REG - Synthomer PLC - Half-year results
07/09/2023 07:00
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RNS Number : 6466L Synthomer PLC 07 September 2023
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Synthomer plc
Interim results for the six months ended 30 June 2023
Resilient performance given subdued demand environment
Six months ended 30 June H1 2023 H1 2022 Constant currency(1)
Change
£m £m % %
Continuing operations(*)
Revenue 1,075.3 1,228.3 (12.5) (14.7)
Coatings & Construction Solutions (CCS) 55.1 80.3 (31.4) (33.4)
Adhesive Solutions (AS)** 15.6 34.5 (54.8) (55.7)
Health & Protection and Performance Materials (HPPM) 11.3 59.2 (80.9) (78.4)
Corporate (10.0) (11.2) (10.7) (11.6)
EBITDA(2) 72.0 162.8 (55.8) (56.0)
EBITDA % of revenue 6.7% 13.3%
Underlying(3) operating profit (EBIT) 23.4 125.3 (81.3) (80.6)
Statutory operating (loss)/profit (EBIT) (8.8) 113.8
Results from continuing and discontinued operations*
Underlying(3) (loss)/profit before tax (6.7) 114.7
Statutory profit before tax 16.7 115.5
Underlying(3) EPS (p) (1.1) 19.0
Basic EPS (p) (2.6) 18.3
Free Cash Flow(4) 18.8 (62.0)
Net debt(5) 795.8 992.8
* The Laminates, Films and Coated Fabrics business sold on 28 February
2023, which contributed revenue of £28.0m and EBITDA of £2.5m in H1 2023 (FY
2022: £201.2m and £15.9m respectively), is classed as a discontinued
operation throughout this announcement.
** H1 2022 included a three month contribution from the adhesive resins
acquisition which completed in April 2022.
Speciality businesses drive a resilient trading performance, given the subdued
macro demand environment
− Robust pricing and strong focus on margins mitigate impact of
substantially lower volumes vs H1 2022, driven by destocking, subdued
end-market demand and increased competition in some base chemical products
− Volume improvement relative to Q4 2022 in all divisions, led by
Coatings & Construction Solutions
− Q2 2023 continuing EBITDA stronger than Q1 2023
Further decisive actions to preserve cash and manage debt, foundations to be
strengthened with proposed £276m rights issue announced separately today and
revolving credit facility extension to July 2027
− $268.5m of cash proceeds from divestment of Laminates, Films and
Coated Fabrics businesses
− £150-200m cash management programme underway across the Group
− Operational reliability improvement programme in Adhesive Solutions
ongoing, with further savings identified in addition to acquisition synergies;
together with other cost savings, Group on track for c.£20m in self-help
initiatives in H2 2023
− Net debt £795.8m (FY 2022: £1,024.9m) as at 30 June 2023, with net
debt:EBITDA on a leverage covenant basis of 5.5 times and committed liquidity
of more than £400m
− Proposed £276m fully underwritten rights issue announced separately
to support reduction in leverage and allow greater focus on delivering
speciality solutions strategy
− $400m revolving credit facility (RCF) extension to July 2027
inter-conditional with rights issue
Progress on strategic evolution to become a more focused, resilient, higher
quality speciality chemicals business
− All divisions making good progress against key priorities
− Improved speciality portfolio weighting, better balanced geographical
footprint and more streamlined with 7 sites divested or to close (half of
target) in less than 12 months
Continued progress on innovation and sustainability objectives
− Near-term greenhouse gas (GHG) emissions reduction targets approved by
the Science Based Targets initiative (SBTi)
− Innovation, sustainability prioritisation approach updated and supply
chain management projects underway to assist transition to a low carbon future
Current trading and outlook
Trading in July and August was similar to H1 2023, with limited visibility and
subdued volumes given challenging macro conditions. The Group's outlook for
the remainder of 2023 provided in July is reiterated: the Board does not
anticipate a material recovery in customer demand before the end of the
current year. However, we anticipate c.£20m in self-help measures to be
delivered mainly in H2. Overall the Group remains confident of making
sequential progress in the second half relative to the first.
The Group continues to take decisive action to strengthen our business so that
it is positioned for profitable growth when demand does begin to recover.
Through our near-term actions, end market volume recovery (which alone has the
potential to improve Group EBITDA by more than £100m over time) and execution
of our strategy, we believe the Group's medium term earnings power is more
than double the £158m of continuing EBITDA generated over the year to the end
June 2023. Reducing leverage further towards 1-2x target range by end of 2024
remains a key priority. Overall we remain confident in the Group's ability to
deliver the medium-term targets set out last October, which were
mid-single-digit growth in constant currency over the cycle, EBITDA margins
above 15% and mid-teens return on invested capital.
Commenting, Synthomer CEO Michael Willome said:
"Whilst these results reflect the difficult demand environment across most of
our end markets and geographies, we are encouraged by areas of significant
progress. In particular, our Coatings & Construction Solutions division
saw promising EBITDA growth versus the second half of 2022, and many of our
speciality businesses grew, testament to our strategy to increase our focus
and investment on these parts of the portfolio. All divisions have made
progress against their strategic priorities as we continue to reposition
Synthomer to deliver on its medium term ambitions, supported by anticipated
volume recovery in the coming years.
The proposed rights issue will allow us to reduce our leverage towards our
medium term target and increase our focus on strategic execution to drive long
term value. We are confident that Synthomer's medium-term earnings power is
more than double our EBITDA performance over the last twelve months, driven by
improved market conditions, operational and commercial excellence and our
ongoing strategic evolution to become a true speciality chemicals business."
Further information:
Investors: Faisal Tabbah, Vice President Investor
Relations Tel: +44 (0) 1279 775 306
Media: Charles Armitstead,
Teneo
Tel: +44 (0) 7703 330 269
The Company will host a meeting for analysts and investors at 9:00am BST today
at the Royal Society of Chemistry, Burlington House, Piccadilly, London W1J
0BA. The meeting will also be webcast at www.synthomer.com
(http://www.synthomer.com) , please follow links to the financial calendar on
the investor relations page to register.
Notes
(1.) Constant currency revenue and profit measures retranslate current
year results using the prior year's average exchange rates.
(2.) Operating profit before depreciation, amortisation and Special
Items.
(3.) Underlying performance excludes Special Items unless otherwise
stated.
(4.) 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.
(5.) Cash and cash equivalents together with short and long-term
borrowings.
Legal Entity Identifier (LEI): 213800EHT3TI1KPQQJ56. Classification as per DTR
6 Annex 1R: 1.2.
Synthomer plc is a leading supplier of high-performance, speciality polymers
and ingredients for coatings, construction, adhesives, and healthcare end
markets. Headquartered in London, UK and listed there since 1971, we employ
around 4,400 employees across nearly 40 locations across Europe, USA and Asia.
With more than 6,000 customers and £2.4bn in continuing revenue in 2022, our
three divisions are aligned to our end markets which play an important role in
global megatrends including urbanisation, climate change, and economic and
demographic shifts. In Coatings & Construction Solutions, our tailored
solutions enhance the sustainability and performance of a range of products
such as architectural and masonry coatings, mortar modification, fibre
bonding, waterproofing and flooring, while our energy solutions promote
drilling stability in the challenging operating environments of the oil and
gas industry. Adhesive Solutions is a leading supplier of products that bond,
modify and compatibilise surfaces and components for a range of end markets
including tapes and labels, packaging, hygiene, tyres and plastics. In Health
& Protection and Performance Materials we are a world-leading supplier of
water-based polymers for medical gloves and a major European manufacturer of
high-performance binders, foams and other products for a range of niche
applications. Our purpose is creating innovative and sustainable solutions for
the benefit of customers and society. Around 20% of our sales volumes are from
new and patent protected products. At our innovation hubs in the UK, Germany,
Malaysia and Ohio, USA we collaborate closely with our customers to develop
new products tailored to their needs while also minimising environmental
impact. We are working to embed sustainability in everything we do; we have
reduced our scope 1 and 2 carbon footprint by one third since 2019, and our
2030 decarbonisation targets have been approved by the Science Based Targets
initiative as being in line with what the latest climate science says is
necessary to meet the goals of the Paris Agreement. Since 2021 we have held
the London Stock Exchange Green Economy Mark, which recognises green
technology businesses making a significant contribution to a more sustainable,
low-carbon economy. Find us at www.synthomer.com (http://www.synthomer.com) ,
@Synthomer_Group on Twitter or search for Synthomer on LinkedIn.
CHIEF EXECUTIVE OFFICER'S REVIEW
Resilient trading performance given the macro environment
As disclosed in our July update, Synthomer's performance during the first half
was broadly consistent with our expectations at the time of the Group's Full
Year results in March. Challenging macroeconomic conditions continued to
affect demand across most of our end-markets and geographies throughout the
period, exacerbated by prolonged customer destocking and increased competition
in some of our base chemical product ranges. Whilst this unprecedented
environment meant Group volumes were substantially lower than the first half
of 2022, they have stabilised overall relative to the second half of the year,
and robust pricing as raw material prices moderate and our strong focus on
margins helped to mitigate the impact. This was especially evident in Coatings
& Construction Solutions as well as the other speciality, higher growth
areas of our business, which are proving to be the most resilient and
benefiting from our differentiated focus and investment. Continuing Group
revenues were £1,075.3m (H1 2022: £1,228.3m, H2 2022: £1,155.6m) with
Continuing Group EBITDA at £72.0m (H1 2022: £162.8m, H2 2022: £86.4m)
whilst total Group earnings per share was (1.1p) (H1 2022: 19.0p, H2 2022:
1.6p).
Stronger foundations for sustainable future growth
We have continued to take decisive actions to successfully manage debt and
preserve cash, with reductions in capital expenditure, working capital and
costs across the Group. The divestment of our Laminates, Films and Coated
Fabrics businesses which forms part of our strategy to increase the speciality
weighting of our portfolio to c.70% of Group revenues in due course, was
completed in February. The transaction realised $268.5m of cash proceeds after
transaction expenses (including $3.2m received in July 2023 and a further $5m
receivable in 2024) which have been used to reduce leverage. As at 30 June
2023, net debt was £795.8m (December 2022: £1,024.9m), with net debt: EBITDA
on a covenant basis of 5.5 times and committed liquidity of more than £400m.
After careful evaluation, we have separately announced today a fully
underwritten rights issue to raise gross proceeds of approximately £276
million. It will support reduction in our leverage and provide stronger
foundations to focus on delivering our strategy and long term value creation
in addition to short term cash preservation, as well as reducing the downside
risks from near-term macroeconomic uncertainty for all stakeholders. By
providing stronger foundations, the rights issue will ensure that Synthomer is
well-positioned to deliver on its medium term ambitions in the coming years.
