Essentra shares tumble following poor end to 2022 as manufacturer’s sales are hit by tougher economic climate
- The firm said its trading day LFL adjusted sales fell by 3% in the fourth quarter
- Essentra investors are set to receive about £150m as part of a special dividend
- Moulded plastics and heavy-duty locks are among the goods made by Essentra
Shares in Essentra nosedived on Friday after the components maker reported a drop in revenue towards the end of 2022 amid a weaker economic backdrop.
The moulded plastics and heavy-duty locks producer revealed like-for-like adjusted sales decreased by 3 per cent in the fourth quarter, compared to the same period last year.
Turnover in Europe continued to expand at a modest pace, but the group noted that trade was impacted by ‘distributor destocking’ in America and draconian Covid-related lockdown restrictions across China.
Strategic move: Essentra completed the transition to being a pure-play components business after selling its packaging and filters divisions in the second half of last year
Trading was also affected by a strong comparative result the previous year when its components and filters businesses both achieved double-digit revenue growth.
Essentra shares declined by 6.8 per cent, or 16p, to 218p on Friday following the company’s release of its latest trading update, making it the worst performer on the FTSE 350 Index.
Yet the firm said it anticipates delivering a ‘robust financial performance’ for the 2022 financial year, with annual like-for-like sales increasing by around 6.5 per cent on a continuing operations basis.
Its adjusted operating profit outlook also remains in line with management forecasts, while investors are set to receive about £150million as part of a special dividend in the first quarter of this year.
Proceeds from the payout will come from the £262million sale of its packaging arm to the Austrian manufacturer Mayr-Melnhof Group and the takeover of its filters business by Frank Acquisition Four, a subsidiary of Centaury Management.
Additional money from the divestments will be spent on boosting its defined benefit pension schemes and reducing its net debt pile, which stood at £248.9million at the end of June, through bringing forward the repayment of some US private debt.
The two deals also meant Essentra transitioned to being a pure-play components provider, in line with a strategic objective declared in October last year.
Just before completing the sale of its filters segment, the Oxford-based company announced the £29.5million purchase of Wixroyd Group, a hardware components maker situated in Chichester, West Sussex.
Scott Fawcett, who succeeded Paul Forman as Essentra’s chief executive at the start of this month, stated in early December that the firm would initially focus on selling Wixroyd products into continental Europe.
Commenting on the Wixroyd acquisition on Friday, analysts at broker Jeffries said: ‘To us, it appears a tidy bolt-on that has a strong EBITA margin profile and is a good strategic fit for the group.’
They added: ‘With the UK accounting for around 80 per cent of Wixroyd’s sales, we look for EU expansion (cross-selling) to be a particularly attractive opportunity.’
However, they warned that the coming year ‘will throw up challenges’ for Essentra given the challenging economic backdrop.
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