Thursday 3 March 2022

 

Synthomer plc

Preliminary Results for the year ended 31 December 2021

Exceptional performance with strong strategic progress

 

 

HIGHLIGHTS
	Underlying performance1				Statutory results (IFRS)
	2021	2020	Constant currency2		2021	2020	change
	£m	£m	%		£m	£m	%
Revenue	2,329.5	1,644.2	46.9		2,329.5	1,644.2	41.7
Volumes (ktes)	1,671.5	1,638.2	2.0
Performance Elastomers (PE)	320.7	142.5	136.9
Functional Solutions (FS)	139.2	95.6	49.8
Industrial Specialities (IS)	47.6	41.2	18.9
Acrylate Monomers (AM)	35.3	(2.4)
Corporate	(20.6)	(17.5)	18.3
EBITDA	522.2	259.4	109.8
EBITDA % of revenue	22.4%	15.8%
Depreciation	(71.3)	(69.8)	5.3
Operating profit (EBIT)	450.9	189.6	148.3		308.5	58.4	428.3
Finance costs	(30.8)	(29.6)	4.1		(24.6)	(38.1)	(35.4)
Profit before tax	420.1	160.0	175.0		283.9	20.3	1,298.5
Free Cash Flow3	217.6	167.6	29.8
EPS (p)	75.2	28.9	160.2		48.3	0.7	6,800.0
DPS (p)	30.0	11.6	158.6		30.0	11.6	158.6

1.     Underlying performance excludes Special Items, unless otherwise stated.

2.     Constant currency revenue and profit measures retranslate current year results using the prior year's average exchange rates.

3.     Free Cash Flow is defined as the movement in net debt before financing activities, foreign exchange and the cash impact of Special Items, asset disposals and business combinations.

 

Full Year Highlights

 

Group EBITDA increased 109.8% to £522.2 million (2020: £259.4 million, 2019: £177.9 million), with strong growth across all four divisions

−	Performance Elastomers EBITDA up 136.9% following exceptional Nitrile latex performance due to unprecedented demand driven by COVID-19 pandemic
−	Functional Solutions EBITDA up 49.8%, reflecting stronger global position, increased market diversity and synergies from OMNOVA
−	Industrial Specialities EBITDA up 18.9%, demonstrating strong momentum across expanded speciality portfolio
−	Acrylate Monomers EBITDA up to £35.3 million, helped by strong underlying demand due to a temporary tightening of the market

 

Free Cash Flow* up 108.5% to £300.4 million supporting a robust balance sheet and continued investment opportunities

−	Continued strong Free Cash Flow* conversion at 58% EBITDA
−	Leverage reduced to 0.3x EBITDA (December 2020: 1.8x), including £203.1 million equity placing proceeds
	* Free Cash Flow excluding movements in working capital

 

Creation of new Adhesive Technologies Division

−	Acquisition of Eastman's Adhesive Resins business expected to complete in March 2022
−	Well invested assets with a global leading position in growing adhesives markets with attractive synergy potential

 

Regulatory fine

−	£57.2 million provision recognised in relation to ongoing Styrene monomer investigation by the European Commission

 

Strong progress on Environment, Social and Governance (ESG) targets:

−	Vision 2030 roadmap launched with ambitious, measurable goals aligned with UN Sustainable Development Goals
−	34% reduction of scope 1 & 2 carbon footprint vs 2019 and set agenda for diversity and inclusion
−	Awarded London Stock Exchange's Green Economy Mark, given to companies that derive more than 50% of revenues from sustainable solutions

 

New leadership team

−	Michael Willome appointed Group CEO on 1 November 2021
−	Lily Liu to join as Group CFO in mid 2022

 

2021 final dividend confirmed

−	Final 2021 dividend of 21.3 pence in line with Group's dividend policy, (2020: 8.6 pence)

 

Outlook

Exceptional levels of profitability in 2021 have enabled the Group to make major inorganic and organic investments to significantly strengthen our platform for future growth. As set out in the February trading statement, Nitrile latex margins have normalised to pre-COVID levels and the Group does not expect any Nitrile latex pandemic premium in 2022. Year-to-date, Nitrile latex demand remains subdued due to high inventory levels of medical gloves and reduced demand due to the easing of the COVID-19 pandemic. However, trading conditions in Nitrile latex are expected to normalise by the end of H1 with market growth returning to 2019 levels in the second half. All other divisions have had an encouraging start to the year, and the Group expects to make continued strategic, commercial and operational progress in 2022. We have very limited exposure to Russia and Ukraine, with both countries accounting for less than 1% of Group revenue, and we continue to carefully monitor the situation and its potential implications on our business. The acquisition of Eastman's Adhesive Resins business is expected to complete in Q1. The Group continues to look for further bolt-on acquisition opportunities geared towards attractive end-markets that are value accretive to Synthomer's portfolio. The Board remains confident that the benefits of recent acquisitions and disciplined capital allocation focused on organic growth, inorganic growth and dividends will underpin growing sustainable profits and value creation in the coming years.

 

Commenting, Michael Willome said:

"This has been an extraordinary year of outperformance for Synthomer. Record financial results alongside further strategic and operational progress is testament to the outstanding dedication of our employees, the strength of our portfolio and Synthomer's leading market positions globally. All areas of the business have had an excellent year, led by Performance Elastomers and unprecedented Nitrile latex demand due to the pandemic. We have taken full advantage of strong profits by acquiring Eastman's Adhesive Resins business and to support further investment in capacity, initiatives that will deliver significant benefits in the years ahead. With the market returning to more normalised growth conditions, the Group's prospects remain very attractive and we look forward to making progress in the year ahead."

 

Further information:

Michael Willome, Chief Executive Officer	Tel: 01279 436211
Stephen Bennett, Chief Financial Officer
Tim Hughes, President, Corporate Development
Charles Armitstead, Teneo	Tel: 07703 330 269

 

The Company will host an audiocast for analysts and investors at 08:30 today. To participate please register at www.synthomer.com, please visit the Investor Relations homepage and click on the webcast link provided to register.

 

 

Chair's statement

 

In 2021, the Board focused on the significant demands on the business as well as succession planning, business excellence and delivering on the OMNOVA acquisition. The acquisition of Eastman's Adhesive Resins business was a strategic and important step and we thank shareholders for their support.

 

Exceptional performance, built on robust foundations

Our business ended the year with record results, and with the foundations in place for growth that will enable us to create value into the future. This was made possible by two things: further delivering our consistent strategy of long-term sustainable growth organically and through acquisitions, including the $1bn acquisition of Eastman's Adhesive Resins business which is expected to complete in March 2022; and the resilience and skill of our employees, who have continued to put our values into practice despite the ongoing challenges of the COVID-19 pandemic. I would like to thank them all personally, and also behalf of the Board. The safety of employees is our first priority and the Board oversaw progress towards achieving top quartile performance across all our sites during 2021.

 

A smooth leadership transition, and a consistent strategy

In June, we announced the appointment of Michael Willome as our new Group Chief Executive Officer, after Calum MacLean announced his intention to step down at the start of the year.

 

I was delighted to welcome Michael in November, following an extensive search process which identified him as a high-calibre, proven business leader with experience in the global speciality chemicals industry and a strong track record of driving growth. The smooth transition since his appointment has confirmed that Michael has the right capabilities to lead Synthomer through the next phase of its development.

 

This seamless handover was due in no small part to Calum, and on behalf of the Board I would like to thank him for his outstanding leadership over the last seven years. I extend the same thanks to Stephen Bennett, our Chief Financial Officer, who in August announced his intention to stand down. The Board has appointed Lily Liu to succeed Stephen and we look forward to welcoming her to the Group this summer. Calum and Stephen have helped transform Synthomer into a diversified, differentiated, global speciality chemicals business, and the benefits can be clearly seen in the Company's performance. They have built a strong platform for continued success, and leave behind a highly experienced leadership team.

 

Growth that supports our purpose

The year's results show that across the business, our teams have worked superbly to create organic growth - through innovation, capacity utilisation, and a continuous focus on meeting strong customer demand. This was despite the challenges presented by disruptions in the global supply chain, which were navigated with great skill by our procurement, operations, and commercial teams.

 

The results also show that the integration of OMNOVA is complete, well ahead of schedule and is delivering higher synergies than originally announced. The synergies outlined have all been realised, despite the COVID-19 pandemic making it difficult for new teams to meet in person. This is a tribute to everyone involved, especially colleagues who have joined Synthomer from OMNOVA, the teams who made the transaction in the first place, and the management and finance teams who oversaw the integration process.

 

Regulatory fine

During 2018, the European Commission (the Commission) initiated an investigation into practices relating to the purchase of Styrene monomer by several companies, including Synthomer, operating in the European Economic Area. The Company has and will continue to fully co-operate with the Commission during its investigation. Based on the information available and the resulting assessment of the expected outcome of the investigation a provision of £57.2 million has been made in relation to this case.