The Board believes that the earnings power of the Group is more than double
our last twelve month EBITDA, which will be driven by a combination of
end-market recovery, operational and commercial execution and strategic
delivery, further supporting our medium term growth, margin and returns
targets. We have also signed an RCF amendment inter-conditional with the
rights issue, which adjusts its amount to $400m and its maturity to July 2027.
The rights issue will increase covenant headroom and strategic and financial
flexibility, resulting in a pro forma reduction in the covenant net debt based
on EBITDA ratio from 5.5x to 3.8x as at 30 June 2023. Reducing leverage
further towards our 1-2x target range by the end of 2024 remains a key
priority. This will be supported by further divestment proceeds and earnings
power more than doubling over the medium-term through continued cost control,
volume recovery and strategic delivery.
The rights issue (and a related capital reorganisation) is conditional on,
among other things, the passing of a number of resolutions by shareholders at
a general meeting, which is scheduled to take place at 12:30 p.m. on 25
September 2023. Our largest shareholder, Kuala Lumpur Kepong Bhd, with 26.9%
of the issued share capital, has irrevocably committed to take up their full
rights and to vote in favour of all of the resolutions at the meeting.
All divisions making good progress against key priorities
In the period we have continued to make good progress against the strategy we
announced in October 2022. Our ambition is to become a more focused, more
resilient, higher quality speciality chemicals platform in the medium term,
with growth driven by our strong market positions in speciality areas that are
aligned to long term growth megatrends and where we believe we can win. To
achieve this, the business was reorganised at the start of 2023, to focus on
three attractive end markets: coatings and construction, adhesives, and health
and protection. Encouragingly, all divisions have continued to make good
progress against their key strategic priorities during the first half.
In Construction & Coatings Solutions, H1 EBITDA was £55.1m (H1 2022:
£80.3m), significantly ahead of the £40.5m we delivered in H2 2022, with Q2
improving over Q1 including some seasonal benefit, largely driven by the
speciality portfolio with a progressive improvement in Coatings and Energy
Solutions in particular. Pricing retention was good given the reduction in raw
material costs. Strong cost control helped to offset higher energy costs and
lower capacity utilisation and we have initiatives underway to further enhance
our efficiency and simplify production, such as the closure of a small Texas
production site in the second half. We are strengthening our organic growth
capability by aligning the division to our end-markets and improving the
geographical balance whilst continuing to invest in innovation and our
customer proposition.
In Adhesive Solutions, H1 EBITDA declined to £15.6m (H1 2022: £34.5m, H2
2022: £32.7m) because of the weak demand amplified by destocking as well as
reliability issues. We saw more resilient pricing and volumes from our
speciality products in the division relative to base products, which are
experiencing greater competition. Whilst most raw material costs began to
moderate this was offset by supply chain disruption and low reliability at
some sites, as well as higher energy costs. We have expanded several of the
original acquisition synergy workstreams with a dedicated 'self-help'
programme under the new management team targeting improved operational
reliability and cost efficiency. Within these programmes, we are also
continuing to capture revenue synergies following our acquisition of this
business last year as well as leveraging our range of leading positions in
speciality adhesives in US and Europe. We have also reprioritised capital
expenditure to broaden raw material supply as well as to expand capacity in
certain high growth areas, notably in amorphous polyolefins (APOs).
In Heath & Protection and Performance Materials, EBITDA was significantly
lower at £11.3m (H1 2022: £59.2m, H2 2022: £22.7m), largely reflecting the
prolonged oversupply situation that has followed the exceptional period of
demand for medical gloves during the COVID-19 pandemic. Whilst the underlying
demand for medical gloves continues to be robust, with stock levels remaining
high and additional capacity added to the market during the pandemic we do not
expect current low production levels of Nitrile Butadiene Latex (NBR) to abate
before the end of 2023. As a result, we have announced plans to close our
Kluang facility in Malaysia and transfer its production to other plants. Our
Performance Materials businesses are also experiencing lower volumes due to
the end market environment and have seen some pressure on pricing as raw
material prices started to moderate. We have increased our focus on cost
efficiency and process optimisation to mitigate this.
Our non-core portfolio rationalisation programme continued to progress during
the period. Two divestment processes are currently underway, and our project
to separate SBR for coatings and construction from our paper and carpet
operations is progressing well.
Innovation and sustainability underpinnings
In July, Synthomer's near-term greenhouse gas (GHG) emissions reduction
targets were approved by the Science Based Targets initiative (SBTi). The
targets covering GHG emissions from Synthomer's operations (Scopes 1 and 2)
are consistent with levels required to meet the goals of the Paris Agreement
to keep warming to 1.5°C, according to the SBTi. Synthomer's target for GHG
emissions from its value chain (Scope 3) also meet the SBTi's criteria for
ambitious value chain goals, meaning they are in line with current best
practice. (Synthomer has committed to the reduction of absolute Scope 1 and 2
GHG emissions by 46.2%, and absolute scope 3 GHG emissions by 27.5%, by 2030
from a 2019 base year). In the period we have also reviewed and updated our
innovation, sustainability and prioritisation scoring criteria to align with
our deepening understanding of the sustainability risks and opportunities
across our business, and begun a number of projects focused on our supply
chain to assist our transition to a low carbon future. I am pleased to
report that our new and protected products metric increased in the period to
21.5% and remains above our long-term target of at least 20% of sales.
Strengthening our executive team
On 1 May 2023, Stephan Lynen joined Synthomer as President of our Adhesive
Solutions division and a member of the Executive Leadership. Stephan has more
than 25 years of leadership experience in the chemical industry, principally
at Clariant, the global speciality chemicals company, where he became Chief
Financial Officer in April 2020 having previously led several of its
businesses, including its Additives unit for almost four years.
Outlook
Trading in July and August was similar to H1 2023, with limited visibility and
subdued volumes given challenging macro conditions. The Group's outlook for
the remainder of 2023 provided in July is reiterated: the Board does not
anticipate a material recovery in customer demand before the end of the
current year. However, we anticipate c.£20m in self-help measures to be
delivered mainly in H2. Overall the Group remains confident of making
sequential progress in the second half relative to the first.
The Group continues to take decisive action to strengthen our business so that
it is positioned for profitable growth when demand does begin to recover.
Through our near-term actions, end market volume recovery (which alone has the
potential to improve Group EBITDA by more than £100m over time) and execution
of our strategy, we believe the Group's medium-term earnings power is more
than double the £158m of continuing EBITDA generated over the year to the end
June 2023. Reducing leverage further towards 1-2x target range by end of 2024
remains a key priority. Overall we remain confident in the Group's ability to
deliver the medium-term targets set out last October, which were
mid-single-digit growth in constant currency over the cycle, EBITDA margins
above 15% and mid-teens return on invested capital.
Michael Willome
Chief Executive Officer
DIVISIONAL REVIEW - CONTINUING OPERATIONS
Coatings & Construction Solutions (CCS)
CCS is achieving robust pricing and margins, with improved trading performance
over the period compared with the second half of 2022 despite cautious
customer buying behaviour, with Q2 improving over Q1 including some seasonal
benefit, largely driven by the speciality portfolio. In line with our
strategy, CCS recently implemented several actions to broaden geographic and
customer penetration which will strengthen organic growth and increase market
share over time, while enhancing margins.
Under our new divisional structure implemented from 1 January 2023, CCS
comprises the majority of the former Functional Solutions division, the
Speciality Additives and Powder Coatings businesses from the Industrial
Specialities division as well as the consumer-focused Foams business from the
Performance Elastomers division.
Six months ended 30 June H1 2023 H1 2022 Change Constant currency(1)
£m £m % %
Revenue 451.6 548.9 (17.7) (20.9)
Volumes (ktes) 280.6 343.5 (18.3)
EBITDA 55.1 80.3 (31.4) (33.4)
EBITDA % of revenue 12.2% 14.6%
Operating profit - underlying 41.5 66.8 (37.9) (39.7)
Operating profit - statutory 27.4 51.7 (47.0)
(1) Underlying constant currency revenue and profit retranslate current
year results using the prior year's average exchange rates.
Performance
Divisional revenue decreased by 20.9% in constant currency to £451.6m (H1
2022: £548.9m, H2 2022: £447.2m), principally driven by an 18.3% reduction
in volume compared with the strong H1 2022 period. This reflects more cautious
buying behaviour from our customers due to relatively subdued end-user demand.
This has been particularly noticeable in our Construction and Consumer
Materials markets in the period, with Coatings more robust and Energy
Solutions continuing to enjoy strong end-user demand growth.
Compared with the second half of 2022, sequential volumes have improved
modestly and margins improved as a result of good pricing retention given the
period-on-period reductions in raw material input prices. Together with strong
cost control, this significantly mitigated the impact of lower revenues and
higher energy costs as hedges rolled off on the EBITDA performance of £55.1m
(H1 2022: £80.3m, H2 2022: £40.5m) in the period.
Strategy
In line with the new corporate strategy, CCS is focusing on strengthening
organic growth capacity through a number of steps which increase its alignment
with strategic end market opportunities. For example, the commercial teams
have been reorganised to ensure key account management of top global customers
and a stronger emphasis on marketing to new regional players. These
initiatives will enable penetration into North American, Middle Eastern and
Asian markets, building on our strong market positions in European markets. In
the period we also began a modest investment to enhance coatings capacity in
the Middle East.
Greater alignment with customers is also driving efforts to enhance the
differentiation and hence the resilience and margin opportunity of the CCS
product portfolio, in particular by innovating to enhance the sustainability
benefits or other pillars of the value proposition for our customers. For
example, in Energy Solutions we are working towards deploying our leading
wellhead management technologies for carbon capture and storage (CCS)
applications.
We also progressing a number of asset optimisation projects, improving cost
control and capacity management through our Synthomer excellence programmes.
For example, a modification of one of our speciality additives processes at
our site in Ghent dramatically reduced catalyst use through a modest increase
in cycle time, resulting in substantial raw material and energy efficiencies
as well as carbon emissions savings. Shortly after the period end, we
announced plans to exit a small production site in Texas.
Adhesive Solutions (AS)
The performance of AS in the period continues to reflect the lower volume
environment as well as the previously disclosed operational reliability and
supply chain challenges in the adhesive resins business, acquired from Eastman
on 1 April 2022. We expect our reliability and performance improvement
measures to have a positive impact in the second half of the year, despite
continued demand weakness.
Under our new divisional structure, the core of AS comprises the adhesive
resins business acquired in 2022, together with adhesive dispersions and
Lithene businesses which were previously part of Synthomer's portfolio in
Functional Solutions and Industrial Solutions respectively.
