A clampdown on smoking in China and problems with a big acquisition have prompted a second profit warning in four months from Essentra, the maker of packaging and cigarette filters.
In a trading update, Essentra said profit would fall by up to 20% in 2016. The warning, which followed a downgrade in June, knocked a fifth off the company’s market value and sent its shares to their lowest level since early 2012.
Colin Day, the chief executive, whose departure was announced three weeks ago, told analysts: “I apologise that we had to do this. Clearly it doesn’t give anybody any great delight or satisfaction.”
Essentra said its filters business was affected by weaker demand in China, slower implementation of new contracts and the sudden decision by a US customer to move production to Thailand.
Day said it was hard to know what was going on in China and that he was wary about the outlook there. He said: “The underlying fact remains overall growth in China is slowing … You should talk to the tobacco companies. As the Chinese authorities seek to regulate smoking in public places, that puts pressure on growth.”
The company’s performance was also hit by problems at three factories acquired when it bought Clondalkin, a US-based packaging company, almost two years ago. The $455m (£367m) deal, completed in January 2015, was the biggest in a string of acquisitions since Day became chief executive.
Essentra expects adjusted operating profit for the year to the end of December to fall to £137m-£142m from £172m last year. In June it forecast profit of £155-£165m. Day said the business was sound but had had a difficult year and that there was no indication the dividend was under threat.
The company’s shares fell by 22% and were down 19% at 400p in early afternoon trading on Monday. Essentra shares have more than halved from 828p this year.
Day is stepping down on 31 December after almost six years in charge. He will be replaced by Paul Forman, who will join from Coats Group, the industrial thread manufacturer.
Essentra split from Bunzl, the distribution group, in 2005 and was called Filtrona until 2013. Last year it closed its filter factory in Jarrow, Tyneside, where the business started in the 1940s, and moved production to Hungary.
