Essentra PLC — Annual Report 2021

Mar 31, 2021

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Building for the future

Annual Report 2020 – Financial Statements

A new strategic roadmap for 2020 and beyond

A winning, engaged and empowered team

Class leading sustainability

Growth through innovation

Building for the future

“We have refreshed our purpose, values and goals to better reflect who we want to be and where we are going as an Essentra family.”

Paul Forman Chief Executive

This is part two of our Annual Report for the year ended 31 December. Part one consists of our Strategic and Directors’ Reports and can be found on our corporate website. When reviewing the performance and activities of Essentra plc in 2020, both parts should be read together.

Go to essentraplc.com/ investors

Annual Report 2020 – Strategic and Directors’ Reports

FINANCIAL STATEMENTS 151

ESSENTRA PLC ANNUAL REPORT 2020 FINANCIAL STATEMENTS

Financial Statements

Consolidated Income Statement

For the year ended 31 December 2020	For the year ended 31 December 2020
			2020	2019
		Note	£m	£m
	Revenue	1	896.5	974.1
	Operating profit		21.7	80.0
	Finance income	3	1.9	2.1
	Finance expense	3	(17.6)	(16.6)
	Profit before tax		6.0	65.5
	Income tax credit/(charge)	4	0.3	(24.3)
	Profit for theyear		6.3	41.2
	Attributable to:
	Equity holders of Essentra plc		4.5	38.4
	Non-controllinginterests		1.8	2.8
	Profit for theyear		6.3	41.2
	Earnings per share attributable to equity holders of Essentra plc:
	Basic	6	1.7p	14.7p
	Diluted	6	1.6p	14.5p
	Earnings per share from continuing operations attributable to equity holders of Essentra plc:
	Basic	6	1.7p	14.7p
	Diluted	6	1.6p	14.5p
	Adjusted profit measure:		£m	£m
	Operating profit		21.7	80.0
	Amortisation of acquired intangible assets		22.6	22.9
	Adjustingitems	2	17.7	(15.4)
	Adjusted operating profit		62.0	87.5
	See note 28 for further details of the adjustedprofit measure.

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Financial Statements

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

		2020	2019
	Note	£m	£m
Profit for the year		6.3	41.2
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes	18	(6.7)	(4.9)
Deferred tax income on remeasurement of defined benefitpension schemes	4,16	2.1	1.0
		(4.6)	(3.9)
Items that may be reclassified subsequently to profit or loss:
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		(0.5)	0.8
Effective portion of changes in fair value of cash flow hedges		0.1	(0.6)
Foreign exchange translation differences:
Attributable to equity holders of Essentra plc:
Arising on translation of foreign operations		(9.3)	(42.9)
Arising on effective net investment hedges		(3.3)	7.5
Income tax (expense)/income	4	(0.5)	1.6
Attributable to non-controllinginterests		(0.5)	(0.6)
		(14.0)	(34.2)
Other comprehensive income for the year, net of tax		(18.6)	(38.1)
Total comprehensive income for theyear		(12.3)	3.1
Attributable to:
Equity holders of Essentra plc		(13.6)	0.9
Non-controllinginterests		1.3	2.2
Total comprehensive income for theyear		(12.3)	3.1

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FINANCIAL STATEMENTS

Consolidated Balance Sheet

At 31 December 2020

		31 December	31 December
		2020	2019
	Note	£m	£m
Assets
Property, plant and equipment	7	263.0	276.0
Lease right-of-use asset	9	52.7	43.4
Intangible assets	8	518.8	486.3
Long-term receivables		4.7	5.6
Deferred tax assets	16	16.8	13.6
Retirement benefit assets	18	12.6	16.9
Total non-current assets		868.6	841.8
Inventories	10	102.6	113.1
Income tax receivable		3.7	7.0
Trade and other receivables	11, 19	154.2	166.9
Derivative assets	15, 19	0.3	0.8
Other financial assets		---	6.2
Cash and cash equivalents	12, 19, 22	135.8	70.4
Total current assets		396.6	364.4
Total assets		1,265.2	1,206.2
Equity
Issued share capital	20	75.6	66.0
Merger relief reserve	21	385.2	298.1
Capital redemption reserve		0.1	0.1
Other reserve	21	(132.8)	(132.8)
Cash flow hedging reserve Translation reserve Retained earnings Attributable to equity holders of Essentra plc Non-controlling interests Total equity Liabilities	21	(0.1) (24.1) 313.9 617.8 13.3 631.1	0.3 (11.0) 312.4 533.1 7.7 540.8
Interest bearing loans and borrowings	14, 19, 22	285.2	249.0
Lease liabilities	22	49.1	39.3
Retirement benefit obligations	18	36.5	34.3
Provisions	17	8.0	6.0
Other financial liabilities	19	1.2	3.4
Other payables	13, 19	2.2	--
Deferred tax liabilities	16	45.5	45.3
Total non-current liabilities		427.7	377.3
Interest bearing loans and borrowings	14, 19, 22	---	60.7
Lease liabilities	22	11.9	11.4
Derivative liabilities	15, 19	0.5	0.3
Income tax payable		33.1	37.9
Trade and other payables	13, 19	155.4	174.5
Provisions	17	5.5	3.3
Total current liabilities		206.4	288.1
Total liabilities		634.1	665.4
Total equity and liabilities		1,265.2	1,206.2

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The consolidated financial statements on pages 151 to 199 were approved by the Board of Directors on 5 March 2021 and were signed on its behalf by:

Paul Forman Lily Liu Chief Executive Chief Financial Officer Company registration no: 05444653

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Financial Statements

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

	2020
	Issued capital £m Merger relief reserve £m Capital redemption reserve £m Other reserve £m Cash flow hedging reserve £m Translation reserve £m Retained earnings £m Non- controlling interests £m Total equity £m
At 1 January 2020 Profit for the year Other comprehensive income	66.0 298.1 0.1 (132.8) 0.3 (11.0) 312.4 7.7 540.8 4.5 1.8 6.3 (0.4) (13.1) (4.6) (0.5) (18.6)
Total comprehensive income for the year Issue of share capital Equity issue to non-controlling interest Share options exercised Share option expense Tax relating to share-based incentives Dividendspaid	--- --- --- --- (0.4) (13.1) (0.1) 1.3 (12.3) 9.6 87.1 96.7 5.0 5.0 0.1 --- 0.1 1.2 --- 1.2 0.3 --- 0.3 --- (0.7) (0.7)
At 31 December 2020	75.6 385.2 0.1 (132.8) (0.1) (24.1) 313.9 13.3 631.1

	2019
	Issued capital £m Merger relief reserve £m Capital redemption reserve £m Other reserve £m Cash flow hedging reserve £m Translation reserve £m Retained earnings £m Non- controlling interests £m Total equity £m
At 1 January 2019 Impact on adoption of IFRS 16	66.0 298.1 0.1 (132.8) 0.1 22.8 338.3 11.6 604.2 (5.2) --- (5.2)
Restated total equity at the beginningof the financialyear	66.0 298.1 0.1 (132.8) 0.1 22.8 333.1 11.6 599.0
Profit for the year Other comprehensive income	38.4 2.8 41.2 0.2 (33.8) (3.9) (0.6) (38.1)
Total comprehensive income for the year Acquisition of non-controlling interest Share options exercised Share option expense Tax relating to share-based incentives Dividendspaid	-- -- -- -- 0.2 (33.8) 34.5 2.2 3.1 (6.3) (5.3) (11.6) 0.4 -- 0.4 4.4 -- 4.4 0.5 -- 0.5 (54.2) (0.8) (55.0)
At 31 December 2019	66.0 298.1 0.1 (132.8) 0.3 (11.0) 312.4 7.7 540.8

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FINANCIAL STATEMENTS

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

		2020	2019
	Note	£m	£m
Operating activities
Profit for the year		6.3	41.2
Adjustments for:
Income tax (credit)/expense	4	(0.3)	24.3
Net finance expense	3	15.7	14.5
Intangible amortisation	2,8	25.2	23.8
Adjusting items	2	17.7	(15.4)
Depreciation of property, plant and equipment	7	37.6	35.5
Lease right-of-use asset depreciation	9	12.0	11.3
Profit on lease termination		(2.0)	--
Impairment of fixed assets		0.1	0.5
Share option expense	5,18	1.2	3.9
Hedging activities and other movements		1.3	0.4
Decrease/(increase) in inventories		9.6	(1.1)
Decrease in trade and other receivables		14.9	7.3
Decrease in trade and other payables		(18.3)	(16.5)
Cash outflow in respect of adjusting items		(10.9)	(24.6)
Adjustment for pension contributions		0.9	(1.3)
Movement inprovisions		---	(1.3)
Cash inflow from operating activities		111.0	102.5
Income taxpaid		(7.7)	(26.1)
Net cash inflow from operating activities		103.3	76.4
Investing activities Interest received Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Payments for intangible assets Acquisition of businesses net of cash acquired Proceeds from sale of businesses net of cash disposed Short-term investments	23 22	1.9 (30.9) 0.4 (14.2) (41.2) 5.0 0.6	1.3 (48.4) 2.6 (10.5) (26.1) 113.7 (0.6)
Net cash(outflow)/inflow from investing activities		(78.4)	32.0
Financing activities
Interest paid		(14.7)	(14.6)
Dividends paid to equity holders		---	(54.2)
Dividends paid to non-controlling interests		(0.7)	(0.8)
Acquisition of non-controlling interests		---	(11.6)
Repayments of short-term loans		---	(0.1)
Repayments of long-term loans		(352.9)	(207.3)
Proceeds from long-term loans		318.8	197.3
Lease liability principal repayments		(11.9)	(12.4)
Proceeds from equity issue		100.0	--
Costs incurred in equity issue		(3.3)	--
Proceeds from equity issue to non-controlling interests		5.0	--
Proceeds from sale of employee trust shares		0.1	0.4
Net cash inflow/(outflow) from financing activities		40.4	(103.3)
Net increase in cash and cash equivalents	22	65.3	5.1
		70.4	66.2
Net cash and cash equivalents at the beginning of the year
Net increase in cash and cash equivalents		65.3	5.1
Net effect of currencytranslation on cash and cash equivalents		0.1	(0.9)
Net cash and cash equivalents at the end of theyear	12,22	135.8	70.4

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ESSENTRA PLC FINANCIAL REPORT 2020 5

156 FINANCIAL STATEMENTS

ESSENTRA PLC ANNUAL REPORT 2020 FINANCIAL STATEMENTS

Financial Statements

Accounting Policies

a. Basis of preparation

The consolidated financial statements have been prepared and approved by the Directors in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applied in the European Union.

The Company has elected to prepare its individual company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (‘‘FRS 101’’); these are presented on pages 200 to 209.

The financial statements are prepared under the historical cost convention except for derivatives which are stated at fair value and retirement benefit obligations which are valued in accordance with IAS 19 Employee Benefits.

The preparation of financial statements that conform with adopted IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.

For the purposes of these financial statements ‘‘Essentra’’ or ‘‘the Group’’ means Essentra plc (‘‘the Company’’) and its subsidiaries.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and future periods if relevant.

The accounting policies used in the preparation of these financial statements are detailed below. These policies have been consistently applied to all periods presented.

Information regarding the financial position of the Group, its cash flows, liquidity position, and borrowing facilities are described in the Financial Review on pages 45 to 47. 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 2020, the Group’s financing arrangements amounted to £448.0m, comprising United States Private Placement (USPP) of US$100.0m (with a range of expiry dates from November 2024 to April 2030) and a multi-currency revolving credit facility (RCF) of £375.0m (of which £225.0m expires in November 2023 following extension agreed with lenders in January 2021, and the remaining amount in November 2022).

At 31 December 2020, £161.2m of the RCF facility was undrawn. 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 macroeconomic uncertainty, 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 notwithstanding the impact of current events such as Brexit and, after making enquiries including a review of forecasts and predictions, taking account of reasonably possible changes in trading performances and considering the existing banking 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 12 months following the date of approval of the financial statements, and no breaches of covenants are expected.

The uncertainty as to the future impact on the Group of the Covid-19 pandemic has been considered as part of the Group’s adoption of the going concern basis, taking into account the experience during 2020 and the most recent circumstances. As at 31 December 2020 and as at the date of approval of these financial statements, all of the Group’s manufacturing and distribution facilities are operational and have broadly resumed to pre-pandemic levels of service. Across the Group, public health measures advised by governments are being followed in support of their efforts to contain the spread of the virus, and the supply chain is being proactively managed as are operating costs and the timing of capital expenditure.

As part of the going concern assessment, the Board has also considered a downside scenario that reflects the current uncertainty in the global economy and which management consider to be severe but plausible. The results of this scenario show that there is sufficient liquidity in the business for a period of at least 12 months from the date of approval of these financial statements, and do not indicate any covenant breach during the test period. The scenario includes assumption for similar extent of disruptions as seen in 2020. Set against this were mitigating actions including tight management of capital expenditure, sales and general overhead, and working capital. Since the first Covid-19 external announcement issued by the Company in May 2020, the Group has been cash generative and hence the liquidity position has further improved. Overall liquidity (defined as available undrawn borrowing facility plus cash and cash equivalent excluding the amount attributable to noncontrolling interests) at the end of December was approximately £287m, which improved from approximately £260m at half-year, achieved by diligent cash flow management in the Company.

The severe but plausible scenario does not indicate a material uncertainty which may cast significant doubt over the Company’s and Group’s ability to continue as a going concern. Significant level of headroom remains in place with regard to liquidity and compliance with financial covenants. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Further information on the Group’s borrowing facilities, cash resources and other financial instruments can be found in notes 19 and 22 to the financial statements.

The Directors have prepared plans and forecasts for a period of at least twelve months from the date of signing these financial statements. 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.

In these financial statements, the Company has changed the layout of its consolidated income statement to present adjusted operating profit measure below the income statement. In addition, the description previously used for adjusting items has been changed from ‘‘exceptional and other adjusting items’’ to ‘‘adjusting items’’, whilst its scope and definition remains unchanged. Details of these items are provided in note 2.

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FINANCIAL STATEMENTS

a. Basis of preparation continued

Changes in accounting policies

The Group adopted the following new pronouncements during 2020, which did not have a material impact on the Group’s financial statement:

• Definition of Material (Amendments to IAS 1 and IAS 8), which clarifies when information is material and incorporate some of the guidance in IAS 1 about immaterial information

• Definition of a Business (Amendments to IFRS 3), which provides guidance on whether activities and assets acquired are a business or merely a group of assets, and confirms that a business must include inputs and a substantive process that together significantly contribute to the ability to create outputs; furthermore, there has been a change to the definition of the ‘outputs’

• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7), which is issued as a first reaction to the potential effects the IBOR reform could have on financial reporting

• Revised Conceptual Framework for Financial Reporting (Amendments to IFRS 9, IAS 39 and IFRS 7)

b. Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by Essentra. Control exists when Essentra is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

(ii) Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or income and expense arising from intragroup transactions are eliminated in preparing the consolidated financial statements.

c. Foreign currency

Items included in the financial statements of the Group’s subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (‘‘functional currency’’). The consolidated financial statements are prepared in sterling (functional currency of the parent company).

(i) Foreign currency transactions

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into sterling at the exchange rate ruling at that date and recognised in the income statement unless hedge accounting criteria apply (see policy for financial instruments).

(ii) Financial statements of foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into sterling at the exchange rate ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into sterling at average exchange rates.

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(iii) Net investment in foreign operations

Exchange differences on retranslation at the closing rate of the opening balances of overseas entities are taken to other comprehensive income, as are exchange differences arising on related foreign currency borrowings and derivatives designated as net investment hedges, to the extent that they are effective. Other exchange differences are taken to the income statement. Differences arising prior to 1 January 2004 are included in retained earnings.

d. Financial instruments

Interest bearing loans and borrowings and other financial liabilities (excluding derivatives) are held at amortised cost, unless they are included in a hedge accounting relationship. See note 15 for separate disclosure of hedge types.

Derivatives are measured initially at fair value. Subsequent measurement in the financial statements depends on the classification of the derivative as follows:

(i) Fair value hedges

Where a derivative is used to hedge the foreign exchange exposure of a monetary asset or liability, any gain or loss on the derivative is recognised in the income statement.

(ii) Cash flow hedges

Where a derivative is designated as a hedging instrument in a cash flow hedge, the change in fair value is recognised in other comprehensive income to the extent that it is effective and any ineffective portion is recognised in the income statement. Where the underlying transaction results in a financial asset, accumulated gains and losses are recognised in the income statement in the same period as the hedged item affects profit or loss. Where the hedged item results in a non-financial asset the accumulated gains and losses previously recognised in other comprehensive income are included in the initial carrying value of the asset.

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Financial Statements

Accounting Policies continued

d. Financial instruments continued

(iii) Hedges of net investment in foreign operations

The gain or loss on an instrument used to hedge a net investment in a foreign operation that is deemed effective is recognised in other comprehensive income. Any ineffective portion is recognised in the income statement.

(iv) Unhedged derivatives

The movements in the fair value of derivatives which are not designated as an effective hedge relationships are charged/credited to the profit or loss.

e. Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Previously revalued properties were treated as being held at deemed cost upon transition to adopted IFRS.

Where parts of an item of property, plant and equipment or other assets have different useful lives, they are accounted for as separate items. The carrying values of property, plant and equipment and other assets are periodically reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.

Property, plant and equipment are depreciated over their estimated remaining useful lives on a straight line basis at the following annual rates:

Land and buildings --- Freehold land Not depreciated Land and buildings --- Buildings 2% or life of lease if shorter Plant and machinery 7- - 20% Fixtures, fittings and equipment 10- - 33%

The assets’ useful lives and residual values are reviewed, and adjusted if appropriate, at each balance sheet date.

f. Lease liabilities and lease right-of-use assets

Leases greater than 12 months in length, and those not of low-value, are recognised as a lease right-of-use asset with the associated future lease payment terms recognised as a lease liability. The right-of-use assets and the associated lease liabilities are recognised by discounting the future lease payments at the rate implicit to the lease or, if the rate implicit to the lease cannot be readily determined, at the relevant incremental borrowing rate.

Determining the incremental borrowing rate incorporates three key elements: risk-free rate (reflecting specific country and currency), credit spread (reflecting the specific risk for each subsidiary within the Group) and an asset class adjustment (reflecting the variation in risk between asset categories).

The Group has leases of certain equipment (e.g. printing and photocopying machines) that are considered of low value. Rentals associated with leases that are of low-value or less than 12 months in length are expensed to the income statement on a straight line basis. The associated lease incentives are amortised in the income statement over the life of the lease.

(i) The Group’s leasing activities

The Group leases various properties, equipment and cars. Rental contracts are typically made for fixed periods of 1 to 20 years, but might have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets cannot be used as security for borrowing purposes. Approximately 85% of the Group’s future lease obligations under IFRS 16 relate to property leases.

The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the right-of-use asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payments that are based on an index or a rate;

• amounts expected to be payable by the lessee under residual value guarantees; and

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs; and

• restoration costs.

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FINANCIAL STATEMENTS

f. Lease liabilities and lease right-of-use assets continued

(ii) Variable lease payments

The Group have certain assets which may include variable lease payments based on usage, although this is a small proportion of the Group’s assets. These include vehicles, with variable lease payments based on mileage or equipment such as printers, of which the lease payments vary based on their usage. The variable lease payments are not material for the Group.

Any future variable payment increase that requires either speculation or an estimate is not included. Future lease payments should then be applied only when they are known, with no change to the discount rate.

(iii) Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

g. Intangible assets

(i) Goodwill

Goodwill is stated at cost less any impairment losses.

Acquisitions are accounted for using the purchase method. For acquisitions that have occurred since 1 January 2004, goodwill represents the difference between the fair value of the assets given in consideration and the fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. For acquisitions made before 1 January 2004, goodwill is included on the basis of its deemed cost, which represents the amount previously recorded under UK GAAP.

Since 1 January 2010, the Group has expensed costs attributable to acquisitions in the income statement. Given their one-off nature, these costs are generally presented within exceptional and other adjusting items.