Six months ended 30 June H1 2023 H1 2022(1) Change Constant currency(2)
£m £m % %
Revenue 310.0 223.8 +38.5 +36.1
Volumes (ktes) 125.6 96.5 +30.2
EBITDA 15.6 34.5 (54.8) (55.7)
EBITDA % of revenue 5.0% 15.4%
Operating profit - underlying 1.4 27.2 (94.9) (94.5)
Operating (loss)/profit - statutory (12.3) 17.3 n/m
(1) H1 2022 included a three month contribution from the adhesive
resins acquisition.
(2 ) Underlying constant currency revenue and profit retranslate
current year results using the prior year's average exchange rates.
Performance
Divisional revenue was £310.0m (H1 2022: £223.8m, H2 2022: £349.1m) an
increase of 36.1% in constant currency compared with the prior year period,
reflecting the inclusion of the adhesive resins acquisition for the whole
period compared with for one quarter in the 2022 comparative period. On a
like-for-like basis, volumes were approximately 1.6% lower than in H2 2022,
reflecting some stabilisation of the subdued demand environment amplified by
customer destocking and challenges fulfilling customer orders due to the
previously disclosed reliability issues. Within the division, speciality
products including Lithene, amorphous polyolefins (APOs) and pure monomer
resins (PMR) were more resilient in both volume and pricing terms, while more
base chemical products particularly for the tapes, labels, packaging and
plastics markets experienced increased global competition in the period,
affecting volume and price.
Divisional EBITDA of £15.6m (H1 2022: £34.5m, H2 2022: £32.7m) principally
reflects higher energy costs, the supply chain and reliability challenges in
the acquired adhesive resins business, as well as the volume and pricing
effects noted above, partially mitigated by moderating raw material prices.
Strategy
The core priority of the division is improving operational reliability and
cost efficiency of the acquired adhesive resins operations. A performance
improvement project team has been put in place under the leadership of the new
divisional president who joined in May. The goal is to drive rapid progress in
procurement, supply chain and logistics reliability, as well as to improve
cost efficiency, net working capital and data management. Having executed most
of the synergy actions identified with the acquisition, the team continues to
work on further 'self-help' actions which are expected to be implemented over
the next twelve months as part of the division's performance improvement
programme.
The division is also implementing the new corporate strategy alongside the
performance improvement programme. Relationship management, and hence
opportunities to capture revenue synergies, have been reorganised over the
combined legacy Synthomer and adhesive resins customer base. The division has
also recently committed to expand our speciality amorphous polyolefins
capacity in North America to support growth in this region.
Health & Protection and Performance Materials (HPPM)
In HPPM, the challenging medical glove market dynamics which followed the
unprecedented activity during the pandemic continue. In line with previous
indications, we do not expect low nitrile butadiene rubber (NBR) production
levels to abate before the end of 2023. We continue to focus on capacity
management and cost control.
Under our new divisional structure, HPPM consists of the majority of the
former Performance Elastomers and Industrial Specialities divisions as well as
the Acrylate Monomers business. This included our Laminates & Films and
Coated Fabrics businesses, which were subsequently divested on 28 February
2023.
Six months ended 30 June (continuing) H1 2023 H1 2022 Change Constant currency(1)
£m £m % %
Revenue 313.7 455.6 (31.1) (32.2)
Volumes (ktes) 276.9 385.1 (28.1)
EBITDA 11.3 59.2 (80.9) (78.4)
EBITDA % of revenue 3.6% 13.0%
Operating (loss)/profit - underlying (5.8) 45.1 n/m n/m
Operating (loss)/profit - statutory (6.9) 44.2 n/m
(1) Underlying constant currency revenue and profit retranslate current
year results using the prior year's average exchange rates.
Performance
Divisional revenue was £313.7m (H1 2022: £455.6m, H2 2022: £359.3m),
principally driven by a 28.1% reduction in volume compared with the
exceptional H1 2022 period.
The exceptional global demand for NBR to manufacture gloves at the height of
the COVID-19 pandemic has given way since mid-2022 to a substantial period of
destocking and oversupply for our Health & Protection business. In
addition, Chinese glove manufacturers also raised output in 2022, putting
additional strain on glove prices and plant utilisation of glove producers in
Malaysia and elsewhere. Combined these factors resulted in a 31.4% decline in
NBR volumes compared with the prior period. While underlying end-customer
demand for medical gloves remains similar to pre-COVID levels and we see
favourable growth trends in the medium term, the current overhang between
capacity and demand for NBR is not expected to abate before the end of 2023.
Sequentially, volumes show indications of stabilising, with H1 2023 NBR
volumes only 6.0% lower than H2 2022.
Volumes in our Performance Materials portfolio, including for paper, carpet,
acrylic monomers, antioxidants and compounds were also down by 26.3% against
H1 2023. This was driven in large part by lower demand exacerbated by
destocking, with these businesses experiencing greater pricing pressure as raw
material prices moderate than the more speciality parts of the Group
portfolio. Again the trend has moderated sequentially with volumes in
Performance Materials recording only a (1.7)% decline against H2 2022.
As a predominantly base chemicals division, the effect of lower volumes on
HPPM earnings was significant, with divisional EBITDA reducing to £11.3m (H1
2022: £59.2m, H2 2022: £22.7m) in the period.
Strategy
In Health & Protection, our focus under the new strategy has been on
improving cost efficiency across our value chain and enhancing our overall
value proposition to customers. As part of this effort we have increased our
investment in customer intimacy. This has assisted us in monitoring demand and
market flows at a challenging point in the cycle, but more importantly in
optimising our alignment with key customers' needs. This supports our goals to
strengthen overall cost competitiveness for the Malaysia supply chain while
also delivering process innovation to lower energy consumption and carbon
footprint for our customers and ourselves. We have also increased our focus on
building relationships with potential new customers, including in the USA and
China. Our NBR plant utilisation rates have improved modestly compared with
the last quarter of 2022, and we aim to improve this further through plans
announced in August 2023 to decommission our Kluang, Malaysia facility, which
will reduced our NBR capacity by approximately 20%. We are working closely
with customers to smoothly transfer grades to our other plants.
Over the last year we have also revised our innovation and capital expenditure
plans across the division, in accordance with our differentiated steering
strategic pillar, to focus on our most differentiated products or
opportunities, such as the thinner glove materials, bio-based acrylate
monomers or to support opportunities in other niches, such as materials with
novel properties for 3D printing.
Our non-core portfolio rationalisation programme continued to progress during
the period. Two divestment processes are currently underway, and our project
to separate SBR for coatings and construction from our paper and carpet
operations is progressing well.
Safety
The Group delivered a strong safety performance in the period based on key
industry lagging indicators, with both the Recordable Case Rate (RCR) and
Process safety event rate (PSER) ahead of our targets and prior year levels.
However the health and safety of our employees is a key priority and there is
always more to do to improve our processes and preparedness. An important
programme in the period has been further developing our use of leading
indicators, including near-miss reporting, across the Group. Both lagging and
leading data are used to track and analyse for trends and are a key feed into
our SHE improvement plans.
Our work to align our new sites with our standards over a three-year cycle
continues to make progress. For example, in the last twelve months all former
OMNOVA and Eastman sites have completed their integration into our database
tools for accident and incident reporting, as well as the electronic
management of change system.
Six months ended 30 June (continuing) H1 2023 H1 2022 Change
RCR per 100,000 hours for employees and contractors Absolute
CCS 0.20 0.38 (0.18)
AS(1) 0.30 0.00 +0.30
HPPM 0.00 0.10 (0.10)
Continuing Group 0.13 0.22 (0.09)
PSER per 100,000 hours for employees and contractors Absolute
CCS 0.10 0.14 (0.04)
AS(1) 0.14 0.27 (0.13)
HPPM 0.05 0.10 (0.05)
Continuing Group 0.09 0.13 (0.04)
(1) H1 2022 data for AS reflects the April-June period which included
the acquired Adhesive Solutions business.
FINANCIAL REVIEW
Group revenue, EBITDA and operating profit - continuing operations
Revenue for the continuing Group of £1,075.3m (H1 2022: £1,228.3m) decreased
by 14.7% in constant currency compared with the prior year period, with the
contribution of the acquired adhesive resins business and a small benefit from
robust price/mix partially offsetting a 17.2% reduction in volume compared
with the first half of 2022. This was driven by destocking, subdued levels of
demand across most of our end markets and increased competition in some of our
base chemical product ranges. Sequentially however, Group volumes modestly
increased by 2.2% relative to the second half of the year. EBITDA for the
continuing Group was £72.0m (H1 2022: £162.8m) in the period, with robust
pricing and a strong focus on margins partially mitigating the challenging
volume environment. Depreciation and amortisation in the period increased to
£48.6m (H1 2022: £37.5m), reflecting the non-current assets acquired in the
adhesive resins acquisition, resulting in underlying operating profit for the
continuing Group of £23.4m (H1 2022: £125.3m).
Six months ended 30 June 2023, £m CCS AS HPPM Corp. Continuing Dis-continued Total Group
operations
Revenue 451.6 310.0 313.7 - 1,075.3 28.0 1,103.3
EBITDA 55.1 15.6 11.3 (10.0) 72.0 2.5 74.5
EBITDA % of revenue 12.2% 5.0% 3.6% 6.7% 8.9% 6.8%
Operating profit/(loss) - underlying 41.5 1.4 (5.8) (13.7) 23.4 2.5 25.9
Operating profit/(loss) - statutory 27.4 (12.3) (6.9) (17.0) (8.8) 64.5 55.7
Six months ended 30 June 2022, £m CCS AS HPPM Corp. Continuing Dis-continued Total Group
operations
Revenue 548.9 223.8 455.6 - 1,228.3 106.1 1,334.4
EBITDA 80.3 34.5 59.2 (11.2) 162.8 10.3 173.1
EBITDA % of revenue 14.6% 15.4% 13.0% 13.3% 9.7% 13.0%
Operating profit - underlying 66.8 27.2 45.1 (13.8) 125.3 6.7 132.0
Operating profit - statutory 51.7 17.3 44.2 0.6 113.8 3.2 117.0
Full year ended 31 December 2022, £m CCS AS HPPM Corp. Continuing Dis-continued Total Group
operations
Revenue 996.1 572.9 814.9 - 2,383.9 201.2 2,585.1
EBITDA 120.8 67.2 81.9 (20.7) 249.2 15.9 265.1
EBITDA % of revenue 12.1% 11.7% 10.1% 10.5% 7.9% 10.3%
Operating profit - underlying 94.1 44.5 50.6 (26.7) 162.5 8.7 171.2
Operating profit - statutory 62.8 (126.1) 47.2 (4.4) (20.5) (6.0) (26.5)
Special Items - continuing operations
The following items of income and expense have been reported as Special Items
- continuing operations and have been excluded from EBITDA and other
underlying metrics:
Six months ended 30 June H1 2023 H1 2022 FY 2022
£m £m £m
Amortisation of acquired intangibles (24.3) (19.5) (44.8)
Restructuring and site closure costs (6.6) (4.5) (19.2)
Acquisition costs and related gains (1.3) (6.5) (6.5)
Sale of business - 0.3 (0.3)
Regulatory fine - release of provision - 18.7 21.5
Impairment charge - - (133.7)
Total impact on operating loss/profit (32.2) (11.5) (183.0)
Fair value movement on unhedged interest rate derivatives (1.8) 15.8 25.1
Loss on extinguishment of financing facilities (4.6) - -
Total impact on loss/profit before taxation (38.6) 4.3 (157.9)
Taxation Special Items - - 3.6
Taxation on Special Items (4.9) (4.6) 39.3
Total impact on loss/profit for the period - continuing operations (43.5) (0.3) (115.0)
Amortisation of acquired intangibles increased in H1 2023, reflecting
amortisation of the customer lists, patents, trademarks and trade secrets that
arose on the acquisition of the adhesive resins business. The intangible
assets arising on the acquisition are being amortised over a period of 8-20
years mainly dependent on the characteristics of the customer relationships.
