneration
report
• A summary of the Remuneration Policy,
which was approved at our AGM in 2021
This report describes how the Policy has
been put into practice during 2022, and
how we plan to implement the Policy in
2023.
Dear Shareholder,
Following my appointment as the Chair of the
Remuneration Committee at the AGM in May,
I am pleased to present to you the Directors’
Remuneration report for the year ended 31
December 2022.
The business context
As outlined elsewhere in this Annual Report,
it has been an exceptional year of change for
Essentra, not only in terms of the strategic
reviews, but also the wider geopolitical
changes impacting our people and our
business.
In line with our values, Essentra has continued
to focus on protecting the safety, health and
wellbeing of our employees. Our three Board
Employee Champions, Mary Reilly, Adrian
Peace and I, have continued to engage with
groups of employees throughout 2022 using
both physical and virtual meetings to hear
directly the views of our employees, gaining
a valuable insight to views on remuneration
and the impact of the external markets on
our people.
These engagements also oer the opportunity
to address any queries regarding Executive
Remuneration and its alignment to the wider
Company’s pay policies.
All of the 34 countries in which we operated
at the start of 2022 continued to be impacted
by the pandemic and its aftermath. Early in
2022, we also responded to the hardship and
economic uncertainty caused by the Russian
invasion of Ukraine. This had an impact on
input prices and caused disruption of the
supply chain which has been challenging
throughout the year. We recognise that
these events continue to cause considerable
uncertainty and hardship for some of
our employees, customers, suppliers and
communities we operate in.
Towards the end of 2021, after much
deliberation, the Board announced the
intention to move to a pure-play global
Components business. The Board viewed
this approach as necessary to maximise
shareholder value and the growth potential
of each of our three businesses, yet retaining
the strong Components business with a focus
on profitability, growth and value creation.
During 2022, that strategic goal came
to fruition with the sale of our Packaging
business to Mayr-Melnhof Group (MM) and
the sale of our Filters business to a wholly
owned subsidiary of Centaury Management
Limited. The work required to successfully
deliver these divestments in the required time
frame was considerable and the Board is
extremely grateful for the commitment of all
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
105
those leaders and employees who assisted in
this process, yet retained a focus on business-
as-usual activities.
There have been a number of remuneration-
related issues arising from the transactions
and broad business challenges, making this
a complex year in which the Remuneration
Committee has been focussed on ensuring
a fair and consistent approach to all aspects
of reward. This letter details our thinking
and approach, which the Remuneration
Committee deliberated on throughout the
year, holding seven meetings in 2022 to ensure
all aspects were duly considered.
With all the complexities, the Remuneration
Committee continued to consider
remuneration in our wider workforce when
making decisions that aected our senior
executives, taking feedback received by our
Board Employee Champions on employee
share plans, merit increases and the ratio
of Chief Executive pay to that of our other
employees. These topics are reflected in the
approach to reward across the workforce and
the process of evaluating the right steps for
2022/2023.
Board Changes
There were a number of Board changes during
2022, some as a direct consequence of the
strategic reviews and I will take you through
each change in turn.
Change of Chief Executive
In October, after five years service, we
announced Paul Forman would step down
as Chief Executive on 31 December 2022,
following the successful completion of
the Packaging and Filters transactions. In
recognition of Paul’s contribution in 2022
with the successful divestment of Packaging
and Filters and professional handover, the
Remuneration Committee agreed that he
should remain eligible to receive an annual
bonus for 2022 and receive “good leaver”
status in respect of his outstanding LTIPs in
line with plan rules and the Remuneration
Policy.
The Board were pleased to welcome Scott
Fawcett as Chief Executive Ocer, also
announced in October, with an eective date
of 1 January 2023. This is a great example of
successful succession planning, with Scott
being promoted to the Board having led the
transformation of the Components business
over the last twelve years from a product-led
to service-driven business, with an established
track record of developing and expanding
the business both organically and through
acquisition. The remuneration arrangements
for Scott are detailed in the Remuneration
Report and are in line with our Policy. This
includes a pension allowance of 5% of base
salary, in line with the UK workforce. This
delivers our commitment to reduce pension
allowances by the end of 2022 made when
our Directors’ Remuneration Policy was
approved by our shareholders at the AGM
in May 2021. Scott’s salary and LTIP award
have been set commensurately lower than
his predecessor in recognition of the reduced
size of Essentra following the sale of the
Packaging and Filters businesses.
CFO Change
As originally announced in November 2021,
Lily Liu stepped down from the Board at the
AGM on 19 May 2022 and ceased employment
on 30 June 2022. The Committee decided
to take a balanced approach to Lily’s
remuneration arrangements which recognised
her significant contribution to the business,
to the strategic reviews during the first half
of the year and in supporting a managed
succession. Accordingly, Lily did not receive
a salary increase in April 2022 nor an annual
bonus for 2022, her in-flight 2021 LTIP lapsed
and she did not receive a LTIP award for 2022.
However, the Committee determined that
she should retain the Deferred Bonus shares
earned as part of the 2021 bonus as it related
to the prior years performance, and this
was released to her when her employment
terminated.
The Board were also pleased to welcome Jack
Clarke to the Board on 4 April 2022 as the
Chief Financial Ocer Designate, taking the
role at the AGM on 19 May 2022.
Full details of Scott and Jack’s remuneration
are contained in the ‘Implementation of
Remuneration Policy for 2023’ section later in
this report.
Full details of Paul and Lily’s remuneration
arrangements relating to their cessation of
employment are set out in the ‘Payments for
loss of oce’ section later in this report.
Non-Executive Director changes
Nicki Demby stepped down from the Board
at the AGM in May 2022 after a thorough and
in-depth handover. On behalf of the Board, I
would wish to thank Nicki for her professional
guidance and excellent stewardship of the
Remuneration Committee during her time
with Essentra.
It was with great pleasure that we announced
Dupsy Abiola’s move to a full Non-Executive
Director on the Board in March 2022, after
a year as Board trainee. She also joined the
Remuneration Committee as a member.
We were also delighted to welcome Kath
Durrant to the Board with eect from January
2023. Kath will also be a member of the
Remuneration Committee.
Given the reduced size of Essentra following
the divestment of the Packaging and Filters
businesses, we externally benchmark the
fees of the Board Chair and adjusted them
downward by 10% to £225,000.
CHAIR OF THE REMUNERATION COMMITTEE LETTER CONTINUED
The committee reflected
on remuneration outcomes
in the context of a year of
exceptional change and believes
they appropriately reflect the
performance of the Company
and the broader stakeholder
experience.”
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
106
Measuring and assessing
performance for in-flight incentive
awards
Given the materiality of the Packaging and
Filters transactions to the wider Essentra
business, there were a number of complexities
for the measurement and assessment of
performance for in-flight incentive awards,
specifically the 2022 annual bonus and the
2021 and 2022 LTIP awards.
A particular area of focus for the
Remuneration Committee has been to
ensure that a fair and robust measurement
and assessment process remained for these
awards. The Committee sought to follow
some basic principles summarised as follows:
• maintain consistency between the basis on
which targets are set and how performance
is measured
• ensure use of a consistent approach across
aected awards where possible
• maintain the original performance periods
• use audited data to the extent that this is
feasible.
More detail on the Committee’s specific
application of these principles to aected in-
flight incentive awards is set out on page 116,
in respect to the 2021 and 2022 LTIP awards,
and page 113 in respect of the 2022 annual
bonus.
Linking reward to performance in
2022
The performance of the underlying business
overall was resilient during 2022 with a strong
performance in the Components business,
despite ongoing global supply chain issues.
The international Packaging business, which
was part of the Group for nine months of the
year, was impacted by slower than expected
recovery in volumes during this period,
coupled with global supply chain challenges.
The availability and cost of raw materials had
a particular impact.
The Filters business performed well whilst it
remained part of the Group for 11 months,
albeit facing economic headwinds as a result
of the Russia / Ukraine conflict.
We continued to make good progress
in meeting our environmental targets.
Particularly pleasing was the increased
numbers of Components sites which are now
at zero waste to landfill. By the end of 2022,
this was comprised of 12 Components sites.
We are committed to continuing to reduce
our Scope 1 and 2 emissions, and focusing
on working with our customers and suppliers
on reducing our Scope 3 emissions. Since our
2019 baseline we have reduced our continuing
Components business Scope 1 and 2 CO
2
e
emissions by 27%. Indexed to revenue, our
emissions intensity has declined by 35%
against our baseline year, and 23% since 2021.
More information on our progress can be
found in the ESG section on pages 22 to 35.
CHAIR OF THE REMUNERATION COMMITTEE LETTER CONTINUED
Long term value creation
for shareholders and pay for
performance continue to be at
the heart of our remuneration
policy and practices.
The execution of the strategic reviews placed
considerable demands on the leadership team
during 2022. We received strong support from
shareholders on both transactions. During the
process, leadership managed to continue the
strong focus on business-as-usual activities,
retaining talent and driving performance.
In addition, we further accelerated our
Components growth strategy with the
successful acquisition of Wixroyd in December
which extends the business’s capabilities in
hardware components.
The Remuneration Committee considered the
annual bonus outcomes for the 2022 period,
balancing the outturn within the context of
wider workforce, macroeconomic challenges
and stakeholder experience.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
107
We concluded that the outcome of 54.9%
of the maximum for Chief Executive, Paul
Forman and Chief Financial Ocer, Jack
Clarke (in the latter case pro-rated for time
served) is justified given the performance
delivered during this year of fundamental
change. The bonus payments will be after the
publication of the Group’s Audited Annual
Results on 29 March 2023.
No LTIP award was granted to the Executives
during 2020 so no award vests in this reporting
period. Due to the Company being in a
closed period for much of the year, the 2022
LTIP award was delayed until October 2022.
Being mindful of the risk of windfall gains, the
Remuneration Committee exercised discretion
and applied a circa 14% reduction in the
number of shares awarded to the Executive
Directors, taking account of the lower share
price at the delayed grant date relative to the
previous grant date in March 2021.
Executive remuneration in 2023
Principles
Our approach to setting executive
remuneration continues to be guided by the
following principles:
CHAIR OF THE REMUNERATION COMMITTEE LETTER CONTINUED
The Remuneration
Committee considered the
annual bonus outcomes for
the 2022 period, balancing
the outturn within the
context of wider workforce,
macroeconomic challenges
and stakeholder experience.
• rewarding the creation of sustainable,
long-term performance, with long-term
value creation for shareholders and pay
for performance being at the heart of our
policy and practices
• incentivising and rewarding delivery of the
business strategy, with market competitive
pay in return for performance against our
strategic objectives
• attracting and retaining the talent we
need to lead our business. This must also
reflect the complexities of global business,
attracting and nurturing a mix of talent
with a range of backgrounds, skills and
capabilities that will enable Essentra to
thrive
• consideration of stakeholder interests
ensuring our reward packages are
appropriate and fair in the context of
the experience of our key stakeholders –
employees, shareholders and customers
• flexible in our approach to remuneration so
that we can respond to a rapidly changing
world. This has never been clearer than over
recent years.
Salary increases in 2023
Following his recent promotion to Chief
Executive, Scott Fawcett’s salary will not be
increased in April 2023. Similarly, Jack Clarke’s
salary, and the salaries of the Group Executive
Committee will remain unchanged as the
newly formed Essentra Component business
will focus the 2023 salary increase budgets
on the lower paid colleagues where the
current economic challenges have a greater
impact. For reference, the average 2023 salary
increase for our UK workforce is budgeted to
be 6% and distributed based on grade, so as
to assist those most impacted by the financial
challenges in many of our operating countries.
Linking reward to strategy – incentive
plans in 2023
A number of changes have been made to
the KPIs and their weighting in the 2023
annual bonus and LTIP to better align with
the strategy of Essentra as a pure-play
Components business.
One of those changes is the removal of
ROIC as a performance measure in the LTIP
structure which will be simplified to three
measures (EPS, relative TSR and ESG). ROIC
performance in the Components business
KPI 2022 2023 Strategic rationale
Annual Bonus: one-year performance
Adjusted operating profit 40% 50%
The metrics are designed to provide a balanced alignment
with our goals of generating sustainable, profitable growth
and strong cash generation
The higher weighting attributed to strategic objectives in
2022 has been reduced following the completion of the
sales of the Packaging and Filters businesses
Adjusted operating cash flow 10% 20%
ESG 10% 10%
Personal & Strategic objectives 40% 20%
LTIP : three-year performance
Relative TSR 20% 30%
The measures are designed to provide a balanced alignment
with our goals of delivering shareholders a superior return on
their investment and generating sustainable, profitable growth
To simplify the LTIP structure, the number of performance
measures is being reduced from four to three by the removal of
a separate ROIC measure
Adjusted EPS 40% 50%
Return on Invested Capital (ROIC) 30% -
ESG 10% 20%
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
108
CHAIR OF THE REMUNERATION COMMITTEE LETTER CONTINUED
is strong and accordingly we believe that
an ongoing focus in the incentive plans
on Operating Profit / EPS combined with
Adjusted Operating Cash flow, management
will continue to deliver a strong ROIC
performance. The Committee will continue
to assess ROIC as one of the key indicators
of financial health when considering whether
there should be any discretionary adjustment
to incentive outturns.
We remain committed to our ESG agenda
and have strengthened our commitment
through both our bonus and LTIP targets
and measures. We will continue to drive all
elements of ESG as we seek to do our bit
for the broader environment and our local
communities.
We have taken a balanced approach
to setting the annual bonus and LTIP
performance targets given the uncertain
economic environment in which the awards
are being made. The Committee retains
the discretion to adjust the outcomes of
the incentive awards to reflect the overall
performance of the business over the
performance period.
Our current intention is that LTIP awards for
2023 will be granted for shares worth 150%
of salary to both the Chief Executive and
CFO although, as in 2022, the Remuneration
Committee will carefully consider the
appropriateness of these award sizes shortly
before the grant date.
Conclusion
It has been a year of change for Essentra
with significant implications on remuneration
matters. The Committee has taken a
balanced and considered approach.
It is also important that we maintain
flexibility in our approach to remuneration,
retaining agility in a rapidly changing world.
The Committee is satisfied that our Policy
operated as intended and is satisfied that
it will continue to provide strong alignment
between performance and the remuneration
of the Executive Directors during 2023.
However, we will keep this under review ahead
of our triennial Policy review due in 2024.
As ever, the Remuneration Committee
welcomes any questions or comments
from shareholders. We greatly value any
feedback received from shareholders which
is considered by the Committee, as relevant,
within our regular meetings. There has been
no formal shareholder engagement exercise
by the Committee during 2022 although
the Board has consulted shareholders on
other matters, as has been detailed in
our Stakeholder engagement and Section
172 report, on page 38. The Chair of the
Remuneration Committee is available
to speak to shareholders if they so wish.
However, as part of our triennial review of
the Remuneration Policy, we will consult
widely in 2023 with our major shareholders
and proxy voting bodies as well as other key
stakeholders. Details of that consultation
and how it impacts our thinking on the
Policy design will be outlined in next year’s
Remuneration Report.
Our consultation with employees, which is
covered in more detail on page 106 as well
as in the ESG and Corporate Governance
chapters, includes explaining how executive
remuneration aligns with our wider company
pay policy. In addition, our Board Champions
have met with employees during 2022,
who have had the opportunity, and have
raised remuneration as a topic, with them.
Two of the Board Champions include the
Remuneration Committee Chair and the
Senior Independent Director, who is also a
member of the Remuneration Committee.
I hope that you will find this report to be
clear and helpful in understanding our
remuneration practices and that you will
support the advisory resolution on the
Annual Remuneration report at the AGM
on 16 May 2023.
In closing, I am grateful to the Board
Chair and members of the Remuneration
Committee for their continued diligence,
engagement and support throughout the
year in making responsible decisions on
remuneration.
Ralf K. Wunderlich
Non-Executive Director
Remuneration Committee Chair
28 March 2023
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
109
A
djusted operating profit
–
40% weighting
Entry
Stretch
Maximum
100%
100.0%
29.8%
50%
70.0%
A
djusted operating cash flow
(
10% weighting)
Zero Waste to Landfill
(ZWTL) –
10% weighting
Other strategic objectives
–
40% weighting
Remuneration at a glance
2022 remuneration structure for Executive Directors
The committee reflected on remuneration outcomes
in the context of significant strategic and organisation
change, the demanding economic environment and
global challenges. We believe the approach and outcomes
appropriately reflect the performance of the Group and the
broader stakeholder experience.
RALF K.
WUNDERLICH
Remuneration
Committee
Chair
Data in these charts relates to the period that individuals were Board members. Lily Liu stepped down from the Board in May 2022 and
Jack Clarke joined the Board in April 2022.
2022 total remuneration
Paul Forman (£000)
2022
2021
Lil
y Liu (£000)
2
022
2
021
£1.5m£1.0m£0.5m
£0m
£1.5m£1.0m£0.5m
£0m
£1.5m£1.0m£0.5m
£0m
Jack Clarke
(£000)
2
022
2
021
231
430
291
847
825 658
563
284 180
Fixed pay – salary, benefits, pension allowance
Performance pay – annual bonus and LTIPs earned in respect of the three year performance period.
2022 Annual bonus
Overall
bonus
CFO: 54.9%
Overall
bonus
CEO:54.9%
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
110
REMUNERATION AT A GLANCE
Meetings during 2022
Q1 2022
• Approved 2021 annual bonus outturn for
Executive Directors and GMC members
• Approved performance measures and
targets for the 2022 annual bonus of
Executive Directors and GMC members
• Approved the 2019 LTIP outturn
• Approved the 2021 CEO and CFO
Objectives outturn
• Approved the 2022 annual salary review
for ED’s and GMC
• Reviewed Directors’ Remuneration Report
for inclusion in the 2021 Annual Report
• Approved Proposed 2022 LTIP Targets
Q2 2022
• Approved CFO leaver terms
Q3 2022
• Approved appointees to Components
Executive Committee
Q4 2022
• Approved exit terms for the outgoing CEO
• Approved remuneration terms for
incoming CEO
• Considered the design of the 2023 annual
bonus for Executive Directors and GMC
• Considered the LTIP 2023 Measures and
Weightings
• Reviewed the Shareholding for Executive
Directors
• Approved the 2022 LTIP awards
• Approved remuneration for the board Chair
Membership and attendance
Meetings during the year
Ralf K. Wunderlich
Non-Executive Director 7 (7)
Mary Reilly
Non-Executive Director 7 (7)
Nicki Demby
Non-Executive Director 4 (4)
Dupsy Abiola
Non-Executive Director 7 (7)
Other attendees
During the year, the Board Chair, Chief Executive, Chief
Financial Ocer, Group Human Resources Director and
Director of Reward were invited by the Remuneration
Committee to provide views and advice. None participated in
discussions regarding their own remuneration.
The board trainee Dupsy Abiola, joined ocially as a NED in
March of 2022.
The Company Secretary and General Counsel act as Secretary
to the Remuneration Committee, with the support of the
Head of Governance, both of whom attend all meetings.
The Remuneration Committee continuously monitors and
reviews the Company’s relationships with its independent
advisers.
In addition, services and advice were received from the
following independent and expert consultants:
• Deloitte LLP (Deloitte), who are a member of the
Remuneration Consultants Group and have signed up to
its Code of Conduct, provided advice to the Remuneration
Committee on a variety of issues related to the remuneration
of the Executive Directors and other senior executives within
the Company. Deloitte were appointed by the Remuneration
Committee who review their performance annually, and
are content with the continued advice and level of service
provided. The Remuneration Committee regularly reviewed
the independence of Deloitte and continues to be satisfied
with the level of independence. Fees charged for the
year under review are £129,700. The fees are charged on
a time and expenses basis. Deloitte also provided other
remuneration, consulting and tax services to the Company
during 2022.
This section of the Remuneration
Report will be subject to
an advisory vote at the 2023
AGM together with the Annual
Statement from the Remuneration
Committee Chair.
Annual Report on
Remuneration
Key activities
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
111
ANNUAL REPORT ON REMUNERATION
Total Single Figure of Remuneration Table for 2022 (audited)
The remuneration received by Executive Directors and Non-Executive Directors for the year ended 31 December 2022 (and the 31 December 2021 comparative) was as follows:
Year
Salary and
fees for the
year or from
the date of
appointment
£000
Taxable
benefits¹
£000
Cash in
lieu of
pension
2
£000
Total fixed
remuneration
£000
Bonus
(cash and
deferred
shares)
£000
Long-Term
Incentive
Plan
3
£000
Other
£000
10
Total variable
remuneration
£000
Total
£000
Executive Directors
Paul Forman 2022 675 37 135 847 561 2 563 1,410
2021 652 38 135 825 658 0 – 658 1,483
Jack Clarke
7
2022 261 10 13 284 180 – – 180 464
Lily Liu
11
2022 197 7 27 231 – – – – 231
2021 359 15 56 430 288 0 3 291 721
Non-Executive Directors
Paul Lester 2022 250 – 250 – – – 250
2021 250 – – 250 – – – – 250
Mary Reilly 2022 85 – 85 – – – 85
2021 81 – – 81 – – – – 81
Ralf K. Wunderlich
5
2022 80 6
9
– 86 – – – – 86
2021 73 5
12
– 78 – – – – 78
Adrian Peace
6
2022 62 13
9
– 75 – – – – 75
2021 31 – – 31 – – – – 31
Dupsy Abiola
8
2022 42 – – 42 – – – – 42
Nicki Demby
5
2022 25 – – 25 – – – – 25
2021 65 – – 65 – – – – 65
Tommy Breen
4
2021 24 – – 24 – – – – 24
Totals 2022 1,677 73 175 1,925 741 – 2 743 2,668
Totals 2021 1,535 58 191 1,784 946 0 3 949 2,733
Notes:
1 Taxable benefits comprise a car allowance, private medical insurance and life insurance cover.
2 None of the ED’s are entitled to any benefit under the Essentra Defined Benefit Pension Scheme.
3 There was no 2020 LTIP award.
4 Tommy Breen stepped down from the Board in May 2021.
5 Nicki Demby stepped down from the Board and Ralf K. Wunderlich was appointed Chair of the Remuneration Committee in May 2022.
6 Adrian Peace joined Essentra as a NED In June 2021.
7 Jack Clarke joined as CFO in April 2022.
8 Dupsy Abiola joined the board in March 2022.
9 Travel allowance under the Travel Policy.
10 Other Non-taxable income or re-embursements.
11 Lily Liu stepped down from the Board in May 2022.
12 The 2021 comparative figure for Ralf K. Wunderlich was represented by disclosing his 2021 travel allowance within Taxable benefits.
ANNUAL REPORT ON REMUNERATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
112
CEO pay ratio (unaudited)
This is the fourth year that we are publishing our CEO pay ratio. We have elected to continue to
follow Option A of the regulations, and to calculate the ratios using the full-time equivalent pay
and benefits for all UK employees in respect of 2022. We have chosen Option A as this provides
a more accurate reflection of the Chief Executive’s pay in relation to the wider UK population.
Salary for the UK workforce is at 31 December 2022.
25th Percentile 50th Percentile 75th Percentile
Salary £21,729 £31,462 £48,197
Total pay £24,675 £34,846 £55,378
FY 2022 57:1 40:1 25:1
FY 2021 68:1 54:1 34:1
FY 2020 38:1 30:1 19:1
FY 2019 67:1 50:1 36:1
The salary for the employees at the above percentiles are typical salaries for operational roles
in our factories and sites. The roles at these quartiles are a Production Operator, Product
information Executive and Dip Mould Operator. The majority of remuneration for these
roles is fixed rather than performance linked. The ratios are calculated based on the total
remuneration payable to the Chief Executive in respect of 2022, as set out in the Single Figure
Table above. The Company believes the median pay ratio is consistent with the pay, reward and
progression policies for the Company’s UK employees.
The CEO pay ratio for 2022, has decreased to 40:1 at the median.
The CEO pay ratio will fluctuate year-on-year, reflecting the higher proportion of variable
remuneration that the Chief Executive may receive relative to other employees, the value of
which is dependent on Essentra’s performance and share price movements. As a result, the
Remuneration Committee does not believe it is appropriate to target a specific CEO pay ratio.
However, the Committee will annually assess whether the year-on-year movement in the ratio
is consistent with Company performance and employee reward decisions.
Annual bonus (audited)
Under the terms of the annual bonus arrangements for 2022, Paul Forman was potentially
entitled to a maximum bonus of up to 150% of basic salary and Jack Clarke was potentially
entitled to a maximum bonus of up to 125% of basic salary, pro-rated for his period of
employment. The Remuneration Committee determined that Lily Liu, who left Essentra during
the middle of the year, was not entitled to a bonus for 2022.
As outlined in last year’s Remuneration Report, the balance of the performance measures for
the 2022 annual bonus was designed so as to support successful execution of the strategic
reviews of the Filters and Packaging businesses. Accordingly one half of the annual bonus
rewarded the delivery of the strategic reviews (40%) and environmental targets based on Zero
Waste to Landfill (10%). The other half of the annual bonus rewarded the delivery of Adjusted
Operating Profit (40%) and Adjusted Operating Cash Flow (10%) in the year.
2022 Annual Bonus Outturn
Performance measure Weighting
Entry
performance
1
Stretch
performance
1
Maximum
performance
1
Actual
performance
% of
overall bonus
payable
Adjusted Operating Profit
2
40% £78m £91.8m £96.4m £82.6m
3
11.9%
Adjusted Operating Cash Flow
2
10% £45.7m £53.8m £56.5m £60.8m
3
5%
6
Zero Waste to Landfill (ZWTL)
– number of production sites
achieving ZWTL
4
10% 25 26 27 28 10%
Other strategic objectives 40% Details in analysis below
CEO – 28%
CFO – 28%
Total bonus
CEO – 54.9%
5
CFO – 54.9%
5
Notes:
1 As in 2021, 10%, 70% and 100% of the relevant portion of the bonus was payable for achieving Entry, Stretch and Maximum
performance respectively. The cost of the 2022 bonus was budgeted up to 50% of maximum.
2 Following the sale of the Packaging and Filters businesses, the original targets were adjusted by the Remuneration Committee to
ensure they were consistent with the ownership of the businesses as reflected in actual performance during 2022. This adjustment
involved the removal from the targets of profit and cash flow originally forecast from the Packaging business in the period October
– December 2022 and from the Filters business in December 2022. Profit targets were also adjusted to ensure a consistent
accounting approach for depreciation was adopted for targets and outturn following the application of IFRS5.
3 As in prior years, outturn was adjusted to be consistent with plan FX rates in order to align with the targets.
4 Success is defined as a site maintaining at least one quarter of the year with ZWTL before year-end with achievement also
maintained through to year-end unless there is an exceptional event. The Sustainability Committee reviews achievement against
the targets and provides the Remuneration Committee with the outcome for bonus purposes, following external review.
5 Jack Clarke’s bonus was paid 50% in cash and 50% in deferred shares with no further performance conditions. As a leaver before the
bonus payment date, Paul Forman’s bonus was considered by the Remuneration Committee in accordance with the exit payments
section of the 2021 Directors’ Remuneration Policy. In recognition of Paul’s extensive contribution during 2022, and acknowledging
that he had been in employment for the full year, the Committee was satisfied that he should remain entitled to this bonus which
will be delivered in cash consistent with the Policy. More details relating to Paul Forman’s remuneration following his cessation of
employment are on page 119.
6 Although the formulaic outturn of the adjusted operating Cash Flow measure would have resulted in a maximum 10% payout, the
Remuneration Committee exercised its discretion to reduce the payout by 5% having considered the level of Adjusted Operating
Profit outturn.
Irrespective of the outcome, the bonus design includes a ‘gate’ whereby no bonus is payable
unless the Remuneration Committee determines that the Company’s 2022 financial
performance is satisfactory. As both financial measures met the Entry performance target, the
Committee was satisfied that this ‘gate’ had been satisfied.