(ii) Research and development

Research costs are expensed to the income statement in the year in which they are incurred.

Development costs relating to new products are capitalised when the Group is able to demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during development.

(iii) Acquired intangible assets

An intangible asset acquired in a business combination is recognised at fair value to the extent it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. Intangible assets principally relate to customer relationships, which are valued using discounted cash flows based on historical customer attrition rates, and developed technology, which is valued using an income approach. The cost of intangible assets is amortised through the income statement on a straight line basis over their estimated useful economic life.

(iv) Other intangible assets

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Other intangible assets which are not acquired through a business combination (‘‘non-acquired intangible assets’’) are recognised at cost to the extent it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably, and amortised on a straight line basis over their estimated useful economic life.

Intangibles are amortised over their estimated remaining useful lives on a straight line basis at the following annual rates:

Goodwill	Not amortised
Customer relationships	6-12%
Other intangibles --- research and development	7--20%
Other intangibles --- development of e-commerce	10--20%
Other intangibles --- software and software development	10---20%

h. Impairment

All assets are reviewed regularly to determine whether there is any indication of impairment. Goodwill is tested for impairment annually.

An impairment loss is recognised whenever the carrying amount of a non-financial asset or the cash generating unit to which it belongs exceeds its recoverable amount, being the greater of value in use and fair value less costs to sell, and is recognised in the income statement. Value in use is estimated based on future cash flows discounted using a pre-tax discount rate based upon the Group’s weighted average cost of capital .

Financial assets were assessed for impairment using the expected credit loss model which requires expected credit losses and changes to expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.

i. Inventories

Inventories are valued at the lower of cost and net realisable value. For work-in-progress and finished goods, cost includes an appropriate proportion of labour cost and overheads.

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Accounting Policies continued

j. Cash and cash equivalents

Cash and cash equivalents comprise cash balances and fixed term investments whose maturities are three months or less from the date of acquisition. Bank overdrafts repayable on demand form an integral part of Essentra’s cash management and are included as part of cash and cash equivalents in the statement of cash flows.

k. Loans and borrowings

Loans and borrowings are initially measured at cost (which is equal to fair value at inception plus issuance cost) and are subsequently measured at amortised cost using the effective interest method.

l. Trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost, which is generally equivalent to recognition at nominal value less impairment loss calculated using the expected loss model.

The Group applies the simplified model to recognise lifetime expected credit losses for its trade receivables and other receivables, including those due in greater than 12 months, by making an accounting policy election. The expected loss rate estimated for each ageing period is as follows: Current: 0.5%, Overdue 1-30 days: 1%, Overdue 31-60 days: 5%, Overdue 61-90 days: 10%, Overdue 91-180 days: 25%, Overdue 181-360 days: 50% and Overdue over 360 days: 100%.

m. Trade and other payables

Trade payables are non-interest bearing and are recognised initially at fair value and subsequently at amortised cost.

n. Income tax

Income tax in the income statement comprises current and deferred tax. Income tax is recognised in the income statement 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, the initial 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 dates.

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 benefits will be realised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against liabilities and when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis.

o. Revenue

Revenue from the sale of goods is recognised in the income statement net of expected discounts, rebates, refunds, credits, price concessions or other similar items, when the associated performance obligation has been satisfied, and control of the goods has been transferred to the customer.

A significant part of the Group’s businesses sell goods on an ex-works basis, where the Group as seller makes its goods ready for collection at its premises on an agreed upon sales date and the buyer incurs all transportation and handling costs and bears the risks for bringing the goods to their chosen destination.

Where the Group operates non ex-works terms with customers, revenue is recognised when the control of the goods has been transferred to the customer. These terms include consignment stock agreements, where revenue is recognised upon the customer removing goods from consignment stock provided the relevant conditions for revenue recognition are met.

Each customer arrangement/contract is assessed to identify the performance obligations being provided to the customer. Where distinct performance obligations are deemed to exist, an element of revenue is apportioned to that obligation.

p. Finance income and expense

Finance income and expense is recognised in the income statement as it accrues.

q. Segment reporting

A segment is identified on the basis of internal reports that are regularly reviewed by the Group Management Committee in order to allocate resources to the segment and assess its performance.

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r. Pensions

(i) Defined contribution schemes

Obligations for contributions to defined contribution pension schemes are expensed to the income statement as incurred.

(ii) Defined benefit schemes

The significant pension schemes in Europe and the US have been accounted for on a defined benefit basis.

The net obligations in respect of defined benefit pension schemes are calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any scheme assets is deducted. The discount rate is the yield at the balance sheet date on AA credit-rated bonds that have maturity dates approximating to the terms of Essentra’s obligations. The calculation is performed by a qualified independent actuary using the projected unit credit method. Net interest on defined benefit assets is presented within finance income, and net interest on defined benefit liabilities is presented within finance expense.

Actuarial gains and losses that have arisen are recognised in full in the consolidated statement of comprehensive income.

The amounts charged to operating profit are the current service cost, past service cost (including curtailments) and gains and losses on settlement.

The value of a net pension asset is limited to the amount that may be recovered either through reduced contributions or agreed refunds from the scheme.

s. Share-based payments

Essentra operates equity-settled, share-based incentive plans. A charge is made in the income statement based on the fair value of option awards using the Monte Carlo or binomial valuation models and relevant quoted share price information with a corresponding increase in equity. The fair value is measured at grant date and spread over the period between grant date and vesting date of the options. The amount recognised as an expense will be adjusted to reflect the actual number of share options that vest with the exception of options that fail to vest because market conditions are not met.

t. Adjusting items

Adjusting items are separately presented from other items by virtue of their nature, size and/or incidence (considered for each operating segment). They are identified separately in order for the reader to obtain a clearer understanding of the underlying results of the ongoing Group’s operations, by excluding the impact of items which, in management’s view, do not form part of the Group’s underlying operating results, such as gains, losses or costs arising from business acquisition and disposal activities, significant restructuring and closure costs and items which are non-recurring or one-off in nature (such as the costs of fundamental strategic review and reorganisation). Operating profit before adjusting items and acquired intangible amortisation is called adjusted operating profit, which forms the primary basis of management’s review and assessment of operational performance of the Group’s businesses.

(i) Gains/losses and transaction costs relating to acquisitions and disposals of businesses

In 2020, Essentra acquired 3C! Packaging, Inc. (‘‘3C!’’), incurring one-off acquisition related costs (refer to note 23). Further one-off costs were incurred as a result of acquisition of Nekicesa, Innovative Components, alongside professional fees associated with certain corporate development activities. A one-off credit was received in respect of a VAT refund on the costs of a previous business disposal.

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In 2019, Essentra disposed of the Pipe Protection Technologies, Speciality Tapes, Extrusion and Card Solutions businesses, incurring one-off gains and losses on those transactions. Further one-off costs (such as professional fees) were incurred on the aforementioned disposals and as a result of acquisitions of Nekicesa and Innovative Components (refer to note 23).

(ii) Acquisition integration and restructuring costs

These relate to costs incurred on the integration of acquired businesses and restructuring associated with acquisitions.

(iii) Other adjusting items

In 2020, this represents restructuring activities within the Packaging division, comprising the closure of Portsmouth, UK and Moorestown, USA; Components Europe, comprising the closure of the manufacturing facility in Åstorp, Sweden, and transfer to Barcelona, Spain, and closure of warehousing capabilities in Northern Europe and transfer to Nettetal, Germany; and Components Americas, comprising the closure of manufacturing sites in Schaumburg, Illinois, and Melbourne, Arkansas, with transfer of those activities to Flippin, Arkansas, and the closure of warehousing facilities in Edison in New Jersey, Elgin in Illinois and Los Angeles in California. In addition professional fees have been incurred as part of a strategic review of the Group’s operational structure and cost profile. This is offset by a credit arising on the release of excess provision held for potential penalties in relation to the review of the compliance of certain group companies’ export activities with US laws as the Company does not anticipate any significant enforcement action.

In 2019, this represented credits arising on the release of provisions for adjusting items previously created as a result of Packaging and Specialist Components restructuring (releasing closure provisions relating to the following sites: Largo and Kilmarnock in Packaging and Speciality Tapes Nottingham in Specialist Components), a credit has been recognised relating to the release of a lease liability, originally provided for as part of the closure of the Newport Cartons business in 2017, partially offset by costs in relation to restructuring of the Group Finance function and Specialist Components, and costs relating to the review, investigation and expected penalties relating to the compliance of certain group companies’ export activities within U.S. laws.

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Accounting Policies continued

u. Investment in own shares

The shares held in the Essentra Employee Benefit Trust for the purpose of fulfilling obligations in respect of share option plans are treated as belonging to the Company and are deducted from its retained earnings. The cost of shares held directly (treasury shares) are also deducted from retained earnings.

v. Provisions

A provision is recognised when there is a probable legal or constructive obligation as a result of a past event and a reliable estimate can be made of the outflow of resources that will be required to settle the obligation. The outflow is the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date.

w. Government grants

Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Government grants in respect of capital expenditure are included within the carrying amount of the related property, plant and equipment, and are released to profit or loss on a straight line basis over the expected useful lives of the relevant assets. Grants of a revenue nature are credited to profit or loss so as to match them with the expenditure to which they relate.

x. Net debt

Net debt is defined as cash and cash equivalents and short-term liquid investments, net of lease liabilities and interest bearing loans and borrowings.

y. Dividends

Dividends are recognised as a liability in the period in which they are approved by the shareholders of the Company (final dividend) or paid (interim dividend).

z. Assets and disposal groups held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held-for-sale and subsequent gains and losses on remeasurement are recognised in profit or loss.

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Critical Accounting Judgements and Estimates

The following provides information on those policies that management considers critical because of the level of judgement and estimation required which often involves assumptions regarding future events which can vary from what is anticipated. The Directors believe that the financial statements reflect appropriate judgements and estimates and provide a true and fair view of Essentra’s performance and financial position.

Accounting Estimates

(i) Business combinations and intangible assets

IFRS 3 requires the identification of acquired intangible assets as part of a business combination. The methods used to value such intangible assets require the use of estimates and judgements such as customer attrition, cash flow generation from the existing relationships with customers and returns on other assets. Future results are impacted by the amortisation periods adopted and changes to the estimated useful lives would result in different effects on the income statement and balance sheet.

Goodwill is not amortised but is tested annually for impairment, along with the finite-lived intangible assets and other assets of the Group’s cash generating units. During the period of uncertainty in 2020, management performed the impairment tests as at 30 June 2020 as well as 31 December 2020. Tests for impairment are based on discounted cash flows and assumptions (including discount rates, timing and growth prospects) which are inherently subjective. An estimate is also required in identifying the events which indicate potential impairment, and in assessing fair value of individual assets when allocating an impairment loss in a cash-generating unit or groups of cash-generating units. The Group performs various sensitivity analyses in respect of the tests for impairment, as detailed in note 8.

The useful lives of the Group’s finite-lived intangible assets are reviewed following the tests for impairment annually.

Judgement may also be required in determining the fair value of other assets acquired and liabilities (including contingent liabilities) assumed.

In preparing the consolidated financial statements the Group has considered the impact that climate change may have on key accounting judgements and estimates including asset useful economic lives and asset valuations and impairments. As set out on pages 36 to 41 of the Strategic Report, the Group continues to introduce initiatives designed to reduce the carbon emissions from its operations. As a result, the Group considers the environmental assumptions embedded within the Group’s strategic business plan to support the key forward looking accounting judgements and estimates.

(ii) Taxation

Liabilities for tax contingencies require management judgements and estimates in respect of tax audit issues and exposures in each of the jurisdictions in which it operates. Management is also required to make an estimate of the current tax liability together with an assessment of the temporary differences which arise as a consequence of different accounting and tax treatments. Where management conclude a tax position is uncertain, a current tax liability is held for anticipated taxes that are considered probable based on the information available.

Key judgement areas for the Group include the pricing of intercompany goods and services as well as the tax consequences arising from restructuring operations. Included in the tax payable is a liability of £12.0m (2019: £15.3m) for transfer pricing matters and £20.2m (2019: £18.7m) for other uncertain tax positions. The movement is due to adjustments for current year transactions, foreign exchange movements, expiry of statute of limitations following the passage of time and agreement reached with tax authorities on previous matters.

Management may engage with professional advisors in making their assessment and, if appropriate, will liaise with the relevant taxation authorities to resolve the matter. The tax liability is reassessed in each period to reflect Management's best estimate in light of information available. If the final outcome of these matters differs to the liability held in the financial statements, the difference may impact the income tax charge/(credit) in the year the matter is concluded.

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In April 2019, the European Commission issued its decision in a state aid investigation into the Group Financing Exemption in the UK controlled foreign company rules. The European Commission found that part of the Group Financing Exemption, which was introduced in legislation by the UK Government in 2013, constitutes state aid. In common with other UK-based international companies whose arrangements were in line with UK CFC legislation Essentra was potentially affected by the ultimate outcome of this investigation with a potential tax liability of between £nil and £16m.

In June 2019 the UK government and other UK-based international companies, including Essentra, appealed to the General Court of the European Union against the decision. In the meantime, the UK Government is required to follow the decision as it stands and assess the impact on UK companies and ultimately issue collection proceedings. Essentra responded to an information request from HMRC and on 22 February 2021 received confirmation of HMRC's view that Essentra is not a beneficiary of EU state aid.

(iii) Pensions

Essentra accounts for its defined benefit pension schemes in accordance with IAS 19. The application of IAS 19 requires the exercise of judgement in relation to the assumptions used, particularly in determining the discount rate, inflation rate assumption and mortality assumptions. For each assumption there is a range of possible outcomes (see note 18). In consultation with Essentra’s actuaries, management decides the point within those ranges that most appropriately reflects Essentra’s circumstances. Small changes to these assumptions can have a significant impact on valuations. The Group performs a sensitivity analysis for the significant assumptions used in determining post-employment costs and liabilities, as detailed in note 18.

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Financial Statements

Critical Accounting Judgements and Estimates continued

Accounting Judgements

(i) Adjusting items

Judgement is required to determine whether items should be included within adjusting items by virtue of their size or incidence. Details of the items categorised as adjusting items are disclosed in note 2.

As restructuring and reorganisation costs are recognised (for instance with respect to site rationalisation initiatives), estimates are often involved in relation to property-related costs (such as restoration and dilapidation costs, recoverable amount of lease right of use assets and potential sublet income) and asset impairment charges (in assessing recoverable amount such as fair value from potential sale of assets). Where appropriate and possible, management may engage with professional advisors in making these assessments.

(ii) Consolidation of a subsidiary

Judgement is required to establish whether control exists over an entity in which Essentra holds part of the share capital. Essentra has a 49% shareholding in China Tobacco Essentra (Xiamen) Filters Co., Ltd which has been consolidated as a subsidiary within the consolidated interim financial statements because management have assessed that Essentra has control over the entity to direct the relevant activities (including approval of budgets and capital investments, and appointment of key management personnel) that significantly affect the entity's returns and the ability to use its power to affect those returns, through a majority of membership in the entity's governing body (primarily the board of directors). Subsidiaries are fully consolidated during the period which the Group holds control.

(iii) Leases and lease right-of-use assets

A key judgement in determining the right-of-use asset and lease liability is establishing whether it is reasonably certain that an option to extend the lease will be exercised. Distinguishing whether a lease will be extended or otherwise could have a material impact on the value of the right-of-use assets and lease liabilities recognised on the balance sheet, but may not have a material impact on the income statement.

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

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Notes

1. Segment analysis

In accordance with IFRS 8, Essentra has determined its operating segments based upon the information reported to the Group Management Committee.

The operating segments are as follows:

Components is a global market leading manufacturer and distributor of plastic injection moulded, vinyl dip moulded and metal items.

Packaging is one of only two multi-continental suppliers of a full secondary packaging range to the health and personal care sectors.

Filters is the only global independent supplier of innovative cigarette filters and related solutions to the tobacco industry.

Specialist Components was dissolved in 2019, and for the purposes of the comparative information, it comprised the following smaller businesses which were divested in 2019:

• The Extrusion business is a leading custom profile extruder located in the Netherlands which offers a complete design and production service.

• The Pipe Protection Technologies business specialises in the manufacture of high performance innovative products from commodity resins to engineering-grade thermoplastics and polymer alloys for use in the oil & gas industry.

• The Speciality Tapes business has expertise in coating multiple adhesive systems in numerous technologies, and its products range from foam, magnetic, finger lift and acrylic high bond tapes to hook and loop and non-skid foam.

• The Card Solutions business is a leading European provider of ID card printers, systems and accessories to direct and trade customers.

The adjusted operating profit/loss presented for each operating segment includes the effect of allocation of certain functional costs such as finance, human resources, legal and IT, as well as costs relating to management of the divisions on an internal management methodology.

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Financial Statements

Notes continued

1. Segment analysis continued

	2020
	Components £m Packaging £m Filters £m Specialist Components £m Eliminations £m Central Services1 £m Total £m
External revenue	255.0 363.2 278.3 -- -- -- 896.5
Total revenue	255.0 363.2 278.3 --- --- --- 896.5
Operating profit/(loss) before intangible amortisation and adjusting items Amortisation of acquired intangible assets Adjustingitems	45.5 13.8 25.2 -- -- (22.5) 62.0 (8.9) (13.6) (0.1) -- -- -- (22.6) (4.7) (9.1) 0.9 -- -- (4.8) (17.7)
Operating profit/(loss)	31.9 (8.9) 26.0 --- --- (27.3) 21.7
Segment assets Intangible assets Unallocated items2	149.1 218.5 186.6 --- -- 23.0 577.2 165.2 316.0 22.6 -- -- 15.0 518.8 -- -- -- -- -- 169.2 169.2
Total assets	314.3 534.5 209.2 --- --- 207.2 1,265.2
Segment liabilities Unallocated items2	60.4 85.8 56.7 -- -- 30.4 233.3 -- -- -- -- -- 400.8 400.8
Total liabilities	60.4 85.8 56.7 --- --- 431.2 634.1
Other segment items Capital expenditure (cash spend) Depreciation Average number of employees	11.8 11.0 8.5 -- -- 13.8 45.1 7.3 13.7 10.7 -- -- 5.9 37.6 2,355 3,498 1,674 --- -- 276 7,803

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1. Segment analysis continued

	2019
	Components £m Packaging £m Filters £m Specialist Components £m Eliminations £m Central Services1 £m Total £m
External revenue Intersegment revenue	283.1 352.7 303.3 35.0 -- -- 974.1 0.2 -- 0.3 0.2 (0.7) --- --
Total revenue	283.3 352.7 303.6 35.2 (0.7) -- 974.1
Operating profit/(loss) before intangible amortisation and adjusting items Amortisation of acquired intangible assets Adjustingitems	60.3 15.1 36.2 4.8 -- (28.9) 87.5 (9.3) (12.7) (0.1) (0.8) --- -- (22.9) (1.6) 7.4 (9.2) 19.7 -- (0.9) 15.4
Operating profit/(loss)	49.4 9.8 26.9 23.7 -- (29.8) 80.0
Segment assets Intangible assets Unallocated items2	164.1 218.9 193.9 --- -- 28.1 605.0 171.1 283.6 22.3 --- -- 9.3 486.3 -- -- -- -- -- 114.9 114.9
Total assets	335.2 502.5 216.2 -- -- 152.3 1,206.2
Segment liabilities Unallocated items2	54.1 89.2 59.0 -- -- 35.6 237.9 -- -- -- -- -- 427.5 427.5
Total liabilities	54.1 89.2 59.0 -- -- 463.1 665.4
Other segment items Capital expenditure (cash spend) Depreciation Average number of employees	14.1 13.5 16.8 0.6 -- 13.9 58.9 7.4 12.0 10.7 0.1 -- 5.3 35.5 2,409 3,251 1,730 387 --- 221 7,998

1 Central Services includes executive and non-executive management, group finance, tax, treasury, legal, group assurance, human resources, information technology, corporate development, investor relations and other services provided centrally to support the operating segments.