 

A more diverse, inclusive Synthomer, underpinned by sound governance

During the year we launched our Vision 2030 roadmap which includes our commitment to net zero as well as expanding on Synthomer's longstanding work on safety, health and environment (SHE). Sustainability is now inextricably linked to the Group's financial performance. It is a huge step forward, strengthening the business and helping Synthomer meet the rising expectations of stakeholders over the next decade. We have more to do in many areas not least making our culture more diverse, inclusive, and supportive of the employees who drive our success, with further equality of career development opportunities.

 

Dividend

The Board has recommended a final ordinary dividend of 21.3 pence (2020: 8.6 pence) per share, consistent with our dividend policy, this exceptional increase reflecting the unique year of profitability.

 

Caroline Johnstone
Chair
3 March 2022

 

 

Chief Executive Officer's review

 

 

Building on an outstanding year to consistently deliver growth and value

Synthomer has delivered record results this year and as Synthomer's new Chief Executive, I am excited by the significant opportunities ahead from which this business can deliver consistent growth.

 

Today Synthomer enjoys leadership positions in a wide range of attractive, global markets, based on a broad portfolio of differentiated speciality products. We have proven expertise in acquiring and integrating new businesses and outstanding innovation.

 

Furthermore, our powerful sustainability credentials, including our leadership in water-based polymers in our dispersions business and our sustainability innovations in areas such as Nitrile latex for medical gloves, or lower carbon footprint products in our Functional Solutions division mean that we are well positioned in this vitally important area. Our platform for future growth is strong.

 

Excellent EBITDA performance in all divisions, creating a platform for the future

All our divisions have achieved record EBITDA in 2021. The strongest growth came from Performance Elastomers, which grew EBITDA by 136.9%, mainly as a result of the unprecedented, and one-off, demand for Nitrile latex caused by the COVID-19 pandemic in 2020 and 2021. At the same time, Functional Solutions grew by 49.8%, and Industrial Specialities by 18.9%. Acrylate Monomers has returned to profitability with £35.3 million EBITDA. Overall, Group EBITDA grew by 109.8% to £522.2 million and resulted in an EBITDA margin of 22.4% of revenue (2020: 15.8%).

 

This outstanding performance meant we further strengthened our balance sheet. We successfully deleveraged to 0.3x EBITDA through strong Free Cash Flow and the equity placing, creating the conditions to pursue further inorganic and organic growth opportunities, and add further value.

 

The most significant strategic event in 2021 was our acquisition of the Eastman's Adhesive Resins business, which on completion will create our new Adhesive Technologies division. This is a highly complementary opportunity with a strong focus on attractive end markets such as packaging, hygiene, building and construction, and high-performance tyre additives. It will enable us to further develop, manufacture and sell tackifying resins and additives for adhesive products and it will expand our portfolio and our geographical reach, especially in the US, one of our focus markets.

 

People and teams making the difference

Everything we've achieved this year is the result of the agility, dedication and commitment of Synthomer people, all over the world. It is one thing to invest in attractive markets and technologies, as the business has done consistently over the years - but that does not produce strong performance on its own. That is down to people going the extra distance, time and again, despite challenges such as the COVID-19 pandemic, or significant raw material and energy price increases, or supply chain disruption, or unprecedented demand.

 

I have met outstanding people and teams everywhere I've been - and I look forward to working with them on future opportunities based on the success achieved so far.

 

Maintaining our strategic focus

Once again, our results demonstrate how critical it is to have leadership positions in our markets. They have also shown how valuable it is to have a growing global footprint, which is why we will continue to address opportunities in the US, South East Asia and China, as well as Europe.

 

Above all, we will continue to ensure that Synthomer is 'market-orientated' - which means always thinking about the end consumers who will ultimately benefit from our products. We make specialised chemical products for our customers, who sell them to consumers - so understanding the consumer means we can serve our customers better. What do they need from the buildings they live or work in, or the surface coatings solutions we all need in daily life, or the health and hygiene products that serve them, or the functional textiles, and automotive products that surround them?

 

We're also striving for innovation excellence, always driven by consumer and customer demand illustrated by our new, patented SyNovus™ Plus Nitrile latex for gloves combining exacting customer requirements and sustainability. Innovation continues to be a core pillar of our growth strategy, helping us secure differentiated market positions and generate added value for our customers. This year, the full integration of OMNOVA has significantly strengthened our innovation pipeline, and our network of four global innovation centres of excellence supported by local application and technical service centres is a key strategic asset.

 

Inspired by our purpose, and committed to Vision 2030

The demand for more 'sustainable products' has never been so great. Our expertise in water-based polymers, which have a lower environmental impact than solvent-based alternatives, makes us leaders in many fields of specialised chemical products. This year, we were awarded the London Stock Exchange's Green Economy Mark, given to companies that derive more than 50% of their revenues from sustainable solutions. We are closing the coal-fired power station at Sokolov (Czech Republic), which ends our use of coal for power generation across Synthomer, and we moved to electricity from renewable sources in Europe and North America. And our Vision 2030 roadmap, aligned with the UN Sustainable Development Goals sets out our course to make our business increasingly sustainable. It makes clear that our ESG priorities beyond safety remain combating climate change, becoming more diverse and inclusive, and developing our supply chain assurance.

 

We are well-embarked on this journey, but we know we have much more to do because as well as being the right thing to do, we know that consumers, and therefore our customers, will increasingly demand sustainable products, and prefer companies that can produce them.

 

Looking ahead

I'd like to thank everyone at Synthomer - and my predecessor, Calum MacLean, whose leadership over seven years at the company did so much to create the differentiated, global business we are today - for their dedication over the last year.

 

Exceptional levels of profitability in 2021 have enabled the Group to make major inorganic and organic investments to significantly strengthen our platform for future growth. As set out in the February trading statement, Nitrile latex margins have normalised to pre-COVID levels and the Group does not expect any Nitrile latex pandemic premium in 2022. Year-to-date, Nitrile latex demand remains subdued due to high inventory levels of medical gloves and reduced demand due to the easing of the COVID-19 pandemic. However, trading conditions in Nitrile latex are expected to normalise by the end of H1 with market growth returning to 2019 levels in the second half. All other divisions have had an encouraging start to the year, and the Group expects to make continued strategic, commercial and operational progress in 2022. We have very limited exposure to Russia and Ukraine, with both countries accounting for less than 1% of Group revenue, and we continue to carefully monitor the situation and its potential implications on our business. The acquisition of Eastman's Adhesive Resins business is expected to complete in Q1. The Group continues to look for further bolt-on acquisition opportunities geared towards attractive end-markets that are value accretive to Synthomer's portfolio. The Board remains confident that the benefits of recent acquisitions and disciplined capital allocation focused on organic growth, inorganic growth and dividends will underpin growing sustainable profits and value creation in the coming years.

 

 

Michael Willome

Chief Executive Officer

3 March 2022

 

 

Financial review

 

Strong performance from all divisions despite global supply chain disruption

EBITDA grew in each of our divisions. Performance Elastomers EBITDA growth of 136.9% to £320.7 million reflected more than the strong demand for hygiene products, with improved demand and margins in Performance Materials also making an important contribution. Functional Solutions EBITDA grew by 49.8% to £139.2 million, reflecting our stronger global reach and increased market diversity following the integration of OMNOVA, factors which also saw Industrial Specialities EBITDA grow by 18.9% to £47.6 million. Acrylate Monomers EBITDA grew to £35.3 million, from a small loss in 2020.

 

Growth in gross margin per tonne reflects increasing specialisation

This year, extraordinary demand for Nitrile latex products during the COVID-19 pandemic meant that our Nitrile business in particular performed exceptionally and, even as this demand softened in line with our expectations, our specialised portfolio will continue to benefit from the underlying market growth trend that existed before the pandemic.

 

One of the most pleasing aspects of our performance has been the consistent growth in our gross margin per tonne over recent years, a trend which continued in FY21 and not just attributable to the impact from the Nitrile latex business. This long-term growth reflects the fact that our differentiated portfolio contains increasingly more specialised, high-performance products.

 

Rapid integration of OMNOVA realises $42m in synergies

Despite the pandemic, we completed the integration of OMNOVA ahead of schedule. The synergies we identified in our acquisition investment case have also been realised faster than budgeted, and have created greater value - with $42 million realised in the first 18 months of integration. This has strengthened the business, and built the acquisition and integration skills of our teams.

