Don’t miss out on Essentra’s fightback

Phase three is about developing this trio of businesses. There was a fairly even revenue split between the surviving segments at Essentra’s half-year results, with components accounting for 27 per cent, packaging 35 per cent and filters 26 per cent, although profits were very different, with a respective split of 51 per cent, 13 per cent and 27 per cent.

Essentra's remaining components arm is a market-leading manufacturer and distributor of plastic injection-moulded, vinyl dip-moulded and metal items. Unlike its specialist counterpart, it grew first-half turnover despite tough market conditions and lifted its already handsome margins. But perhaps it is the remaining two segments in the new-look Essentra that are more exciting, in terms of a recovery potential.

The packaging arm is one of only two multi-continental suppliers of a full secondary packaging range to the health and personal care sectors. Its filters business, meanwhile, is the only global independent supplier of innovative cigarette filters and related products to the tobacco industry. These two divisions also posted turnover growth at the half-time whistle. Meanwhile, with operating margins coming in at 4.5 per cent, the packaging division was on track to achieve management's two percentage point annual margin improvement target. That said, the £1.6m improvement in adjusted operating profit to £7.9m did benefit from a £1.7m provision reversal.

We also put stock in the arrival of Paul Forman in 2017, who has experience in executing the type of recovery required at Essentra, having overseen a company rationalisation at industrial threads manufacturer Coats (COA) before taking up his present role. Mr Forman has already managed to deliver results, with the company reporting profit growth for the first time in three years in 2018.

Mr Forman has previously described Essentra as “a patient tottering out of the recovery ward”. The patient may be simplifying it diet and slimming down, but money from recent disposals has presented Essentra with the opportunity to bulk up its existing operations. The proceeds from the dissolution of specialist components went towards two acquisitions over the first half. It bought out a 49 per cent minority interest in its Dubai-based filters venture for £11.6m in March. In June Essentra acquired Innovative Components, a North American manufacturer and distributor of knobs, pins and handles, for its components business. The reorganisation of Essentra’s portfolio has provided funds for such deals along with other improvements to the business. Between January and June, Essentra raked in $48m from the disposal of pipe protection technologies, €16.2m (£14.4m) from the divestment of its extrusion business, and raked $77m from the sale of its speciality tapes. The company has decided to hang on to some of its specialist components businesses which will be integrated with the remaining components and filters businesses.

Essentra is also focused on bolstering its balance sheet. Excluding the impact of new lease accounting rules, Essentra’s net debt at the end of the first half stood at 1.4 times cash profits (Ebitda) from an unadjusted 1.9 times at the same time last year. Meanwhile, its average net working capital to revenue ratio fell from 14.1 per cent to 13.9 per cent. Divestments largely fuelled the drop in working capital requirements.