Restructuring and site closure costs in H1 2023 comprise a £2.4m charge in
relation to the ongoing integration of the acquired adhesive resins business,
and a further £4.2m in relation to enacting the new strategy and realignment
of the business into its new divisions effective 1 January 2023.
Acquisition costs and related gains of £1.3m in H1 2023 relate to the
adhesive resins acquisition.
In July 2018 the Group entered into swap arrangements to fix euro interest
rates on the full value of the then €440m 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 in
excess of the Group's current borrowings.
In March 2023 the Group successfully refinanced its existing bank loan
facilities. All amounts outstanding on the existing $260million term loan,
$300 million term loan and €460 million revolving credit facility were
subsequently repaid and the facilities were cancelled. All capitalised debt
issue costs relating to these term loans and facilities were written off
leading to a loss on extinguishment of £4.6 million.
Taxation on Special Items mainly relates to the amortisation of acquired
intangibles.
Discontinued operations
On 28 February 2023, the Group completed the sale of its Laminates, Films and
Coated Fabrics businesses to Surteco North America, Inc. following
satisfaction of the conditions to the transaction announced on 13 December
2022. The final cash proceeds received at completion amounted to $260.3m after
transaction expenses, with $3.2m received in July 2023 and a further $5m
receivable in cash on the 13-month anniversary of completion. The net cash
proceeds have been used to reduce the Group's debt. The Laminates, Films and
Coated Fabrics businesses are reported as discontinued operations in these
results.
In the period £36.3m of Special Items - discontinued operations (H1 2022:
£(3.5)m) were recognised, comprising a £62.0m gain on the sale of the
Laminates Films and Coated Fabrics businesses, and £(25.7)m in charges,
primarily relating to the utilisation of acquired US tax attributes and the
current tax charge on the disposal of the Laminates, Films and Coated Fabrics
businesses.
Finance costs
Six months ended 30 June H1 2023 H1 2022 FY 2022
£m £m £m
Net interest payable (30.8) (15.8) (43.2)
Net interest expense on defined benefit obligation (1.1) (0.8) (1.2)
Interest element of lease payments (0.7) (0.7) (1.4)
Finance costs - underlying (32.6) (17.3) (45.8)
Fair value movement on unhedged interest rate derivatives (1.8) 15.8 25.1
Loss on extinguishment of financing facilities (4.6) - -
Finance costs - statutory (39.0) (1.5) (20.7)
Underlying finance costs increased to £(32.6)m (H1 2022: £(17.3)m) and
comprise interest on the Group's financing facilities, interest rate swaps,
amortisation of associated debt costs and IAS 19 pension interest costs in
respect of our defined benefit pension schemes. The rise in the net interest
payable mainly reflects the additional debt utilised to finance the adhesive
resins acquisition as well as higher base rates. The Group recognised as
Special Items a total of £6.4m in finance costs relating to interest rate
derivative contracts and extinguishment of financing facilities, as described
above.
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.
Taxation
The Group's underlying effective tax rate for H1 2023 was 22.0% (H1 2022:
22.5%; FY 2022: 22.5%), representing the best estimate of the annual effective
corporate income tax rate expected for FY 2023. We estimate the rate by
applying the expected corporate income tax rate for each tax jurisdiction in
which we operate.
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 H1 2023 was
467,241,000 (H1 2022: 467,314,000).
Underlying earnings per share is (1.1) pence for the period, down from 19.0
pence in H1 2022, reflecting the lower earnings relative to the prior period.
The statutory earnings per share is (2.6) pence (H1 2022: 18.3 pence).
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 H1 2023 the Group experienced a translation headwind of £1.4m on EBITDA,
with average FX rates against our three principal currencies of €1.1414,
$1.2336 and MYR 5.4969 to the pound.
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.
Cash performance
The following table summarises the movement in net debt and is in the format
used by management:
Six months ended 30 June H1 2023 H1 2022 FY 2022
£m £m £m
Opening net debt (1,024.9) (114.2) (114.2)
Underlying operating profit (excluding joint ventures) 25.2 131.4 169.5
Movement in working capital 11.9 (128.0) 19.1
Depreciation of property, plant and equipment 44.8 37.5 86.0
Amortisation of other intangible assets 3.8 3.6 7.9
Share-based payments charge 1.1 1.1 0.7
Capital expenditure (33.9) (33.2) (90.8)
Business cash flow 52.9 12.4 192.4
Net interest paid (24.7) (13.9) (38.2)
Tax paid (4.5) (49.3) (65.6)
Pension funding (5.7) (11.5) (21.3)
Dividends received from joint ventures 0.8 0.3 1.9
Free Cash Flow 18.8 (62.0) 69.2
Cash impact of restructuring and site closure costs (10.8) (10.4) (25.9)
Cash impact of acquisition costs (4.4) 2.1 1.7
Cash impact of mark to market 12.1 - -
Proceeds on sale of business 206.1 0.3 0.3
Purchase of business (8.3) (759.6) (759.6)
Repayment of principal portion of lease liabilities (5.8) (4.7) (10.1)
Dividends paid - - (99.5)
Foreign exchange and other movements 21.4 (44.3) (86.8)
Movement in net debt 229.1 (878.6) (910.7)
Closing net debt (795.8) (992.8) (1,024.9)
Underlying operating profit in the period reduced to £25.2m reflecting the
trading performance described above. The net working capital inflow of £11.9m
in the first half of the year was as a result of the receivables financing
facility, active inventory and account management and moderating raw materials
pricing, partially offset by seasonality and activity levels.
In order to manage the significant increase in working capital requirements
over the last year and optimise cash generation, the Group put in place
two-year, non-recourse receivables financing facilities in December 2022 for a
maximum aggregate amount of €200m. Factored receivables assigned under the
facilities amounted to £139.2m net at 30 June 2023 (31 December 2022: £82.7m
net). Under the facilities, the risks and rewards of ownership are transferred
to the assignees. The tenor of the facility was subsequently extended to 31
May 2025.
Depreciation and amortisation of other intangibles increased due to the
adhesive resins non-current assets acquired. Capital expenditure was £33.9m
(H1 2022: £33.2m), principally for the Pathway Programme systems
transformation project, recurring SHE and sustenance expenditure. The Group
continues to anticipate c.£75-85m in capital expenditure for FY 2023.
Interest paid increased to £24.7m reflecting the adhesive resins acquisition
debt and higher base rates. Net tax paid decreased to £4.5m reflecting lower
payments on account due to reduced operating profit and refunds of prior year
overpaid taxes.
The cash impact of Special Items including restructuring and site closure
costs and acquisition costs and related gains was an outflow of £(23.5)m.
Group debt is denominated in sterling, euros and dollars. Both the euro and
the dollar weakened relative to sterling during H1 2023, leading to a foreign
exchange gain in net debt.
Financing and liquidity
At 30 June 2023, net debt was £795.8m (FY 2022: £1,024.9m), with the
reduction principally reflecting proceeds received from the divestment of the
Laminates, Films and Coated Fabrics businesses. As at 30 June 2023 committed
borrowing facilities principally comprised: a $480m RCF (maturing in May
2025), five-year €520m 3.875% senior loan notes (maturing July 2025) and UK
Export Finance (UKEF) facilities of €288m and $230m (maturing in October
2027). At 30 June 2023, the UKEF facilities were fully drawn and £130.0m was
drawn under the RCF. The Group's net debt: EBITDA for the purposes of the
leverage ratio covenant increased from 3.7x at 31 December 2022 to 5.5x at 30
June 2023, due primarily to lower EBITDA over the preceding twelve month
period, partially offset by lower net debt, as described elsewhere.
On 5 September 2023, the Group entered into an RCF amendment and extension
agreement, which is subject to and conditional upon the successful outcome of
the rights issue. If effective, the agreement will reduce the RCF commitment
to $400m and extend the maturity date to 31 July 2027, amongst other matters.
The new RCF and the UKEF facilities are subject to one leverage ratio
covenant. For prudence in light of current market conditions, this has been
set at 6x in June 2023, 5x in December 2023, 4.25x in June 2024, 3.5x in
December 2024, 3.5x in June 2025 and 3.25x thereafter. The Group expects net
financing costs of approximately £60-65m in FY 2023 as a result of the higher
net debt and other changes to the Group's financing arrangements, reducing to
approximately £45-50m in 2024 assuming the rights issue is successfully
completed.
The Group's pro forma committed liquidity at 30 June 2023, including the net
impact of both the rights issue of £276m less fees and the reduction of the
RCF to $400m, is in excess of £640m.
Balance sheet
Net assets of the Group decreased by 7% to £963.3m, mainly reflecting the
£12.4m loss for the period and a loss of £54.3m on translation of foreign
currency.
Provisions
The Group provisions balance decreased to £46.9m compared with a balance of
£54.0m as at 31 December 2022, mainly reflecting cash utilisation of £5.6m
in the period, most notably in relation to the Marl and Villejust site
rationalisation.
During 2022, the European Commission concluded its investigation into styrene
monomer purchasing practices, and the final settlement amount of £38.5m was
transferred to other payables. Subsequently the Group has concluded an
agreement with the EU to pay the settlement amount in January 2024.