 

Free Cash Flow* up 108.5% to £300.4m

* Free Cash Flow excluding movements in working capital

Strong cash generation and the £203.1 million equity placing ahead of our acquisition of Eastman's Adhesive Resins business has helped drive a rapid reduction of our net debt to £114.2 million leading to leverage of 0.3x EBITDA. This strengthened balance sheet underpinned our proposed acquisition of Eastman's Adhesive Resins business, which was approved by our shareholders on 17 December 2021, and which supports our overall strategy for organic and inorganic investment. We expect the acquisition to complete in March 2022.

 

Reduced pension liabilities

As a result of more favourable market conditions and several years of work, including a detailed review of our pension investment strategy, our pension liability has decreased to £122.4 million from £221.4 million at 31 December 2020. Strong asset returns, cash contributions of £27.0 million and actuarial gains of £51.2 million have all contributed.

 

Dividend of 21.3 pence

The Board has recommended a final ordinary dividend of 21.3 pence (2020: 8.6 pence) per share, this exceptional increase reflecting the unique year of profitability.

 

Taken with the 2021 interim ordinary dividend of 8.7 pence (2020: 3.0 pence) per share, the total ordinary dividend is 30.0 pence (2020: 11.6 pence).

 

The total dividend for the year is in line with the Group's dividend policy with the dividend representing 40% of the Underlying earnings per share. The final dividend per share is subject to shareholder approval at the Annual General Meeting on 28 April 2022 and will be payable on 5 July 2022 to those shareholders registered at the close of business on 6 June 2022.

 

Special Items

 

			2021 £m		2020 £m
	Amortisation of acquired intangibles		(36.2)		(30.9)
	Restructuring and site closure costs		(29.7)		(42.5)
	Acquisition costs and related gains		(11.9)		(14.6)
	Sale of business		(7.4)		(6.6)
	Regulatory fine		(57.2)		-
	Impairment charge		-		(36.6)
	Total impact on operating profit		(142.4)		(131.2)
	Fair value gain/(loss) on unhedged interest rate derivatives		6.2		(3.6)
	Loss on extinguishment of financing facilities		-		(4.9)
	Total impact on profit before tax		(136.2)		(139.7)
	Taxation Special Items		8.8		(4.9)
	Taxation on Special Items		11.8		20.5
	Total impact on profit for the year		(115.6)		(124.1)

 

The following items of income and expense have been reported as Special Items:

 

·      Amortisation of acquired intangibles increased in 2021, reflecting the first full year charge since the acquisition of OMNOVA Solutions Inc on 1 April 2020. The fair values of the intangible assets arising on the acquisition of OMNOVA amounting to £330.1 million are being amortised over a period of 9-11 years mainly dependent on the characteristics of the customer relationships.

·      Restructuring and site closure costs in 2021 comprise:

o  A £13.2 million charge in relation to the substantially completed integration of the OMNOVA acquisition net of a £1.2 million pension curtailment credit in relation to the French business;

o  A £11.6 million charge to demolish and rationalise assets at a small number of sites, to bring them into line with our ESG strategy; and

o  A further £4.9 million for the completion of the rationalisation of the Group's European Performance Materials network.

Restructuring and site closure costs in 2020 comprised £19.5 million for integration of OMNOVA, £20.9 million for the rationalisation of the Group's European Performance Materials network and £2.1 million to rationalise the Acrylate Monomers' site.

·      Acquisition costs and related gains are for the acquisition of Eastman's Adhesive Resins business and comprise £15.0 million of costs, mainly professional adviser fees, offset by a £3.1 million gain on a foreign exchange derivative entered into in October 2021 to hedge the acquisition price. Acquisition costs in 2020 related to the acquisition of OMNOVA.

·      Sale of business mainly comprised a further £7.1 million loss on the onerous contract for the disposal of Synthomer's European Tyre Cord business as production is relocated to Caojing (China) to enable the Marl 3 asset (Germany) to be fully closed. This is incremental to the charge taken in 2020.

·      During 2018, the European Commission initiated an investigation into practices relating to the purchase of Styrene monomer by several companies, including Synthomer, operating in the European Economic Area. The Company has and will continue to fully cooperate with the Commission during its investigation. Based on the information available and the resulting assessment of the expected outcome of the investigation a provision of £57.2 million has been made in relation to this case.

·      In 2020, a £36.6 million impairment charge was booked relating to four sites.

·      In July 2018 the Group entered into swap arrangements to fix Euro interest rates on the full value of the then €440 million committed unsecured revolving credit facility. The fair value movement of the unhedged interest rate derivatives relates to the movement in the mark-to-market of the swap at 31 December 2021 in excess of the Group's current borrowings.

·      Following the Group's successful refinancing in 2020, capitalised debt costs relating to the 2018 refinancing and the 2019 bridge to bond were written off, leading to a loss on extinguishment of £4.9 million.

·      Taxation Special Items comprised the release of uncertain tax provisions in relation to historical tax issues in France and Malaysia.

·      Taxation on Special Items is mainly deferred tax credits arising on the amortisation of acquired intangibles and restructuring and site closure costs.

 

Finance costs

			2021  £m		2020  £m
	Net interest payable		(26.9)		(24.3)
	Net interest expense on defined benefit obligation		(2.4)		(3.7)
	Interest element of lease payments		(1.5)		(1.6)
	Underlying finance costs		(30.8)		(29.6)
	Fair value gain/(loss) on unhedged interest derivatives		6.2		(3.6)
	Loss on extinguishment of financing facilities		-		(4.9)
	Total finance costs		(24.6)		(38.1)

 

 

Underlying finance costs increased to £30.8 million (2020: £29.6 million) and comprise interest on the Group's financing facilities, interest rate swaps, amortisation of associated debt costs and IAS 19 pensions interest costs in respect of our defined benefit pension schemes.

 

The rise in the net interest payable mainly reflects the higher interest rate on the €520 million 3.875% senior unsecured loan notes due 2025 bond issued in June 2020, refinancing the OMNOVA acquisition finance bridge, as offset by the lower level of borrowings in 2021 relative to 2020 as a result of the strong free cash flow and the equity placing in anticipation of the acquisition of Eastman's Adhesive Resins business.

 

The Group's committed unsecured facilities comprise the $260 million term loan, the €520 million bond and the €460 million revolving credit facility. The revolving credit facility was fully undrawn throughout 2021 and as a result the interest rate derivatives were fully unhedged and the full movement in fair value was taken to Special Items.

 

Taxation

The Group's effective tax rate is impacted by the tax impact of Special Items. It is therefore helpful to consider the Underlying and Special Items tax rates separately:

·      The effective tax rate on Underlying profit before tax for the year decreased to 22.5% (2020: 23.4%) due to the impact of COVID-19 on the geographical mix of profits.

·      The effective tax rate for Special Items was 15.1% (2020: 11.2%) and was driven by deferred tax credits on the amortisation of acquired intangibles and restructuring and site closure costs, and a current tax credit in relation to historical tax issues in France and Malaysia.

 

 

 

Non-controlling interest

The Group continues to hold 70% of Revertex (Malaysia) Sdn Bhd and its subsidiaries. These entities form a relatively minor part of the Group, so the impact on Underlying performance from non-controlling interests is not significant.

 

Earnings per share

Earnings per share is calculated based on the average number of shares in issue during the year. The weighted average number of shares for 2021 increased to 432,290,000 (2020: 424,843,000) following the equity share placing on 28 October 2021 where 42,485,080 shares were issued raising net proceeds of £203.1 million.

 

Underlying earnings per share for the year is 75.2 pence, up from 28.9 pence in 2020, reflecting the exceptional performance in the year. The IFRS earnings per share is 48.3 pence (2020: 0.7 pence).

 

Balance sheet

Net assets of the Group increased by 64.5% to £1,033.0 million, mainly reflecting the £210.0 million profit for the year, the £203.1 million share issue and actuarial gains of £66.8 million offset by dividend payments of £74.0 million.

 

Provisions

As a result of the regulatory fine and the restructuring and site closure costs set out above, provisions have increased to £103.2 million (2020: £31.6 million).

 

The closing balance includes £57.2 million for the regulatory fine, £15.8 million and £1.0 million in relation to the rationalisation of the Group's European Performance Materials network in Marl and Oulu respectively and £10.6 million in relation to the onerous contract arising on the disposal of the European Tyre Cord business.

 

In the year, a £5.1 million provision was recognised for the closure of OMNOVA's administrative and R&D site in Villejust (France) and the site transformation in Kluang (Malaysia) was completed.

 

A £11.6 million provision has been made to demolish and rationalise assets at a small number of sites, to bring them into line with our ESG strategy.

 

Retirement benefit plans

The Group's principal funded defined benefit pension schemes are in the UK and the US and are both closed to new entrants and future accrual. The Group also operates an unfunded defined benefit scheme in Germany and various other defined contribution overseas retirement benefit arrangements.