Additionally, the Remuneration Committee gave careful consideration to the outturn of
the annual bonus in light of overall financial performance and the experience of our various
stakeholders during the year. It also noted the continued progress in all areas of ESG, in
particular against sustainability targets, and the Group’s strengthened strategic direction
following the successful execution of the sale of the Packaging and Filters businesses. The
Committee also took into consideration that no LTIP award had been granted in 2020 so the
annual bonus was the only element of variable remuneration to which executives were entitled
at the end of 2022. Following this review, the Committee concluded that the outturn was
appropriate.
ANNUAL REPORT ON REMUNERATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
113
Strategic area Assessment of performance Outcome
Successful execution of
the strategic review of
the Filters division
One of the key challenges to successful execution of the strategic review of the Filters division was inherent ESG challenges and other factors impacting tobacco inductry and tabcco related
segments, which impacted the divestment. A tailor made transaction process was undertaken to maximise the likelihood of a successful completion of the strategic review. Whilst significantly
more complex in nature, management successfully managed the additional challenges that this process presented and deliverd the following outcomes:
• Filters’ operational performance during the sale process remained strong as outlined in the Financial Review which helped drive the value and successful outcome of the sale for an enterprise value of
approximately £262.1m.
• The sale to a wholly owned subsidiary of Centaury Management Limited was successfully completed in December 2022 following strong shareholder support received at the General Meeting of
9 November 2022. Senior leadership for the Filters Division continued to be successfully engaged through until the closing of the transaction and continue to work with Centaury Management Limited.
Achieved
Successful execution of
the strategic review of
the Packaging division
Execution of the strategic review of the Packaging division followed a more standard sale process. Management successfully led the market positioning and sale proposition, working through the
longlist and preparing the transaction position for the shortlist process. This culminated in successful completion of the sale to the Mayr-Melnhof Group in October 2022 for £312 million on a cash
free, debt free basis. The Executive Directors had to support the very comprehensive process as well as the ongoing business as Packaging industry was strongly impacted by a number of external
factors such as the geopolitical envionment, electricity cost and significant raw material increase and the related passing on of such costs. Overwhelming shareholder support for the transaction
was received at the General Meeting of 8 August 2022. Although the sale process was successfully completed, the Remuneration Committee noted that operational performance of the Packaging
division was less strong than budgeted prior to completion and reflected this in its outcome for this objective.
Partially
Achieved
Ensure the residual
Components division
has the appropriate
market strategy,
structures, personnel
and capabilities to be
a cost-eective, fully
functioning plc
This objective was included by the Committee on the basis that it was vital for management to not just focus on the transactions and ‘business as usual’ activities, but to also ensure the residual
Components business was set up for success. In that context, the Committee noted that Components had successfully delivered a well-received Capital Markets Day on 15 November 2022
demonstrating the work that had been undertaken to:
• Establish a clear profitable growth strategy for the standalone PLC going forward;
• Set out the structure for the business going forward, ensuring the right talented stang levels for the future comprising a mix of internal and external skills to balance business need; and
• Demonstrate confidence in the standalone PLC being able to function eectively from January 2023.
Whilst the Committee concluded that key elements of this objective had therefore been successfully delivered, it also noted that head oce functional costs are taking longer to get to the
targeted level than anticipated and reflected this in its outcome for this objective.
Partially
Achieved
Ensure a controlled and
successful migration of
all central activities
One of the key operational challenges of moving to a pure play Components business was a controlled and successful migration of all central activities. Key elements of the successful transition
from Group to standalone included:
• Corporate restructure of the legal entities, with related items in readiness for sale
• Full review of corporate contracts, apportioning to the respective divisions, negotiating revised terms and addressing stranded costs
• Address the Section 75 obligations under the Pensions Act 1995, negotiating a flexible apportionment arrangement for the defined benefit pension obligations
• Full map for the IT infrastructure, developing transitional services and separation of systems and services allowing the divisions to operate their own network and systems
• Consultation and removal of roles surplus to the requirements of the standalone business going forward
Whilst the Committee concluded that this objective had been successfully delivered, the cost of its delivery was higher than had been anticipated and this was reflected in the Committee’s
outcome for this objective.
Partially
Achieved
Ensure finance function
transitions eectively
to the new structure
and is set up for
success in terms of
leadership structures,
financial controls and
operational structure
The financial controls were established and in place to ensure the smooth close out of the 2022 accounts, while also transitioning the financials to close and preparing for the 2023 standalone
Components business. For the Component’s PLC:
• The correct stang and financial infrastructure were established
• The controls and reporting reequipments were established and ready for January 2023.
• Treasury and tax smoothly transitioned into a new working arrangement with no material negative impact on the standalone PLC company
Whilst the Committee concluded that key elements of this objective had been successfully delivered, it also noted that the desired finance fixed costs are taking longer to get to the targeted level
than anticipated (although the foundations are in place) and reflected this in its outcome for this objective.
Partially
Achieved
Total – Paul Forman
Total – Jack Clarke
28/40
28/40
Notes:
1 Objective relevant to Paul Forman.
2 Objective relevant to Jack Clarke.
ANNUAL REPORT ON REMUNERATION CONTINUED
Strategic objectives 2022
2022 has been a particularly complex year with management required to not only deliver
strong operational performance and profitability from ‘business as usual’ activities but also to
devote considerable amounts of time to ensure successful execution of the strategic reviews
of the Filters and Packaging businesses that were announced in Q4 2021 within the broader
strategic goal of becoming a pure play Components business. Given the criticality of these
strategic reviews, an enhanced 40% weighting was given to this element of the bonus in 2022
as disclosed in last year’s Remuneration Report. The following table sets out a summary of the
Committee’s assessment in each of the key areas of strategic performance identified for 2022,
as well as the Committee’s overall assessment of the outcome for each objective. As outlined
above, these outcomes in combination with the outcomes from the financial metrics were
further assessed by the Remuneration Committee in the context of relevant factors, including
overall Group performance and overall variable remuneration opportunity in 2022 (there having
been no LTIP award granted in 2020).
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
114
Equity incentives (audited)
Details of the awards granted and outstanding during the year to the Executive Directors under the LTIP and DASB are as follows:
Date of
grant
At 1 Jan
2022
Awarded
in 2022
Exercised/
transferred
in 2022
Lapsed
in 2022
At 31 Dec
2022
Share price
at date
of grant
Earliest
vesting date Expiry date
Paul Forman
LTIP
1
13 Aug 19 321,241 – – 321,241 – 400.4p 13 Aug 22 13 Aug 25
LTIP
1
31 Mar 21 440,799 – – 440,799
4
291.8p 31 Mar 24 31 Mar 27
LTIP
1
04 Oct 22 – 557,552 – – 557,552
4
210.5p 04 Oct 25 04 Oct 28
DASB
2
29 Mar 19 74,342 – 74,342 – – 413.0p 01 Mar 22 01 Mar 22
DASB
2
30 Mar 20 56,840 – – – 56,840 253.4p 1 Mar 23 1 Mar 23
DASB
3
30 Mar 21 – – – – – – – –
DASB
4,5
04 Oct 22 – 156,442 – – 156,442 210.5p 04 Oct 25 04 Oct 25
Lily Liu
LTIP
1
31 Mar 21 181,962 – – 181,962 – 291.8p 31 Mar 24 31 Mar 27
DASB 30 Mar 20 22,642 – – – 22,642 253.4p 1 Mar 23 1 Mar 23
Jack Clarke
LTIP
1
04 Oct 22 – 214,739 – 214,739 210.5p 04 Oct 25 04 Oct 28
Notes:
1 Subject to a two-year holding period post vesting.
2 DASB is deferred for 3 years from grant and not subject to any performance conditions.
3 No DASB in 2021 as there was no bonus payable for 2020.
4 The October 2022 award to Paul Forman had a face value on the grant date of £329k based on the mid-market closing share price of 210.5p on the day preceding the grant ie 03 October 2022.
5 Paul Forman’s 2021 and 2022 LTIP awards are subject to “good leaver” terms and conditions and will be pro-rated to the performance period until his termination date, as a proportion of the full performance period. As a result, 147,227 of 2021 LTIP and 371,701 of the 2022 LTIP
will lapse in 2023.
A total of 961,501 (2021: 1,744,055) share incentive awards were granted during the year ended 31 December 2022 to Executive Directors and other senior executives on the GMC, relating only to
the LTIP award.
ANNUAL REPORT ON REMUNERATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
115
LTIP awards (audited)
Performance conditions for LTIP awards made in 2020
There were no LTIP awards in 2020.
Share awards granted during the year (audited)
The following share awards were granted to Executive Directors on 04 October 2022.
Executive
Type of
award
Number
of awards
granted
Share price
used to
determine
award Face value
Percentage
which
vests at
threshold
Paul Forman Conditional
share award
1
557,552 210.5p
£1,173,647
(172% of salary) 25%
DASB Share
awards
2
156,442 210.5p £329,310 N/A
2
Jack Clarke
Conditional
share award
1
214,739 210.5p
£452,025
(129% of salary) 25%
Face value is based on the mid-market closing share price on the day preceding the grant ie
03 October 2022.
1 The performance period for these awards is three financial years to 31 December 2024 plus an additional two-year holding period
following vesting. The award could not be made in the usual March time frame due to being in a closed period. Additionally, a
discount of c14% was applied to the normal award size to account for the drop in share price compared to the previous LTIP grant.
2 The DASB share awards are not performance related, but can be counted towards the post-employment shareholding requirements.
Performance conditions for LTIP awards made in 2022 (audited)
1
Condition definition Threshold Maximum
EPS Growth (40%) 2024 EPS compared to
2021 EPS
5% p.a. for 25% of the EPS
element to vest
13% p.a. for 100% of the EPS
element to vest
ROIC (Return on Invested
Capital) (30%)
Average in 2022 – 2024 8.5% for 25% of the ROIC
element to vest
14.5% for 100% of the ROIC
element to vest
Relative TSR v FTSE250
excluding specific Sectors
(20%)
Q4 2024 compared to Q4
2021
If median rank is
achieved, 25% of the
TSR element vests
If upper quartile rank is
achieved, 100% of the TSR
element vests
Reduction in GHG emissions
(10%)
2024 compared with 2021 10% reduction for 25% of
GHG element to vest
15% reduction for 100% of
GHG element to vest
Notes:
1 Following the Packaging and Filters transactions, performance will continue to be measured over the original three-year
performance periods for both the 2021 and 2022 LTIP awards. In order to ensure a fair and robust process, the Remuneration
Committee has determined that assessment of the EPS, ROIC and GHG emissions performance measures should be a combination
of Essentra Group performance up to 2022 and Components performance from 2023 onwards. As the original targets assumed an
assessment of Essentra Group performance over the full three-year period, the Committee will be considering whether any changes
are required to the targets to ensure they remain consistent with the logic that underlay them when they were originally set. In the
event that any changes are required following the Committee’s review, they will be reported in the 2023 Remuneration Report.
ANNUAL REPORT ON REMUNERATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
116
ANNUAL REPORT ON REMUNERATION CONTINUED
Directors’ shareholdings (audited)
The beneficial interests of the current Directors in oce and their connected persons during the
year, in the issued ordinary share capital of the Company were as follows:
There have been no changes in the Directors’ interests between 31 December 2022 and the
date of this Report.
Beneficially owned
3
LTIP DASB SAYE
31 Dec 2021 31 Dec 2022 Vested Unvested Vested Unvested Unvested
Executive Directors
Paul Forman 369,326 410,893 – 998,351 74,342
5
213,282 –
Jack Clarke – – – 214,739 – – –
Lily Liu –
4
– – – – 22,642
1
–
Non-Executive Directors
Paul Lester 21,346 21,346 – – – – –
Ralf K. Wunderlich 170,230 170,230 – – – – –
Mary Reilly 14,423 14,423 – – – – –
Nicki Demby 12,673 – – – – – –
Adrian Peace
2
– – – – – – –
Dupsy Abiola
2
– – – – – – –
Notes:
1 Good leaver status applied to the 2020 DASB but these have yet to be transfered.
2 Essentra was in a closed period for an extended period from late 2021 and therefore Adrian Peace and Dupsy Abiola had limited
opportunity to purchase shares.
3 Beneficially owned includes the vested after tax shares as at 31 Dec 2021 and 31 Dec 2022.
4 Amount restated for Lily Liu to correct for a presentational error in the prior year financial statements.
5 Of the amount vested 32,775 have been sold to cover tax in line with plan rules and the Remuneration Policy, with the remainder
included in the amount disclosed as beneficially owned.
Paul Forman and Jack Clarke are required to build up a shareholding worth 300% and 200% of
salary respectively. Beneficially owned shares include the vested DASB awards and shares held
directly. The shareholding guidelines are to be achieved up by retaining 50% of post-tax vested
shares from the date of approval of this Policy. The current holdings as a percentage of salary
for Paul Forman is 217%. Jack Clarke currently has no shareholdings.
Salary used is the prevailing annual salary as at 31 December 2022.
The Executive Directors are regarded as being interested in a portion of the 897,944 ordinary
shares in Essentra plc that are held by the Essentra Employee Benefit Trust (EBT) as they are,
together with other Essentra employees, potential beneficiaries of the EBT.
As at 31 December 2022, potential and actual share issuance through employee related share
plans totalled 1.34%, which is well below UK institutional shareholder limits of 10% of the
Company’s issued share capital.
Performance graph (unaudited)
The graph below represents the comparative Total Shareholder Return (TSR) performance of
the Company versus the FTSE 250 (excluding investment trusts) index for the last ten years.
This index has been selected as it is considered the most appropriate published general index in
which the Company is a constituent.
This graph shows the value, by 31 December 2022, of £100 invested in Essentra on 31 December
2012, compared with the value of £100 invested in the FTSE 250 (excl. Investment Trusts) Index.
The other points plotted are the values at intervening financial year-ends.
0
60
120
180
280
260
240
220
200
160
140
100
80
40
20
300
320
£
Dec
2012
Dec
2013
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Dec
2019
Dec
2020
Dec
2021
Dec
2022
Essentra
FTSE 250 (excluding investment trusts) index
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
117
ANNUAL REPORT ON REMUNERATION CONTINUED
Chief Executive remuneration table (unaudited)
Colin Day Paul Forman
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total remuneration (£000) 3,824 5,661 2,281 876 1,267 1,420 1,296 800 1,483 1,410
Annual bonus (% maximum) 100 60 46.2 0 48 64.2 30.2 0 67 54.9
LTIP vesting (% maximum) 100 100 50 0 0 0 13.5 0 0 0
Colin Day retired as Chief Executive on 31 December 2016 and Paul Forman was appointed as Chief Executive on 1 January 2017.
Year-on-year change in pay for Directors compared to the average of
employees (unaudited)
In line with the requirements in The Companies (Directors’ Remuneration Policy and
Directors’ Remuneration Report) Regulations 2019, which implement Articles 9a and 9b of
the European Directive 2017/828/EC1 (commonly known as the Revised Shareholder Rights
Directive), the table below shows the percentage change in Directors’ remuneration and
average remuneration of employees from the year ended 31 December 2020 to the year ended
31 December 2022 plus the prior year comparative. Given that Essentra plc entity has no
employees, as a voluntary disclosure, data for all employees of the Essentra Group has
been included.
2022
Average
employee
1
Paul
Forman
3
Lily
Liu
Paul
Lester
Dupsy
Abiola
4
Ralf K.
Wunderlich
Mary
Reilly
Nicki
Demby
Adrian
Peace
Jack
Clarke
4
Salary / Fees
2
-6.3%
5
+3.4% -82.2%
2
0.0% n/a +15.1% +4.7% -160% +58.7% n/a
Benefits
1,5
-7. 3%
5
-0.6% -47.8% n/a n/a +16.7% n/a n/a +100% n/a
Bonus +17.6% -17.3% n/a n/a n/a n/a n/a n/a n/a n/a
2021
6
Salary / Fees +4.6% +6.3%
3
+8.1%
3
+4.8% n/a +5.5% +12.3% +12.3% n/a n/a
Benefits -14.6% -9.0% -9.9% n/a n/a n/a n/a n/a n/a n/a
Bonus -7. 3% n/a n/a n/a n/a n/a n/a n/a n/a n/a
2020
6
Salary / Fees +1.7% -4.3% +0.9% -4.8% n/a +21% -7.8% +90% n/a n/a
Benefits +4.7% 0% -57. 6% n/a n/a n/a n/a n/a n/a n/a
Bonus -73.3% n/a n/a n/a n/a n/a n/a n/a n/a n/a
Notes:
1 The average employee salary is based on all global employees. The average employee benefits and bonus are based on employees
located in the UK and USA. The diering approach reflects the information held in global systems.
2 NEDs did not receive an increase in Fees in 2021. The perceived increase is based on the reduction in fees in 2020. In 2022 we had a
few NEDs taking on Chair positions, or started part way through 2021 which meant not a full year of fees was paid.
3 The % increase in salary for the EDs reflects the reduction in salary in 2020.
4 Jack Clarke joined in 2022, so no prior year to compare to.
5 Reduction in salary and benefits, related to the change of employee population. This data now excludes Packaging and Filters.
6 Lorraine Trainer and Tommy Breen previous NED’s had in 2020 received a reduction of 62.5% and 3.3% in fees respectively, and in
2021 Tommy Breen received a reduction of 59.3% in fees.
Relative importance of spend on pay (unaudited)
2022
£m
2021
£m
%
change
Wages and salaries
1
105.4 98.2 7.4
Distributions to shareholders 19.0 16.0 18.8
Revenue – total
2
337.9 301.7 12
Adjusted Operating Profit – total
2
25.1 26.4 -4.9
Notes:
1 Wages and salary costs are as per Note 5 of the Financial Statements. The 2021 and 2022 numbers are post the divestment of Filters
and Packaging.
2 Revenue and Adjusted Operating Profit included in this analysis as indicators of the continuing operations of the business
performance.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
118
Subject to the below, each monthly instalment will amount to £62,637 (gross), save for the
last monthly instalment which will be reduced on a pro rata basis to reflect the unexpired
period of notice as at the beginning of October 2023. In the event that Paul should obtain an
alternative remunerated position during the period of monthly payments then any remaining
monthly payments shall be reduced by the amount received in respect of such employment or
engagement, provided that no reduction shall be made where the position obtained is a non-
executive director position (including a non-executive chairmanship) and is on a temporary or
part time basis or is otherwise approved by the Board of the Company. The Company will pay
Paul in lieu of holiday entitlement accrued but untaken as at 31 December 2022.
Paul remained eligible to receive an annual bonus for the 2022 bonus year which was subject to
performance assessment in the ordinary course, consistent with the performance framework
set out at the time of the launch of the 2022 bonus programme – details of this assessment are
on pages 113 and 114. Consistent with the Remuneration Policy, the bonus shall be paid in cash
on the normal bonus payment date.
Following careful consideration, the Remuneration Committee determined that Paul should be
treated as a “good leaver” in relation to his outstanding LTIP awards. These awards will be time
pro-rated to reflect the number of days elapsed from the start of the relevant performance
period until and including 31 December 2022 as a proportion of the full performance period and
will also be subject to the assessment and degree of satisfaction of the applicable performance
targets determined by the Remuneration Committee at the normal vesting date. Vested
awards will remain subject to any applicable post-vesting holding periods in the usual way. The
Committee also agreed to treat Paul as a “good leaver” for the purposes of the DASBP such
that his outstanding awards would vest on cessation of employment. Paul is required to comply
with the Company’s post-employment shareholding requirements in respect of shares from
incentive awards that have been released since the date of the adoption of the Policy at the
2021 AGM, or are released in future on an after-tax basis.
Paul will receive a capped contribution of £12,500, excluding VAT, towards legal fees incurred
in connection with his departure and the Company will meet the reasonable cost of Paul
obtaining outplacement support through a provider to be nominated or approved by the
Company, subject to a maximum (excluding VAT but including all disbursements) of £50,000.
Payment to past Directors or for loss of oce (audited)
Payments have been determined by the Remuneration Committee taking into account
the Director’s contractual entitlements, the rules of the Company’s incentive plans and the
provisions of the Company’s Remuneration Policy (the “Policy”) as approved by shareholders at
the Company’s Annual General Meeting held in May 2021.
Lily Liu
Further to the announcement dated 26 November 2021, Lily Liu stepped down from the role of
Chief Financial Ocer at the conclusion of the AGM held on 19 May 2022 and her employment
with Essentra terminated on 30 June 2022. Basic salary and contractual benefits including
pension continued to be paid as normal to Lily until 30 June 2022. No subsequent termination
payments were made in relation to the outstanding portion of her 12 month notice period.
The Remuneration Committee determined that Lily was not eligible for participation in the
2022 annual bonus plan or in the 2022 LTIP. Following careful consideration, the Committee also
determined that her outstanding LTIP award would lapse upon cessation of employment and
that her outstanding DASBP award, which was earned in respect of prior year performance,
would vest as soon as practicable following cessation of employment. The post-tax vested
shares are required to be retained for a minimum period of two years post-employment in
accordance with the post-employment shareholding guideline.
As disclosed in the 2021 Remuneration Report, Lily Liu was awarded a bonus of £288,000 in
respect of performance in 2021. 50% of that bonus was delivered in cash in March 2022, and
the remaining 50% deferred was released to Lily in cash following cessation of employment as
a result of the trading restrictions in place throughout the first half of 2022 which prevented
any share awards during that period.
Paul Forman
As announced on 3 October 2022, Paul Forman stepped down from his role as Chief Executive
on 31 December 2022. Paul will be paid in lieu of his unexpired (as at 31 December 2022) period
of notice (the “Notice Payment”). The Notice Payment shall be paid in monthly instalments
and will include the value of the benefits that Paul would otherwise have been entitled to
receive during the period of the monthly payments, save for private medical insurance which
will be continued after 31 December 2022 for the duration of the unexpired period of notice
ending on 11 October 2023 (or, if earlier, the date Paul commences alternative employment
which provides such benefits which are at the same level or better than the Company’s private
medical insurance). The monthly instalments shall reflect that, from 1 January 2023, Paul’s
pension provision would have been reduced and Paul would have received a cash contribution
in lieu of pension equal to 5% of salary.
ANNUAL REPORT ON REMUNERATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
119
Executive Director Contracts and NED letters of Appointment
The Executive Directors have open-ended contracts containing 12 months notice periods with
their reappointment being confirmed annually at the AGM.
The Chair and Non-Executive Directors do not have service contracts, instead they have letters
of appointment for an initial period of 3 years which may be terminated at 3 months’ notice.
Implementation of Remuneration Policy for 2023 (unaudited)
When considering the implementation of the policy for 2023, the Committee was mindful
of the 2018 Code and considers that the executive remuneration framework appropriately
addresses the following factors:
Clarity We provide open and transparent disclosures both internally and externally in relation to our
executive remuneration arrangements.
Simplicity Variable remuneration arrangements for our executives and our wider workforce are simple in
nature with individuals eligible for a bonus and, at more senior levels, a single long-term incentive
plan. These are well understood by both participants and shareholders.
Predictability Our executive remuneration framework contains maximum opportunity levels for each
component of remuneration with variable incentive outcomes varying depending on the level of
performance achieved against specific measures.
Alignment to
culture
The performance measures used for annual bonus and LTIP awards are KPIs that drive behaviours
that are closely aligned to our strategy and Company values. Including a greenhouse gas (GHG)
emissions measure and a recyled content measure.
Proportionality
and risk
The Committee believes that our variable pay structures provide a fair and proportionate link
between Company performance and reward. In particular, the use for Executive Directors of
annual bonus deferral, LTIP holding periods and shareholding requirements provide a clear link to
the ongoing performance of the Company and therefore long-term alignment with stakeholders.
For example, the shareholding guideline for Executive Directors continues two years after leaving
Essentra.
We are also satisfied that the variable pay structures do not encourage inappropriate risk-taking.
Notwithstanding this, the Committee retains an overriding discretion that allows it to adjust
formulaic outcomes from incentive plans so as to guard against disproportionate out-turns.
Malus and clawback provisions also apply to both the annual bonus and LTIP.
Salary
Basic salary for each Executive Director is determined by the Remuneration Committee, taking
into account the role, responsibilities, performance, experience of the individual and market
movement. Any salary change is normally eective in April each year.
There is no salary increase for the executive directors and other senior management in 2023.
Scott
Fawcett
£
Jack
Clarke
£
Annual salary eective from 1 April 2023 540,000 350,000
Annual salary eective from 1 April 2022 350,000
Notes:
1 Scott was promoted to CEO on 1 Jan 2023 on a salary of £540,000.
ANNUAL REPORT ON REMUNERATION CONTINUED
1. Eective from 2023 AGM.
Benefits
Executive Directors are provided with the following benefits:
• car allowance
• private medical insurance with family level cover
• life assurance cover of four times basic salary.
Pension
From 1 January, 2023 pension allowance is 5% of salary for Scott Fawcett and Jack Clarke. This
completes the phased approach to align with the wider UK workforce by the end of 2022.
2023 Annual bonus
Under the terms of the annual bonus arrangements for 2023, the CEO is potentially entitled
to a maximum bonus of up to 150% of basic salary and the CFO is potentially entitled to a
maximum bonus of up to 125% of basic salary.
The metrics used in the 2023 annual bonus (table below) are intended to align with the
strategy of Essentra as a pure play Components business. In particular, the metrics are
designed to provide a balanced alignment with our goals of generating sustainable, profitable
growth and strong cash generation. The higher weighting attributed to strategic objectives
in 2022 has been reduced following the completion of the sales of the Packaging and Filters
businesses.
Measures
2022 Weighting
(%)
2023 Weighting
(%)
Adjusted Operating Profit 40% 50%
Adjusted Operating Cash Flow 10% 20%
Strategic Objectives 40% 20%
Environmental targets 10% 10%
In 2023, there will be no bonus payable unless the Remuneration Committee determines that
the Company’s 2023 financial performance is satisfactory. For achieving threshold Adjusted
Operating Profit and Adjusted Operating Cash Flow, 0% of the relevant portion of the bonus
will be payable. Progress against environmental targets will be reviewed by the Sustainability
Committee.
Targets are considered to be commercially sensitive so will be disclosed retrospectively in next
year’s Remuneration Report.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
120
ANNUAL REPORT ON REMUNERATION CONTINUED
2023 LTIP
An award granted under the LTIP consists of a conditional right to receive shares in the
Company, subject to satisfaction of performance conditions over a three-year period. An
additional two-year holding period applies. Malus and clawback provisions also apply to LTIP
awards for three years from vesting.
The following LTIP awards are intended to be granted to the CEO and CFO during 2023.
Condition
Scott
Fawcett
Jack
Clarke
LTIP awards as a percentage of salary 150% 150%
Condition Threshold Maximum
Compound Annual Growth in Adjusted EPS
2
(50%) 7%
4
12.5%
Relative TSR v FTSE250
1
(30%) Median Upper quartile
ESG
GHG
3
– reduction in GHG emissions over the 3 year LTIP (10%)
11.5%
4
17%
Social – Diversity of gender in our Leadership teams both GEC and the GEC -1. (10%) 28%
4
40%
Notes:
1 FTSE 250 excluding companies in the following industries: basic materials, energy, financial services, real estate, utilities and travel
and leisure.
2 Adjusted EPS is subject to adjustment from portfolio management/changes.
3 Externally audited Scope 1 and 2 GHG emissions consistent with our publicly stated commitment to be carbon neutral by 2040,
and an interim reduction of 25% by 2025 relative to a 2019 baseline.
4 25% vests at threshold, with the exception of the newly introduced Diversity measure, where 0% vests at threshold.
Non-Executive Director fees
The fees for the Company Chair are set by the Remuneration Committee, while fees for the
Non-Executive Directors are determined by the Chief Executive and the Company Chair.
There has been a reduction in the Company Chair fees from £250,000 to £225,000. There were
be no other changes to Non-Executive Directors’ fees in 2022. No individual was present for the
discussion related to their fees.