2 The unallocated assets relate to income and deferred tax assets, retirement benefit assets, derivatives, short-term investments, loan receivables and cash and cash equivalents. The unallocated liabilities relate to interest bearing loans and borrowings, retirement benefit obligations, derivatives, deferred tax liabilities and income tax payable. Intersegment transactions are carried out on an arm’s length basis.

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Continuing operations' net finance expense of £15.7m (2019: £14.5m) and income tax credit of £0.3m (2019: expense of £24.3m) cannot be meaningfully allocated by segment.

No customer accounted for more than 10% of revenue in either 2020 or 2019. Analysed by destination, revenue to Europe & Africa is £443.2m (2019: £481.0m), revenue to Americas is £277.2m (2019: £296.4m) and revenue to Asia and Middle East is £176.1m (2019: £196.7m). Revenue to the UK is £81.5m (2019: £97.2m), with other significant countries being the USA with revenue of £210.4m (2019: £221.0m), Ireland £49.5m (2019: £50.9m) and Germany £48.9m (2019: £52.5m). Non-current assets in the UK total £167.9m (2019: £166.8m), with the other significant location being the USA with £321.6m (2019: £293.6m).

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Financial Statements

Notes continued

2. Net operating expense

	2020	2019
	£m	£m
Changes in inventories of finished goods and work-in-progress	9.1	3.9
Raw materials and consumables	368.5	401.9
Personnel expense1(note 5)	271.8	287.1
Depreciation of property, plant and equipment	37.6	35.5
Loss/(profit) on sale of property, plant and equipment	0.2	(0.2)
Depreciation of lease right-of-use assets	12.0	11.3
Amortisation of intangible assets	25.2	23.8
Adjusting items1	17.7	(15.4)
Exchange differences recognised in profit or loss	---	(0.3)
Other operatingexpenses	132.7	146.5
Net operating expenses	874.8	894.1

1 In addition to the above, the following items were included within adjusting items: personnel expenses totalling £1.5m (2019: £2.9m); and a pension curtailment credit of £0.4m (2019: £nil).

No income or expense (2019: £nil) was recognised in operating expense during the year in respect of ineffective cash flow hedges. Essentra’s hedges of net investments were also entirely effective in 2020 and 2019, and therefore no hedge ineffectiveness has been recognised in net operating expense in 2020 (2019: £nil). Research and development expenses (including relevant staff costs) charged to profit or loss during the year amounted to £3.2m (2019: £3.6m). Other operating expenses include manufacturing, selling, general and administrative overheads.

Adjusting items

	2020	2019
	£m	£m
Losses/(gains) and transaction costs relating to acquisitions and disposals of businesses1	5.7	(15.9)
Acquisition integration and restructuring costs2	0.5	0.7
Other3	11.5	(0.2)
Adjusting items	17.7	(15.4)

Adjusting items are separately presented from other items by virtue of their nature, size and/or incidence (considered for each operating segment). They are identified separately in order for the reader to obtain a clearer understanding of the underlying results of the ongoing Group’s operations, by excluding the impact of items which, in management’s view, do not form part of the Group’s underlying operating results, such as gains, losses or costs arising from business acquisition and disposal activities, significant restructuring and closure costs and other items which are non-recurring or one-off in nature (such as the costs of fundamental strategic review and reorganisation). Operating profit before adjusting items and acquired intangible amortisation is called adjusted operating profit, which forms the primary basis of management’s review and assessment of operational performance of the Group’s businesses.

The previous description "exceptional and other adjusting items" has been changed to "adjusting items", whilst its scope and definition remains unchanged.

• 1 Losses/gains and transaction costs relating to acquisitions and disposals of businesses are made up of £0.3m gain relating to a VAT refund on the costs of a previous business disposal, £0.1m consisting of acquisition related costs in relation to Innovative Components, £0.1m costs incurred in establishing the China JV and £1.2m costs incurred in acquiring 3C! Packaging, Inc. ("3C!"). The remaining £4.6m cost relates to external professional costs associated with certain corporate development activities during the year.

In 2019 there was a £8.9m gain on the disposal of Pipe Protection Technology, £14.9m gain on disposal of Speciality Tapes, offset by a £3.0m loss on disposal of the Extrusion business, £1.3m loss on disposal of the Card Solutions business, £1.5m costs incurred in establishing the Filters China joint venture, £0.1m costs incurred in acquiring non-controlling interest of Dubai, £0.9m costs incurred acquiring Innovative Components, and £0.8m costs incurred acquiring Nekicesa. The remaining £0.3m related to costs incurred in pursuit of acquisition targets.

2 Acquisition integration and restructuring costs relates to £0.3m of costs incurred in the integration of Nekicesa, acquired in 2019, and 3C!, acquired in 2020, into the existing business. Remaining £0.2m was incurred as a result of restructuring activities within the Filters division as a result of the integration of the newly established Filters China joint venture into the existing business.

In 2019, acquisition integration and restructuring costs related to the integration of; Hertila, acquired in 2018, Innovative Components, acquired in 2019, and Nekicesa, acquired in 2019, into the existing business. Included within the total is £0.1m credit relating to a release of Micro Plastics integration costs accrued.

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2. Net operating expense continued

• 3 Other adjusting items in 2020 of £11.5m relate to:

• £7.6m costs relating to restructuring activities within the Packaging division. These relate to costs incurred in the re-evaluation of the divisional footprint, which resulted in the announced closure of manufacturing facilities in Portsmouth, UK, and Moorestown, USA, as well as additional workforce rationalisation costs.

• £2.1m of cost in relation to restructuring activities within the Components Europe business following a review of the operational footprint of the region. This comprises £0.6m costs incurred in the transfer of manufacturing activities out of Åstorp, Sweden into Barcelona and £1.5m incurred on moving the warehousing capabilities of certain central northern European (Bergeijk in the Netherlands, Geretsried in Germany and Bratislava in Slovakia) into the newly established North European Distribution Hub in Nettetal, Germany.

• £2.5m of cost in relation to restructuring activities within the Components Americas business following a review of the operational footprint of the region. The review has resulted in the announcement of closures of manufacturing sites in Schaumburg, Illinois, and Melbourne, Arkansas and the transfer of production to the Components site to Flippin, Arkansas, as well as the exit of three smaller warehousing and distribution express sites in Edison in New Jersey, Elgin in Illinois and Los Angeles in California.

• £1.2m credit in relation to the review of the compliance of certain group companies' export activities with US laws, as previously disclosed in the 2019 Annual Report. This comprises £0.2m of external advisory and consultancy costs, offset by a £1.4m release of excess provision held for potential penalties in relation to this activity as the Company does not anticipate any significant enforcement action.

• £0.5m of external advisory costs in relation to a strategic review of the Group’s operational structure and cost profile, following the significant structural changes in recent years.

Other adjusting items in 2019 of £0.2m relate to:

• £6.2m credit relating to the release of onerous lease liabilities, originally provided for as part of the closure of the Newport Cartons business in 2017, as a result of lease surrender being agreed with the lessor.

• £2.9m credit relating to the release of excess restructuring and closure provisions relating to the closure of the Largo and Kilmarnock sites within the Packaging division and Speciality Tapes business at Nottingham within the now dissolved Specialist Components division.

• £0.6m cost in relation to the restructure of the Group Finance function. The programme represents an initiative to streamline and restructure the Finance function, in line with managements' vision of the future of the Finance function.

• £7.5m of cost in relation to a review of the compliance of certain group companies’ export activities, as previously disclosed in the 2019 Annual Report which included £3.2m of external advisory and consultancy costs involved in investigations conducted by the Group and £0.4m of costs of external resources for direct remediation actions were incurred. As a result of impact on trading transactions with certain customers, impairment losses of certain related assets (inventories, trade receivable and property, plant and equipment) amounting to £1.6m were also recognised.

• £0.7m restructuring cost relating to personnel within the now dissolved Specialist Components division not retained within the business.

• £0.1m in relation to Filters restructuring.

The tax effect of the adjusting items is a credit of £4.1m (2019: charge of £14.9m).

Auditor’s remuneration

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	2020	2019
	£m	£m
Audit of these financial statements	0.2	0.2
Amounts receivable by the Company's auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company	2.0	1.6
Audit-related assurance services1	0.2	0.2
	2.4	2.0

• 1 These mainly relate to review of the half year financial statements. In addition, non-audit services primarily relating to tax compliance services required by law outside EU for which fees in the year total less than £0.05m (2019: less than £0.05m).

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Notes continued

3. Net finance expense

	2020	2019
	£m	£m
Finance income
Bank deposits	0.8	0.8
Other finance income	0.8	0.8
Net interest on netpension scheme assets(note 18)	0.3	0.5
	1.9	2.1
Finance expense
Interest on loans and overdrafts	(11.1)	(12.2)
Amortisation of bank facility fees	(0.7)	(0.8)
Other finance expense	(2.4)	(0.3)
Net interest on net pension scheme liabilities (note 18)	(1.0)	(1.2)
Interest on leases	(2.4)	(2.1)
	(17.6)	(16.6)
Net finance expense	(15.7)	(14.5)

4. Income tax

	2020	2019
	£m	£m
Amounts recognised in the consolidated income statement
Current tax	5.9	19.9
Prior years' tax	0.5	(0.4)
Deferred tax (note 16)	(6.9)	4.6
Prioryears' deferred tax(note 16)	0.2	0.2
Income tax(credit)/expense	(0.3)	24.3
Amounts recognised in the consolidated statement of comprehensive income
Deferred tax credit on remeasurement of defined benefit pension schemes	(2.1)	(1.0)
Income tax expense/(credit)in respect of foreign exchange	0.5	(1.6)
Income tax credit	(1.6)	(2.6)

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4. Income tax continued

Factors affecting income tax for the year

Essentra operates in many countries and is subject to income tax in many different jurisdictions (the most significant jurisdictions being the UK, US, Singapore, Hungary, Thailand and Indonesia). Essentra has previously calculated an average expected tax rate as a weighted average of the applicable corporate income tax rates in the tax jurisdictions in which it operates. To enable a simpler comparison between years, Essentra has used the UK statutory tax rate of 19% (2019: 19%) to show an expected tax expense/(credit) and the effects of the items which create variances. The 2019 comparative reconciliation below has been represented to use the UK statutory tax rate.

	2020	2019
	£m	£m
Profit before income tax	6.0	65.5
Tax at UK statutory rate of 19.0% (2019: 19.0%)	1.1	12.4
Effects of:
Permanent disallowable items (including adjusting items)	(1.0)	5.3
Disposal of entities	---	8.8
Overseas state and local tax	0.6	(0.4)
Unrecognised tax attributes utilised1	(0.8)	(1.4)
Adjustments in respect of prior years	0.7	(0.2)
Withholding tax (including on unremitted earnings)	2.9	1.0
Change in tax rates2	(1.6)	0.3
Difference between UK and overseas tax rates3	(2.2)	(1.5)
Income tax(credit)/expense	(0.3)	24.3

Income tax expense in the UK is £1.9m (2019: £1.4m). The tax effect on exceptional items is included within note 2.

1 See further information regarding deferred tax asset recognition at note 16.

2 This reflects the impact of differences in substantively enacted, or enacted corporate tax rates, for future periods to those of the current period.

3 This reflects the impact of different tax rates in the jurisdictions in which Essentra operates by reference to the UK statutory rate. This impact may vary in future years due to changes in overseas tax rates or Essentra's geographical profit split.

5. Personnel expense

Wages and salaries Social security expense Pension expense (note 18)	2020 £m 236.8 24.5 9.3	2019 £m 247.5 26.0 9.7
Share option expense(note 18)	1.2	3.9
Totalpersonnel expense	271.8	287.1

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In addition to the above, the following items were included within adjusting items: personnel expenses totalling £1.5m (2019: £2.9m); and a pension curtailment credit of £0.4m (2019: £nil). The Report of the Remuneration Committee on pages 132 to 143 sets out information on Directors’ remuneration.

Key management remuneration

	2020	2019
	£m	£m
Short-term employee benefits	3.4	5.6
Post-employment benefits	0.5	0.8
Share-based payments	1.1	2.3
Termination benefits	---	0.3
	5.0	9.0

Essentra considers key management personnel to be the Directors and the members of the Group Management Committee. The amounts disclosed are on the same basis as those used to determine the relevant amounts disclosed in the Annual Report on Remuneration.

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Notes continued

6. Earnings per share

	2020	2019
	£m	£m
Earnings
Earnings attributable to equity holders of Essentra plc	4.5	38.4
Adjustments
Amortisation of acquired intangible assets	22.6	22.9
Adjustingitems	17.7	(15.4)
	40.3	7.5
Tax(charge)/relief on adjustments	(9.2)	9.8
Adjusted earnings	35.6	55.7
Weighted average number of shares
Basic weighted average ordinary shares outstanding (million)	272.7	262.0
Dilutive effect of employee share optionplans(million)	2.0	3.6
Diluted weighted average ordinaryshares(million)	274.7	265.6
Earnings per share (pence)
Basic earnings per share	1.7p	14.7p
Adjustment	11.4p	6.6p
Basic adjusted earningsper share	13.1p	21.3p
Diluted earningsper share	1.6p	14.5p
Diluted adjusted earningsper share	13.0p	21.0p

Adjusted earnings per share is provided to reflect the underlying earnings performance of Essentra.

The basic weighted average number of ordinary shares in issue excludes shares held in treasury and shares held by an employee benefit trust.

7. Property, plant and equipment

	2020
	Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m
Cost Beginning of year Acquisitions (note 23) Additions Disposals Transfers Currencytranslation	81.9 384.8 78.9 545.6 1.5 4.9 0.3 6.7 2.2 18.9 6.8 27.9 (0.7) (14.5) (4.2) (19.4) -- -- (1.9) (1.9) (0.1) (6.9) (0.6) (7.6)
End ofyear	84.8 387.2 79.3 551.3
Accumulated depreciation and impairment Beginning of year Charge in period Disposals Impairment Currencytranslation	13.4 215.4 40.8 269.6 3.7 25.5 8.4 37.6 (0.5) (14.2) (4.1) (18.8) 0.2 1.7 0.1 2.0 0.4 (2.4) (0.1) (2.1)
End ofyear	17.2 226.0 45.1 288.3
Net book value at end ofyear	67.6 161.2 34.2 263.0

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7. Property, plant and equipment continued

	2019
	Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m
Cost Beginning of year Acquisitions Business disposals Additions Disposals Transfers Currencytranslation	89.9 409.3 77.7 576.9 10.6 3.1 0.3 14.0 (18.0) (33.8) (2.3) (54.1) 4.5 33.2 11.8 49.5 (1.7) (13.3) (5.6) (20.6) 0.2 (1.5) (1.7) (3.0) (3.6) (12.2) (1.3) (17.1)
End ofyear	81.9 384.8 78.9 545.6
Accumulated depreciation and impairment Beginning of year Business disposals Charge in period Disposals Transfers Impairment Currencytranslation	20.9 232.6 41.2 294.7 (7.6) (22.2) (2.0) (31.8) 2.7 24.5 8.3 35.5 (1.2) (11.4) (5.6) (18.2) -- -- (0.5) (0.5) -- 0.2 0.5 0.7 (1.4) (8.3) (1.1) (10.8)
End ofyear	13.4 215.4 40.8 269.6
Net book value at end ofyear	68.5 169.4 38.1 276.0

Included within land and buildings, plant and machinery and fixtures, fittings and equipment are assets in the course of construction of £2.1m (2019: £14.2m) which were not depreciated during the year.

Contractual commitments to purchase property, plant and equipment amounted to £1.4m at 31 December 2020 (2019: £2.0m).

During the year property, plant and equipment with a net book value of £2.5m was impaired by £2.0m to a recoverable amount of £0.5m, which represented fair value less cost to sell. £1.9m of this impairment relates to restructuring projects and has been charged to adjusting items.

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Notes continued

8. Intangible assets

	2020
	Goodwill £m Customer relationships £m Other intangible assets £m Total £m
Cost Beginning of year Acquisitions (note 23) Additions Transfer Currencytranslation	339.0 402.1 23.8 764.9 20.9 25.4 -- 46.3 -- -- 14.2 14.2 -- -- 1.9 1.9 (3.9) (3.1) (0.2) (7.2)
End ofyear	356.0 424.4 39.7 820.1
Amortisation and impairment Beginning of year Charge for the year Currencytranslation	28.3 243.8 6.5 278.6 -- 22.3 2.9 25.2 (0.5) (1.8) (0.2) (2.5)
End ofyear	27.8 264.3 9.2 301.3
Net book value at end ofyear	328.2 160.1 30.5 518.8

	2019
	Goodwill £m Customer relationships £m Other intangible assets £m Total £m
Cost Beginning of year Acquisitions Business Disposals Additions Disposals Transfer Currencytranslation	370.8 430.3 17.1 818.2 12.6 13.3 0.7 26.6 (34.5) (27.0) -- (61.5) -- -- 10.5 10.5 -- -- (7.3) (7.3) -- -- 3.0 3.0 (9.9) (14.5) (0.2) (24.6)
End ofyear	339.0 402.1 23.8 764.9
Amortisation and impairment Beginning of year Business Disposals Charge for the year Transfer Disposals Currencytranslation	31.9 246.7 11.4 290.0 (3.0) (17.6) --- (20.6) -- 21.9 1.9 23.8 -- -- 0.5 0.5 -- -- (7.3) (7.3) (0.6) (7.2) --- (7.8)
End ofyear	28.3 243.8 6.5 278.6
Net book value at end ofyear	310.7 158.3 17.3 486.3

Included within other intangible assets are assets in the course of construction of £15.8m (2019: £9.8m) which were not amortised during the year.

Other intangible assets principally comprise trade names acquired with Reid Supply, developed technology acquired with Richco, order backlog, software development and e-Commerce development costs.

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8. Intangible assets continued

The e-Commerce development and software development costs were not acquired through a business combination, and their amortisation is included within operating profit before amortisation of acquired intangibles and adjusting items.

The weighted average remaining useful lives of customer relationships and other intangible assets at the end of the year were 8.1 years and 5.8 years (2019: 7.9 years and 6.3 years) respectively.

Essentra tests intangible assets annually for impairment, or more frequently if there are indications of impairment. A discounted cash flow analysis is computed to compare the discounted estimated future operating cash flows to the net carrying value of the goodwill and other intangible and tangible assets for each cash generating unit or group of cash generating units as appropriate.

Goodwill is allocated to groups of cash generating units, being the operating segments, as follows:

	Goodwill
	2020 £m 2019 £m
Components Packaging Filters	95.3 98.5 211.2 190.5 21.7 21.7
	328.2 310.7

Intangible assets, apart from goodwill, are allocated to the businesses to which they relate as shown below:

Business	Customer relationships and other intangible assets
	Operating segment 2020 £m 2019 £m
Components --Businesses of former Moss and Skiffy Components --Businesses of former Richco Components --Business of former Mesan Components --Business of former Abric Components --Business of former MicroPlastics Components --Industrial Supply Components --Innovative Components Components --e-Commerce development costs Components --other businesses Packaging --Americas Packaging --Asia Packaging --Europe Packaging --Nekicesa Filters No allocated to divisions --software and development costs	Components 10.3 10.7 Components 18.4 22.6 Components 3.0 4.6 Components 8.1 8.6 Components 4.0 4.5 Components 2.4 3.5 Components 7.2 8.1 Components 12.6 5.2 Components 3.9 4.8 Packaging 50.3 31.9 Packaging 1.2 1.5 Packaging 49.1 55.5 Packaging 4.2 4.2 Filters 0.9 0.6 Central 15.0 9.3
	190.6 175.6

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At 31 December 2020, management has performed an impairment review of the assets in each division. Following the impairment assessment, no impairment loss was recognised in 2020.

The impairment assessment for intangible assets (excluding goodwill) and property, plant and equipment is performed on the cash generating units within the divisions. The cash generating units are primarily the manufacturing sites. Goodwill is tested at the divisional level, which is the level that management monitor goodwill at. The recoverable amount is estimated on the basis of value in use, i.e. discounted cash flow projection expected to be generated by the group of cash generating units. For assets in the cash generating units assessed to be impaired, their fair value less costs to sell is also considered in determining the impairment loss to be recognised, if any. In these cases, the fair value less costs to sell is based on estimated market prices reflecting the age and condition of the asset.

