Essentra Plc · LSE:ESNT
Essentra — Investor Day (November 2022)
53 slides from Essentra's investor day presentation, Nov 15, 2022
Slide 1: Accelerating our potential as a pure-play Components business
y EF JEsSENTRA Essentra Accelerating our potential as a pure-play Components business A unique manufacturing and distribution proposition 15 November 2022
Slide 2: Board and Company Secretary
Paul Lester, CBE Scott Fawcett Jack Clarke Mary Reilly Non-Executive Chair Chief Executive Officer designate Chief Financial Officer Senior Independent Director Adrian I Peace Ralf K. Wunderlich Dupsy Abiola Emma Reid Non-Executive Director Non-Executive Director Non-Executive Director Company Secre
Slide 3: A unique business model combining manufacturing and distribution
A service led proposition, A unique business model, innovating through A resilient business with combining manufacturing digitalisation and the ability to expand margins and distribution, operating in sustainability, leading and deliver strong returns a highly fragmented market to organic and inorga
Slide 4: Executive team and speakers
Scott Fawcett Jack Clarke Lynne Vandeveer Hugues Delcourt TBC Chief Executive Officer designate Chief Finance Officer Chief Marketing Officer & Chief Sales Officer & Managing Managing Director Asia President Americas Director Europe Oshin Cassidy Emma Reid Rob Baker Sam Edwards Chief People & Cultur
Slide 5: Agenda
5 EF JEsSENTRA 1. The new Essentra PLC - Scott Fawcett 2.The strengths of our model - Scott Fawcett e A leading market position with a unique proposition, in a fragment e Aclear strategy for growth and market share gains - Hugues Delcot e Sustainability as a source of competitive advantage - Lynne V
Slide 6: FY21 Three Divisions and Components
Porous Technologies Specialist Components Specialist Components Filters Specialist Components Filters Packaging Components Filters Filters Filters Components Packaging Components Components Components Components Packaging Packaging Packaging 2017 2019 2020 2023 FY 21 – Three Divisions FY 21 – Compon
Slide 7: Our Business Today and Our Vision
Our Business Today Our Vision A leading global manufacturer and To be the world’s leading distributor of a comprehensive responsible hassle-free supplier range of components used in of essential diverse industrial applications industrial components and end-markets Our ambition is to double revenue a
Slide 8: Strong track record of growth over the past decade
£350 We have a strong track record of growth over the past decade £300 • From <£100m to >£300m of revenue through a £250 mixture of organic and inorganic growth Revenue (£m) £200 • 4 - 5% organic CAGR, with the plan to accelerate to >5% organic growth in the medium term £150 • Completion of 10 acqui
Slide 9: Key operating facts
12 80m 45,000+ 23 1bn manufacturing parts produced SKU’s distribution parts in stock sites per week centres 32 c.80k 1.8m 17k c.3,000 sales and service customers order lines orders shipped employees locations per year per week worldwide 9
Slide 10: Local Sales Centre, Hub Warehouse, Manufacturing
Local Sales Centre Hub Warehouse Manufacturing 10
Slide 11: Revenue by region, channel, offer type, source and segment
Revenue by region Revenue by channel Revenue by offer type Custom, Asia, 14% Distributors, 8% 23% Standard, Configured, End 61% Europe & users, 31% ROW, Americas, 77% 52% 34% Revenue by source Revenue by customer segment SME/ Consumers, Sourced, 8% Sales, 30% 29% Customers Manufactured, 70% Industri
Slide 12: Revenue by customer category and product type
Revenue by product type Revenue by customer category Renewable Energy, Medical Device, Other, 5% 3% 14% Protective ConAgg, Security Other Industrial Caps & Plugs, Seals, 4% 20% 9% Equipment, 28% Automation, Other 10% Hardware, Access Hardware, 12% 16% Electronics Telecoms, Hardware, 8% 13% Consumer
Slide 13: Organic revenue growth and OP margin
35% • We have a robust business model which has delivered strong operating margins and cash 25% conversion through the cycle Organic revenue growth and OP margin 15% • We have a track record of market share gains, as demonstrated after 2009 and in 2021 5% • Our organic growth strategy enhanced by M&
