Essentra plc (ESNT) Earnings Call Transcript & Summary

Good afternoon, and welcome to Essentra plc Annual General Meeting. [Operator Instructions] I'd now like to hand over to Paul Lester, Chair. Good afternoon.

Welcome, everybody, to Essentra's 2024 Annual General Meeting. I'm Paul Lester, the Chairman of the Board. And I'm joined today by Scott, the CEO; Mary who is the SID and audit and risk chair. And over here, we have [indiscernible] who is an [indiscernible], but will be taking over the RemCo at some point. Jack, CFO, will be saying a few words about [indiscernible] because you're retiring in inverted commerce. We've also got Ralph, who's ESG Chair and currently the RemCo chair for a few more minutes. And Emma, who is our Company Secretary. Adrian sitting there is based on the U.S.A.. And Ralph -- actually, you're based all over the place, aren't you? You've lived in Italy, you visit Germany on a regular basis and you look after Asia for us in terms of the voice of the employee. So we're pretty international business and we've got a very international board. So the format for today's meeting, and you probably realize, we are broadcasting it. And I think that's the way that a lot of AGMs in the future will go. I will -- we're going to ask Scott to give a few -- an update on the business at one point, when the meeting sort of concludes. And before going any further, however, I have to hand over to my colleague, Chris. You're going to do the fire and safety, which you've just done, but it says on my note you're about to do now. Can you do it again, Chris? Where ever you are. Emma, I'm handing over to you because you're going to do some housekeeping.

Thank you, Paul. Firstly, you'll be aware that the [indiscernible] are being broadcast. So we have shareholders who are accessing this AGM online. However, those shareholders cannot vote online, and they -- and we cannot hear them. With regard to the resolutions, voting will be taken on a poll to reflect the number of shares held by each shareholder of the company. More than 50% of votes in favor are required for resolutions 1 to 19 to be passed and 75% of votes in favor are required for resolutions 20 to 23. If there are shareholders present who have already submitted a proxy form, which points the chair to vote on their behalf, and they do not wish to change their vote, then pool will vote as you have instructed him. Shareholders are nominated proxies present who have not yet voted will have been given a poll card when registering for the meeting. The poll card can be found on the reverse of the attendance card. If you are unable to locate your poll card or require assistance in completing the card, please raise your hand and one of the staff from Computershare, our registrars, will help you. Please note that all poll cards need to be completed and signed and placed in the back poll box, which is with our registrar by the door. Please note that if you do not sign your poll card, it will be treated as invalid. There are no hands raised at present. The figures that we will refer to during the meeting are provisional figures, taking from the record of proxy votes cast by 1:00 p.m. on Tuesday, 21st of May. We will confirm the final figures for the results of the poll later today, and we'll announce this to the stock exchange as soon as possible. I now hand back to you, Paul.

