Q2 trading update

16th June 2020

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES OF AMERICA, CANADA, JAPAN OR AUSTRALIA OR ANY OTHER JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO

Synthomer plc

Announcement of intention to offer €520 million of unsecured senior notes and Q2 trading update

 

Synthomer plc ('Synthomer' or 'the Group') today announces that it intends, subject to market conditions, to offer €520 million in aggregate principal amount of unsecured senior notes due 2025 (the 'Notes'). The Notes will be unconditionally guaranteed by certain of its subsidiaries.

OMNOVA acquisition

Consistent with previously announced plans, the Group intends to use the proceeds from the offering to (a) refinance Synthomer's existing €520 million bridge facility which was introduced in 2019 as part of the financing arrangements to fund, together with certain other funding, the acquisition of OMNOVA Solutions Inc. ('OMNOVA') and (b) pay certain costs, expenses and fees related to the offering of the Notes. The acquisition has established Synthomer as a global speciality chemicals company with significant scale and a strong platform from which to invest in future growth. Integration is progressing in line with expectations and the Group is on track to deliver $29.6m of synergies, with a 50% run rate at the end of 12 months.

Following the issuance of the Notes, Synthomer expects to have a long term and sustainable financing structure. The Group has a strong balance sheet with significant leverage covenant headroom (4.25x and 4x EBITDA for 2020 and 2021 respectively) and significant liquidity underpinned by the 2024 committed unsecured 5 year €460 million revolving credit facility and $260 million term loan bank facilities. 

The new financing structure will give Synthomer flexibility to be able to respond to the current challenging macroeconomic environment and in due course be able to take advantage of future growth opportunities.

April and May Trading

In addition, Synthomer today provides its Q1 interim financial statements and an update on current trading which have been prepared in connection with the Group's Notes offering:

 

As announced previously, Synthomer (excluding OMNOVA), experienced a solid start to the year with EBITDA approximately 5% ahead of the comparative Q1 period, and in line with expectations set out at the time of the Group's full year results announcement.  

On April 1^st, 2020, Synthomer completed the acquisition of OMNOVA and accordingly our Q2 trading update relates to the enlarged group comprising the Synthomer and OMNOVA legacy businesses.  April and May volumes were impacted by COVID-19 and whilst demand for Nitrile latex, non-wovens and adhesives remained strong, sales into industrial markets including automotive, coatings, graphic paper, carpet and the oil and gas sector were lower. Volumes were lower than a strong comparative period by approximately 20% although volumes did strengthen towards the end of May.

Performance Elastomers

During April and May our Nitrile latex business continued to benefit from the additional 90 kilotonnes of capacity introduced in Q4 2018 at our Pasir Gudang site. In addition, we saw further strengthening of demand due to COVID-19 leading to higher Nitrile volumes. Nitrile unit gross margins improved during April and May on the back of lower raw material cost.

Styrene Butadiene Rubber ('SBR') market conditions were impacted due to weaker demand with volumes and unit gross margins below prior year in the paper, carpet and foam end markets. The strategic review of our European SBR network is ongoing and a further update is expected to be provided at the interim results in August.

Functional Solutions

April and May volumes were lower in all industrial segments compared to a strong comparative period, but this was partly compensated for by stronger unit gross margins as a result of improved mix and softer raw material markets.  Progress has been supported by the acquisition of OMNOVA and by the expansion of our dispersion facilities in Worms, Germany and Roebuck, USA which introduced low cost capacity to drive organic growth in differentiated applications.

Industrial Specialities

April and May volumes were lower in all industrial segments compared to a strong comparative period. Unit gross margins were in line with 2019.

Acrylate Monomers

Going forward Synthomer's acrylate monomer business, which supplies both the Group's internal demand and external customers, will be reported separately.  In April and May, sales volumes and margins were lower compared to the comparative 2019 period.

As announced in the Group's update on April 29^th, Synthomer has taken a number of prudent and proactive actions to preserve the strength of its balance sheet and reduce capital expenditure for the current year.  Over the medium term the Board remains confident that Synthomer is well positioned due to the Group's strong geographic and end market diversity combined with self-help initiatives and the future benefits to come from the successful acquisition and integration of OMNOVA.

For additional information regarding our business, please see our Disclosure Statement found on our website at https://www.synthomer.com/investor-relations/financials/results-centre.  

Cautionary Statement

The Notes will be offered only to qualified institutional buyers pursuant to Rule 144A and outside the United States pursuant to Regulation S under the U.S. Securities Act of 1933, as amended (the 'Securities Act'), subject to prevailing market and other conditions. There is no assurance that the offering will be completed or, if completed, as to the terms on which it is completed. The Notes to be offered have not been registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or unless pursuant to an applicable exemption from the registration requirements of the Securities Act and any other applicable securities laws. This press release does not constitute an offer to sell or the solicitation of an offer to buy the Notes, nor shall it constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful.