Annual fee eective Chair
Non-
Executive
Director
Additional
fee for Senior
Independent
Director
Additional
fee for
Audit and
Remuneration
Committee
chairs
Additional
fee for
sustainability
Committee
chair
Additional
fee for
Employee
Champions
From 1 Jan 2023 £225,000 £52,000 £10,000 £13,000 £11,000 £10,000
Outside appointments (unaudited)
Paul Forman is the Senior Independent Director of Tate & Lyle plc. Paul received and retained
fees of £78,800 in respect of this directorship during 2022.
Statement of shareholder voting (unaudited)
The results of shareholder voting in relation to the approval of the 2021 Directors’ Remuneration
Report and the Directors’ Remuneration Policy Report at the 2022 and 2021 AGM respectively
were as follows:
Annual Report
on Remuneration
(2022 AGM)
Remuneration
Policy Report
(2021 AGM)
1
No. of
votes %
No. of
votes %
Votes cast in favour 258,579,487 99.65 255,799,845 94.14
Votes cast against 913,557 0.35 15,919,880 5.86
Total votes cast 259,493,044 271,719,725
Abstentions 5,057 – 7,852 –
Notes:
1 2021 Number of shareholder votes in relation to the remuneration policy have been restated to reflect the final votes from the 2021
AGM. There was no change in the overall outcome of the vote.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
121
The Directors’ Remuneration
Policy Report
The Directors’ Remuneration Policy (“the Policy Report”) sets
out the policies under which the Executive and Non-Executive
Directors are remunerated. The Policy Report is designed
to be in full compliance with the requirements of the large
and medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, the UK Corporate
Governance Code as issued by the Financial Reporting Council
and the Listing Rules.
The current Directors’ Remuneration Policy was approved
by our shareholders at the AGM in May 2021 following
shareholder consultations. A summary of the Policy Report is
set out below and the full version can be downloaded from
www.essentraplc.com/investors/corporate-governance/
remuneration-committee.
Basic salary
Purpose and link to strategy
To reflect the particular skills and experience of an individual and to provide a competitive basic salary
Operation
Generally reviewed annually with any increase normally taking eect from 1 April, although the
Remuneration Committee may award increases at other times of the year if it considers it appropriate.
The review takes into consideration a number of factors, including (but not limited to):
• the individual Director’s role, experience and performance
• business performance
• pay and conditions elsewhere in the Group
• market data for comparable roles in appropriate pay comparators.
Opportunity
No absolute maximum has been set for Executive Director base salaries.
Any annual increase in salaries is at the discretion of the Committee taking into account the
factors stated in this table and the following principles:
• salaries would typically be increased at a rate consistent with the average salary increase
(in percentage of salary terms) for the relevant workforce
• larger increases may be considered appropriate in certain circumstances (including, but not
limited to, a change in an individual’s responsibilities or in the scale of their role or in the size
and complexity of the Group)
• larger increases may also be considered appropriate if a Director has been initially appointed to
the Board at a lower than typical salary.
Performance measure
Not applicable.
Summary of 2021 Policy Report
The Remuneration Committee structures
Executive Director remuneration in two
distinct parts: (i) fixed remuneration of
basic salary, pension and benefits; and (ii)
variable performance-related remuneration
in the form of cash bonuses, deferred
share bonuses and long-term incentive
arrangements.
Remuneration for Executive Directors is
structured so that the variable performance-
related pay element forms a significant
portion of the remuneration opportunity.
The majority of total remuneration at the
maximum performance level will derive
from the Company’s long-term incentive
arrangements. All incentives are designed
to be aligned to the delivery of Essentra’s
strategic priorities.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
122
THE DIRECTORS’ REMUNERATION POLICY REPORT
Bonus
Purpose and link to strategy
To ensure the delivery of Company performance related objectives, aid retention and to align Directors’
interests with those of the Company’s shareholders.
Operation
One half of the total bonus is generally paid in cash shortly after the announcement of the annual
results.
The other half is generally deferred into shares in the Deferred Annual Share Bonus (“the DASB”) which
will normally vest after three years subject to continued service.
Performance is assessed against measures and targets which are established by the Remuneration
Committee. As performance increases so does the percentage payable up to the maximum.
The bonus is subject to malus and clawback provisions for a period of three years following the
determination of the bonus. Circumstances in which these provisions could be applied by the
Remuneration Committee are material misstatement in the Company’s Financial Statements, error in
assessing the performance conditions, serious misconduct by an individual, business failure or serious
reputational damage to the Company or a relevant business unit.
An additional payment (in the form of cash or shares) may be made in respect of shares which vest
under deferred awards to reflect the value of dividends which would have been paid on those shares
during the vesting period (this payment may assume that dividends had been reinvested in Company
shares on a cumulative basis).
Opportunity
Up to 150% of basic salary.
Performance measure
The bonus will be based on performance using appropriate financial, strategic and individual
performance measures.
The majority of the bonus will normally be determined by measure(s) of the Company’s financial
performance. The remainder of the bonus will be based on financial, strategic, ESG, operational or other
suitable business measures appropriate to the individual Director.
No more than 20% of each financial measure will vest at threshold performance.
Long-Term Incentive Plan (LTIP)
Purpose and link to strategy
To drive the long-term delivery of the Company’s strategic objectives, aid retention and to align
Directors’ interests with those of the Company’s shareholders.
Operation
An annual grant of performance share awards usually with a three-year performance and additional
two-year holding period.
Awards are subject to the LTIP plan rules, including malus and clawback provisions for a period of three
years following the vesting of the awards. Circumstances in which these provisions could be applied by
the Remuneration Committee are material misstatement in the Company’s Financial Statements, error
in assessing the performance conditions, serious misconduct by an individual, business failure or serious
reputational damage to the Company or a relevant business unit.
An additional payment (in the form of cash or shares) may be made in respect of shares which vest
under LTIP awards to reflect the value of dividends which would have been paid on those shares
during the period up to the release of the shares (this payment may assume that dividends had been
reinvested in Company shares on a cumulative basis).
Opportunity
An award to any Executive Director would be limited to a maximum of 300% of salary.
Performance measure
Vesting will be subject to performance conditions as determined by the Remuneration Committee on
an annual basis.
The performance conditions will usually be some combination of relative TSR, adjusted EPS, adjusted
cumulative operating cash flow, ESG and a capital return measure although the Remuneration
Committee will retain discretion to include alternative performance measures which are aligned to the
corporate strategy.
The Remuneration Committee may adjust the weightings of the performance conditions for each
award although usually each condition would have a weighting in the range of 10% to 40% of the
award.
Performance will usually be measured over a three-year period.
Up to 25% of each element vests at threshold performance, usually rising on a straight-line basis for
performance up to the maximum level for full payment. If below threshold performance, that element
of the award will not vest.
THE DIRECTORS’ REMUNERATION POLICY REPORT CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
123
Employment and Post-Employment Shareholding guideline
Purpose and link to strategy
To align the interests of Executive Directors and shareholders, encourage a focus on long-term
performance and risk management.
Operation
Whilst in-employment, Executives Directors are expected to build up a shareholding worth 300% of
salary for the Chief Executive and 200% for the Chief Finance Ocer. The shareholding guidelines are to
be built up by retaining 50% of post-tax vested shares from the date of approval of this Policy.
The Remuneration Committee will review progress towards the guidelines on an annual basis and has
the discretion to adjust the guidelines in what it feels are appropriate circumstances.
Executive Directors will also be expected to remain compliant with the above guideline for a period of
two years post-employment. This guideline applies from the date of adoption of the Policy at the 2021
AGM. The Committee would retain discretion to waive this guideline if it is not considered appropriate in
the specific circumstances.
Non-Executive Directors are encouraged to hold a minimum of 7,500 shares.
Opportunity
Not applicable.
Performance measure
Not applicable.
All Employee Plans – Sharesave
Purpose and link to strategy
To create alignment of employees’ interests with those of shareholders.
Operation
Under the UK Sharesave, employees (including Executive Directors) are invited to enter a savings
contract of three years or five years, whereby the proceeds can be used towards the exercise of an
option granted at the time they choose to participate. The Remuneration Committee has the discretion
to set the option price up to a 20% discount on the share price at the time employees are invited to
participate.
An equivalent US plan is operated aligned to the UK plan where possible.
Opportunity
For the UK plan, shares worth up to the value of the savings an Executive Director agrees to make over
the saving period at the previously agreed option price. The savings amount is subject to the HMRC
limit, currently £500 per month.
The US Plan is limited to the monthly dollar equivalent of the UK Sharesave plan and an option price of
up to a 15% discount.
Performance measure
The Remuneration Committee agrees the annual discount to be applied to the Sharesave schemes.
No performance conditions apply to All Employee Plans.
THE DIRECTORS’ REMUNERATION POLICY REPORT CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
124
Pension
Purpose and link to strategy
To provide cost-eective long-term benefits comparable with similar roles in similar companies.
Operation
A contribution to a defined contribution plan or paid as a cash supplement.
Opportunity
Any future Executive Director appointment will have a pension provision in line with the relevant
workforce.
The pension provision for the current Executive Directors has been phased down to align with the
relevant workforce.
Performance measure
Not applicable.
Chair and Non-Executive Directors – Fees
Purpose and link to strategy
To attract a high-calibre Chair and Non-Executive Directors with the relevant experience and skills.
Operation
A basic fee is payable to the Chair and Non-Executive Directors with supplementary fees for those
NED’s with additional responsibilities, such as acting as Senior Independent Director, chairing a Board
Committee, an additional defined role such as a Board Employee Champion or for a significantly
increased time commitment.
Additional payments may be made to Non-Executive Directors for time spent travelling on Company
business.
Fees are reviewed periodically with reference to market levels in companies of a comparable size,
complexity and taking account of the responsibilities and time commitment of each role.
The Chair and the Non-Executive Directors do not participate in the Group’s incentive arrangements or
pension plan or receive any other benefits other than where travel to the Company’s registered oce
is recognised as a taxable benefit in which case the Chair or a Non-Executive Director may receive the
grossed-up costs of travel as a benefit.
The Chair and Non-Executive Directors are entitled to reimbursement of reasonable expenses.
Opportunity
Fees for the current year are stated in the Annual Report on Remuneration.
Fee increases may be greater than those of the wider workforce in any particular year as they reflect
changes to responsibilities and time commitments and the periodic nature of any increases.
Performance measure
Not applicable.
This Report of the Remuneration Committee has been approved by the Board.
By order of
Ralf K. Wunderlich
Non-Executive Director
Remuneration Committee Chair
28 March 2023
THE DIRECTORS’ REMUNERATION POLICY REPORT CONTINUED
Other benefits
Purpose and link to strategy
To provide cost-eective benefits comparable with similar roles in similar companies.
Operation
Other benefits include family medical expenses, life insurance, and car allowance.
The Remuneration Committee may vary these benefits from time to time to suit business needs, but
they will be provided on broadly similar terms to those oered to other Group employees.
Executive Directors are entitled to reimbursement of reasonable expenses.
Opportunity
There is no overall maximum as the level of benefits depends on the annual cost of providing individual
benefits in the relevant local market and the individual’s specific role.
Performance measure
Not applicable.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
125
In this section:
Results and dividends
The adjusted profit after tax of the total Group
for the year ended 31 December 2022 was
£5.7m (2021: profit £11.2m represented).
As at 29 March 2023, the Company has paid the
following dividend in respect of the year ended
31 December 2022.
Per share
p
Total
£m
Interim dividend paid
28 October 2022 2.3p 6.9
The Directors recommend that a final
dividend of 1.0p (2022: 4.0p) per share be
paid, making a total dividend distribution for
the year of 3.3p (2021: 6.0p).
The final dividend, subject to shareholders
approval at the AGM, will be paid on 30 June
2023 to shareholders on the register on 19 May
2023.
The Company announced a Special Dividend
and Share Buyback Programme on 2 February
2023, using the proceeds of the sale of the
Filters and Packaging businesses. The Special
Dividend, of approximately 29.8p per share
will be paid on 27 April 2023 to shareholders
on the register on 21 March 2023. This equates
to a total Special Dividend of £90m.
As also announced on 2 February 2023, the
Share Buyback Programme is expected to
commence following the release of the Full
Year results for an amount of approximately
£60m. The Company intends to release more
information following the release of the Full
Year results.
Directors
As at 31 December 2022 the Board of
Directors comprised:
Paul Lester Non-Executive Chair
Paul Forman Chief Executive
Jack Clarke Chief Financial Ocer
Dupsy Abiola Non-Executive Director
Mary Reilly Non-Executive Director
Ralf K. Wunderlich Non-Executive Director
Adrian Peace Non-Executive Director
As at the date of this report, being 22 March
2023, the Board of Directors comprised:
Paul Lester Non-Executive Chair
Scott Fawcett Chief Executive
Jack Clarke Chief Financial Ocer
Dupsy Abiola Non-Executive Director
Mary Reilly Non-Executive Director
Ralf K. Wunderlich Non-Executive Director
Adrian Peace Non-Executive Director
Kath Durrant Non-Executive Director
The Company requires all Directors appointed
since the last AGM to be elected at the
following AGM and for all other Directors to
be re-elected at each AGM.
Scott Fawcett was appointed as Chief
Executive and Executive Director on 1 January
2023 and will therefore stand for election.
Kath Durrant joined the Company on 3
January 2023 as a Non-Executive Director and
will also stand for election. All other Directors
will be standing for re-election.
None of the Non-Executive Directors have
service contracts. In accordance with the
Company’s Conflict of Interests policy,
Directors are required to review their potential
conflict of interests at least on an annual
basis and to notify any changes to the
Company Secretary as soon as possible.
The Directors’ Report comprises pages 68
to 131, and where information has been
included in the Strategic Report sections
of the Annual Report this has been
incorporated by reference and as set out on
the right:
Membership of Board during 2021
financial year
page 70
Financial instruments and financial
risk management
pages 47 to 51
CO
2
emissions pages 24 to 28
Corporate governance report pages 72 to 87
Future developments of the business
of the Group pages 10 to 18
Employee diversity page 31
Stakeholder engagement and s172
report page 38
TCFD disclosures pages 40 to 46
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
126
OTHER STATUTORY INFORMATION
Other statutory
information
The Directors present their Report prepared in accordance
with the Companies Act 2006, which requires the
Company to provide a fair review of the business of the
Group during the financial year ended 31 December 2022
and audited Financial Statements of the Company and its
subsidiary undertakings for the year ended 31 December
2022. The Company’s Registered Oce is Langford Locks,
Kidlington, Oxford OX5 1HX.
In accordance with the UK Financial Conduct Authority’s
Listing Rules (LR 9.8.4C), the information to be included in
the Annual Report and Accounts, where applicable, under
LR 9.8.4 is set out in the Directors’ Report.
During 2022 the current register was approved
at each Board meeting. During the year, there
were occasions when Directors were perceived
to have a potential conflict and where it was
considered necessary, the Chair asked the
Director to leave the meeting until the Board
had concluded their discussions.
At no time during the year has any Director
had any material interest in a contract with
the Group, being a contract of significance in
relation to the Group’s business. A statement
of Directors’ interests in shares of the
Company as at 31 December 2022 and as at
the date of this Report is shown on page 117.
Share capital
The issued share capital of the Company
is shown in Note 20 of the Notes to the
Financial Statements.
On 31 December 2022, there were
302,590,708 ordinary shares of 25p each in
issue. There were 897,944 ordinary shares
of 25p each held in treasury. The rights and
obligations attaching to the Company’s
ordinary shares, and the provisions governing
the appointment and replacement of, as well
as the powers of, the Company’s Directors,
are set out in the Company’s Articles of
Association, copies of which can be obtained
from Companies House in the UK or by
writing to the Company Secretary.
There are no restrictions on the voting
rights attaching to the Company’s ordinary
shares or on the transfer of securities in the
Company, except, in the case of transfers of
securities:
• that certain restrictions may from time to
time be imposed by laws and regulations
(for example, insider trading laws)
• whereby, pursuant to the Listing Rules of
the Financial Conduct Authority, certain
employees of the Company require
approval of the Company to deal in the
Company’s ordinary shares
No persons hold securities in the Company
carrying special rights with regard to control
of the Company. The Company is not aware
of any agreements between holders of
securities that may result in restrictions on
the transfer of securities or on voting rights.
Unless expressly specified to the contrary in
the Articles of Association of the Company,
the Company’s Articles of Association may
be amended by special resolution of the
Company’s shareholders.
Substantial shareholders
As at 31 December 2022 the Company
was advised of the following voting rights
attaching to the Company’s shares in
accordance with the Disclosure and
Transparency Rules:
% holding
Invesco 5.80%
M&G plc 5.00%
Liontrust Asset Management plc 5.00%
Ninety One UK Limited 4.98%
Ameriprise Financial, Inc. and its group 4.98%
Royal London Asset Management 4.90%
BlackRock, Inc 4.78%
Standard Life 4.82%
AXA Investment Managers 4.81%
Heronbridge 4.81%
AXA 4.81%
Norge Bank 3.07%
Kames Capital 2.99%
Employees
As at 31 December 2022, the Company
employed 3,209 people globally and 500
people in the UK. Information on the
Company’s policies on employee recruitment,
engagement and the employment of disabled
persons can be found on page 31.
Political contributions
In line with Group policy, the Company made
no political contributions (2021: £nil).
Environmental
The disclosures concerning CO
2
emissions
required by law are included in ESG section on
pages 24 to 28.
Directors’ indemnities
During the year, and as at the date of this
Report, qualifying third-party indemnities
are in force under which the Company has
agreed to indemnify the Directors and the
Company Secretary, in addition to other
senior executives who are Directors of
subsidiaries of the Company, to the extent
permitted by law and the Company’s Articles
of Association, in respect of all losses arising
out of or in connection with the execution
of their powers, duties and responsibilities
as a Director or Ocer of the Company or
any of its subsidiaries, including the pension
scheme trustee companies. The scope of the
indemnities extends to include liabilities to
third parties.
Significant agreements
In line with the strategic reviews and
bank consent, the Company reduced the
multicurrency revolving credit facility (RCF)
from £275m to £200m in October 2022.
Following the sale of the Filters business in
early December, a portion of the proceeds
totalling £124m were used to settle the
outstanding RCF balance in full. To this end,
the Company has an undrawn RCF of £200m
as at 31 December 2022. All other terms and
conditions of the RCF remain in place with six
syndicated banks until November 2025.
Prior to the strategic reviews, the Company
held US$350m of medium and long-dated
debt in private placement notes. Under the
terms of the USPP notes, the Company repaid
in full the 2017 and 2019 notes, and issued an
oer at par, to partially repay the 2021 notes.
The par oer for the 2021 notes was accepted
and the Company repaid US $147m plus
accrued interest on 5 January 2023.
OTHER STATUTORY INFORMATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
127
As the Company already had an undertaking
to repay the 2017 and 2019 notes in full, a
total of US $100m plus US $2m for make
whole was paid within 30 days from when
the Company initiated notice to repay the
noteholders $103m USPP notes are held as
of the date of this report. The transaction
completed on 20 January 2023.
Annual General Meeting
The AGM of the Company will be held
at Slaughter and May, One Bunhill Row,
London, EC1Y 8YY on 16 May 2023 at 13:00.
The meeting will be held in person only as no
shareholders joined virtually in 2022.
In addition to the ordinary business of the
AGM, resolutions in respect of the following
matters of special business are included in the
Notice of Annual General Meeting:
Authority to allot unissued shares
At the 2022 AGM, the Directors were granted
authority to allot relevant securities up to a
nominal amount of £25,140,523, which expires
at the end of the forthcoming AGM.
At this year’s AGM, shareholders will be
asked to grant the Directors’ authority to
allot shares or grant rights to subscribe for or
convert any security into shares: (i) up to an
aggregate nominal amount of £25,141,064
representing approximately one-third of the
Company’s issued share capital, excluding
treasury shares, at 27 March 2023 (such
an amount to be reduced by the nominal
amount allotted or granted under section
(ii) below in excess of such sum); and
(ii) comprising equity securities up to an
aggregate nominal amount of £50,282,127
representing approximately two-thirds of
the issued share capital, excluding treasury
shares, at 27 March 2023 (such an amount to
be reduced by any allotments or grants made
under section (i) above) in connection with
an oer by way of a rights issue.
The proposal conforms to the guidelines
issued by the institutional investment
protection bodies to ensure that existing
shareholders’ interests are safeguarded.
The Directors have no present intention of
exercising either of these authorities, which
will expire at the end of next year’s AGM (or,
if earlier, the close of business on 16 August
2024) except in relation to share options.
Allotment of shares for cash
At the 2022 AGM, shareholders approved a
special resolution to enable the Directors to
allot shares for cash without first oering
them to existing shareholders in proportion
to their existing shareholdings. That approval
expires at the end of the forthcoming AGM
and resolutions 15 and 16 in the Notice of AGM
seek to renew it.
Following changes in the Pre-Emption Group’s
Statement of Principles, which was updated
in November 2022, and the issuance of new
Share Capital Management Guidelines, issued
by the Investment Association in February
2023, the Company seeks a resolution which
authorises disapplication of pre-emption
rights in respect of up to an aggregate
nominal amount of £7,542,319 (representing
30,169,276 ordinary shares). This aggregate
nominal amount represents approximately
10% of the issued ordinary share capital of the
Company (excluding treasury shares).
In addition to the above Resolution, the
Company seeks a Resolution which authorises
disapplication of pre-emption rights in respect
of up to an aggregate nominal amount of
£7,542,319 (representing 30,169,276 ordinary
shares) in connection with acquisitions and
other capital investments, which is in line
with the Pre-Emption Group’s Statement
of Principles and the guidance of The
Investment Association. This aggregate
nominal amount represents an additional
10% of the issued ordinary share capital of the
Company (excluding treasury shares).
Whilst the Board do not currently intend to
make use of these resolutions, the Board
believe the flexibility that the increased
levels to which pre-emption rights may be
disapplied, provides the Company flexibility
for future opportunities. The Board therefore
support both these resolutions which seek
authority to disapply pre-emption rights at
the higher amounts of 10% of the ordinary
share capital (excluding treasury shares).
These authorities will expire at the conclusion
of the following AGM or, if earlier, on 16 August
2024. The proposal conforms to the guidelines
issued by the institutional investment
protection bodies to ensure that existing
shareholders’ interests are safeguarded.
Purchase of own shares
The Company announced on 2 February
2023, the intention to launch a share buyback
programme of approximately £60m (“Share
Buyback Programme”) which is expected to
commence following the Company’s full year
results which will launch when the 2022 full
year results are released. The Share Buyback
Programme returns funds to shareholders
following the sale of the Filters and Packaging
businesses.
The purpose of the Share Buyback
Programme is to return funds to shareholders
following the divestment of the Filters and
Packaging businesses during 2022 and will
reduce the share capital of the Company.
The Directors consider the Share Buyback
Programme to be in the best interests of the
Company and of its shareholders generally,
and it is expected that the implementation of
the Share Buyback Programme will enhance
earnings per share.
Having announced the Share Buyback
Programme, the Board have proposed
a resolution which would authorise the
Company to purchase to purchase 10%
(excluding any treasury shares) of its own
shares which will be put to shareholders at the
2023 AGM. The increase from 5% to 10% is in
line with The Investment Association Share
Capital Guidelines, and allows the Company
to complete the Share Buyback up to the full
£60m.
OTHER STATUTORY INFORMATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
128
ESSENTRA PLC ANNUAL REPORT 2022
128
Under the arrangements for the Share
Buyback Programme, shares once purchased,
will be cancelled or held in treasury. The power
would apply until the end of next year’s AGM
(or if earlier, 3 August 2024).
Other than the Share Buyback Programme,
the Directors have no immediate plans to
exercise this authority, but will keep under
review the need to do so in light of business
and investment opportunities. Purchases of
the Company’s own shares, where made,
would be in the best interests of the Company
and of its shareholder generally and could
generally be expected to result in an increase
in earnings per share.
In accordance with the requirements of
the Listing Rules of the Financial Conduct
Authority, the minimum price (exclusive of
expenses) which may be paid for a share is
its nominal value and the maximum price
(exclusive of expenses) for shares which may
be paid is the highest of: (i) an amount equal
to 105% of the average market value for a
share for the five business days immediately
preceding the date of the purchase; and (ii)
the higher of the price of the last independent
trade and the highest current independent
bid on the trading venues where the purchase
is carried out.
During the financial year ending 31 December
2022, 7,213 ordinary shares were transferred
out of Treasury by the Company to satisfy
share options under the Company’s Sharesave
and executive share incentive plans.
No dividends have been paid on shares while
held in Treasury and no voting rights attach to
the treasury shares.
External Auditor
PricewaterhouseCoopers LLP have expressed
their willingness to continue to be appointed
as External Auditor of the Company. Upon
the recommendation of the Audit and Risk
Committee, resolutions to appoint them
as External Auditor and to authorise the
Directors to determine their remuneration will
be proposed at the AGM.
Recommendation
The Directors believe that the resolutions in
the Notice of Annual General Meeting are
in the best interests of the Company and its
shareholders as a whole, and unanimously
recommend that shareholders vote in favour
of each resolution.
Derivatives
Information related to derivatives is included
in the Accounting Policies on page 189 and
in Note 15 and Note 19 to the Notes of the
Financial Statements.
Going concern
The Directors have prepared the
consolidated financial statements for the
year ended 31 December 2022 on a going
concern basis. In adopting the going concern
basis, the Directors have considered the
Group’s balance sheet position, forecast
earnings and cash flows for a period of at
least 18 months from the date of approval of
these consolidated financial statements. The
disposal of the Packaging business and Filters
business have been included in the Directors’
going concern assessment.
Information regarding the financial position
of the Group, its cash flows, liquidity position,
and borrowing facilities are described in
the Financial Review on pages 47 to 49. In
addition, Note 19 to the financial statements
includes the Group’s objectives, policies
and processes for managing its capital,
its financial risk management objectives,
details of its financial instruments and
hedging activities and exposures to credit,
market and liquidity risk. Cash balances and
borrowings are detailed in Note 22.
At 31 December 2022, the Group’s external
financing arrangements amounted to
£492.7m, comprising United States Private
Placement Loan Notes (USPP) of US$350.0m
(with a range of expiry dates from November
2024 to July 2033) and a multi-currency
revolving credit facility (RCF) of £200.0m
(expiring in November 2025).
On 1 October 2022, the Group completed its
disposal of the Packaging business and on 3
December 2022, the Group completed the
disposal of the Filters business. In December
2022 the Group repaid its RCF loan to £nil,
and continues to maintain a facility of
£200.0m. Furthermore, as a consequence
of the business disposals, the Group was
required to repay $247m of its USPP loan
notes, classified as current liabilities at the
balance sheet date, which were repaid in full
during January 2023.
No amount was drawn under the RCF as
at 31 December 2022, with the available
undrawn balance amounting to £200.0m.
The facility is subject to two covenants,
which are tested semi-annually: net debt to
EBITDA (leverage) and EBITA to net finance
charges. Despite the significant economic
and operational challenges in the recent
years, the Group has not sought to change
either of the two covenants. The Directors
believe that the Group is well placed to
manage its business risks and, after making
enquiries including a review of forecasts and
predictions, taking account of reasonably
possible changes in trading performances
and considering the existing borrowing
facilities, including the available liquidity,
have a reasonable expectation that the
Group has adequate resources to continue
in operational existence for at least the next
18 months following the date of approval of
the financial statements, and no breaches of
covenants are expected.
As part of the going concern assessment,
the Board has considered a downside
scenario that includes reasonably plausible
changes in macro-economic conditions
and is considered to represent a severe
but plausible scenario. The results of this
scenario show that there is sucient
liquidity in the business for a period of at
least 18 months from the date of approval
of these financial statements, and do not
indicate any covenant breach during the
test period. The downside scenario assumes
a period of supressed revenue growth into
the latter part of 2023 and subsequently
limits growth in 2024. Further, the downside
scenario assumes a high inflationary
cost environment not fully oset by price
increases, and higher than planned cost
base assuming the business does not
right-size costs in line with expectations,
as the Group transitions to a pure-play
Components business. The financial impact
of the downside scenario in 2023 and 2024
is to reduce adjusted operating profits by
45% and 4% respectively compared to the
Group’s strategic plan.