 

The Group's net retirement obligation decreased by 44.7% to £122.4 million at 31 December 2021 (31 December 2020: £221.4 million) and reflects the market value of assets and the valuation of liabilities in accordance with IAS 19. This £99.0 million reduction in the net retirement obligation is principally attributable to the conservative investment strategy, £66.8 million of actuarial gains and Group funding contributions of £27.0 million. The actuarial gain arose due to a £15.6 million return on assets, a £32.2 million impact from increases in discount rates, a £11.8 million gain from experience adjustments and a £7.2 million gain on demographic assumptions.

 

Cash performance

The Group's primary focus is on managing net debt by maximising Free Cash Flow. The following table summarises the movement in net debt and is in the format used by management:

 

			2021 £m		2020 £m
	Opening net (debt)/cash		(462.2)		20.7
	Underlying operating profit (excluding joint ventures)		448.3		188.4
	Movement in working capital		(82.8)		23.5
	Depreciation of property, plant and equipment		64.2		64.9
	Amortisation of other intangible assets		7.1		4.9
	Share-based payments charge		2.1		2.0
	Capital expenditure		(82.2)		(53.8)
	Business cash flow		356.7		229.9
	Net interest paid		(27.6)		(14.0)
	Tax paid		(86.4)		(31.4)
	Pension funding		(27.0)		(18.8)
	Dividends received from joint ventures		1.9		1.9
	Free Cash Flow		217.6		167.6
	Cash impact of restructuring and site closure costs		(17.8)		(25.3)
	Cash impact of acquisition costs		(6.6)		(7.4)
	Acquisition costs and purchase of business		-		(587.6)
	Sale of business		1.7		0.1
	Share issue proceeds		203.1		-
	Repayment of principal portion of lease liabilities		(9.7)		(9.7)
	Dividends paid		(73.5)		(12.8)
	Dividends paid to non-controlling interests		(0.5)		(3.1)
	Foreign exchange and other movements		33.7		(4.7)
	Movement in net debt		348.0		(482.9)
	Closing net (debt)/cash		(114.2)		(462.2)

 

Underlying operating profit more than doubled to £448.3 million due to exceptionally strong trading but this was offset in part by a £82.8 million investment in working capital mainly due to significant rises in raw material costs, partially reflecting disruptions in raw material supply chains. Working capital as a % of sales, the key performance measure monitored by the Group, remains at around 10% in line with historical performance. Depreciation and amortisation of other intangibles are in line with the prior year.

 

Capital expenditure increased to £82.2 million, recovering from the COVID-19 measures introduced in 2020 to preserve cash and liquidity. Our Nitrile latex capacity expansion project in Malaysia is nearing completion, as is the project to replace the coal-fired power station in Sokolov (Czech Republic). The Group continues to invest in its Pathway Programme systems transformation project, the first phase of which was successfully deployed in May 2021.

 

Interest paid increased to £27.6 million reflecting the first full period of additional borrowings drawn for the OMNOVA acquisition and the successful issue in June 2020 of the €520 million 3.875% senior unsecured loan notes due 2025, for which the first bi-annual interest payment was due in January 2021.

Tax paid increased by £55.0 million to £86.4 million. The Group's overall effective tax rate reduced slightly, from 23.4% to 22.5%, and the increase in cash payments is mainly due to higher profitability in 2021.

 

The cash impact of restructuring and site closure costs was £17.8 million, which comprises £6.0 million of OMNOVA synergy costs, £10.5 million utilisation of restructuring provisions and £1.3 million of other restructuring costs in the year.

 

The cash impact of acquisition costs was £6.6 million, arising from the acquisition of Eastman's Adhesive Technologies business. The 2020 net outflow of £7.4 million related to the OMNOVA acquisition and comprised £20.1 million of costs offset by a £12.7 million cash gain on deal-contingent foreign exchange contracts.

 

The 2020 cash outflow for the purchase business related to OMNOVA.

 

On 28 October 2021, the Group successfully completed a share placing, raising £203.1 million, net of issue costs, again relating to financing of the proposed acquisition of Eastman's Adhesive Resins business.

 

Dividends paid in the year increased. The final dividend payment for 2020 was paid in July 2021, whereas the 2019 final dividend was cancelled in order to preserve cash, liquidity and balance sheet strength at the onset of the COVID-19 pandemic in March 2020.

 

Our debt is denominated in euros and dollars, the euro weakened relative to sterling during 2021, leading to a foreign exchange gain in net debt.

 

Currency

The Group presents its consolidated financial statements in sterling and conducts business in many currencies. As a result, it is subject to foreign currency risk due to exchange rate movements, which affect the Group's translation of the results and Underlying net assets of its operations. To manage this risk, the Group uses foreign currency borrowings, forward contracts and currency swaps to hedge non-sterling net assets, which are predominantly denominated in Euros, US dollars and Malaysian ringgits.

 

In 2021 the Group experienced an overall currency headwind with average FX rates against our three principal currencies increasing by 3.4% to €1.165, 6.3% to $1.374 and 5.5% to MYR 5.70. This resulted in a net £22.1 million translation headwind in reported EBITDA.

 

Given the global nature of our customer and supplier base, the impact of transactional foreign exchange can be very different from translational foreign exchange. We are able to partially mitigate the transaction impact by matching supply and administrative cost currencies with sales currencies. To reduce volatility which might affect the Group's cash or income statement, the Group hedges net currency transaction exposures at the point of confirmed order, using forward foreign exchange contracts. The Group's policy is, where practicable, to hedge all exposures on monetary assets and liabilities.

 

Financing and liquidity

At 31 December 2021, the Group had net debt of £114.2 million compared to net debt of £462.2 million at 31 December 2020. The reduction in net debt reflects the strong Free Cash Flow in the year and the proceeds on the equity share placing. This cash generation resulted in a reduction in the Group's leverage, from 1.8x at 31 December 2020 to 0.3x at 31 December 2021, leaving the Group well placed to finance the acquisition of Eastman's Adhesive Resins business.

 

Ahead of the Adhesive Resins acquisition, a new committed unsecured $300 million term loan facility was entered into on 28 October 2021 which will be drawn, alongside a portion of the revolving credit facility on completion. An equity share placing was also undertaken on 28 October 2021 raising £203.1 million net of issue costs. These proceeds were swapped into USD on the day of the placing in order to hedge against the dollar-denominated acquisition price.

 

At 31 December 2021, the Group had committed borrowing facilities of approximately £1,250 million through until July 2024 with a single financial leverage ratio covenant of 3.5x for 2022 and 3.25x for 2023 and 2024.

 

Stephen Bennett

Chief Financial Officer

3 March 2022

 

 

Divisional - Underlying performance

 

Performance Elastomers

 

A year of exceptional growth - and clear opportunities for the future, driven by innovation and capacity expansion.

 

	2021	2020	%	Constant currency1 %
Safety (RCR)	0.11	0.31	(64.5)
Volumes (ktes)	844.2	896.0	(5.8)
Revenue (£m)	951.5	680.3	39.9	46.2
EBITDA (£m)	320.7	142.5	125.1	136.9
Operating profit - Underlying performance (£m)	294.9	116.8	152.5	166.0
Operating profit - IFRS (£m)	286.9	80.8	255.1

¹ Constant currency revenue and profit measures retranslate current year results using the prior year's average exchange rates.

 

Volumes

Performance Elastomers achieved overall volumes of 844.2ktes in FY21, a reduction on the exceptional volumes of 896.0ktes in FY20, and in line with our FY19 performance of 849.1ktes. Within this overall figure, volumes in our Nitrile latex business were lower than in 2020. Nitrile latex performance was affected by Emergency Movement Control Orders put in place in Malaysia in response to the pandemic in Q3, as well as some customer de-stocking in H2 2021 that followed exceptional demand in FY20 and H1 2021. Our further investment in Nitrile latex capacity, including 'JOB 6' and our announced plans for significant further investment in South East Asia, demonstrate our long-term commitment to the growing Nitrile latex market.

 

We closed our Performance Materials facility in Oulu, Finland, in February 2021, reducing Performance Materials capacity by 55 ktes in FY21. Our oldest Performance Materials plant in Marl is closing and a range of products previously made at this plant are being transferred across the wider Synthomer network. This will significantly improve the utilisation of the Performance Materials assets in Europe.

 

Revenue

The division achieved revenues of £951.5 million in FY21, with particularly strong demand, driven by the global COVID-19 pandemic, for Nitrile latex for a range of medical and industrial gloves. Glove prices rose to record levels and with demand for Nitrile latex exceeding supply in H1, margins rose well above normalised levels. As demand reduced during H2 both glove and Nitrile latex prices reduced significantly, returning to historical levels since January 2022. Industry analysts forecast that demand for Nitrile latex, the preferred material of choice for medical gloves, will continue to grow strongly as glove usage per capita continues to increase in developing countries. Synthomer also has a strong product development pipeline arising from our industry-leading Asia Innovation Centre in Malaysia, including Synovus^TM Plus, samples of which were approved by customers in Q1 2022.