The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area ('EEA') or the United Kingdom. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, 'MiFID II'); (ii) a person that is not a qualified investor as defined in Article 2(e) of the Prospectus Regulation; or (iii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the 'Insurance Distribution Directive'), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.

This announcement does not constitute and shall not, in any circumstances, constitute a public offering nor an invitation to the public in connection with any offer within the meaning of Regulation (EU) 2017/1129 (as amended or superseded, the 'Prospectus Regulation'). The offer and sale of the Notes will be made pursuant to an exemption under the Prospectus Regulation from the requirement to produce a prospectus for offers of securities.

In the United Kingdom, this announcement is directed only at (i) persons having professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the 'Order'), or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order, or (iii) persons to whom it would otherwise be lawful to distribute them, all such persons together being referred to as 'Relevant Persons.' The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with, Relevant Persons.

MiFID II professionals/ECPs-only/ No PRIIPs KID - Manufacturer target market (MIFID II product governance) is eligible counterparties and professional clients only (all distribution channels). No PRIIPs key information document (KID) has been prepared as not available to retail investors in EEA or the United Kingdom.

Neither the content of Synthomer's website nor any website accessible by hyperlinks on Synthomer's website is incorporated in, or forms part of, this announcement. The distribution of this announcement into certain jurisdictions may be restricted by law. Persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement contains inside information within the meaning of Regulation (EU) No 596/2014 of 16 April 2014 on market abuse.

Forward-Looking Statements

This press release may include forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'anticipates', 'expects', 'intends', 'may', 'will' or 'should' or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts and include statements regarding Synthomer's or its affiliates' intentions, beliefs or current expectations concerning, among other things, Synthomer's or its affiliates' results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which they operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Readers are cautioned that forward-looking statements are not guarantees of future performance and that Synthomer's  or its affiliates' actual results of operations, financial condition and liquidity, and the development of the industries in which they operate may differ materially from those made in or suggested by the forward-looking statements contained in this press release. In addition, even if Synthomer's or its affiliates' results of operations, financial condition and liquidity, and the development of the industries in which they operate are consistent with the forward-looking statements contained in this press release, those results or developments may not be indicative of results or developments in subsequent periods.

The forward-looking statements and information contained in this announcement are made as of the date hereof and Synthomer undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

 

-ENDS-

 Enquiries:

 

Synthomer plc Calum MacLean, Chief Executive Officer Stephen Bennett, Chief Financial Officer Tim Hughes, President, Corporate Development	Tel: + 44 7764 859147
Teneo Charles Armitstead / Matt Denham	Tel: + 44 7703 330 269

 

Consolidated income statement

for the three months ended 31 March 2020        

 

		Three months ended 31 March 2020 (unaudited)							Three months ended 31 March 2019 (unaudited)
	Underlying performance			Special Items		IFRS			Underlying performance	Special Items	IFRS
			£m		£m		£m		£m	£m	£m
Revenue			338.4				338.4		375.1		375.1
Company and subsidiaries before Special Items			31.7		-		31.7		30.5	-	30.5
Acquisition costs and related gains			-		6.0		6.0		-	-	-
Amortisation of acquired intangibles			-		(2.1)		(2.1)		-	(2.4)	(2.4)
Restructuring and site closure costs			-		-		-		-	(0.5)	(0.5)
Company and subsidiaries			31.7		3.9		35.6		30.5	(2.9)	27.6
Share of joint ventures			0.6		-		0.6		0.3	-	0.3
Operating profit/(loss)			32.3		3.9		36.2		30.8	(2.9)	27.9
Interest payable			(1.6)		-		(1.6)		(1.6)	-	(1.6)
Interest receivable			0.2		-		0.2		0.2	-	0.2
Fair value loss on unhedged interest derivatives			-		(2.2)		(2.2)		-	(1.9)	(1.9)
			(1.4)		(2.2)		(3.6)		(1.4)	(1.9)	(3.3)
Net interest expense on defined benefit obligation			(0.5)		-		(0.5)		(0.7)	-	(0.7)
Interest element of lease payments			(0.3)		-		(0.3)		(0.3)	-	(0.3)
Finance costs			(2.2)		(2.2)		(4.4)		(2.4)	(1.9)	(4.3)
Profit/(loss) before taxation			30.1		1.7		31.8		28.4	(4.8)	23.6
Taxation			(5.4)		0.3		(5.1)		(4.0)	0.4	(3.6)
Profit/(loss) for the period			24.7		2.0		26.7		24.4	(4.4)	20.0
Profit/(loss) attributable to non-controlling interests			-		-		-		-	0.1	0.1
Profit/(loss) attributable to equity holders of the parent			24.7		2.0		26.7		24.4	(4.5)	19.9
			24.7		2.0		26.7		24.4	(4.4)	20.0
Earnings/(loss) per share
Basic			5.8p		0.5p		6.3p		6.7p	(1.2)p	5.5p
Diluted			5.8p		0.5p		6.3p		6.6p	(1.2)p	5.4p

