The Britain giant supplier of plastic and fiber products, Essentra PLC, has gone through a bearish year having his market value driven down by one fifth in the last semester of 2016. The company, listed on the London Stock Exchange and part of the FTSE 250 Index, is a global manufacturer of a wide range of products but mainly owes its success to the business of cigarettes filters, and, even though to a lesser extent, to that of healthcare packaging. The premature departure of the firm’s CEO, Colin Day, together with two revisions of profit forecasts caused Essentra’s shares to fall by 20%, reaching their lowest value since early 2012. The Milton Keynes-based company issued the last profit warning on Monday, announcing that, from £172m the previous year, adjusted operating profits is expected to be in the range of £137m-£142m, down from guidance of £155m-£165m in June.
The Britain giant supplier of plastic and fiber products, Essentra PLC, has gone through a bearish year having his market value driven down by one fifth in the last semester of 2016. The company, listed on the London Stock Exchange and part of the FTSE 250 Index, is a global manufacturer of a wide range of products but mainly owes its success to the business of cigarettes filters, and, even though to a lesser extent, to that of healthcare packaging. The premature departure of the firm’s CEO, Colin Day, together with two revisions of profit forecasts caused Essentra’s shares to fall by 20%, reaching their lowest value since early 2012. The Milton Keynes-based company issued the last profit warning on Monday, announcing that, from £172m the previous year, adjusted operating profits is expected to be in the range of £137m-£142m, down from guidance of £155m-£165m in June.
Supporters of recovery argue that lowest profits for the firm were only due to unfavorable market conditions which are deemed to be only temporary. Alongside them, the CEO himself argued the woe was due to uncontrollable events such as unpredictable shifts in demand, lack of integration of acquired businesses, and a relevant customer operations shifted to a rival country. Nevertheless, after having disappointed the market twice in few months it is going be tough to get back on track. As aforementioned, shares in Essentra plunged by a fifth on Monday after the news and are currently trading below £400. The main threat faced by the firm is undoubtedly weaker tobacco demand in Asian countries. Both the Chinese and Indian government are trying to incentivize people not to smoke by imposing stricter regulations. In particular, both countries introduced higher tobacco taxes causing a slowdown in orders, and China’s authorities seek to regulate smoking in public places, putting in this way pressure on demand, and consequently on growth.
In addition to this, profit warning come at such a time that investors start to wonder whether it is actually a coincidence that Essentra’s poor performance follows the premature departure of the CEO. In facts, the firm, known as “Filtrona” up to 2013, recently announced that Colin Day is moving towards non-executive roles and that he is going to be replaced by Paul Forman, chief executive of threads and zips manufacturer Coats. The company’s performance was further hit by poor results in the pipe protection business, which is not doing as well as expected. Essentra’s supply to the oil industry, which accounts for a quarter of its sales, has recently suffered due to a decline in oil prices. On the other hand, the component solution division is meeting performance expectations. Last but not least, the acquisition of Clondalkin, a US-based packaging company, caused some problems in relation to the difficult integration of three factories. Facing this overall problematic situation, Essentra is currently undertaking a series of cost-cutting measures in order to re-boost profitability. The goal is that of reducing expenses by almost $5m this year through closing of packaging sites and headcount reduction.
Fiammetta Galzerano