Going Concern
As described in Note 1, the Group has undertaken a detailed going concern
assessment of the Group. The downside scenario, outlining the impact of a
severe but plausible adverse case, results in a breach of the Group's existing
debt covenants within 12 months of approval of the interim financial
statements. The key mitigating action represents the rights issue, and the
Directors are confident that the proceeds from the rights issue alone are
sufficient to avoid the forecast debt covenants breach in the downside
scenario. This means that the outcome of the shareholder vote on 25 September
2023, and the successful completion of the Rights Issue, represents a material
uncertainty within the Group's going concern basis of preparation. This
material uncertainty is referenced in the external auditors' Independent
Review Report on page 31. Notwithstanding the material uncertainty explained
above, the Directors have formed the judgment that it is appropriate to
prepare the interim financial statements on the going concern basis.
Consolidated income statement
for the six months ended 30 June 2023
30 June 2023 (unaudited) 30 June 2022 (unaudited)
Underlying performance Special IFRS Underlying performance Special IFRS
£m
items
£m
£m
items
£m
£m
£m
Continuing operations 1,075.3 - 1,075.3
Revenue 1,228.3 - 1,228.3
Company and subsidiaries operating profit before Special Items 22.7 - 22.7 124.7 - 124.7
Amortisation of acquired - (24.3) (24.3) - (19.5) (19.5)
intangibles
Restructuring and site closure - (6.6) (6.6) - (4.5) (4.5)
costs
Acquisition costs and related - (1.3) (1.3) - (6.5) (6.5)
gains
Sale of - - - - 0.3 0.3
business
Regulatory Fine - release of - - - - 18.7 18.7
provision
Company and subsidiaries operating profit 22.7 (32.2) (9.5) 124.7 (11.5) 113.2
Share of joint ventures 0.7 - 0.7 0.6 - 0.6
Operating profit/(loss) 23.4 (32.2) (8.8) 125.3 (11.5) 113.8
Interest payable (35.8) - (35.8) (16.1) - (16.1)
Interest receivable 5.0 - 5.0 0.3 - 0.3
Fair value (loss)/gain on unhedged interest rate derivatives - (1.8) (1.8) - 15.8 15.8
Loss on extinguishment of financing facilities - (4.6) (4.6) - - -
Net interest expense on defined benefit obligations (1.1) - (1.1) (0.8) - (0.8)
Interest element of lease payments (0.7) - (0.7) (0.7) - (0.7)
Finance costs (32.6) (6.4) (39.0) (17.3) 15.8 (1.5)
(Loss)/profit before taxation (9.2) (38.6) (47.8) 108.0 4.3 112.3
Taxation 1.5 (4.9) (3.4) (25.7) (4.6) (30.3)
(Loss)/profit for the period from continuing operations (7.7) (43.5) (51.2) 82.3 (0.3) 82.0
Profit/(loss) for the period from discontinued operations attributable to the 2.5 36.3 38.8 6.6 (3.5) 3.1
equity holders of the parent
(Loss)/profit for the period (5.2) (7.2) (12.4) 88.9 (3.8) 85.1
(Loss)/profit attributable to non-controlling interests (0.1) (0.2) (0.3) 0.3 (0.6) (0.3)
(Loss)/profit attributable to equity holders of the parent (5.1) (7.0) (12.1) 88.6 (3.2) 85.4
(5.2) (7.2) (12.4) 88.9 (3.8) 85.1
Earnings per share
- Basic from continuing operations (1.6)p (9.3)p (10.9)p 17.5p 0.1p 17.6p
- Diluted from continuing operations (1.6)p (9.3)p (10.9)p 17.5p - 17.5p
- Basic (1.1)p (1.5)p (2.6)p 19.0p (0.7)p 18.3p
- Diluted (1.1)p (1.5)p (2.6)p 18.9p (0.7)p 18.2p
Consolidated income statement
for the six months ended 30 June 2023 (continued)
Year ended 31 December 2022 (audited)
Underlying performance Special IFRS
£m
items
£m
£m
Continuing operations
Revenue 2,383.9 - 2,383.9
Company and subsidiaries operating profit before Special Items 160.8 - 160.8
Amortisation of acquired - (44.8) (44.8)
intangibles
Restructuring and site closure - (19.2) (19.2)
costs
Acquisition costs and related - (6.5) (6.5)
gains
Sale of - (0.3) (0.3)
business
Regulatory Fine - release of - 21.5 21.5
provision
Impairment - (133.7) (133.7)
charge
Company and subsidiaries operating profit 160.8 (183.0) (22.2)
Share of joint ventures 1.7 - 1.7
Operating profit/(loss) 162.5 (183.0) (20.5)
Interest payable (44.8) - (44.8)
Interest receivable 1.6 - 1.6
Fair value gain on unhedged interest rate derivatives - 25.1 25.1
Net interest expense on defined benefit obligations (1.2) - (1.2)
Interest element of lease payments (1.4) - (1.4)
Finance costs (45.8) 25.1 (20.7)
Profit/(loss) before taxation 116.7 (157.9) (41.2)
Taxation (27.6) 42.9 15.3
Profit/(loss) for the year from continuing operations 89.1 (115.0) (25.9)
Profit/(loss) for the year from discontinued operations attributable to the 7.8 (14.9) (7.1)
equity holders of the parent
Profit/(loss) for the year 96.9 (129.9) (33.0)
Profit/(loss) attributable to non-controlling interests 0.5 (1.0) (0.5)
Profit/(loss) attributable to equity holders of the parent 96.4 (128.9) (32.5)
96.9 (129.9) (33.0)
Earnings per share
- Basic from continuing operations 19.0p (24.4)p (5.4)p
- Diluted from continuing operations 18.9p (24.3)p (5.4)p
- Basic 20.6p (27.6)p (7.0)p
- Diluted 20.6p (27.6)p (7.0)p
Consolidated statement of comprehensive income
for the six months ended 30 June 2023
30 June 2023 (unaudited) 30 June 2022 (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
(Loss)/profit for the period (12.1) (0.3) (12.4) 85.4 (0.3) 85.1
Actuarial gains 3.3 - 3.3 46.8 - 46.8
Tax relating to components of other comprehensive income (0.7) - (0.7) (10.5) - (10.5)
Total items that will not be reclassified to profit or loss 2.6 - 2.6 36.3 - 36.3
Exchange differences on translation of foreign operations (53.5) (0.8) (54.3) 68.0 0.8 68.8
Exchange differences recycled on sale of business (0.5) - (0.5) - - -
Fair value (loss) / gain on hedged interest derivatives (0.1) - (0.1) 4.0 - 4.0
Gains on net investment hedges taken to equity (2.2) - (2.2) 6.5 - 6.5
Total items that may be reclassified subsequently to profit or loss (56.3) (0.8) (57.1)
78.5 0.8 79.3
Other comprehensive (expense) / income for the period (53.7) (0.8) (54.5) 114.8 0.8 115.6
Total comprehensive (expense)/income for the period (65.8) (1.1) (66.9) 200.2 0.5 200.7
Year ended 31 December 2022 (audited)
Equity holders of the parent Non-controlling interests Total
£m £m £m
Loss for the year (32.5) (0.5) (33.0)
Actuarial gains 34.1 - 34.1
Tax relating to components of other comprehensive income (11.6) - (11.6)
Total items that will not be reclassified to profit or loss 22.5 - 22.5
Exchange differences on translation of foreign operations 95.9 0.8 96.7
Fair value gain on hedged interest derivatives 9.7 - 9.7
Gains on net investment hedges taken to equity 2.4 - 2.4
Total items that may be reclassified subsequently to profit or loss 108.0 0.8 108.8
Other comprehensive income for the year 130.5 0.8 131.3
Total comprehensive income for the year 98.0 0.3 98.3
Consolidated statement of changes in equity
for the six months ended 30 June 2023
Share capital Share premium Capital redemption reserve Hedging & translation reserve Retained earnings Total equity holdings of the parent Non-controlling interests Total Equity
£m £m £m £m £m £m £m £m
At 1 January 2023 46.7 620.0 0.9 75.9 273.5 1,017.0 14.0 1,031.0
Loss for the period - - - - (12.1) (12.1) (0.3) (12.4)
Other comprehensive (expense)/ income for the period - - - (56.3) 2.6 (53.7) (0.8) (54.5)
Total comprehensive expense for the period - - - (56.3) (9.5) (65.8) (1.1) (66.9)
Share-based payments - - - - (0.8) (0.8) - (0.8)
At 30 June 2023 (unaudited) 46.7 620.0 0.9 19.6 263.2 950.4 12.9 963.3
Capital redemption Hedging & translation reserve Total equity holdings of the parent
Share capital Share premium reserve £m Retained earnings £m Non-controlling Total Equity
£m £m £m £m interests £m
£m
46.7 620.0 0.9 (32.1) 383.8 1,019.3 13.7 1,033.0
At 1 January 2022
Profit / (loss) for the period - - - - 85.4 85.4 (0.3) 85.1
Other comprehensive income for the period - - -
78.5 36.3 114.8 0.8 115.6
Total comprehensive income for the period - - -
78.5 121.7 200.2 0.5 200.7
Dividends - - - - (99.5) (99.5) - (99.5)
Share-based payments - - - - 0.1 0.1 - 0.1
At 30 June 2022 (unaudited) 46.7 620.0 0.9 46.4 406.1 1,120.1 14.2 1,134.3
Capital redemption Hedging & translation reserve Total equity holdings of the parent
Share capital Share premium reserve £m Retained earnings £m Non-controlling Total Equity
£m £m £m £m interests £m
£m
46.7 620.0 0.9 (32.1) 383.8 1,019.3 13.7 1,033.0
At 1 January 2022
Loss for the year - - - - (32.5) (32.5) (0.5) (33.0)
Other comprehensive income for the year - - - 108.0 22.5 130.5 0.8 131.3
Total comprehensive income / (expense) for the year - - - 108.0 (10.0) 98.0 0.3 98.3
Dividends - - - - (99.5) (99.5) - (99.5)
Share-based payments - - - - (0.8) (0.8) - (0.8)
At 31 December 2022 (audited) 46.7 620.0 0.9 75.9 273.5 1,017.0 14.0 1,031.0
Consolidated balance sheet
as at 30 June 2023
30 June 2023 (unaudited) 30 June 2022 (unaudited) 31 December 2022 (audited)
£m £m £m
Non-current assets
Goodwill 464.5 662.1 480.8
Acquired intangible 476.6 560.1 523.6
assets
Other intangible 66.7 54.1 60.9
assets
Property, plant and 722.0 763.9 753.6
equipment
Deferred tax 25.0 21.2 50.3
assets
Defined benefit 11.5 14.2 5.9
asset
Investment in joint 7.6 7.9 8.1
ventures
Total non-current assets 1,773.9 2,083.5 1,883.2
Current assets
Inventories 374.5 508.2 407.9
Trade and other 262.7 548.0 271.6
receivables
Current tax 26.4 - 34.3
assets
Cash and cash 232.9 262.5 227.7
equivalents
Derivative financial 11.4 13.4 26.7
instruments
Assets classified as held for - - 196.2
sale
Total current assets 907.9 1,332.1 1,164.4
Total assets 2,681.8 3,415.6 3,047.6
Current liabilities
Borrowings (33.9) (22.3) (18.5)
Trade and other (442.9) (618.2) (460.8)
payables
Lease (11.1) (9.6) (10.6)
liabilities
Current tax liabilities (24.7) (24.0) (33.6)
Dividends payable - (99.5) -
Provisions for other liabilities and charges (15.2) (59.6) (13.7)
Liabilities classified as held for sale - - (45.5)
Total current liabilities (527.8) (833.2) (582.7)
Non-current liabilities
Borrowings (994.8) (1,233.0) (1,234.1)
Trade and other payables (0.4) (1.0) (0.4)
Lease liabilities (47.0) (38.2) (34.9)
Deferred tax liabilities (42.7) (74.3) (44.9)
Retirement benefit obligations (74.1) (83.4) (79.3)
Provisions for other liabilities and charges (31.7) (18.2) (40.3)
Total non-current liabilities (1,190.7) (1,448.1) (1,433.9)
Total liabilities (1,718.5) (2,281.3) (2,016.6)
Net assets 963.3 1,134.3 1,031.0
Equity
Share capital 46.7 46.7 46.7
Share premium 620.0 620.0 620.0
Capital redemption reserve 0.9 0.9 0.9
Hedging and translation reserve 19.6 46.4 75.9