Consolidated income statement

for the three months ended 31 March 2020 (continued)

 

		Year ended 31 December 2019 (audited)
		Underlying performance	Special Items	IFRS
		£m	£m	£m
Revenue		1,459.1	-	1,459.1
Company and subsidiaries before Special Items		124.9	-	124.9
Acquisition costs		-	(9.2)	(9.2)
Amortisation of acquired intangibles		-	(8.7)	(8.7)
Restructuring and site closure		-	(0.8)	(0.8)
Foreign Exchange gain on rights issue		-	3.5	3.5
Company and subsidiaries		124.9	(15.2)	109.7
Share of joint ventures		0.9	-	0.9
Operating profit/(loss)		125.8	(15.2)	110.6
Interest payable		(6.7)	-	(6.7)
Interest receivable		0.9	-	0.9
Fair value loss on unhedged interest derivatives		-	(0.5)	(0.5)
		(5.8)	(0.5)	(6.3)
Net interest expense on defined benefit obligation		(2.7)	-	(2.7)
Interest element of lease payments		(1.1)	-	(1.1)
Finance costs		(9.6)	(0.5)	(10.1)
Profit/(loss) before taxation		116.2	(15.7)	100.5
Taxation		(16.3)	1.4	(14.9)
Profit/(loss) for the year		99.9	(14.3)	85.6
Profit attributable to non-controlling interests		0.4	0.6	1.0
Profit/(loss) attributable to equity holders of the parent		99.5	(14.9)	84.6
		99.9	(14.3)	85.6
Earnings/(loss) per share
Basic		25.3p	(3.8)p	21.5p
Diluted		25.2p	(3.8)p	21.4p

 

Consolidated statement of comprehensive income

for the three months ended 31 March 2020

	Three months ended 31 March 2020 (unaudited)				Three months ended 31 March 2019 (unaudited)
	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 for the period	26.7	-	26.7		19.9	0.1	20.0
Actuarial gains/(losses)	12.6	-	12.6		(13.9)	-	(13.9)
Tax relating to components of other comprehensive income	(4.0)	-	(4.0)		4.4	-	4.4
Total items that will not be reclassified to profit or loss	8.6	-	8.6		(9.5)	-	(9.5)
Exchange differences on translation of foreign operations	12.8	0.4	13.2		(10.0)	(0.2)	(10.2)
Fair value loss on hedged interest derivatives	(0.7)	-	(0.7)		(5.3)	-	(5.3)
Gains on net investment hedges taken to equity	-	-	-		0.3	-	0.3
Total items that may be reclassified subsequently to profit or loss	12.1	0.4	12.5		(15.0)	(0.2)	(15.2)
Other comprehensive income/(expense) for the period	20.7	0.4	21.1		(24.5)	(0.2)	(24.7)
Total comprehensive income/(expense) for the period	47.4	0.4	47.8		(4.6)	(0.1)	(4.7)

 

		Year ended 31 December 2019 (audited)
		Equity holders of the parent	Non-controlling interests	Total
		£m	£m	£m
Profit for the year		84.6	1.0	85.6
Actuarial losses		(27.2)	-	(27.2)
Tax relating to components of other comprehensive income		4.7	-	4.7
Total items that will not be reclassified to profit or loss		(22.5)	-	(22.5)
Exchange differences on translation of foreign operations		(15.3)	(0.4)	(15.7)
Fair value loss on hedged interest derivatives		(8.7)	-	(8.7)
Losses on net investment hedges taken to equity		(1.9)	-	(1.9)
Total items that may be reclassified subsequently to profit or loss		(25.9)	(0.4)	(26.3)
Other comprehensive expense for the year		(48.4)	(0.4)	(48.8)
Total comprehensive income for the year		36.2	0.6	36.8

 

Consolidated statement of changes in equity

for the three months ended 31 March 2020

 

	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 for the period	-	-	-	-	26.7	26.7	-	26.7
Other comprehensive income for the period	-	-	-	12.1	8.6	20.7	0.4	21.1
Total comprehensive income for the period	-	-	-	12.1	35.3	47.4	0.4	47.8
Share-based payments	-	-	-	-	0.4	0.4	-	0.4
Dividends	-	-	-	-	-	-	-	-
At 31 March 2020 (Unaudited)	42.5	421.1	0.9	(7.4)	240.1	697.2	21.5	718.7

 

 