 

EBITDA

This was an exceptional year for the division, and we achieved a record EBITDA of £320.7m. This compares to divisional EBITDA of £142.5m in FY20. The underlying margins within the Nitrile latex business were at exceptional levels as demand for Nitrile latex exceeded supply and record production rates for medical gloves continued in H1. Demand for Nitrile latex started to slow through H2, partly due to the Malaysian emergency control order and supply chain destocking, with margins reducing to more normal levels since January 2022.

 

Performance Materials margins improved following our asset rationalisation programme, and helped by movement in raw materials through the year.

 

Clear benefits from long-term investment

There is a clear link between our consistent investment in organic growth and capacity utilisation, and our ability to meet demand, particularly for Nitrile latex to support the healthcare sector during the COVID-19 pandemic.

 

We know that extraordinary Nitrile latex demand for glove manufacturing during the pandemic resulted in exceptional earnings and cash generation this year, and we expected conditions to normalise as supply and demand became more balanced. That began to happen in H2 2021.

 

Putting aside the exceptional demand created by the pandemic, we intend to continue investing in Nitrile latex because we, along with other industry experts, expect the underlying growth in demand for Nitrile latex experienced pre-pandemic to continue into the future, given the global trends in the healthcare and hygiene product markets and the fact that Nitrile latex is increasingly substituting PVC and natural rubber in personal protective equipment. We have a very strong position in this market with a high market share, industry-leading manufacturing technology and a track record of product innovation. There are exciting opportunities on the horizon and we will continue our focus on product, process and application improvements. We are currently commissioning our 'JOB6' expansion project in Pasir Gudang, Malaysia, creating 60ktes of additional Nitrile latex capacity which will provide additional products for our local and growing US customer bases. At the same time we have carried out siting reviews in Asia to ensure that the required Nitrile latex capacity is available in the coming years to meet our customers' continuing growth plans.

 

Added to this, we have some of the most innovative, highly-skilled people in the industry - and the full opening this year of our Asian Innovation Centre (AIC) has enhanced our ability to lead the way on innovations in products and processes, many of which will have defined sustainability benefits for customers and consumers - including Synovus^TM Plus.

 

Ensuring we have the structure in place for future success

While results this year have been exceptionally strong, we need to remain focused on staying competitive in all our markets. This year, in line with the findings of our review of our Performance Materials business, we closed Performance Materials facilities in Oulu (Finland) and making plans to close our Marl 3 site (Germany) shifting our production to our other sites, where we have been able to focus on our strategic move towards greater capacity utilisation.

 

Functional Solutions

 

Building on our growth platform through innovation and sustainability.

 

	2021	2020	%	Constant currency1 %
Safety (RCR)	0.37	0.39	(5.1)
Volumes (ktes)	655.9	591.2	10.9
Revenue (£m)	900.3	646.7	39.2	43.9
EBITDA (£m)	139.2	95.6	45.6	49.8
Operating profit - Underlying performance (£m)	111.1	69.1	60.8	65.6
Operating profit - IFRS (£m)	69.8	31.1	124.4

¹ Constant currency revenue and profit measures retranslate current year results using the prior year's average exchange rates.

 

Volumes

Functional Solutions achieved overall volumes of 655.9ktes in FY21, an increase on 591.2ktes in FY20, and substantially greater than our FY19 performance of 487.4ktes.

 

This strong overall performance reflects robust demand in all our main markets as well as the fact that we have grown as a division, including through the successful integration of OMNOVA, which has created new sales opportunities as well as increased our capacity.

 

In addition to an extra quarter of volumes from OMNOVA, the division benefited from growth in our Coatings Adhesives Sealants Elastomers (CASE) businesses in Europe and USA, offset in part by the impact of prolonged COVID-19 effects in South East Asia. Demand was particularly strong in construction and textiles. The Oil & Gas business also saw healthy growth, driven by increased higher oil prices and drilling activity.

 

Revenue

The Functional Solutions division achieved revenues of £900.3m in FY21, a growth of 39% on FY20. The extra volumes noted above, both from the OMNOVA integration and organic growth, contributed to this increase, along with an improvement in unit margins in certain segments. Another driver for the increase was the pass through to customers of substantial increases in unit raw material costs.

 

EBITDA

This was a record year for the division, and we achieved EBITDA of £139.2m. This compares to divisional EBITDA of £95.6m in FY20. Aided by strong cost control and synergy realisation, all regions contributed to an overall 46% growth in EBITDA.

 

This excellent result was achieved despite significant prolonged US disruption from the 'Texas freeze' and multiple force majeures affecting our key raw material suppliers in Europe. Functional Solutions delivered record margin growth, with all our global businesses contributing. Volume increases, strong margin management in the face of steeply rising monomer prices, cross-selling of our speciality product portfolio and the ongoing shift towards a more differentiated and sustainable product portfolio all contributed to this improved margin profile.

 

Delivering on the benefits of OMNOVA integration

Last year we completed the integration of OMNOVA, helping to increase the scale and geographic diversity of this division. As well as delivering cost synergies, the successful integration of the Functional Solutions sales team with that of the former OMNOVA business has opened up significant new sales opportunities, many of which were realised during 2021.

 

The integration significantly broadened our global reach as a division, with around a third of revenue now coming from our Americas and APAC markets. It has also expanded our technological capability - so we can continue to innovate and meet the needs of consumers and our diverse customer base.

 

Harnessing innovation and sustainability to drive growth

With more than 80% of our products consisting of water-based dispersions which eliminate the VOC's associated with solvents, Functional Solutions plays a key part in Synthomer's Vision 2030 ambitions.

 

Demand from our more than 3,000 customers across the world for sustainable polymer solutions is growing, driven in many regions by regulation as well as customers' own sustainability objectives. At the same time, our innovation teams are working with customers to develop products that push the possibilities further - meeting needs for formaldehyde-free, biocide-free or lower-VOC applications, and developing bio-degradable, bio-based or industry-compostable products to support circular economy approaches to sustainability. Our 11 technology and innovation centres are state-of-the-art facilities for all our main technology functions: polymer synthesis, materials characterisation applications technology, technical service and production scale-up.

 

Industrial Specialities

Driven by innovation, delivering excellence and growth.

 

	2021	2020	%	Constant currency1 %
Safety (RCR)*	0.40	0.36	11.1
Volumes (ktes)	115.5	91.1	26.8
Revenue (£m)	382.5	264.9	44.4	48.9
EBITDA (£m)	47.6	41.2	15.5	18.9
Operating profit - Underlying performance (£m)	33.9	29.0	16.9	20.3
Operating profit - IFRS (£m)	19.8	18.8	5.3

¹ Constant currency revenue and profit measures retranslate current year results using the prior year's average exchange rates.

* IS and AM are combined for operational reasons

 

Volumes

Industrial Specialities achieved overall volumes of 115.5ktes in FY21, an increase on our volumes of 91.1ktes in FY20, and substantially greater than our FY19 performance of 67.3ktes.

 

Robust demand in all our main markets drove the strong volumes, while we have also grown as a division through the successful integration of OMNOVA. Our reliability programme at Harlow, as well as smaller

de-bottlenecking projects across other plants, have also helped us increase capacity.

 

Revenue

The division achieved revenues of £382.5m in FY21, a significant increase on FY20. The increase in revenue was attributable to increased volumes, consistent focus on product pricing and margin management and the impact of the OMNOVA integration.

 

EBITDA

We achieved EBITDA of £47.6m for Industrial Specialities in FY21, compared to divisional EBITDA of £41.2m in FY20.

 

Laminates & Films, integrated from OMNOVA, continued to grow revenue in FY21 through strong volumes and further market share gains, following a very strong year in FY20. The business continues to grow ahead of the market through substitution of the superior performance and lower cost of laminates and films compared to traditional wood and stone materials. The business is well placed to deliver another year of growth in FY22.

 

The Coated Fabrics business, also integrated since the acquisition of OMNOVA, benefitted from growth in the Asian automotive and motorcycle markets. The business experienced strong volumes during FY21 and delivered very strong year-on-year growth.

 

The Vinyl Polymers business had a resilient year, delivering strong volumes, but was adversely affected by weaker unit margins following unprecedented raw material price increases and a weaker US dollar. With the recovery of unit margins during the second half of the year following sales price increases, this business is in a good position to deliver growth in FY22.

 

The Polybutadiene Lithene business delivered year-on-year growth through strong volumes, partly helped by the recovery in the automotive sector.

 

William Blythe delivered excellent year-on- year growth with strong underlying volumes from existing and new product sales.

 

Our Speciality Additives business, which supplies speciality coatings, delivered an exceptional performance with record volumes and strong unit margins. The business also benefitted from the cost improvement plan delivered during FY21.

