TIDMSYNT
RNS Number : 1559R
Synthomer PLC
04 March 2021
Synthomer plc
Preliminary Results for the year ended 31 December 2020
Differentiated and Diversified Business Drives Strong Growth
HIGHLIGHTS Constant
2020 2019 Reported currency(2)
-------- -------- --------- -------------
Underlying performance GBPm GBPm % %
(1)
Group Revenue 1,644.2 1,459.1 12.7 12.8
-------- -------- --------- -------------
Volumes (ktes) 1,638.2 1,465.7 11.8
-------- -------- ---------
EBITDA
Performance Elastomers 142.5 96.3 48.0 50.8
Functional Solutions 95.6 69.9 36.8 36.5
Industrial Specialities 41.2 23.8 73.1 72.7
Acrylate Monomers (2.4) 1.0 (340.0) (350.0)
Corporate (17.5) (13.1) 33.6 33.6
EBITDA 259.4 177.9 45.8 47.1
Depreciation (69.8) (52.1) 34.0 34.0
-------- -------- --------- -------------
Operating profit (EBIT) 189.6 125.8 50.7 52.5
-------- -------- --------- -------------
Finance costs (29.6) (9.6) 208.3 208.3
Profit before tax 160.0 116.2 37.7 39.6
-------- -------- --------- -------------
Free Cash Flow(3) 167.6 92.8 80.6
EPS (p) 28.9 25.3 14.2
IFRS performance
Operating profit 58.4 110.6 (47.2)
Profit before tax 20.3 100.5 (79.8)
EPS (p) 0.7p 21.5p (96.7)
1. Underlying performance excludes Special Items, unless otherwise stated.
2. Constant currency revenue and profit measures retranslate
current year results for legacy Synthomer using the prior year's
average exchange rates. Results from businesses acquired in the
year are not retranslated.
3. 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.
Full Year Highlights
Group EBITDA increased 46% to GBP259.4 million (2019: GBP177.9
million), with strong growth in each of Synthomer's three main
divisions
- Legacy Synthomer EBITDA up 27% to GBP226.4 million (2019:
GBP177.9 million). OMNOVA contributed GBP33.0 million since
acquisition
- Performance Elastomers EBITDA up 48% with another record year
in NBR, benefitting from investment in new capacity and ongoing
growth in demand for hygiene products
- Functional Solutions EBITDA up 37%, helped by a stronger
global position following the integration of OMNOVA and increased
market diversity
- Industrial Specialities EBITDA up 73%, driven by the
integration of the OMNOVA surfaces businesses
- Underlying operating profit up 50.7% at GBP189.6 million
(2019: GBP125.8 million), IFRS operating profit GBP58.4 million
(2019: GBP110.6 million)
- New product development remains strong at 22% (2019: 22%)
Free Cash Flow up 81% to GBP167.6 million, accelerating
deleveraging and supporting a robust balance sheet
- Prudent and proactive actions taken at the onset of COVID-19 to preserve cash and liquidity
- Net debt reduced to GBP462.2 million, since the acquisition of
OMNOVA, with proforma leverage of 1.8x
- Issued EUR520 million of 3.875% unsecured senior loan notes
due 2025, providing committed long-term financing
OMNOVA integration ahead of schedule and synergy target
increased to $40 million
- $40 million of run rate synergies expected by end of 2022 (vs investment case of $30 million)
- Delivered $30 million of run rate synergies by end of 2020
Good progress on Environment, Social and Governance ('ESG')
targets:
- Delivering against three core ESG priorities: Carbon and
Climate Change, Diversity and Inclusion, Sustainable Supply Chain
Assurance
- 8.5% reduction of Scope 1 and 2 carbon emissions in enlarged Group in 2020
- Diversity and Inclusion targets introduced
Strategic review of European SBR network concluded
- Consultations with employees at Oulu (Finland) and Marl
(Germany) completed with planned SBR capacity reduction projects
for graphic paper applications in place for 2021
2020 final dividend proposal confirmed
- Final 2020 dividend of 8.6 pence in line with Group's dividend policy, (2019: nil pence)
Commenting on the results, Caroline Johnstone, Chair, said:
"Thanks to the dedication and hard work of our employees, and
the differentiation and diversification of the business, Synthomer
has delivered a strong performance in the face of COVID-19. We have
produced record profits, de--leveraged and are well funded for
future growth. This performance is testament to the consistent
delivery of our strategy and the investments we have made over the
past five years.