	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 2019	34.0	230.5	0.9	6.4	192.1	463.9	21.1	485.0
Profit for the period	-	-	-	-	19.9	19.9	0.1	20.0
Other comprehensive expense for the period	-	-	-	(15.0)	(9.5)	(24.5)	(0.2)	(24.7)
Total comprehensive (expense)/income for the period	-	-	-	(15.0)	10.4	(4.6)	(0.1)	(4.7)
Share-based payments	-	-	-	-	0.4	0.4	-	0.4
Dividends	-	-	-	-	-	-	-	-
At 31 March 2019 (Unaudited)	34.0	230.5	0.9	(8.6)	202.9	459.7	21.0	480.7

 

 

	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 2019	34.0	230.5	0.9	6.4	192.1	463.9	21.1	485.0
Profit for the period	-	-	-	-	84.6	84.6	1.0	85.6
Other comprehensive expense for the year	-	-	-	(25.9)	(22.5)	(48.4)	(0.4)	(48.8)
Total comprehensive (expense)/income for the year	-	-	-	(25.9)	62.1	36.2	0.6	36.8
Issue of shares	8.5	190.6	-	-	-	199.1	-	199.1
Share-based payments	-	-	-	-	(1.9)	(1.9)	-	(1.9)
Dividends	-	-	-	-	(47.9)	(47.9)	(0.6)	(48.5)
At 31 December 2019 (Audited)	42.5	421.1	0.9	(19.5)	204.4	649.4	21.1	670.5

 

Consolidated balance sheet

as at 31 March 2020

 

	31 March 2020		31 March 2019		31 December 2019
	(unaudited)		(unaudited)		(audited)
	£m		£m		£m
Non-current assets
Goodwill	335.3		328.1		324.4
Acquired intangible assets	57.6		63.9		56.8
Other intangible assets	27.1		5.9		22.0
Property, plant and equipment	408.6		405.7		404.9
Deferred tax assets	19.1		28.0		22.8
Investment in joint ventures	8.3		8.2		7.5
Total non-current assets	856.0		839.8		838.4
Current assets
Inventories	129.0		134.6		121.9
Trade and other receivables	219.3		257.6		190.6
Cash and cash equivalents	475.1		74.7		103.6
Derivative financial instruments	4.3		0.5		4.9
Total current assets	827.7		467.4		421.0
Total assets	1,683.7		1,307.2		1,259.4
Current liabilities
Borrowings	(399.0)		(85.4)		-
Trade and other payables	(199.4)		(229.8)		(232.9)
Lease liabilities	(7.5)		(8.1)		(7.5)
Current tax liabilities	(40.5)		(39.8)		(38.7)
Provisions for other liabilities and charges	(4.6)		(8.6)		(4.9)
Derivatives financial instruments	(17.2)		(12.4)		(14.3)
Total current liabilities	(668.2)		(384.1)		(298.3)
Non-current liabilities
Borrowings	(103.2)		(230.5)		(82.9)
Trade and other payables	(0.5)		(0.7)		(0.5)
Lease liabilities	(32.7)		(35.9)		(34.4)
Deferred tax liabilities	(31.0)		(32.9)		(30.8)
Retirement benefit obligations	(127.5)		(139.8)		(140.0)
Provisions for other liabilities and charges	(1.9)		(2.6)		(2.0)
Total non-current liabilities	(296.8)		(442.4)		(290.6)
Total liabilities	(965.0)		(826.5)		(588.9)
Net assets	718.7		480.7		670.5
Equity
Share capital	42.5		34.0		42.5
Share premium	421.1		230.5		421.1
Capital redemption reserve	0.9		0.9		0.9
Hedging and translation reserve	(7.4)		(8.6)		(19.5)
Retained earnings	240.1		202.9		204.4
Equity attributable to equity holders of the parent	697.2		459.7		649.4
Non-controlling interests	21.5		21.0		21.1
Total equity	718.7		480.7		670.5

 

 

Consolidated cash flow statement

for the three months ended 31 March 2020

 

