TIDMSYNT
RNS Number : 0558F
Synthomer PLC
05 March 2020
Synthomer plc
Preliminary Results for the year ended 31 December 2019
Resilient performance in a challenging market
FULL YEAR HIGHLIGHTS Reported
increase Constant
2019 2018 / (decrease) currency(2)
-------- -------- -------------- -------------
Underlying performance GBPm GBPm % %
(1)
Revenue 1,459.1 1,618.9 (9.9) (9.7)
-------- -------- -------------- -------------
Volumes (ktes) 1,465.7 1,517.6 (3.4)
-------- -------- --------------
EBITDA(3)
Performance Elastomers 96.3 107.9 (10.8) (11.3)
Functional Solutions 69.9 64.1 9.0 9.5
Industrial Specialities 24.8 23.5 5.5 5.5
Unallocated (13.1) (14.5) (9.7) (9.7)
-------- -------- -------------- -------------
EBITDA(3) 177.9 181.0 (1.7) (1.9)
Depreciation (52.1) (38.9) 33.9 33.7
-------- -------- -------------- -------------
Operating profit (EBIT) 125.8 142.1 (11.5) (11.6)
-------- -------- -------------- -------------
Profit before tax 116.2 135.1 (14.0) (14.1)
-------- -------- -------------- -------------
Free Cash Flow(4) 92.8 27.8 233.8
EPS (p)(5) 25.3 30.7 (17.6)
DPS (p)(5) - ordinary 10.9 12.2 (10.7)
IFRS performance
Operating profit 110.6 128.7 (14.1)
Profit before tax 100.5 120.3 (16.5)
EPS (p)(5) 21.5 27.4 (21.5)
1. Underlying performance excludes Special Items, unless
otherwise stated.
2. Constant currency sales and profit: these reflect current
year results translated at the prior year's average exchange
rates.
3. 2019 EBITDA includes the benefit from adoption of IFRS 16
Leases of GBP7.9m, (PE GBP2.0, FS GBP4.4m, IS GBP0.8m, unallocated
GBP0.7m). IFRS 16 depreciation and interest in 2019 are GBP7.3m and
GBP1.1m respectively.
4. Free Cash Flow defined as movement in net debt before
financing activities, foreign exchange and the cash impact of
Special Items, asset disposals and business combinations.
5. Prior year comparative adjusted for bonus factor 1.0713
relating to the rights issue in July 2019.
Full year highlights:
-- Resilient performance in a challenging market
- EBITDA(3) 1.7% lower at GBP177.9m (2018: GBP181.0m). All
markets showed growth, with the exception of Performance Elastomers
SBR markets, both including and excluding the benefit of IFRS16
Leases
- Underlying operating profit 11.5% lower at GBP125.8m (2018:
GBP142.1m), and IFRS operating profit 14.1% lower at GBP110.6m
(2018: 128.7m)
- Record return on R&D investment with 22% of sales volumes
from new products launched in the past five years (2018: 21%)
-- Underlying Earnings per share(5) : 25.3p (2018: 30.7p)
-- Dividend per share(5) : 10.9p (2018: 12.2p) consistent with dividend policy
-- Strong Free Cash Flow of GBP92.8m (2018: GBP27.8m)
-- 2020 profit growth attributable to
- Highly complementary acquisition of OMNOVA Solutions Inc,
bringing synergies, increased speciality products, and step change
expansion into North America and China expected to complete March
2020
- Largely complete major capex expansion programme providing
additional low-cost capacity to accelerate volume growth
- Transformation and self-help programmes in place, with
extensive review of European SBR asset network options nearing
completion
Commenting on the results, Neil Johnson, Chairman, said:
"Despite 2019 being a challenging year for the global chemical
industry, Synthomer delivered a resilient performance. Whilst
Performance Elastomers SBR Latex markets declined driven largely by
a difficult European paper sector, Performance Elastomers NBR
markets, Functional Solutions and Industrial Specialities all
performed in-line with or above 2018 levels. We made considerable
progress in developing the Group's platform for long-term growth.
This included the acquisition of OMNOVA, completion of a material
investment programme to bring on-line additional low-cost capacity
for growth markets and record levels of innovation.
In the year ahead, we are not anticipating any change to the
economic environment, with industrial end markets remaining
challenging and additional uncertainty relating to the potential
impact of Coronavirus. Whilst we expect to see benefits from our
recent capital investment in 2020, this will be largely offset by
foreign exchange translation assuming rates remain at current
levels. Nevertheless, the contribution from the acquisition of
OMNOVA, and the synergies this will bring, ensures that Synthomer
will take a significant step forward this year."
IFRS Information 2019 2018
---------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 1,459.1 - 1,459.1 1,618.9 - 1,618.9
------------- -------- -------- ------------- -------- --------
Performance Elastomers 71.5 (0.3) 71.2 87.2 (2.5) 84.7
Functional Solutions 52.3 (4.3) 48.0 53.0 (2.6) 50.4
Industrial Specialities 16.0 (4.7) 11.3 16.7 (4.6) 12.1
Unallocated (14.0) (5.9) (19.9) (14.8) (3.7) (18.5)
------------- -------- -------- ------------- -------- --------
Operating profit 125.8 (15.2) 110.6 142.1 (13.4) 128.7
Finance costs (9.6) (0.5) (10.1) (7.0) (1.4) (8.4)
------------- -------- -------- ------------- -------- --------
Profit before taxation 116.2 (15.7) 100.5 135.1 (14.8) 120.3
------------- -------- -------- ------------- -------- --------
EPS (p)(5) 25.3 (3.8) 21.5 30.7 (3.3) 27.4
DPS (p)(5) 10.9 12.2
2019 2018
--------------------------------------------------------- ------
Performance Functional Industrial Performance Functional Industrial
Elastomers Solutions Specialties Unallocated Total Elastomers Solutions Specialties Unallocated Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
EBITDA 96.3 69.9 24.8 (13.1) 177.9 107.9 64.1 23.5 (14.5) 181.0
Depreciation
and
amortisation (24.8) (17.6) (8.8) (0.9) (52.1) (20.7) (11.1) (6.8) (0.3) (38.9)
----------- ---------- ----------- ----------- ------ ----------- ---------- ----------- ----------- ------
Underlying
operating
profit 71.5 52.3 16.0 (14.0) 125.8 87.2 53.0 16.7 (14.8) 142.1
Special Items (0.3) (4.3) (4.7) (5.9) (15.2) (2.5) (2.6) (4.6) (3.7) (13.4)
----------- ---------- ----------- ----------- ------ ----------- ---------- ----------- ----------- ------
IFRS
operating
profit 71.2 48.0 11.3 (19.9) 110.6 84.7 50.4 12.1 (18.5) 128.7
----------- ---------- ----------- ----------- ------ ----------- ---------- ----------- ----------- ------
Underlying performance
As more fully described in note 1, the Group's management uses
Underlying performance to plan for, control and assess the
performance of the Group. Underlying performance differs from the
statutory IFRS performance as it excludes the effect of Special
Items, which are detailed in note 1. The Board's view is that
Underlying performance provides additional clarity for the Group's
investors and so it is the primary focus of the Group's narrative
reporting. Where appropriate IFRS performance inclusive of Special
Items is also described. References to 'unit margin' and 'margin'
are used in the commentary on Underlying performance. Unit margin
(or margin) is calculated as selling price less variable raw
material and logistics costs.
Cautionary statement
The purpose of this report is to provide information to the
members of the Company. It contains certain forward-looking
statements with respect to the operations, performance and
financial condition of the Group. By their nature these statements
involve uncertainty since future events and circumstances can cause
results and developments to differ materially from those
anticipated. The forward-looking statements reflect knowledge and
information available at the date of preparation of this report and
the Company undertakes no obligation to update these
forward-looking statements. Nothing in this report should be
construed as a profit forecast.
ENQUIRIES:
Calum MacLean, Chief Executive Tel: 01279 436211
Officer
Stephen Bennett, Chief Financial Tel: 01279 436211
Officer
Tim Hughes, President, Corporate Tel: 01279 436211
Development
Charles Armitstead/ Matt Denham, Tel: 020 3603 5220
Teneo
The Company will host a meeting for analysts and investors at
09.00 today at Farmers & Fletchers in the City, 3 Cloth Street,
London EC1A 7LD. The presentation will be webcast on the Company's
website www.synthomer.com .
Chairman's statement
Overview
2019 has been a challenging year for the global chemical
industry. Despite the underlying market conditions Synthomer has
made considerable progress to underpin and deliver long-term
growth. In July 2019 we announced the acquisition of OMNOVA
Solution Inc, a highly synergistic US speciality chemical business
and long-term target for Synthomer. The acquisition, which is
expected to complete in March 2020, will ensure continued growth
for the coming years. We also largely completed a major investment
programme bringing on-line additional low-cost capacity to growth
markets and delivered record levels of innovation through customer
focused new product development.
Our EBITDA was broadly stable at GBP177.9m, down 1.7% on the
record EBITDA delivered of GBP181.0m in 2018. This resilient
performance reflects growth in Functional Solutions, Industrial
Specialities and the Performance Elastomers NBR markets, which
helped to offset a shortfall in the Performance Elastomers SBR
markets, where European paper has been particularly weak.
Underlying profit before tax decreased by 14.0% from GBP135.1m to
GBP116.2m with depreciation and interest costs up GBP13.2m (34%)
and GBP2.6m (37%) respectively, as a result of our recent
investment in growth capacity and IFRS 16 Leases accounting. IFRS
profit before tax decreased by 16.5% from GBP120.3m in 2018 to
GBP100.5m.
Building a platform for future growth
Our acquisition of OMNOVA Solutions Inc announced in July will
be the largest acquisition in the Group's history. OMNOVA brings
greater geographical diversity and product differentiation in our
core chemistries and markets. It follows the successful completion
of three bolt-on transactions since 2016 which combined have seen
Synthomer strengthen its market positions, expand its technology
and geographic presence and drive significant synergies and
profitable growth.
Over the last three years we have made significant investment to
organically expand our business which will position us well as
markets recover and provide a platform for future growth. New
capacity has been introduced in Performance Elastomers and
Functional Solutions. In Functional Solutions, our two major
speciality acrylic dispersions plant expansions were commissioned
successfully with 36ktes at Worms (Germany) and 12ktes at Roebuck
(USA). These investments have further optimised our dispersion
polymer network, providing large scale, low cost plants with
incremental capacity to support growth of our higher margin
speciality products. Our largest investment, the 90ktes plant
expansion at our Pasir Gudang (Malaysia) NBR latex plant, was
completed successfully in late 2018 and is now producing
state-of-the-art products to support this high growth market.