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Financial Statements

Notes continued

8. Intangible assets continued

The impairment tests for goodwill and intangible assets are based on the business plan (the "Plan"). Cash flow projections are over five years using the approved annual budget for the first year and subsequent years based on the Group's Strategic Plan. The Groups impairment test incorporates the following assumptions:

• Impairment reviews take into account the impact of IFRS 16 in both the calculation of discounted cash flows and the asset base.

• The key assumptions in the cash flow projections for the Plan are the revenue growth and operating margin for each division. Operating margin is primarily based on historical levels achieved, adjusted by targets set for revenue expansion and cost control and reduction for each individual division within the Plan period. The key assumptions underlying the estimation of cash flow projections for value in use are operating profit margin and revenue growth assumptions. 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 compound annual revenue growth rate assumption across all three divisions for the next five years ranges from 4.1% to 7.5%. The average operating profit margin assumption for the next five years included within the Packaging division impairment assessment ranges from 8.3% to 11.3%. In respect of Components and Filters, the combined average operating profit margin over the five year forecast period is assumed to improve by 260 bps from 2020.

• In relation to the test for the Components and Filters divisions, cash flows beyond the first year of the model are based on the approved annual budget with growth rates specific to each business applied to revenue of up to 7.8%.

• The estimated cash flows are discounted using a pre-tax discount rate based upon Essentra’s estimated post-tax weighted average cost of capital of 7.3% (2019: 7.5%). The specific pre-tax discount rates applied for each group of cash generating units to which significant goodwill is allocated are as follows: 8.8% for Packaging, 9.4% for Components and 9.7% for Filters (2019: 9.0% for Packaging, 9.7% for Components and 9.5% for Filters).

• In relation to the test for the Packaging division, management carried out a detailed assessment of the growth and profit margin assumptions for each of the next four years after the Plan period, and applied a terminal growth rate of 1.5% p.a. (2019: 1.5%) subsequently. The growth and profit margin assumptions are based on management’s assessment of market condition and scope for cost and profitability improvement, taking into account realisable synergies following the recent integration and reorganisation activities.

The Packaging division impairment test has historically been the most sensitive to changes in assumptions, therefore management have performed additional sensitivity analysis to assess the robustness of the current headroom the recoverable amount has above the carrying amount. The following change to key assumptions will cause the carrying amount to exceed the recoverable amount in the Packaging division:

• An increase in discount rate of 300 basis points

• A reduction of 510 basis points in the operating profit margin in the terminal year

• A reduction of 410 basis points in the terminal growth rate

Management considered the following reasonably possible changes in the key assumptions, and the associated impact on the impairment assessment, in relation to the Packaging division:

• A 1.0% increase in discount rate would reduce headroom to £143.8m

• A 1.0% reduction in the terminal growth rate would reduce headroom to £162.8m

• A 1.5% reduction in each year’s growth rate would reduce headroom to £218.9m

• A 2.0% reduction in operating profit margin in the terminal year would reduce headroom to £153.2m

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9. Lease right-of-use assets

	2020
	Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m
Cost Beginning of year Additions Terminations Acquisitions (note 23) Currencytranslation	84.4 14.6 0.2 99.2 19.5 2.2 0.2 21.9 (2.5) (2.9) -- (5.4) 2.5 --- -- 2.5 (1.9) --- -- (1.9)
End ofyear	102.0 13.9 0.4 116.3
Accumulated depreciation Beginning of year Charge for the year Terminations Impairment Currencytranslation	50.2 5.5 0.1 55.8 8.8 3.1 0.1 12.0 (2.3) (2.9) -- (5.2) 1.7 -- -- 1.7 (0.7) --- -- (0.7)
End ofyear	57.7 5.7 0.2 63.6
Net book value at end ofyear	44.3 8.2 0.2 52.7

	2019
	Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m
Cost Beginning of year Additions Terminations Acquisitions Business disposals Currencytranslation	83.2 11.1 0.2 94.5 10.6 2.6 0.1 13.3 (4.4) (2.0) (0.1) (6.5) 0.3 3.5 -- 3.8 (2.6) (0.2) -- (2.8) (2.7) (0.4) --- (3.1)
End ofyear	84.4 14.6 0.2 99.2
Accumulated depreciation Beginning of year Charge for the year Terminations Business disposals Currencytranslation	48.2 4.8 0.2 53.2 8.2 3.1 -- 11.3 (2.9) (2.0) (0.1) (5.0) (1.6) (0.2) -- (1.8) (1.7) (0.2) --- (1.9)
End ofyear	50.2 5.5 0.1 55.8
Net book value at end ofyear	34.2 9.1 0.1 43.4

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During the year lease right-of-use assets with a net book value of £2.7m was impaired to a net book value of £1.0m. This £1.7m impairment charge related to site closures as disclosed in adjusting items section of note 2. The assets were written down to their recoverable amount, which represents their fair value. Contractual commitments to lease property, plant and equipment amounted to £4.0m at 31 December 2020 (2019: £5.1m).

NOTES

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Financial Statements

Notes continued

9. Lease right-of-use assets continued

The income statement shows the following amounts relating to leases:

	2020	2019
	£m	£m
Lease right-of-use asset depreciation	12.0	11.3
Interest expense (included in finance cost)	2.4	2.1
Exchange losses (included in finance cost)	1.1	0.1
Expense relating to short-term leases (included in cost of goods sold and administrative expenses)	0.2	0.2
Expense relating to leases of low-value assets that are not shown above as short-term leases
(included in operatingexpenses)	0.1	0.2
	15.8	13.9

The lease expenses for short-term leases for the year ending 31 December 2021 is not expected to be materially different to the expense as disclosed above.

The maturity analysis on the lease liabilities have been included within note 19. The total cash outflow for leases and analysis of movements in lease liabilities are included within note 22.

For the year ended 31 December 2020 the weighted average lessee's incremental borrowing rate applied to the lease liabilities was 5.1% (2019: 3.9%).

10. Inventories

	2020	2019
	£m	£m
Raw materials and consumables	44.5	45.9
Work-in-progress	10.7	9.9
Finishedgoods andgoods held for resale	47.4	57.3
	102.6	113.1

Inventories with a total value of £nil (2019: £0.9m) were written down in the year.

11. Trade and other receivables

	2020	2019
	£m	£m
Trade receivables	131.8	140.0
Other receivables	15.3	16.4
Prepayments and accrued income	7.1	10.5
	154.2	166.9

12. Cash and cash equivalents

	2020	2019
	£m	£m
Bank balances	121.5	62.6
Short-term bank deposits and investments	14.3	7.8
Cash and cash equivalents	135.8	70.4

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13. Trade and other payables

	2020	2019
	£m	£m
Trade payables	88.3	108.3
Other tax and social security contributions	11.3	8.0
Other payables	13.7	14.3
Accruals and deferred income	44.3	43.9
	157.6	174.5

Included within other tax and social security contributions are non-current liabilities of £2.2m (2019: £nil).

14. Interest bearing loans and borrowings

	2020	2019
	£m	£m
Non-current liabilities
Unsecured bank loans	212.6	192.5
US Private Placement Loan Notes	72.6	56.5
	285.2	249.0
Current liabilities
Other unsecured loans	---	0.1
US Private Placement Loan Notes	---	60.6
	---	60.7

At 31 December 2020, the Group had £154.0m (2019: £135.0m), and € 67.0m (2019: € 70.0m) of unsecured bank loans drawn in sterling and euros at floating rates of interest set by reference to LIBOR. Essentra’s $100.0m US Private Placement Loan Notes are at a weighted average interest rate of 4.44% per annum (2019: 5.26%).

In April 2020, a $80m USPP loan note matured, and a new USPP facility of $25m was drawn (for which the note purchase agreement was signed in December 2019), of which $15m matures in April 2027 and $10m in April 2030. In addition, $75m of USPP loan notes raised in prior years remain in place, which mature between November 2024 and November 2029. The RCF is made up of two tranches, £285m and € 100.8m. The maturity of £225m of the overall borrowing under the RCF was extended on 11 January 2021 for a further year to November 2023, with the balance remaining on the original terms with a maturity date of November 2022. At 31 December 2020 the available bank facilities totalled £375.0m, of which £213.8m was drawn. Furthermore, a bridging loan facility for £50.0m was agreed by banks in February 2020, which was drawn and subsequently fully repaid during the year.

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The currency profile of the carrying and nominal values of Essentra's loans and borrowings is as follows:

	2020 Carrying Value £m Nominal Value £m	2019
		Carrying Value £m Nominal Value £m
Sterling US dollar Euro	153.1 154.0 72.6 73.0 59.5 59.8	133.7 135.0 117.1 117.4 58.9 59.4
	285.2 286.8	309.7 311.8

The difference between the total nominal and carrying value of loans and borrowings relates to the amortised value of prepaid facility fees of £1.6m (2019: £2.1m).

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Financial Statements

Notes continued

15. Derivatives

Essentra uses derivatives to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its Treasury policy, Essentra does not hold or issue derivatives for trading purposes.

		Assets Contractual or notional amounts £m	Liabilities
	Fair Values £m		Fair Values £m Contractual or notional amounts £m
At 31 December 2020 Derivatives held as cash flow hedges Forward foreign exchange contracts	0.3	17.4	0.5 12.3
	0.3	17.4	0.5 12.3
		Assets Contractual or notional amounts £m	Liabilities
	Fair Values £m		Fair Values £m Contractual or notional amounts £m
At 31 December 2019 Derivatives held as cash flow hedges Forward foreign exchange contracts	0.8	27.0	0.3 16.5
	0.8	27.0	0.3 16.5

Cash flow hedges are hedges of the currency risk exposure to variability in cash flows. They relate to trading transactions and interest payments denominated in foreign currencies.

Hedges of net investments are hedges of the currency risk exposure to changes in the carrying value of net investments in foreign operations.

The net fair value gains or losses on open forward foreign exchange contracts that hedge foreign currency risk of anticipated future sales, purchases and interest payments are accounted for as cash flow hedges. The fair value will be transferred to the consolidated income statement when the forecast transactions occur. All of the hedged transactions are expected to occur over the next 12 months and all derivative instruments mature within the next 12 months.

Essentra had US dollar and euro denominated borrowings which it designated as hedges of its net investments in subsidiary undertakings. The exchange losses of £1.2m (2019: gains of £3.7m) on the US dollar borrowings and the losses of £3.2m (2019: gains of £3.9m) on the euro borrowings were recognised in other comprehensive income. In addition, certain foreign exchange contracts were also designated as hedges of the Group’s net investments in foreign operations.

Finance income and expense arising on financial assets and financial liabilities held at amortised cost are those amounts, excluding interest on pension scheme assets and interest on pension scheme liabilities, detailed in note 3.

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16. Deferred tax

Deferred tax assets and liabilities are attributable to the following:

	2020 Assets £m Liabilities £m Net £m Income Statement: Charge/ (Credit) £m	2019
		Assets £m Liabilities £m Net £m Income Statement: Charge/ (Credit) £m
Property, plant and equipment1 Intangible assets2 Employee benefits3 Other4	(10.1) 13.2 3.1 (1.8) --- 43.5 43.5 (3.5) (11.2) 2.4 (8.8) 0.4 (18.7) 9.6 (9.1) (1.8)	(8.1) 13.0 4.9 2.5 -- 41.1 41.1 (2.8) (10.1) 2.9 (7.2) 0.3 (14.9) 7.8 (7.1) 4.8
Tax (assets)/liabilities Set off of tax	(40.0) 68.7 28.7 --- 23.2 (23.2) --- ---	(33.1) 64.8 31.7 -- 19.5 (19.5) -- --
Net tax(assets)/liabilities	(16.8) 45.5 28.7 ---	(13.6) 45.3 31.7 --
Total income statement charge/(credit)	--- --- --- (6.7)	-- -- -- 4.8

• 1 A deferred tax liability arises on property, plant and equipment as the tax value of assets is lower than the corresponding accounting value. This arises as tax deductions are determined by the applicable tax laws in each country the Group operates in whereas accounting depreciation is calculated in line with the Group's accounting policy.

2 A deferred tax liability is provided on temporary differences arising on the Group's intangible assets as in the majority of cases the local tax authorities do not allow deduction for amortisation of these intangible assets. The movement during the period is due to the acquisition of the 3C! business offset by reducing intangible asset value from the amortisation charge for the year.

3 This represents deferred tax on the Group's defined benefit pension schemes and share-based incentives.

4 This includes expenditure that will be deductible in future periods for tax purposes when the amounts are settled in cash, tax losses expected to be utilised in future periods and withholding tax on overseas earnings from Group companies expected to be remitted in the foreseeable future of £8.5m (2019: £6.2m).

Movements in the year:

	2020	2019
	Total	Total
	Net	Net
Beginning of the year (Credit)/charge to the income statement in respect of current year Charge to the income statement in respect of prior years Credit to other comprehensive income Credit to reserves on share-based incentives Reclassification --- IFRS 16 adjustment Reclassification to current tax	£m 31.7 (6.9) 0.2 (2.1) (0.3) --- ---	£m 35.7 4.6 0.2 (1.0) (1.0) (1.2) (1.0)
Acquisitions & disposals	6.9	(2.8)
Currencytranslation	(0.8)	(1.8)
End ofyear	28.7	31.7

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As at 31 December 2020 it was expected that earnings from certain overseas Group companies will be remitted and a deferred tax liability of £8.5m (2019: £6.2m) has been recognised accordingly. This represents withholding taxes payable on the remittance of these earnings under local tax laws. The amount of temporary differences associated with investments in subsidiaries and branches for which deferred tax liabilities have not been recognised is £94.0m as at 31 December 2020 (2019: £134.0m), and the associated amount of unrecognised deferred tax is £10.6m (2019: £15.2m).

Based on available information, management determined whether it is probable for some or all of the deferred tax assets to be recognised. In determining this management considered the cumulative losses in prior years, the history of tax losses, the manner in which assets can be used (including time limitations under local laws), future earnings potential and expectation of future reversal of taxable temporary differences. Following management assessment, gross deferred tax assets of £0.2m (2019: £0.2m) in respect of capital losses and unutilised tax losses of £26.8m (2019: £27.3m) have not been recognised as their realisation is not probable. The capital losses have an unlimited expiry date. The tax losses expire as follows: £5.7m within 5 years, £0.2m in 5 --- 10 years, £nil in over 10 years and £20.9m with no expiry. If future conditions change the amount of unrecognised deferred tax assets will be reassessed. This may impact the income tax expense/(credit) in the year of remeasurement.

It was announced in the UK Budget on 3 March 2021 that, if enacted, the UK corporation tax rate would increase to 25% with effect from 1 April 2023. The impact of this announcement in relation to deferred tax is being assessed and is not expected to be significant.

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Notes continued

17. Provisions

	2020
	Reorganisation £m Other £m Total £m
Beginning of year Business combinations Provisions made during year Provisions released during year Utilised during year Currencytranslation	--- 9.3 9.3 -- 0.3 0.3 5.2 1.4 6.6 -- (1.7) (1.7) -- (0.9) (0.9) -- (0.1) (0.1)
End ofyear	5.2 8.3 13.5
Non-current Current	0.6 7.4 8.0 4.6 0.9 5.5
End ofyear	5.2 8.3 13.5
	2019
	Reorganisation £m Other £m Total £m
Beginning of year Impact on adoption of IFRS 16 Provisions made during year Provisions released during year Utilised during year Currencytranslation	17.0 9.0 26.0 (7.6) (1.7) (9.3) -- 3.4 3.4 (8.2) (1.3) (9.5) (1.0) -- (1.0) (0.2) (0.1) (0.3)
End ofyear	-- 9.3 9.3
Non-current Current	-- 6.0 6.0 -- 3.3 3.3
End ofyear	-- 9.3 9.3

Reorganisation provisions are generally held against restructuring and redundancy costs, primarily related to the integration of acquired businesses and restructuring associated with acquisitions. During the year £5.2m was provided under restructuring provisions in relation to site closures, further detail of these closures can be found in note 2.

Other provisions relate primarily to non-lease contracts on vacant properties, lease dilapidations, employees' compensation claims, regulatory claims and other claims.

Non-current provisions are generally provisions for non-lease service contracts on vacant properties and lease dilapidations which are expected to be utilised within the next 10 years. The timing of the utilisation of the lease dilapidations assumes the business continues to operate based on the most up to date business plan. The release of other provisions during the year relates mostly to claims and non-lease property-related provisions.

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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 2018 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.

The amounts included in the consolidated financial statements are as follows:

	2020	2019
	£m	£m
Amounts expensed against operating profit
Defined contribution schemes	7.2	7.5
Defined benefit schemes --current service cost	1.6	1.7
Defined benefit schemes --curtailment gain	(0.4)	--
Otherpost-employment obligations	0.5	0.5
Total operating expense	8.9	9.7
Amounts included as finance (income)/expense Net interest on defined benefit scheme assets (note 3) Net interest on defined benefit scheme liabilities(note 3) Net finance expense Amounts recognised in the consolidated statement of comprehensive income	(0.3) 1.0 0.7	(0.5) 1.2 0.7
Return on defined benefit scheme assets excluding amounts in net finance income	(32.4)	(29.6)
Impact of changes in assumptions and experience to thepresent value of defined benefit scheme liabilities	39.1	34.5
Remeasurement of defined benefit schemes	6.7	4.9

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The defined benefit schemes’ curtailment gain of £0.4m (2019: £nil) has been included within adjusting items (see note 2).

During 2015, the principal defined benefit pension schemes in the UK and the US were closed to future accrual. Following the closure of the Group’s principal defined benefit pension schemes to future accruals, the schemes are funded by the Group’s subsidiaries and employees are not required to make any further contribution. The funding of these schemes is based on separate actuarial valuations for funding purposes for which the assumptions may differ from those used in the valuation for IAS 19 purposes.

There has been a change to the methodology and assumptions relating to Retail Prices Index (RPI) and Consumer Prices Index (CPI) in 2020. This was due to the Chancellor issuing a response to set out that RPI inflation will be aligned with CPIH inflation (CPI plus housing) by no later than 2030. As such, the actuary has derived the inflation assumption based on a ‘term-based’ curve approach, by weighing the Scheme’s projected cash flows with the gilt-based RPI curve.

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Notes continued

18. Employee benefits continued

The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 are as follows:

	2020 Europe US	2019
		Europe US
Increase in salaries (pre-2010)1 Increase in salaries (post-2010)1 Increase in pensions1 at RPI capped at 5% at CPI capped at 5% at CPI minimum 3%, capped at 5% at CPI capped at 2.5% Discount rate Inflation rate --- RPI Inflation rate --- CPI	n/a n/a n/a n/a 2.70% n/a 2.20% n/a 3.10% n/a 1.90% n/a 1.30% 2.45% 2.70% n/a 2.20% n/a	n/a n/a n/a n/a 2.90% n/a 2.10% n/a 3.10% n/a 1.90% n/a 2.10% 3.15% 3.00% n/a 2.10% n/a

1 For service prior to April 2010, pension at retirement is linked to salary at retirement. For service after April 2010, pension is linked to salary at April 2010 with annual increases capped at 3%.

Due to the timescale covered, the assumptions applied may not be borne out in practice.

The life expectancy assumptions (in number of years) used to estimate defined benefit obligations at the year end are as follows:

	2020 Europe US	2019
		Europe US
Male retiring today at age 65 Female retiring today at age 65 Male retiring in 20 years at age 65 Female retiringin 20years at age 65	22.5 20.4 24.3 22.4 23.8 21.9 25.7 23.8	22.3 20.6 24.2 22.6 23.7 22.2 25.6 24.1

The allocation of assets between different classes of investment is reviewed regularly and is a key factor in the trustees’ investment policies. The allocation of assets is arrived at taking into consideration current market conditions and trends, the size of potential returns relative to investment risk and the extent to which asset realisation needs to match liability maturity. There are risks underlying these considerations. If asset returns fall below the returns required for scheme assets to match the present value of scheme liabilities, a scheme deficit results. Persistent deficits represent an obligation the Group has to settle through increased cash contributions. If asset maturities are not properly matched with liability maturities, there is also the risk that the Group could be required to make unplanned short-term cash contributions to resolve resulting liquidity issues. Scheme assets are invested by the trustees in asset classes and markets that are considered to be reasonably liquid, so through this matching liquidity risk is considered to be sufficiently mitigated.