 

The Powder Coating business delivered strong volumes and unit margins, and delivered a record EBITDA year.

 

Leading innovation, and strengthened reach and scale

The integration of OMNOVA has given our division further diversification, both in terms of the end markets we serve, and our geographical reach. We've really seen the benefits this year, with cost synergies being realised and significant new sales opportunities, particularly in the US. It has also expanded our innovation capabilities, which remain a key focus in our ability to meet end consumer and customer needs.

 

Acrylate Monomers

An exceptional performance and progress on our transformation programme, creating the foundations for future success.

 

	2021	2020	%	Constant currency1 %
Safety (RCR)*	0.40	0.36	11.0
Volumes (ktes)	55.9	59.9	(6.7)
Revenue (£m)	95.2	52.3	82.0	81.8
EBITDA (£m)	35.3	(2.4)	(1,570.8)	(1566.7)
Operating profit - Underlying performance (£m)	34.5	(5.6)	(716.1)	(714.3)
Operating profit - IFRS (£m)	29.3	(26.3)	(211.4)

¹ Constant currency revenue and profit measures retranslate current year results using the prior year's average exchange rates.

*AM and IS are combined for operational reasons

 

Volumes

Acrylate Monomers achieved overall volumes of 55.9ktes in FY21, compared to volumes of 59.9ktes in FY20. This decrease is partly attributable to a change in product mix, supplying greater volumes to our Functional Solutions dispersions business as well as the challenging operational and raw material environment.

 

Revenue

The division achieved revenues of £95.2m in FY21, a significant increase on FY20. This reflects a substantial increase in sales prices due to strong demand, and the temporary tightening of supply in both European and

global markets in FY21. Among the events which had an impact on supply were a number of acrylic monomer supplier force majeures within Europe, the US winter storm and the blockage of the Suez Canal, which began in March 2021. This temporary tightening of supply is expected to normalise over the course of FY22 as competitors restore levels of production and shipping constraints ease.

 

EBITDA

The division achieved EBITDA of £35.3m in FY21, compared to a small loss of £2.4m in FY20. This return to profit was primarily driven by a substantial increase in unit margins, as a result of the period of strong demand and temporary tightening of supply in our markets, described above. In addition, Acrylate Monomers has delivered a number of cost savings in FY21 as part of our transformation programme, the full-year benefits of which will be realised during FY22.

 

Ending coal use in Synthomer

Our Acrylate Monomers division operates from our production plant at Sokolov (Czech Republic), which we share with the Functional Solutions dispersion business. We manufacture and supply monomer products to Functional Solutions, as well as being a medium-sized supplier to the European Acrylates market.

 

Set up as a division in early 2021, Acrylate Monomers has made significant progress on its long-term transformation programme, which set out to return the division to profitability and establish a strong, sustainable foundation for future growth. Our ability to complete that programme in 2021 reflects the commitment of our people at Sokolov, who have driven it through while maintaining operations, all in the face of the disruptions caused by COVID-19. Their success is shown by significantly higher EBITDA this year, driven by higher margins.

 

A key element of our transformation programme at Sokolov was beginning the closure of the site's coal-fired power station. This will mark the end of coal use in Synthomer, contributing to our target to reduce GHG emissions by 40% by the end of 2030 (compared to 2019), and reinforcing our strong commitment to reducing our carbon footprint. Our investment at the site will also reduce our site water requirements by 23%.

 

Consolidated income statement

for the year ended 31 December 2021

 

		2021							2020
	Underlying performance			Special Items		IFRS			Underlying performance	Special Items	IFRS
			£m		£m		£m		£m	£m	£m
Revenue			2,329.5		-		2,329.5		1,644.2	-	1,644.2
Company and subsidiaries operating profit before Special Items			448.3		-		448.3		188.4	-	188.4
Amortisation of acquired intangibles			-		(36.2)		(36.2)		-	(30.9)	(30.9)
Restructuring and site closure costs			-		(29.7)		(29.7)		-	(42.5)	(42.5)
Acquisition costs and related gains			-		(11.9)		(11.9)		-	(14.6)	(14.6)
Sale of business			-		(7.4)		(7.4)		-	(6.6)	(6.6)
Regulatory fine			-		(57.2)		(57.2)		-	-	-
Impairment charge			-		-		-		-	(36.6)	(36.6)
Company and subsidiaries			448.3		(142.4)		305.9		188.4	(131.2)	57.2
Share of joint ventures			2.6		-		2.6		1.2	-	1.2
Operating profit/(loss)			450.9		(142.4)		308.5		189.6	(131.2)	58.4
Interest payable			(27.9)		-		(27.9)		(25.5)	-	(25.5)
Interest receivable			1.0		-		1.0		1.2	-	1.2
Fair value gain/(loss) on unhedged interest rate derivatives			-		6.2		6.2		-	(3.6)	(3.6)
Loss on extinguishment of financing facilities			-		-		-		-	(4.9)	(4.9)
Net interest expense on defined benefit obligations			(2.4)		-		(2.4)		(3.7)	-	(3.7)
Interest element of lease payments			(1.5)		-		(1.5)		(1.6)	-	(1.6)
Finance costs			(30.8)		6.2		(24.6)		(29.6)	(8.5)	(38.1)
Profit/(loss) before taxation			420.1		(136.2)		283.9		160.0	(139.7)	20.3
Taxation			(94.5)		20.6		(73.9)		(37.4)	15.6	(21.8)
Profit/(loss) for the year			325.6		(115.6)		210.0		122.6	(124.1)	(1.5)
Profit/(loss) attributable to non-controlling interests			0.4		0.9		1.3		(0.3)	(4.3)	(4.6)
Profit/(loss) attributable to equity holders of the parent			325.2		(116.5)		208.7		122.9	(119.8)	3.1
			325.6		(115.6)		210.0		122.6	(124.1)	(1.5)
Earnings/(loss) per share
Basic			75.2p		(26.9)p		48.3p		28.9p	(28.2)p	0.7p
Diluted			74.9p		(26.8)p		48.1p		28.8p	(28.1)p	0.7p

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2021

	2021				2020
	Equity holders of the parent	Non-controlling interests	Total		Equity holders of the parent	Non-controlling interests	Total
	£m	£m	£m		£m	£m	£m
Profit/(loss) for the year	208.7	1.3	210.0		3.1	(4.6)	(1.5)
Actuarial gains / (losses)	66.8	-	66.8		(7.6)	-	(7.6)
Tax relating to components of other comprehensive income	(11.8)	-	(11.8)		3.5	-	3.5
Total items that will not be reclassified to profit or loss	55.0	-	55.0		(4.1)	-	(4.1)
Exchange differences on translation of foreign operations	2.8	(0.2)	2.6		(37.5)	(0.3)	(37.8)
Exchange differences recycled on sale of business	0.3	-	0.3		-	-	-
Fair value gain / (loss) on hedged interest derivatives	3.4	-	3.4		(0.8)	-	(0.8)
Gain on net investment hedge taken to equity	3.3	-	3.3		15.9	-	15.9
Total items that may be reclassified subsequently to profit or loss	9.8	(0.2)	9.6		(22.4)	(0.3)	(22.7)
Other comprehensive income/(expense) for the year	64.8	(0.2)	64.6		(26.5)	(0.3)	(26.8)
Total comprehensive income/(expense) for the year	273.5	1.1	274.6		(23.4)	(4.9)	(28.3)

 

Consolidated statement of changes in equity

for the year ended 31 December 2021

 

	Share capital	Share premium	Capital redemption reserve	Hedging and translation reserve	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	42.5	421.1	0.9	(41.9)	192.4	615.0	13.1	628.1
Profit for the year	-	-	-	-	208.7	208.7	1.3	210.0
Other comprehensive income / (expense) for the year	-	-	-	9.8	55.0	64.8	(0.2)	64.6
Total comprehensive income for the year	-	-	-	9.8	263.7	273.5	1.1	274.6
Dividends	-	-	-	-	(73.5)	(73.5)	(0.5)	(74.0)
Issue of shares	4.2	198.9	-	-	-	203.1	-	203.1
Share-based payments	-	-	-	-	1.2	1.2	-	1.2
At 31 December 2021	46.7	620.0	0.9	(32.1)	383.8	1,019.3	13.7	1,033.0

 

	Share capital	Share premium	Capital redemption reserve	Hedging and translation reserve	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2020	42.5	421.1	0.9	(19.5)	204.4	649.4	21.1	670.5
Profit/(loss) for the year	-	-	-	-	3.1	3.1	(4.6)	(1.5)
Other comprehensive expense for the year	-	-	-	(22.4)	(4.1)	(26.5)	(0.3)	(26.8)
Total comprehensive expense for the year	-	-	-	(22.4)	(1.0)	(23.4)	(4.9)	(28.3)
Dividends	-	-	-	-	(12.8)	(12.8)	(3.1)	(15.9)
Share-based payments	-	-	-	-	1.8	1.8	-	1.8
At 31 December 2020	42.5	421.1	0.9	(41.9)	192.4	615.0	13.1	628.1