Purpose, culture and values
The Board is committed to building a business where the purpose,
culture and values of the Group are fully aligned. As a global
chemical company with a leadership position in water-based polymer
chemistry, our purpose is to continually innovate to meet the needs
of our customers and society in a sustainable way.
We continue to develop an open, diverse and transparent culture.
We remain resolute in our commitment to achieving world class
performance in Safety, Health and Environmental activities. Our
updated Code of Conduct has been successfully implemented to
provide clarity in the standards we expect as a Group.
Our people agenda has made good progress in 2019 and there is
much to come in 2020 as we welcome new colleagues from OMNOVA. In
2019 we have strengthened our international graduate recruitment,
leadership and learning development programmes, and further
strengthened our employee brand. Our core values of SHE,
Accountability, Integrity, Teamwork and Innovation continue to
unify the way Synthomer does business and, combined with our
culture, underpin the success of the Group. Positively, early
impressions suggest OMNOVA shares a similar culture to Synthomer
which will allow swift progress as the companies come together.
Governance
With new policies and practices in place from the start of 2019
we were in full compliance with the 2018 Corporate Governance Code
throughout the year. We will achieve 30% female representation on
our Board in 2020 and fully recognise the importance of improving
diversity amongst the wider workforce. Our employee engagement
process provided valuable feedback and insight to the Board on
employee sentiment.
Environmental, Social and Governance (ESG)
As a global leader in water-based polymer chemistry our products
are responsible for avoiding the use of significant amounts of
volatile organic compounds and solvents every year. Our product
range and strong innovation pipeline deliver materials to meet
current and future needs of society and do so in an increasingly
sustainable way. Our innovative new products deliver benefits of
lower energy intensity, removal of solvents and helping customers
to meet more stringent regulatory standards. We recognise that
there is much to do to meet the needs of society on carbon and
climate change and through our continuous innovation we are
committed to addressing the economic, environmental and social
aspects of sustainability.
Quantifying, improving and communicating the sustainability of
all our activities continues to strengthen with the introduction in
2019 of our first ESG Report aligned with Global Reporting
Initiative (GRI) Standards. With increased focus on ESG, our
programme identifies key issues affecting our stakeholders,
communicates the activities being undertaken and sets key Group
performance targets for the future.
Dividend
The Board has recommended a final ordinary dividend of 6.9p
(2018: 8.5p) per share. Taken with the 2019 interim ordinary
dividend of 4.0p (2018: 3.7p) per share, the total ordinary
dividend is 10.9p (2018: 12.2p). The total dividend for the year is
consistent with the Group's dividend policy. The final dividend per
share is subject to shareholder approval at the Annual General
Meeting on 29 April 2020 and will be payable on 7 July 2020 to
those shareholders registered at the close of business on 5 June
2020.
Neil Johnson
Chairman
5 March 2020
Chief Executive Officer's review
Performance
2019 has undoubtably been a challenging year for Synthomer and
the broader chemical industry driven by economic uncertainty and a
slowdown in key markets. Despite these difficult market conditions,
the Group has shown resilience across our businesses, testament to
our differentiated portfolio of products serving diverse end
markets across the globe. We have made strong progress in
positioning the business to continue to deliver on its strategy of
driving long term growth through proactive organic and inorganic
investment decisions.
Our acquisition of OMNOVA Solutions Inc was announced in July
and will be the largest acquisition in the history of the Group.
OMNOVA is a highly synergistic US based speciality chemicals
company which brings greater geographical diversity and product
differentiation in our core chemistries and markets.
Synthomer has also made strong operational progress during 2019.
New low-cost capacity has been successfully introduced in higher
growth markets across our Performance Elastomers and Functional
Solutions asset base. This capacity will continue to drive EBITDA
growth in the coming years.
In a challenging macro-economic environment our EBITDA decreased
by 1.7% from GBP181.0m to GBP177.9m including the benefit of the
adoption of IFRS 16 Leases of GBP7.9m. The resilience of our
business is underpinned by our geographic, product and end market
diversity. In this context we were pleased with the improvements in
our Functional Solutions, Industrial Specialities and Performance
Elastomers NBR markets largely offsetting the disappointing
performance in Performance Elastomers SBR markets principally
attributable to a challenging European paper business. Functional
Solutions saw a 9.0% increase in EBITDA to GBP69.9m despite a 7.3%
reduction in volumes which was impacted by the sale of 51% of the
Group's Dubai operations in June 2018. Industrial Specialities saw
a 5.5% increase in EBITDA to GBP24.8m demonstrating the resilience
of this business in the face of challenges in the automotive,
monomer and coatings markets. EBITDA in Performance Elastomers
decreased by 10.8% to GBP96.3m where the impact of the SBR slowdown
in Europe and closure in Q4 2018 of our Malaysian natural rubber
production line exceeded growth in the NBR business.
Underlying profit before tax reduced from GBP135.1m to GBP116.2m
as a result of reduction in EBITDA, t he rise in depreciation
reflecting our significant growth capex programme over the last
three years, and the rise in interest costs relating to our
interest rate fix. IFRS profit before tax decreased by 16.5% from
GBP120.3m in 2018 to GBP100.5m in 2019 with the reduction
consistent with the reduction in Underlying profit before tax.
Free Cash Flow of GBP92.8m (2018: GBP27.8m) was strong,
primarily reflecting tight working capital control in 2019. Capital
spend was in line with expectations at GBP69.1m (2018: GBP75.7m)
and in line with our capital investment capacity expansion
programme. As part of our acquisition of OMNOVA, Synthomer issued
shares in a rights issue raising GBP199.1m net of fees. Until the
acquisition completes these proceeds have been used to repay
borrowings, leading to a closing net cash position of GBP20.7m
(2018: net debt of GBP214.0m).
Safety, health and environment
Synthomer's success is directly related to the Group conducting
its business in a safe and responsible way. Synthomer sets high
standards in relation to safety, health and environmental (SHE)
activities which are supported by appropriate levels of investment,
improvement initiatives and by rigorous assurance under the
supervision of the Group SHE team. Our performance against these
standards is reported at each Executive Committee and Board
meeting.
Good progress has been made in process safety, occupational
health and safety, and environmental compliance with the Group
continuing to target consistent world class performance through its
strong operating practices. The acquisition of OMNOVA represents
the opportunity to deploy our proven techniques across our expanded
network.
In 2019 we saw a 25% reduction in our rolling all injury rate
and a 21% reduction in our process safety rate with long term
underlying rates reducing significantly. Our focus on permit to
work system improvements was maintained and targets for auditing
high hazard and live permits achieved, embedding our required
standards and lessons to learn around our global operations
network.
Inorganic growth - Acquisition of OMNOVA
The GBP654m acquisition of OMNOVA will provide an ideal platform
for Synthomer to deliver against its exciting sustainable growth
strategy. OMNOVA has been a Synthomer target for some years due to
its common chemistry, technology and access to attractive markets.
The acquisition will extend Synthomer's geographic platform in the
core markets of the US and China making it a truly global leader in
water-based solutions with increased specialisation, greater scale
for more efficient production and distribution, and an increased
innovation pipeline. The combination brings strong synergy
potential which in turn will bring growth and additional
stakeholder value for the coming years. We expect to deliver $29.6m
of synergies over three years from completion. A dedicated and
experienced integration team has been identified to ensure that the
integration plan is delivered. Synthomer successfully introduced a
new global business structure in 2019 to better serve our
customers, drive operational efficiencies and leverage our product
portfolio globally. Due to the common chemistry and markets with
OMNOVA this global business structure will operate unchanged with
larger, lower cost global businesses providing the most efficient
and effective structure to operate the integrated business.
Our integration of OMNOVA will be a key focus for the Group as
soon as the transaction completes, which we expect to be in March
2020. The accelerated reduction of debt will also be a major
emphasis in accordance with the business plan for the acquisition
of OMNOVA. Once the reduction of leverage has been delivered, the
Group will resume its disciplined approach in assessing bolt-on and
transformational acquisition opportunities to drive further
stakeholder value.
Organic growth
Our strategy of sustainable growth in the chemical sector is
built on our expanding broad blue-chip customer base with long-term
established relationships, wide global platform and the efficient
production of increasingly differentiated chemicals characterised
by high barriers to entry. Our market leading positions, focused
innovation and global asset network provide the foundations for our
organic growth strategy.
In 2019 we saw the results of our investment in the
commissioning of new low-cost capacity by debottlenecking existing
facilities in Performance Elastomers and Functional Solutions. In
Q3 2019 our new dispersion assets in Worms (Germany) (36ktes) and
Roebuck (USA) (12ktes) came online. These plants produce higher
margin, made to order acrylic dispersions in locations close to
their markets. Accessing GDP plus markets, these plants will
provide opportunities in Functional Solutions over the next 2 to 3
years. In Performance Elastomers our 90ktes NBR latex capacity
expansion at Pasir Gudang (Malaysia) came online at the end of
2018, and through 2019 this has delivered improved market share and
growth in our attractive health and protection glove market. With a
further investment agreed to deliver an additional 60ktes at Pasir
Gudang in Q4 2021, Synthomer is committed to supporting long term
growth in the NBR market through capacity expansion and innovation
of market leading products such as our patented SyNovus(R)
range.
Continued focus on transformation and cost reduction
programmes
2019 has been a difficult year for our SBR business which serves
the paper, carpet, compounds and foam markets. A combination of
slower economic activity and ongoing reduction in demand for coated
paper has substantially depressed demand in the major end use
segments during the year. In the absence of growth, our SBR plants
ran at lower than anticipated utilisation rates during the year,
and significant over capacity now exists in the market. An
extensive review of our European SBR network is now largely
complete with the objective of optimising the network to operate in
the most efficient and effective way. All of our SBR sites remain
profitable and we have a range of value-enhancing options available
to us. A further update will be provided once the review is
complete and the appropriate course of action has been
determined.
Through our Operational Excellence the Group continues to focus
on transformation and cost reduction programmes across our wider
network. Against a backdrop of challenging market conditions, these
self-help opportunities are key to the delivery of performance and
the generation of long-term value. In addition to work across our
SBR network, transformation projects to drive improved long-term
profitability are underway in Kluang (Malaysia), Sokolov (Czech
Republic), Ribécourt (France) and Chonburi (Thailand). On cost
reduction our 'Mindset' non-manpower fixed cost reduction programme
commenced in 2019 in Europe and will be rolled out further in 2020
with the target to deliver GBP1.5m of savings in 2020.