Slide 14: The strengths of our model: leading market position
yt EF JESSENTRA 2.The strengths of our model — Scott Fawcett e Aleading market position, with a unique proposition, ina fragmented market 14
Slide 15: Market size £8bn - £10bn
Market size Growth in line £8bn - £10bn with industrial globally* production Over 1m potential customers Thousands c. 4% of competitors market share * Addressable market will expand as we move into new product ranges and customer categories 15
Slide 16: Our customers are manufacturers
Our customers are manufacturers, and our products are used in their end product Our products are a small but critical part of our customers’ manufacturing bill of materials Product availability and peace of mind is typically more important than pricing 16
Slide 17: Reasons to recommend Essentra: Evolving customer needs
Reasons to recommend Essentra: Evolving customer needs WIDE RANGE OF STOCK RESPONSIVENESS >70% of customers start their research journey online HIGH QUALITY PRODUCTS FAST DELIVERY DIGITAL EASE OF ORDERING RELIABILITY Growing demand for support with ESG goals CUSTOMER SERVICE PRICE SUSTAINABILITY Man
Slide 18: Product expertise and customer categories
Typical product CUSTOMER CATEGORY range to unlock target category customer CONSUMER MANUFACTURNG INDUSTRIAL MANUFACTURING SME After customer is unlocked, we can cross-sell our full range. Auto Consumer Telecoms/ Con-agg Renewable EV charging Medical Other Industrial SME Consumer Equipment Industrial
Slide 19: VentilatorChallengeUK case study
•Challenge "In a race against time, Essentra gave us a seamless experience. Their wide range of VentilatorChallengeUK set about building thousands products, expertise and ability to meet our of emergency ventilators tight deadlines made them an easy choice to support our challenging project.” Soluti
Slide 20: Today's agenda
yt EF JESSENTRA 2.The strengths of our model ragmented market e Aclear strategy for growth and market share gains - Hugues Delcourt 20
Slide 21: Market share growth
Get more Grow them by Keep them Market customers cross-selling by being share growth hassle-free 21
Slide 22: Foundations in place; further digitalisation
Target: 5% Growth in new customer The foundations are in place Further digitalisation optimisation acquisition • A new generation of websites has • Continued website optimisation and been implemented globally new functionality, investing c. £1m annually • £5m of digital investment in new websites •
Slide 23: Cross-selling tools and sales effectiveness
Target: 5% Growth in categories per Cross-selling tools have launched Sales effectiveness customer • CRM solutions have been implemented is being accelerated to enable opportunity management and • Developing a knowledge management customer service improvements solution to digitalise expertise • A L
Slide 24: Cable Management, PCB Hardware, Access Solutions
Cable Management PCB Hardware Cable Tie Heat Stabilised Tubular Ring Hex Low Voltage Mini Hex Threaded Circuit Board Holders Cable Ties Terminals Spacers Insulators Support Post Standoff Support Posts Slotted Insulated Cord Wire Duct End Terminals Access Solutions Leaf Concealed Secure Quarter Bubbl
Slide 25: Customer experience is a key priority
Target: > 50 Our customer experience is key Digitalisation enables further NPS • Net Promoter Score (NPS) and improvement employee engagement are two of our • New ERP platform and improved information will underpin priority KPI’s and are closely linked improvements in customer experience and servic
Slide 26: Strong pricing discipline
Strong pricing discipline Digitalisation enables optimisation • Successfully offsetting cost inflation with sales • Enhanced visibility of pricing at a product price actions and customer level • 83% of recurring business has had a price • Consistency of costing approach globally increase in past 12
Slide 27: Market share growth targets
Get more Keep them Market Grow them by by being customers cross-selling share growth hassle-free Target: Target: Target: 5% growth in 5% growth in NPS > 50 5-6% share of new customer categories per £8bn - £10bn market acquisition customer 27