	Three months ended 31 March 2020 (unaudited)			Three months ended 31 March 2019 (unaudited)			Year ended 31 December 2019 (audited)
	£m	£m		£m	£m		£m	£m
Operating
Cash generated from operations		(18.2)			(16.9)			170.2
Interest received	0.2			0.3			0.9
Interest paid	(1.4)			(2.1)			(7.0)
Interest element of lease payments	(0.3)			(0.3)			(1.1)
Net interest paid		(1.5)			(2.1)			(7.2)
UK corporation tax paid	-			-			-
Overseas corporate tax paid	(4.6)			(2.6)			(11.1)
Total tax paid		(4.6)			(2.6)			(11.1)
Net cash (outflow)/inflow from operating activities		(24.3)			(21.6)			151.9
Investing
Dividends received from joint ventures		0.2			0.5			1.6
Purchase of property, plant and equipment and intangible assets	(13.9)			(14.4)			(69.1)
Sale of property, plant and equipment	-			-			0.3
Net capital expenditure		(13.9)			(14.4)			(68.8)
Net cash outflow from investing activities		(13.7)			(13.9)			(67.2)
Financing
Dividends paid		-			-			(47.9)
Dividends paid to non-controlling interests		-			-			(0.6)
Proceeds on issue of shares		-			-			199.1
Settlement of equity-settled share-based payments		-			-			(2.5)
Repayment of principal portion of lease liabilities		(1.7)			(1.7)			(6.8)
Repayment of borrowings		-			-			(216.3)
Proceeds of borrowings		391.6			-			15.0
Net cash inflow/(outflow) from financing activities		389.9			(1.7)			(60.0)
Increase/(decrease) in cash and bank overdrafts during the period		351.9			(37.2)			24.7
Comprising increase/(decrease) to:
Cash and cash equivalents	369.5			(20.9)			4.1
Bank overdrafts	(17.6)			(16.3)			20.6
Increase/(decrease) in cash and bank overdrafts during the period		351.9			(37.2)			24.7
Cash, cash equivalents and bank overdrafts at 1 January		103.6			76.2			76.2
Foreign exchange and other movements		(5.6)			(2.4)			2.7
Cash, cash equivalents and bank overdrafts at period end		449.9			36.6			103.6

 

 

Notes to the interim financial statements

 

1.  Basis of preparation

Synthomer plc is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act. The Company is listed on the London Stock Exchange and the address of the registered office is Temple Fields, Harlow, Essex, CM20 2BH.

These interim financial statements have been prepared in accordance with applicable law, the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting, as adopted by the European Union.

These interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 were approved by the Board of Directors on 5 March 2020 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The interim financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 31 December 2019 and any public announcements made by the Company during the interim reporting period.

After making enquiries and taking account of reasonably possible changes in trading performance, the Directors are satisfied that, at the time of approving the interim financial statements for the Group, it is appropriate to adopt the going concern basis.

 

2.  Accounting policies

The annual financial statements of Synthomer plc are prepared in accordance with IFRSs as adopted by the European Union and applicable law. The same accounting policies and methods of computations are followed in these financial statements as in the most recent audited annual financial statements. There are no updates to IFRSs effective from 2020 that impact the Group.

 

3.  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

Special Items are disclosed separately in order to provide a clearer indication of the Group's underlying performance.

 

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 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.

 

The definition of Special Items is shown in note 17 and has been consistently applied.

 

Special Items comprise:

 

	Three months ended 31 March 2020	Three months ended 31 March 2019	Year ended 31 December 2019
	Unaudited	Unaudited	Audited
	£m	£m	£m
Special Items
Acquisition costs and related gains	6.0	-	(9.2)
Amortisation of acquired intangibles	(2.1)	(2.4)	(8.7)
Restructuring and site closure costs	-	(0.5)	(0.8)
Foreign exchange gain on rights issue	-	-	3.5
Operating profit/(loss)	3.9	(2.9)	(15.2)
Fair value loss on unhedged interest derivatives	(2.2)	(1.9)	(0.5)
Finance costs	(2.2)	(1.9)	(0.5)
Profit/(loss) before taxation	1.7	(4.8)	(15.7)

 

The following items of income and expense were reported as Special Items and accordingly were excluded from Underlying performance:

·      Acquisition costs and related gains in the three months to March 2020 relate to the acquisition of OMNOVA Solutions Inc and comprise £2.7 million of costs offset by a gain of £8.7 million on a foreign exchange derivative entered into in July 2019 to hedge the acquisition price. Acquisition costs in 2019 also relate to the acquisition of OMNOVA partly offset by a gain of £4.0m on the foreign exchange derivative.

·      Amortisation of intangibles decreased during the period as the final tranche of customer-related intangibles from the 2011 PolymerLatex acquisition reached the end of their amortisation period in Q1 2019.

·      Restructuring and site closure costs in 2019 related to the reorganisation of the Group into global business segments.

·      Foreign exchange gain on rights issue represents a gain made on a forward contract which was entered into to swap the proceeds of the Sterling rights issue into Euro in order to pay down part of the Group's Euro borrowings.

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

 

4.  Segmental analysis

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

With the acquisition of Omnova the Group has reassessed how the business will be managed going forwards. The Group's Acrylates business, which was previously managed and reported within the Industrial Specialities division has been identified as a separate segment by the Group's Executive Committee. A new management structure has been implemented and management information for Acrylates is now reported separately to the Committee.

The Group's reportable segments are:

 

Performance Elastomers

Performance Elastomers is focused on healthcare, paper, carpet and foam markets through our water-based Nitrile Butadiene Rubber latex (NBR) and Styrene Butadiene Rubber latex (SBR) products.