Retained earnings 263.2 406.1 273.5
Equity attributable to equity holders of the parent 950.4 1,120.1 1,017.0
Non-controlling interests 12.9 14.2 14.0
Total equity 963.3 1,134.3 1,031.0
Consolidated cash flow statement
for the six months ended 30 June 2023
Six months ended 30 June 2023 (unaudited) Six months ended 30 June 2022 (unaudited) Year ended 31 December 2022 (audited)
£m £m £m £m £m £m
Operating
Cash generated from operations (Note 5) 78.0 25.8 237.7
- Interest received 5.0 0.3 1.6
- Interest paid (29.0) (13.5) (38.4)
- Interest element of lease payments (0.7) (0.7) (1.4)
Net interest paid (24.7) (13.9) (38.2)
- UK corporation tax paid (3.0) - -
- Overseas corporate tax paid (1.5) (49.3) (65.6)
Total tax paid (4.5) (49.3) (65.6)
Net cash inflow/(outflow) from operating activities 48.8 (37.4) 133.9
Investing
Dividends received from joint ventures 0.8 0.3 1.9
Purchase of property, plant and equipment and other intangible assets (33.9) (33.2) (90.8)
Purchase of business (8.3) (759.6) (759.6)
Net proceeds from sale of business (Note 11) 206.1 0.3 0.3
Net cash inflow/(outflow) from investing activities 164.7 (792.2) (848.2)
Financing
Dividends paid - - (99.5)
Settlement of equity-settled share-based payments (0.3) (1.0) (1.5)
Repayment of principal portion of lease liabilities (5.8) (4.7) (10.1)
Repayment of borrowings (556.3) (13.2) (207.6)
Proceeds of borrowings 345.4 564.9 733.2
Net cash (outflow)/inflow from financing activities (217.0) 546.0 414.5
Decrease in cash, cash equivalents and bank overdrafts during the period (3.5) (283.6) (299.8)
Cash and cash equivalents and bank overdrafts at 1 January 209.2 505.3 505.3
Foreign exchange (6.7) 18.5 3.7
Cash and cash equivalents and bank overdrafts at period end 199.0 240.2 209.2
See note 11 for further details of cash flows from discontinued operations
Notes to the consolidated financial statements
for the six months ended 30 June 2023
1 Basis of preparation
Synthomer plc is a public company limited by shares incorporated in the United
Kingdom and registered in England 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
for the six month period ended 30 June 2023 have been prepared on the basis of
the policies set out in the 2022 annual financial statements and in accordance
with UK-adopted International Accounting Standard 34 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the UK's Financial Conduct Authority. These interim financial statements do
not comprise statutory accounts within the meaning of section 434 of the
Companies Act 2006 and do not include all the notes normally included in
annual financial statements. Statutory accounts for the year ended 31 December
2022 were approved by the Board of Directors on 28 March 2023 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.
These interim financial statements have been reviewed, not audited.
Going concern
During the period, the Group has undertaken a detailed going concern
assessment, reviewing the current and projected financial position of the
Group, including current assets and liabilities, debt maturity profile, future
commitments and forecast cash flows. The downside scenario, outlining the
impact of a severe but plausible adverse case, results in a breach of the
Group's existing debt covenants within 12 months of approval of the interim
financial statements. In such a scenario, the lenders under the Revolving
Credit Facility and the UKEF Facilities would have the right to demand
immediate repayment of all amounts due under such debt instruments (together
approximately £558 million as at 30 June 2023), and any such demand would
trigger the right of bondholders under the Notes to similarly demand immediate
repayment (the amount borrowed under the Notes being approximately £447
million as at 30 June 2023, and total borrowings under the Revolving Credit
Facility, the UKEF Facilities and the Notes as at 30 June 2023 therefore being
approximately £1,005 million). The Group would be unlikely to obtain the
funds necessary to repay such amounts if they became immediately due and
payable upon the demand of the lenders following a covenant breach.
The key mitigating action relates to the proposed equity raise, by way of a
rights issue, to raise proceeds of £276 million (the "Rights Issue"). The
Directors are of the view that the equity raise is fully committed and
underwritten, taking into account irrevocable undertakings entered into with,
among others, Kuala Lumpur Kepong Berhad, and the underwriting agreement
entered into with J.P. Morgan Cazenove, Morgan Stanley & Co. International
plc, Goldman Sachs International and Citigroup Global Markets Limited. The
Rights Issue is subject to shareholder approval on 25 September 2023 and, if
successfully completed, the Rights Issue will significantly strengthen the
Group's financial position.
The Directors are confident that, for going concern purposes, the proceeds
from the Rights Issue alone are sufficient to avoid the forecast debt
covenants breach in the severe but plausible adverse case for 12 months from
the date of approval of these financial statements, after inclusion of
mitigating actions within the Directors' control. This means that it is the
outcome of the shareholder vote, and the successful completion of the Rights
Issue that represents the material uncertainty within the Group's going
concern basis of preparation.
The Directors do not expect the assumptions in the severe but plausible
adverse case to materialise. Nonetheless, there is a material uncertainty in
respect of the outcome of the shareholder vote on the Rights Issue. If the
shareholders do not vote in favour of the Rights Issue or the Rights Issue
does not successfully complete, the trading conditions envisaged in the severe
but plausible adverse case eventuate and the Group is unable to successfully
undertake alternative mitigating actions, the Group would breach its debt
covenants within 12 months of approval of these financial statements. These
conditions indicate a material uncertainty that may cast significant doubt
about the Group's ability to continue as a going concern. This material
uncertainty is referenced in the external auditors' Independent Review Report
on page 31.
Notwithstanding the material uncertainty explained above, taking account of
all the factors explained in this statement, the Directors have formed the
judgement that it is appropriate to prepare the interim financial statements
on the going concern basis. The interim financial statements therefore do not
include the adjustments that would result if the Group were unable to continue
as a going concern.
Goodwill and acquired intangible assets
The Group tests goodwill annually for impairment, or more frequently if there
are indications that goodwill might be impaired. In the six months to 30 June
2023 no such indications were identified.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the reporting date that may have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are set out in the 2022 Annual Report. Estimates and
underlying assumptions are reviewed on an ongoing basis and at 30 June 2023
there were no material changes to existing estimates and assumptions and no
new sources of estimation uncertainty were identified.
2. Accounting policies
The annual financial statements of Synthomer plc are prepared in accordance
with UK-adopted International Accounting Standards and the requirements of the
Companies Act 2006. The same accounting policies and methods of computations
are followed in these financial statements as in the most recent audited
annual financial statements. Effective from 1 January 2023, no updates to
IFRSs have been made that would affect 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 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.
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 business or significant asset;
• Acquisition costs and related gains;
• 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.
Special Items comprise:
Six months ended June 2023 (unaudited) Six months ended June 2022 (unaudited) Year ended 31 December 2022 (audited)
£m
£m
£m
Continuing Operations
Amortisation of acquired (24.3) (19.5) (44.8)
intangibles
Restructuring and site closure costs (6.6) (4.5) (19.2)
Acquisition costs and related gains (1.3) (6.5) (6.5)
Sale of business - 0.3 (0.3)
Regulatory Fine - release of provision - 18.7 21.5
Impairment charge - - (133.7)
Total impact on operating loss (32.2) (11.5) (183.0)
Finance costs
Fair value gain on unhedged interest derivatives (1.8) 15.8 25.1
Loss on extinguishment of financing facilities (4.6) - -
Total impact on profit before taxation (38.6) 4.3 (157.9)
Taxation Special Items - - 3.6
Taxation on Special Items (4.9) (4.6) 39.3
Total impact on profit for the period - continuing operations (43.5) (0.3) (115.0)
3 Special items (continued)
Six months ended June 2023 (unaudited) Six months ended June 2022 (unaudited) Year ended 31 December 2022 (audited)
£m
£m
£m
Discontinued Operations
Amortisation of acquired intangibles - (3.2) (6.1)
Restructuring and site closure costs - (0.3) (0.3)
Sale of business 62.0 - (8.3)
Taxation on Special Items (25.7) - (0.2)
Total impact on profit for the period - discontinued operations 36.3 (3.5) (14.9)
Total impact on profit for the period (7.2) (3.8) (129.9)
Amortisation of acquired intangibles increased in 2023, reflecting the full
year effect of the amortisation on the customer lists, patents, trademarks and
trade secrets that arose on the acquisition of Eastman's Adhesive Resins
business. The intangible assets arising on the acquisition are being amortised
over a period of 8-20 years mainly dependent on the characteristics of the
customer relationships.
Restructuring and site closure costs in 2023 comprise:
• A £2.4 million charge in relation to the ongoing
integration of the Adhesive Resins business acquired from Eastman in 2022;
• A further £4.2 million, in relation to enacting the new the
strategy and the alignment of the business into its new divisions effective in
2023.
Restructuring and site closure costs in 2022 comprised £1.3 million
integration costs for the Adhesive Resins business, £2.2 million in relation
to a site closure in Malaysia and further £1.3 million in relation to the
planning and implementation of the Group-wide strategic review.