In order to deliver our long-term inorganic growth agenda and to
ensure the efficiency, effectiveness and compliance of our
organisation, the Group has commenced a business transformation
'Pathway' programme. The programme is designed to deliver a
consistent set of global business processes across a unified target
operating model, transform our technology architecture into a
single set of proven integrated systems and to build additional
efficiency and effectiveness globally. The programme will begin to
deliver benefits in early 2021, is expected to be completed for the
existing group in 2022 and meets the capital expenditure hurdle
rates for Synthomer providing an attractive payback for the Group
and a sound platform for future growth.
Discipline in capital allocation remains a key focus for the
Group, with hurdle rates for capital expenditure growth projects
remaining unchanged at a payback of less than five years or a 12%
IRR.
Innovation
Innovation continues to be a core pillar of business growth
allowing Synthomer to secure improved differentiated market
positions and provide solutions to generate added value for our
customers. In 2019, the Group had 16 new product launches across a
broad base of application areas. Our key performance indicator for
innovation is the proportion of a year's sales volumes attributed
to new products launched in the past five years, which increased to
22% in 2019, and remains a key differentiator for the Group. We
continue to focus on protecting our proprietary intellectual
property through patents with eleven filings in 2019.
The acquisition of OMNOVA presents significant innovation
opportunities for the Group. An increased innovation pipeline, a
strengthened technology portfolio across wider markets and
geographies and further opportunities for synergies as we focus our
activities and standards. Our operational excellence teams will be
key to the delivery of product and technology transfers as we meet
the needs of a wider customer and geographic base to deliver best
in class differentiated solutions to accelerate the delivery of our
business strategies.
To further enhance our innovation facilities the Group has
invested in a state-of-the-art Innovation Centre in Malaysia which
will open in Q3 2020. The new facility will bring additional space
and allow us to build upon the accelerated time to market for new
innovations we have delivered in recent years.
In 2019 Synthomer increased its collaborative research with
supply chain partners and academic institutions. We have supported
a large European Union project, involving the Universities of
Montpellier and Torino, looking at the use of plant derived
sustainable raw materials as components of Synthomer's core
water-based polymer systems. Broad collaboration allows the Group
to address more effectively the new requirements resulting from
mega trends which will drive long term growth, regulations and
changes to product and market requirements. Our innovation
activities increasingly focus on the sustainability of our products
to develop less energy intensive products, to ensure ease of
recyclability for our supply chain, and to allow our customers to
meet ever more stringent regulatory requirements.
Outlook
In the year ahead, we are not anticipating any change to the
economic environment, with industrial end markets remaining
challenging and additional uncertainty relating to the potential
impact of Coronavirus. Whilst we expect to see benefits from our
recent capital investment in 2020, this will be largely offset by
foreign exchange translation assuming rates remain at current
levels. Nevertheless, the contribution from the acquisition of
OMNOVA, and the synergies this will bring, ensures that Synthomer
will take a significant step forward this year.
Calum MacLean
Chief Executive Officer
5 March 2020
Divisional Review
Performance Elastomers
Highlights
-- Record NBR latex volumes underpinned by 90ktes capacity expansion in Pasir Gudang
-- Investment in new 60ktes NBR latex facility approved with capacity on line Q4 2021
-- State of the art Asian Innovation Centre investment underway with completion Q3 2020
-- Challenging year in SBR latex with lower volumes and margins
mainly driven by weakness of European paper market
-- SBR latex asset network review nearing completion; range of
value-enhancing options available
-- Cost reduction programmes implemented
Divisional performance
Constant
currency(1)
2019 2018 % %
Volumes (ktes) 849.1 859.5 (1.2)
Revenue (GBPm) 623.7 704.5 (11.5) (11.5)
EBITDA(2) 96.3 107.9 (10.8) (11.3)
Operating profit - Underlying
performance (GBPm) 71.5 87.2 (18.0) (18.6)
Operating profit - IFRS (GBPm) 71.2 84.7 (15.9)
(1) Constant currency revenue and profit: these reflect current
year results translated at the prior year's average exchange
rates.
(2) 2019 includes the impact of the adoption of IFRS 16 Leases
of GBP2.0m.
Performance Elastomers EBITDA(2) was 10.8% lower in 2019 at
GBP96.3m (2018: GBP107.9m) with Underlying operating profit 18.0%
lower at GBP71.5m. Our SBR performance was impacted by weaker
market conditions mainly in our European paper business which
offset another strong year of growth in our NBR business.
Market performance - NBR
Following the successful commissioning of the JOB5 reactor in
late 2018 NBR has delivered another year of profitable growth.
After two very strong years of double-digit demand growth from
glove customers, 2019 has shown single digit growth as the
additional glove capacity installed in 2017/18 was consumed in the
market. However, the addition of JOB5 capacity in Malaysia in
conjunction with increased production of NBR in Italy, was
reflected in strong volume growth for Synthomer, up 12% over the
prior year. Unit margins were in line with expectations throughout
the first half of the year, however, H2 saw a modest impact as
competitors' new capacity came into the market. This factor, and
the ongoing sluggishness in the global economy, meant the second
half of the year was more challenging. Nonetheless, overall margin
was ahead of prior year on the higher volumes sold, while average
unit margins were a little lower than 2018 as result of the new
competitor capacity.
2019 saw the closure of the Natural Rubber production line.
While it is disappointing to have to exit any market, the need for
change was indisputable and the closure has had little effect on
the overall growth experienced in NBR. It has also allowed for a
transformation programme to be launched at the Kluang site to
address some of the infrastructure costs that remained as a result
of the closure. This initiative was launched during the final
months of the year to ensure a more streamlined operation in Kluang
in 2020 when the initiative is fully delivered.
While 2019 has been a year of consolidation, mainly as a result
of the significant increases in glove capacity installed since
2017, it has been another year of progress. Investments in new
glove capacity continue to be announced and given the increasing
demand for healthcare provision in the developing world, the market
looks set for further growth.
During 2019 we continued to invest capital in NBR sites. With
JOB5 complete and running successfully the next phase of investment
focused on JOB6 where the Front-End Engineering Design (FEED) Study
was successfully completed at midyear with the full capital
approval by the Board following in August. The long lead-time items
were ordered in Q3 and the EPCM contractor appointed in Q4. The
project is now formally underway with beneficial production
anticipated in Q4 2021.
Innovation has been a key cornerstone of NBR growth and 2019 was
another strong year of development. Sales of NBR products launched
in the prior five years continue to exceed 20% reflecting
positively on the R&D investments made in both human capital
and equipment. During the year we continued to strengthen NBR's
position, filing four patents, doubling the number from the
previous two years.
As part of our commitment to sustainability, Synthomer has
conducted the very first full cradle-to-grave life-cycle analysis
for NBR latex, which was carried out by the independent LCIE Bureau
Veritas France in accordance to ISO14071. The study showed
Synthomer's latest patented SyNovus(R) technology allows the glove
manufacturing industry to create a significantly more sustainable
NBR medical examination glove. This step-change delivers a lower
impact on both users and the environment in comparison to earlier
generations of NBR latex as well as natural rubber latex and PVC.
Our patented Synovus(R) product continues to be evaluated by a
range of customers to verify the in-use benefits of accelerator
free technology and lower energy costs in glove production and we
anticipate continued uptake for this product in 2020.
As we continue to expand NBR's innovation activity the need for
additional space in the laboratories has become a more pressing
issue. To support the innovation momentum which has been created,
the Board approved an investment of GBP6.5 million to create a new
Asian Innovation Centre (AIC) in Malaysia, equidistant from
operations in Kluang and Pasir Gudang. The new facility has been
built with future expansion in mind and at 6,000 sqm this is over
four times larger than the existing R&D Centre in Kluang.
Ground was broken in April 2019 and construction is well advanced
and on target for the planned opening in Q3 2020.
Market performance - SBR
2019 has been a very challenging year for SBR which serves the
paper, carpet, compounds and foam markets. A combination of slower
economic activity in Europe and Asia along with the continuing
reduction in demand for coated paper has substantially depressed
demand in the major end-user segments during the year, particularly
paper.
Volumes declined across SBR driven by weaker performance in
paper, carpet, and compounds with a degree of mitigation in foam,
where sales of HSSBR increased during the year. Paper suffered
throughout the year on the back of falling raw material price and
pressure on margins driven by overcapacity in European SBR
production resulting in a double-digit decline in both volume and
margin. This very disappointing performance, although supported by
some good cost management, flowed through with SBR results being
substantially below prior year and our expectations.
The very difficult paper market has seen several paper producers
cease to trade, and the weaker financial position of the sector has
led to credit insurance cover being reduced or removed. With
several bad debts incurred during 2018, we have taken a more
proactive position on credit risk which has constrained sales in
this sector. Mill closure or capacity reductions and conversions
have been another recurring feature of the coated paper market in
recent years. 2019 saw an announcement from Stora Enso concerning
the future of its mill in Oulu which will have a direct impact on
the capacity utilisation of Synthomer's Oulu site during the second
half of 2020.
The foam market has offered steady growth in recent years and we
again experienced volume growth in 2019 with growth in China
offsetting weaker demand in Europe. However, lower raw material
prices and strong competition in Asia saw margins fail to keep pace
with volume growth. We continue to explore new areas for the
development of this product range both geographically and in terms
of new areas of application to meet the anticipated capacity
growth.
In the absence of sales growth, several of the SBR plants ran at
lower than anticipated utilisation rates during the year, and in
particular those plants with an exposure to the paper market. A
review of the supply/demand balance for SBR latex in Europe points
to significant over capacity amongst the major producers. An
extensive review of our European SBR network is now largely
complete with the objective of optimising the network to operate in
the most efficient and effective way. All of our SBR sites remain
profitable and we have a range of value-enhancing options available
to us. A further update will be provided once the review is
complete and the appropriate course of action has been
determined.
Against a background of a slowdown in the European business,
several initiatives were taken during the year to ensure costs were
effectively managed. All sites focused on optimising their fixed
cost base and made good progress during the year. In the larger
sites Project Mindset was launched aimed at delivering a sustained
reduction in non-manpower fixed costs which will be reflected in
the 2020 performance. Other cost initiatives were deployed across
the business to ensure effective cost control in the challenging
environment.