Thanks, Emma. Before I go through the formal business, I think it's worth saying to Scott and your team and employees and other stakeholders, what a good job you guys have done setting up now Essentra as a components business. So we just finished our first year. And I think it's gone -- we've had some challenges because of the markets, but I think they've done a super job. And going back to you, Jack. Thank you. This is the second time Jack has tried to retire. I had him on our board for a short period of time for an IPO, and that was his change from the CFO at Marshalls onto the Board, then Marshalls bought the business, remember that? And I said, Jack would you throw your hat in ring to be the CFO here because we want an experienced CFO because we've got a new CEO who hasn't got the plc experience. So thank you, Jack, for doing that. And you're allowed to go now. Not quite, no. Jack will do a handover to a new CFO, which we would hope to announce in the immediate future, short term, well down a track on that. And Jack will do a full handover. And then when you've all decided that, that's been done, then Jack will go off. He's not retiring 100%, but you're picking up as a CFO, so thanks very much, Jack. Other changes to the Board. As I mentioned, Cass, you're going to take over the RemCo from Ralph, and Ralph did a great job, I have to say with the RemCo because he was thrown into it because the previous RemCo chair decided to go back for executive career and left as an ED. And thanks, Ralph. Great job. And I'm leaving as well. It's been -- well, I've enjoyed every minute of it and hopefully up to 1st November, I'll be doing a handover to Steve Good, which we announced today, I think, this morning. And the good news is the share price didn't zoom up because that would have been a bit embarrassing really. But let's see what happens for the rest of the day. But it's been a great time, and I've enjoyed every minute a bit even though we've had some tough challenges. I mean I don't need to go through them. They are all the obvious things, but it's been great. You have seen, by the way, Steve's CV, he's got good experience of similar businesses to this, which is why Steve was taken on this chair. We wanted somebody with -- well, obviously, businesses experience, ex-CEO, plc experience and involved in manufacturing and distribution because that's what this business is. So it's actually quite hard to find somebody with all those. You did a great job, but Mary headed up that search. So well done, Mary. The resolutions are proposed that we take them in groups because, otherwise, we'll be here all day if I go through every one. So someone will go through individually. But we will put those up for approval. And Mary, you will have to do one of those regarding my own position. Yes, if that's okay. So -- and I do need to stick to the script for this because I can't miss anything out. The following ordinary resolutions 1 to 19 are proposed as ordinary resolutions require a simple majority of over 50% to be passed. Resolution 1, to receive and adopt the annual report and accounts for the year ended 31st of December 2023 has been passed by 99.99% votes. Are we putting them on the screen, no? Yes. Okay. 26 approval of the remuneration committee's Chair letter and the annual report on the remuneration for the year ended 2023. This is passed 99.6%. Resolution 3 has approved the remuneration policy as detailed in the annual report accounts. This is passed by 92.79%. Resolution [indiscernible] the approval of the final dividend of 2.4p ordinary share. Not surprisingly, this has been passed by 99.99%. Everybody wants the dividend. Resolution 5, to approve the climate transition action plan are set out in the annual report and accounts, passed by 97%. So we're going to group Resolution 6 to 13, which is the reelection of all the directors. But I hand over to Mary now because I can't approve myself.

Thank you very much, Bob. Resolution 11 is the reelection of our chair, Paul Lester, this resolution has been passed by 99.2% of votes. The full results are shown on the slide, and I will now pass back to Paul.

Thanks, Barry. So Resolution 6 to 13 have passed by over 94% of votes for each resolution. Resolution 14 is to appoint PwC as auditors until the end of the next annual -- next general meeting. This is passed by 99.76%. We have PwC here today in form of K2's his partner looks after, does a great job. Resolution 15, authorizes trucks to agree PWC's remuneration. And this was still trying to negotiating it down of course, has passed by 99.98% of votes. Resolution 16 to adopt the Essentra plc share save plan 2024. This has been passed by 99.99%. Resolution 17, adopt the central long-term incentive plan. This has been passed by 95.22%. 18 to adopt the central for deferred bonus plan. This has been passed by 99.77%. And they should all be popping up on the screen, by the way. 19 authorized the Board to a lot of shares in the company and has been passed by 94.42%. So that's all the ordinary resolutions. And now we move to resolutions 20 to 23. These are different because they need a majority of 75%, which you will see in a minute, they will comfortably pass up. Resolution is 20 and 21 require Resolution 19 to have been, so as Resolution 19 has been passed, I propose Resolutions 20 and 21, together. 20 is similar to previous years and seeks authority to disapply preemption on the allotment of shares for up to an aggregate amount of 10%. This resolution was passed by 93.3% votes. Resolution 21 gives the company flexibility to make non-preemptive issues of shares in connection with acquisition of the capital investments. This is for the 10% of the share of capital and is in addition to that sort in Resolution 20. We certainly have no intention to exercise these powers, but believe it's important that Centra has the flexibility that this provides in order to pursue its growth strategy. Resolution 21 has been passed by 91.54%, 22 to seeks authority to buy back the company's own shares up to 10% of the share capital. And as shareholders be aware, this was launched a while ago. So we have been buying back shares. And this is to make sure we can have the ability to continue to do that. This has been passed by 99.77%. 23 allows a general meeting to be called on not less than 14 days' notice and has passed 91.08%. Doesn't mean to say everyone is going to be done in that time scale. That's only if we have to do something in an emergency because I know some of the shareholders didn't like the speed of that. But it's not something we would do on a normal basis. So that completes all today's formal business, and I declare that all resolutions were passed by over 90%, which is good. So Scott, you're going to give us an update on how the business is doing. RNS was announced this morning, but you're going to give that Paul.