OTHER STATUTORY INFORMATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
129
The overall level of liquidity (defined as
available undrawn borrowing facility plus
cash and cash equivalent) at 31 December
2022 was £621.4m, which was significantly
higher than the £352.1m as at 31 December
2021. Adjusting for the repayment of
borrowings of $247m in January 2023,
planned Special Dividend of £90m, and
planned Share Buyback Programme of
£60m, this still leaves overall liquidity at
£268.4m. Capital expenditure, sales and
general overhead, and working capital will
continue to be managed closely to ensure
sucient liquidity.
The scenarios do not indicate a material
uncertainty which may cast significant
doubt over the Company’s and Group’s
ability to continue as a going concern. Based
on these, and taking into consideration the
risks detailed in Note 19, the Directors have
a reasonable expectation that the Company
has adequate resources to continue in
operational existence for the foreseeable
future, and accordingly have adopted
the going concern basis in preparing the
consolidated financial statements. This
disclosure has been prepared in accordance
with the Financial Reporting Council’s UK
Corporate Governance Code.
Post balance sheet event
As a consequence of the business disposals, the
Group was required to repay $247m of its USPP
loan notes, classified as current liabilities at the
balance sheet date, which were repaid in full
during January 2023.
Long term viability statement
In accordance with provision 31 of the 2018 UK
Corporate Governance Code, the Directors
have assessed the longerterm viability of
the Company over the three-year period to
December 2025.
The assessment has been based on the
Company’s strategy and implementation
programme, balance sheet and financing
position, and the potential impact of the key
risks and uncertainties described above. The
Company strategy has been translated into
a three-year strategic plan comprising a one-
year detailed budget and a financial forecast
for the following two years. The plan will be
subject to annual updates by management
and review by the Board. As a consequence,
the Directors have chosen a three-year
time horizon for the Longer-Term Viability
Statement (“LTVS”) as being an appropriate
time frame for assessing the viability of the
Company, as this is the period reviewed by
the Board in its strategic planning process.
The Directors believe that this presents a
reasonable degree of confidence over this
longer-term outlook, However, the Directors
have also given due consideration to any
potential significant risks beyond this time
horizon.
This assessment was informed by our
judgements as to the potential financial
impact of the following Principal Risks if they
materialise over the three-year period:
• operational & supply chain disruption
• macroeconomic environment uncertainties
including GDP decline, inflation and cost
pass-through
• delivery of the strategic plan
• environmental relating to climate change
related transition risks and opportunities
In order to support the assessment of the
viability, the Directors have considered the
following realistic and plausible scenarios. The
Directors have assumed that the risks in each
scenario would all crystallise simultaneously. In
Scenario 3, the Directors have considered the
worst case events from each of the selected
Principal Risks.
OTHER STATUTORY INFORMATION CONTINUED
Scenario 1
Level of severity tested
Environment, Social and
Governance (low)
Transition risks and opportunities from the climate change quantitative analysis,
leading to an increase in operating profit of £0.9m, £1.9m and £2.8m respectively
for 2023, 2024 and 2025.
Operational and Supply
Chain disruption (low)
£2.1m operating profit reduction in 2023 and £2.2m operating profit reduction in
2024. Further disruption in China until Q3-23 reducing operating profit by £0.4m
in 2023.
Macro-economic
environment (low)
£11.6m reduction in sales and £4.5m reduction in operating profit in 2023.
Execution of strategic
plan, failure to deliver
above market growth rates
(low)
Per base case
Scenario 2
Level of severity tested
Environment, Social and
Governance (medium)
Transition risks and opportunities in the climate change quantitative analysis
which are assigned a 50% probability are excluded, leading to an increase in
operating profit of £0.0m, £0.1m and £0.1m respectively for 2023, 2024 and 2025.
Operational and Supply
Chain disruption (medium)
£2.1m operating profit reduction in 2023 and £2.2m operating profit reduction in
2024. Further disruption in China until Q4-23 reducing operating profit by £1.0m in
2023.
Macro-economic
environment (medium)
£11.6m reduction in sales and £4.5m reduction in operating profit in 2023. £3.4m
reduction in sales and £1.8m reduction in operating profit in 2024. Further cost
inflation leads to a reduction in operating profits of £4.8m.
Execution of strategic
plan, failure to deliver
above market growth rates
(severe)
£3.1m reduction in operating profit in 2024 and £3.1m reduction in operating profit
in 2025
Scenario 3
Level of severity tested
Environment, Social and
Governance (severe)
No transition opportunities in the climate change quantitative analysis are
included. Only transition risks are included, leading to an reduction in operating
profit of £1.5m, £3.0m and £4.5m respectively for 2023, 2024 and 2025.
Operational and Supply
Chain disruption (severe)
£2.1m operating profit reduction in 2023 and £2.2m operating profit reduction in
2024. Disruption in China does not recover until 2024. Captured within macro-
economic environment decline, and therefore not modelled simultaneously.
Macro-economic
environment (severe)
Macro-economic environment provides challenging trading conditions through
2023 with no recovery / growth in the year. 2023 and 2024 growth seen in the
base case is deferred to 2024 and 2025 respectively. Operating profit reduction of
£10.2m in 2023, operating profit increase of £13.1m in 2024; and operating profit
reduction of £6.2m in 2025.
Further cost inflation leads to a reduction in operating profits of £4.8m.
Execution of strategic
plan, failure to deliver
above market growth rates
(severe)
£3.1m reduction in operating profit in 2024 and £3.1m reduction in operating profit
in 2025
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
130
In all of the scenarios assessed, there is no
indication of potential breaches of banking
covenants, and there remains sucient
liquidity headroom from the Group’s
current borrowing facilities. In making the
assessment, the Directors have assumed
that capital markets and bank funding
will continue to be available over the
period. Furthermore, management would
be in a position to implement eective
mitigation actions to reduce the impact a
potential risk event and to preserve cash
resources. Mitigating actions considered
by management include availability
of alternative sources of funding, cost
rationalisation measures, working capital
and capital expenditure management and
potential disposal of non-core assets.
Based on the viability assessment undertaken,
the Directors have a reasonable expectation
that the Group will be able to continue in
operational existence and meet its liabilities
as they fall due over the period of the
assessment.
Directors’ statement as to
disclosure of information to
the External Auditor
As required by Section 418(2) of the
Companies Act 2006, the Directors who
were members of the Board at the time of
approving this Report, having made enquiries
of fellow Directors and of the External Auditor,
confirm that:
• as far as each Director is aware, there is
no relevant audit information of which the
Company’s External Auditor is unaware
• each Director has taken all reasonable steps
that they ought to have taken as a Director
to ascertain any relevant audit information,
and to ensure that the Company’s External
Auditor is aware of that information
• the Strategic Report and Directors’ Report,
including the Report of the Remuneration
Committee, were approved by the Board on
28 March 2023.
By order of the Board
Emma Reid
Company Secretary
28 March 2023
OTHER STATUTORY INFORMATION CONTINUED
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
131
Statement of Directors’
Responsibilities in
respect of the Financial
Statements
The directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the Directors
have prepared the group financial
statements in accordance with UK-adopted
International Accounting Standards and the
company financial statements in accordance
with United Kingdom Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards, comprising FRS
101 “Reduced Disclosure Framework”, and
applicable law).
Under company law, Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair
view of the state of aairs of the group and
company and of the profit or loss of the group
for that period. In preparing the financial
statements, the directors are required to:
• select suitable accounting policies and then
apply them consistently
• state whether applicable UK-adopted
international accounting standards have
been followed for the group financial
statements and United Kingdom
Accounting Standards, comprising FRS
101 have been followed for the company
financial statements, subject to any
material departures disclosed and explained
in the financial statements
• make judgements and accounting
estimates that are reasonable and prudent;
and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the group
and company will continue in business.
The directors are responsible for safeguarding
the assets of the group and company and
hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
The directors are also responsible for keeping
adequate accounting records that are
sucient to show and explain the group’s
and company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the group and company
and enable them to ensure that the financial
statements and the Directors’ Remuneration
Report comply with the Companies Act 2006.
The directors are responsible for the
maintenance and integrity of the company’s
website. Legislation in the United Kingdom
governing the preparation and dissemination
of financial statements may dier from
legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and
functions are listed in the Directors’ Report
confirm that, to the best of their knowledge:
• the Group financial statements, which
have been prepared in accordance with
UK-adopted international accounting
standards, give a true and fair view of the
assets, liabilities, financial position and loss
of the group;
• the company financial statements, which
have been prepared in accordance with
United Kingdom Accounting Standards,
comprising FRS 101, give a true and fair
view of the assets, liabilities and financial
position of the company; and
• the Strategic Reort includes a fair review of
the development and performance of the
business and the position of the group and
company, together with a description of
the principal risks and uncertainties that it
faces.
In the case of each Director in oce at the
date the Directors’ report is approved:
• so far as the director is aware, there is
no relevant audit information of which
the group’s and company’s auditors are
unaware; and
• they have taken all the steps that they
ought to have taken as a director in order
to make themselves aware of any relevant
audit information and to establish that the
group’s and company’s auditors are aware
of that information.
Scott Fawcett
Chief Executive
Jack Clarke
Chief Financial Ocer
28 March 2023
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
132
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
Independent Limited Assurance
Statement to Essentra plc
(Group)
ERM Certification and Verification Services Limited (“ERM CVS”)
was engaged by Essentra plc (“Essentra”) to provide limited
assurance in relation to the selected information set out below and
presented in Essentra’s Annual Report 2022 (the “Annual Report”).
INDEPENDENT LIMITED ASSURANCE STATEMENTS TO ESSENTRA PLC
Engagement summary
Scope of our
assurance
engagement
Whether the 2022 data and explanatory notes for the following indicators presented
on page 27 of the Annual Report are fairly presented, in all material respects, in
accordance with the reporting criteria:
• Total Scope 1 greenhouse gas (“GHG”) emissions
• Total Scope 2 GHG emissions (location-based)
• Total Scope 2 GHG emissions (market-based)
• Total Scope 3 GHG emissions from the following categories:
– Category 1: Purchased goods and services
– Category 2: Capital goods
– Category 3: Fuel- and energy-related activities
– Category 4: Upstream transportation and distribution
– Category 5: Waste generated in operations
– Category 12: End-of-life treatment of sold products
• Total solid hazardous and non-hazardous waste by destination
(Recycling, Recovery, Incineration, Landfill)
• Total liquid hazardous and non-hazardous waste by destination
(Recycling, Recovery, Incineration, Landfill)
• Zero waste to landfill sites
• Total water usage
• Percentage of raw materials from sustainable sources in polymer ranges
Our assurance engagement does not extend to information in respect of
earlier periods or to any other information included in the Annual Report.
Reporting period
2022 (1st January – 31st December 2022)
Reporting criteria
• WBCSD/WRI GHG Protocol Corporate Accounting and Reporting Standard (for
the
Scope 1 and Scope 2 GHG emissions)
• WBCSD/WRI GHG Protocol Corporate Value Chain (Scope 3) Accounting
and Reporting Standard) (for the Scope 3 GHG emissions)
• Essentra’s internal definitions and methodology for the waste, zero waste
to landfill, water and raw materials from sustainable sources in polymer
ranges indicators
Assurance
standard and
level of assurance
We performed a limited assurance engagement, in accordance with the
International Standard on Assurance Engagements ISAE 3000 (Revised) ‘Assurance
Engagements other than Audits or Reviews of Historical Financial Information’.
The procedures performed in a limited assurance engagement vary in nature and
timing from, and are less in extent than, for a reasonable assurance engagement
and consequently, the level of assurance obtained in a limited assurance
engagement is substantially lower than the assurance that would have been
obtained had a reasonable assurance engagement been performed.
Respective
responsibilities
Essentra is responsible for preparing the Annual Report and for the collection and
presentation of the information within it.
ERM CVS’ responsibility is to provide conclusions to Essentra on the agreed scope
based on our engagement terms with Essentra, the assurance activities performed
and exercising our professional judgement. We accept no responsibility, and deny
any liability, to any party other than Essentra for the conclusions we have reached.
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
133
INDEPENDENT LIMITED ASSURANCE STATEMENTS TO ESSENTRA PLC CONTINUED
Our conclusion
Based on our activities, as described below, nothing has come to our attention to indicate that
the 2022 data and explanatory nots for the indicators listed under ‘Scope of our assurance
engagement’ above are not fairly presented in the Annual Report, in all material respects, in
accordance with the reporting criteria.
Emphasis of matter
We draw attention to the organisational boundary for the data presented on page 27 of the
Annual Report, as described by Essentra in the notes to the data on page 27 of the Annual
Report. This information should be taken into account by users of the Annual Report, but does
not aect our conclusion.
Our assurance activities
Considering the level of assurance and our assessment of the risk of material misstatement
of the 2022 data and explanatory notes for the indicators in the scope of our assurance
engagement a multi-disciplinary team of sustainability and assurance specialists performed a
range of procedures that included, but was not restricted to, the following:
• Assessing the appropriateness of the reporting criteria for the indicators.
• Conducting interviews with relevant Essentra sta to understand and evaluate the relevant
management systems and processes (including internal review and control processes) used
for measuring, collecting and reporting the indicators.
• Performing an analytical review of the 2022 data for the indicators from Essentra sites
included in the reporting boundary.
• Conducting in-person and virtual sites to three Essentra sites in the United Kingdom, the
United States of America and Thailand, to review site-level data management and reporting
processes, and the consistency of reported 2022 data for the indicators with underlying
source data and related information.
• Examining supporting evidence for a sample of the 2022 activity data underlying the Scope 3
GHG emissions.
• Testing the accuracy of the GHG emissions calculations from the underlying activity
data, including a review of the unit conversion factors and emissions factors used in these
calculations.
• Examining supporting evidence for the zero waste to landfill status of Essentra sites in 2022.
• Examining supporting evidence for the percentage of raw materials from sustainable sources
in polymer ranges in 2022.
• Reviewing the accuracy of the data consolidation at the Essentra corporate level.
• Reviewing the presentation of information relevant to the scope of our work in the Annual
Report to ensure consistency with our findings.
The limitations of our engagement
The reliability of the assured information is subject to inherent uncertainties, given the available
methods for determining, calculating or estimating the underlying information. It is important
to understand our assurance conclusions in this context.
Our independence, integrity and quality control
ERM CVS is an independent certification and verification body accredited by UKAS to ISO
17021:2015. Accordingly, we maintain a comprehensive system of quality control, including
documented policies and procedures regarding compliance with ethical requirements,
professional standards, and applicable legal and regulatory requirements. Our quality
management system is at least as demanding as the relevant sections of ISQM-1 and ISQM-2
(2022).
ERM CVS applies a Code of Conduct and related policies to ensure that its employees maintain
integrity, objectivity, professional competence and high ethical standards in their work. Our
processes are designed and implemented to ensure that the work we undertake is objective,
impartial and free from bias and conflict of interest. Our certified management system
covers independence and ethical requirements that are at least as demanding as the relevant
sections of Parts A & B of the IESBA Code relating to assurance engagements.
The team that has undertaken this assurance engagement has extensive experience in
conducting assurance on environmental, social, ethical and health and safety information,
systems and processes, and provides no consultancy related services to Essentra in any respect.
Gareth Manning
Partner, Corporate Assurance
London, UK
28 March 2023
ERM Certification and Verification Services Limited
www.ermcvs.com | Email: [email protected]
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
134
INDEPENDENT LIMITED ASSURANCE STATEMENTS TO ESSENTRA PLC CONTINUED
Engagement summary
Scope of our
assurance
engagement
Whether the 2019, 2020, 2021 and 2022 data and explanatory notes for the following
indicators for Essentra’s Components Division presented on page 28 of the Annual
Report are fairly presented, in all material respects, in accordance with the reporting
criteria:
• Total Scope 1 greenhouse gas (“GHG”) emissions
• Total Scope 2 GHG emissions (location-based)
• Total Scope 2 GHG emissions (market-based)
• Total Scope 3 GHG emissions from the following categories (2022 only):
– Category 1: Purchased goods and services
– Category 2: Capital goods
– Category 3: Fuel- and energy-related activities
– Category 4: Upstream transportation and distribution
– Category 5: Waste generated in operations
– Category 12: End-of-life treatment of sold products
• Total solid hazardous and non-hazardous waste by destination (Recycling,
Recovery, Incineration, Landfill)
• Total liquid hazardous and non-hazardous waste by destination (Recycling,
Recovery, Incineration, Landfill) (2020, 2021 and 2022 only)
• Zero waste to landfill sites
• Total water usage (2020, 2021 and 2022 only)
• Percentage of raw materials from sustainable sources in polymer ranges
(2022 only)
Our assurance engagement does not extend to information in respect of
earlier periods or to any other information included in the Annual Report.
Reporting period
• 2019 (1st January 2019 – 31st December 2019)
• 2020 (1st January 2020 – 31st December 2020)
• 2021 (1st January 2021 – 31st December 2021)
• 2022
(1st January 2022 – 31st December 2022)
Reporting criteria
• WBCSD/WRI GHG Protocol Corporate Accounting and Reporting Standard (for
the Scope 1 and Scope 2 GHG emissions)
• WBCSD/WRI GHG Protocol Corporate Value Chain (Scope 3) Accounting and
Reporting Standard) (for the Scope 3 GHG emissions)
• Essentra’s internal definitions and methodology for the waste, zero waste
to landfill, water and raw materials from sustainable sources in polymer
ranges indicators
Assurance
standard and
level of assurance
We performed a limited assurance engagement, in accordance with the
International Standard on Assurance Engagements ISAE 3000 (Revised) ‘Assurance
Engagements other than Audits or Reviews of Historical Financial Information’.
The procedures performed in a limited assurance engagement vary in nature and
timing from, and are less in extent than, for a reasonable assurance engagement
and consequently, the level of assurance obtained in a limited assurance
engagement is substantially lower than the assurance that would have been
obtained had a reasonable assurance engagement been performed.
Respective
responsibilities
Essentra is responsible for preparing the Annual Report and for the collection and
presentation of the information within it.
ERM CVS’ responsibility is to provide conclusions to Essentra on the agreed scope
based on our engagement terms with Essentra, the assurance activities performed
and exercising our professional judgement. We accept no responsibility, and deny
any liability, to any party other than Essentra for the conclusions we have reached.
Independent Limited Assurance
Statement to Essentra plc
(Components)
ERM Certification and Verification Services Limited (“ERM CVS”)
was engaged by Essentra plc (“Essentra”) to provide limited
assurance in relation to the selected information set out below and
presented in Essentra’s Annual Report 2022 (the “Annual Report”).
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
135
INDEPENDENT LIMITED ASSURANCE STATEMENTS TO ESSENTRA PLC CONTINUED
Our conclusion
Based on our activities, as described below, nothing has come to our attention to indicate
that the 2019, 2020, 2021 and 2022 data and explanatory notes for the indicators listed under
‘Scope of our assurance engagement’ above for Essentra’s Components Division are not fairly
presented in the Annual Report, in all material respects, in accordance with the reporting
criteria.
Emphasis of matter
We draw attention to the organisational boundary for the data presented on page 28 of the
Annual Report, as described by Essentra in the notes to the data on page 28 of the Annual
Report. This information should be taken into account by users of the Annual Report, but does
not aect our conclusion.
Our assurance activities
Considering the level of assurance and our assessment of the risk of material misstatement
of the 2022 data and explanatory notes for the indicators in the scope of our assurance
engagement a multi-disciplinary team of sustainability and assurance specialists performed a
range of procedures that included, but was not restricted to, the following:
• Assessing the appropriateness of the reporting criteria for the indicators.
• Conducting interviews with relevant Essentra sta to understand and evaluate the relevant
management systems and processes (including internal review and control processes) used
for measuring, collecting and reporting the indicators.
• Performing an analytical review of the 2019, 2020, 2021 and 2022 data for the indicators from
Essentra sites included in the reporting boundary.
• Conducting in-person and virtual sites to selected Essentra sites in its Components Division,
to review site-level data management and reporting processes, and the consistency of
reported 2019, 2020, 2021 and 2022 data for the indicators with underlying source data and
related information.
• Examining supporting evidence for a sample of the 2022 activity data underlying the Scope 3
GHG emissions.
• Testing the accuracy of the GHG emissions calculations from the underlying activity
data, including a review of the unit conversion factors and emissions factors used in these
calculations.
• Examining supporting evidence for the zero waste to landfill status of Essentra sites in its
Components Division for 2019, 2020, 2021 and 2022.
• Examining supporting evidence for the percentage of raw materials from sustainable sources
in polymer ranges in 2022.
• Reviewing the accuracy of the data consolidation at the Essentra corporate level.
• Reviewing the presentation of information relevant to the scope of our work in the Annual
Report to ensure consistency with our findings.
The limitations of our engagement
The reliability of the assured information is subject to inherent uncertainties, given the available
methods for determining, calculating or estimating the underlying information. It is important
to understand our assurance conclusions in this context.
Our independence, integrity and quality control
ERM CVS is an independent certification and verification body accredited by UKAS to ISO
17021:2015. Accordingly, we maintain a comprehensive system of quality control, including
documented policies and procedures regarding compliance with ethical requirements,
professional standards, and applicable legal and regulatory requirements. Our quality
management system is at least as demanding as the relevant sections of ISQM-1 and ISQM-2
(2022).
ERM CVS applies a Code of Conduct and related policies to ensure that its employees maintain
integrity, objectivity, professional competence and high ethical standards in their work. Our
processes are designed and implemented to ensure that the work we undertake is objective,
impartial and free from bias and conflict of interest. Our certified management system
covers independence and ethical requirements that are at least as demanding as the relevant
sections of Parts A & B of the IESBA Code relating to assurance engagements.
The team that has undertaken this assurance engagement has extensive experience in
conducting assurance on environmental, social, ethical and health and safety information,
systems and processes, and provides no consultancy related services to Essentra in any respect.
Gareth Manning
Partner, Corporate Assurance
London, UK
28 March 2023
ERM Certification and Verification Services Limited
www.ermcvs.com | Email: [email protected]
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
136
Financial
Statements
IN THIS
SECTION
Consolidated Income Statement 138
Consolidated Statement of Comprehensive Income 139
Consolidated Balance Sheet 140
Consolidated Statement of Changes in Equity 141
Consolidated Statement of Cash Flows 142
Critical Accounting Judgements and Estimates 150
Notes to the Consolidated Financial Statements 152
Essentra plc Company Balance Sheet 184
Essentra plc Company Statement of Changes
in Equity 185
Essentra plc Company Notes 186
Independent auditors’ report to the members
of Essentra plc 193
FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
137
ESSENTRA PLC ANNUAL REPORT 2022
137
Consolidated Income Statement
For the year ended 31 December 2022
| 2022 | 2021 | ||
| Note | £m | £m | |
Revenue | 1 | ||
| Operating (loss)/profit | 2 | ( | |
Finance income | 3 | ||
Finance expense | 3 | ( | ( |
Loss before tax | ( | ( | |
Income tax (expense)/credit | 4 | ( | |
Loss for the year from continuing operations | ( | ( | |
(Loss)/profit from discontinued operations | 24 | ( | |
(Loss)/profit for the year | ( | ||
| Attributable to: | |||
Equity holders of Essentra plc | ( | ||
Non-controlling interests | |||
(Loss)/profit for the year | ( | ||
| Earnings per share attributable to equity holders | |||
| ofEssentra plc: | |||
Basic | 6 | ( | |
Diluted | 6 | ( | |
| Earnings per share from continuing operations | |||
| attributable to equity holders of Essentra plc: | |||
Basic | 6 | ( | ( |
Diluted | 6 | ( | ( |
1
2
| 2022 | 2021 | ||
| Adjusted profit measure: continuing operations | Note | £m | £m |
Operating (loss)/profit | ( | ||
Amortisation of acquired intangible assets | |||
Adjusting items | 2 | ||
| Adjusted operating profit |
1
3
Notes:
1. The Group disposed of the Packaging business and the Filters business during the year ended 31 December 2022. The results of these
operations have been re-presented as discontinued operations. See note 24 for details.