Functional Solutions
Highlights
-- Market leading position in water-based polymers in Europe
-- Resilient performance in challenging market conditions
-- Growth in unit margins offsets impact of lower volumes with EBITDA(2) 9.0% ahead
-- Benefits realised from reorganisation into global business
seen in product innovation and global collaboration with
customers
-- Successful commissioning of 36ktes Worms (Germany) and 12ktes
Roebuck (USA) differentiated acrylic dispersion investments in Q3
2019 to drive future growth
-- Productivity gain plans in place through Operational
Excellence and Commercial Excellence initiatives
Divisional performance
Constant
currency(1)
2019 2018 % %
Volumes (ktes) 487.4 526.0 (7.3)
Revenue (GBPm) 612.8 680.1 (9.9) (9.7)
EBITDA(2) 69.9 64.1 9.0 9.5
Operating profit - Underlying
performance (GBPm) 52.3 53.0 (1.3) (0.8)
Operating profit - IFRS (GBPm) 48.0 50.4 (4.8)
(1) Constant currency revenue and profit: these reflect current
year results translated at the prior year's average exchange
rates.
(2) 2019 includes the impact of the adoption of IFRS 16 Leases
of GBP4.4m.
Business performance was resilient in 2019 despite a challenging
macro environment. EBITDA(2) was 9.0% higher at GBP69.9m with
Underlying operating profit flat as improved margins offset the
impact of lower volumes. Volumes were down by 7.3% (5.0% for
ongoing businesses) but margins were higher due to good cost
management, favourable raw material prices and purchasing
initiatives combined with a clear focus on portfolio management,
including the introduction of a number of innovative speciality
products.
The main macro drivers that impacted volumes were the general
economic slowdown in Europe and a broad-based weakness in
construction and the automotive markets. Specific initiatives were
undertaken to offset the softer market conditions including in the
redispersible powders (RDP) business where volumes recovered from a
weak second half of 2018 with share gains in both existing and new
geographic markets driven by focused sales efforts based around a
streamlined product portfolio.
Global business structure, local delivery
Functional Solutions was reorganised into a global business in
January 2019 and in the course of the year has started to see the
benefit from a global approach to customers, product portfolio, new
product development and plant operations. Collaboration has been
intensified with customers who have a global presence and with
regional customers who now have access to the full breadth of the
global Functional Solutions product portfolio. A platform-based
approach for new product development has been introduced, balancing
the need for global solutions with the need for regional and local
customisation to meet specific market and customer requirements.
Global teams have worked successfully on improving product transfer
methodology across regions and an initiative was launched to
benchmark plant performance and ensure best practice is applied
across all sites producing dispersions.
Capacity and capability expansion
To position the business for future growth, a number of key
capital expenditure programmes have been launched during the past
years, with some key milestones reached in 2019. In Worms, the most
important site for the Functional Solutions business globally, a
major expansion programme was completed and new lines commissioned,
adding 36ktes per annum of new capacity to support the manufacture
of bespoke differentiated products to serve key speciality markets
in the DACH (Germany, Austria and Switzerland) and broader Central
European regions. Also, in Europe, as part of a wider
transformation programme, major upgrades were realised at our Rib é
court facility in France, including new product silos and an
automated packaging line. In the United States, a 12ktes
replacement and expansion project was commissioned at our Roebuck
facility, allowing the business to expand its speciality range of
products to serve the North American market.
Innovation pipeline and new product introductions
2019 saw the launch of a number of new products including a high
performance water-based Pressure Sensitive Adhesive (PSA) product
(Plextol Prime(TM)) to replace solvent based versions for
speciality tapes, a PSA for wash-off bottle labels that improves
recyclability and contributes to improved sustainability, and a new
technical textile product range that allows for improved
productivity and higher energy efficiency at the customers' plants
(Litex QuickShield(TM), Revacryl Design(TM), Litex SkyShield(TM)).
The business also launched a low VOC binder for high pH
biocide-free premium interior wall paints (Revacryl
UltraGreen(TM)), a major driver in the coatings industry due to
regulatory changes and end-user expectations. Structurally, the
Functional Solutions business has defined a number of strategic
product platforms that tie in with medium- and long-term macro
trends as well as with core Synthomer competencies. These platforms
will bring clear focus and guide future development priorities.
Functional Solutions remains focused on its four strategic
pillars: growth, mix, productivity and enablers, with a strong SHE
performance as the overriding priority. In terms of growth,
maximising the output from the new plant capabilities in Worms
(Germany) and Roebuck (USA) is a priority, combined with a clear
focus on growing the speciality range of products to drive a
favourable mix and associated margins in 2020. Ambitious targets
have been set in terms of launching new products based on the
global product platforms. Growth momentum in RDP is to be
maintained, as is the growth in Oilfield in target regions with new
customers and in binders for batteries. Productivity gains are to
come through Operational Excellence initiatives in plants and
through Commercial Excellence and cost improvement initiatives.
Growth, mix improvement and productivity gains are underpinned by
sustained efforts in our enablers to deliver systemic improvements
in our people, processes and tools.
In addition to driving organic growth in the business, the
OMNOVA acquisition will have a transformative impact to the
Functional Solutions business in terms of global reach and breadth
of portfolio. A smooth integration and delivery of both commercial
and cost synergies will be a key priority for 2020.
Industrial Specialities
Highlights
-- Leading positions in selected niche speciality chemical markets globally
-- Growth in unit margin across a number of speciality products
offsets the impact of lower volume with EBITDA(2) 5.5% stronger
-- Benefits starting to be realised from expansion in
Sant'Albano (Italy) and reliability investment in Harlow (UK)
-- Strong production performance with further operational efficiencies realised
-- Successful development and launch of new absorbent product for the gas processing industry
-- Cost saving opportunities identified and realised
Divisional performance
Constant
currency(1)
2019 2018 % %
Volumes (ktes) 129.2 132.1 (2.2)
Revenue (GBPm) 222.6 234.3 (5.0) (4.3)
EBITDA(2) 24.8 23.5 5.5 5.5
Operating profit - Underlying
performance (GBPm) 16.0 16.7 (4.2) (4.2)
Operating profit - IFRS (GBPm) 11.3 12.1 (6.6)
(1) Constant currency revenue and profit: these reflect current
year results translated at the prior year's average exchange
rates.
(2) 2019 includes the impact of the adoption of IFRS 16 Leases
of GBP0.8m.
The Industrial Specialities division delivered a robust
performance in markets generally impacted by difficult economic
conditions. EBITDA(2) in Industrial Specialities at GBP24.8m was
5.5% higher than 2018. Sales volumes were 2.2% lower compared to
2018, impacted by some of the more challenging end markets of
automotive and coatings, and a weaker demand in our monomer
business, as well as sales into the China region where the threat
of a trade war impacted demand. Most businesses within the division
recorded stable or increased unit margins during the year, in part
due to the performance properties of the speciality products
supplied by the businesses.
Strong year-on-year growth was achieved in the Vinyl Polymers
business following targeted investment to enhance plant reliability
and thereby deliver additional volumes to meet increasing customer
demand, enhanced customer service and driven by the growing PVC
market. The work to sustain operational improvements will deliver
further growth in 2020.
Despite our polybutadiene Lithene business having some exposure
to the automotive market, the business recorded modest growth in
volumes and stable unit margins to deliver steady year-on-year
growth.
Our Speciality Additives business which supplies coatings
ingredients had a very challenging year. While unit margins were
stable, volumes were impacted by end market demand and increased
competition in some of our markets. One of our products, which is
used in cold weather applications, was significantly down
year-on-year due to the mild European winter at the end of 2019.
While markets remain challenging, we have targeted a number of
growth opportunities from new applications which are starting to be
realised and we anticipate a return to growth in 2020.
The division also benefitted from the Powder Coating business'
differentiated specialist polyester expansion at Sant' Albano
(Italy) during 2019. This capacity expansion increased total site
capacity by 20% and this forms a solid platform for further growth
in sales volumes of our differentiated products during 2020.
While William Blythe (UK) delivered a flat performance year on
year, a major milestone was reached in 2019 with the successful
development and launch of a new absorbent product for the gas
processing industry which will form a strong growth platform for
coming years. William Blythe's excellence in innovation was
recognised when they were announced as winners in the Innovation
category at the Chemicals Northwest Awards (UK) in March 2019.
Our monomers business in Sokolov (Czech Republic), which
supplies our Functional Solutions business and external European
markets with acrylate monomers, saw weaker market conditions in H2
2019. Whilst our volumes were maintained, oversupply in Europe and
unfavourable feedstock prices lead to weaker unit margins during
Q4.
Value-gap contribution
Our operations team at all sites across the division continue to
focus on process engineering reliability and manufacturing
excellence to identify opportunities to maximise production
volumes. A number of our plants delivered a very strong production
performance during 2019 and whilst this was not fully utilised
during 2019, the business is well placed to capitalise on the
growth capacity and opportunities for further debottlenecking and
reliability for the division in future years.
Targeted innovation
Innovation continues to be a key driver of growth across the
division. An example is the highly innovative inorganics business,
William Blythe. This business continues to develop a number of new
products with strong patent and know-how protection typically sold
to bespoke applications in niche markets. Recent successes have
included high-purity Graphene Oxide and doped Tungsten Oxide
products, with other new product families using differentiated
inorganic chemistry in the pipeline.
Self-help initiatives
Given the challenging market conditions there has been a
significant focus on costs during the year. 'Project Mindset', our
non-manpower fixed cost reduction initiative, was launched across a
number of locations delivering cost savings, with the full year
benefit to be realised in 2020. We have also invested in capital
projects to reduce the costs of production at our Lithene plant in
Stallingborough (UK) and have further focused value-gap
opportunities across most assets.
Whilst there is uncertainty in a number of our end markets and
businesses, we remain confident in delivering growth in the future.
Spare capacity created across a number of our plants has enabled
the opportunity to target a number of initiatives across our end
markets. The division continues to invest in R&D with a number
of patents and industry leading properties in chosen applications.
In addition, with the full year benefits of Project Mindset and
other cost saving projects, further operational efficiency and cost
savings should be realised.
Chief Financial Officer's Review
Highlights
-- Resilient EBITDA performance in challenging economic
environment
-- Strong Free Cash Flow generation in 2019
-- Conservative capital structure implemented, including hard
underwrite of acquisition rights issue
-- Committed unsecured long term and bridge facilities ahead of
OMNOVA acquisition
-- Disciplined application of capital allocation policy and
dividend policy unchanged
Alternative performance measures
The Group has consistently used two significant Alternative
Performance Measures ('APMs') since its adoption of International
Financial Reporting Standards ('IFRS') in 2005:
-- Underlying performance, which excludes Special Items from IFRS profit measures; and
-- EBITDA, which excludes Special Items, amortisation and
depreciation from IFRS operating profit.