Throughout 2020, all our sites continued to p roduce without any
significant interruption and we delivered record volumes to our
customers. Alongside this, the business successfully completed and
integrated the largest acquisition in its history, largely on a
remote basis. Our business model has proven resilient in the
toughest of circumstances.
As we look to the future, the business is in a strong position.
Whilst the Group will continue to adapt its operations in response
to the ongoing COVID-19 pandemic, at this stage we expect no
meaningful disruption. The Board is confident that the benefits of
the OMNOVA acquisition, recent investment in new capacity, further
efficiency measures and a proven strategy will underpin future
growth. The current performance of our Performance Elastomers
business, driven by exceptional demand for Nitrile latex as a
consequence of the COVID-19 pandemic, may drive particularly strong
one-off profitability in 2021, but we expect this to return to more
normal levels as we move into 2022."
Further information:
Calum MacLean, Chief Executive Tel: 01279 436211
Officer
Stephen Bennett, Chief Financial
Officer
Tim Hughes, President, Corporate
Development
Charles Armitstead/ Matt Denham, Tel: 07703 330 269 / 07825 735596
Teneo
The Company will host an audiocast for analysts and investors at
09.00 today. To participate please register at www.synthomer.com ,
please visit the Investor Relations homepage and click on the
webcast link provided to register.
Chair's statement
Thanks to the dedication and hard work of our employees, and the
differentiation and diversification of the business, Synthomer has
delivered a strong performance in the face of COVID-19. We have
delivered record profits de--leveraged and are well funded for
future growth. This performance is testament to the strategy that
we have been consistently executing and the investments that we
have been making over the past five years.
Responding to the pandemic - in the interests of all
stakeholders
As an essential industry we have been able to contribute to the
pandemic response in a very direct way, continuing to make products
critical to society such as our Nitrile latex, which is used in the
production of medical protective gloves. We have maintained our
supply chains across the world to flexibly meet the needs of our
customers where COVID-19 has impacted demand. We have introduced
risk assessed social distancing across our plants, laboratories and
offices and deployed technology to allow our business to continue
safely. On behalf of the Board I would like to thank every one of
our employees who have all worked so hard to deliver Synthomer's
significant progress in the most challenging conditions.
Like many other businesses, the pandemic presented difficult
choices for management and the Board. We took the difficult
decision not to recommend the payment of a final dividend for 2019,
to significantly reduce capital expenditure and to suspend senior
management/Board salary reviews, in order to protect the business
and maintain Synthomer's strong liquidity, cash flow and financial
position. We maintained a strong balance sheet throughout and
closed the year with a return to target levels of leverage. The
Group is well positioned to take full advantage of opportunities as
we emerge from the immediate effects of the pandemic.
Due to the resilience and performance of the business, we
reinstated a 2020 interim dividend. Before taking this decision,
the Board agreed that GBP410,000 UK Government furlough support
should be repaid in October 2020.
Integrating OMNOVA and strengthening the growth platform
With the acquisition of OMNOVA, which was completed on 1 April
2020, Synthomer extended its position as a global leader in
water-based polymer solutions, strengthening our geographic
platform, customer reach and operational network and capabilities.
Synthomer welcomed 1,850 OMNOVA employees into the Group across 13
manufacturing sites in 6 countries.
We are focused on driving operational efficiencies, optimising
our network and innovating for our 6,000 customers around the
world. The speed of integration puts us in a strong position to
invest in further growth, innovation and our people.
Embedding our Purpose, Values and Culture
Our purpose, which was refined in 2020, is to create innovative
and sustainable polymer solutions for the benefit of customers and
society. It is supported by our five values: Safety, Health and
Environment (SHE), Accountability, Integrity, Teamwork and
Innovation. The Board and Executive Committee has worked hard to
engage all employees across the business to build alignment around
our purpose, our values and policies and practices, which underpin
our culture. There is a can-do and open culture in Synthomer and
this is evident in all the people with whom the Board and I
interact.
Committed to Sustainability
Sustainability is an increasing priority for Synthomer,
stakeholders and the whole of society. Our water-based polymers
allow markets to substitute higher carbon containing solvent-based
products which also contain high levels of volatile organic
compounds. This water-based substitution drives stronger growth in
our business and allows customers to comply with stringent
sustainability regulations.