2. Includes impairment charge on trade receivables of £0.8 m (2021: £0.7 m). See note 19.
3. See note 27 for further details of the adjusted profit measure.
CONSOLIDATED INCOME STATEMENT
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
138
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
| 2022 | 2021 | ||
| Note | £m | £m | |
(Loss)/profit for the year | ( | ||
| Other comprehensive (expense)/income: | |||
| Items that will not be reclassified to profit or loss in subsequent years | |||
Remeasurement of defined benefit pension schemes | 18 | ( | |
Deferred tax income/(expense) on remeasurement of defined benefit pension schemes | 4,16 | ( | |
( | |||
| Items that may be reclassified to profit or loss in subsequent years | |||
| Effective portion of changes in fair value of cash flow hedges: | |||
Net change in fair value of cash flow hedges transferred to the income statement | 15 | ( | ( |
Ineffective portion of changes in fair value of cash flow hedges transferred to the income statement | 15 | ( | |
Effective portion of changes in fair value of cash flow hedges | |||
| Foreign exchange translation differences: | |||
| Attributable to equity holders of Essentra plc: | |||
Arising on translation of foreign operations | ( | ||
Recycling of foreign currency translation reserve | 24 | ( | |
Arising on effective net investment hedges | ( | ( | |
Income tax credit | 4 | ||
Attributable to non-controlling interests | ( | ( | |
( | ( | ||
Total other comprehensive expense for the year, net of tax | ( | ( | |
Total comprehensive (expense)/income for the year | ( | ||
| Attributable to: | |||
Equity holders of Essentra plc | ( | ||
Non-controlling interests | |||
Total comprehensive (expense)/income for the year | ( | ||
| Attributable to: | |||
Continuing operations | ( | ( | |
Discontinued operations | ( | ||
Total comprehensive (expense)/income for the year | ( |
1
Note:
1. The Group disposed of the Packaging business and the Filters business during the year ended 31 December 2022. The results of these operations have been re-presented as discontinued operations. See note 24 for details.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
139
Consolidated Balance Sheet
At 31 December 2022
| 31 December | 31 December | ||
| 2022 | 2021 | ||
| Note | £m | £m | |
| Assets | |||
Property, plant and equipment | 7 | ||
Lease right-of-use asset | 9 | ||
Investment properties | 7 | ||
Intangible assets | 8 | ||
Long-term receivables | 19 | ||
Derivative assets | 15, 19 | ||
Deferred tax assets | 16 | ||
Retirement benefit assets | 18 | ||
Total non-current assets | |||
Inventories | 10 | ||
Income tax receivable | |||
Trade and other receivables | 11, 19 | ||
Derivative assets | 15, 19 | ||
Cash and cash equivalents | 12, 19, 22 | ||
Total current assets | |||
Total assets | |||
| Equity | |||
Issued share capital | 20 | ||
Merger reserve | |||
Capital redemption reserve | |||
Other reserve | 21 | ( | ( |
Cash flow hedging reserve | ( | ( | |
Translation reserve | ( | ( | |
Retained earnings | 21 | ||
Attributable to equity holders of Essentra plc | |||
Non-controlling interests | |||
Total equity |
| 31 December | 31 December | ||
| 2022 | 2021 | ||
| Note | £m | £m | |
| Liabilities | |||
Interest bearing loans and borrowings | 14, 19, 22 | ||
Lease liabilities | 22 | ||
Retirement benefit obligations | 18 | ||
Provisions | 17 | ||
Other financial liabilities | 19 | ||
Deferred tax liabilities | 16 | ||
Total non-current liabilities | |||
Interest bearing loans and borrowings | 14, 19, 22 | ||
Lease liabilities | 22 | ||
Derivative liabilities | 15, 19 | ||
Income tax payable | |||
Trade and other payables | 13, 19 | ||
Other financial liabilities | 19 | ||
Provisions | 17 | ||
Total current liabilities | |||
Total liabilities | |||
Total equity and liabilities |
Company registration no: 05444653
CONSOLIDATED BALANCE SHEET
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
140
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
2022
| Cash flow | ||||||||||
| hedging and | ||||||||||
| Capital | costof | Non- | ||||||||
| Issued | Merger | redemption | Other | hedging | Translation | Retained | controlling | Total | ||
| capital | reserve | reserve | reserve | reserves | reserve | earnings | interests | equity | ||
| Note | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
At 1 January 2022 | ( | ( | ( | |||||||
(Loss)/profit for the year | ( | ( | ||||||||
Other comprehensive expense | ( | ( | ( | ( | ||||||
Total comprehensive (expense)/income for the year | ( | ( | ( | |||||||
Recycling of non-controlling interest | 24 | ( | ( | |||||||
Share option expense | ||||||||||
Tax relating to share-based incentives | ( | ( | ||||||||
| Net impact of IAS 29 | ||||||||||
Dividends paid | 25 | ( | ( | ( | ||||||
At 31 December 2022 | ( | ( | ( | |||||||
| 2021 | ||||||||||
| Cash flow | ||||||||||
| hedging and | ||||||||||
| Capital | costof | Non- | ||||||||
| Issued | Merger | redemption | Other | hedging | Translation | Retained | controlling | Total | ||
| capital | reserve | reserve | reserve | reserves | reserve | earnings | interests | equity | ||
| Note | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
At 1 January 2021 | ( | ( | ( | |||||||
Profit for the year | ||||||||||
Other comprehensive income/(expense) | ( | ( | ( | ( | ||||||
Total comprehensive loss for the year | ( | ( | ||||||||
Equity issue to non-controlling interest | ||||||||||
Share option expense | ||||||||||
Tax relating to share-based incentives | ||||||||||
Dividends paid | 25 | ( | ( | ( | ||||||
At 31 December 2021 | ( | ( | ( | |||||||
1
2
1
Notes:
1. See note 15 for details of hedging reserve movements in relation to derivatives.
2. The Group applied IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ for the first time during the year to 31 December 2022. See ‘Changes in accounting policies’ under note (a) ‘basis of preparation’ for further details of the net impact on retained earnings.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
141
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
| 2022 | 2021 | ||
| Note | £m | £m | |
| Operating activities | |||
| (Loss)/profit for the year from: | |||
Continuing operations | ( | ( | |
Discontinued operations | ( | ||
(Loss)/profit for the year | ( | ||
| Adjustments for: | |||
Income tax (credit)/expense | 4 | ( | |
Net finance expense | 3 | ||
Intangible amortisation | 2,8 | ||
Adjusting items | 2 | ||
Loss on business disposals | 24 | ||
| Impairment of acquired intangible assets | |||
| on discontinued operations | |||
Depreciation of property, plant and equipment | 7 | ||
Lease right-of-use asset depreciation | 9 | ||
Loss on disposal of right of use asset | |||
Loss on disposal of fixed assets | |||
Impairment of fixed assets | |||
Share option expense | 5,18 | ||
Hedging activities and other movements | ( | ||
Increase in inventories | ( | ( | |
Increase in trade and other receivables | ( | ( | |
Decrease in trade and other payables | |||
Cash outflow in respect of adjusting items | ( | ( | |
Movement in provisions | ( | ||
Adjustment for pension contributions | ( | ||
Movement due to hyperinflation | ( | ||
Cash inflow from operating activities | |||
Income tax paid | ( | ( | |
Net cash inflow from operating activities |
1
| 2022 | 2021 | ||
| Note | £m | £m | |
| Investing activities | |||
Interest received | |||
| Acquisition of property, plant and equipment | ( | ( | |
Proceeds from sale of property, plant and equipment | |||
Payments for non-acquired intangible assets | ( | ( | |
| Acquisition of businesses net of cash acquired | 23 | ( | ( |
| Proceeds from sale of businesses net of cash disposed | 24 | ||
Cash outflow from costs on business disposals | ( | ||
Net cash inflow/(outflow) from investing activities | ( | ||
| Financing activities | |||
Interest paid | ( | ( | |
Dividends paid to equity holders | ( | ( | |
Dividends paid to non-controlling interests | ( | ( | |
Arrangement fee paid for financing activities | ( | ||
Repayments of long-term loans | ( | ( | |
Proceeds from long-term loans | |||
Proceeds from early settlement of derivative contracts | |||
Lease liability principal repayments | ( | ( | |
Proceeds from equity issue to non-controlling interests | |||
Net cash outflow from financing activities | ( | ( | |
Net increase in cash and cash equivalents | 22 | ||
Net cash and cash equivalents at the beginning of the year | |||
Net increase in cash and cash equivalents | |||
Net effect of currency translation on cash and cash equivalents | ( | ||
Net cash and cash equivalents at the end of the year | 12,22 |
1
3
2
2
Notes:
1. The Group disposed of the Packaging business and the Filters business during the year ended 31 December 2022. The results of these
operations have been re-presented as discontinued operations. See note 24 for details.
2. Acquisition of businesses is net of cash acquired of £3.5 m (2021: £nil). See note 23. Proceeds from sale of businesses is net of cash
disposed of £45.7 m. See note 24.
3. Acquisition of property, plant and equipment Includes capex accrual movements of £0.4 m (2021: £0.3 m).
CONSOLIDATED STATEMENT OF CASH FLOWS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
142
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
143
a Basis of preparation
ccontinued
| As at | ||
31 | ecember | |
| 2022 | ||
| £m | ||
Goodwill | 10.3 | |
Intangibles | 3.6 | |
Property, plant & equipment | 3.2 | |
Lease right-of-use asset | 2.7 | |
Inventory | 0.4 | |
Deferred tax liabilities | (2.2) | |
Impact on net assets | 18.0 | |
| Favourable impact on income statement | 2.5 | |
Increase in equity | 15.5 | |
Total equity | 18.0 |
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
144
continued
b Principal accounting policies
continued
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
145
b Principal accounting policies
continued
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
146
continued
b Principal accounting policies
continued
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
147
b Principal accounting policies
continued
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
148
continued
b Principal accounting policies
continued
BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
149
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
150
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
151
Notes to the Consolidated Financial Statements
CComponents
| 2022 | |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
152
Components
Packaging
Filters
| 2021 | |||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
153
1. Segment analysis
ccontinued
| 2021 | ||||||
| Continuing | Discontinued | Continuing | Discontinued | |||
| Operations | Operations | Total | Operations | Operations | Total | |
| External revenue by destination | £m | £m | £m | £m | £m | £m |
United Kingdom | 21.0 | 39.9 | 60.9 | 21.0 | 49.8 | 70.8 |
Rest of Europe and Africa | 146.1 | 211.4 | 357.5 | 135.5 | 246.8 | 382.3 |
Americas | 122.4 | 184.8 | 307.2 | 106.5 | 189.8 | 296.3 |
Asia and Middle East | 48.4 | 217.8 | 266.2 | 38.7 | 171.6 | 210.3 |
Total external revenue by destination | 337.9 | 653.9 | 991.8 | 301.7 | 658.0 | 959.7 |
| 2022 | 2021 | ||
| Note | £m | £m | |
Changes in inventories of finished goods and work-in-progress | (7.7) | (11.3) | |
Raw materials and consumables | 109.3 | 99.1 | |
| Personnel expense | 5 | 122.7 | 111.9 |
Depreciation of property, plant and equipment | 13.9 | 12.3 | |
Depreciation of lease right-of-use assets | 5.6 | 5.4 | |
Loss/(gain) on sale of property, plant and equipment | 0.1 | (0.1) | |
| Amortisation of intangible assets | 13.1 | 11.2 | |
Adjusting items | 2 | 26.0 | 10.1 |
| Other operating expenses | 66.2 | 55.4 | |
Net operating expenses | 349.2 | 294.0 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
154
continued
2. Operating costs and adjusting items
ccontinued
| 2022 | 2021 | |
| £m | £m | |
Fees payable for the audit of the Company and the consolidated financial statements | 3.1 | 1.6 |
Audit of the financial statements of the Company’s subsidiaries pursuant to legislation | 0.4 | 1.0 |
Total audit fees | 3.5 | 2.6 |
| Audit-related assurance services | 0.1 | 0.1 |
Other assurance services 2 | 1.2 | – |
Total non-audit fees | 1.3 | 0.1 |
Total fees | 4.8 | 2.7 |
| 2022 | 2021 | |
| Continuing operations | £m | £m |
| Costs relating to restructuring following disposals of businesses | 10.4 | – |
| Gains/losses and transaction costs relating to acquisitions and disposals of businesses | 0.3 | (3.6) |
| Acquisition integration and restructuring costs | 0.2 | 0.3 |
| Customisation and configuration costs of significant software as a service (“SaaS”) arrangements | 12.4 | 11.8 |
| Defined benefit pension scheme charges | 2.0 | – |
| Other | 0.7 | 1.6 |
Adjusting items before tax | 26.0 | 10.1 |
Tax | 2.8 | (0.5) |
Adjusting items after tax | 28.8 | 9.6 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
155
| 2022 | 2021 | ||
| Note | £m | £m | |
| Finance income | |||
Bank deposits | 1.4 | – | |
Other finance income 2 | 5.1 | 1.9 | |
Net interest on pension scheme assets | 18 | 0.6 | 0.2 |
Total finance income | 7.1 | 2.1 | |
| Finance expense | |||
Interest on loans and overdrafts | (15.9) | (10.9) | |
Amortisation of bank facility fees | (4.7) | (1.1) | |
| Other finance expense | (2.2) | (2.9) | |
Net interest on pension scheme liabilities | 18 | (0.6) | (0.6) |
Interest on leases | (1.5) | (1.4) | |
Total finance expense | (24.9) | (16.9) | |
Net finance expense | (17.8) | (14.8) |
4. Income tax (credit)/expense
| 2022 | 2021 | ||
| Note | £m | £m | |
| Amounts recognised in the consolidated income statement | |||
Current tax | 14.5 | 2.7 | |
Prior years’ tax | (2.0) | 0.7 | |
Deferred tax | 16 | (16.3) | 2.5 |
Prior years’ deferred tax | 16 | 1.8 | (1.0) |
Income tax (credit)/expense | (2.0) | 4.9 | |
| Income tax (credit)/expense is attributable to: | |||
| Expense/(credit) on loss from continuing operations | 2.0 | (2.2) | |
| (Credit)/expense on loss/profit from discontinued operations | (4.0) | 7.1 | |
Income tax (credit)/expense | (2.0) | 4.9 | |
Amounts recognised in the consolidated statement of comprehensive income | |||
Tax credit in respect of taxable foreign exchange taxable losses | (0.9) | (0.4) | |
| Tax (credit)/expense on remeasurement of defined benefit | (5.1) | 7.9 | |
| pension schemes | |||
Income tax (credit)/expense | (6.0) | 7.5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
156
4. Income tax expense/(credit)
continued
| 2022 | 2021 | |
| £m | £m | |
Loss from continuing operations before income tax | (29.1) | (7.1) |
Loss from discontinued operations before income tax | (156.7) | 40.3 |
(185.8) | 33.2 | |
Tax at UK statutory rate of 19.0% (2021: 19.0%) | (35.3) | 6.3 |
| Effects of: | ||
| Permanent disallowable items (including adjusting items) | 16.6 | (8.3) |
| Disposal of entities | 4.7 | 1.6 |
Overseas state and local tax | 0.3 | (0.5) |
| Unrecognised tax attributes utilised | 10.6 | 1.0 |
Adjustments in respect of prior years | (0.2) | (0.3) |
Withholding tax (including on unremitted earnings) | 1.1 | 2.4 |
| Change in tax rates | (1.3) | (2.2) |
| Difference between UK and overseas tax rates | (2.0) | (0.2) |
| Reassessment of deferred tax recognition | 3.5 | 6.1 |
| Other | – | (1.0) |
| Income tax (credit)/expense | (2.0) | 4.9 |
5. Personnel expense
Total personnel expense, including Directors is analysed below:
Continuing operations | Total | |||
| 2022 | 2021 | 2022 | 2021 | |
| £m | £m | £m | £m | |
Wages and salaries | 98.2 | 245.5 | 251.6 | |
Social security expense | 10.4 | 25.1 | 25.5 | |
| Pension expense (note 18) | 4.0 | 7.4 | 8.6 | |
Share option expense (note 18) | (0.7) | 2.6 | 0.8 | |
| Total personnel expense | 111.9 | 280.6 | 286.5 | |
2
1,2
Notes (continuing):
1. Additional personnel expenses totalling £5.1m (2021: £9.6m) were included within adjusting items, including: wages and salaries of
£4.1m (2021: £8.5m); social security expense of £0.4m (2021: £0.8m); pension expense of £0.1m (2021: £0.3m); and £0.5m (2021:
£nil) relating to share option expense.
2. Total pension expense for 2022 includes £2.0m (2021: £nil) included within adjusting items.
3. The Annual Report on Remuneration on pages 111 to 121 sets out information on Directors’ remuneration.
| 2022 | 2021 | |
| £m | £m | |
Short-term employee benefits | 5.2 | 5.2 |
Post-employment benefits | 0.3 | 0.6 |
Share-based payments | 1.8 | 0.5 |
Termination benefits | 0.9 | 0.3 |
| Total | 8.2 | 6.6 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
157
11.2 | ||||
| 2022 | 2021 | |
| million | million | |
| Weighted average number of ordinary shares | ||
| Basic weighted average ordinary shares outstanding | 301.1 | 301.0 |
Dilutive effect of employee share option plans | 2.0 | 1.3 |
Diluted weighted average ordinary shares | 303.1 | 302.3 |
| 2022 | 2021 | |
| pence | pence | |
| Earnings per share from continuing operations | ||
Basic (loss)/earnings per share | (10.3)p | (1.6)p |
Adjustment | 12.2p | 5.3p |
Adjusted basic earnings per share from continuing operations | 1.9p | 3.7p |
Diluted (loss)/earnings per share from continuing operations | (10.3)p | (1.6)p |
Adjustment | 12.2p | 5.3p |
Adjusted diluted earnings per share from continuing operations | 1.9p | 3.7p |
| Earnings per share discontinued operations | ||
| Basic (loss)/earnings per share | (52.1)p | 10.6p |
Diluted (loss)/earnings per share | (52.1)p | 10.5p |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
159
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
160
8. Intangible assets
ccontinued
| 2022 | 2021 | ||
| Business | £m | £m | |
Components – Businesses of former Moss and Skiffy | Continuing | 8.3 | 8.8 |
Components – Businesses of former Richco | Continuing | 13.4 | 15.3 |
Components – Business of former Mesan | Continuing | 0.9 | 1.4 |
Components – Business of former Abric | Continuing | 5.9 | 6.7 |
Components – Business of former Micro Plastics, Inc. | Continuing | 3.8 | 3.7 |
Components – Industrial Supply | Continuing | 0.7 | 1.6 |
Components – Innovative Components | Continuing | 6.6 | 6.6 |
Components – Hengzhu | Continuing | 8.3 | 8.8 |
Components – Wixroyd Group | Continuing | 8.8 | – |
Components – e-Commerce development costs | Continuing | 5.9 | 6.3 |
Components – other businesses | Continuing | 3.7 | 3.0 |
Components – Sweden | Continuing | 2.5 | – |
Software and development costs | Continuing | 2.2 | 4.5 |
Packaging – Americas | Discontinued | – | 45.5 |
Packaging – Asia | Discontinued | – | 1.1 |
Packaging – Europe | Discontinued | – | 38.2 |
Packaging – Nekicesa | Discontinued | – | 3.7 |
Filters | Discontinued | – | 1.3 |
| Total net book value of customer relationships | |||
and other intangible assets | 71.0 | 156.5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
161
2022 | 2021 | |||||||
| Fixtures, | Fixtures, | |||||||
| Land and | Plant and | fittings and | Land and | Plant and | fittings and | |||
| buildings | machinery | equipment | Total | buildings | machinery | equipment | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Cost | ||||||||
Beginning of year | 100.5 | 13.4 | 0.4 | 114.3 | 102.0 | 13.9 | 0.4 | 116.3 |
Additions, extensions and surrenders | 7.6 | 2.7 | – | 10.3 | 8.2 | 1.8 | – | 10.0 |
Terminations | (6.9) | (1.5) | (0.1) | (8.5) | (6.3) | (1.7) | – | (8.0) |
Business disposals | (71.2) | (12.4) | (0.2) | (83.8) | – | – | – | – |
Acquisitions | 2.0 | – | – | 2.0 | ||||
| Currency translation | 10.3 | 0.7 | 0.1 | 11.1 | (5.4) | (0.6) | – | (6.0) |
End of year | 40.3 | 2.9 | 0.2 | 43.4 | 100.5 | 13.4 | 0.4 | 114.3 |
| Accumulated depreciation and impairment | ||||||||
Beginning of year | 56.6 | 7.0 | 0.3 | 63.9 | 57.7 | 5.7 | 0.2 | 63.6 |
| Charge for the year | 7.4 | 2.5 | 0.2 | 10.1 | 9.0 | 2.9 | 0.1 | 12.0 |
Terminations | (6.7) | (1.3) | (0.1) | (8.1) | (6.0) | (1.3) | – | (7.3) |
Disposal of businesses | (40.4) | (6.8) | (0.2) | (47.4) | – | – | – | – |
| Impairment write back | (0.6) | – | – | (0.6) | (1.1) | – | – | (1.1) |
| Currency translation | 4.1 | 0.5 | (0.1) | 4.5 | (3.0) | (0.3) | – | (3.3) |
End of year | 20.4 | 1.9 | 0.1 | 22.4 | 56.6 | 7.0 | 0.3 | 63.9 |
Net book value at end of year | 19.9 | 1.0 | 0.1 | 21.0 | 43.9 | 6.4 | 0.1 | 50.4 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
162
9. Lease right-of-use asset
ccontinued
| 2022 | 2021 | |
| On continuing operations | £m | £m |
Lease right-of-use asset depreciation | 5.6 | 5.4 |
| Interest expense (included in finance costs) | 1.5 | 1.4 |
Exchange losses (included in finance costs) | 1.2 | 2.4 |
| Expense relating to short-term leases (included in cost of goods sold | ||
| and administrative expenses) | 0.1 | 0.2 |
Expense relating to leases of low-value assets not shown above as short-term leases (included in operating expenses) | 0.1 | 0.1 |
8.5 | 9.5 |
10. Inventories
| 2022 | 2021 | |
| £m | £m | |
Raw materials and consumables | 10.6 | 60.0 |
Work-in-progress | 4.3 | 12.5 |
Finished goods and goods held for resale | 50.1 | 56.2 |
| Total | 65.0 | 128.7 |
1
Note:
1. Inventories with a total value of £nil (2021: £0.1m) were written down in the year.
| 2022 | 2021 | |
| £m | £m | |
Trade receivables | 45.3 | 144.8 |
Trade receivables subject to factoring | – | 4.0 |
Other receivables | 17.7 | 19.9 |
Prepayments and accrued income | 3.4 | 6.5 |
Total | 66.4 | 175.2 |
| 2022 | 2021 | |
| £m | £m | |
Bank balances | 421.4 | 123.9 |
Short-term bank deposits and investments | – | 12.4 |
| Total | 421.4 | 136.3 |
| 2022 | 2021 | |
| £m | £m | |
Trade payables | 31.9 | 103.3 |
Other tax and social security contributions | 9.5 | 13.2 |
Other payables | 7.9 | 15.2 |
Accruals and deferred income | 42.2 | 49.2 |
Total | 91.5 | 180.9 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
163
| 2022 | 2021 | |
| £m | £m | |
| Non-current liabilities | ||
Unsecured bank loans | – | 55.6 |
US Private Placement Loan Notes | 85.0 | 257.7 |
Total | 85.0 | 313.3 |
| Current liabilities | ||
US Private Placement Loan Notes | 208.0 | – |
Total | 208.0 | – |
313.3 | 318.5 |
At 31 December 2022 | At 31 December 2021 | |||||
| Contractual | Contractual | |||||
| Fair | or notional | Change in | Fair | or notional | Change in | |
| values | amounts | fair value | values | amounts | fair value | |
| £m | £m | £m | £m | £m | £m | |
| Current assets | ||||||
| Forward foreign | ||||||
exchange contracts | 0.2 | 58.4 | (0.3) | 0.5 | 23.0 | 0.2 |
0.2 | 58.4 | (0.3) | 0.5 | 23.0 | 0.2 | |
| Non-current assets | ||||||
| Cross currency interest | ||||||
rate swaps | 8.3 | 66.7 | 7.6 | 0.7 | 77.8 | 0.7 |
8.3 | 66.7 | 7.6 | 0.7 | 77.8 | 0.7 | |
| Current liabilities | ||||||
| Forward foreign | ||||||
exchange contracts | 1.3 | 77.4 | 1.2 | 0.1 | 11.9 | (0.4) |
1.3 | 77.4 | 1.2 | 0.1 | 11.9 | (0.4) | |
| Non-current liabilities | ||||||
| Cross currency interest | ||||||
rate swaps | – | – | – | – | 29.6 | – |
– | – | – | – | 29.6 | – |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
164
15. Derivatives
ccontinued
2022 | 2021 | |||||
| Cost of | Cash flow | Total | Cost of | Cash flow | Total | |
| hedging | hedging | hedging | hedging | hedging | hedging | |
| reserve | reserve | reserve | reserve | reserve | reserve | |
| £m | £m | £m | £m | £m | £m | |
Balance at the beginning of the year | 0.9 | (2.4) | (1.5) | – | (0.1) | (0.1) |
| Change in fair value of forward | ||||||
| foreign exchange contracts | ||||||
recognised in other comprehensive income | – | (0.9) | (0.9) | – | 0.2 | 0.2 |
| Amounts recycled to finance | ||||||
expense on discontinued hedges | – | 0.2 | 0.2 | – | – | – |
| Change in fair value of cross | ||||||
| currency interest rate swaps | ||||||
recognised in other comprehensive income | (2.0) | 19.0 | 17.0 | 0.9 | (0.2) | 0.7 |
Ineffectiveness recognised in finance expense/(income) | – | 0.8 | 0.8 | – | (0.5) | (0.5) |
| Amounts recycled to finance | ||||||
| expense to offset retranslation | ||||||
| of hedged loans | – | (16.4) | (16.4) | – | (1.8) | (1.8) |
Balance at the end of the year | (1.1) | 0.3 | (0.8) | 0.9 | (2.4) | (1.5) |
| Movement in | Ineffectiveness | ||
| hedging | Movement in | recognised | |
| instrument | hedged item | in P&L | |
| £m | £m | £m | |
Cumulative movement at 1 January 2022 | 0.7 | (0.2) | 0.5 |
Movement in period | 13.9 | (14.7) | (0.8) |
Cumulative movement at 31 December 2022 | 14.6 | (14.9) | (0.3) |
| Movement in | Ineffectiveness | ||
| hedging | Movement in | recognised | |
| instrument | hedged item | in P&L | |
| £m | £m | £m | |
Movement in period | 0.7 | (0.2) | 0.5 |
Cumulative movement at 31 December 2021 | 0.7 | (0.2) | 0.5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
165
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
2022 | 2021 | |||||||
| Income | Income | |||||||
| statement: | statement: | |||||||
| Charge/ | Charge/ | |||||||
| Assets | Liabilities | Net | (credit) | Assets | Liabilities | Net | (credit) | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Property, plant and equipment | (7.1) | 2.9 | (4.2) | (2.0) | (11.0) | 13.2 | 2.2 | 1.9 |
| Intangible assets | – | 13.3 | 13.3 | (13.0) | – | 39.9 | 39.9 | (2.8) |
| Employee benefits | (4.6) | 0.6 | (4.0) | 0.1 | (8.5) | 8.5 | – | 1.5 |
Other 4 Tax | (11.3) | 2.1 | (9.2) | 0.4 | (20.2) | 11.8 | (8.4) | 0.9 |
(assets)/liabilities | (23.0) | 18.9 | (4.1) | – | (39.7) | 73.4 | 33.7 | – |
Set off of tax | 11.3 | (11.3) | – | – | 28.1 | (28.1) | – | – |
| Net tax | ||||||||
(assets)/liabilities | (11.7) | 7.6 | (4.1) | – | (11.6) | 45.3 | 33.7 | – |
| Total income | ||||||||
| statement | ||||||||
| charge/(credit) | – | – | – | (14.5) | – | – | – | 1.5 |
| 2022 | 2021 | |
| Total | Total | |
| Net | Net | |
| £m | £m | |
Beginning of the year | 33.7 | 24.9 |
(Credit)/charge to the income statement in respect of current year | (16.3) | 2.5 |
Charge/(credit) to the income statement in respect of prior years | 1.8 | (1.0) |
| (Credit)/charge to other comprehensive income – defined benefit | (5.1) | 7.9 |
| pensions | ||
Charge to reserves – hyperinflation (IAS 29) | 2.7 | – |
Charge/(credit) to reserves on share-based incentives | 0.6 | (0.5) |
Acquisitions and disposals | (25.8) | 0.6 |
Currency translation | 4.3 | (0.7) |
End of year | (4.1) | 33.7 |
166
ESSENTRA PLC ANNUAL REPORT 2022
1.1 | |||||
10.7 | |||||
18. Employee benefits
Post-employment benefits
The Group operates a number of defined benefit and defined contribution pension schemes around
the world covering many of its employees. The Group also has a number of other post-employment
obligations in certain countries, some of which are required under local law.
The defined benefit plans are administered by boards of trustees and the assets are held
independently from Essentra. The boards of trustees comprise member nominated trustees,
employer nominated trustees and independent advisory trustees. The articles of the plans prohibit
a majority on the boards to be established by either the member or employer nominated trustees.
Pension costs of the defined benefit schemes are assessed in accordance with the advice of
independent professionally qualified actuaries. Full triennial actuarial valuations were carried out on
the principal European defined benefit schemes as at 5 April 2021 and annual actuarial valuations
are performed on the principal US defined benefit schemes. The assets and liabilities of the defined
benefit schemes have been updated to the balance sheet date from the most recently completed
actuarial valuations taking account of the investment returns achieved by the schemes and the level
of contributions.