 

Functional Solutions

Functional Solutions is focused on coatings, construction, adhesives and technical textiles markets through our water-based acrylic and vinylic 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 to emerging materials and technologies.

 

Acrylates

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

 

	Three months ended March 2020 (unaudited)
	Performance Elastomers	Functional Solutions	Industrial Specialities	Acrylates	Unallocated corporate expenses	Total
	£m	£m	£m	£m	£m	£m
Revenue
Total revenue	149.7	132.4	41.4	17.4	-	340.9
Inter-segmental revenue	-	-	-	(2.5)	-	(2.5)
	149.7	132.4	41.4	14.9	-	338.4
EBITDA	23.9	20.2	6.0	(1.1)	(3.9)	45.1
Depreciation and amortisation	(5.6)	(4.9)	(1.5)	(0.7)	(0.1)	(12.8)
Operating profit before Special Items	18.3	15.3	4.5	(1.8)	(4.0)	32.3
Special Items	(0.4)	(0.8)	(0.7)	(0.2)	6.0	3.9
Operating profit	17.9	14.5	3.8	(2.0)	2.0	36.2
Finance costs						(4.4)
Profit before taxation						31.8

 

 

	Three months ended March 2019 (unaudited)
	Performance Elastomers	Functional Solutions	Industrial Specialities	Acrylates	Unallocated corporate expenses	Total
	£m	£m	£m	£m	£m	£m
Revenue
Total revenue	156.7	159.1	42.4	18.8	-	377.0
Inter-segmental revenue	-	-	-	(1.9)	-	(1.9)
	156.7	159.1	42.4	16.9	-	375.1
EBITDA	22.4	17.6	5.8	1.1	(3.8)	43.1
Depreciation and amortisation	(6.2)	(4.0)	(1.3)	(0.6)	(0.2)	(12.3)
Operating profit before Special Items	16.2	13.6	4.5	0.5	(4.0)	30.8
Special Items	(1.0)	(1.0)	(0.7)	(0.2)	-	(2.9)
Operating profit	15.2	12.6	3.8	0.3	(4.0)	27.9
Finance costs						(4.3)
Profit before taxation						23.6
	Year ended December 2019 (audited)
	Performance Elastomers	Functional Solutions	Industrial Specialities (restated)	Acrylates (restated)	Unallocated corporate expenses	Total
	£m	£m	£m	£m	£m	£m
Revenue
Total revenue	623.7	612.8	157.9	70.9	-	1,465.3
Inter-segmental revenue	-	-	-	(6.2)	-	(6.2)
	623.7	612.8	157.9	64.7	-	1,459.1
EBITDA	96.3	69.9	23.8	1.0	(13.1)	177.9
Depreciation and amortisation	(24.8)	(17.6)	(5.4)	(3.4)	(0.9)	(52.1)
Operating profit before Special Items	71.5	52.3	18.4	(2.4)	(14.0)	125.8
Special Items	(0.3)	(4.3)	(4.1)	(0.6)	(5.9)	(15.2)
Operating profit	71.2	48.0	14.3	(3.0)	(19.9)	110.6
Finance costs						(10.1)
Profit before taxation						100.5

 

5.  Reconciliation of profit from operations to cash generated from operations

 

		Three months ended 31 March 2020	Three months ended 31 March 2019	Year ended 31 December 2019
		Unaudited	Unaudited	Audited
		£m	£m	£m
Operating profit		36.2	27.9	110.6
Less: share of profit of joint ventures		(0.6)	(0.3)	(0.9)
		35.6	27.6	109.7
Adjustments for:
Depreciation of property, plant and equipment		10.6	10.3	43.4
Depreciation of right of use assets		1.8	1.8	7.3
Amortisation of other intangibles		0.4	0.2	1.4
Share-based payments		0.4	0.4	0.6
Special Items		(3.9)	2.9	15.2
Cash impact of acquisition costs		(2.2)	-	(7.5)
Cash impact of restructuring and site closure		(0.5)	(0.7)	(4.4)
Cash impact of foreign exchange gain on deal contingent		12.7	-	-
Cash impact of foreign exchange gain on rights issue		-	-	3.5
Pension funding		(4.4)	(4.1)	(17.5)
(Increase) / decrease in inventories		(3.6)	3.6	15.0
(Increase) / decrease in trade and other receivables		(22.5)	(31.1)	34.3
Increase / (decrease) in trade and other payables		(42.6)	(27.8)	(30.8)
Cash generated from operations		(18.2)	(16.9)	170.2

 

6.  Tax

Tax on the Underlying profit before taxation for the three month period was charged at 17.9% (three months ended 31 March 2019: 14.1%; year ended 31 December 2019: 14.0%), representing the best estimate of the annual effective income tax rate expected for the full year.