So as Paul said, it's been a challenging market environment since we launched the new center at start of last year. The industrial production generally has been negative territory throughout that period. The good news is we are starting to see what feels like some green shoots of recovery, and we can see that both in our order intake and sales per day rates which have stepped up by about 5% since the end of last year. So that's giving us some encouragement. It's not giving us joyous and celebration at this point in time. But certainly, more signs of encouragement than discouragement, which is great. Overall, our sales on a like-for-like basis actually fell by 5% through quarter 1. We did have the benefit of the acquisition of the Italian business, BMP TAPPI, that we acquired in November last year. So that has offset that minus 5 by a plus 3.8%. So the total group declined in sales by 1.2% as a result of that poor market. But encouraged by the underlying trends that we're seeing. The trends are a little bit different by region. The Americas probably the one with the clearest trend of improvement and the greatest step up in terms of those orders and sales rates. And again, that correlates very well what we see from external indicators such as the Purchasing Manager Index, which is a an external indicator, which we tend to correlate quite well with. APAC is stable currently. The -- within APAC, China is around 2/3 of our APAC region. And from China, domestically, we're not really seeing much signs of recovery, but we are seeing good signs of growth from Asia -- from China selling into the rest of Asia. So we're seeing a pickup in export demand from China to the rest of Asia, which is also encouraging. And then in Europe, again, as with the European [indiscernible] that is quite a mixed performance? There are some poor areas. Germany is undoubtedly the poorest performing industrial economy right now, and that is coming through our own sales and order performance. But there are some bright spots as well. Eastern Europe, in particular, is a bright spot, perhaps, benefiting from some migration of production out of Germany to Eastern Europe. Poland being the strongest of all markets, I think, for us, and our Turkish business continues to be a standout performer, both the buoyance in the Turkish economy, but also the product line that we make in Turkey is really the star products area for us as well. So that continues to be a good point and a good platform for us to grow through the year. So with some early signs of encouragement, we're not yet at the point of releasing cost into the organization. So cost control remains very tightly managed which means our margins remain very strong as we demonstrated through last year. So we'll continue to be very disciplined in terms of investing in the business. We are investing, but in a controlled fashion, until we see much stronger signs of recovery, which -- we do expect to come. We do expect the second half to continue to improve as interest rates start to fall. It's likely that, that sentiment, our customers' demand will improve as well. So we are expecting that improvement through H2 and an ability to continue to invest even further in the business, but we'll be very disciplined from a cost management point of view until those signals are even stronger than they are today. We are continuing some investment there, it's not as if we're cutting any investment out of the organization. We have continued to add stock to the business through the first 4 months of the year. So our service metrics are continuing to go from strength to strength. Our Net Promoter Score last month was the highest it's ever been, for example. So customer satisfaction is in a really good place, which will be a great strength for us as the market recovers, that will really give us some opportunities to take share in a growing market. So with all that together, we continue to remain confident that we can deliver the Board's expectations for the year and also deliver in line with those midterm targets that we have of doubling the size of the organization over the next 4 to 5 years and tripling the operating profit that is associated with that growth. So not an easy macro environment, but it's a great business, very resilient, early signs of recovery, good levels of margin and setting ourselves very well up for a market recovery, which we are expecting to see as we trade through the year. Back to you, Paul.

We'll now take any questions from shareholders. I may have -- Tim, you're going to find out if we have any questions that have come through. Okay. Anybody who want to raise any questions?

I just had one come through. [indiscernible] Writing the capacity of both the private investor and representative of the [indiscernible] -- we constructed this most [indiscernible] Hello. I am writing in the capacity of both a private investor and representative of the engagement appeal, the constructivist organization, looking to align companies and individual investors on inclusive engagement and financial literacy. I just wish to commend the Chair of the Board, company secretary, and everyone at Essentra for the progressiveness that you show.

Those are the sort of questions we want -- thank you very much who have put that in. We have a big support, by the way, of that appeal. Which opens it up to the person in the street who can buy shares and get information because we tend to focus on the large shareholders. And this opens up everybody so that they can eventually take part in AGMs or access the directors much easily than they've done in the past. It's something you're pioneering isn't it, Emma? So yes, it's a good way forward.

Chair. There is a second part to that statement. Having engaged every week for the last 8 weeks with the knowledgeable Deputy Company Secretary.