The principal European defined benefit schemes entitle remaining members to a pension calculated
on 1.25% or 2% of their capped final pensionable pay multiplied by the number of pensionable years
of service. Some members have historical entitlements to accrual rates of 1.67%-1.9% and 3% for
certain tranches of their service. The principal US defined benefit schemes entitle certain participating
employees to annuity benefits equal to 50% of final average pensionable salary, reduced for years
of service less than 30, and other participating employees to annuity benefits equal to $49 per month
for each year of service.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
167
18. Employee benefits
c
continued
0.6 |
| Amounts recognised in the consolidated statement of comprehensive income | ||
Losses on defined benefit scheme assets excluding amounts in net finance income | 108.5 | 0.6 |
| Gains on changes in assumptions and experience to the present value of defined | ||
benefit scheme liabilities | (88.0) | (29.1) |
Remeasurement losses/(gains) of defined benefit schemes | 20.5 | (28.5) |
2022 | 2022 | 2021 | 2021 | |
Europe | US | Europe | US | |
| Increase in salaries (pre-2010) | n/a | n/a | n/a | n/a |
| Increase in salaries (post-2010) | n/a | n/a | n/a | n/a |
| Increase in pensions | ||||
at RPI capped at 5% | 3.0% | n/a | 3.1% | n/a |
at CPI capped at 5% | 2.7% | n/a | 2.7% | n/a |
at CPI minimum 3%, capped at 5% | 3.3% | n/a | 3.3% | n/a |
at CPI capped at 2.5% | 2.2% | n/a | 2.2% | n/a |
Discount rate | 4.8% | 5.0% | 1.9% | 2.8% |
Inflation rate – RPI | 3.1% | n/a | 3.2% | n/a |
Inflation rate – CPI | 2.7% | n/a | 2.7% | n/ |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
168
continued
18. Employee benefits
ccontinued
2022 | 2022 | 2021 | 2021 | |
Europe | US | Europe | US | |
Male retiring today at age 65 | 22.0 | 20.5 | 22.0 | 20.5 |
Female retiring today at age 65 | 24.4 | 22.5 | 24.4 | 22.5 |
Male retiring in 20 years at age 65 | 23.3 | 22.1 | 23.2 | 22.0 |
Female retiring in 20 years at age 65 | 25.9 | 24.0 | 25.8 | 23.9 |
| 2022 | |||||
| % of total fair | % of total fair | ||||
| value of | Europe | value of scheme | US | Total | |
| scheme assets | £m | assets | £m | £m | |
Equities | 42% | 61.8 | 64% | 33.3 | 95.1 |
Bonds/LDI | 57% | 84.0 | 34% | 17.3 | 101.3 |
Other | < 1% | 0.7 | 2% | 1.2 | 1.9 |
| Fair value of scheme assets | 146.5 | 51.8 | 198.3 | ||
| Present value of scheme liabilities | (141.1) | (67.6) | (208.7) | ||
| Net retirement benefit | |||||
assets/(obligations) 3 | 5.4 | (15.8) | (10.4) | ||
| 2021 | |||||
| % of total | % of total | ||||
| fair value of | Europe | fair value of | US | Total | |
| scheme assets | £m | scheme assets | £m | £m | |
Equities | 28% | 68.6 | 62% | 36.8 | 105.4 |
Bonds/LDI | 71% | 174.7 | 36% | 21.3 | 196.0 |
Other | 1% | 2.8 | 2% | 1.7 | 4.5 |
| Fair value of scheme assets | 246.1 | 59.8 | 305.9 | ||
| Present value of scheme liabilities | (215.6) | (77.5) | (293.1) | ||
| Net retirement benefit | |||||
| assets/(obligations) | 30.5 | (17.7) | 12.8 | ||
| Notes: | |||||
1. The fair value of scheme assets are not intended to be realised in the short-term and may be subject to significant change before they are realised. | |||||
| 2. The present value of the pension scheme liabilities, which are derived from cash flow projections over long periods and are therefore | |||||
| inherently uncertain | |||||
3. In the Consolidated Balance Sheet, the retirement benefit asset of £7.9m relates to the UK pension scheme (2021: £34.1m), and the retirement benefit obligations of £18.5m relate to the US and other smaller schemes (2021: £25.1m). |
1
2
3
The equity, corporate bond and government bond assets are either direct investments or investments
made via a managed fund for those asset classes. All of these assets have a quoted market price in
an active market. The other asset class relates primarily to property and hedge funds, which are
valued at their cumulative unit offer price. No direct investment in property is held. No plan assets
are invested directly in the shares of Essentra plc.
The pension surplus in Europe is not restricted as the asset is considered realisable on the basis
of the Group’s unconditional right to a refund.
The average expected duration of the Group’s European defined benefit pension liability at
31 December 2022 is 14 years (2021: 18.0 years). The average expected duration of the Group’s
US defined benefit pension liability at 31 December 2022 is 10.2 years (2021: 12.1 years).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
169
18. Employee benefits
ccontinued
2022 | 2021 | |||||||
Defined benefit pension scheme | Defined benefit pension scheme | |||||||
| Assets | Liabilities | Other | Total | Assets | Liabilities | Other | Total | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
Beginning of year | 305.9 | (293.1) | (3.8) | 9.0 | 312.0 | (332.0) | (3.9) | (23.9) |
| Current service cost and administrative expense | (1.8) | (0.2) | (0.4) | (2.4) | (1.5) | – | (0.3) | (1.8) |
Employer contributions | 0.7 | 0.2 | – | 0.9 | 6.3 | 0.1 | – | 6.4 |
| Reduction on plan assets excluding amounts in net finance income | (108.5) | – | – | (108.5) | (0.6) | – | – | (0.6) |
Actuarial gains arising from change in financial assumptions | – | 95.5 | - | 95.5 | – | 18.5 | 0.3 | 18.8 |
Actuarial gains arising from change in demographic assumptions | – | (1.9) | – | (1.9) | – | 4.5 | – | 4.5 |
Actuarial (losses)/gains arising from experience adjustment | – | (5.6) | – | (5.6) | – | 5.8 | – | 5.8 |
Finance income/(expense) | 6.3 | (6.3) | (0.1) | (0.1) | 4.7 | (5.1) | (0.2) | (0.6) |
Benefits paid | (11.5) | 11.5 | – | – | (16.1) | 16.1 | – | – |
Curtailments | – | – | – | – | – | – | 0.2 | 0.2 |
Currency translation | 7.2 | (9.4) | (0.1) | (2.3) | 1.1 | (1.0) | 0.1 | 0.2 |
| Business disposals | – | 0.6 | 4.2 | 4.8 | – | – | – | – |
End of year | 198.3 | (208.7) | (0.2) | (10.6) | 305.9 | (293.1) | (3.8) | 9.0 |
Defined benefit schemes – net retirement benefit assets/(obligations) | (10.4) | 12.8 | ||||||
| (Increase)/decrease in schemes net liabilities | |||
| Europe | US | Total | |
| £m | £m | £m | |
0.5% decrease in the discount rate | (9.7) | (3.4) | (13.1) |
1.0% increase in the rate of inflation | (8.2) | n/a | (8.2) |
1.0% increase in rate of salary/pension increases | n/a | n/a | n/a |
1 year increase in life expectancy | (4.8) | (1.9) | (6.7) |
1 year decrease in life expectancy | 3.3 | 1.9 | 5.2 |
0.5% increase in the discount rate | 8.0 | 3.3 | 11.3 |
1.0% decrease in rate of salary/pension increases | n/a | n/a | n/a |
1.0% decrease in the rate of inflation | 6.6 | n/a | 6.6 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
170
continued
18. Employee benefits
ccontinued
| 2022 | ||||||||||||
| Number | ||||||||||||
| Number | Weighted | Number | Weighted | Number | Weighted | Number | Weighted | Number | Weighted | Exercisable | Weighted | |
| At 1 January | average | Granted | average | Lapsed | average | Exercised | average | At 31 December | average | At 31 December | average | |
| 2022 | exercise price | during the year | exercise price | during the year | exercise price | during the year | exercise price | 2022 | exercise price | 2022 | exercise price | |
LTIP Part A | 98,735 | 649.1p | – | – | (32,535) | 562.0p | – | – | 66,200 | 692.0p | 66,200 | 692.0p |
LTIP Part B | 5,370,852 | – | 961,501 | – | (3,788,200) | – | (349) | – | 2,543,804 | – | 33,826 | – |
DASB | 416,992 | – | 253,721 | – | – | – | (235,123) | – | 435,590 | – | 10,494 | – |
SAYE 3 year plan | 813,975 | 265.7p | – | – | (487,933) | 276.9p | (4,030) | 248.0p | 322,012 | 249.2p | 45,591 | – |
SAYE 5 year plan | 227,571 | 267.8p | – | – | (117,408) | 278.7p | – | – | 110,163 | 256.2p | 31,449 | – |
US SAYE 2 year plan | 46,818 | 284.8p | – | – | (15,993) | 266.5p | – | – | 30,825 | 294.3p | – | – |
Restrictive Shares | – | – | 419,519 | – | – | – | – | – | 419,519 | – | – | – |
Total | 6,974,943 | 1,634,741 | (4,442,069) | (239,502) | 3,928,113 | 187,560 |
| 2021 | ||||||||||||
| Number | ||||||||||||
| Number | Weighted | Number | Weighted | Number | Weighted | Number | Weighted | Number | Weighted | Exercisable at | Weighted | |
| At 1 January | average | Granted | average | Lapsed | average | Exercised | average | At 31 December | average | 31 December | average | |
| 2021 | exercise price | during the year | exercise price | during the year | exercise price | during the year | exercise price | 2021 | exercise price | 2021 | exercise price | |
LTIP Part A | 113,980 | 607.8p | – | – | (15,245) | 339.8p | – | – | 98,735 | 649.1p | 98,735 | 649.1p |
LTIP Part B | 4,176,820 | – | 3,279,124 | – | (2,068,570) | – | (16,522) | – | 5,370,852 | – | 38,199 | – |
DASB | 629,662 | – | – | – | (16,543) | – | (196,127) | – | 416,992 | – | – | – |
SAYE 3 year plan | 515,255 | 339.5p | 694,862 | 248.0 | (396,142) | 331.9p | – | – | 813,975 | 265.7p | – | – |
SAYE 5 year plan | 141,726 | 349.0p | 193,408 | 248.0 | (107,563) | 339.1p | – | – | 227,571 | 267.8p | – | – |
US SAYE 2 year plan | 32,994 | 338.2p | 37,561 | 266.5 | (20,244) | 331.0p | (3,493) | 324.5p | 46,818 | 284.8p | – | – |
Total | 5,610,437 | 4,204,955 | (2,624,307) | (216,142) | 6,974,943 | 136,934 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
171
18. Employee benefits
ccontinued
| LTIP | LTIP | SAYE 3 year | SAYE 5 year | Restrictive | ||
| Part A | Part B | DASB | plan | Plan | Shares | |
Year ended 31 December 2022 | n/a | 165.4p | 172.3p | n/a | n/a | 230.2p |
Year ended 31 December 2021 | n/a | 257.0p | n/a | 68.7p | 74.7p | n/a |
| 2022 | ||||||
| LTIP | LTIP | SAYE 3 year | SAYE 5 year | Restrictive | ||
| Part A | Part B | DASB | plan | Plan | Shares | |
Weighted average fair value at grant | 141.4p | 225.8p | 189.0p | 69.2p | 75.5p | 230.2p |
Weighted average share price at grant | 692.0p | 275.6p | 223.7p | 293.1p | 304.2p | 237.0p |
Weighted average exercise price | 692.0p | – | – | 249.2p | 265.5p | – |
Weighted average volatility | 27.0% | 37.0% | 35.8% | 36.1% | 40.5% | 40% |
Weighted average dividend yield | 1.80% | 2.79% | 3.00% | 2.74% | 2.94% | 2.5% |
Weighted risk free rate | 0.40% | 1.08% | 2.37% | 0.21% | 0.44% | 3.4% |
Expected employee retention rates | 85.0% | 81.1% | 100.0% | 80.1% | 81.0% | 85.0% |
| 3.00 | 2.30 | 3.00 | 3.20 | 5.20 | ||
| Expected term | years | years | years | years | years | 3.0 years |
| Monte | ||||||
Valuation model | Binomial | Carlo | Binomial | Binomial | Binomial | Binomial |
| 2021 | |||||
| LTIP | LTIP | SAYE 3 year | SAYE 5 year | ||
| Part A | Part B | DASB | plan | Plan | |
Weighted average fair value at grant | 133.1p | 273.6p | 274.4p | 75.7p | 77.8p |
Weighted average share price at grant | 649.1p | 337.1p | 317.5p | 319.0p | 318.6p |
Weighted average exercise price | 649.1p | – | – | 265.7p | 278.7p |
Weighted average volatility | 27.2% | 32.4% | 34.6% | 36.9% | 40.1% |
Weighted average dividend yield | 1.88% | 3.72% | 3.97% | 3.21% | 3.02% |
Weighted risk free rate | 0.46% | 0.24% | 0.33% | 0.31% | 0.46% |
Expected employee retention rates | 86.0% | 83.3% | 100.0% | 81.1% | 82.0% |
Expected term | 3.00 years | 3.00 years | 3.00 years | 3.20 years | 5.19 years |
| Monte | |||||
Valuation model | Binomial | Carlo | Binomial | Binomial | Binomial |
Where relevant, market conditions are taken into account in determining the fair value of the awards
at grant date. The three year average historic volatility at grant date has been used as the volatility
input for the LTIP Part A, LTIP Part B, DASB and SAYE 3 year awards, and the five year average historic
volatility at grant date has been used as the volatility input for the SAYE 5 year award.
| 2022 and 2021 | ||||||
| LTIP | LTIP | SAYE 3 year | SAYE 5 year | Restrictive | ||
| Part A | Part B | DASB | plan | Plan | Shares | |
| 3 – 6 | ||||||
Contractual life | 3 – 10 years | years | 3 years | 3 years | 5 years | 3 years |
Details of the vesting conditions of the LTIP Part A, LTIP Part B and DASB share option schemes are set
out in the Annual Report on Remuneration on pages 111 to 121.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
172
continued
| 2022 | 2021 | |
| £m | £m | |
1-60 days | 13.7 | 21.6 |
61-180 days | 1.4 | 3.2 |
181-360 days | 0.3 | 0.6 |
360+ days | 0.3 | 1.7 |
Total | 15.7 | 27.1 |
| 2022 | 2021 | |
| £m | £m | |
Current | 0.3 | 0.4 |
1-60 days | 0.1 | – |
61-180 days | 0.4 | 0.1 |
181-360 days | 0.3 | 0.4 |
360+ days | 0.3 | 1.7 |
Total | 1.4 | 2.6 |
| 2022 | 2021 | |
| £m | £m | |
Beginning of year | 2.6 | 2.7 |
Impaired receivables acquired/(disposed) | – | (0.1) |
| Impairment loss recognised | 1.1 | 0.3 |
Business disposals | (2.3) | – |
Utilisation | – | (0.3) |
End of year | 1.4 | 2.6 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
173
19. Financial risk management
ccontinued
| 2022 | |||||||
| AAA | AA | A | BBB | BB | Not rated | Total | |
| £m | £m | £m | £m | £m | £m | £m | |
Current derivative assets | – | – | 0.1 | 0.1 | – | – | 0.2 |
Non-current derivative assets | – | – | 8.3 | – | – | – | 8.3 |
Cash and cash equivalents | – | 2.8 | 232.4 | 180.9 | – | 5.3 | 421.4 |
Total | – | 2.8 | 240.8 | 181.0 | – | 5.3 | 429.9 |
| 2021 | |||||||
| AAA | AA | A | BBB | BB | Not rated | Total | |
| £m | £m | £m | £m | £m | £m | £m | |
Current derivative assets | – | – | 0.5 | – | – | – | 0.5 |
Non-current derivative assets | – | – | 0.7 | – | – | – | 0.7 |
Cash and cash equivalents | 1.5 | 11.3 | 107.5 | 15.2 | – | 0.8 | 136.3 |
Total | 1.5 | 11.3 | 108.7 | 15.2 | – | 0.8 | 137.5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
174
continued
19. Financial risk management
ccontinued
| 2022 | ||||||
Weakening in sterling | Strengthening in sterling | |||||
| 10% | 5% | 1% | 10% | 5% | 1% | |
| £m | £m | £m | £m | £m | £m | |
| Impact on the profit before tax – | ||||||
gain/(loss) | 0.4 | 0.2 | 0.0 | (0.3) | (0.2) | (0.0) |
Impact on equity – gain/(loss) | 25.0 | 11.8 | 2.3 | (20.4) | (10.7) | (2.2) |
| 2021 | ||||||
Weakening in sterling | Strengthening in sterling | |||||
| 10% | 5% | 1% | 10% | 5% | 1% | |
| £m | £m | £m | £m | £m | £m | |
| Impact on the profit before tax – | ||||||
gain/(loss) | 1.8 | 0.8 | 0.2 | (1.4) | (0.8) | (0.2) |
Impact on equity – gain/(loss) | 65.5 | 31.0 | 6.0 | (53.6) | (28.1) | (5.8) |
| 2022 | ||||||
Decrease in interest rates | Increase in interest rates | |||||
| 200bps | 100bps | 50bps | 200bps | 100bps | 50bps | |
| £m | £m | £m | £m | £m | £m | |
| Impact on the income | ||||||
statement – gain/(loss) | 1.9 | 1.0 | 0.5 | (1.9) | (1.0) | (0.5) |
| 2021 | ||||||
Decrease in interest rates | Increase in interest rates | |||||
| 200bps | 100bps | 50bps | 200bps | 100bps | 50bps | |
| £m | £m | £m | £m | £m | £m | |
| Impact on the income | ||||||
statement – gain/(loss) | 2.9 | 1.5 | 0.7 | (2.9) | (1.5) | (0.7) |
| 2022 | 2021 | |
| £m | £m | |
Expiring after two years | 200.0 | 215.8 |
| 2022 | |||||||
U Undiscounte | |||||||
| Carrying | d d c contractu a | ||||||
| Fair value | amount | l cash flow s | <1 yr | 1-2 yrs | 2-5 yrs | >5 yrs | |
| £m | £m | £m | £m | £m | £m | £m | |
| US Private Placement Loan Notes | 277.7 | 293.0 | 326.4 | 215.3 | 3.3 | 9.9 | 97.9 |
Derivative liabilities | 1.3 | 1.3 | 1.3 | 1.3 | – | – | – |
| Trade and other payables | 82.0 | 82.0 | 82.0 | 82.0 | – | – | – |
Lease liabilities | 22.9 | 22.9 | 28.3 | 6.3 | 4.9 | 10.5 | 6.6 |
| Deferred contingent | |||||||
| consideration | 2.4 | 2.4 | 2.4 | – | 2.4 | – | – |
Other financial liabilities | 24.1 | 24.1 | 24.1 | 24.1 | – | – | – |
Total | 410.4 | 425.7 | 464.5 | 329.0 | 10.6 | 20.4 | 104.5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
175
19. Financial risk management
ccontinued
| 2021 | |||||||
| Undiscounte | |||||||
| Carrying | dcontractual | ||||||
| Fair value | amount | cash flows | <1 yr | 1-2 yrs | 2-5 yrs | >5 yrs | |
| £m | £m | £m | £m | £m | £m | £m | |
| US Private Placement Loan Notes | 270.5 | 257.7 | 349.1 | 10.4 | 10.4 | 44.7 | 283.6 |
| Unsecured bank loans | 59.2 | 55.6 | 64.6 | 1.1 | 1.1 | 62.4 | – |
Derivative liabilities | 0.1 | 0.1 | 0.1 | 0.1 | – | – | – |
| Trade and other payables | 167.7 | 167.7 | 167.7 | 167.7 | – | – | – |
Lease liabilities | 57.7 | 57.7 | 68.1 | 14.3 | 12.2 | 24.4 | 17.2 |
Deferred consideration | 5.6 | 5.6 | 5.6 | – | 5.6 | – | – |
Total | 560.8 | 544.4 | 655.2 | 193.6 | 29.3 | 131.5 | 300.8 |
| Gross amount of | Net amount of | ||
| Gross amount | recognised financial | financial assets | |
| of recognised | liabilities set off in | presented in the | |
| financial assets | the balance sheet | balance sheet | |
| £m | £m | £m | |
| Cash and cash equivalents: | |||
At 31 December 2022 | 421.4 | – | 421.4 |
At 31 December 2021 | 137.7 | (1.4) | 136.3 |
2022 | 2021 | |||||
| Total | Total | |||||
| Fair | Amortised | carrying | Fair | Amortised | carrying | |
| value | cost | value | value | cost | value | |
| £m | £m | £m | £m | £m | £m | |
| Trade and other receivables | – | 63.0 | 63.0 | – | 169.9 | 169.9 |
Cash and cash equivalents | – | 421.4 | 421.4 | – | 136.3 | 136.3 |
Interest bearing loans and borrowings | – | (293.0) | (293.0) | – | (313.3) | (313.3) |
Lease liabilities | – | (22.9) | (22.9) | – | (57.7) | (57.7) |
Trade and other payables | – | (82.0) | (82.0) | – | (167.7) | (167.7) |
| Level 2 of fair value hierarchy | ||||||
| Derivative assets | 8.5 | – | 8.5 | 1.2 | – | 1.2 |
| Derivative liabilities | (1.3) | – | (1.3) | (0.1) | – | (0.1) |
| Level 3 of fair value hierarchy | ||||||
Trade receivables subject to factoring | – | – | – | 4.0 | – | 4.0 |
| Other financial assets | 11.6 | – | 11.6 | – | – | – |
| Other non-current financial | ||||||
| liabilities | (2.4) | – | (2.4) | (5.6) | – | (5.6) |
| Other current financial liabilities | (24.1) | – | (24.1) | – | – | – |
Total | (7.7) | 86.5 | 78.8 | (0.5) | (232.5) | (233.0) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
176
continued
19. Financial risk management
ccontinued
| 2022 | 2021 | |
| Total Group (including the result from discontinued operations) | £m | £m |
Net (funding surplus)/debt | (113.8) | 234.7 |
Operating profit before intangible amortisation and adjusting items | 77.2 | 82.2 |
Plus depreciation and other amounts written-off property, plant and equipment, lease right-of-use assets, and amortisation of non-acquired | ||
| intangible assets | 42.3 | 51.2 |
Plus share option expense | 2.6 | 0.8 |
EBITDA | 122.1 | 134.2 |
Net (funding surplus)/debt-to-EBITDA ratio | (0.9) | 1.7 |
| Net (funding surplus)/debt-to-EBITDA ratio excluding the impact of IFRS | ||
16 | (1.3) | 1.5 |
| 2022 | 2021 | |
| £m | £m | |
| Issued, authorised and fully paid ordinary shares | ||
of 25p (2021: 25p) each Number of ordinary shares in issue | 75.6 | 75.6 |
Beginning of year | 302,590,708 | 302,590,708 |
End of year | 302,590,708 | 302,590,708 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
177
| 1 January | Business | Business | Lease | Exchange | Non-cash | 31 December | 1 January | Business | Lease | Exchange | Non-cash | 31 December | |||
| 2022 | Cash flow | disposals | acquisitions | additions | movements | movements | 2022 | 2021 | Cash flow | combinations | additions | movements | movements | 2021 | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
Cash at bank and in hand | 123.9 | (115.7) | 434.9 | (27.9) | – | 6.2 | – | 421.4 | 121.5 | 4.2 | – | – | (1.8) | – | 123.9 |
Short-term deposits and investments | 12.4 | 5.7 | (18.0) | – | – | (0.1) | – | – | 14.3 | (1.7) | – | – | (0.2) | – | 12.4 |
Cash and cash equivalents in the statement of cash flows | 136.3 | (110.0) | 416.9 | (27.9) | – | 6.1 | – | 421.4 | 135.8 | 2.5 | – | – | (2.0) | – | 136.3 |
| Derivative financial instruments | |||||||||||||||
| hedging private placement loans | – | (6.5) | – | – | – | 13.4 | 1.4 | 8.3 | – | – | – | – | – | – | – |
Debt due within one year | – | – | – | – | – | (1.2) | (206.8) | (208.0) | |||||||
Debt due after one year | (313.3) | 59.2 | – | – | – | (31.2) | 200.3 | (85.0) | (285.2) | (24.5) | – | – | (2.5) | (1.1) | (313.3) |
| Lease liabilities due within | |||||||||||||||
one year | (11.6) | 14.3 | 7.5 | – | (2.9) | (0.9) | (11.3) | (4.9) | (11.9) | 15.6 | (0.3) | (2.0) | 0.3 | (13.3) | (11.6) |
Lease liabilities due after one year | (46.1) | – | 30.1 | – | (7.4) | (3.3) | 8.7 | (18.0) | (49.1) | – | (1.7) | (8.0) | 1.2 | 11.5 | (46.1) |
| Debt from net financing | |||||||||||||||
activities | (371.0) | 67.0 | 37.6 | – | (10.3) | (23.2) | (7.7) | (307.6) | (346.2) | (8.9) | (2.0) | (10.0) | (1.0) | (2.9) | (371.0) |
Net (debt)/funding surplus | (234.7) | (43.0) | 454.5 | (27.9) | (10.3) | (17.1) | (7.7) | 113.8 | (210.4) | (6.4) | (2.0) | (10.0) | (3.0) | (2.9) | (234.7) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
178
| Provisional | |
| fair value | |
| £m | |
| Intangible assets | 8.8 |
Property, plant and equipment | 1.4 |
Inventories | 2.3 |
Trade and other receivables | 1.6 |
Corporation tax receivable | 0.4 |
Cash and cash equivalents | 3.5 |
Corporation tax payable | (0.4) |
Trade and other payables | (2.0) |
Deferred tax liabilities | (1.8) |
Net identifiable assets acquired | 13.8 |
| Goodwill | 20.2 |
Total consideration | 34.0 |
Cash consideration | 31.4 |
| Deferred consideration | 2.6 |
Total consideration | 34.0 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
179
2021 | ||||
– | ||||
Net assets disposed
The assets and liabilities of the disposed businesses were as follows:
| 2022 | |||
| Packaging | Filters | ||
| business | business | Total | |
| £m | £m | £m | |
Property, plant and equipment | 123.1 | 89.0 | 212.1 |
Lease right-of-use assets | 19.8 | 16.6 | 36.4 |
Intangible assets | 126.8 | 23.3 | 150.1 |
Long-term receivables | 1.9 | 1.7 | 3.6 |
Deferred tax assets | 7.7 | 1.4 | 9.1 |
Income tax receivable | 0.3 | 0.1 | 0.4 |
Inventories | 47.0 | 56.6 | 103.6 |
| Trade and other receivables | 93.6 | 66.7 | 160.3 |
Cash and cash equivalents | 11.8 | 33.9 | 45.7 |
Total assets | 432.0 | 289.3 | 721.3 |
Trade and other payables | 80.1 | 71.1 | 151.2 |
Lease liabilities due less than one year | 4.3 | 3.2 | 7.5 |
Lease liabilities due greater than one year | 15.5 | 14.6 | 30.1 |
Retirement benefit obligations | 0.6 | 4.2 | 4.8 |
Provisions | 2.3 | 0.2 | 2.5 |
Deferred tax liabilities | 26.5 | 10.9 | 37.4 |
Income tax payable | 2.1 | 5.0 | 7.1 |
Total liabilities | 131.4 | 109.2 | 240.6 |
Net assets disposed | 300.6 | 180.1 | 480.7 |
1
Notes:
1. Trade and other receivables are stated after provisions of £2.3m.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
180
24. Discontinued operations
ccontinued
2021 | ||||||
2022 | 2021 | |||
| Packaging | Filters | |||
| business | business | Total | Total | |
| £m | £m | £m | £m | |
Cash consideration | 299.5 | 163.1 | 462.6 | – |
Cash and cash equivalents disposed | (11.8) | (33.9) | (45.7) | – |
| Proceeds from disposal of businesses net of cash | ||||
disposed | 287.7 | 129.2 | 416.9 | – |
Net cash inflow from operating activities | 24.0 | 35.7 | 59.7 | 66.1 |
Net cash inflow from investing activities | 255.8 | 103.0 | 358.8 | (19.7) |
Net cash outflow from financing activities | (4.6) | (5.7) | (10.3) | (7.5) |
Increase in cash and cash equivalents | 275.2 | 133.0 | 408.2 | 38.9 |
25. Dividends
Per share | Total | |||
| 2022 | 2021 | 2022 | 2021 | |
| p | p | £m | £m | |
2021 interim: paid 29 October 2021 | – | 2.0 | – | 6.0 |
2021 proposed final: paid 1 June 2022 | – | 4.0 | – | 12.1 |
2022 interim: paid 28 October 2022 | 2.3 | – | 6.9 | – |
| 2022 special dividend: payable | ||||
27 April 2023 | 29.8 | – | 90.0 | – |
2022 proposed final: payable 30 June 2023 | – | – |
As announced by the Group on 2 February 2023, Essentra intends to pay a special dividend of £90m
on 27 April 2023 to shareholders on the register of the Company on 21 March 2023. The ordinary shares
were quoted ex-dividend on 20 March 2023.
Subject to approval at the Annual General Meeting on 3 May 2023, the proposed final dividend for
the year ended 31 December 2022 will be paid on 30 June 2023 to shareholders on the register of the
Company on 19 May 2023. The ordinary shares will be quoted ex-dividend on 18 May 2023.