Our focus on innovation allows us to introduce latest generation
products and processes to meet customer requirements and drive our
differentiation strategy. Our manufacturing excellence toolkit
allows us to minimise the use of resources by optimising the
efficiency of our global operations. We have a strong foundation in
sustainability but there is more to do in driving the use of
alternative raw materials from the most sustainable suppliers,
completing our assessment of Scope 3 greenhouse gas emissions and
minimising our carbon footprint to allow us to deliver a net zero
position by 2050.
In 2020, we took significant action to drive the ongoing
improvement in both our carbon footprint and our sustainable supply
chain. The Board made a decision to end the use of coal for energy
generation across the Group. The closure of the coal fired power
station at our Sokolov (Czech Republic) site will be completed in
2021. The Group made a significant commitment to source renewable
electricity across Europe and North America and is exploring
further moves in Asia. These decisions are expected to remove over
100ktes of our 415ktes total Scope 1 and Scope 2 greenhouse gas
emissions by the end of 2022.
Our latest 2022 ESG targets reflect the new enlarged Group and
in 2021 we plan to introduce 2030 targets and evaluate the
introduction of science-based targets. We are committed to
reporting using the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD) and will produce our
first disclosure in our next Annual Report.
Improving Diversity and Inclusion
Across our industry and at Synthomer, we must do better in
developing diverse talent and bringing them through to senior
leadership. We make better and more informed decisions when we have
diversity right across our business and we will need this to
continue to deliver our strategy, and to attract and retain the
best talent. In Synthomer, the strategy of growth and sustainable
innovation has clearly been attractive to graduates and other new
recruits to the business; over the past 3 years, we have had over
50% female graduate recruits (85% in 2020). This will take time to
come through to the very highest leadership roles of course, but we
have a challenge to retain and develop more diverse senior
leaders.
For senior management (Executive Committee and their reports) we
have set a target of 20% gender diversity by the end of 2021, 25%
by the end of 2022 and 33% by the end of 2025. For ethnicity we
have set a target of having 20% senior management from a non-white
background by the end of 2025.
At the end of 2020, the Synthomer Board comprised one third
female Board membership and 11% non-white membership, in line with
the Hampton-Alexander target and Parker Review recommendations.
Whilst this represented a step forward in 2020, I recognise that we
have more work to do, particularly in the Executive Committee and
their direct reports on diversity.
Board changes bring complementary skills and diversity
In March 2020, Neil Johnson announced that he would be stepping
down as Chair, at the end of his tenure. During that time,
Synthomer has established itself as a leading global differentiated
chemicals business and this was, in no small way, due to Neil's
deft and careful leadership. On behalf of us all, I would like to
thank him for the contribution he made and wish him the very best
for the future. I was privileged to be chosen as the next Chair by
the Board. I am mindful of the long heritage of the business and I
recognise the responsibility to protect and develop it for future
success.
I was delighted Cynthia Dubin joined the Board in July 2020 -
Cynthia's industry, financial and banking experience complements
other skills on the Board. She is already adding a different
perspective to Board discussions.
In January 2021, Calum MacLean announced that, following 6
successful years, he intends to stand down as Chief Executive
Officer of Synthomer by January 2022. I would like to thank Calum
for everything that he has done to take Synthomer forward. His
leadership and vision have transformed the business into a truly
leading global diversified and differentiated chemicals company.
The process to select a new Chief Executive Officer is well
underway and will include both internal and external
candidates.
Dividend
Following the reintroduction of the 2020 interim dividend the
Board has recommended a final ordinary dividend of 8.6p (2019: nil
p) per share. Taken with the 2020 interim ordinary dividend of 3.0p
(2019: 4.0p) per share, the total ordinary dividend is 11.6p (2019:
4.0p). The total dividend for the year is in line with the Group's
dividend policy with the dividend representing 40% of the
Underlying earnings per share. The final dividend per share is
subject to shareholder approval at the Annual General Meeting on 29
April 2021 and will be payable on 5 July 2021 to those shareholders
registered at the close of business on 3 June 2021.
Caroline Johnstone
Chair
4 March 2021
Chief Executive Officer's review
Safety, Health and Environment (SHE)
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 SHE activities, which are supported by
appropriate levels of investment, improvement initiatives and by
rigorous supervision of the Group SHE team. Our performance against
these standards is reported at each Executive Committee and Board
meeting and we target consistent world class performance in our
safety key performance indicators.