 

Consolidated balance sheet

as at 31 December 2021

	2021		2020
	£m		£m
Non-current assets
Goodwill	487.0		493.4
Acquired intangible assets	297.6		341.0
Other intangible assets	46.4		36.6
Property, plant and equipment	508.3		521.8
Deferred tax assets	29.2		23.8
Investment in joint ventures	7.4		6.6
Total non-current assets	1,375.9		1,423.2
Current assets
Inventories	253.7		170.3
Trade and other receivables	312.8		262.4
Cash and cash equivalents	505.3		201.8
Derivative financial instruments	3.2		1.4
Total current assets	1,075.0		635.9
Total assets	2,450.9		2,059.1
Current liabilities
Borrowings	-		(20.1)
Trade and other payables	(414.2)		(334.1)
Lease liabilities	(8.8)		(10.6)
Current tax liabilities	(45.2)		(58.5)
Provisions for other liabilities and charges	(85.2)		(25.7)
Derivatives financial instruments	(10.1)		(19.4)
Total current liabilities	(563.5)		(468.4)
Non-current liabilities
Borrowings	(619.5)		(643.9)
Trade and other payables	(2.3)		(3.7)
Lease liabilities	(34.7)		(44.4)
Deferred tax liabilities	(57.5)		(43.3)
Retirement benefit obligations	(122.4)		(221.4)
Provisions for other liabilities and charges	(18.0)		(5.9)
Total non-current liabilities	(854.4)		(962.6)
Total liabilities	(1,417.9)		(1,431.0)
Net assets	1,033.0		628.1
Equity
Share capital	46.7		42.5
Share premium	620.0		421.1
Capital redemption reserve	0.9		0.9
Hedging and translation reserve	(32.1)		(41.9)
Retained earnings	383.8		192.4
Equity attributable to equity holders of the parent	1,019.3		615.0
Non-controlling interests	13.7		13.1
Total equity	1,033.0		628.1

 

The financial statements were approved by the Board of Directors and authorised for issue on 3 March 2022.

 

Consolidated cash flow statement

for the year ended 31 December 2021

	2021			2020
	£m	£m		£m	£m
Operating
Cash generated from operations		387.5			232.2
Interest received	1.0			1.2
Interest paid	(27.1)			(13.6)
Interest element of lease payments	(1.5)			(1.6)
Net interest paid		(27.6)			(14.0)
UK corporation tax paid	-			-
Overseas corporate tax paid	(86.4)			(31.4)
Total tax paid		(86.4)			(31.4)
Net cash inflow from operating activities		273.5			186.8
Investing
Dividends received from joint ventures		1.9			1.9
Purchase of property, plant and equipment and intangible assets	(82.2)			(53.8)
Sale of property, plant and equipment	-			-
Net capital expenditure		(82.2)			(53.8)
Purchase of business		-			(314.0)
Proceeds from sale of business		1.7			0.1
Net cash outflow from investing activities		(78.6)			(365.8)
Financing
Dividends paid		(73.5)			(12.8)
Dividends paid to non-controlling interests		(0.5)			(3.1)
Proceeds on issue of shares		203.1			-
Settlement of equity-settled share-based payments		(0.9)			(0.2)
Repayment of principal portion of lease liabilities		(9.7)			(9.7)
Repayment of borrowings		-			(718.3)
Repayment of borrowings on acquisition		-			(273.6)
Proceeds of borrowings		-			1,290.9
Net cash inflow from financing activities		118.5			273.2
Increase in cash, cash equivalents and bank overdrafts during the year		313.4			94.2
Cash, cash equivalents and bank overdrafts at 1 January		191.3			103.6
Foreign exchange and other movements		0.6			(6.5)
Cash, cash equivalents and bank overdrafts at 31 December		505.3			191.3

 

Reconciliation of net cash flow from operating activities to movement in net debt

	2021		2020
	£m		£m
Net cash inflow from operating activities	273.5		186.8
Add back: dividends received from joint ventures	1.9		1.9
Less: net capital expenditure	(82.2)		(53.8)
Less: purchase of business	-		(587.6)
Add back: proceeds from sale of business	1.7		0.1
	194.9		(452.6)
Ordinary dividends paid	(73.5)		(12.8)
Dividends paid to non-controlling interests	(0.5)		(3.1)
Proceeds on issue of shares	203.1		-
Settlement of equity-settled share-based payments	(0.9)		(0.2)
Repayment for principal portion of lease liabilities	(9.7)		(9.7)
Foreign exchange and other movements	34.6		(4.5)
Decrease/(Increase) in net debt	348.0		(482.9)

 

Notes to the financial statements

 

1.  Special Items

IFRS and Underlying performance

The IFRS profit measures show the performance of the Group as a whole and as such include all sources of income and expense, including both one-off items and those that do not relate to the Group's ongoing businesses. To provide additional clarity on the ongoing trading performance of the Group's businesses, management uses 'Underlying' performance as an alternative performance measure to plan for, control and assess the performance of the segments. Underlying performance differs from the IFRS measures as it excludes Special Items.

 

Special Items

The definition of Special Items is shown in note 8 and has been consistently applied. These Special Items are either irregular, and therefore including them in the assessment of a segment's performance would lead to a distortion of trends, or are technical adjustments which ensure the Group's financial statements are in compliance with IFRS but do not reflect the operating performance of a segment in the year, or both. An example of the latter is the amortisation of acquired intangibles, which principally relates to acquired customer relationships. The Group incurs costs, which are recognised as an expense in the income statement, in maintaining these customer relationships. The Group considers that the exclusion of the amortisation charge on acquired intangibles from Underlying performance avoids the potential double counting of such costs and therefore excludes it as a Special Item from Underlying performance.

 

Special Items comprise:

	2021	2020
	£m	£m
Special Items
Amortisation of acquired intangibles	(36.2)	(30.9)
Restructuring and site closure costs	(29.7)	(42.5)
Acquisition costs and related gains	(11.9)	(14.6)
Sale of business	(7.4)	(6.6)
Regulatory fine	(57.2)	-
Impairment charge	-	(36.6)
Total impact on operating profit	(142.4)	(131.2)
Finance costs
Fair value gain/(loss) on unhedged interest rate derivatives	6.2	(3.6)
Loss on extinguishment of financing facilities	-	(4.9)
Total impact on profit before taxation	(136.2)	(139.7)
Taxation Special Items	8.8	(4.9)
Taxation on Special Items	11.8	20.5
Total impact on profit for the year	(115.6)	(124.1)

 

The following items of income and expense have been reported as Special Items:

 

·      Amortisation of acquired intangibles increased in 2021, reflecting the first full year charge since the acquisition of OMNOVA Solutions Inc on 1 April 2020. The fair values of the intangible assets arising on the acquisition of OMNOVA amounting to £330.1 million are being amortised over a period of 9-11 years mainly dependent on the characteristics of the customer relationships.

·      Restructuring and site closure costs in 2021 comprise:

o  A £13.2 million charge in relation to the substantially completed integration of the OMNOVA acquisition net of a £1.2 million pension curtailment credit in relation to the French business;

o  A £11.6 million charge to demolish and rationalise assets at a small number of sites, to bring them into line with our ESG strategy; and

o  A further £4.9 million for the completion of the rationalisation of the Group's European Performance Materials network.

Restructuring and site closure costs in 2020 comprised £19.5 million for integration of OMNOVA, £20.9 million for the rationalisation of the Group's European Performance Materials network and £2.1 million to rationalise the Acrylate Monomers' site.

·      Acquisition costs and related gains are for the acquisition of Eastman's Adhesive Resins business and comprise £15.0 million of costs, mainly professional adviser fees, offset by a £3.1 million gain on a foreign exchange derivative entered into in October 2021 to hedge the acquisition price. Acquisition costs in 2020 related to the acquisition of OMNOVA.

·      Sale of business mainly comprised a further £7.1 million loss on the onerous contract for the disposal of Synthomer's European Tyre Cord business as production is relocated to Caojing (China) to enable the Marl 3 asset (Germany) to be fully closed. This is incremental to the charge taken in 2020.

·      During 2018, the European Commission initiated an investigation into practices relating to the purchase of Styrene monomer by several companies, including Synthomer, operating in the European Economic Area. The Company has and will continue to fully cooperate with the Commission during its investigation. Based on the information available and the resulting assessment of the expected outcome of the investigation a provision of £57.2 million has been made in relation to this case.

·      In 2020, a £36.6 million impairment charge was booked relating to four sites.