26. Related parties
Other than the compensation of key management (note 5), Essentra has not entered any material
transactions with related parties since the last Annual Report.
ITC Essentra Limited was 50% owned by the Group until its disposal on 3 December 2022. Until that
date, its results were fully consolidated within the Group’s results as it was deemed Essentra had
control up to the date of disposal by virtue of its having control of the board. At the date of disposal,
the entity had gross assets of £34.0m (31 December 2021: £27.6m) and gross liabilities of £14.6m
(31 December 2021: £9.9m). Operating profit for the period to disposal was £6.9m (2021: £5.0m) and
cash decreased by £0.5m (2021: £0.8m increase).
China Tobacco Essentra (Xiamen) Filters Co., Ltd was 49% owned by the Group until its disposal on
3 December 2022. Until that date, its results were fully consolidated within the Group’s results as it
was deemed Essentra had control up to the date of disposal by virtue of its having control of the
board. As the date of disposal, the entity had gross assets of £30.0m (31 December 2021: £20.3m)
and gross liabilities of £12.7m (31 December 2021: £5.4m). Operating profit for the period to disposal
was £2.4m (2021: £0.8m loss) and cash decreased by £0.9m (2021: £0.2m).
For the Group’s basis of consolidation policy, see note b within Accounting Policies.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
181
| 2022 | 2021 | ||
| Continuing operations | £m | £m | |
Operating (loss)/profit | Reported statutory measure | (11.3) | 7.7 |
| Amortisation of acquired | |||
intangible assets | 10.4 | 8.6 | |
Adjusting items | Note 2 | 26.0 | 10.1 |
Adjusted operating profit | Adjusted performance measure | 25.1 | 26.4 |
Finance income | Note 3 | 7.1 | 2.1 |
Finance expenses | Note 3 | (24.9) | (16.9) |
Adjusted profit before income tax | Adjusted performance measure | 7.3 | 11.6 |
Tax on adjusted profit | (1.6) | (0.4) | |
Adjusted net income | Adjusted performance measure | 5.7 | 11.2 |
Reconciliation of reported statutory measures to the Group’s segment analysis
2022 | 2021 | ||||||||||
| Central | Continuing | Discontinued | Central | Continuing | Discontinued | ||||||
| Components | Services | Operations | Operations | Total | Components | Services | Operations | Operations | Total | ||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||
Operating (loss)/profit | Reported statutory measure | 40.9 | (52.2) | (11.3) | (137.1) | (148.4) | 47.9 | (40.2) | 7.7 | 42.0 | 49.7 |
Adjusting items | Note 2 | 12.4 | 13.6 | 26.0 | – | 26.0 | 0.4 | 9.7 | 10.1 | – | 10.1 |
| Amortisation and impairment of acquired | |||||||||||
intangible assets | 10.4 | – | 10.4 | 189.2 | 199.6 | 8.6 | – | 8.6 | 13.8 | 22.4 | |
Adjusted operating profit | Adjusted performance measure | 63.7 | (38.6) | 25.1 | 52.1 | 77.2 | 56.9 | (30.5) | 26.4 | 55.8 | 82.2 |
Notes:
1. The Group disposed of the Packaging business and the Filters business during the year ended 31 December 2022. The results of these operations have been re-presented above as discontinued operations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
182
27. Adjusted performance measures
ccontinued
| 2022 | 2021 | ||
| £m | £m | ||
Cash and cash equivalents | Reported statutory measure | 421.4 | 136.3 |
Debt liabilities | Note 14 | (293.0) | (313.3) |
Lease liabilities | Note 19 | (22.9) | (57.7) |
| Derivative financial instruments hedging | |||
placement loans | Note 15 | 8.3 | – |
| Adjusted performance | |||
| Net funding surplus/(debt) | measure | 113.8 | (234.7) |
| 2022 | 2021 | ||
| £m | £m | ||
Net cash inflow from operating activities | Reported statutory measure | 64.0 | 63.2 |
Adjusted for: net cash outflow from discontinued operations | Note 24 | (59.7) | (66.1) |
Operating net cash inflow/(outflow) from continuing activities | 4.3 | (2.9) | |
Cash outflow from adjusting items | 23.7 | 23.9 | |
Tax paid on continuing operations | 5.0 | 4.7 | |
Adjustments for pension contributions | – | 4.8 | |
Net capex expenditure on continuing operations | (12.8) | (12.7) | |
| Adjusted operating cash flow from | Adjusted performance | ||
| continuing operations | measure | 20.2 | 17.8 |
| 2022 | 2021 | ||
| £m | £m | ||
| Adjusted operating profit from continuing | Adjusted performance | ||
| operations | measure | 25.1 | 26.4 |
Depreciation of property, plant and equipment | Note 2 | 13.9 | 12.3 |
Lease right-of-use asset depreciation | Note 2 | 5.6 | 5.4 |
Amortisation of non-acquired intangible assets | Note 2 | 2.7 | 2.6 |
Share option expense | Note 5 | 1.4 | (0.7) |
| Other non-cash items | (1.5) | (0.5) | |
Working capital movements | (14.2) | (15.0) | |
Net capital expenditure | (12.8) | (12.7) | |
| Adjusted operating cash inflow | Adjusted performance | ||
| from continuing operations | measure | 20.2 | 17.8 |
| Reconciliation of cash flows | |||
| from adjusting items: | |||
Adjusting items | Note 2 | 26.0 | 10.1 |
Non-cash credit/(charge) in adjusting items | (2.0) | 6.6 | |
| Cash outflow on adjusting items | |||
recognised in the year | 24.0 | 16.7 | |
| Utilisation of prior year and acquired | |||
accruals and provisions | Note 17 | (0.3) | 7.2 |
| Adjusted performance | |||
| Cash outflow from adjusting items | measure | 23.7 | 23.9 |
1
Notes:
1. Other non-cash items comprise impairment of fixed assets £0.5m (2021: £0.2m), inflow from hedging activities and other
movements £1.1m (2021: £0.5m outflow), movement in provisions £0.1m (2021: less £0.2m) and less movement due to hyperinflation
£3.2m (2021: £nil).
28. Post balance sheet events
As a consequence of the business disposals, the Group was required to repay $247m of its US Private
Placement Loan Notes, classified as current liabilities at the balance sheet date, which were repaid in
full during January 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
183
Essentra plc Company Balance Sheet
At 31 December 2022
Note
2022
£m
2021
£m
Fixed assets
Investments in subsidiary undertakings 3,12 469.7 466.6
Current assets
Debtors 4 515.0 498.3
Current liabilities
Creditors: amounts falling due within one year 5 (211.8) (3.5)
Net current assets 303.2 494.8
Non-current liabilities
Creditors: amounts falling due after more than one year 6,7 (85.0) (257.7)
Net assets 687.9 703.7
Capital and reserves
Issued share capital 8 75.6 75.6
Merger reserve 9 385.2 385.2
Capital redemption reserve 0.1 0.1
Profit and loss account
1
9 227.0 242.8
Total shareholders’ funds 687.9 703.7
Note:
1. The profit for the financial year ended 31 December 2022 included in the financial statements of the Company is £0.1m (2021: £0.2m).
The Company’s financial statements on pages 184 to 192 were approved by the Board of Directors on 28 March 2023 and were signed on its behalf by:
Scott Fawcett Jack Clarke
Chief Executive Chief Financial Officer
ESSENTRA PLC COMPANY BALANCE SHEET
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
184
Essentra plc Company Statement of Changes in Equity
For the year ended 31 December 2022
Profit and loss account
Issued
share
capital
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Own
shares
£m
Total
equity
£m
1 January 2022 75.6 385.2 0.1 250.1 (7.3) 703.7
Profit for year – – – 0.1 – 0.1
Total comprehensive income for
theyear – – – 0.1 – 0.1
Shares issued to satisfy employee
share option exercises – – – (1.8) 1.8 –
Share-based payments – – – 3.1 – 3.1
Dividends paid – – – (19.0) – (19.0)
31 December 2022 75.6 385.2 0.1 232.5 (5.5) 687.9
Profit and loss account
Issued
share
capital
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Own
shares
£m
Total
equity
£m
1 January 2021 75.6 385.2 0.1 266.8 (9.0) 718.7
Profit for year – – – 0.2 – 0.2
Total comprehensive income for
theyear – – – 0.2 – 0.2
Shares issued to satisfy employee
share
option exercises – – – (1.7) 1.7 –
Share-based payments – – – 0.8 – 0.8
Dividends paid – – – (16.0) – (16.0)
31 December 2021 75.6 385.2 0.1 250.1 (7.3) 703.7
ESSENTRA PLC COMPANY STATEMENT OF CHANGES IN EQUITY
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
185
Essentra plc Company Notes
1. Basis of preparation and principal accounting policies
(a) Basis of preparation
Essentra plc (the ‘Company’) is a public limited company, limited by shares, that is incorporated
anddomiciled in England and Wales (registration no 05444653). The address of its registered
officeisLangford Locks, Kidlington, Oxford, OX5 1HX, United Kingdom. The Company’s ordinary
shares arepublicly traded on the London Stock Exchange and it is not under the control of any
singleshareholder.
These financial statements were prepared using the historical cost convention in accordance with
Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and the Companies Act
2006. The Company financial statements have been prepared on a going concern basis for the
reasons set out on page 143 to the consolidated financial statements.
The profit and loss account of the Company is not presented as permitted by Section 408 of the
Companies Act 2006.
In the preparation of these financial statements, the Company has applied the following disclosure
exemptions available under FRS 101, which the Company intends to maintain in future years:
• the requirements of paragraph 45(b) and 46-52 of IFRS 2 Share-Based Payments;
• the requirements of paragraphs 62, B64(b), B64(e), B64(g), B64(h), B64(j) to B64(m),
b64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66 and B67 of IFRS 3 Business Combinations;
• the requirement of IFRS 7 Financial Instruments: Disclosures;
• the requirement of paragraphs 91-99 of IFRS 13 Fair Value Measurement;
• the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present
comparative information in respect of paragraph 79(a)(iv) of IAS 1, paragraph 73(e) of IAS 16
Property, Plant and Equipment and paragraph 118(e) of IAS 38 Intangible Assets;
• the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D,
111and134-136 of IAS 1 Presentation of Financial Statements;
• the requirements of IAS 7 Statement of Cash Flows;
• the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors;
• the requirements of paragraph 17 of IAS 24 Related Party Disclosures;
• the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered
into between two or more members of a group, provided that any subsidiary which is a party to
the transaction is wholly owned by such a member; and
• the requirements of paragraphs 134(d)-134(f) and 135(c)-135(e) of IAS 36
Impairment of Assets.
The results of the Company are included in the Group’s consolidated financial statements.
Whererequired, equivalent disclosures are given in the consolidated financial statements.
There are no new and mandatory effective standards in the year that would have a material impact
on the financial statements.
No critical accounting judgements or estimates were required in the year.
(b) Principal accounting policies
The following principal accounting policies have been consistently applied.
Investment in subsidiary undertaking
Investment in subsidiary undertaking is held at cost less any provision for impairment. The Company
assesses at each balance sheet date whether the investment in its subsidiary has been impaired.
Share-based payments
The fair value of share options is measured at grant date. It is recognised as an addition to the
costofinvestment in the subsidiary in which the relevant employees work over the expected period
between grant and vesting date of the options, with a corresponding adjustment to reserves.
Detaileddisclosures for the share-based payment arrangements of the Company are provided
innote18 to the consolidated financial statements.
Own shares
The shares held in the Essentra Employee Benefit Trust for the purpose of fulfilling obligations
inrespect of share incentive plans are treated as belonging to the Company and are deducted
fromitsretained earnings. The cost of shares held directly (treasury shares) is also deducted from
retained earnings.
Dividends
Dividend distributions to the Company’s shareholders are recognised as a liability in the period
inwhich they are approved by the shareholders of the Company (final dividend) or paid
(interimdividend).
Dividend income is recognised when the right to receive payment is established.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated using
therate of exchange ruling at the balance sheet date and the gains or losses on translation are
included in the profit and loss account. Exchange differences arising from movements in spot rates
are included in the profit and loss account as exchange gains or losses, while those arising from the
interest differential elements of forward currency contracts are included in external interest income
orexpense.
Financial assets
Non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market are included in current assets, except for those with maturities greater than 12 months after
the end of the reporting period which are classified as non-current assets. The Company’s financial
assets at amortised cost comprise receivables in the balance sheet.
Receivables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method, less provision for impairment. Interest income is recognised accordingly
using the effective interest method.
ESSENTRA PLC COMPANY NOTES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
186
1. Basis of preparation and principal accounting policies
continued
Financial liabilities
Interest bearing loans and borrowings and other financial liabilities (excluding derivatives) are initially
recognised at fair value net of transaction costs incurred. They are subsequently held at amortised
cost using the effective interest method. Any difference between the proceeds, net of transaction
costs, and the settlement or redemption of borrowings is recognised in profit or loss over the term
ofthe borrowings.
The Company holds financial instruments which hedge the net investments in the foreign operations
of its subsidiary undertakings. Gains and losses on these instruments are recognised in the profit and
loss account of the Company.
Taxation
Income tax in the profit and loss account comprises current and deferred tax. Income tax is
recognised in the profit and loss account except to the extent that it relates to items recognised in
equity or other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year using the applicable tax
rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable
in prior years.
Deferred tax is provided, using the balance sheet liability method, on temporary differences arising
between the tax bases and the carrying amounts of assets and liabilities in the financial statements.
The following temporary differences are not provided for: goodwill not deductible for tax purposes,
theinitial recognition of assets or liabilities that affect neither accounting nor taxable profit or loss,
and differences relating to investments in subsidiaries to the extent that they will not reverse in the
foreseeable future. Deferred tax is determined using tax rates that are expected to apply when the
related deferred tax asset or liability is settled, using the applicable tax rates enacted or substantively
enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will
be available against which the asset can be utilised. Deferred tax assets are reduced to the extent
that it is no longer probable that the related tax benefit will be realised.
2. Net operating charges
The auditors were paid £5,125 (2021: £5,125) for the statutory audit of the Company. Fees paid to the
Company’s auditors for services other than the statutory audit of the Company are disclosed in note 2
to the consolidated financial statements.
The Directors’ remuneration, which was paid by Essentra International Limited, is disclosed in the
Annual Report on Remuneration on pages 111 to 121. The only employees of the Company are the
seven Directors and Company Secretary.
ESSENTRA PLC COMPANY NOTES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
187
3. Investments in subsidiary undertakings
2022
£m
2021
£m
Beginning of year 466.6 465.8
Additions 3.1 0.8
End of year 469.7 466.6
For the year end management performed a value-in-use impairment assessment of its investments
insubsidiary undertakings using a discounted cash flow model.
The key assumptions in the cash flow model are revenue growth and operating margin for the Group.
Operating margin is primarily based upon the historical levels achieved, adjusted by targets set for
revenue expansion and cost control and reduction within The Plan period. The values assigned to these
assumptions represent management’s assessment of market condition and scope for cost and
profitability improvement, taking into account realisable synergies resulting from integration
activities. The annual revenue growth rate over the five year forecast period averages 6.6% with a
terminal growth rate of 2.4% from 2028 onwards. The average operating profit margin over the
fiveyear forecast period is assumed to improve by 120 bps.
The estimated cash flows are discounted using a post-tax discount rate based upon Essentra’s
estimated post-tax weighted average cost of capital of 10.8%. The specific pre-tax discount rates
applied for the Group are 11.0%.
No impairment in the carrying amount of investments has been identified.
4. Debtors
2022
£m
2021
£m
Amounts receivable from subsidiary undertakings 515.0 498.3
515.0 498.3
Receivables due from group companies to the Company are interest free and repayable on demand.
Receivables from group companies have been assessed for impairment in accordance with IFRS 9.
Asall balances are repayable on demand, and the Company expects to be able to recover the
outstanding intercompany balances if demanded, no provision has been recognised in the year
ended31 December 2022 (2021: £nil).
5. Creditors: amounts falling due within one year
2022
£m
2021
£m
Accruals and deferred income 3.8 3.5
US Private Placement Loan Notes
1
208.0 –
211.8 3.5
Note:
1. Refer to note 14 of the consolidated financial statements for details of the US Private Placement Loan Notes.
6. Creditors: amounts falling due after more than one year
2022
£m
2021
£m
US Private Placement Loan Notes
1
85.0 257.7
85.0 257.7
Note:
1. Refer to note 14 of the consolidated financial statements for details of the US Private Placement Loan Notes.
7. Maturity of financial liabilities
2022
£m
2021
£m
Debt analysed as falling due:
Within one year 208.0 –
Between one and five years – 14.8
More than five years 85.4 244.4
Less prepaid facility fees (0.4) (1.5)
293.0 257.7
8. Issued share capital
2022
£m
2021
£m
Issued, authorised and fully paid ordinary shares of 25p (2021: 25p) each 75.6 75.6
Number of ordinary shares in issue
Beginning of year 302,590,708 302,590,708
End of year 302,590,708 302,590,708
At 31 December 2022, the Company held 897,944 (2021: 905,157) of its own shares in treasury.
ESSENTRA PLC COMPANY NOTES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
188
9. Reserves
The merger reserve represents the excess of net proceeds received over the nominal value of shares
Issued subject to the provisions of s612 of the Companies Act 2006.
As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Company
has not been separately presented in these Financial Statements. The profit attributable to equity
holders included in the financial statements of the Company is £0.1m (2021: £0.2m).
Included in the profit and loss account are accumulated share-based payments of £53.0m (2021:
£49.9m) which are credited directly to reserves. Full details of these share-based payments are set out
in the Annual Report on Remuneration on pages 111 to 121.
10. Dividends
Per share Total
2022
p
2021
p
2022
£m
2021
£m
2021 interim: paid 29 October 2021 – 2.0 – 6.0
2021 proposed final: paid 1 June 2022 – 4.0 – 12.1
2022 interim: paid 28 October 2022 2.3 – 6.9 –
2022 special dividend: payable
27April2023 29.8 – 90.0 –
2022 proposed final: payable 30 June 2023 1.0 – 3.0 –
11. Post balance sheet events
As a consequence of the business disposals, the Group was required to repay $247m of its US Private
Placement Loan Notes, classified as current liabilities at the balance sheet date, which were repaid in
full during January 2023. At the same time amounts due from subsidiary undertakings of £515m (note
4) were reduced by $247m.
12. Subsidiaries exempt from audit
The following UK subsidiaries will take advantage of the exemption from the requirements under
section 479A of the Companies Act 2006 relating to the audit of financial statements for the year
ended 31December 2022. Essentra plc has given a parental guarantee in respect of the debts and
liabilities of these subsidiaries under section 479C of the Companies Act 2006.
Company name Company name
Essentra Components Limited Essentra (Northampton) Ltd
ESNT Holdings (No.1) Limited Essentra Services Limited
ESNT Holdings (No.2) Limited Wixroyd Holdings Limited
ESNT International Limited Wixroyd Group Limited
Essentra International Limited Automation Components Limited
Essentra Overseas Limited Coburg Components Ltd
Essentra Pension Trustees Limited Teknipart Limited
Essentra Finance Limited
13. Subsidiary undertakings
The Group’s subsidiaries (including dormant entities) at 31 December 2022, are set out below and are
100% owned directly or indirectly by the Group unless otherwise indicated. Essentra International
Limited is the only direct subsidiary of Essentra plc.
The principal country in which each company operates is the country of incorporation. All subsidiaries
have the same 31 December year end date as the Company.
On 2 August 2021, Essentra acquired the trade and assets of Jiangxi Hengzhu Electrical Cabinet
LockCo., Ltd (“Hengzhu”), an access hardware manufacturer and distributor in China via an newly
incorporated entity, Essentra Hengzhu Precision Components Co Ltd, which acquired 100% of the
business for ¥103m (approximately £11.8m). Essentra had subscribed and paid up 73% of the issued
share capital of Essentra Hengzhu Precision Components Co Ltd with the remaining 27% stake
subject to put and call options exercisable 6 months after issuance of the subsidiary’s audit report
for2022. The remaining 27% stake does not confer any shareholder right (including, entitlement to
dividends and right to transfer to other parties) to the vendor shareholder. No non-controlling
interest is recognised in respect of this acquisition.
ESSENTRA PLC COMPANY NOTES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
189
13. Subsidiary undertakings
ccontinued
Company name Country of incorporation Principal activity Address of registered office
Essentra Components Limited UK Manufacturing Langford Locks, Kidlington, Oxfordshire, OX5 1HX
ESNT Holdings (No.1) Limited UK Holding Company Langford Locks, Kidlington, Oxfordshire, OX5 1HX
ESNT Holdings (No.2) Limited UK Holding Company Langford Locks, Kidlington, Oxfordshire, OX5 1HX
ESNT International Limited UK Holding Company Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Essentra International Limited UK Holding Company Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Essentra Overseas Limited UK Holding Company Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Essentra Pension Trustees Limited UK Pension Trustee Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Essentra Finance Limited UK Treasury activities Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Essentra (Northampton) Ltd UK Non-trading Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Essentra Services Limited UK Non-trading Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Filtrona Limited UK Dissolved 17
January 2023
Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Alliance Plastics Limited UK Dormant Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Cigarette Components Limited UK Dormant Langford Locks, Kidlington, Oxfordshire, OX5 1HX
ESNT Components Limited UK Dormant Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Filtrona Custom Moulding Limited UK Dormant Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Stera Tape Limited UK Dormant Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Wixroyd Holdings Limited UK Trading Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Wixroyd Group Limited UK Trading Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Automation Components Limited UK Trading Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Coburg Components Ltd UK Trading Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Teknipart Limited UK Trading Langford Locks, Kidlington, Oxfordshire, OX5 1HX
Essentra Plastics LLC US Manufacturing Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
Innovative Components, Inc. US Manufacturing 1315 W Lawrence Avenue, Springfield, IL 62704, United States
Micro Plastics, Inc. US Manufacturing Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
Essentra Components Inc US Distribution Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
Essentra Components Japan Inc US Distribution Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
ESNT Holdings Inc US Holding Company Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
ESNT (Porous) Holdings Inc. US Holding Company Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
ESNT US Holdings Corp US Holding Company Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
Essentra Corporation US Holding Company Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
Essentra Holdings Corp. (DE) US Holding Company Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
US NewCo LLC US Holding Company Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
ESNT Components Co. US Non-trading Two Westbrook Corporate Center, Suite 200, Westchester IL 60154, United States
Essentra Components BV Netherlands Distribution Dragonder 3, 5554 GM Valkenswaard , Netherlands
Blue NewCo 1 B.V. Netherlands Holding Company Dragonder 3, 5554 GM Valkenswaard , Netherlands
ESSENTRA PLC COMPANY NOTES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
190
continued
13. Subsidiary undertakings
ccontinued
Company name Country of incorporation Principal activity Address of registered office
Blue NewCo 2 B.V. Netherlands Holding Company Dragonder 3, 5554 GM Valkenswaard , Netherlands
Blue NewCo 3 B.V. Netherlands Holding Company Dragonder 3, 5554 GM Valkenswaard , Netherlands
Blue NewCo 4 B.V. Netherlands Holding Company Dragonder 3, 5554 GM Valkenswaard , Netherlands
ESNT Holdings Cooperatie 1 W.A. Netherlands Holding Company Dragonder 3, 5554 GM Valkenswaard , Netherlands
Essentra BV Netherlands Holding Company Dragonder 3, 5554 GM Valkenswaard , Netherlands
Essentra International BV / LLC Netherlands Holding Company Dragonder 3, 5554 GM Valkenswaard , Netherlands
ESNT Holdings Cooperatie 2 W.A. Netherlands Non-trading Dragonder 3, 5554 GM Valkenswaard , Netherlands
Essentra Components GmbH Austria Holding Company Schubertring 6, 1010 Wien, Austria
Essentra Pty Ltd Australia Treasury activities 32 Clyde Street, Rydalmere NSW 2116, Australia
Essentra Industria E Commercio LTDA Brazil Manufacturing Room 7, No 1000 Avenida Emilio Marconato, Centro Comercial, Chacara Primavera, Jaguariuna,
Sao Paulo, 13.916-074, Brazil
Essentra Limited Canada Manufacturing 2538 Spears Road, Oakville ON L6L 5K9, Canada
Essentra Hengzhu Precision Components Co., Ltd China Manufacturing No. 12 Jingfa Avenue, Yichun, Economic and Technological, Development Zone, Yichun City,
Jiangxi Province, China
Essentra Precision Machinery Components (Ningbo) Co. Ltd. China Manufacturing 99 Huanghai Road, Beilun District, Ningbo, Zhejiang Province, China
Essentra Trading (Ningbo) Co. Ltd China Distribution No.99 Huanghai Road, Beilum District, Ningbo, Zhejiang Province, China
Essentra Components International Trading (Shanghai) Co Ltd China Holding Company Room 347, Xinmaolou Building, 2 Taizhong South Road, China (Shanghai) Pilot Free Trade Zone,
Pudong New Area, Shanghai, 200120, China
Essentra Plastic Trading (Ningbo) Co. Ltd China Holding Company 99 Huanghai Road, Beilun District, Ningbo, Zhejiang , China
Componentes Innovadores Limitada Costa Rica Manufacturing Cartago-Cartago Parque Industrial Y Zona Franca Zeta, Cartago, Edificios, 48C3 48C4, Costa
Rica
Essentra Components sro Czech Republic Holding Company Vídenská 101/119, Dolní Heršpice, Brno, 619 00, Czech Republic
Essentra Components SAS France Non-trading 280 rue de la Belle Étoile, 95700 , Roissy , France
Essentra International Gmbh Germany Holding Company Filmstr. 5, 06766, Bitterfeld-Wolfen, Germany
Essentra Components GmbH Germany Manufacturing Herrenpfad Süd 36, 41334, Nettetal, Germany
Essentra Components Limited – Branch Germany Germany Distribution Montel-Allee 3, 41334 Nettetal, Germany
Essentra (Hong Kong) Limited Hong Kong Non-trading 36/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong
Essentra Components Kft Hungary Holding Company 2040 Budaors Gyar u. 2., Hungary
Essentra (India) Private Limited India Manufacturing Survey No. 46, Jala Hobli, Dodajala Village, Bangalore North – 562 157, Karnataka, India
Essentra Components (India) Private Limited India Trading No 3, Main Rd, Phase 1 Yeshwanthpur Hobli, Bengaluru, Bangalore, Karnataka, 560058, India
ESNT Holdings SpA Italy Holding Company Podenzano (PC), Loc.I Casoni Fraz. Gargia, Via Copernico no. 54, 29027, Italy
ESSENTRA PLC COMPANY NOTES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
191
13. Subsidiary undertakings
ccontinued
Company name Country of incorporation Principal activity Address of registered office
Essentra Components srl Italy Non-trading Via Massarenti, 1 Loc, 1 Maggio, 40013, Castel Maggiore, Italy
Essentra Filter Products Spa Italy Non-trading Studio De Vivo SCIS, 84123 Salerno, Corso, Garibaldi n. 143, Italy
Abric Encode Sdn Bhd Malaysia Manufacturing Unit 1110 Block A, Pusat Dagangan Phileo Damansara II, 15 Jalan 16/11 Off Jalan Damansara,
46350 Petaling Jaya, Selangor Darul Ehsan, Malaysia
Essentra Malaysia Sdn Bhd Malaysia Non-trading Unit 1110 Block A, Pusat Dagangan Phileo Damansara II, 15 Jalan 16/11 Off Jalan Damansara,
46350 Petaling Jaya, Selangor Darul Ehsan, Malaysia
Essentra Asia Sdn Bhd Malaysia Non-trading Unit D – 3A – 10, 4th Floor, Greentown Square, Jalan Dato’ Seri Ahmed Said, 30450 Ipoh, Perak,
Malaysia
Essentra Components SDN BHD Malaysia Non-trading D5-5-6, Solaris Dutamas 1 , Jalan Dutamas 1, 50480, Kuala Lumpur, Malaysia
Essentra Components S.A. de C.V. de R.L. Mexico Manufacturing Carretera a Huinala #510, Apodaca, NL 66640, Mexico
Essentra Sp. z o.o. Poland Non-trading 104a, Maratońska, Łódź, 04-007, Poland
Essentra Components SRL Romania Distribution Burcuresti Sectorul 1, Strada POLANA, Nr. 68-72, Etaj 2 , Biroul NR.5 , Romania
Essentra Components Products Pte Singapore Non-trading 36 Robinson Road, #17-01 City House, Singapore, 068877, Singapore
Essentra Components sro Slovakia Distribution Gogol’ova 18, 852 02 Bratislava, Slovakia
Essentra Components (Pty) Ltd South Africa Distribution Unit 2. Sage Corporate Park, Corner Suni and Tsessebe Streets, South Midrand, Gauteng, 1683,
South Africa
ESNT Holdings S.A.U. Spain Holding Company Carrer dels Fusters 18-20, Poligono Industrial Can Cuyas, Montcada I Reixac, 08110, Barcelona,
Spain
Essentra Components S.L.U Spain Distribution Calle Roure Gros 1-11, Poligono Industrial Mas d’En Cisa, 08181, Spain
Essentra Components AB Sweden Manufacturing Askims Verkstadsvag 13Sweden, 436 34 Askim, Vastra Gotalands Ian, Goteborg kommun,
Sweden
Essentra Components AB – Finland Branch Finland Manufacturing 2A, Tallbergsgatan, Helsinki 00180, Finland
Essentra Components Sarl Switzerland Non-trading Rue du Grand-Chene 2, c/o Pierre- Alain Killias, Lexartis Avocats, 1003 Lausanne, Switzerland
Essentra Eastern Limited Thailand Non-trading 111/5 Moo 2 Tambon Makamku, Amphur Nikom Pattana, Rayong Province, Thailand
Ban Lamai Limited Thailand Holding Company o. 111/5, Moo 2, Makham Khu Sub-district, Nikhom Phatthana District, Rayong Province, Thailand
Essentra Components (Thailand) Limited Thailand Trading 111/5 Moo 2 Tambon Makamku, Amphur Nikom Pattana, Rayong Province, Thailand
Apex Filters Company Limited Thailand Non-trading 31/2 Rama 3 Road, Chongnonsee, Yannawa, Bangkok 10120, Thailand
Mesan Kilit A.S. Turkey Distribution Ilitelli Organzie Sanayi , , Bolgesi Metal Is San,Sit.7.Blok No24 Basaksehir, Istanbul, Turkey
Mesan Kilit Anonim Şirketi Maslak Şubesi – Digital Hub Branch Turkey Trading Maslak Mahallesi, Bilim Sokak, Sun Plaza Blok No: 5A, İç Kapı No.41 Sarıyer, Istanbul, Turkey
Mesan Kilit Anonim Şirketi Silivri Şubesi – Branch Turkey Trading at Mimar Sinan Mah. Uluğbey Cad. Ofis İşyeri, Blok No: 5, Silivri, Istanbul, Turkey
ESSENTRA PLC COMPANY NOTES
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
192
continued
Independent auditors’ report to the members of Essentra plc
Report on the audit of the financial statements
Opinion
In our opinion:
• Essentra plc’s group financial statements and company financial statements (the “financial
statements”) give a true and fair view of the state of the group’s and of the company’s affairs as
at 31 December 2022 and of the group’s loss and the group’s cash flows for the year then ended;
• the group financial statements have been properly prepared in accordance with UK-adopted
international accounting standards as applied in accordance with the provisions of the Companies
Act 2006;
• the company financial statements have been properly prepared in accordance with
UnitedKingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards,including FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the
Consolidated Balance Sheet and Essentra plc Company Balance Sheet as at 31 December 2022; the
Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated
Statement ofCash Flows, Consolidated Statement of Changes in Equity and Essentra plc Company
Statement of Changes in Equity for the year thenended; the Basis of Preparation and Principal
Accounting Policies, Critical Accounting Judgements and Estimates, and the notes to the
Consolidated Financial Statements and Essentra plc Company Notes.