The Board's view is that Underlying performance provides
additional clarity for the Group's investors and so it is the
primary focus of the Group's narrative reporting. Further
information and the reconciliation to the IFRS measures are
included in note 1.
Coinciding with the first annual reporting of results under the
new divisional structure, the Group has placed more emphasis on
EBITDA reporting, whilst continuing to provide full disclosure of
Underlying and IFRS operating profit and profit before tax. The
greater emphasis on divisional EBITDA reporting is consistent with
internal reporting metrics, is a commonly used metric by other
European chemical businesses, and is a key metric which the market
uses to value companies in the chemicals sector.
Overview
EBITDA and Underlying operating
profit 2019 2018 Movement
GBPm GBPm GBPm %
Performance Elastomers 96.3 107.9 (11.6) (10.8)
Functional Solutions 69.9 64.1 5.8 9.0
Industrial Specialities 24.8 23.5 1.3 5.5
Unallocated (13.1) (14.5) 1.4 (9.7)
------- ------- ------- -------
EBITDA(1) 177.9 181.0 (3.1) (1.7)
------- ------- ------- -------
Depreciation (52.1) (38.9) (13.2) 33.9
------- ------- ------- -------
Underlying operating profit(1) 125.8 142.1 (16.3) (11.5)
------- ------- ------- -------
(1) 2019 includes the impact of the adoption of IFRS 16 Leases
of GBP7.9m on EBITDA and GBP0.6m on Underlying operating
profit.
In a challenging environment, the Group has delivered a
resilient performance, benefiting from geographic, product and end
market diversity, with EBITDA down 1.7% at GBP177.9m relative to
GBP181.0m in 2018. Whilst overall volumes are a little softer,
largely reflecting a difficult SBR market and in particular the
paper market, the Group's overall margin per tonne has again
remained stable. The reported EBITDA performance of GBP177.9m has
benefitted from the adoption of IFRS 16 Leases, improving EBITDA by
GBP7.9m while increasing depreciation by GBP7.3m and interest by
GBP1.1m respectively.
Notwithstanding the economic backdrop, Functional Solutions and
Industrial Specialities EBITDA performance was ahead of 2018, with
Performance Elastomers EBITDA lower. In this context we were
pleased with the improvements in our Functional Solutions,
Industrial Specialities and Performance Elastomers NBR markets
largely offsetting the disappointing performance in Performance
Elastomers SBR markets principally attributable to a challenging
European paper business.
The Underlying operating profit of the Group was GBP125.8m,
11.5% lower than 2018 (GBP142.1m), with the significant rise in
depreciation of GBP13.2m (33.9%) attributable to the significant
capacity expansion programme 2017 to 2019 (GBP5.9m) and the
accounting changes relating to the adoption of IFRS 16 Leases
(GBP7.3m). The IFRS operating profit was GBP110.6m (2018:
GBP128.7m).
The Group continued to generate strong Free Cash Flow in the
year at GBP92.8m, back to similar levels reported in 2016 and 2017
with the marked improvement over the prior year mainly reflecting a
working capital outflow in 2018 and an inflow in 2019, largely
following the trend in raw material prices, and tight working
capital management.
We refinanced the Group in July in anticipation of the OMNOVA
acquisition. The post-completion capital structure is consistent
with our capital allocation policy, raising equity and targeting a
more conservative level of leverage at completion (2.5x) than
allowed for in the policy (3.0x), and only this on the basis that
we expect leverage to return to less than 2.0x within two years
post completion.
Our major capital investment in capacity expansion is largely
complete and accordingly our attention will now focus on the
integration of OMNOVA, driving synergy benefits and cash flows to
ensure the deleveraging profile is delivered in accordance with our
capital allocation policy.
Special Items
2019 2018
GBPm GBPm
Acquisition costs (9.2) (0.5)
Restructuring and site closure costs (0.8) (12.2)
Foreign exchange gain on rights issue 3.5 -
Amortisation of acquired intangibles (8.7) (16.4)
Sale of businesses - 3.8
Sale of land - 16.4
Aborted bond costs - (1.7)
UK Guaranteed Minimum Pension equalisation - (2.8)
------- -------
(15.2) (13.4)
-------------------------------------------- ------- -------
The following items of income and expense have been reported as
Special Items:
-- Acquisition costs relate to the proposed acquisition of
OMNOVA partly offset by a gain of GBP4.0m on a foreign exchange
derivative entered into in July 2019 to hedge the acquisition
price. The 2018 costs related to the BASF Pischelsdorf
acquisition.
-- Restructuring and site closure costs largely comprise a charge of GBP1.9m in relation to the reorganisation of the Group into global business segments. This is partly offset by a partial reversal of the provision recognised in 2018 for the closure of the natural rubber and polyester resins production lines as certain elements have been less expensive than originally estimated.
-- Foreign exchange gain on rights issue represents a gain made
on a forward contract which was entered into to swap the proceeds
of the Sterling rights issue into Euro in order to pay down part of
the Group's Euro borrowings.
-- Amortisation of acquired intangibles decreased during the
year as the customer-related intangibles relating to the 2011
PolymerLatex acquisition reached the end of their amortisation
period in H1 2018.
-- Sale of businesses in 2018 related to the disposal of the
Leuna (Germany) site and the disposal of 51% of the Group's Dubai
operations.
-- Sale of land in 2018 related to the disposal of the final
tranche of Malaysian land at Kluang.
-- Ahead of the Group's 2018 refinancing, a process was
undertaken to issue unsecured fixed rate senior notes. Despite a
strong response from investors, the Group decided not to complete
the transaction due to unfavourable market conditions.
-- A GBP2.8m adjustment to pension liabilities was booked in H2
2018 following the UK High Court's ruling on equalisation of male
and female Guaranteed Minimum Pensions. This was treated as a
pension plan amendment, unrelated to the Underlying performance of
the Group.
2019 2018
-----------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit (including
share of joint ventures) 125.8 (15.2) 110.6 142.1 (13.4) 128.7
------------ ------- ------ ------------ ------- -----
Net interest payable (5.8) - (5.8) (3.8) - (3.8)
Fair value loss on unhedged
interest derivatives - (0.5) (0.5) - (1.4) (1.4)
Net interest expense on defined
benefit obligations (2.7) - (2.7) (3.2) - (3.2)
Interest element of lease payments (1.1) - (1.1) - - -
------------ ------- ------ ------------ ------- -----
Finance costs (9.6) (0.5) (10.1) (7.0) (1.4) (8.4)
------------ ------- ------ ------------ ------- -----
Profit before taxation 116.2 (15.7) 100.5 135.1 (14.8) 120.3
------------ ------- ------ ------------ ------- -----
Finance costs
Underlying finance costs increased by GBP2.6m to GBP9.6m. The
drivers were the adoption of IFRS 16 Leases with a charge of
GBP1.1m (2018: GBPnil) and the full year impact of the Euro
interest rate fix transacted in July 2018 of GBP3.6m (2018:
GBP1.2m). This was partly offset by GBP0.4m of lower net interest
as the RCF amounts drawn have been reduced with the rights issue in
July 2019, and a reduction in net interest expense on defined
benefit obligations as a result of a higher return on assets in the
year.
In July 2018 the Group entered into swap arrangements to fix
Euro interest rates on the full value of the EUR440m committed
unsecured revolving credit facility. The fair value loss on
unhedged interest rate derivatives relates to the movement in
mark-to-market value of the swap in respect of the proportion of
the derivatives in excess of the Group's borrowings. The charge has
reduced to GBP0.5m (2018: GBP1.4m) as a result of lower drawn
amounts under the RCF, and the changes in the fair value between 31
December 2018 and 2019.
Exchange
The impact of movements in exchange rates on reported numbers is
based on the following exchange rates:
2019 2018
Closing rate GBP1= $1.33 $1.27
GBP1= EUR1.18 EUR1.11
GBP1= MYR 5.38 MYR 5.27
Average rate GBP1= $1.28 $1.33
GBP1= EUR1.14 EUR1.13
GBP1= MYR 5.29 MYR 5.37
Taxation
2019 2018
-----------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
Profit before taxation 116.2 (15.7) 100.5 135.1 (14.8) 120.3
------------ ------- ------ ------------ ------- ------
Taxation (16.3) 1.4 (14.9) (23.0) 6.0 (17.0)
Effective tax rate (%) 14.0 8.9 14.8 17.0 40.5 14.1
------------ ------- ------ ------------ ------- ------
Profit for the year 99.9 (14.3) 85.6 112.1 (8.8) 103.3
------------ ------- ------ ------------ ------- ------
Profit attributable to non-controlling
interests 0.4 0.6 1.0 0.5 3.0 3.5
Profit attributable to equity
holders 99.5 (14.9) 84.6 111.6 (11.8) 99.8
The IFRS effective tax rate is impacted by the tax credit on the
Special Items. It is therefore helpful to consider the Underlying
and Special Items affecting tax rates separately:
-- The effective tax rate on Underlying performance for the year
reduced to 14.0% (2018: 17.0%) in the year primarily as a result of
changes in geographical split of profits with increased
profitability of the business in Malaysia, which benefited from the
Pioneer Status tax exemption, relative to the European
businesses.
-- The effective tax rate for Special Items is driven by
deferred and current tax credits on the amortisation of acquired
intangibles along with current tax credits on restructuring
costs.
Non-controlling interests
The Group continues to hold 70% of Revertex (Malaysia) Sdn Bhd
and its subsidiaries. These entities form a relatively minor part
of the Group and hence the impact on Underlying performance from
non-controlling interests is not significant.
Special Items arose from the partial reversal of the 2018
restructuring provision for the closure of the natural rubber and
polyester resins production lines at the Kluang site as certain
elements have been less expensive than originally estimated. 2018
Special Items included the non-controlling interest share of 2018
restructuring provision as well as profits from the sale of a
parcel of land, owned by Kind Action Sdn Bhd, a wholly owned
subsidiary of Revertex (Malaysia) Sdn Bhd.
Earnings per share
2019 2018
------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
Earnings
Profit attributable to equity
holders (GBPm) 99.5 (14.9) 84.6 111.6 (11.8) 99.8
Number of shares
Weighted average number of
shares ('000) 393,349 363,977
Earnings per share
Basic EPS (p) 25.3 (3.8) 21.5 30.7 (3.3) 27.4
Diluted EPS (p) 25.2 (3.8) 21.4 30.5 (3.2) 27.3
Earnings per share is calculated based on the average number of
shares in issue during the year. Following the rights issue in July
2019, the Company issued a further 84,970,192 ordinary shares,
bringing the total issued shares of the Company to 424,850,961 and
the weighted average number of the shares for 2019 to
393,348,792.