Inclusion of the best estimate for the tax charge on the Special Items results in a tax rate of 15.1% (three months ended 31 March 2019: 13.2%; year ended 31 December 2019: 14.8%), on the IFRS profit before taxation. The difference in the effective tax rate on the Underlying profit before tax and the IFRS profit before tax reflects the tax associated with the Special Items, some of which are not taxable or subject to tax deductions.

 

7.  Earnings per share

		Three months ended 31 March 2020				Three months ended 31 March 2019
		Underlying performance	Special Items	IFRS		Underlying performance	Special Items	Total
Earnings
Profit/(loss) attributable to equity holders of the parent	£m	24.7	2.0	26.7		24.4	(4.5)	19.9
Number of shares1
Weighted average number of ordinary shares - basic	'000			424,849				363,997
Effect of dilutive potential ordinary shares	'000			1,937				2,198
Weighted average number of ordinary shares - diluted	'000			426,786				366,195
Earnings/(loss) per share1
Basic earnings/(loss) per share	pence	5.8	0.5	6.3		6.7	(1.2)	5.5
Diluted earnings/(loss) per share	pence	5.8	0.5	6.3		6.6	(1.2)	5.4

1 - The weighted average number of ordinary shares for the three months to 31 March 2019 used in the calculation of earnings per share, has been adjusted by multiplying by an adjustment factor of 1.0713 to reflect the bonus element in the shares issued under the terms of the rights issue which completed on 29 July 2019.

						Year ended 31 December 2019
						Underlying performance	Special Items	Total
Earnings
Profit/(loss) attributable to equity holders of the parent	£m					99.5	(14.9)	84.6
Number of shares
Weighted average number of ordinary shares - basic	'000							393,349
Effect of dilutive potential ordinary shares	'000							2,109
Weighted average number of ordinary shares - diluted	'000							395,458
Earnings/(loss) per share
Basic earnings/(loss) per share	pence					25.3	(3.8)	21.5
Diluted earnings/(loss) per share	pence					25.2	(3.8)	21.4

 

 

8.  Financial instruments

The risks associated with the Group's financial instruments and related polices are detailed in the 2019 Annual Report in note 22 to the financial statements. There have been no changes in the risks and the management thereof since 31 December 2019.

Fair values have been obtained from the relevant institutions where appropriate. Where market values are not available, fair values of financial assets and financial liabilities have been calculated by discounting expected future cash flow at prevailing interest rates and by applying period end exchange rates. The carrying amount of borrowings approximates to book value.

The fair value of the Group's financial instruments are measured using inputs other than quoted prices that are directly or indirectly observable (Level 2 as defined in IFRS 13).

There are no significant differences between the carrying value and fair value of either financial assets or financial liabilities.

 

9.  Defined benefit schemes

The value of the defined benefit plan assets has been updated to reflect their market value as at 31 March 2020. Actuarial gains or losses are recognised in the Consolidated Statement of Comprehensive Income in accordance with the Group's accounting policy. The liabilities have been updated to reflect the change in the discount rate and other assumptions.

10.  Analysis of net debt

	31 March 2020	31 March 2019	31 December 2019
	£m	£m	£m
Bank overdrafts	(25.2)	(38.1)	-
Current borrowings	(373.8)	(47.3)	-
Current liabilities	(399.0)	(85.4)	-
Non-current borrowings	(103.2)	(230.5)	(82.9)
Non-current liabilities	(103.2)	(230.5)	(82.9)
Total borrowings	(502.2)	(315.9)	(82.9)
Cash and cash equivalents	475.1	74.7	103.6
Net debt	(27.1)	(241.2)	20.7

 

Net debt is defined in the glossary of terms in note 17. Capitalised debt costs, which have been recognised as a reduction in borrowings in the financial statements, amounted to £3.4 million at 31 March 2020 (31 March 2019: £1.9m, 31 December 2019: £1.7 million).

 

On 31 March 2020 the Group drew down €420.7m of its €520.0m unsecured bridge facility in order to settle its deal contingent currency derivative in preparation for the completion of the acquisition of Omnova Solutions Inc on 1 April 2020.