Our opinion is consistent with our reporting to the Audit and Risk Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”)
and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’
responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as
applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s
Ethical Standard were not provided.
Other than those disclosed in note 2, we have provided no non-audit services to the company or its
controlled undertakings in the period under audit.
Our audit approach
Context
On 1 October 2022 the Group completed its sale of the Packaging business and on 3 December
theGroup completed the disposal of the Filters business. As part of our audit planning, we have
considered the impact of these transactions on our audit risk assessment including evaluating
management’s analysis of the impact of the disposals on the Group financial statements, the
presentation of continuing and discontinued operations, the process used by management
todeconsolidate the disposed entities and the calculation and disclosure of the losses and
cashflowsarising on the disposals. We have also developed our audit scope including local
component auditsofdisposed entities to ensure we had sufficient coverage of both continuing
anddiscontinuedoperations.
Overview
Audit scope
• Local PwC component teams engaged to perform full scope audit procedures over 20 reporting
units
• PwC Group audit team performed full scope audit procedures over a further 16 reporting units
• Specified audit procedures were performed by component auditors over certain balances,
including revenue, at a further 3 reporting units
• PwC Group audit team also performed audit procedures over specific balances within a further
11reporting units
• The audit of the company financial statements was undertaken by the PwC Group audit team
and included substantive procedures over all material balances and transactions
Key audit matters
• Presentation of discontinued operations (group)
• Presentation of adjusting items (group)
• Recoverability of the company’s investment in subsidiary undertakings (parent)
Materiality
• Overall group materiality: £3,500,000 (2021: £3,300,000) based on our professional judgement
having applied benchmark percentages to a number of profit measures and considering the
overall scale of the business.
• Overall company materiality: £6,879,000 (2021: £7,000,000) based on 1% of net assets.
• Performance materiality: £2,625,000 (2021: £2,500,000) (group) and £5,159,000 (2021:
£5,250,000) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most
significance in the audit of the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation
ofresources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Presentation of discontinued operations is a new key audit matter this year. Goodwill impairment in
the Packaging division, which was a key audit matter last year, is no longer included because of the
disposal of the Packaging division during the year. Otherwise, the key audit matters below are
consistent with last year.
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ESSENTRA PLC ANNUAL REPORT 2022
193
Key audit matter How our audit addressed the key audit matter
Presentation of discontinued operations
(group)
As disclosed in Note 24 of the financial
statements. On 1 October 2022 the Group
completed the sale of the Packaging business
and on 3 December 2022 the sale of the Filters
division was
completed.
The results of the Packaging and Filters
businesses have been classified as discontinued
operations as of 31 December 2022 and
comparative information in the Consolidated
income statement, Consolidated Statement of
Comprehensive Income and Conso
lidated
Statement of Cash Flows has been re-presented.
Discontinued operations recognised a post tax
loss of £
152.7 million for the year, including an
impairment charge of £181.6 million recognised
at 30 June 2022 related to the carrying value of
goodwill
allocated to the Packaging business
prior to its disposal and £1.1 million related to an
impairment charge for the disposal of the
Packaging business in India.
These transactions have a significant impact on
the consolidated financial statements. They have
triggered a number of non-routine complex
accounting considerations including the
separation of the underlying transactions and
ledgers between continuing and discontinued
operations, consideration of allocation of costs
to discontinued operations, includ
ing the
disposal calculation, and allocation of central
costs. For this reason the presentation of
discontinued operations is considered as a key
audit matter.
As part of our audit, we have critically assessed
the deconsolidation, the calculations of the
losses on disposal and the disclosure of the
discontinued operations in the consolidated
financial statements.
We inspected the Sale and Purchase agreements
and other relevant documents underlying the
disposals in order to understand key terms and
conditions and to assess the accounting impact.
Our audit work in this area has included
completeness testing of entities included in both
the continuing and discontinued consolidations
(to ensure each entity is correctly mapped),
detailed testing of intercompany eliminations
and journal entries, specifically in relation to the
implementation of step plans that were put in
place prior to the disposals taking place, in
addition to risk based testing of journals that
may be used to manipulate the results between
continuing and discontinued operations.
We have also performed detailed procedures to
confirm that the costs of disposal appropriately
relate to discontinued operations (and are
presented as such), and to ensure that the
calculation of net assets disposed of in each case
directly agree to the appropriate entity codes at
the date of disposal (as audited by our
component teams), and in the case of the
Packaging disposal, these figures also agree to
the completion accounts. For completeness we
have also tested adjusting items disclosed in the
financial statements (see below) to ensure that
they were correctly allocated to the continuing
rather than the discontinued business.
We have performed detailed testing of the costs
allocated to discontinued operations, including
testing bonus costs to payment and staff
communications (to ensure no future service
isrequired to receive the remaining bonuses)
andtesting a sample of onerous contracts back
to contract and management’s cost assessment.
Inaddition, we have tested a sample of
professional fees to ensure that the costs are
clearly associated with the disposal, and
therefore are correctly presented as
discontinuedoperations.
Key audit matter How our audit addressed the key audit matter
Presentation of discontinued operations
(group) – continued
We have assessed the impairment of goodwill
and other intangible assets recognised at the
point in the year that the Packaging division was
classified as Held for Sale by reference to the
agreed consideration included in the signed Sale
and Purchase Agreement and management
’s
estimation of the expected costs of disposal.
We
consider the impairment charge recognised
to be appropriate.
We have also considered the allocation of central
costs as part of the segmental report note in the
Annual Report, and challenged management
regar
ding the allocation of costs between the
continuing and discontinued businesses.
We consider that presentation of results as
those
from discontinued operations, is
adequately reflected and disclosed in the
financial statements.
INDEPENDENT AUDITORS’ REPORT
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ESSENTRA PLC ANNUAL REPORT 2022
194
Key audit matter How our audit addressed the key audit matter
Presentation of adjusting items (group)
The financial statements include certain items
which are disclosed as adjusting items. The
nature of the adjusting items is explained within
the Group accounting policies and
includes
transaction costs relating to acquisition and
disposals of businesses, acquisition integration
and restructuring costs, customisation and
configuration costs of significant Software as a
Service (
‘SaaS’) arrangements and other items
such as site closure costs and one-off projects.
In the year the most significant adjusting items
relate to customisation and configuration costs
of SaaS arrangements (£12.4 million), costs of
restructuring following disposal of businesses
(£10.4 million), defined bene
fit pension scheme
charges (£2.0 million) associated with people
who are no longer employed by the group,
acquisition integration and restructuring costs
(£0.5 million) and other costs, including site
closure costs (£0.7 million).
We focused on this area as there is limited
guidance relating to this presentational matter
within IFRS and judgement is required by the
directors in determining whether items classified
as adjusting are consistent with the Group
’s
accounting policy. Consistency in identifying
and
disclosing items as adjusting is important
tomaintain comparability of the results year
onyear.
See note 2 to the Group financial statements
for
details of adjusting items and the Critical
Accounting Judgements and Estimates section
for
management’s disclosure of this significant
judgement. Also see the Significant financial
judgements section in the Report of the Audit
and Risk Committee.
We assessed the appropriateness of the Group’s
accounting policy for the recognition of
adjusting items with reference to the applicable
accounting guidance. We challenged
management and considered whether the items
disclosed as adjusting items were consistent with
the accounting policy and the approach taken
inprior years, to determine that items were
appropriately classified. We did not identify any
material items which we would expect to be
reported in earnings before adjusting items.
Customisation and configuration costs relate
tocosts incurred in system development and
implementation written off. In 2021
management updated its accounting policy
toinclude the costs which no longer meet the
criteria for capitalisation as adjusting items.
In2022, the Group incurred additional costs of
£12.4 million in relation to SaaS related projects
that meet this criteria. We have selected a
sample of costs incurred in the current year and
obtained supporting documents. For the samples
selected we traced the expense to supporting
documents to ensure the accuracy of the cost
and inspected the nature of these projects
toensure they relate to SaaS arrangements.
Duetothe highly material nature of the costs
inthe current and prior year, we agree with
management’s conclusions and presentation
ofthis item as adjusting in the year for projects
of significant value.
Costs of restructuring following disposals of
businesses include employee redundancy costs
of
(£4.2 million), external professional costs
(£5.7million) and a charge for share option
acceleration (£0.5 million). For redundancy costs
and external professional costs, in addition to
the acquisition and integration related costs of
£0.5 million, we have performed sample testing
and verified those samples to payroll records and
redundancy consultation statements, supporting
invoices, agreements or other evidence.
Other costs of £0.7 million relate to site closure
and legal costs (£0.6 million) and net write down
of assets (£0.1 million). We have tested through
sampling and items have been traced to invoices
and other supporting documentation.
Key audit matter How our audit addressed the key audit matter
Presentation of adjusting items (group) –
continued
Our review of the presentation of adjusting items
of the continuing business has also considered
the appropriateness of presentation of the share
option acceleration charge (£0.5 million) and
defined benefit pension scheme
charges, being
IAS 19 current service costs and administrative
expenses (£2.0 million). We have concluded that
the share option acceleration is clearly one
-off in
nature and associated with the transformation
of the group to be a pure
-play components
business. We have challenged management over
their decision to include the costs of the defined
benefit schemes as an additional adjusting item
in 2022 and have sought evidence to verify
management
’s justification for the changed
presentation. We have also considered the
impact of the change on the overall presentation
of adjusting items and whether the revised
approach is appropriately disclosed and
explained in the financial statements.
The disclosures included in note 2 were reviewed
and deemed
reasonable.
INDEPENDENT AUDITORS’ REPORT
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ESSENTRA PLC ANNUAL REPORT 2022
195
Key audit matter How our audit addressed the key audit matter
Recoverability of the company’s investment
in subsidiary undertakings (parent)
The value of the investment held by the
company at year end is £469.7 million.
Essentra
plc holds a direct investment in
EssentraInternational Limited, and through
thisentity anindirect investment in the
Groupasa whole. The valuation of this
investment issignificant to the
companybalancesheet.
Investments are tested for impairment if
impa
irment indicators exist. If such indicators
exist, the recoverable amounts of the
investments in subsidiaries are estimated in
order to determine the extent of the impairment
charge, if any. Any such impairment charge is
recognised in the income statement.
Given the
disposal transactions completed in the year and
the decline in market capitalisation an
impairment trigger has deemed to have
occurred.
Judgement is required in this area, particularly
in
assessing: (1) whether an event has occurred
that may indicate that the related asset values
may not be recoverable; and (2) whether the
carrying value of an asset can be supported
by
the recoverable value, being the higher of
FVLCTS or VIU which is estimated based on the
continued use of the asset in the busi
ness.
Given the magnitude of the investment and
the
judgement involved we have identified this
area as a key audit matter for the audit of
the
company.
See notes 3 and 13 in the company financial
statements for details of the company’s
investment in subsidiary entities.
Given the restructuring of the Group during the
year management have performed a Value in
Use impairment assessment of the Group using
a discounted cash flow model. We have tested
the model including assessments of the
mathematical accuracy and the key
assumptions. We compared the revenue and
margin growth assumptions to the historical
track record of the Components business and
performed sensitivity analysis. We have engaged
our valuation experts to assess the
reasonableness of the discount rate and long
term growth rates applied in the model. Where
assumptions sat outside of the ranges
established by our experts we performed
sensitivity analysis to confirm that alternative
assumptions within the PwC ranges did not
result in amaterial impairment.
We also considered alternative valuation
reference points including deriving an implied
valuation of the group below the company from
the Group’s market capitalisation at 31
December 2022 adjusted for the external debt
held in the company’s balance sheet. This
analysis highlighted no evidence of impairment.
Based on these procedures, we concluded that
we concur with management’s assessment that
there were no impairments identified in the
carrying value of the company’s investment in
the group.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial statements as a whole, taking into account the structure of the group and
the company, the accounting processes and controls, and the industry in which they operate.
Prior to the disposals, the Group was split into three divisions being Components, Packaging and
Filters. Each division consisted of alargenumber of reporting sites spread globally across 34 territories.
There were 187 reporting units within the consolidation, which included the reporting sites and other
consolidation units. We did not identify any individually significant components within the Group,
withthe largest contribution to revenue of the continuing group being 16.9% from one reporting site,
and the average being 2.4%. We determined the most effective approach was to engage PwC local
component teams to perform full scope procedures over 20 reporting units, with the Group audit
team performing full scope audit work overafurther 16 reporting units. In addition, specified audit
procedures were performed over certain balances, including revenue, at a further 3 reporting units.
The Group audit team also performed audit procedures over specific balances within a further
11reporting units. This approach ensures that appropriate audit coverage has been obtained over
allfinancial statement line items.
Where work was performed by component auditors, we determined the appropriate level of
involvement we needed to have in that audit work to ensure we could conclude that sufficient
appropriate audit evidence had been obtained for the Group financial statements as a whole.
Weissued written instructions to all component auditors and had regular communications with
themthroughout the audit cycle. This included a virtual clearance meeting with each component
team andreview of all significant matters reported. In addition members of the Group engagement
team have reviewed working papers of a number of component audit teams and have performed
oversight visits to teams in the US, Dubai, the UK and Turkey. Based on the detailed audit work
performed across the Group, we have gained coverage of 70% ofrevenue, 84% of profit before tax
forthe continuing group, and 66% of revenue for discontinued operations, in addition to 85% of
netassets.
The impact of climate risk on our audit
In planning our audit, we considered the potential impact of climate change on the Group and
company financial statements. Given the principal activities of the Group, it is highly likely
thatclimate risk will have an impact on the Group’s business. As part of our audit, we evaluated
management’s climate change risk assessment including the identified physical and transitional
risksand the assessment of the impact of those risks on the Group financial statements. We note
management’s conclusion that material physical risks are likely to arise in the longer term and
therefore have no current financial statement impacts. Transitional risks are considered to have a
more significant impact on the business as set out in the Task Force on Climate-Related Financial
Disclosures (TCFD) on page 43. We performed procedures to evaluate the appropriateness of
management’s risk assessment. We considered the Group’s externally published environmental
targets and understood the progress made towards these targets to date in addition to plans in place
to bridge to meeting these targets in the future. We challenged management on the potential
additional future costs associated with meeting these targets. We assessed that the key financial
statement line items and estimates which are more likely to be impacted by climate risks are those
associated with future cash flows, given the more notable impacts of climate change on the business
are expected to arise in the medium to long term. These included the assessment of impairment and
the long term viability assessment. However, our procedures did not identify any material impact
oneither the Group or company financial statements or our key audit matters for the year ended
31December 2022.
INDEPENDENT AUDITORS’ REPORT
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
196
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative
thresholds for materiality. These, together with qualitative considerations, helped us to determine
thescope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements
as a whole as follows:
Financial statements – group Financial statements – company
Overall
materiality
£3,500,000 (2021: £3,300,000). £6,879,000 (2021: £7,000,000).
How we
determined it
Professional judgement having applied
benchmark percentages to a number of profit
measures and considering the overall scale of
the business
Overall Group materiality in 2021 was
£3,300,000, which represented 5% of profit
before tax, amortisation of acquired intangible
assets and adjusting items.
1% of net assets.
Rationale for
benchmark
applied
Given the significant changes in the Group’s
structure following the disposal of the
Packaging and Filters divisions, we considered
materiality in a number of different ways,
including:
• revenue benchmarks;
• income statement benchmarks including
adjusted profit metrics for the continuing
as well as discontinued businesses;
• asset benchmarks based on the balance
sheet of the continuing business.
We determined that an appropriate level of
materiality for performing the 2022 audit
would be within the range of the above
benchmarks, whilst at neither the upper nor
lower ends.
Based on our professional judgement, we
selected an overall materiality level of
£3,500,000.
The entity is a holding company
for the rest of the Group and is
not a trading entity. Therefore
an asset based measure is
considered appropriate.
For each component in the scope of our group audit, we allocated a materiality that is less than our
overall group materiality. The range of materiality allocated across components was £50,000 and
£2,000,000. Certain components were audited to a local statutory audit materiality that was also less
than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we
use performance materiality in determining the scope of our audit and the nature and extent of our
testing of account balances, classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to
£2,625,000 (2021: 2,500,000) for the group financial statements and £5,159,000 (2021: 5,250,000) for
the company financial statements.
In determining the performance materiality, we considered a number of factors – the history of
misstatements, risk assessment and aggregation risk and the effectiveness of controls – and
concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit and Risk Committee that we would report to them misstatements identified
during our audit above £170,000 (group audit) (2021: £160,000) and £170,000 (company audit) (2021:
£160,000) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to
adopt the going concern basis of accounting included:
• obtaining and agreeing management’s going concern assessment to the board approved business
plan and ensuring that the base case scenario for the 18 month period to 30 September 2024
indicates that sufficient cash flows are generated to meet the obligations of the business asthey
fall due while complying with covenant arrangements;
• identifying revenue growth and operating margin as the key assumptions inherent in the plan and
validating these to historical precedent and market or industry forecasts;
• analysing the cash flows in the forecast models to identify unexpected trends and relationships
and ensuring the mathematical accuracy of management’s models;
• evaluating management’s severe but plausible downside scenario including the impact on the
Group’s liquidity headroom and its ability to meet debt covenants;
• evaluating management’s analysis of the likely impacts of the strategic reviews on the going
concern assessment; and
• validating that climate change is expected to have a limited impact during the period of the going
concern assessment.
Based on the work we have performed, we have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast significant doubt on the group’s and
the company’s ability to continue as a going concern for a period of at least twelve months from
when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a
guarantee as to the group’s and the company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code,
we have nothing material to add or draw attention to in relation to the directors’ statement in the
financial statements about whether the directors considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described
in the relevant sections of this report.
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ESSENTRA PLC ANNUAL REPORT 2022
197
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial
statements and our auditors’ report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, accordingly, we do
not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form
of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures
required by the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to
report certain opinions and matters as described below.
Strategic report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the
Strategic report and Directors’ Report for the year ended 31 December 2022 is consistent with the
financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment
obtained in the course of the audit, we did not identify any material misstatements in the Strategic
report and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Annual Report on Remuneration to be audited has been properly prepared
in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-
term viability and that part of the corporate governance statement relating to the company’s
compliance with the provisions of the UK Corporate Governance Code specified for our review.
Ouradditional responsibilities with respect to the corporate governance statement as other
information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following
elements of the corporate governance statement, included within the Risk Management Report and
Other Statutory Information is materially consistent with the financial statements and our knowledge
obtained during the audit, and we have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and
principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in
place to identify emerging risks and an explanation of how these are being managed or
mitigated;
• The directors’ statement in the financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the group’s and company’s ability to continue
todo so over a period of at least twelve months from the date of approval of the financial
statements;
• The directors’ explanation as to their assessment of the group’s and company’s prospects, the
period this assessment covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the company
willbe able to continue in operation and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to any necessary qualifications
orassumptions.
Our review of the directors’ statement regarding the longer-term viability of the group and company
was substantially less in scope than an audit and only consisted of making inquiries and considering
the directors’ process supporting their statement; checking that the statement is in alignment
withthe relevant provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and understanding of the
group and company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the
following elements of the corporate governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced
and understandable, and provides the information necessary for the members to assess the
group’s and company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management
and internal control systems; and
The section of the Annual Report describing the work of the Audit and Risk Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement
relating to the company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities in respect of the Financial
Statements, the directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they give a true and fair view.
The directors are also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the
company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
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STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
198
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in
respect of irregularities, including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-
compliance with laws and regulations related to employment laws and regulations, health and safety
legislation and import and export restrictions including US sanctions legislation, and we considered the
extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the financial statements such as
the Companies Act 2006, the Listing Rules and UK and overseas tax legislation. We evaluated
management’s incentives and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the principal risks were related to
posting of journal entries to improve revenue performance or to manipulate performance metrics
relating to bank covenants, and management bias in key accounting estimates. The group engagement
team shared this risk assessment with the component auditors so that they could include appropriate
audit procedures in response to such risks in their work. Audit procedures performed by the group
engagement team and/or component auditors included:
• Review of correspondence with legal advisors.
• Review of matters reported through the Group’s whistleblowing helpline and the results of
management’s investigation of such matters.
• Enquiries of management at the Group, divisional and local levels.
• Enquiries of the Group’s legal team.
• Enquiries with component auditors.
• Evaluation of management’s controls designed to prevent and detect irregularities, in particular
their compliance procedures in respect of sanction market trading.
• Review of internal audit reports in so far as they related to the financial statements.
• Identifying and testing journal entries, in particular any journal entries posted with unusual
account combinations which result in an impact to revenue or to performance metrics relevant to
banking covenants.; and
• Testing of critical accounting estimates to identify evidence of management bias.
There are inherent limitations in the audit procedures described above. We are less likely to become
aware of instances of non-compliance with laws and regulations that are not closely related to events
and transactions reflected in the financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or
through collusion.
Our audit testing might include testing complete populations of certain transactions and balances,
possibly using data auditing techniques. However, it typically involves selecting a limited number of
items for testing, rather than testing complete populations. We will often seek to target particular
items for testing based on their size or risk characteristics. In other cases, we will use audit sampling
toenable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on
theFRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a
body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose.
We do not, in giving these opinions, accept or assume responsibility for any other purpose orto any
other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate forour
audit have not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the company financial statements and the part of the Annual Report on Remuneration tobe
audited are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit and Risk Committee, we were appointed by the directors
on 20April 2017 to audit the financial statements for the year ended 31 December 2017 and
subsequent financial periods. The period of total uninterrupted engagement is 6 years, covering the
years ended 31December 2017 to 31 December 2022.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency
Rule 4.1.14R, these financial statements will form part of the ESEF-prepared annual financial report
filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the
ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over
whether the annual financial report will be prepared using the single electronic format specified in the
ESEF RTS.
Nicholas Stevenson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Milton Keynes
29 March 2023
INDEPENDENT AUDITORS’ REPORT
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
199
Shareholder
Information
Registered Office
Langford Locks, Kidlington, Oxford OX5 1HX
Registered number 05444653
Tel: 01908 359100
Company Secretary
Emma Reid
Investor Relations
investorr[email protected]
Company Website
www.essentraplc.com
Auditor
PwC
Exchange House, Central Business Exchange,
Milton Keynes, Buckinghamshire MK9 2DF
Legal Advisor
Slaughter and May
One Bunhill Row, London EC1Y 8YY
Registrar
Computershare Investor Services plc
The Pavilions, Bridgwater Road,
Bristol BS99 6ZY
Tel: 0370 703 6394
Shareholders can access online facilities at
www.computershare.com
Joint Stockbrokers
Jefferies International Limited
100 Bishopsgate, London EC2N 4JL
Peel Hunt LLP
100 Liverpool Street, London EC2M 2AT
Corporate PR
Teneo
85 Fleet Street, London EC4Y 1AE
Principal Bankers
Citibank N.A., London Branch
Citigroup Centre, Canada Square,
Canary Wharf, London E14 5LB
National Westminster Bank plc
250 Bishopsgate, London EC2M 4AA
BBVA
1 Canada Square, London E14 5AB
BNP Paribas, London Branch
10 Harewood Avenue, London NW1 6AA
DBS Bank Ltd, London Branch
4th Floor, Paternoster House,
65 St Paul’s Churchyard, London EC4M 8AB
Santander UK plc
Santander House, 201 Grafton Gate East,
Milton Keynes MK9 1AN
STRATEGIC REPORT DIRECTORS’ REPORT FINANCIAL STATEMENTS
ESSENTRA PLC ANNUAL REPORT 2022
200
SHAREHOLDER INFORMATION
Printed in the UK by Pureprint Group, a CarbonNeutral
®
company.
Both the paper mill and printer are registered to the Environmental
Management System ISO 14001 and are Forest Stewardship
Council
®
(FSC
®
) chain-of-custody certified.
Essentra plc
essentraplc.com
Langford Locks
Kidlington
Oxford OX5 1HX
United Kingdom
Telephone: +44 (0)1908 359100
Email: [email protected]
Registered in England No. 05444653