The fair value of scheme assets, which are not intended to be realised in the short-term and may be subject to significant change before they are realised, and the present value of the pension scheme liabilities, which are derived from cash flow projections over long periods and are therefore inherently uncertain, are:

	2020
	Europe £m US £m Total £m
Equities Bonds/LDI Other	26% 67.1 61% 33.4 100.5 74% 189.8 38% 20.4 210.2 -- 0.6 1% 0.7 1.3
Fair value of scheme assets Present value of scheme liabilities	257.5 54.5 312.0 (248.7) (83.3) (332.0)
Net retirement benefit assets/(obligations)	8.8 (28.8) (20.0)

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18. Employee benefits continued

	2019
	Europe £m US £m Total £m
Equities Bonds/LDI Other	27% 61.6 57% 31.7 93.3 73% 169.1 43% 23.9 193.0 -- 1.2 -- 0.3 1.5
Fair value of scheme assets Present value of scheme liabilities	231.9 55.9 287.8 (218.5) (82.7) (301.2)
Net retirement benefit assets/(obligations)	13.4 (26.8) (13.4)

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 2020 is 19.0 years (2019: 18.0 years). The average expected duration of the Group’s US defined benefit pension liability at 31 December 2020 is 12.7 years (2019: 12.4 years).

The Group’s contributions to its defined benefit pension schemes are determined in consultation with trustees, taking into consideration actuarial advice, investment conditions and other local conditions and practices. The outcome of these consultations can impact the timing of future cash flows. In 2021, the Group expects to make defined benefit contributions of $9.1m to its US schemes and £0.4m in respect of the Group’s European schemes.

Movement in fair value of post-employment obligations during the year

	2020 Defined benefit pension scheme assets £m Defined benefit pension scheme liabilities £m Other £m Total £m	2019
		Defined benefit pension scheme assets £m Defined benefit pension scheme liabilities £m Other £m Total £m
Beginning of year Current service cost and administrative expense Past service cost Employer contributions Return on plan assets excluding amounts in net finance income Actuarial (losses)/gain arising from change in financial assumptions Actuarial gains arising from change in demographic assumptions Actuarial gains arising from experience adjustment Finance income/(expense) Benefits paid Curtailments Currency translation Business disposals	287.8 (301.2) (4.0) (17.4) (1.6) --- (0.5) (2.1) --- --- --- --- 1.1 0.1 --- 1.2 32.4 --- --- 32.4 --- (39.0) 0.2 (38.8) --- 1.9 --- 1.9 --- (2.2) --- (2.2) 6.4 (6.9) (0.2) (0.7) (12.0) 12.0 --- --- --- --- 0.4 0.4 (2.1) 3.3 0.2 1.4 --- --- --- ---	261.3 (272.2) (3.0) (13.9) (1.7) -- (0.5) (2.2) -- -- -- -- 3.4 0.1 --- 3.5 29.6 -- -- 29.6 -- (38.1) (0.2) (38.3) -- 3.0 -- 3.0 -- 0.8 -- 0.8 8.1 (8.6) (0.2) (0.7) (11.2) 11.2 -- -- -- -- -- -- (1.7) 2.6 (0.1) 0.8 -- -- -- --
End ofyear	312.0 (332.0) (3.9) (23.9)	287.8 (301.2) (4.0) (17.4)

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Notes continued

18. Employee benefits continued

Sensitivity

For the significant assumptions used in determining defined benefit costs and liabilities, the following sensitivity analysis gives the estimate of the impact on the measurement of the scheme liabilities as at 31 December 2020.

	(Increase)/decrease in schemes net liabilities
	Europe £m US £m Total £m
0.5% decrease in the discount rate 1.0% increase in the rate of inflation 1.0% increase in rate of salary/pension increases 1 year increase in life expectancy 1 year decrease in life expectancy 0.5% increase in the discount rate 1.0% decrease in rate of salary/pension increases 1.0% decrease in the rate of inflation	(25.2) (5.4) (30.6) (25.0) n/a (25.0) n/a n/a n/a (10.9) (2.8) (13.7) 11.0 n/a 11.0 22.0 4.9 26.9 n/a n/a n/a 18.9 n/a 18.9

Share-based incentives

Essentra operates equity-settled share-based incentive plans for its Executive Directors and employees. The total expense in respect of these plans during the year was £1.2m (2019: £4.4m), of which £nil (2019: £0.5m) in relation to senior management restructuring was included within adjusting items. Details of these plans are set out below:

Share options outstanding

	2020
	At 1 Jan 2020 Weighted average exercise price Granted during the year Weighted average exercise price Lapsed during the year Weighted average exercise price Exercised during the year Weighted average exercise price At 31 Dec 2020 Weighted average exercise price Exercisable at 31 Dec 2020 Weighted average exercise price
LTIP Part A LTIP Part B DASB SAYE 3-year plan SAYE 5-year plan US SAYE 2-yearplan	379,197 453.9p -- -- (228,071) 412.4p (37,146) 236.9p 113,980 607.8p 113,980 607.8p 6,105,729 --- -- -- (1,791,808) -- (137,101) -- 4,176,820 --- --- --- 423,385 --- 246,117 -- (8,542) -- (31,298) -- 629,662 --- --- --- 851,995 357.7p -- -- (336,740) 385.5p -- -- 515,255 339.5p --- --- 186,821 357.7p -- -- (45,095) 385.1p -- -- 141,726 349.0p --- --- 81,363 365.6p -- -- (43,028) 377.9p (5,341) 163.3p 32,994 338.2p --- ---
	8,028,490 246,117 (2,453,284) (210,886) 5,610,437 113,980

	2019
	At 1 Jan 2019 Weighted average exercise price Granted during the year Weighted average exercise price Lapsed during the year Weighted average exercise price Exercised during the year Weighted average exercise price At 31 Dec 2019 Weighted average exercise price Exercisable at 31 Dec 2019 Weighted average exercise price
LTIP Part A LTIP Part B DASB SAYE 3-year plan SAYE 5-year plan US SAYE 2-yearplan	921,994 551.4p -- -- (369,927) 808.9p (172,870) 214.2p 379,197 453.9p 379,197 453.9p 4,347,600 --2,531,573 -- (768,837) -- (4,607) --6,105,729 --- -- -- 223,038 -- 236,361 -- -- -- (36,014) -- 423,385 -- 1,143 -- 555,730 430.7p 637,870 327.1p (338,547) 419.4p (3,058) 407.2p 851,995 357.7p --- -- 216,874 449.0p 175,269 327.1p (205,322) 428.0p --- -- 186,821 357.7p -- -- 108,332 372.2p 25,389 359.2p (52,358) 375.6p -- -- 81,363 365.6p 21,239 442.0p
	6,373,568 3,606,462 (1,734,991) (216,549) 8,028,490 401,579

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18. Employee benefits continued

The exercise prices of options outstanding at the end of the year range from nil to 692.0p.

The weighted average share price at the date of exercise for options exercised during the year was 300.0p (2019: 408.5p). The following table shows the weighted average fair value at the date of grant for options granted during the year:

				SAYE	SAYE
	LTIP	LTIP		3 year	5 year
	Part A	Part B	DASB	plan	plan
Year ended 31 December 2020	n/a	n/a	212.3p	n/a	n/a
Year ended 31 December 2019	n/a	295.5p	346.4p	100.1p	82.7p

Fair value model inputs for cumulative share options awarded

	2020
	LTIP Part A LTIP Part B DASB SAYE 3 year plan SAYE 5 year plan
Weighted average fair value at grant Weighted average share price at grant Weighted average exercise price Weighted average volatility Weighted average dividend yield Weighted risk free rate Expected employee retention rates Expected term Valuation model	127.5p 293.5p 301.4p 97.8p 83.8p 607.8p 413.0p 348.7p 417.5p 428.6p 607.8p -- -- 339.5p 420.0p 28.6% 32.9% 36.4% 40.2% 35.7% 2.00% 5.06% 4.20% 4.98% 4.90% 0.54% 0.54% 0.49% 0.75% 0.83% 86.5% 90.9% 100.0% 85.8% 90.7% 3.07 years 3.00 years 3.00 years 3.17 years 5.16 years Binomial Monte Carlo Binomial Binomial Binomial
	2019
	LTIP Part A LTIP Part B DASB SAYE 3 year plan SAYE 5 year plan
Weighted average fair value at grant Weighted average share price at grant Weighted average exercise price Weighted average volatility Weighted average dividend yield Weighted risk free rate Expected employee retention rates Expected term Valuation model	103.4p 319.2p 359.8p 106.7p 89.9p 453.9p 441.9p 418.3p 441.4p 443.4p 453.9p --- -- 357.7p 430.1p 33.7% 35.5% 40.4% 40.5% 35.5% 2.53% 4.77% 4.96% 4.75% 4.83% 0.88% 0.47% 0.73% 0.65% 0.83% 88.2% 90.0% 100.0% 88.7% 86.7% 3.20 years 3.00 years 3.00 years 3.10 years 5.20 years Binomial Monte Carlo Binomial Binomial Binomial

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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.

	2020 and 2019
	LTIP Part A LTIP Part B DASB SAYE 3 year plan SAYE 5 year plan
Contractual life	3 --10years 3 --- 6years 3years 3years 5years

Details of the vesting conditions of the LTIP Part A, LTIP Part B and DASB share option schemes are set out in the Report of the Remuneration Committee on pages 132 to 143.

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Financial Statements

Notes continued

19. Financial risk management

Essentra’s activities expose the business to a number of key financial risks which have the potential to affect its ability to achieve its business objectives.

The Board has overall responsibility for Essentra’s system of internal control and financial risk management and for reviewing the effectiveness 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.

Essentra has a centralised treasury function to manage funding, liquidity and exposure to interest rate and foreign exchange risk. Treasury policies are approved by the Board and cover the nature of the exposure to be hedged, the types of derivatives that may be employed and the criteria for investing and borrowing cash. Essentra uses derivatives only to manage currency and interest rate risk arising from underlying business activities. No transactions of a speculative nature are undertaken. The Treasury function is subject to periodic independent reviews by the Group Assurance function. 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, expertise and suitable credit rating.

The following describes Essentra’s financial risk exposure and management from a quantitative and qualitative perspective.

i) Credit risk

Credit risk is the risk of financial loss if a customer or counterparty to a financial asset or liability fails to meet its contractual obligations, and arises principally from trade receivables and cash and cash equivalents. Essentra has no significant individual concentrations of credit risk. The following is an overview of how Essentra manages its credit risk exposures.

Trade and other receivables

Essentra’s exposure to credit risk is driven by the profile of its customers. This is influenced by the demographics of the customer base, including the industry and country in which customers operate.

Essentra monitors significant customers’ credit limits and recognises an impairment of trade receivables in specific instances where a customer’s credit standing has deteriorated to the extent that a credit default is considered probable. Following implementation of IFRS 9, Essentra also recognises an expected credit loss impairment of trade receivables through an accounting policy election, whereby default losses are expected for each receivables ageing category as follows: Current: 0.5%, Overdue 1-30 days: 1%, Overdue 31-60 days: 5%, Overdue 61-90 days: 10%, Overdue 91-180 days: 25%, Overdue 181-360 days: 50% and Overdue over 360 days: 100%.

Trade receivables were assessed for impairment using the expected credit loss model which requires expected credit losses and changes to expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.

As at 31 December 2020, gross trade receivables were £134.5m (2019: £145.3m) of which £25.3m (2019: £30.5m) were past due. The ageing analysis of trade receivables is as follows:

	2020	2019
	£m	£m
1-60 days	20.3	23.6
61-180 days	3.6	3.4
181-360 days	0.8	1.8
360+ days	0.6	1.7
	25.3	30.5

As at 31 December 2020, the combined specific and expected credit loss impairment of trade receivables was of £2.7m (2019: £5.3m). The analysis of the combined impairment based on the underlying receivables is as follows:

	2020	2019
	£m	£m
Current	0.5	0.6
1-60 days	0.4	0.4
61-180 days	0.6	0.8
181-360 days	0.6	1.8
360+ days	0.6	1.7
	2.7	5.3

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19. Financial risk management continued

The movement in the provision for impaired receivables is as follows:

	2020	2019
	£m	£m
Beginning of year	5.3	6.6
Impaired receivables acquired	(0.3)	(1.2)
Impairment loss recognised	0.4	1.3
Business disposals	---	(0.4)
Utilisation	(2.7)	(1.0)
End ofyear	2.7	5.3

On a periodic basis the Group undertakes the sale of certain trade receivables to banks using facilities set up by its customers. These trade receivables are factored on a non-recourse basis and therefore are derecognised from the Group’s balance sheet at the point of sale to the bank. The Group does not operate its own invoice discounting or factoring facilities. As at 31 December 2020, £6.1m was drawn under invoice discounting facilities (2019: £1.6m), representing cash collected before it was contractually due from the customer.

Derivative assets

Credit risk with respect to derivatives is controlled by limiting transactions to major banking counterparties where internationally agreed standard form documentation exists. The credit ratings of these counterparties are monitored regularly.

Cash and cash equivalents

Credit risk relating to cash and cash equivalents is monitored daily, on a counterparty by counterparty basis. The credit limits imposed specify the maximum amount of cash which can be invested in, or with, any single counterparty. These limits are determined by geographic presence, expertise and credit rating. Essentra monitors the credit ratings of counterparties.

The following credit risk table provides information regarding the credit risk exposure of Essentra by classifying derivative assets, short-term investments and cash and cash equivalents according to credit ratings of the counterparties. AAA is the highest possible rating and all of the assets are neither impaired nor past due.

	2020
	AAA £m AA £m A £m BBB £m BB £m Not rated £m Total £m
Derivative assets Short-term investments Cash and cash equivalents	--- --- 0.3 --- --- --- 0.3 --- --- --- --- --- --- --- 3.4 1.7 115.6 8.2 5.1 1.8 135.8
	3.4 1.7 115.9 8.2 5.1 1.8 136.1
	2019
	AAA £m AA £m A £m BBB £m BB £m Not rated £m Total £m
Derivative assets Short-term investments Cash and cash equivalents	-- 0.1 0.7 -- -- -- 0.8 -- -- -- 0.6 --- -- 0.6 4.4 1.6 51.5 9.8 1.5 1.6 70.4
	4.4 1.7 52.2 10.4 1.5 1.6 71.8

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Essentra’s maximum credit risk exposure is £287.9m (2019: £239.4m) and no collateral is held against this amount (2019: £nil).

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Notes continued

19. Financial risk management continued

ii) Market price risk

Market price risk is the risk that changes in foreign exchange rates and interest rates will affect income or the value of financial assets and liabilities. Essentra has produced a sensitivity analysis that shows the estimated change to the income statement and equity of a 1%, 5% or 10% weakening or strengthening in sterling against all other currencies or an increase or decrease of 50 basis points (‘‘bps’’), 100bps and 200bps in market interest rates. The amounts generated from the sensitivity analysis are estimates and actual results in the future may materially differ.

Essentra is exposed to two types of market price risk: currency risk and interest rate risk.

a) Currency risk

Essentra publishes its consolidated financial statements in sterling but conducts business in several foreign currencies. Therefore it is subject to currency risk due to exchange rate movements which affect the translation of results and underlying net assets of its operations and their transaction costs.

Hedge of net investment in foreign operations

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 through measures such as borrowing in those currencies in which the Group has significant net assets. Essentra’s US dollar denominated assets were approximately 27% (2019: 46%) hedged by the US dollar denominated borrowings. Essentra’s euro denominated assets were approximately 32% hedged by the euro denominated borrowings (2019: 32%).

Transaction exposure hedging

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.

Essentra does not formally define the proportion of highly probable forecast sales and purchases to hedge, but agrees an appropriate percentage on an individual basis with each business by reference to the Group’s risk management policies and prevailing market conditions. The Group documents currency derivatives used to hedge its forecast transactions as cash flow hedges. To the extent that cash flow hedges are effective, gains and losses are recognised in other comprehensive income until the forecast transaction occurs, at which point the gains and losses are transferred either to the income statement or to the non-financial asset acquired.

The following table shows Essentra’s sensitivity to a 1%, 5% and 10% weakening or strengthening in sterling against all currencies. To calculate the impact on the income statement for the year all currencies’ average rates have been increased or decreased by 1%, 5% or 10%. The translational effect on equity is limited as a proportion of US dollar and euro exposure is hedged. Accordingly the effect on equity is calculated by increasing or decreasing the closing rate of all currencies with an adjustment for the movement in currency hedges. It is assumed that all net investment and cash flow hedges will continue to be 100% effective. The sensitivity on profit before tax is calculated by increasing or decreasing the average rate of all currencies.

		2020
	Weakening in sterling 10% £m 5% £m 1% £m	Strengthening in sterling
		10% £m 5% £m 1% £m
Impact on the profit before tax --- gain/(loss) Impact on equity---gain/(loss)	0.3 0.1 --- 66.3 31.4 6.0	(0.2) (0.1) --- (54.2) (28.4) (5.9)
		2019
	Weakening in sterling 10% £m 5% £m 1% £m	Strengthening in sterling
		10% £m 5% £m 1% £m
Impact on the profit before tax --- gain/(loss) Impact on equity---gain/(loss)	6.0 2.8 0.5 58.9 27.9 5.4	(4.9) (2.6) (0.5) (48.2) (25.2) (5.2)

A 1 cent change to the US dollar rate against sterling will impact the adjusted operating profit by £0.2m (2019: £0.3m). A 1 cent change to the euro rate against sterling will impact the adjusted operating profit by £0.3m (2019: £0.4m).

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19. Financial risk management continued

b) Interest rate risk

Essentra’s strategy is to ensure that at least 30% of the total debt with maturities of more than one year is protected with fixed interest rates or approved interest rate derivatives.

The following table shows Essentra’s sensitivity to a 50bps, 100bps and 200bps decrease or increase in sterling, US dollar and euro interest rates. To calculate the impact on the income statement for the year, the interest rates on all external floating rate interest bearing loans and borrowings have been increased or decreased by 50bps, 100bps or 200bps and the resulting increase or decrease in the net interest charge has been adjusted for the effect of Essentra’s interest rate derivatives.

	Decrease in interest rates 200bps £m 100bps £m 50bps £m	2020 Increase in interest rates
		200bps £m 100bps £m 50bps £m
Impact on the income statement -- gain/(loss)	5.1 2.6 1.3	(5.1) (2.6) (1.3)
	Decrease in interest rates 200bps £m 100bps £m 50bps £m	2019 Increase in interest rates
		200bps £m 100bps £m 50bps £m
Impact on the income statement -- gain/(loss)	4.2 2.1 1.1	(4.2) (2.1) (1.1)

See note 14 for interest rate disclosure on loans and borrowings.

iii) Liquidity risk

Liquidity risk is the risk that Essentra, although solvent, will encounter difficulties in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

Essentra’s objective is to maintain a balance between continuity of funding and flexibility. Essentra is primarily funded by a series of US Private Placement Loan Notes from various financial institutions totalling US$100m and syndicated multi-currency 5-year revolving credit facilities of £285.0m and €100.8m from its banks. The series of Loan Notes have original maturities ranging from seven to twelve years. The maturity of £225m of the overall borrowing under the RCF was extended on 11 January 2021 for a further year to November 2023, with the balance remaining on the original terms with a maturity date of November 2022. At 31 December 2020 the available bank facilities totalled £375m, of which £213.8m was drawn. In addition, uncommitted and overdraft facilities are maintained to provide short-term flexibility.