Slide 28: Sustainability as a source of competitive advantage
yy EF JEsSENTRA 2.The strengths of our model ragmented market e Sustainability as a source of competitive advantage - Lynne Vandeveer
Slide 29: Building upon Essentra's ESG progress
2. The strengths of our model Lu ESSENTRA Sustainability as a source of competitive advantage Building upon Essentra’s ESG progress Our Planet Driving resource and energy efficiency, wae reducing emissions and Our Communities cilaiesing ramen els Working with suppliers to ensure ethical practices an
Slide 30: Helping customers reduce Scope 3 reporting
We are in a leading position to assist customers in defining and reducing their Scope 3 reporting in a fragmented market Currently in discussions to support circular economy models with targeted customers Increasing our commercial focus on ESG supportive categories such as renewable energy and elec
Slide 31: Emissions reduction performance and targets
Emissions Reduction Performance (tCO2e/£m) 57 • Essentra has committed to refreshing 60 53 49 0% 50 47 near and long-term emission reduction -5% 40 targets in line with science based targets -10% 30 with the SBTi -15% 20 10 -20% • Ambition to be net zero by 2040 for - -25% 2019 2020 2021 2022 YTD Sc
Slide 32: Innovation with recycled and bio-based materials
We continue to innovate and explore We have signed up to the Circular Plastics • Creating a Centre of Excellence to accelerate Alliance commitment to use at least 20% the testing of recycled and bio-based materials recycled content by 2025 and making good progress: • We are also reviewing the sustai
Slide 33: Volunteering and working with suppliers
• We continue to volunteer time to support good causes • We are working with suppliers to ensure ethical practices to drive ESG progress • Our procurement teams run a supplier development programme with all key suppliers, and we are looking to digitalise Flippin Arkansas, USA: this moving forward Fo
Slide 34: Supporting employees and growth opportunities
• Safety, health and wellbeing programmes are in place to support our employees • We continue to focus on growth opportunities for all • We remain committed to ensuring diverse talent across the organisation including the Board and ExCo • Employee engagement remains a vital measure of business hea
Slide 35: Building upon Essentra's ESG progress
2. The strengths of our model Lu ESSENTRA Sustainability as a source of competitive advantage Building upon Essentra’s ESG progress Our Planet Driving resource and energy efficiency, wae reducing emissions and Our Communities cilaiesing ramen els Working with suppliers to ensure ethical practices an
Slide 36: Progressive margin enhancement
yy EF JEsSENTRA 2.The strengths of our model ragmented market e Progressive margin enhancement - Rob Baker
Slide 37: Near-shoring and localised manufacturing
A shift towards near-shoring to mitigate the risks of supply chain disruption for our customers will... Reduce freight Reduce Scope Shorten lead Reduce Accelerate new Reduce supplier costs 3 emissions times inventory and product dependency safety stocks development and introductions • Some tooling i
Slide 38: Three opportunities across three core focus areas
A programme of incremental improvements underpinned by our new ERP Three opportunities… Across three core focus areas… Gearing our network for growth Standardise Optimising our footprint whilst optimising cost-to-produce and cost-to-serve Transforming our sourcing and Simplify Buying better purchasi
Slide 39: Network capacity to support organic growth
We have the network capacity to support organic growth Operational – Access Hardware Operational – Plastic / Injection Moulding Closed (*) base case • Production technologies and capabilities within each region • Ongoing focus on balancing cost and service 39
Slide 40: Regional dual hub approach
Our regional dual hub approach ensures reliability and responsiveness AMER • Investment in the US to support growth and efficiency • Louisville operating as a primary hub location • Houston operating as secondary hub location EMEA • An automated hub in Germany • A new hub in Poland enables further