2020 has seen significant activity in two areas - firstly the
integration of OMNOVA, including the introduction of Synthomer SHE
standards and policies and secondly, the safe operation of all our
facilities during COVID-19. Our global network of sites operated
throughout the pandemic during which time they were defined as
"essential industry". All our sites and offices were risk assessed
and practices adopted to allow them to operate safely and
effectively.
The acquisition of OMNOVA presented the opportunity to deploy
our proven SHE techniques across our expanded network of 38 sites
(OMNOVA added 13 sites to our 25 site Synthomer network). Intensive
activity has seen Synthomer 'Golden Rules and Principles'
introduced along with common methods of recording and reporting
occupational, process and environmental results. Common ways of
working are now fully introduced. OMNOVA sites have SHE key
performance indicators results below that of legacy Synthomer sites
and improvement plans are now in place to improve this
performance.
In 2020 our legacy Synthomer three year rolling all injury rate
saw a 65% reduction to 0.21 and our process safety rate saw a 60%
reduction to 0.11 over the last three years, with long-term
underlying rates reducing significantly over the past six
years.
Business environment and performance
Synthomer employees have worked tirelessly in a hugely
challenging environment to deliver the strong performance of 2020.
Their determination to maintain and deliver products for the
benefit of customers, society and the Company whilst continuing to
work safely and with due consideration for others has been
exceptional. I would like to thank each of them for all they have
done in 2020.
At the outset of the pandemic, the Group took tough decisions
early to manage the resulting uncertainty. We reduced capex to
manage cash flows and preserve liquidity, whilst retaining our
focus on SHE and key strategic growth projects. Our final 2019
dividend was cancelled, but 2020 dividends were reinstated at the
earliest opportunity as the business delivered a strong and
sustainable recovery in Q3 2020.
The Group's robust performance, despite the challenging
conditions brought about by the pandemic, is testament to our
differentiated portfolio of products serving diverse end markets
across the globe. We continue to make strong progress in
positioning the business to deliver on its strategy of driving
long-term growth through organic and inorganic investment
decisions.
Our strong performance in 2020 delivered a year of record
Underlying profitability and Free Cash Flow. EBITDA increased by
46% to GBP259.4 million from GBP177.9 million in the prior year.
Growth came from each of our core global divisions, Performance
Elastomers, Functional Solutions, Industrial Specialities.
Performance Elastomers saw a 48% increase in EBITDA to GBP142.5
million as our Nitriles business continued to benefit from our
significant investment in capacity and technology combined with the
ongoing growth in demand for medical protective gloves due to the
COVID-19 pandemic and the health and hygiene megatrend. This could
lead to significant further growth in 2021, but with anticipated
further market capacity additions, we expect this to normalise over
the second half of 2021 and into 2022. We made significant progress
to restructure our SBR business by improving plant utilisation and
reducing its cost base, the benefits of which we expect to start to
see in 2021.
Functional Solutions saw a 37% increase in EBITDA to GBP95.6
million as OMNOVA added 9 months of additional profitability and
the underlying business continued to benefit from improved
differentiation, superior mix and geographical growth.
Industrial Specialities saw a 73% increase in EBITDA to GBP41.2
million benefiting from 9 months of OMNOVA profitability and the
resilience of this business in the face of weaker automotive
markets, which were impacted due to COVID-19.
Free cash flow of GBP167.6 million (2019: GBP92.8 million) was
strong, primarily reflecting the growth in profitability, tight
working capital control including the benefits derived from OMNOVA
being managed in line with Synthomer processes. The cash saving
from proactively reducing capex to GBP53.8 million reflected the
early decisions taken to mitigate the impact of COVID-19 and
preserve cash. Capital spend was in line with post COVID-19 plans
as we focused on our strategic Nitrile latex capacity growth
project, the Asian Innovation Centre as well as our SHE and
essential sustenance projects.
Our strong cash flow allowed us to reduce our closing net debt
to GBP462.2 million and our leverage to 1.8x, within our target
range of 1 to 2x. This performance was delivered one year ahead of
our investment case for the acquisition of OMNOVA and is a sign of
the underlying strength of the cash flow of the Group.
Inorganic growth - OMNOVA
We completed the GBP654 million acquisition of OMNOVA, a US
listed speciality chemicals company on 1 April 2020. The
transaction creates a truly global differentiated chemicals company
with significant scale and a robust platform from which to invest
and drive its sustainable growth strategy. As a result of this
transaction, Synthomer has extended its position as the global
leader in sustainable water-based polymer solutions. We have
greater customer reach, improved market positions, stronger
operational capabilities and superior innovation platforms. The
strong strategic fit brings significant synergy potential which in
turn will bring growth and additional stakeholder value.