In April 2020, a $80m USPP loan note matured, and a new USPP facility of $25m was drawn (for which the note purchase agreement was signed in December 2019), of which $15m matures in April 2027 and $10m in April 2030. Furthermore, a bridging loan facility for £50m was agreed by banks in February 2020, which was drawn and subsequently fully repaid during the year.

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Amounts drawn by Essentra on its committed facilities are subject to standard banking covenants. The financial covenants require the net debt to EBITDA ratio to be less than 3.0x and interest cover to be greater than 3.5x. There has been no covenant breach during the period.

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Notes continued

19. Financial risk management continued

Essentra’s available undrawn committed facilities at 31 December were:

	2020	2019
	£m	£m
Expiring before two years	161.2	--
Expiringafter twoyears	---	176.1

Any loans drawn on these facilities would bear interest at floating rates with reference to LIBOR for the currency and period of the loan. The above does not reflect the extension of £225m of the RCF facility agreed on 11 January 2021, as noted above.

The maturity of Essentra’s financial liabilities, including estimated interest payments, is analysed below:

	2020
	Fair value £m Carrying amount £m Contractual cash flows £m <1 yr £m 1-2 yrs £m 2-5 yrs £m >5 yrs £m
Unsecured bank loans US Private Placement Loan Notes Derivative liabilities Trade and other payables Lease liabilities Other unsecured loans Deferred consideration	213.8 212.6 219.9 3.2 216.7 --- --- 78.5 72.6 95.9 3.2 3.2 23.7 65.8 0.5 0.5 0.5 0.5 --- --- --- 143.1 143.1 143.1 143.1 --- --- --- 61.0 61.0 73.1 14.5 11.7 24.2 22.7 --- --- --- --- --- --- --- 4.4 4.4 4.4 3.2 --- 1.2 ---
	501.3 494.2 536.9 167.7 231.6 49.1 88.5

	2019 (represented)
	Fair value £m Carrying amount £m Contractual cash flows £m <1 yr £m 1-2 yrs £m 2-5 yrs £m >5 yrs £m
Unsecured bank loans US Private Placement Loan Notes Derivative liabilities Trade and other payables Lease liabilities Other unsecured loans Deferred consideration	194.3 192.5 204.5 3.5 3.5 197.5 -- 121.1 117.1 139.7 65.0 2.6 22.9 49.2 0.3 0.3 0.3 0.3 -- -- -- 166.5 166.5 166.5 166.5 --- -- -- 50.7 50.7 57.2 13.2 10.9 20.8 12.3 0.1 0.1 0.1 0.1 -- -- -- 4.3 4.3 4.3 0.9 2.2 1.2 ---
	537.3 531.5 572.6 249.5 19.2 242.4 61.5

Total trade and other payables carried at £157.6m (2019: £174.5m) including other taxes and social security contributions of £11.3m (2019: £8.0m) which are not financial liabilities and are therefore excluded from the above analysis. All trade and other payables are due to be settled in less than six months.

The fair value of the unsecured bank loans is the same as the carrying amount as the loans are at floating rate, except for unamortised facility fees. The fair value of the US Private Placement Loan Notes is estimated by discounting the future cash flows (interests and principal) at the prevailing market rates. The fair value of the trade and other payables approximate the carrying amount as they are due to be settled within six months.

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19. Financial risk management continued

Total financial assets and liabilities

The table below sets out Essentra’s accounting categories and fair value for each class of financial asset and liability.

	2020 Fair value £m Amortised cost £m Total carrying value £m	2019
		Fair value £m Amortised cost £m Total carrying value £m
Trade and other receivables Cash and cash equivalents Other financial assets Interest bearing loans and borrowings Lease liabilities Trade and other payables Level 2 of fair value hierarchy Derivative assets Derivative liabilities Level 3 of fair value hierarchy Trade and other payables Other non-current financial liabilities	-- 151.8 151.8 --- 135.8 135.8 -- -- --- -- (285.2) (285.2) -- (61.0) (61.0) -- (143.1) (143.1) 0.3 -- 0.3 (0.5) -- (0.5) (3.2) -- (3.2) (1.2) -- (1.2)	-- 162.0 162.0 -- 70.4 70.4 -- 6.2 6.2 -- (309.7) (309.7) -- (50.7) (50.7) -- (166.5) (166.5) 0.8 -- 0.8 (0.3) -- (0.3) (3.4) -- (3.4) (0.9) -- (0.9)
	(4.6) (201.7) (206.3)	(3.8) (288.3) (292.1)

Total trade and other receivables carried at £158.9m (2019: £172.5m) include prepayments of £7.1m (2019: £10.5m) which are not financial assets and are therefore excluded from the above analysis. Fair values of forward foreign exchange contracts and cross currency swaps have been calculated at year end forward exchange rates compared to contracted rates. These are determined to be level 2 in the fair value hierarchy.

Included within trade and other payables and other non-current financial liabilities, which is classified as level 3 in the fair value hierarchy, is the deferred consideration of £4.4m relating to the acquisitions of Micro Plastics, Innovative Components and 3C! (2019: £4.3m). There are no nonrecurring fair value measurements. During the year, no fair value gain or loss (2019: £nil) was recognised in respect of financial instruments at level 3 fair value hierarchy, and £nil (2019: £nil) was settled in cash. No other fair value gains or losses were recorded in profit or loss and other comprehensive income.

Included within interest bearing loans and borrowings are $100m (2019: $155m) US Private Placement Loan Notes. The Loan Notes are held at amortised cost with a carrying value of £72.6m (2019: £117.1m). The Group estimates that the total fair value of the Loan Notes at 31 December 2020 is £78.5m (2019: £121.1m).

All other financial assets are held at amortised cost and mostly have short terms to maturity. For this reason, their carrying amounts at the reporting date approximate the fair values. Unsecured bank loans, included within interest bearing loans and borrowings, incur interest at floating rates and as a result their carrying amounts also approximate their fair values at the reporting date.

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Notes continued

19. Financial risk management continued

The table below shows the amount of bank overdrafts offset against the bank balances under enforceable master netting agreements with banks:

	Gross amount	Gross amount of	Net amount of
	of recognised	recognised financial	financial assets
	financial	liabilities set off in	presented in the
	assets	the balance sheet	balance sheet
	£m	£m	£m
Cash and cash equivalents:
At 31 December 2020	139.5	(3.7)	135.8
At 31 December 2019	73.6	(3.2)	70.4

iv) Capital structure

Essentra defines its capital structure as its equity and non-current interest bearing loans and borrowings, and aims to manage this to safeguard its ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits for other stakeholders.

Essentra sets the amount of capital in proportion to risk. Essentra manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, Essentra may return capital to shareholders through dividends and share buybacks, issue new shares or sell assets to reduce debt.

Essentra monitors its capital structure on the basis of the medium-term net debt-to-EBITDA ratio. EBITDA is defined as operating profit before depreciation and other amounts written off property, plant and equipment, share option expense, intangible amortisation and adjusting items.

The net debt-to-EBITDA ratios at 31 December were as follows.

		2020	2019
	Note	£m	£m
Net debt		210.4	284.4
Operating profit before intangible amortisation and adjusting items	28	62.0	87.5
Plus depreciation and other amounts written off property, plant and equipment, and
amortisation of non-acquired intangible assets		52.3	48.2
Plus share option expense	18	1.2	3.9
EBITDA		115.5	139.6
Net debt-to-EBITDA ratio		1.8	2.0

The net debt to EBITDA ratio excluding the impact of IFRS 16 is 1.5 times (2019: 1.9 times).

20. Issued share capital

	2020	2019
	£m	£m
Issued, authorised and fully paid ordinary shares of 25p (2019: 25p) each	75.6	66.0
Number of ordinary shares in issue
Beginning of year	264,129,170	264,129,170
Issue of shares duringtheyear	38,461,538	--
End ofyear	302,590,708	264,129,170

The issue of share capital during the year was in relation to a placement offering of 38,461,538 new shares with par value of 25p issued at 260p per share.

At 31 December 2020, the Company held 908,650 (2019: 951,137) of its own shares with a nominal value of £0.2m (2019: £0.2m) in treasury. This represents 0.3% (2019: 0.4%) of the number of ordinary shares in issue.

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21. Reserves

Within retained earnings the Company has deducted the value of own shares purchased for an employee trust and treasury shares held by the Company with a total cost of £9.0m (2019: £10.4m).

Employee trust shares are ordinary shares of the Company held in an employee benefit trust. The purpose of this trust is to hold shares in the Company for subsequent transfer to Executive Directors and employees relating to deferred share awards and options granted under the Company's share-based incentive plans. Full details are set out in the Annual Report on Remuneration on pages 132 and 143. The assets, liabilities and expenditure of the trust have been incorporated in these Financial Statements. At 31 December 2020, the trust held 864,912 (2019: 1,033,311) shares, upon which dividends have been waived, with an aggregate nominal value of £0.2m (2019: £0.3m) and market value of £2.6m (2019: £4.5m).

The other reserve relates to the Group reorganisation, which took place as part of the de-merger from Bunzl plc. It represents the difference between Essentra plc's share capital and Essentra International Limited's share capital and share premium on 6 June 2005 and is not distributable.

During the year the Company has raised £96.7m through an issue of share capital. An amount of £87.1m has recognised within the merger relief reserve being the excess of net proceeds over the nominal value of shares issued under s612 of the Companies Act 2006.

22. Analysis of net debt

			Business	Lease	Exchange	Non-cash
	1 Jan 2020	Cash flow	combinations	additions	movements	movements	31 Dec 2020
	£m	£m	£m	£m	£m	£m	£m
Cash at bank and in hand	62.6	57.7	0.7	---	0.5	---	121.5
Short-term deposits and investments	7.8	6.9	--	--	(0.4)	--	14.3
Cash and cash equivalents in the statement	70.4	64.6	0.7	--	0.1	---	135.8
of cash flows
Debt due within one year	(60.7)	68.1	(4.1)	---	(3.3)	--	---
Debt due after one year	(249.0)	(34.0)	--	--	(1.2)	(1.0)	(285.2)
Lease liabilities due within one year	(11.4)	14.3	(0.2)	(2.6)	--	(12.0)	(11.9)
Lease liabilities due after oneyear Debt from financing activities Other financial assets Net debt	(39.3) (360.4) 5.6 (284.4)	--- 48.4 (5.6) 107.4	(2.3) (6.6) -- (5.9)	(19.3) (21.9) -- (21.9)	-- (4.5) -- (4.4)	11.8 (1.2) -- (1.2)	(49.1) (346.2) --- (210.4)

The non-cash movements in debt due after one year represent the amortisation of prepaid facility fees £0.7m. The net non-cash movement in lease liabilities represents lease liability reduction of £2.2m due to renegotiated lease terms, offset by interest on leases £2.4m. The net cash outflow relating to lease liabilities for low value, short term and variable lease payments was £0.3m (see note 9). During the year £9.6m of lease liabilities moved from due after one year to due within one year.

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During the year £5.0m was received in respect of the loan receivables arising from the disposal of Porous Technologies held in other financial assets as at 31 December 2019.

		Impact on
		adoption of		Business	Lease	Exchange	Non-cash
	1 Jan 2019	IFRS 16	Cash flow	combinations	additions	movements	movements	31 Dec 2019
	£m	£m	£m	£m	£m	£m	£m	£m
Cash at bank and in hand	62.3	---	0.8	---	--	(0.5)	--	62.6
Short-term deposits and investments	3.9	--	4.3	--	--	(0.4)	--	7.8
Cash and cash equivalents in the	66.2	--	5.1	---	--	(0.9)	--	70.4
statement of cash flows
Debt due within one year	(0.1)	--	0.1	---	--	--	(60.7)	(60.7)
Debt due after one year	(311.2)	---	10.0	(13.8)	--	6.1	59.9	(249.0)
Lease liabilities due within one year	--	(11.7)	14.5	(0.5)	(1.6)	0.3	(12.4)	(11.4)
Lease liabilities due after oneyear	---	(47.7)	--	(1.7)	(11.7)	1.1	20.7	(39.3)
Debt from financing activities	(311.3)	(59.4)	24.6	(16.0)	(13.3)	7.5	7.5	(360.4)
Other financial assets	5.0	---	0.6	---	--	--	--	5.6
Net debt	(240.1)	(59.4)	30.3	(16.0)	(13.3)	6.6	7.5	(284.4)

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Financial Statements

Notes continued

22. Analysis of net debt continued

The non-cash movements in debt due after one year represent the amortisation of prepaid facility fees £0.8m offset by £60.7m of debt moving to debt due within one year. The net non-cash movement in lease liabilities represents early lease terminations £10.4m offset by interest on leases £2.1m. The net cash outflow relating to lease liabilities for low value, short term and variable lease payments was £0.4m (see note 9). During the year £20.7m of lease liabilities moved from due after one year to due within one year.

Included within other financial assets is £5.0m of loan receivables arising from the disposal of Porous Technologies and £0.6m of short-term liquid investments. In the year ended 31 December 2019, the loan receivable arising from the disposal of Porous Technologies moved from non-current to current assets.

23. Acquisitions and disposals

Establishment of joint venture China Tobacco Essentra (Xiamen) Filters Co., Ltd.

On 2 April 2020 Essentra plc confirmed that it has completed the establishment of the new joint venture company, China Tobacco Essentra (Xiamen) Filters Co., Ltd. The Company's capital contribution into this business is US$10.3m, to be paid in three equal instalments over 18 months following its establishment. As at 31 December 2020 the Company has paid two of these three instalments.

Acquisition of Nekicesa

On 6 September 2019, Essentra acquired 100% of the share capital of Nekicesa Packaging S.L. ("Nekicesa"). Due to the timing of the transaction, the purchase price allocations including the goodwill and fair value adjustments included in the financial statements for the year ended 31 December 2019 were provisional.

During 2020, Essentra reassessed the fair value adjustments and made changes to the carrying amounts of certain plant, property and equipment, inventory, payables and deferred tax balances. The impact on goodwill is an increase of £0.9m.

Acquisition of Innovative Components

On 26 June 2019, Essentra acquired 100% of the share capital of Innovative Components Inc. and Componentes Innovadores Limitada (together ''Innovative Components''). Due to the timing of the transaction, the purchase price allocations including the goodwill and fair value adjustments included in the financial statements for the year ended 31 December 2019 were provisional.

During 2020, Essentra reassessed the fair value adjustments and made changes to the carrying amounts of certain accruals, payables, receivables, provisions and deferred tax balances. In addition to this Essentra received back £0.2m of the consideration originally paid from the vendors on finalisation of the completion accounts. The net impact on goodwill is an increase of £0.2m.

Acquisition of 3C!

On 17 September 2020, Essentra acquired 100% of the share capital of 3C! Packaging, Inc. ("3C!"). 3C!, headquartered in North Carolina, USA, is a leading designer and manufacturer of folding cartons, printed literature, foil and flexible packaging and labels focused on the pharmaceuticals and healthcare sectors. 3C! is reported under the Packaging division.

On acquisition the assets and liabilities of the business acquired were adjusted to reflect their fair value to Essentra. Due to the timing of the transaction, the purchase price allocations including the split between goodwill and intangible assets and fair value adjustments are provisional and subject to finalisation for up to one year from the date of acquisition.

Had the acquisition been completed on 1 January 2020, the contribution to the Group’s revenue and operating profit would have been £28.2m and £3.6m higher respectively.

Within adjusting items in the consolidated income statement are £1.2m of costs incurred in acquiring the business.

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23. Acquisitions and disposals continued

The fair value of assets and liabilities acquired as part of the acquisition of 3C! are detailed below:

	3C!
	£m
Intangible assets	25.4
Property, plant and equipment	7.5
Lease right-of-use asset	2.5
Inventories	2.2
Trade and other receivables	4.8
Cash and cash equivalents	0.7
Deferred tax	(6.9)
Debt	(4.1)
Trade and other payables	(6.9)
Provisions	(0.2)
Lease liabilities	(2.5)
	22.5
Goodwill	19.8
Consideration	42.3
Satisfied by:
Cash consideration	42.1
Deferred consideration	0.2
Cash consideration	42.1
Cash and cash equivalents acquired	(0.7)
Net cash outflow in respect of the acquisition	41.4

Goodwill represents the expected operating and financial synergies, and the value of an assembled workforce. Goodwill is not deductible for tax purposes.

Fair values of assets and liabilities, including property, plant and equipment, acquired for 3C! are provisional and subject to change as the Group is still permitted to make fair value adjustments up until 12 months after the date of acquisition.

2019: Disposals

On 14 January 2019, Essentra divested of its Pipe Protection Technologies business (‘‘PPT’’) to certain wholly-owned subsidiaries of National Oilwell Varco, Inc. This disposal resulted in a gain before tax of £11.2m and was treated as an adjusting item. Proceeds of £38.5m were received in respect of this transaction with £37.5m received on completion and £1.0m deferred, all of which was received in 2019. Included within the net assets disposed was goodwill attributed to the business with a carrying value of £10.1m.

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On 11 June 2019, Essentra divested of its Extrusion business to Inter Primo A/S. This disposal resulted in a loss before tax of £1.8m and was treated as an adjusting item. Proceeds of £14.3m were received in respect of this transaction. Included within the net assets disposed was goodwill attributed to the business with a carrying value of £3.7m.

On 28 June 2019, Essentra divested of its Speciality Tapes business (‘‘ST’’) to OpenGate Capital. This disposal resulted in a gain before tax of £20.0m and was treated as an adjusting item. Proceeds of £60.8m were received in respect of this transaction. Included within the net assets disposed was goodwill and customer relationship intangibles attributed to the business with a carrying value of £27.4 and £8.6m respectively.

On 23 July 2019, Essentra divested of its Cards Solution business to Barcodes, Inc. This disposal resulted in a loss before tax of £1.1m and was treated as an adjusting item. Proceeds of £1.6m were received in respect of this transaction. Included within the net assets disposed was goodwill and customer relationship intangibles attributed to the business with a carrying value of £0.4 and £0.8m respectively.

24. Dividends

	Per share 2020 p 2019 p	Total
		2020 £m 2019 £m
2019 interim: paid 30 October 2019 2020proposed final:payable 1 June 2021	--- 6.3 3.3 --	--- 16.5 10.0 --

During the year ended 31 December 2019 a final dividend of 14.4p was initially declared but then subsequently cancelled in 2020.

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Financial Statements

Notes continued

25. Related parties

Other than the compensation of key management (note 5) and the capital injection into the Filters joint venture entity China Tobacco Essentra (Xiamen) Filters Co., Ltd. (note 23), Essentra has not entered into any material transactions with related parties since the last Annual Report.

ITC Essentra Limited is 50% owned by the Group. The results were fully consolidated within the Group’s financial statements as it is deemed Essentra has control by virtue of having control of the board. As at 31 December 2020 the entity had gross assets of £24.3m (2019: £25.9m) and gross liabilities of £7.4m (2019: £10.4m). Operating profit for the year amounted to £4.8m (2019: £6.3m) and movement in cash for the year amounted to £1.7m (2019: £3.8m).

China Tobacco Essentra (Xiamen) Filters Co., Ltd is 49% owned by the Group. The results were fully consolidated within the Group’s financial statements as it is deemed Essentra has control by virtue of having control of the board. As at 31 December 2020 the entity had gross assets of £9.9m (2019: £nil) and gross liabilities of £nil (2019: £nil). Operating loss for the year amounted to £0.1m (2019: £nil) and movement in cash for the year amounted to £9.9m (2019: £nil).

For the Group’s policy on the basis of consolidation, see note b within Accounting Policies.

26. Post balance sheet events

As noted in note 14, the maturity of £225m of the overall borrowing under the RCF was extended on 11 January 2021 for a further year to November 2023, with the balance remaining on the original terms with a maturity date of November 2022.

27. Parent company

Essentra plc is a limited company incorporated and domiciled in the United Kingdom. It operates as the ultimate parent company of the Essentra Group. Its registered office is Avebury House. 201-249 Avebury Boulevard, Milton Keynes, MK9 1AU, United Kingdom. The principal subsidiary undertakings of Essentra plc are listed in note 10 to the Essentra plc Company Financial Statements.