Acquisition costs and related gains of £1.3 million are for the acquisition
of Eastman's Adhesive Resins business. Acquisition costs in 2022 also related
to the acquisition of Eastman's Adhesive Resins business and included £7.0
million of costs, mainly professional advisor fees contingent on completion
and the £4.9 million impact of unwinding the fair value adjustment on
acquisition of inventory, offset by a £5.4 million gain on the foreign
exchange derivative entered into in October 2021 to hedge the acquisition
price.
Sale of business represents the gain recognised on the sale of the Laminates
Films and Coated Fabrics business to Surteco, which completed on 28 February
2023. In the prior year the sale of business principally comprised to
professional fees incurred in relation to the sale.
During 2018, the European Commission initiated an investigation into styrene
monomer purchasing practices of a number of companies, including Synthomer,
operating in the European Economic Area. The Company has fully cooperated with
the Commission throughout the investigation. In 2021, based on the information
available and the resulting assessment of the expected outcome of the
investigation, a provision of £57.2 million was made. In 2022, the Commission
concluded its investigation, resulting in a fine of £38.5 million.
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 in
excess of the Group's current borrowings.
In March 2023 the Group successfully refinanced its existing bank loan
facilities. All amounts outstanding on the existing $260million term loan,
$300 million term loan and €460 million revolving credit facility were
subsequently repaid and the facilities were cancelled. All capitalised debt
issue costs relating to these term loans and facilities were written off
leading to a loss on extinguishment of £4.6 million.
A £133.7 million impairment charge was taken in 2022, relating to the former
Adhesives Technologies division. This was caused by reliability and supply
chain issues, demand weakness in key adhesives markets and lower than expected
delivered capacity.
The £4.9 million tax charge for continuing operations mainly relates to
deferred tax debits in relation to the amortisation of acquired intangibles.
The £25.7 million tax charge for discontinuing operations primarily relates
to the utilisation of acquired US tax attributes and the current tax charge on
the disposal of the Laminates, Films and Coated Fabrics business.
4 Segmental analysis
The Group's Executive Committee, chaired by the Chief Executive Officer,
examines the Group's performance.
As part of the strategy refresh announced in October 2022, we have changed the
way we do business so we are closer to consumers, more embedded in our
customers' markets, and better able to deliver the sustainable innovations
that will drive our success. As of 1 January 2023 we have three new,
market-focused divisions with strong commercial positions and global reach:
Coatings & Construction Solutions (CCS)
Our specialist polymers enhance the sustainable performance of a wide range of
coatings and construction products. We work across architectural and masonry
coatings, mortar modification, waterproofing and flooring, fibre bonding, and
energy solutions.
Adhesive Solutions (AS)
Our adhesive solutions bond, modify and compatibilise surfaces and components
for products including tapes and labels, packaging, hygiene, tyres and plastic
modification, helping improve permeability, strength, elasticity, damping,
dispersion and grip.
Health & Protection and Performance Materials (HPPM)
We help enhance protection and performance in a wide range of industries
including medical glove manufacture, speciality paper, food packaging, carpet
and artificial turf, gel foam elastomers, and vinyl-coated seating fabrics.
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.
Six months ended 30 June 2023 (unaudited)
Continuing Operations Discontinued Operations Total
2023 Coatings & Construction Solutions Adhesive Health & Protection and Performance Materials Corporate Total £m Total
£m Solutions £m £m £m £m
£m
Revenue
Total revenue 451.6 310.0 319.9 - 1,081.5 28.0 1,109.5
Inter-segmental revenue - - (6.2) - (6.2) - (6.2)
451.6 310.0 313.7 - 1,075.3 28.0 1,103.3
EBITDA 55.1 15.6 11.3 (10.0) 72.0 2.5 74.5
Depreciation and amortisation (13.6) (14.2) (17.1) (3.7) (48.6) - (48.6)
Operating profit/(loss) before 41.5 1.4 (5.8) (13.7) 23.4 2.5 25.9
Special Items
Special Items (14.1) (13.7) (1.1) (3.3) (32.2) 62.0 29.8
Operating profit/(loss) 27.4 (12.3) (6.9) (17.0) (8.8) 64.5 55.7
Finance costs (39.0)
Profit before taxation 16.7
4 Segmental analysis (continued)
Six months ended 30 June 2022 (unaudited)
Continuing Operations Discontinued Operations Total
2022 Coatings & Construction Solutions Adhesive Health & Protection and Performance Materials Corporate Total £m Total
£m Solutions £m £m £m £m
£m
Revenue
Total revenue 548.9 223.8 465.2 - 1,237.9 106.1 1,344.0
Inter-segmental revenue - - (9.6) - (9.6) - (9.6)
548.9 223.8 455.6 - 1,228.3 106.1 1,334.4
EBITDA 80.3 34.5 59.2 (11.2) 162.8 10.3 173.1
Depreciation and amortisation (13.5) (7.3) (14.1) (2.6) (37.5) (3.6) (41.1)
Operating profit/(loss) before 66.8 27.2 45.1 (13.8) 125.3 6.7 132.0
Special Items
Special Items (15.1) (9.9) (0.9) 14.4 (11.5) (3.5) (15.0)
Operating profit 51.7 17.3 44.2 0.6 113.8 3.2 117.0
(1.5)
Finance costs
Profit before taxation 115.5
Year ended 31 December 2022 (unaudited)
Continuing Operations Discontinued Operations Total
2022 Coatings & Construction Solutions Adhesive Health & Protection and Performance Materials Corporate Total £m Total
£m Solutions £m £m £m £m
£m
Revenue
Total revenue 996.1 572.9 831.3 - 2,400.3 201.2 2,601.5
Inter-segmental revenue - - (16.4) - (16.4) - (16.4)
996.1 572.9 814.9 - 2,383.9 201.2 2,585.1
EBITDA 120.8 67.2 81.9 (20.7) 249.2 15.9 265.1
Depreciation and amortisation (26.7) (22.7) (31.3) (6.0) (86.7) (7.2) (93.9)
Operating profit/(loss) before 94.1 44.5 50.6 (26.7) 162.5 8.7 171.2
Special Items
Special Items (31.3) (170.6) (3.4) 22.3 (183.0) (14.7) (197.7)
Operating profit/(loss) 62.8 (126.1) 47.2 (4.4) (20.5) (6.0) (26.5)
Finance costs (21.1)
Loss before taxation (47.6)
5 Reconciliation of operating profit/(loss) to cash generated from operations
Continuing and discontinued operations: Six months Six months Year ended 31
ended 30 June ended 30 June December 2022
2023 2022 (audited)
(unaudited) (unaudited) £m
£m
£m
Operating profit/(loss) 55.7 117.0 (26.5)
Less: share of profits of joint ventures (0.7) (0.6) (1.7)
55.0 116.4 (28.2)
Adjustments for:
- Depreciation of property, plant and equipment 39.2 33.1 76.4
- Depreciation of right of use assets 5.6 4.4 9.6
- Amortisation of other intangibles 3.8 3.6 7.9
- Share-based payments 1.1 1.1 0.7
- Special Items (29.8) 15.0 197.7
Cash impact of restructuring and site closure costs (10.8) (10.4) (25.9)
Cash impact of acquisition costs and related gains (4.4) 2.1 1.7
Cash impact of settlement of interest rate derivative contracts 12.1 - -
Pension funding in excess of service cost (5.7) (11.5) (21.3)
(Increase)/decrease in inventories 13.7 (71.0) (12.3)
Decrease/(increase) in trade and other receivables 1.6 (151.1) 147.0
(Decrease)/increase in trade and other payables (3.4) 94.1 (115.6)
Cash generated from operations 78.0 25.8 237.7
6 Taxation
The Group's Underlying effective tax rate for H1 2023 was 22.0% (H1 2022:
22.5%; FY 2022: 22.5%), representing the best estimate of the annual effective
corporate income tax rate we expect for the full year. We estimate the rate by
applying the expected corporate income tax rate for each tax jurisdiction in
which we operate.
The effective tax rate is stable, although there is a substantially different
geographical profit mix compared to the prior year. The total tax charge in
Special Items was £30.6 million (H1 2022: £4.6 million tax credit; FY 2022:
£42.7 million tax credit). The £4.9 million tax charge for continuing
operations mainly relates to deferred tax debits in relation to the
amortisation of acquired intangibles. The £25.7 million tax charge for
discontinuing operations primarily relates to the utilisation of acquired US
tax attributes and the current tax charge on the disposal of the Laminates,
Films and Coated Fabrics business.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023. The Group is
reviewing this new legislation to understand any potential impact. The Group
has applied the exception under the IAS 12 amendment regarding recognising and
disclosing information about deferred tax assets and liabilities related to
top-up income taxes.
7 Dividends
As part of a covenant amendment process in October 2022, the Group suspended
dividend payments.
8 Earnings per share
Six months ended 30 June 2023 Six months ended 30 June 2022
(unaudited)
(unaudited)
Underlying Special IFRS Underlying Special IFRS
performance Items performance Items
Profit/(loss) attributable to equity holders of the parent
- continuing £m (7.6) (43.3) (50.9) 82.0 82.3
0.3
- total £m (5.1) (7.0) (12.1) 88.6 (3.2) 85.4
Number of shares
Weighted average number of ordinary shares - basic '000 467,241 467,314
Effect of dilutive potential ordinary shares '000 1,613 1,744
Weighted average number of ordinary shares - diluted '000 468,854 469,058
Earnings per share for profit from continuing operations
Basic earnings per share pence (1.6) (9.3) (10.9) 17.5 0.1 17.6
Diluted earnings per share pence (1.6) (9.3) (10.9) 17.5 - 17.5
Earnings per share for profit from discontinued operations
Basic earnings per share pence 0.5 7.8 8.3 1.5 (0.8) 0.7
Diluted earnings per share pence 0.5 7.8 8.3 1.4 (0.7) 0.7
Earnings per share for profit attributable to equity holders of the parent
Basic earnings per share pence (1.1) (1.5) (2.6) 19.0 (0.7) 18.3
Diluted earnings per share pence (1.1) (1.5) (2.6) 18.9 (0.7) 18.2
Year ended 31 December 2022
(audited)
Underlying Special IFRS
performance Items
Profit/(loss) attributable to equity holders of the parent
- continuing £m 88.6 (114.0) (25.4)
- total £m 96.4 (128.9) (32.5)
Number of shares
Weighted average number of ordinary shares - basic '000 467,311
Effect of dilutive potential ordinary shares '000 1,019
Weighted average number of ordinary shares - diluted '000 468,330
Earnings per share for profit from continuing operations
Basic earnings per share pence 19.0 (24.4) (5.4)
Diluted earnings per share pence 18.9 (24.3) (5.4)
Earnings per share for profit from discontinued operations
Basic earnings per share pence 1.6 (3.2) (1.6)
Diluted earnings per share pence 1.7 (3.3) (1.6)
Earnings per share for profit attributable to equity holders of the parent
Basic earnings per share pence 20.6 (27.6) (7.0)
Diluted earnings per share pence 20.6 (27.6) (7.0)
9 Analysis of net debt
30 June 30 June 31 December 2022
2023 2022 (audited)
(unaudited) (unaudited) £m
£m £m
Bank overdrafts (33.9) (22.3) (18.5)
Current liabilities (33.9) (22.3) (18.5)
Bank loans (551.1) (790.2) (777.7)
€520m 3.875% senior unsecured loan notes due 2025 (443.7) (442.8) (456.4)
Non-current liabilities (994.8) (1,233.0) (1,234.1)
Total borrowings (1,028.7) (1,255.3) (1,252.6)
Cash and cash equivalents 232.9 262.5 227.7
Net Debt (795.8) (992.8) (1,024.9)
Net debt is defined in the glossary of terms. Capitalised debt costs which
have been recognised as a reduction in borrowings in the financial statements,
amounted to £10.2 million at 30 June 2023 (30 June 2022: £10.4 million 31
December 2022: £14.2 million).