The integration of the acquisition was completed successfully,
ahead of schedule and with enhanced cost synergies. Integration
took place during the pandemic and benefited from the preparation
in place prior to completion, the strong cultural overlap between
the businesses and the commitment of all of those involved. We now
expect to deliver $40 million of recurring pre-tax cost synergies
by April 2023 and have already delivered $30 million run rate
synergies in 2020.
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 structure will
continue to operate unchanged with larger, lower cost global
divisions providing the most efficient and effective structure to
operate the integrated business. Synthomer will continue to utilise
its proven best practice manufacturing and commercial excellence
processes to drive productivity, reduce costs and accelerate
revenue synergy opportunities across the enlarged Group.
Whilst our focus in 2021 remains fully embedding OMNOVA and
delivering cost and revenue synergies, the Group will resume its
disciplined approach to assessing bolt-on and transformational
acquisition opportunities to drive further stakeholder value.
Organic growth - benefitting from growth capex and
transformation programmes
Our strategy of sustainable growth is built on our strong
geographic and end market diversity combined with 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.
Our continued growth in 2020 came directly as a result of our
growth capex programme between 2017 to 2019 and the commissioning
of new low-cost capacity as a result of de-bottlenecking existing
facilities in Performance Elastomers and Functional Solutions. In
Performance Elastomers our GBP45 million investment in 90ktes
Nitrile latex capacity expansion at Pasir Gudang (Malaysia)
delivered improved market share to serve the high growth health and
protection glove market. This asset was sold out from Q1 2020 due
to the strong growth of this market accelerated by COVID-19. Whilst
we reduced our capital investment programme in 2020 as a prudent
measure due to the uncertainty of COVID-19, we maintained our
planned investment to deliver an additional 60ktes at Pasir Gudang
in Q4 2021. Synthomer is committed to supporting long-term growth
in the Nitrile latex market through capacity expansion and
innovation of market leading products such as our patented
SyNovus(R) range.
The strategic review of our European SBR network was announced
in Q4 2019 to address lower plant utilisation rates across our SBR
assets resulting from slower economic activity and ongoing weaker
demand for coated graphic paper. Good progress has been made during
the year with the European SBR network review, the benefits of
which will start to feed through in 2021 with the closure of the
Oulu (Finland) site and the streamlining of our operation in Marl
(Germany), rationalising the cost base and increasing the
utilisation rates on the remaining assets in Marl, Filago (Italy)
and Pischelsdorf (Austria) .
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), and Ribécourt
(France). Our 'Mindset' non-manpower fixed cost reduction programme
commenced in 2019 in Europe and will continue to be rolled out
further in 2021 with the goal of minimising the impact of
inflationary cost pressures.
Innovation
Innovation continues to be a core pillar of our growth strategy.
It allows Synthomer to secure improved and differentiated market
positions and provide solutions to generate added value for our
customers. The acquisition of OMNOVA presented a significant
opportunity to increase the innovation pipeline, strengthen the
technology portfolio across wider markets and geographies and
optimise the structure for innovation globally.
Under the leadership of our newly appointed Chief Technology
Officer, Marshall Moore, who joined us from OMNOVA and now sits on
the Executive Committee, the Group will focus on four global
technology and innovation centres of excellence, with strong local
application and technical service centres to ensure we can maximise
our global yet local operating model.
New product development is a key KPI for our business measuring
innovation and is a measure of the percentage of sales volume
coming from products introduced in the past five years and patented
products. For the enlarged Group this was 22%, in excess of our 20%
target. The legacy OMNOVA and Synthomer businesses have comparable
levels of innovation.
To further enhance our innovation facilities and drive greater
efficiency and scale, we opened our state-of-the-art Asian
Innovation Centre in Malaysia in Q3 2020. The new facility will
bring additional space and allow us to build upon the accelerated
time-to-market for new innovations that we have delivered in recent
years.
Sustainability
We continue to operate to the highest standards in this area and
benefit from our focus on water-based polymer solutions, innovation
and manufacturing excellence and maintaining the highest levels of
corporate governance. We are aware, however, that more needs to be
done. In 2021, our priorities for ESG will be on our Carbon and
Climate Change, Diversity and Inclusion and Sustainable Supply
Chain Assurance.