·      In July 2018 the Group entered into swap arrangements to fix Euro interest rates on the full value of the then €440 million committed unsecured revolving credit facility. The fair value movement of the unhedged interest rate derivatives relates to the movement in the mark-to-market of the swap at 31 December 2021 in excess of the Group's current borrowings.

·      Following the Group's successful refinancing in 2020, capitalised debt costs relating to the 2018 refinancing and the 2019 bridge to bond were written off, leading to a loss on extinguishment of £4.9 million.

·      Taxation Special Items comprised the release of uncertain tax provisions in relation to historical tax issues in France and Malaysia.

·      Taxation on Special Items is mainly deferred tax credits arising on the amortisation of acquired intangibles and restructuring and site closure costs.

 

2.  Segmental analysis

The Group's Executive Committee, chaired by the Chief Executive Officer, examines the Group's performance.

 

Performance Elastomers

Performance Elastomers is focused on healthcare, paper, carpet, compounds and foam markets through our Nitrile Butadiene Rubber latex (Nitrile latex) and Styrene Butadiene Rubber latex and Elastomeric Modifiers businesses (Performance Materials).

 

Functional Solutions

Functional Solutions is focused on coatings, construction, adhesives and technical textiles markets through our acrylic and vinylic water-based dispersions products.

 

Industrial Specialities

Industrial Specialities is focused on speciality chemical additives and non-water-based chemistry for a broad range of applications from polymer additives, coated fabrics, laminates and films, to emerging materials and technologies.

 

Acrylate Monomers

Acrylate Monomers is focused on the production of acrylate monomers which are sold to external customers in European markets as well as our European Functional Solutions dispersions business.

 

The Group's Executive Committee is the chief operating decision maker and primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA) to assess the performance of the operating segments. No information is provided to the Group's Executive Committee at the segment level concerning interest income, interest expense, income tax or other material non-cash items.

 

No single customer accounts for more than 10% of the Group's revenue.

 

 

A segmental analysis of Underlying performance and Special Items is shown below.

	2021
	Performance Elastomers		Functional Solutions		Industrial Specialities		Acrylate Monomers		Corporate	Total
	£m		£m		£m		£m		£m	£m
Revenue
Total Revenue	951.5		900.3		382.5		110.3		-	2,344.6
Inter-segmental revenue	-		-		-		(15.1)		-	(15.1)
	951.5		900.3		382.5		95.2		-	2,329.5
EBITDA	320.7		139.2		47.6		35.3		(20.6)	522.2
Depreciation and amortisation - Underlying performance	(25.8)		(28.1)		(13.7)		(0.8)		(2.9)	(71.3)
Operating profit/(loss) - Underlying performance	294.9		111.1		33.9		34.5		(23.5)	450.9
Special Items	(8.0)		(41.3)		(14.1)		(5.2)		(73.8)	(142.4)
Operating profit/(loss) - IFRS	286.9		69.8		19.8		29.3		(97.3)	308.5
Finance costs										(24.6)
Profit before taxation										283.9
	2020
	Performance Elastomers	Functional Solutions		Industrial Specialities		Acrylate Monomers		Corporate			Total
	£m	£m		£m		£m		£m			£m
Revenue
Total Revenue	680.3	646.7		264.9		64.4		-			1,656.3
Inter-segmental revenue	-	-		-		(12.1)		-			(12.1)
	680.3	646.7		264.9		52.3		-			1,644.2
EBITDA	142.5	95.6		41.2		(2.4)		(17.5)			259.4
Depreciation and amortisation - Underlying performance	(25.7)	(26.5)		(12.2)		(3.2)		(2.2)			(69.8)
Operating profit/(loss) - Underlying performance	116.8	69.1		29.0		(5.6)		(19.7)			189.6
Special Items	(36.0)	(38.0)		(10.2)		(20.7)		(26.3)			(131.2)
Operating profit/(loss) - IFRS	80.8	31.1		18.8		(26.3)		(46.0)			58.4
Finance costs											(38.1)
Profit before taxation											20.3

 

3.  Reconciliation of operating profit to cash generated from operations

 

		2021	2020
		£m	£m
Operating profit		308.5	58.4
Less: share of profit of joint ventures		(2.6)	(1.2)
		305.9	57.2
Adjustments for:
Depreciation of property, plant and equipment		54.4	54.0
Depreciation of right of use assets		9.8	10.9
Amortisation of other intangibles		7.1	4.9
Share-based payments		2.1	2.0
Special Items		142.4	131.2
Cash impact of restructuring and site closure costs		(17.8)	(25.3)
Cash impact of acquisition costs and related gains		(6.6)	(7.4)
Pension funding in excess of service cost		(27.0)	(18.8)
Movement in working capital		(82.8)	23.5
Cash generated from operations		387.5	232.2
Reconciliation of movement in working capital
(Increase)/decrease in inventories		(87.7)	17.1
(Increase)/decrease in trade and other receivables		(64.8)	19.1
Increase/(decrease) in trade and other payables		69.7	(12.7)
Movement in working capital		(82.8)	23.5

 

4.  Dividends

	2021			2020
	Pence per share	£m		Pence per share	£m
Interim dividend	8.7p	36.9		3.0p	12.8
Proposed final dividend	21.3p	99.5		8.6p	36.6
	30.0p	136.4		11.6p	49.4

 

5.  Earnings per share

		2021				2020
		Underlying performance	Special Items	IFRS		Underlying performance	Special Items	Total
Earnings
Profit/(loss) attributable to equity holders of the parent	£m	325.2	(116.5)	208.7		122.9	(119.8)	3.1
Number of shares
Weighted average number of ordinary shares - basic	'000			432,290				424,843
Effect of dilutive potential ordinary shares	'000			1,654				2,505
Weighted average number of ordinary shares - diluted	'000			433,944				427,348
Earnings per share
Basic earnings per share	p	75.2	(26.9)	48.3		28.9	(28.2)	0.7
Diluted earnings per share	P	74.9	(26.8)	48.1		28.8	(28.1)	0.7

 

6.  Finance costs

	2021	2020
	£m	£m
Interest payable on bank loans and overdrafts	27.9	25.5
Less: interest receivable	(1.0)	(1.2)
	26.9	24.3
Net interest expense on defined benefit obligation	2.4	3.7
Interest element of lease payments	1.5	1.6
Underlying finance costs	30.8	29.6
Fair value loss on unhedged interest derivatives	(6.2)	3.6
Loss on extinguishment of financing facilities	-	4.9
Total finance costs	24.6	38.1

 

7.  Analysis of net debt

	1 January 2021	Cash inflows	Exchange and other movements	31 December 2021
	£m	£m	£m	£m
Bank overdrafts	(10.5)	10.5	-	-
Current bank borrowings	(9.6)	-	9.6	-
Current borrowings	(20.1)	10.5	9.6	-
Non-current bank borrowings	(186.2)	-	(1.7)	(187.9)
€520m 3.875% senior unsecured loan notes due 2025	(457.7)	-	26.1	(431.6)
Non-current borrowings	(643.9)	-	24.4	(619.5)
Total borrowings	(664.0)	10.5	34.0	(619.5)
Cash and cash equivalents	201.8	302.9	0.6	505.3
Net debt	(462.2)	313.4	34.6	(114.2)

 

Net debt is defined in the glossary of terms in note 8.

 

8.  Glossary of terms

EBITDA	EBITDA is calculated as operating profit from continuing operations before depreciation, amortisation and Special Items.
Operating profit	Operating profit represents profit from continuing activities before finance costs and taxation.
Special Items	Special Items are irregular items, whose inclusion could lead to a distortion of trends, or technical adjustments which ensure the Group's financial statements are in compliance with IFRS, but do not reflect the operating performance of the segment in the year, or both. These include the following, inter alia, which are disclosed separately as Special Items in order to provide a clearer indication of the Group's Underlying performance: ·      Restructure and site closure costs; ·      Sale of a business or significant asset; ·      Acquisition costs; ·      Amortisation of acquired intangible assets; ·      Impairment of non-current assets; ·      Fair value adjustments in respect of derivative financial instruments where hedge accounting is not applied; ·      Items of income and expense that are considered material, either by their size and/or nature; ·      Tax impact of above items; and ·      Settlement of prior period tax issues.
Underlying performance	This represents the statutory performance of the Group under IFRS, excluding Special Items.
Free Cash Flow	The movement in net debt before financing activities, foreign exchange and the cash impact of Special Items, asset disposals and business combinations.
Net debt	Net debt represents cash and cash equivalents less short- and long-term borrowings.
Leverage	Net debt divided by EBITDA. The Group's financial covenants are calculated using the accounting standards adopted by the Group at 31 December 2018 and accordingly, leverage excludes the impact of IFRS 16 Leases.
Ktes	Kilotonnes or 1,000 tonnes (metric).