Underlying earnings per share for the year is 25.3p, a reduction
of 17.6% relative for 2018, and the IFRS earnings per share is
21.5p, a reduction of 21.5% relative to 2018. The reduction in the
earnings per share reflects the change in profit after tax referred
to above, and the dilutive effect of the rights issue ahead of the
completion of the acquisition of OMNOVA.
Following the rights issue, the prior year earnings per share
figures have been restated by an adjustment factor of 1.0713 to
reflect the bonus element of the rights issue.
Cash performance
The Group's primary focus is on managing net debt rather than on
cash. The following table summarises the movement in net debt and
is in the format used by management:
2019 2018
GBPm GBPm
Underlying operating profit (excluding joint ventures) 124.9 141.7
Movement in working capital 18.5 (35.2)
Depreciation of property, plant and equipment 43.4 37.8
Depreciation of right of use assets 7.3 -
Amortisation of other intangibles 1.4 1.1
Share-based payments charge 0.6 1.5
Capital expenditure (69.1) (75.7)
-------- ---------
Business cash flow 127.0 71.2
Net interest paid (7.2) (4.5)
Tax paid (11.1) (23.0)
Pension funding (17.5) (17.0)
Dividends received from non-controlling interests 1.6 1.1
-------- ---------
Free Cash Flow 92.8 27.8
Cash impact of restructuring and site closure costs (4.4) (3.3)
Cash impact of foreign exchange gain on rights 3.5 -
issue
Cash impact of aborted bond costs - (1.2)
Sale of property, plant and equipment 0.3 17.5
Acquisition costs and purchase of business (7.5) (26.3)
Sale of business - 3.7
Rights issue proceeds 199.1 -
Repayment of principal portion of lease liabilities (6.8) -
Dividends paid (47.9) (42.5)
Dividends paid to non-controlling interests (0.6) (1.5)
Settlement of share-based payments (2.5) (5.4)
Foreign exchange and other movements 8.7 (2.3)
-------- ---------
Movement in net debt 234.7 ( 33.5)
-------- ---------
Opening net debt (214.0) ( 180.5)
Closing net cash/(debt) 20.7 ( 214.0)
-------------------------------------------------------- -------- ---------
At 31 December 2019, the Group had net cash of GBP20.7m compared
to net debt of GBP214.0m at 31 December 2018. The GBP234.7m
movement in net debt primarily reflects:
-- A reduction in working capital investment leading to an
inflow of GBP18.5m (2018: outflow of GBP35.2m) reflecting lower raw
material prices and measures taken to structurally manage working
capital. Working capital remains at circa 10% of sales on a
twelve-month rolling basis.
-- Depreciation of right of use assets relates to depreciation
of assets arising on the adoption of IFRS 16 Leases in 2019.
Similarly the repayment of principal portion of lease liabilities
relates to cash payments on liabilities recognised on adoption of
IFRS 16.
-- Capital expenditure is lower relative to the prior year,
reflecting the substantial completion of our major capacity
expansion projects in Pasir Gudang (Malaysia), Worms (Germany) and
Roebuck (USA) in 2018 and 2019. The Group commenced investment in a
new Innovation Centre and a new 60ktes NBR capacity expansion in
Malaysia and began a three-year business transformation programme.
Recurring expenditure on SHE and sustenance in the year is GBP21m
(2018: GBP24m).
-- Cash tax paid is lower at GBP11.1m (2018: GBP23.0m). The
decrease is due to cash tax refunds received from Tax Authorities
in 2019 relating to prior years and lower profitability in
2019.
-- Pension funding relates mainly to the UK defined benefit
deficit recovery funding of GBP16.2m (2018: GBP15.5m). The rise in
the deficit recovery payment in 2019 reflects the schedule of
contributions agreed with the Trustees in 2019 as a part of the
2018 triennial pension scheme valuation. The outcome of the 2018
triennial valuation is discussed below in retirement benefit
plans.
-- Acquisition costs and purchase of business of GBP7.5m relate
to the OMNOVA acquisition. In 2018, the GBP26.3m outflow
principally related to the purchase of BASF Pischelsdorf.
-- The sale of property, plant and equipment in 2018 related to
the sale of the final parcel of Malaysian land.
-- Rights issue net proceeds relates to the share issue in July
2019, raising GBP199.1m in anticipation of settling the OMNOVA
acquisition purchase consideration.
-- Foreign exchange and other movements reflect the impact of
the significant strengthening of Sterling during the year where the
Group has benefitted from a gain on translation of its Euro
borrowings.
Financing and liquidity
The Group continues to make use of a EUR440m four-year
multicurrency revolving credit facility ("RCF") expiring in July
2022 with an option to request an extension to July 2023. The
financial covenant for the RCF is for net debt to be less than 3.25
times EBITDA.
In July 2019 the Group repaid its EUR55m committed unsecured
short-term loan facility upon expiry.
As part of the OMNOVA acquisition financing, the Group put in
place new facilities conditional on completion of the acquisition.
These consist of a $260m Term Loan and EUR460m RCF with five-year
terms ending on 3 July 2024, and a EUR520m acquisition financing
bridging facility. The bridging facility is available for 15 months
from July 2019 and may be extended for two periods of six
months.
In 2018 the Group entered into swap derivative contracts to fix
the Euribor interest rate on the full value of the EUR440m RCF
until 2025. The full interest cost of these swaps is booked to
finance costs as incurred. Fair value movement on the portion of
the swap contracts that forms an effective hedging relationship
with the Group's floating rate borrowings is taken to other
comprehensive income. Fair value movement on the swap contacts in
excess of the Group's borrowings is taken to profit and loss. It is
treated as a Special Item, as it is not reflective of Underlying
performance.
IFRS 16
On 1 January 2019, the Group adopted IFRS 16 Leases using the
modified retrospective approach. The adoption of the new standard
had the following impact on the Group's results:
Property, plant and equipment Increase GBP38.9m
Lease liability Increase GBP41.9m
Depreciation charge Increase GBP7.3m
EBITDA Increase GBP7.9m
Finance cost Increase GBP1.1m
Profit before tax Decrease GBP0.5m
Net debt to EBITDA No impact
Basic EPS Decrease 0.1p
------------------------------- ---------- ---------
Other intangible assets
The Group has commenced a business transformation 'Pathway'
programme which is designed to deliver a consistent set of global
business processes across a unified target operating model,
transform our technology architecture into a single set of proven
integrated systems and to build additional efficiency and
effectiveness globally. The programme will begin to deliver
benefits in early 2021, is expected to be completed for the
existing group in 2022 and meets the capital expenditure hurdle
rates for Synthomer providing an attractive payback for the Group
and a sound platform for future growth. The investment is shown as
an intangible asset under construction until the deployment phase
begins.
Retirement benefit plans
The Group's principal funded defined benefit pension scheme is
in the UK and is closed to future accrual. The Group also operates
an unfunded scheme in Germany and various other overseas retirement
benefit arrangements.
The Group's net defined benefit obligation increased by 5.7% to
GBP140.0m at 31 December 2019. The increase is principally
attributable to a decrease in discount rates only partially offset
by our deficit recovery funding of GBP16.5m, a decrease in
inflation assumptions and strong return on plan assets.
The triennial valuation of the UK scheme was undertaken in 2018
and completed in 2019. The trustees of the scheme have agreed that
the Group will continue to fund the deficit recovery plan in line
with the previously agreed recovery plan, currently expected to end
in April 2023.
Stephen Bennett
Chief Financial Officer
5 March 2020
Consolidated income statement
for the year ended 31 December 2019
2019 2018
------------------------------------------------------------------ ------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Revenue 1,459.1 - 1,459.1 1,618.9 - 1,618.9
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Company and subsidiaries before
Special Items 124.9 - 124.9 141.7 - 141.7
Acquisition costs - (9.2) (9.2) - (0.5) (0.5)
Restructuring and site closure
costs - (0.8) (0.8) - (12.2) (12.2)
Foreign exchange gain on rights
issue - 3.5 3.5 - - -
Amortisation of acquired intangibles - (8.7) (8.7) - (16.4) (16.4)
Sale of businesses - - - - 3.8 3.8
Sale of land - - - - 16.4 16.4
Aborted bond costs - - - - (1.7) (1.7)
UK Guaranteed Minimum Pension
equalisation - - - - (2.8) (2.8)
Company and subsidiaries 124.9 (15.2) 109.7 141.7 (13.4) 128.3
Share of joint ventures 0.9 - 0.9 0.4 - 0.4
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Operating profit/(loss) 125.8 (15.2) 110.6 142.1 (13.4) 128.7
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Interest payable (6.7) - (6.7) (4.9) - (4.9)
Interest receivable 0.9 - 0.9 1.1 - 1.1
Fair value loss on unhedged interest
derivatives - (0.5) (0.5) - (1.4) (1.4)
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
(5.8) (0.5) (6.3) (3.8) (1.4) (5.2)
Net interest expense on defined
benefit obligation (2.7) - (2.7) (3.2) - (3.2)
Interest element of lease payments (1.1) - (1.1) - - -
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Finance costs (9.6) (0.5) (10.1) (7.0) (1.4) (8.4)
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Profit/(loss) before taxation 116.2 (15.7) 100.5 135.1 (14.8) 120.3
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Taxation (16.3) 1.4 (14.9) (23.0) 6.0 (17.0)
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Profit/(loss) for the year 99.9 (14.3) 85.6 112.1 (8.8) 103.3
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Profit attributable to non-controlling
interests 0.4 0.6 1.0 0.5 3.0 3.5
Profit/(loss) attributable to
equity holders of the parent 99.5 (14.9) 84.6 111.6 (11.8) 99.8
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
99.9 (14.3) 85.6 112.1 (8.8) 103.3
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
Earnings/(loss) per share(1)
Basic 25.3p (3.8)p 21.5p 30.7p (3.3)p 27.4p
Diluted 25.2p (3.8)p 21.4p 30.5p (3.2)p 27.3p
--------------------------------------------- ------- ------ ------- ------------ ------- ---------
1 - Earnings per share for the year ended 31 December 2018 has
been restated by a factor of 1.0713 relating to the bonus element
of the rights issue which completed on 29 July 2019.