28. Adjusted measures

Management reviews the adjusted operating profit and operating cash flow as measures of the performance of the business. Adjusted operating profit is stated before amortisation of acquired intangible assets and adjusting items which are considered not relevant to measuring the underlying performance of the business.

		2020	2019
	Note	£m	£m
Operating profit		21.7	80.0
Amortisation of acquired intangible assets		22.6	22.9
Adjustingitems	2	17.7	(15.4)
Adjusted operating profit		62.0	87.5
Finance income	3	1.9	2.1
Finance expenses	3	(17.6)	(16.6)
Adjusted profit before income tax		46.3	73.0
Tax on adjustedprofit		(8.9)	(14.5)
Adjustedprofit		37.4	58.5
Attributable to:
Equity holders of Essentra plc		35.6	55.7
Non-controllinginterests		1.8	2.8
Adjustedprofit		37.4	58.5
Adjusted earningsper share	6	13.1p	21.3p
Adjusted diluted earningsper share	6	13.0p	21.0p

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28. Adjusted measures continued

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.

	2020	2019
	£m	£m
Adjusted operating profit	62.0	87.5
Depreciation	37.6	35.5
Lease right-of-use asset depreciation	12.0	11.3
Amortisation of non-acquired intangible assets	2.6	0.9
Share option expense	1.2	3.9
Other non-cash items1	(0.6)	(0.4)
Working capital movements	6.2	(10.3)
Net capital expenditure2	(44.7)	(56.6)
Operating cash flow --- adjusted	76.3	71.8
Reconciliation of cash flows from adjusting items:
Adjusting items as shown on income statement	17.7	(15.4)
Non-cash (charge)/credit in adjusting items	(9.8)	0.6
Netgain on disposal of businesses	---	28.3
Cash outflow on adjusting items recognised in the year	7.9	13.5
Utilisation ofpriorperiod and acquired accruals andprovisions	3.0	11.1
Cash outflow from adjusting items	10.9	24.6

1 Other non-cash items comprise impairment of fixed assets £0.1m (2019: £0.5m), hedging activities and other movements £1.3m (2019: £0.4m), and movement in provisions £nil (2019: negative £1.3m) less Profit on lease termination £2.0m (2019: £nil).

2 Net capital expenditure within adjusted operating cash flow excludes £nil (2019: £0.3m) of property, plant and equipment disposal proceeds realised during site closures which relate to adjusting items.

For further information on alternative performance measures applied by the Group refer to pages 48 and 49.

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Financial Statements

Essentra plc Company Balance Sheet

At 31 December 2020

		2020	2019
	Note	£m	£m
Fixed assets
Investment in subsidiaryundertaking	2,10	465.8	464.6
Current assets
Debtors	3	325.7	273.4
Current liabilities
Creditors: amounts fallingdue within oneyear	4	(0.2)	(61.5)
Net current assets		325.5	211.9
Non-current liabilities
Creditors: amounts falling due after more than one year	5,6	(72.6)	(56.5)
Net assets		718.7	620.0
Capital and reserves
Issued share capital	7	75.6	66.0
Merger relief reserve		385.2	298.1
Capital redemption reserve		0.1	0.1
Profit and loss account	8	257.8	255.8
Shareholders' funds: equity interests		718.7	620.0

The profit attributable to the equity holders included in the accounts of the Company is £0.7m (2019: £1.3m).

The Company Financial Statements on pages 200 to 209 were approved by the Board of Directors on 5 March 2021 and were signed on its behalf by:

Paul Forman Chief Executive

Lily Liu Chief Financial Officer

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Essentra plc Company Statement of Changes in Equity

For the year ended 31 December 2020

Issued share capital £m Merger relief reserve £m Capital redemption reserve £m	Profit and loss account Retained earnings £m Own shares £m Total equity £m
1 January 2020 66.0 298.1 0.1 Profit foryear	266.2 (10.4) 620.0 0.7 0.7
Total comprehensive income for the year --- -- -- Issue of share capital 9.6 87.1 Shares issued to satisfy employee share option exercises Share options exercised Share-basedpayments	0.7 --- 0.7 96.7 (1.4) 1.4 --- 0.1 0.1 1.2 1.2
31 December 2020 75.6 385.2 0.1	266.8 (9.0) 718.7

Issued share capital £m Merger relief reserve £m Capital redemption reserve £m	Profit and loss account Retained earnings £m Own shares £m Total equity £m
1 January 2019 66.0 298.1 0.1 Profit foryear	315.0 (11.1) 668.1 1.3 1.3
Total comprehensive income for the year --- -- -- Shares issued to satisfy employee share option exercises Share options exercised Share-based payments Dividendspaid	1.3 -- 1.3 (0.7) 0.7 -- 0.4 0.4 4.4 4.4 (54.2) (54.2)
31 December 2019 66.0 298.1 0.1	266.2 (10.4) 620.0

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Financial Statements

Essentra plc Company Accounting Policies

a. Authorisation of financial statements and statement of compliance with FRS 101

The parent company financial statements of Essentra plc (‘‘the Company’’) for the year ended 31 December 2020 were authorised for issue by the Board of Directors on 5 March 2021 and the balance sheet was signed on the Board’s behalf by Paul Forman and Lily Liu. Essentra plc is a public limited company that is incorporated, domiciled and has its registered office in England and Wales. The Company’s ordinary shares are publicly traded on the London Stock Exchange and it is not under the control of any single shareholder. These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101).

The profit and loss account of the Company is not presented as permitted by Section 408 of the Companies Act 2006.

b. Basis of preparation

The Company transitioned to FRS 101 from the UK Generally Accepted Accounting Practice during the year ended 31 December 2015. No adjustments were required as part of this transition.

In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:

• the requirements of paragraph 45(b) and 46-52 of IFRS 2 Share-Based Payment;

• 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, 111 and 134-136 of IAS 1 Presentation of FinancialStatements;

• 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.

Where required, equivalent disclosures are given in the consolidated financial statements.

These accounts have been prepared in accordance with The Companies Act 2006 as applicable to companies using FRS 101 and are prepared on a going concern basis.

The going concern assessment for the Company is carried out as part of the Group assessment. From the assessment performed, 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 Company financial statements. Further details are included on pages 6 and 7 of the Consolidated Financial Statements.

These accounts are prepared under the historical cost convention.

The following principal accounting policies have been consistently applied.

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c. 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.

d. Share-based payments

The fair value of share options is measured at grant date. It is recognised as an addition to the cost of investment 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. Detailed disclosures for the share-based payment arrangements of the Company are provided in note 18 to the consolidated financial statements.

e. Own shares

The shares held in the Essentra Employee Benefit Trust for the purpose of fulfilling obligations in respect of share incentive plans are treated as belonging to the Company and are deducted from its retained earnings. The cost of shares held directly (treasury shares) is also deducted from retained earnings.

f. Dividends

Dividend distributions to the Company’s shareholders are recognised as a liability in the period in which they are approved by the shareholders of the Company (final dividend) or paid (interim dividend).

Dividend income is recognised when the right to receive payment is established.

g. 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 the rate 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 or expense.

h. 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.

i. 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 of the 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.

j. Taxation

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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, the initial 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.

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Financial Statements

Essentra plc Company Notes

1. Net operating charges

The auditor was paid £5,125 (2019: £5,125) for the statutory audit of the Company. Fees paid to the Company’s auditor 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 132 to 143. The only employees of the Company are the Directors.

2. Investment in subsidiary undertaking

	Investment in subsidiary undertaking
	2020 £m 2019 £m
Beginning of year Additions	464.6 460.2 1.2 4.4
End ofyear	465.8 464.6

3. Debtors

	2020	2019
	£m	£m
Amounts receivable from subsidiaryundertakings	325.7	273.4
	325.7	273.4

4. Creditors: amounts falling due within one year

	2020	2019
	£m	£m
Accruals and deferred income	0.2	0.7
Corporate taxes	---	0.2
US Private Placement Loan Notes	---	60.6
	0.2	61.5

5. Creditors: amounts falling due after more than one year

	2020	2019
	£m	£m
US Private Placement Loan Notes	72.6	56.5
	72.6	56.5

6. Maturity of financial liabilities

	Non bank loans
	2020 £m 2019 £m
Debt can be analysed as falling due: Within one year Between one and five years More than fiveyears	--- 60.6 14.2 14.8 58.4 41.7
	72.6 117.1

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FINANCIAL STATEMENTS

7. Issued share capital

	2020	2019
	£m	£m
Issued, authorised and fully paid ordinaryshares of 25p (2019: 25p)each	75.6	66.0
	75.6	66.0
Number of ordinaryshares in issue	2020	2019
Beginning of year	264,129,170	264,129,170
Issue of shares duringtheyear	38,461,538	--
End ofyear	302,590,708	264,129,170

The issue of share capital during the year was in relation to a placement offering of 38,461,538 new shares with par value of 25p issued at 260p per share.

At 31 December 2020, the Company held 908,650 (2019: 951,137) of its own shares in treasury.

8. Reserves

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 accounts of the Company is £0.7m (2019: £1.3m).

Included in the profit and loss account are accumulated share-based payments of £49.1m (2019: £47.9m) which are credited directly to reserves. Full details of these share-based payments are set out in the Annual Report on Remuneration on pages 132 to 143.

9. Dividends

	Per share 2020 p 2019 p	Total
		2020 £m 2019 £m
2019 interim: paid 30 October 2019 2020proposed final:payable 1 June 2021	6.3 3.3	16.5 10.0

During the year ended 31 December 2019 a final dividend of 14.4p was declared but then subsequently cancelled in 2020.

10. Subsidiary undertakings

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The companies named below (including dormant entities) are subsidiary undertakings of Essentra plc and are included in the Consolidated Financial Statements of the Group. The investments in the companies below relate to ordinary shares or common stock. The principal country in which each company operates is the country of incorporation.

All entities below are wholly owned subsidiaries of the Group except for ITC Essentra Limited (India) (50% owned) and China Tobacco Essentra (Xiamen) Filters Co., Ltd (49% owned). The ownership held by the Group in these companies are through holding of ordinary shares in these companies and they are accounted for as subsidiaries of the Group in the Consolidated Financial Statements due to a control achieved via board membership.

Due to statutory requirements, ITC Essentra Limited (India) has a financial year end of 31 March. All other subsidiaries have the same year end as the parent company of 31 December.

Essentra International Limited is the only direct subsidiary of Essentra plc.

	Country of
	incorporation	Principal activity	Address of registered office
Essentra (Bangor) Ltd.	UK	Manufacturing	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Components Limited	UK	Manufacturing	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Filter Products Limited	UK	Manufacturing	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Packaging Limited	UK	Manufacturing	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Packaging & Security Limited	UK	Manufacturing	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU

55

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Financial Statements

Essentra plc Company Notes continued

10. Subsidiary undertakings continued

	Country of
	incorporation	Principal activity	Address of registered office
ESNT Filter Products Limited	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
ESNT Holdings (No.1) Limited	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
ESNT Holdings (No.2) Limited	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
ESNT International Limited	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
ESNT Packaging & Securing Solutions	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
Limited			Buckinghamshire, MK9 1AU
Essentra Filter Products International	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
Limited			Buckinghamshire, MK9 1AU
Essentra International Limited	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Overseas Limited	UK	Holding Company	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Pension Trustees Limited	UK	Pension Trustee	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Finance Limited	UK	Treasury activities	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra (Kilmarnock) Ltd.	UK	Non-trading	4th Floor, 115 George Street, Edinburgh, Scotland, EH2 4JN
Essentra (Northampton) Ltd.	UK	Non-trading	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Services Limited	UK	Non-trading	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Filtrona Limited	UK	Non-trading	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
P. P. Payne Limited	UK	Non-trading	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Alliance Plastics Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Cigarette Components Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
ESNT Components Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
ESNT Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Filtrona Custom Moulding Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
North West Plastics Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Skiffy Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Stera Tape Limited	UK	Dormant	Avebury House, 201-249 Avebury Boulevard, Milton Keynes,
			Buckinghamshire, MK9 1AU
Essentra Filter Products Inc	US	Manufacturing	1675 South State Street, Ste B Dover, DE 19901, United States
Essentra Packaging Inc	US	Manufacturing 10 S Jefferson Street, Ste 1400 Roanoke, VA 24011, United States
Essentra Plastics LLC	US	Manufacturing	1675 South State Street, Ste B Dover, DE 19901, United States
Essentra Packaging Puerto Rico, Inc.	US	Manufacturing	Two Westbrook Corporate Center, Suite 200, Westchester IL
			60154, United States
Essentra Packaging US Inc	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
3C! Packaging, Inc	US	Manufacturing	1000 CCC Drive, Clayton, NC 27520, United States

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10. Subsidiary undertakings continued

	Country of
	incorporation	Principal activity	Address of registered office
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	1675 South State Street, Ste B Dover, DE 19901, United States
Essentra Corporation	US	Holding Company	1675 South State Street, Ste B Dover, DE 19901, United States
Essentra Holdings Corp. (DE)	US	Holding Company	1675 South State Street, Ste B Dover, DE 19901, 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
US LLC 2, LLC	US	Non-trading	Two Westbrook Corporate Center, Suite 200, Westchester IL
			60154, United States
Essentra Components BV	Netherlands	Distribution	Den Belleman 9, 5571 NR Bergeyk, Netherlands
Essentra Packaging B.V.	Netherlands	Distribution	Celsiusweg 37, 8912 AM, Leeuwarden, Netherlands
Blue NewCo 1 B.V.	Netherlands	Holding Company	Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands
Blue NewCo 2 B.V.	Netherlands	Holding Company	Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands
Blue NewCo 3 B.V.	Netherlands	Holding Company	Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands
Blue NewCo 4 B.V.	Netherlands	Holding Company	Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands
ESNT Holdings Cooperatie 1 W.A. ESNT Holdings (Netherlands) BV Essentra BV Essentra Holdings Cooperative WA Essentra Holdings (No.2) Cooperative WA Essentra International BV/LLC ESNT Holding BV ESNT Holdings Cooperatie 2 W.A.	Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands Netherlands	Holding Company Holding Company Holding Company Holding Company Holding Company Holding Company Non-trading Non-trading	Celsiusweg 37, 8912 AM, Leeuwarden, Netherlands Den Belleman 9, 5571 NR, Bergeijk, Netherlands Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands Den Belleman 9, 5571 NR, Bergeijk, Netherlands Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands Den Belleman 9, 5571 NR, Bergeijk, Netherlands Den Belleman 9, 5571 NR, Bergeijk, Netherlands Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands
Fijnmechanica Surhuisterveen B.V.	Netherlands	Non-trading	Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands
Linde Vouwkartonnage B.V.	Netherlands	Non-trading	Beatrixstraat 7, Buitenpost, 9285 TV, Netherlands
Richco Benelux BV	Netherlands	Non-trading	Beeldschermweg 5-3, 3821 AH Amersfoot, Netherlands
Skiffy BV	Netherlands	Non-trading	Den Belleman 9, 5571 NR, Bergeijk, Netherlands
Essentra Packaging Ireland Limited	Ireland	Manufacturing	8 Airways , Industrial Estate, Dublin 17, Ireland
ESNT (Cherry Orchard) Holdings Limited	Ireland	Holding Company	Unit 629 Ida Industrial Park Northern Extension, Old Kilmeaden
			Road, Watherford, Ireland
C.B. Packaging Limited	Ireland	Non-trading	8 Airways Industrial Estate, Dublin 17, Ireland
ESNT (Cherry Orchard) Limited	Ireland	Non-trading	8 Airways Industrial Estate, Dublin 17, Ireland
ESNT Finance Ireland Limited	Ireland	Non-trading 7 Airways Industrial Estate, Cloghran, Dublin 17, D17 RR88, Ireland
Essentra Finance (Euro) Ireland Limited	Ireland	Non-trading 7 Airways Industrial Estate, Cloghran, Dublin 17, D17 RR88, Ireland
Essentra Pte.Ltd	Singapore	Distribution	36 Robinson Road #17-01, City House, Singapore, 068877,
			Singapore
Essentra Filter Products Leasing Pte. Ltd	Singapore	Leasing Company	36 Robinson Road #17-01, City House, Singapore, 068877,
			Singapore
Essentra (MEA) Pte. Ltd	Singapore	Holding Company	36 Robinson Road, #17-01 City House, Singapore, 068877,
			Singapore
Essentra Filter Products Development Co.	Singapore	Non-trading	36 Robinson Road #17-01, City House, Singapore, 068877,
Pte. Ltd			Singapore
Essentra Components GmbH	Austria	Holding Company	Schubertring 6, 1010 Wien, Austria
Essentra Pty Ltd	Australia	Treasury activities	503-505 Victoria Street, Wetherill Park, NSW, 2145, 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

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Financial Statements

Essentra plc Company Notes continued

10. Subsidiary undertakings continued

	Country of
	incorporation	Principal activity	Address of registered office
Essentra Limited	Canada	Manufacturing	2538 Spears Road, Oakville ON L6L 5K9, Canada
China Tobacco Essentra (Xiamen) Filters	China	Non-trading	Floor 2 No.289 Binshui Road, Qiaoying Street, Jimei Ditrict,
Co., Ltd			Xiamen City, China
Essentra Precision Machinery Components	China	Manufacturing	99 Huanghai Road, Beilun District, Ningbo, Zhejiang Province,
(Ningbo) Co. Ltd.			China
Essentra Trading (Ningbo) Co. Ltd	China	Distribution	No.99 Huanghai Road, Beilum District, Ningbo, Zhejiang
			Province, China
Essentra Components International Trading	China	Holding Company	Room 347, Xinmaolou Building, 2 Taizhong South Road, China
(Shanghai) Co Ltd			(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	Holding Company	Víde?ská 101/119, Dolní Heršpice, Brno, 619 00, Czech Republic
	Republic
Essentra Packaging S.a.r.l.	France	Holding Company	F-27200, Sarreguemines, Rue Guillaume, Schoettke , France
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	3, Montel-Allee, Nettetal, 41334, Germany
Essentra Packaging GmbH	Germany	Manufacturing	Filmstrasse. 5, D-06766 , Edisonstrasse, Wolfen , Germany
Essentra Components Limited --- Branch	Germany	Distribution	Montel-Allee 3, 41334 Nettetal, Germany
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	1113, Nagyszolos ut 11-15, Budapest, Hungary
Essentra Filter Products Kft	Hungary	Manufacturing	2310 Szigetszentmiklos, Leshegy ut 30, Hungary
PT Essentra	Indonesia	Manufacturing	Jalan Berbek Industri 1, 18-20 Surabaya Industrial Estate Rungkut
			(SIER), Sidoario, 61256, Indonesia
PT Essentra Trading Surabaya	Indonesia	Manufacturing	Jalan Berbek Industri I/23, Kel. Berbek, Kec, Waru, Kab. Sidoarjo
			Prov,Surabaya, Jawa Timur, Indonesia
Essentra (India) Private Limited	India	Manufacturing	No.3, (old plot nos. 18 & 23), 3rd Main Road, Peenya Industrial
			Area, Phase 1,Bangalore, Yeshwantpur Hobli, 560 058, India
ITC Essentra Limited	India	Manufacturing	Doddajala Post, Yarthiganahally, (Via) Bettahalasur, Bangalore
			North, 562 157, India
ESNT Holdings SpA	Italy	Holding Company	Podenzano (PC), Loc.I Casoni Fraz. Gargia, Via Copernico no. 54,
			29027, Italy
Essentra Packaging Srl	Italy	Distribution	Via Copernico n.54, Loc. 1 Casoni Fraz., Gariga, 29027,
			Podenzano , Italy , Italy
Essentra Components srl	Italy	Non-trading	Via Massarenti, 1 Loc, 1 Maggio, 40013, Castel Maggiore, Italy
Essentra Filter Products Spa	Italy	Non-trading	Casoni di Gariga, Via Copernico n. 54, Casoni PC, 29027, 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 SEA (M) 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
ESNT Limited	New Zealand	Services	Quigg Partners, Floor 7, 36 Brandon Street, Wellington Central,
			Wellington, 6011, New Zealand
Essentra Filter Products S.A.	Paraguay	Distribution	Calle 12, Acacary, Cuidad del Este, Paraguay
Essentra Sp. z o.o.	Poland	Non-trading	11 Lakowa Street, 90-562 , Lodz, Poland
Boxes Prestige Poland Sp. z o.o.	Poland	Dormant	Tokarska 25, 20-210, Lublin, Poland