	Three months ended 31 March 2020 (unaudited)		Three months ended 31 March 2019 (unaudited)		Year ended 31 December 2019 (audited)
	£m		£m		£m
Net cash (outflow)/inflow from operating activities	(24.3)		(21.6)		151.9
Add: dividends received from joint ventures	0.2		0.5		1.6
Less: net capital expenditure	(13.9)		(14.4)		(68.8)
	(38.0)		(35.5)		84.7
Dividends paid	-		-		(47.9)
Dividends paid to non-controlling interests	-		-		(0.6)
Proceeds on issue of shares	-		-		199.1
Settlement of equity-settled share-based payments	-		-		(2.5)
Repayment of principal portion of lease liabilities	(1.7)		(1.7)		(6.8)
Foreign exchange and other movements	(8.1)		10.0		8.7
(Increase)/decrease in net debt	(47.8)		(27.2)		234.7
Net debt at 1 January	20.7		(214.0)		(214.0)
Net debt at period end	(27.1)		(241.2)		20.7

 

11.  Capital commitments

The capital expenditure authorised but not provided for in the interim financial statements as at 31 March 2020 was £11.6m (31 March 2019: £14.4m, 31 December 2019: £11.7m).

12.  Contingent liabilities

During 2018, the European Commission (the 'Commission') initiated an investigation into practices relating to the purchase of Styrene monomer by companies, including Synthomer, operating in the European Economic Area. The Company has and will continue to fully cooperate with the Commission during its investigation. As the investigation is ongoing and the Commission does not provide feedback on its work until the investigation is complete, it is not possible to determine whether or not a liability exists in relation to this matter.

 

13.  Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not included in this note. Other than the relationship with the UK defined benefit pension scheme as disclosed in note 26 of the 2019 Annual Report, there were no other related party transactions requiring disclosure.

Following the rights issue which completed on 29 July 2019, Kuala Lumpur Kepong Berhad Group holds 20.98% of the Company's shares and is considered to be a related party from this date.

 

14.  Post balance sheet events

On 1 April 2020, the Group completed its acquisition of Omnova Solutions Inc at a price of $10.15 per share, representing an enterprise value of $824 million (£654 million). The acquisition strengthens Synthomer's presence in North America and increases its presence in Europe and Asia. The asset identification and fair value allocation processes are currently under review. At the date of this report it is impracticable to disclose the provisional fair values of the acquired assets, liabilities, contingent liabilities and goodwill.

It is unclear what impact the unprecedented COVID-19 pandemic will have on the Group's financial performance for the year. Speciality chemicals are designated as key industrial assets in the geographies in which Synthomer operates and throughout the peak of the pandemic in Asia and Europe, the Group continued to operate 37 of its 38 global manufacturing sites. April and May volumes for the enlarged business were impacted across the Group and whilst demand for Nitrile latex, non-wovens and adhesives remained strong, sales into industrial markets including automotive, coatings, graphic paper, carpet and the oil & gas sector were impacted by COVID-19. Volumes were lower than a strong comparative period by approximately 20% although volumes did strengthen towards the end of May.

Synthomer has a strong financial position, but a number of steps have been taken to mitigate the impact of COVID-19 and to preserve liquidity, cashflow and financial position. These include reducing capital expenditure for 2020 to approximately £50.0m from the £73.5m originally anticipated (including OMNOVA) and suspension of the final dividend for 2019. The Group's Board, Executive and Senior Management have also frozen their salaries at 2019 levels and delayed any further review until October 2020.

 

15.  Seasonality

Historically, the Group has seen no visible fixed pattern to seasonality in Q1 trading compared to rest of the year but we do note seasonality in our working capital with an expected outflow in Q1 compared to the December position. However, in 2020 it is unclear what impact the COVID-19 pandemic will have on the Group's financial performance for the full year.

 

16.  Risks and uncertainties

The Group faces a number of risks which, if they arise, could affect its ability to achieve its strategic objectives. As with any business, risk assessment and the implementation of mitigating actions and controls are vital to successfully achieving the Group's strategy. The Directors are responsible for determining the nature of these risks and ensuring appropriate mitigating actions are in place to manage them.

These principal risks are categorised into the following types:

·      Strategic

·      Operational

·      Compliance

·      Financial

With the exception of the impact of COVID-19, referred to in notes 14 and 15, the Directors consider that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining part of the financial year remain the same as those stated on pages 32 to 36 of 2019 Annual Report which is available on our website www.synthomer.com/investor-relations.

17.  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 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 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. The following are consistently disclosed separately as Special Items in order to provide a clearer indication of the Group's underlying performance: ·      Restructuring 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	Underlying performance represents the statutory performance of the Group under IFRS, excluding Special Items.
Net debt	Cash and cash equivalents together with 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, net debt and EBITDA exclude the impact of IFRS 16.
Ktes	Kilotonnes or 1,000 tonnes (metric).

 

Responsibility statement

The Directors confirm that these interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

 

The Directors of Synthomer plc are listed in the 2019 Annual Report and there have been no subsequent changes.

 

The Directors are responsible for the maintenance and integrity of, amongst other things, the financial and corporate governance information as provided on the Synthomer website. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

 

On behalf of the Board of Directors

 

 

 

 

C G MacLean                                                     S G Bennett

Chief Executive Officer                                        Chief Financial Officer                                                    

15 June 2020