Consolidated statement of comprehensive income
for the year ended 31 December 2019
2019 2018
--------------------------------- --------------------------------
Equity Equity
holders holders
of the Non-controlling of the Non-controlling
parent interests Total parent interests Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- --------------- ------ -------- --------------- -----
Profit for the year 84.6 1.0 85.6 99.8 3.5 103.3
------------------------------------- -------- --------------- ------ -------- --------------- -----
Actuarial (losses)/gains (27.2) - (27.2) 15.5 - 15.5
Tax relating to components of
other comprehensive income 4.7 - 4.7 (2.3) - (2.3)
------------------------------------- -------- --------------- ------ -------- --------------- -----
Total items that will not be
reclassified to profit or loss (22.5) - (22.5) 13.2 - 13.2
------------------------------------- -------- --------------- ------ -------- --------------- -----
Exchange differences on translation
of foreign operations (15.3) (0.4) (15.7) 16.9 0.8 17.7
Exchange differences recycled
on sale of businesses - - - (0.4) - (0.4)
Fair value loss on hedged interest
derivatives (8.7) - (8.7) (3.9) - (3.9)
Loss on net investment hedge
taken to equity (1.9) - (1.9) (3.2) - (3.2)
------------------------------------- -------- --------------- ------ -------- --------------- -----
Total items that may be reclassified
subsequently to profit or loss (25.9) (0.4) (26.3) 9.4 0.8 10.2
------------------------------------- -------- --------------- ------ -------- --------------- -----
Other comprehensive (expense)/income
for the year (48.4) (0.4) (48.8) 22.6 0.8 23.4
------------------------------------- -------- --------------- ------ -------- --------------- -----
Total comprehensive income for
the year 36.2 0.6 36.8 122.4 4.3 126.7
------------------------------------- -------- --------------- ------ -------- --------------- -----
Consolidated statement of changes in equity
for the year ended 31 December 2019
Capital Hedging
Share Share redemption and translation Retained Non-controlling Total
capital premium reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 1 January 2019 34.0 230.5 0.9 6.4 192.1 463.9 21.1 485.0
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Profit for the year - - - - 84.6 84.6 1.0 85.6
Other comprehensive
loss
for the year - - - (25.9) (22.5) (48.4) (0.4) (48.8)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
(loss)/income
for the year - - - (25.9) 62.1 36.2 0.6 36.8
Dividends - - - - (47.9) (47.9) (0.6) (48.5)
Issue of shares 8.5 190.6 - - - 199.1 - 199.1
Share-based payments - - - - (1.9) (1.9) - (1.9)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 31 December 2019 42.5 421.1 0.9 (19.5) 204.4 649.4 21.1 670.5
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Capital Hedging
Share Share redemption and translation Retained Non-controlling Total
capital premium reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 1 January 2018 34.0 230.5 0.9 (3.0) 125.5 387.9 18.3 406.2
--------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Profit for the year - - - - 99.8 99.8 3.5 103.3
Other comprehensive
income for the year - - - 9.4 13.2 22.6 0.8 23.4
--------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
income for the year - - - 9.4 113.0 122.4 4.3 126.7
Dividends - - - - (42.5) (42.5) (1.5) (44.0)
Share-based payments - - - - (3.9) (3.9) - (3.9)
--------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 31 December 2018 34.0 230.5 0.9 6.4 192.1 463.9 21.1 485.0
--------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Consolidated balance sheet
as at 31 December 2019
2019 2018
GBPm GBPm
--------------------------------------------- ------- -------
Non-current assets
Goodwill 324.4 336.5
Acquired intangible assets 56.8 69.1
Other intangible assets 22.0 5.1
Property, plant and equipment 404.9 370.0
Deferred tax assets 22.8 23.4
Investment in joint ventures 7.5 8.6
--------------------------------------------- ------- -------
Total non-current assets 838.4 812.7
--------------------------------------------- ------- -------
Current assets
Inventories 121.9 141.9
Trade and other receivables 190.6 232.9
Cash and cash equivalents 103.6 96.9
Derivative financial instruments 4.9 -
--------------------------------------------- ------- -------
Total current assets 421.0 471.7
--------------------------------------------- ------- -------
Total assets 1,259.4 1,284.4
--------------------------------------------- ------- -------
Current liabilities
Borrowings - (70.1)
Trade and other payables (232.9) (263.2)
Lease liabilities (7.5) -
Current tax liabilities (38.7) (38.3)
Provisions for other liabilities and charges (4.9) (9.4)
Derivatives financial instruments (14.3) (5.3)
--------------------------------------------- ------- -------
Total current liabilities (298.3) (386.3)
--------------------------------------------- ------- -------
Non-current liabilities
Borrowings (82.9) (240.8)
Trade and other payables (0.5) (0.7)
Lease liabilities (34.4) -
Deferred tax liabilities (30.8) (34.3)
Retirement benefit obligations (140.0) (132.5)
Provisions for other liabilities and charges (2.0) (4.8)
--------------------------------------------- ------- -------
Total non-current liabilities (290.6) (413.1)
--------------------------------------------- ------- -------
Total liabilities (588.9) (799.4)
--------------------------------------------- ------- -------
Net assets 670.5 485.0
--------------------------------------------- ------- -------
Equity
Share capital 42.5 34.0
Share premium 421.1 230.5
Capital redemption reserve 0.9 0.9
Hedging and translation reserve (19.5) 6.4
Retained earnings 204.4 192.1
--------------------------------------------- ------- -------
Equity attributable to equity holders of the
parent 649.4 463.9
Non-controlling interests 21.1 21.1
--------------------------------------------- ------- -------
Total equity 670.5 485.0
--------------------------------------------- ------- -------
The financial statements were approved by the Board of Directors
and authorised for issue on 5 March 2020.
Consolidated cash flow statement
for the year ended 31 December 2019
2019 2018
--------------- ----------------
GBPm GBPm GBPm GBPm
----------------------------------------------- ------ ------- ------ ------
Operating
Cash generated from operations 170.2 124.9
Interest received 0.9 1.1
Interest paid (7.0) (5.6)
Interest element of lease payments (1.1) -
----------------------------------------------- ------ ------- ------ ------
Net interest paid (7.2) (4.5)
UK corporation tax paid - -
Overseas corporate tax paid (11.1) (23.0)
----------------------------------------------- ------ ------- ------ ------
Total tax paid (11.1) (23.0)
----------------------------------------------- ------ ------- ------ ------
Net cash inflow from operating activities 151.9 97.4
----------------------------------------------- ------ ------- ------ ------
Investing
Dividends received from joint ventures 1.6 1.1
Purchase of property, plant and equipment
and intangible assets (69.1) (75.7)
Sale of property, plant and equipment 0.3 17.5
----------------------------------------------- ------ ------- ------ ------
Net capital expenditure (68.8) (58.2)
Purchase of business - (25.8)
Proceeds from sale of businesses - 3.7
----------------------------------------------- ------ ------- ------ ------
Net cash outflow from investing activities (67.2) (79.2)
----------------------------------------------- ------ ------- ------ ------
Financing
Dividends paid (47.9) (42.5)
Dividends paid to non-controlling interests (0.6) (1.5)
Proceeds on issue of shares 199.1 -
Settlement of equity-settled share-based
payments (2.5) (5.4)
Repayment of principal portion of lease
liabilities (6.8) -
Repayment of borrowings (216.3) (63.5)
Proceeds of borrowings 15.0 103.9
----------------------------------------------- ------ ------- ------ ------
Net cash outflow from financing activities (60.0) (9.0)
----------------------------------------------- ------ ------- ------ ------
Comprising inflows to:
Cash and cash equivalents 4.1 5.6
Bank overdrafts 20.6 3.6
----------------------------------------------- ------ ------- ------ ------
Increase in cash and bank overdrafts during
the year 24.7 9.2
----------------------------------------------- ------ ------- ------ ------
Cash, cash equivalents and bank overdrafts
at 1 January 76.2 65.4
Foreign exchange and other movements 2.7 1.6
----------------------------------------------- ------ ------- ------ ------
Cash, cash equivalents and bank overdrafts
at year end 103.6 76.2
----------------------------------------------- ------ ------- ------ ------
Reconciliation of net cash flow from operating activities to
movement in net debt
2019 2018
GBPm GBPm
-------------------------------------------------- ------ ------
Net cash inflow from operating activities 151.9 97.4
Add back: dividends received from joint ventures 1.6 1.1
Less: net capital expenditure (68.8) (58.2)
Less: net purchase of business - (22.1)
-------------------------------------------------- ------ ------
84.7 18.2
Ordinary dividends paid (47.9) (42.5)
Dividends paid to non-controlling interests (0.6) (1.5)
Proceeds on issue of shares 199.1 -
Settlement of equity-settled share-based payments (2.5) (5.4)
Principal element of lease payments (6.8) -
Foreign exchange and other movements 8.7 (2.3)
-------------------------------------------------- ------ ------
Decrease/(increase) in net debt 234.7 (33.5)
-------------------------------------------------- ------ ------
Notes to the financial statements
1. Special Items
IFRS and Underlying performance
The IFRS profit measures show the performance of the Group as a
whole and as such include all sources of income and expense,
including both one-off items and those that do not relate to the
Group's ongoing businesses. To provide additional clarity on the
ongoing trading performance of the Group's businesses, management
uses "Underlying" performance as an alternative performance measure
to plan for, control and assess the performance of the segments.
Underlying performance differs from the IFRS measures as it
excludes Special Items.
Special Items
The definition of Special Items is shown in note 9 and has been
consistently applied. These Special Items are either irregular, and
therefore including them in the assessment of a segment's
performance would lead to a distortion of trends, or are technical
adjustments which ensure the Group's financial statements are in
compliance with IFRS but do not reflect the operating performance
of the segment in the year, or both. An example of the latter is
the amortisation of acquired intangibles, which principally relates
to acquired customer relationships. The Group incurs costs, which
are recognised as an expense in the income statement, in
maintaining these customer relationships. The Group considers that
the exclusion of the amortisation charge on acquired intangibles
from Underlying performance avoids the potential double counting of
such costs and therefore excludes it as a Special Item from
Underlying performance.
Special Items comprise:
2019 2018
GBPm GBPm
---------------------------------------------------- ------ ------
Special Items
Acquisition costs (9.2) (0.5)
Restructuring and site closure costs (0.8) (12.2)
Foreign exchange gain on rights issue 3.5 -
Amortisation of acquired intangibles (8.7) (16.4)
Sale of businesses - 3.8
Sale of land - 16.4
Aborted bond costs - (1.7)
UK Guaranteed Minimum Pension equalisation - (2.8)
Operating loss (15.2) (13.4)
---------------------------------------------------- ------ ------
Finance costs
Fair value loss on unhedged interest derivatives (0.5) (1.4)
---------------------------------------------------- ------ ------
Total Special Items (15.7) (14.8)
---------------------------------------------------- ------ ------
The following items of income and expense have been reported as
Special Items:
-- Acquisition costs relate to the proposed acquisition of
OMNOVA partly offset by a gain of GBP4.0m on a foreign exchange
derivative entered into in July 2019 to hedge the acquisition
price. The 2018 costs related to the BASF Pischelsdorf
acquisition.