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10. Subsidiary undertakings continued

	Country of
	incorporation	Principal activity	Address of registered office
Essentra Packaging Spó?ka z o.o.	Poland	Manufacturing	Tokarska 25, 20-210, Lublin, Poland
Pharmagraphics --Central Europe Spółka z	Poland	Non-trading	Wislisko 1, Kraków, 31-538, Poland
o.o.
Essentra Co., Ltd.	Republic of	Distribution	5th Floor, One IFC, 10, Gukjegeumyung-ro, Youngdeungpo-gu,
	Korea		Seoul, 07326, Korea, Republic of
Essentra Components SRL	Romania	Distribution	Burcuresti Sectorul 1, Strada POLANA, Nr. 68-72, Etaj 2 , Biroul
			NR.5 , Romania
OOO Essentra Filter Products	Russia	Dormant --	Moskovskyi pr. 60/129, Business center Senator, 190005, St
		Dissolved 20th	Petersburg, Russian Federation
		February 2021
Essentra Saint-Petersburg Limited Liability	Russia	Dormant	4a Finlyandskiy Prospect, 194044, St. Petersburg, Russian
Company			Federation
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 Packaging S.A.	Spain	Manufacturing	Carrer dels Fusters 18-20, Poligono Industrial Can Cuyas,
			Montcada I Reixac, 08110, Barcelona, Spain
Nekicesa Packaging SL	Spain	Manufacturing	Ctra. de Navalcarnero a Chinchon km., 21,2 Grinon, 28971,
			Madrid, 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
Essentra Hertila AB Essentra Components Sarl Essentra Eastern Limited San Yai Holding Company Limited	Sweden Switzerland Thailand Thailand	Dormant Non-trading Non-trading Holding Company	Ian, Goteborg kommun, Sweden Persbogatan 1, SE-265 38 , Åstorp, Sweden MCE Avocats, rue du Grand-Chêne 1-3, 1003 Lausanne, Switzerland 111/5 Moo 2 Tambon Makamku, Amphur Nikom Pattana, Rayong Province, Thailand 116/3 Soi Thiantalay 24, Bangkhunthian-Chaitalay Road, Sub- District Thakam, District Bangkhunthian, Bangkok, 10150, Thailand
Pranakorn Holding Company Limited	Thailand	Holding Company	116/3 Soi Thiantalay 24, Bangkhunthian-Chaitalay Road, Sub-
			District Thakam, District Bangkhunthian, Bangkok, 10150,
			Thailand
Essentra Limited	Thailand	Manufacturing	116/3 Soi Thiantalay 24, Bangkhunthian-Chaitalay Road,
			Thakam, Bangkhunthian, Bangkok , 10150, Thailand
Apex Filters Company Limited	Thailand	Non-trading	31/2 Rama 3 Road, Chongnonsee, Yannawa, Bangkok 10120,
			Thailand
Chemical Resins (Thailand) Limited	Thailand	Non-trading	4th Floor, 77/1 Soi Ruamrudee 2, Ploenchit Road, Lumpini,
			Pathumwan, Bangkok, 10330, Thailand
Mesan Kilit A.S.	Turkey	Distribution	Ilitelli Organzie Sanayi, Bolgesi Metal Is San,Sit.7.Blok No24
			Basaksehir, Istanbul, Turkey
Essentra FZE	United Arab	Manufacturing	Plot No. S20403, Jebel Ali Free Zone (JAFZA), PO Box No 261392,
	Emirates		Dubai, United Arab Emirates
Filtrona Venezolana C.A.	Venezuela	Dormant	Urbn. Parque Comercio Industrial Castillito, Lot No. P-8. STreet
			103 c/c Av. 66, San Diego Municipality, Valencia, Edo Carabobo,
			Venezuela

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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 2020 and of the Group’s profit and the Group’s cash flows for the year then ended;

• the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;

• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising 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 and Company Balance Sheets as at 31 December 2020; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income, the Consolidated Statement of Cash Flows, and the Consolidated and Company Statements of Changes in Equity for the year then ended; the Accounting Policies; the Critical Accounting Judgements and Estimates; and the notes to the financial statements.

Our opinion is consistent with our reporting to the Audit and Risk Committee.

Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union

As explained in the Accounting Policies to the Group financial statements, the Group, in addition to applying international accounting standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

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 to the Group.

Other than those disclosed in note 2 to the financial statements, we have provided no non-audit services to the Group in the period under audit.

Our audit approach

Overview

Audit scope

• Local PwC component teams engaged to perform full scope audit procedures over 33 reporting units

• PwC Group audit team performed full scope audit procedures over a further 7 reporting units

• Specified audit procedures were performed by component auditors over certain balances, including revenue, at a further 4 reporting units

• PwC Group audit team also performed audit procedures over specific balances within a further 34 reporting units

Key audit matters

• Presentation of adjusting items (Group)

• Goodwill impairment in the Packaging division (Group)

• Impact of COVID-19 (Group and Company)

• Compliance with US sanctions legislation (Group)

Materiality

• Overall Group materiality: £3,300,000 (2019: £3,600,000) based on a three year average of 5% of profit before tax, amortisation of acquisition intangibles and adjusting item

• Overall Company materiality: £7,100,000 (2019: £6,200,000) based on 1% of net assets

• Performance materiality: £2,500,000 (Group) and £5,300,000 (Company)

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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.

Capability of the audit in detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, 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 non-compliance with the Listing Rules, UK and overseas tax legislation, 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 preparation of the financial statements such as the Companies Act 2006. 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 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 the regulators and government authorities.

• 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 metrics relevant to banking covenants.

• Challenging estimates and judgements made by management in determining significant accounting estimates, in particular in relation to impairment of goodwill in the Packaging division, adjusting items, going concern and compliance with US sanctions legislation.

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.

Key audit matters

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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 of resources 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.

COVID-19 is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year.

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Financial Statements

Independent auditors’ report to the members of Essentra plc continued

Key audit matter How our audit addressed the key audit matter Presentation of adjusting items (Group) We have considered the appropriateness of the revised presentation The financial statements include certain items which are disclosed of adjusting items and assessed the appropriateness of the Group’s as adjusting items. In the year, the presentation of the consolidated accounting policy for the recognition of adjusting items with income statement has been changed to remove the adjusted reference to the applicable guidance relating to alternative operating profit measure from the primary statement. A reconciliation performance measures. between reported operating profit and adjusted operating profit is now We challenged management and considered whether the items presented as a footnote below the income statement. In addition, the disclosed as adjusting items were consistent with the accounting policy description previously used for adjusting items has been changed from and the approach taken in prior years, to determine that items were ‘‘exceptional and other adjusting items’’ to ‘‘adjusting items’’, whilst its appropriately classified. We did not identify any material items which scope and definition remains unchanged. we would expect to be reported in earnings before adjusting items. The nature of the adjusting items is explained within the Group Restructuring costs include employee redundancy (£5.0m), write accounting policy and includes transaction costs relating to acquisition down of assets (£3.9m) and other closure costs such as onerous and disposals of businesses, acquisition integration and restructuring contracts, dilapidation provisions, external project management costs, and other items such as site closure costs and one-off projects. consultants and legal costs (£3.8m). We have performed sample In the year the most significant adjusting items relate to restructuring testing across all balances and verified those samples to payroll costs (£12.7 million), external professional costs associated with certain records, supporting invoices, agreements or other evidence. For asset corporate development activities (£4.6 million), acquisition related write offs, we have agreed the book value to the accounting records costs associated with 3C! and the formation of the China JV and evaluated management estimates around potential sale of (£1.3 million). These costs have been offset by a £0.3m gain relating fixed assets. To corroborate estimates of dilapidations provisions to a VAT refund on the costs of a previous business disposal and £1.2m and assumptions regarding property lease impairments we have release of a provision relating to an investigation into compliance with reviewed advice received by management’s property experts. US sanctions laws within the Filters division. £4.6m of external professional costs and acquisition related costs We focused on this area as there is limited guidance relating to this of £1.3 million associated with 3C! and the Filters China joint venture presentational matter within IFRS and judgement is required by have been tested through sampling and items have been traced to the directors in determining whether items classified as adjusting supporting invoices, bank statements and other documentation. are consistent with the group’s accounting policy. Consistency in As described in the compliance with US sanctions legislation key identifying and disclosing items as adjusting is important to maintain audit matter below, a settlement with the US authorities concerning comparability of the results year on year. compliance failures within its Filters division has been reached. See the Critical Accounting Judgements and Estimates section for The surplus provision has been released. The classification of this management’s disclosure of this significant judgement. Also see item is considered appropriate as the release mirrors the treatment the Significant financial judgements section in the Audit and of the charge when the provision was created in a prior year. Risk Committee report. We have considered other one-off or notable credits/charges recognised in earnings before adjusting items to ensure consistent treatment with adjusting items.

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 to maintain comparability of the results year on year.

See the Critical Accounting Judgements and Estimates section for management’s disclosure of this significant judgement. Also see the Significant financial judgements section in the Audit and Risk Committee report.

The disclosures included in note 2 were reviewed and deemed reasonable.

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Key audit matter

Goodwill impairment in the Packaging division (Group)

The Group has goodwill of £328 million, of which £211 million is allocated to the Packaging division, £95 million to Components, and £22 million to Filters. Under IAS 36 Impairment of Assets, all cash generating units (CGUs) containing goodwill and indefinite lived intangible assets must be tested for impairment at least annually. Management has prepared a value in use (‘‘VIU’’) calculation for each of the three divisions in order to assess their recoverability.

Consistent with prior years, the headroom on the annual impairment assessment for the Packaging division is more sensitive to changes in key assumptions and as such is a focus area. The headroom against the asset carrying value as at 31 December 2020 is £252 million as compared to £284 million in 2019. The reduction in headroom is mainly due to the impact of COVID-19 on trading performance, which has affected both the beauty and pharmaceuticals markets and in 2020 has disrupted management’s plans to return to industry average margins. The discount rate calculated by management has decreased compared to prior year, which has offset some of the decrease in the headroom in the Packaging model.

The impairment reviews performed by management contain a number of significant judgements and estimates including revenue growth rates, profit margins and discount rates. A change in these assumptions can result in a material change in the valuation of the assets.

See the Critical Accounting Judgements and Estimates section for management’s disclosure of this significant accounting estimate. Also see the Significant financial judgements section in the Audit & Risk Committee report.

Impact of COVID-19 (Group and Company)

The COVID-19 pandemic has had a significant impact on the Group’s business during 2020 with the performance of the business being significantly adversely affected in the first half of 2020 followed by a recovery in the last quarter of the year.

COVID-19 has had a pervasive impact across the Group and has required management to reconsider a number of accounting judgements and estimates. These included adjusting business plans and models which underpin the annual assessments of impairment and going concern; the assessment of the expected credit loss on trade receivables; the impact on accruals for long term incentive schemes; and the recognition of restructuring costs associated with footprint changes announced in the second half of 2020.

We have considered the pervasive impact of COVID-19 through the planning, risk assessment and execution phases of our audit with particular focus on the effect the pandemic has had on areas of key accounting judgement and estimation. Separate key audit matters cover our conclusions on adjusting items and goodwill impairment.

How our audit addressed the key audit matter

We assessed the methodology applied by management in performing their impairment reviews and tested the integrity of management’s cash flow models.

We tested key assumptions made in the impairment review, such as those around operating margins back to industry and competitor data. We evaluated the future cash flow forecasts, including short term cash flows, and the process by which they were determined. In doing so we compared the cash flow forecasts to the latest Board approved plans and compared prior year budgets to 2020 actual performance in order to assess the quality of management’s forecasting process. Whilst the actual performance in 2020 was below plan due to the impact of COVID-19, based on the forecasting history to date, there are no indicators of bias in management’s medium to long term forecasts for Packaging.

With the support of our valuation experts, we have tested key assumptions including long-term growth rates and discount rates. We have compared growth rates to third party published economic and industry forecasts and analyst reports. We validated the discount rate by recalculating the Group’s weighted average cost of capital for each CGU. We found the assumptions to be reasonable.

We performed sensitivity analyses around the key assumptions to ascertain the extent of change in those assumptions that, either individually or collectively, would be required for goodwill to be impaired. We noted that the required level of change was beyond that which we would consider likely given the current market conditions and recent performance of the business.

Disclosures included within note 8 have also been assessed against the requirements of IFRS and deemed reasonable.

During the course of 2020 management has prepared a number of accounting position papers which consider the wider impact of COVID19 on the Group’s financial statements. We have reviewed these papers, considered the appropriateness of management’s proposed treatments in line with published guidance and, where the impact is material, tested key assumptions to supporting documentation.

Where forecast financial information is relevant to an accounting judgement we have considered how management has modelled the impact of COVID-19 in its forecasts for 2021 and 2022. In performing this assessment we have taken into account the impact that the first wave of the virus and the associated government restrictions had on the Group’s results in the second and third quarters of 2020 and the subsequent partial recovery of the business in the second half of 2020 and considered how further lockdowns and restrictions may affect the business in subsequent periods.

In the case of going concern we have assessed management’s base case and the severe but plausible downside scenario which more closely reflects the 2020 experience during a further forecast lockdown in 2021. We have then recalculated management’s headroom and covenant compliance tests throughout 2021 and 2022 to confirm that in their severe scenario sufficient liquidity and covenant compliance remains.

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Refer to our Key Audit matters above for details of how we have considered the impact of COVID-19 in our audit procedures over the impairment tests performed by management in respect to the carrying value of goodwill recognised in the consolidated financial statements.

We have reviewed the disclosures included within the financial statement in respect to the impact of COVID-19 to ensure that the disclosures are consistent with published guidance and the presentation of additional costs incurred by the Group in responding to the pandemic is appropriate.

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Financial Statements

Independent auditors’ report to the members of Essentra plc continued

Key audit matter How our audit addressed the key audit matter Compliance with US sanctions legislation (Group) We have verified payment of the monetary penalty imposed by the In the previous year, the Group identified sanctions compliance failures DOJ to bank statements. We have read the cautionary letter from within its Filters division and in early 2020 made a voluntary disclosure OFAC and confirmed this is the final settlement of this matter. We have to the US Office of Foreign Assets Control (‘OFAC’). During the year met with the Group’s external legal advisers who are retained in respect the Group as reached a settlement with OFAC and a subsidiary entity, to these matters to understand the status of their discussions with Essentra FZE, has entered into a deferred prosecution agreement OFAC/DOJ and to make enquiries regarding the legal status and terms (‘DPA’) with and been subject to a fine from the US Department of of the DPA and cautionary letters. We have assessed the probability Justice (‘DOJ’). OFAC has issued two Cautionary Letters to the Group of further material costs being incurred to be low and recalculated the in response to a number of historical violations of sanctions but has release of the remaining provision. received no further financial penalties. The DPA imposes a number We have reviewed the DPA and assessed the ongoing obligations of conditions on the Essentra FZE including maintaining an effective placed on Essentra FZE. We have performed extended procedures at compliance programme and reporting on the status of this on a sites within the Filters division, including Essentra FZE, to assess the quarterly basis. effectiveness of the Group’s updated compliance programme over As noted in the adjusting items key audit matter, the settlement of sanctioned markets trade. We have tested a sample of sales these matters resulted in a release of £1.2m of a provision recognised transactions to verify whether they relate to sanctioned markets in a prior period, which was recorded as an adjusting item. and if so whether the internal controls and approval process has been

We have reviewed the DPA and assessed the ongoing obligations placed on Essentra FZE. We have performed extended procedures at sites within the Filters division, including Essentra FZE, to assess the effectiveness of the Group’s updated compliance programme over sanctioned markets trade. We have tested a sample of sales transactions to verify whether they relate to sanctioned markets and if so whether the internal controls and approval process has been followed, and tested a sample of bank payments and receipts for compliance with sanctions rules.

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.

The Group is split into three divisions being Components, Packaging and Filters. Each division consists of a large number of reporting sites spread globally across 34 territories. There are 255 reporting units within the consolidation, which include the reporting sites and other consolidation units.

We did not identify any individually significant components within the Group, with the largest contribution to revenue being 6% from one reporting site, and the average being 1%. We determined the most effective approach was to engage PwC local component teams to perform full scope procedures over 33 reporting units, with the Group audit team performing full scope audit work over a further 7 reporting units. In addition, specified audit procedures were performed over certain balances, including revenue, at a further 4 reporting units. In the largest sites in North America, specified procedures over fixed assets, inventory and trade receivables were also performed. The Group audit team also performed audit procedures over specific balances within a further 34 reporting units. This approach ensures that appropriate audit coverage has been obtained over all financial 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. We issued written instructions to all component auditors and had regular communications with them throughout the audit cycle. This included a virtual clearance meeting with each component team and review 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 attended clearance meetings with local management for sites in Hungary, Singapore, UK and the US.

Based on the detailed audit work performed across the Group, we have gained coverage of 67% of revenue, 74% of profit before tax, and 73% of net assets.

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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 the scope 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	£3,300,000 (2019: £3,600,000).	£7,100,000 (2019: £6,200,000).
How we determined it	Three year average of 5% of profit before tax,	1% of net assets
	amortisation of acquisition intangibles and
	adjusting items
	(2019: 5% of profit before tax, amortisation of
	acquisition intangibles and adjusting items)
Rationale for	The Group is profit-oriented, therefore it is considered	The entity is a holding company of the rest of the
benchmark applied	most appropriate to apply a profit-based benchmark.	Group and is not a trading entity. Therefore an asset
	The Directors, management and the users of the Group	based measure is considered appropriate.
	financial statements focus on adjusted numbers, being
	adjusted operating profit, adjusted net income or
	adjusted pre-tax profit. The Group defines ‘adjusted’
	as excluding the impact of amortisation of acquired
	intangible assets and adjusting items. In order to
	incorporate the distorting effects of COVID-19 on
	current year profits we consider a 3 year average best
	reflects the considerations of the users of the financial
	statements. Based on this, we consider a 3 year
	average benchmark based on profit before tax,
	amortisation of acquired intangible assets and
	adjusting items to be most 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 between £50,000 and £2,200,000. 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% of overall materiality, amounting to £2,500,000 for the Group financial statements and £5,300,000 for the Company financial statements.

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- 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 £160,000 (Group audit) (2019: £180,000) and £160,000 (Company audit) (2019: £180,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ESSENTRA PLC

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Financial Statements

Independent auditors’ report

to the members of Essentra plc continued

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 business's board approved plan and ensuring that the base case scenario, representing the business to 31 October 2022 indicates that the business generates sufficient cash flows to meets its long and short term obligations 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 scenario of a similar extent of disruptions as seen in 2020 continuing into the future and ensuring this is appropriately modelled through the cash flows;

• considering the risk of breach of the covenant arrangements in place for external borrowings under the severe but plausible scenario;

• observing 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 Company’s 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.

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 2020 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 Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

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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. Our additional 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 Chairman's Corporate Governance Statement 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 to do 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 will be 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 or assumptions.

Our review of the directors’ statement regarding the longer-term viability of the Group 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 with the 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

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As explained more fully in the Statement of Directors' Responsibilities, 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.

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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.

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 to enable 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 the FRC’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 or to 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 for our 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 Directors' Remuneration Report to be 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 20 April 2017 to audit the financial statements for the year ended 31 December 2017 and subsequent financial periods. The period of total uninterrupted engagement is 4 years, covering the years ended 31 December 2017 to 31 December 2020.

Nicholas Stevenson (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors

Milton Keynes 5 March 2021

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Essentra plc essentraplc.com

Avebury House 201-249 Avebury Boulevard Milton Keynes MK9 1AU United Kingdom

Telephone: +44 (0)1908 359100 Email: enquiries@essentra.com