10 Defined Benefit Schemes
We have updated the value of the defined benefit plan assets to reflect their
market value as at 30 June 2023. Actuarial gains or losses are recognised in
the Consolidated Statement of Comprehensive Income in accordance with the
Group's accounting policy. We have updated the liabilities to reflect the
change in the discount rate and other assumptions. The Group's net pension
liability decreased by £10.8 million to £62.6 million, which includes an
asset of £11.5 million for the UK scheme. This £10.8 million reduction
largely comprised £6.0 million of cash contributions and actuarial gains of
£3.3 million.
11 Sale of Business
On 13 December 2022, the Group announced that it had entered into an agreement
to sell its Laminates, Films and Coated Fabrics businesses to Surteco North
America, Inc. The UK Financial Conduct Authority approved the transaction on
16 December 2022. Shareholder approval was subsequently obtained on 11 January
2023 and the transaction completed on 28 February 2023.
A summary of the proceeds and disposed assets during the period is set out
below:
Total
£m
Consideration
Cash consideration 226.1
Deferred consideration 6.6
Total 232.7
Net assets sold:
Goodwill 43.8
Intangible assets 43.0
Property Plant and equipment 57.6
Inventory 31.4
Cash and cash equivalents 12.4
Trade and other receivables 25.5
Trade and other payables (43.0)
Total 170.7
Transaction costs expensed in the period (0.5)
Reclassification of foreign currency translation reserve 0.5
Tax expense on sale (25.7)
Gain on sale after tax 36.3
Total
£m
Net cash inflow in the period from sale of business
Cash consideration in the period 226.1
Transaction costs paid in the period (7.6)
Cash consideration after transaction costs 218.5
Cash outflow with business (12.4)
Net proceeds from disposal of business 206.1
Including prior period transaction costs and deferred consideration, the total
proceeds are £232.7m ($280.0m) and the total transaction costs are £9.0m
($11.5m), giving a total proceeds after transaction costs of £223.8m
($268.5m).
11 Sale of business (continued)
Financial performance and cash flow information
Financial information in respect of the discontinued operation during the
period and the impact of the transaction is set out below.
The prior-year figures in the consolidated income statement have been restated
in accordance with IFRS 5 to report the discontinued operations separately
from continuing operations.
The Laminates, Films and Coated Fabrics businesses all formed part of the
Health & Protection and Performance Materials division.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (audited)
£m
£m
£m
Revenue 28.0 106.1 201.2
EBITDA 2.5 10.3 15.9
Depreciation and amortisation - Underlying performance - (3.6) (7.2)
Operating profit - Underlying performance 2.5 6.7 8.7
Special Items 62.0 (3.5) (14.7)
Operating profit / (loss) - IFRS 64.5 3.2 (6.0)
Finance costs - - (0.4)
Profit / (loss) before taxation 64.5 3.2 (6.4)
Taxation (25.7) (0.1) (0.7)
Profit/(loss) for the period 38.8 3.1 (7.1)
Cash flows from discontinued operations
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
(unaudited) (unaudited) (unaudited)
£m
£m
£m
Net cash (outflow) / inflow from operating activities (2.8) 3.3 5.6
Net cash inflow / (outflow) from investing activities 206.1 (1.5) (4.0)
12 Capital commitments
The capital expenditure authorised but not provided for in the interim
financial statements as at 30 June 2023 was £25.4
million (30 June 2022: £19.0 million; 31 December 2022: £32.6 million).
13 Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated. Other than the relationships with defined
benefit pension schemes as disclosed in note 29 of the 2022 Annual Report,
there were no other related party transactions requiring disclosure.
Kuala Lumpur Kepong Berhad Group holds 26.87% of the Company's shares and is
considered to be a related party.
14 Seasonality
Historically, there has been no visible fixed pattern to seasonality in H1
compared to H2 performance in the Group, but the seasonality of the business
is more significantly impacted by macroeconomic conditions, which remain
uncertain.
15 Risks and uncertainties
The Group faces a number of risks which, if they arise, could affect our
ability to achieve our strategic objectives. As with any business, risk
assessment and the implementation of mitigating actions and controls are vital
to successfully achieving the strategy. The Directors are responsible for
determining the nature of these risks and ensuring appropriate mitigating
actions are in place to manage them.
15 Risks and uncertainties (continued)
These principal risks are categorised into the following types:
• Strategic
• Operational
• Compliance
• Financial
These risks are detailed on pages 78 to 83 of the 2022 Annual Report which is
available on our website at www.synthomer.com/investor-relations
(http://www.synthomer.com/investor-relations) .
The Directors continuously monitor the Group's risk environment and have not
identified any significant new or emerging risks or uncertainties which would
have a material impact on the Group's performance in the remaining part of the
year.
We continue to mitigate these risks by following, at a minimum, any government
mandated health and safety requirements at our sites, by ensuring that we have
multiple sources of raw materials, and by maintaining a diverse customer base.
16 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).
Important notice
This announcement contains 'forward-looking statements' which includes all
statements other than statements of historical fact, including, without
limitation, those regarding the Group's financial position, business strategy,
plans and objectives of management for future operations, or any statements
preceded by, followed by or that include the words "targets", "believes",
"expects", "aims", "intends", "will", "may", "anticipates", "would, "could" or
similar expressions or negatives thereof. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors
beyond the Group's control that could cause the actual results, performance or
achievements of the Group to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Such forward-looking statements are based on numerous assumptions
regarding the Group's present and future business strategies and the
environment in which the Group will operate in the future. These
forward-looking statements speak only as at the date of this announcement.
None of the Group or its Affiliates undertakes or is under any duty to update
this announcement or to correct any inaccuracies in any such information which
may become apparent or to provide you with any additional information, other
than any requirements that the Group may have under applicable law or the
Listing Rules, the Prospectus Rules, the Disclosure Guidance and Transparency
Rules or MAR. To the fullest extent permissible by law, such persons disclaim
all and any responsibility or liability, whether arising in tort, contract or
otherwise, which they might otherwise have in respect of this announcement.
The information in this announcement is subject to change without notice.
Statement of Directors' responsibilities
The Directors confirm that these condensed interim financial statements have
been prepared in accordance with UK adopted IAS 34 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and that the interim
management report includes a fair review of the information required by the
DTR 4.2.7 R and DTR 4.2.8 R, namely:
· an indication of important events that have occurred during the
first six months and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the financial year; and
· material related-party transactions in the first six months and
any material changes in the related-party transactions described in the 2022
Annual Report.
The Directors of Synthomer plc are listed in the Synthomer plc annual report
for 31 December 2022 with the exception of the following changes:
· Brendan Connolly retired from the Board at the end of the AGM on
16 May 2023
· Martina Flöel was appointed as Independent Non-Executive
Director on 1 September 2023
A list of current directors is maintained on the Synthomer plc website:
www.synthomer.com (http://www.synthomer.com) .
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
M Willome
L Liu
Chief Executive Officer
Chief Financial Officer
7 September 2023
Independent review report to Synthomer plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Synthomer plc's condensed consolidated interim financial
statements (the "interim financial statements") in the interim results for the
six months ended 30 June 2023 of Synthomer plc for the six month period ended
30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
● the consolidated balance sheet as at 30 June
2023;
● the consolidated income statement and the
consolidated statement of comprehensive income for the period then ended;
● the consolidated cash flow statement for the
period then ended;
● the consolidated statement of changes in equity
for the period then ended; and
● the explanatory notes to the interim financial
statements.
The interim financial statements included in the interim results for the six
months ended 30 June 2023 of Synthomer plc have been prepared in accordance
with UK adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the interim results for the
six months ended 30 June 2023 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the interim
financial statements.
Material uncertainty related to going concern
In forming our conclusion on the interim financial statements, which is not
modified, we have considered the adequacy of the disclosure made in note 1 to
the interim financial statements concerning the group's ability to continue as
a going concern. The group's going concern severe but plausible adverse
scenario, results in a breach of the group's existing debt covenants within 12
months of approval of the interim financial statements. In such a scenario,
the lenders would be able to demand immediate repayment of the senior loan
notes in full, and the group would be unable to satisfy this obligation based
on its forecasted liquidity. The key mitigating action relates to the proposed
equity raise, by way of a rights issue and capital reorganisation. The right
issue is subject to shareholders approval subsequent to the publication of the
interim results. Therefore there is an uncertainty in respect of the outcome
of the shareholder vote on the rights issue and capital reorganisation. If
unsuccessful, the trading conditions envisaged in the severe but plausible
adverse scenario, would result in the group breaching its debt covenants
within 12 months of approval of the interim financial statements. These
conditions, along with the other matters explained in note 1 to the interim
financial statements, indicate the existence of a material uncertainty which
may cast significant doubt about the group's ability to continue as a going
concern. The interim financial statements do not include the adjustments that
would result if the group were unable to continue as a going concern.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately applied the going concern basis of accounting in the
preparation of the interim financial statements.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim results for the six months ended 30 June 2023, including the
interim financial statements, is the responsibility of, and has been approved
by the directors. The directors are responsible for preparing the interim
results for the six months ended 30 June 2023 in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the interim results for the six
months ended 30 June 2023, including the interim financial statements, the
directors are responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the interim results for the six months ended 30 June 2023 based
on our review. Our conclusion is based on procedures that are less extensive
than audit procedures, as described in the Basis for conclusion paragraph of
this report. This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority and for no other purpose. We do not, in giving this conclusion,
accept or assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Watford
7 September 2023
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