-- Restructuring and site closure costs largely comprise a charge of GBP1.9m in relation to the reorganisation of the Group into global business segments. This is partly offset by a partial reversal of the provision recognised in 2018 for the closure of the natural rubber and polyester resins production lines as certain elements have been less expensive than originally estimated.
-- Foreign exchange gain on rights issue represents a gain made
on a forward contract which was entered into to swap the proceeds
of the Sterling rights issue into Euro in order to pay down part of
the Group's Euro borrowings.
-- Amortisation of acquired intangibles decreased during the
year as the customer-related intangibles from the 2011 PolymerLatex
acquisition reached the end of their amortisation period in H1
2018.
-- Sale of businesses in 2018 related to the disposal of the
Leuna (Germany) site and the disposal of 51% of the Group's Dubai
operations.
-- Sale of land in 2018 related to the disposal of the final
tranche of Malaysian land at Kluang.
-- Ahead of the Group's 2018 refinancing, a process was
undertaken to issue unsecured fixed rate senior notes. Despite a
strong response from investors, the Group decided not to complete
the transaction due to unfavourable market conditions.
-- A GBP2.8m adjustment was booked in H2 2018 following the UK
High Court's ruling on equalisation of male and female Guaranteed
Minimum Pensions. This was treated as a pension plan amendment,
unrelated to the Underlying performance of the Group.
-- In July 2018 the Group entered into swap arrangements to fix
Euro interest rates on the full value of the EUR440m committed
unsecured revolving credit facility. The fair value of the unhedged
interest rate derivatives relates to the mark to market of the swap
at 31 December 2019 in excess of the Group's current borrowings
2. Segmental analysis
Following a review in 2018, a new Group structure was adopted
with effect from 1 January 2019 to reflect the increasingly global
nature of the Group's operations. The new structure enables
Synthomer to better serve its customers, provide a global product
offering and to drive operational efficiencies. The three new
reportable segments are:
Performance Elastomers
Performance Elastomers is focused on healthcare, paper, carpet,
compounds and foam markets through our Nitrile Butadiene Rubber
latex (NBR) and Styrene Butadiene Rubber latex (SBR) products.
Functional Solutions
Functional Solutions is focused on coatings, construction,
adhesives and technical textiles markets through our acrylic and
vinylic water-based dispersions products.
Industrial Specialities
Industrial Specialities is focused on speciality chemical
additives and non-water-based chemistry for a broad range of
applications from polymer additives to emerging materials and
technologies.
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.
2019
------------------------------------------------------------
Unallocated
Performance Functional Industrial corporate
Elastomers Solutions Specialities expenses Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- ----------- -------
Revenue 623.7 612.8 222.6 - 1,459.1
------------------------------ ----------- ---------- ------------- ----------- -------
EBITDA 96.3 69.9 24.8 (13.1) 177.9
Depreciation and amortisation (24.8) (17.6) (8.8) (0.9) (52.1)
------------------------------ ----------- ---------- ------------- ----------- -------
Underlying operating profit 71.5 52.3 16.0 (14.0) 125.8
Special Items (0.3) (4.3) (4.7) (5.9) (15.2)
Operating profit 71.2 48.0 11.3 (19.9) 110.6
------------------------------ ----------- ---------- ------------- ----------- -------
Finance costs(2) (10.1)
Profit before taxation 100.5
------------------------------ ----------- ---------- ------------- ----------- -------
2018 (restated)(1)
------------------------------------------------------------
Unallocated
Performance Functional Industrial corporate
Elastomers Solutions Specialities expenses Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- ----------- -------
Revenue 704.5 680.1 234.3 - 1,618.9
------------------------------ ----------- ---------- ------------- ----------- -------
EBITDA 107.9 64.1 23.5 (14.5) 181.0
Depreciation and amortisation (20.7) (11.1) (6.8) (0.3) (38.9)
------------------------------ ----------- ---------- ------------- ----------- -------
Underlying operating profit 87.2 53.0 16.7 (14.8) 142.1
Special Items (2.5) (2.6) (4.6) (3.7) (13.4)
Operating profit 84.7 50.4 12.1 (18.5) 128.7
------------------------------ ----------- ---------- ------------- ----------- -------
Finance costs(2) (8.4)
Profit before taxation 120.3
------------------------------ ----------- ---------- ------------- ----------- -------
1 - Restated to reflect the new global organisational structure
effective from 1 January 2019.
2 - Finance costs include GBP0.5m (2018: GBP1.4m) of fair value
losses on unhedged interest derivatives which are treated as a
Special Item.
3. Reconciliation of operating profit to cash generated from
operations
2019 2018
GBPm GBPm
--------------------------------------------------- ------ ------
Operating profit 110.6 128.7
Less: share of profit of joint ventures (0.9) (0.4)
---------------------------------------------------- ------ ------
109.7 128.3
Adjustments for:
Depreciation of property, plant and equipment 43.4 37.8
Depreciation of right of use assets 7.3 -
Amortisation of other intangible assets 1.4 1.1
Share-based payments 0.6 1.5
Special Items 15.2 13.4
Cash impact of restructuring and site closure (4.4) (3.3)
Cash impact of acquisition costs (7.5) (0.5)
Cash impact of foreign exchange gain on rights
issue 3.5 -
Cash impact of aborted bond costs - (1.2)
Pension funding (17.5) (17.0)
Decrease/(increase) in inventories 15.0 (13.5)
Decrease/(increase) in trade and other receivables 34.3 (5.6)
Decrease in trade and other payables (30.8) (16.1)
Cash generated from operations 170.2 124.9
---------------------------------------------------- ------ ------
4. Dividends
2019 2018
--------------- -----------------
Pence per GBPm Pence per GBPm
share share
(restated)
------------------------ --------- ---- ----------- ----
Interim dividend 4.0p 17.0 3.7p 13.6
Proposed final dividend 6.9p 29.3 8.5p 30.9
------------------------ --------- ---- ----------- ----
10.9p 46.3 12.2p 44.5
------------------------ --------- ---- ----------- ----
The 2018 dividend per share figures have been restated to
reflect the bonus factor of 1.0713 arising from the rights issue
which completed on 29 July 2019.
5. Earnings per share
2019 2018 (restated)
------------------------------ ------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items Total
Earnings
Profit/(loss) attributable
to equity holders of the
parent GBPm 99.5 (14.9) 84.6 111.6 (11.8) 99.8
Number of shares
Weighted average number
of ordinary shares - basic '000 393,349 363,977
Weighted average number
of ordinary shares - diluted '000 395,458 365,914
Earnings per share
Basic earnings per share p 25.3p (3.8)p 21.5p 30.7p (3.3)p 27.4p
Diluted earnings per share p 25.2p (3.8)p 21.4p 30.5p (3.2)p 27.3p
The weighted average number of ordinary shares for year to 31
December 2018, used in the calculation of earnings per share, have
been adjusted by multiplying by an adjustment factor of 1.0713 to
reflect the bonus element in the shares issued under the terms of
the rights issue which completed on 29 July 2019.
6. Finance costs
2019 2018
GBPm GBPm
--------------------------------------------------- ----- -----
Interest payable on bank loans and overdrafts 6.7 4.9
Less: interest receivable (0.9) (1.1)
5.8 3.8
Net interest expense on defined benefit obligation 2.7 3.2
Interest element of lease payments 1.1 -
Net interest payable 9.6 7.0
Fair value loss on unhedged interest derivatives 0.5 1.4
--------------------------------------------------- ----- -----
Total finance costs 10.1 8.4
--------------------------------------------------- ----- -----
The fair value of the unhedged derivatives relates to the
mark-to-market of the swap arrangements at 31 December 2019 in
excess of the current borrowings of the Group. This has been taken
through Special Items as it is not reflective of the Underlying
performance.
7. Analysis of net debt
2019 2018
GBPm GBPm
---------------------------------------------------- ------ -------
Current borrowings
Bank overdrafts - (20.7)
Bank loans - Unsecured EUR55m loan expiring 26 July
2019 - (49.4)
---------------------------------------------------- ------ -------
- (70.1)
Non-current borrowings
Bank loans - EUR440m committed unsecured revolving
credit facility expiring 23 July 2022 (82.9) (240.8)
(82.9) (240.8)
Total borrowings (82.9) (310.9)
---------------------------------------------------- ------ -------
Cash and cash equivalents 103.6 96.9
Net debt 20.7 (214.0)
---------------------------------------------------- ------ -------
Net debt is defined in the glossary of terms in note 9.
8. Changes in accounting policies
The Group adopted IFRS 16 Leases with effect from 1 January 2019
but has not restated comparatives for the 2018 reporting period, as
permitted under the specific transitional provisions in the
standard. The reclassifications and the adjustments arising from
the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
A summary of the impact of the adoption of IFRS 16 is set out
below:
2019
---------------------------------
Amounts
without
adoption
of IFRS 16
IFRS 16 Impact As reported
GBPm GBPm GBPm
--------------------------------------------- --------- --------- -----------
Impact on the consolidated income statement:
EBITDA 170.0 7.9 177.9
Depreciation and amortisation (44.8) (7.3) (52.1)
--------------------------------------------- --------- --------- -----------
Underlying operating profit 125.2 0.6 125.8
--------------------------------------------- --------- --------- -----------
Special Items (15.2) - (15.2)
--------------------------------------------- --------- --------- -----------
Operating profit 110.0 0.6 110.6
--------------------------------------------- --------- --------- -----------
Finance costs (9.0) (1.1) (10.1)
--------------------------------------------- --------- --------- -----------
Profit before taxation 101.0 (0.5) 100.5
--------------------------------------------- --------- --------- -----------
Taxation (14.9) - (14.9)
--------------------------------------------- --------- --------- -----------
Profit for the year 86.1 (0.5) 85.6
--------------------------------------------- --------- --------- -----------
Impact on earnings per share:
--------------------------------------------- --------- --------- -----------
Basic 21.6p (0.1)p 21.5p
--------------------------------------------- --------- --------- -----------
31 December
2019
Lease liabilities included in the balance
sheet: GBPm
Current 7.5
Non-current 34.4
--------------------------------------------- --------- --------- -----------
Total 41.9
--------------------------------------------- --------- --------- -----------
9. 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 of 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).
----------------------------------------------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSDESLESSESD
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