Slide 41: Procurement transformation and operating efficiency via ERP
Accelerated through improved data and technology (ERP) Transforming procurement capabilities, Aligning people and capabilities processes and technology with process and technology Develop team and Optimise layouts Improved insight through people capabilities data and reporting Minimise touchpoints P
Slide 42: Operating margin growth to c.18%
Optimising c.18% Operating efficiency our footprint Polarisation of the supply chain 1 3 presents a significant opportunity Buying better Standardisation, simplification, and integration 2 Baseline volume efficiencies Operating margin growth 42
Slide 43: Strong financial framework and value enhancing M&A
yy EF JEsSENTRA 2.The strengths of our model ragmented market e Astrong financial framework and value enhancing M&A - Jack Clarke
Slide 44: Medium-term targets and financial guidance
FY 2021 Organic Growth Inorganic Growth Total Medium Term Total Revenue £302m £143m £200m £645m Adjusted* Operating Profit £44m £46m £30m £120m Adjusted* Operating Profit Margin c.14% c.18% * Adjusted for revised central costs Medium term targets: Other financial guidance: Revenue (CAGR) Adjusted Op
Slide 45: Capital allocation priorities
Capital investment remains core to strategic growth ORGANIC GROWTH Capex expected to be maintained between 4 – 5% of sales Sustainable new product development and propositions INNOVATION Digitalising the customer experience drives cross-sell and customer acquisition Strong pipeline of potential acqu
Slide 46: Acquisition history and portfolio build
Other Plastic Hardware Security Fasteners 2011 Protection 2013 Seals 2014 2018 2021 INCLDUING SPECIALITY PLASTICS 2013 2014 Protection 2017 Protection 2019 Access Hardware Access Hardware Electronic Hardware and Cable Management Approximate revenue is reflected by icon size 46
Slide 47: Lessons from acquisitions
• Strategic clarity • Highly disciplined approach and deal rationale • Importance of aligning diligence and management teams • Communication is key for acquired employees • Keeping agile, recognising that plans will change • Decisive and well planned closure of sub-scale facilities 47
Slide 48: Mesan Locks acquisition Q4 2013
Mesan Locks – Q4 2013 2013 Today Deal rationale: Revenue Revenue • Entering the Access Hardware market £33m as a manufacturer with a product that £14m 10% CAGR would cross-sell since acq’n • Entering the Turkish market with full breadth of our offer OP OP • Cross-selling the acquired product £1.7m £
Slide 49: Micro Plastics acquisition Q4 2017
Micro Plastics – Q4 2017 2017 Today Deal rationale: Revenue Revenue • Gaining capability and market position $37m in the North American plastic fasteners $26m 7% CAGR market, already held in Europe since acq’n • Enhancing service levels enabling price improvements OP OP • Cross-selling products to a
Slide 50: M&A pipeline and criteria
• Typically targets will offer new product capabilities that can be cross-sold, including existing suppliers HUNDREDS ON RADAR of sourced products • Our initial focus will be bolt-on acquisitions >50 RELATIONSHIPS • Our targets are geographically neutral • We have a rigorous WACC framework and seek
Slide 51: Clear financial targets and capital allocation policy
• Clear financial targets; strong growth but attainable Revenue (CAGR) Adjusted Operating Margin • Clear capital allocation policy to support organic and >10% Total acquisitive growth >5% Organic c.18% • Committed progressive dividend policy, maintaining dividend cover in the order of three times Ne
Slide 52: Today's agenda: Conclusions and Q&A
I EF JESSENTRA osition, in a fragmented market gains ntage icing M&A 3. Conclusions and Q&A 52
Slide 53: Market leader with a unique proposition in a fragmented market
Clear strategy to High margin Market leader with a drive organic growth Strong returns and business with scope unique proposition and market share cash conversion to expand through scale in a fragmented gains supported enabling value efficiencies, operational £8-10bn market by digitalisation and enh