The decision was taken to close the coal fired power station at
Sokolov (Czech Republic). This action will eliminate the use of
coal for power generation across the enlarged Synthomer Group. The
decision, combined with the move to electricity sourcing from
renewable sources in Europe and North America, will begin a
material reduction in our Scope 1 and 2 greenhouse gas
emissions.
Summary and outlook
In January 2021, I informed the Board that following 6 years at
the Company I intend to stand down as CEO of Synthomer by January
2022. I believe Synthomer has become a truly leading global
diversified and differentiated chemicals company with a strong
culture and an experienced team capable of driving further strong
growth. The business has delivered significant EBITDA growth since
I joined in 2015 and with the largest acquisition in the history of
the Group now fully integrated, all core parts of the business
growing and our financial outlook strong, now is the right time to
hand over to build on this exciting momentum. A comprehensive
search process has been initiated by the Nomination Committee and I
will remain with the business to oversee a seamless transition of
responsibilities to my successor.
As we look to the future, the business is in a strong position.
Whilst the Group will continue to adapt its operations in response
to the ongoing COVID-19 pandemic, at this stage we expect no
meaningful disruption. The Board is confident that the benefits of
the OMNOVA acquisition, recent investment in new capacity, further
efficiency measures and a proven strategy will underpin future
growth. The current performance of our Performance Elastomers
business, driven by exceptional demand for Nitrile latex as a
consequence of the COVID-19 pandemic, may drive particularly strong
one-off profitability in 2021, but we expect this to return to more
normal levels as we move into 2022.
Calum MacLean
Chief Executive Officer
4 March 2021
Divisional - Underlying performance
Performance Elastomers
Highlights
-- Record Nitrile latex volume underpinned by 90ktes capacity expansion in Pasir Gudang.
-- Investment in new 60ktes Nitrile latex facility in progress,
with capacity expected online Q4 2021.
-- State-of-the-art Asian Innovation Centre investment completed Q3 2020.
-- Challenging year in SBR latex with lower overall volumes and
unit margin mainly driven by weakness of European graphic paper
market, exacerbated by impact of COVID-19.
-- SBR latex network review largely complete with clear plan to deliver required efficiencies.
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 896.0 849.1 5.5
Revenue (GBPm) 680.3 623.7 9.1 9.5
EBITDA (GBPm) 142.5 96.3 48.0 50.8
Operating profit - Underlying
performance (GBPm) 116.8 71.5 63.4 67.0
Operating profit - IFRS (GBPm) 80.8 71.2 13.5
(1) Constant currency revenue and profit measures retranslate
current year results for legacy Synthomer using the prior year's
average exchange rates. Results from businesses acquired in the
year are not retranslated.
Overview
The Performance Elastomers Division delivered EBITDA of GBP142.5
million (2019: GBP96.3 million) and represented 51% of Synthomer's
2020 divisional EBITDA primarily focusing on the Healthcare, Paper,
Carpet and Foam markets. In addition to its existing portfolio, the
acquisition of OMNOVA has expanded the Division's scope to include
the Performance Materials and Elastomeric Modifiers product lines.
The Division continues to have its core chemistry platforms in
Nitrile Butadiene Latex emulsion 'NBR' and Styrene Butadiene Latex
emulsion 'SBR', as well as Powder NBR, Antioxidants and Speciality
SBR for the tyre market. The Division produces 896ktes from its 12
plants operating in Europe, Middle East, South East Asia and China,
as well as from shared assets with Functional Solutions in the
US.
Financial results
2020 was an excellent year for Performance Elastomers setting a
new EBITDA record and significantly ahead of 2019 driven by a
strong NBR performance in Asia. This more than compensated for a
weaker performance from SBR in Europe and the Performance Materials
and Elastomeric Modifiers businesses from OMNOVA. Overall, EBITDA
at GBP142.5 million was 48% above 2019, with Underlying Operating
profit 63% higher at GBP116.8 million.
The impact of Covid-19 was felt across the Division but in two
quite different ways. Following a sluggish Q1 the NBR business
recovered strongly as the impact of the COVID-19 pandemic increased
the demand for Nitrile latex gloves. With no new Synthomer capacity
scheduled until JOB6 comes online at the end of 2021, volume
improvements were delivered through filling the 90ktes JOB5
capacity and additional process improvements. With a surge in
customer demand, and limited competitor capacity coming to the
market, margins progressively increased throughout the remaining
three quarters, partly reflecting a longer raw material market,
ensuring the NBR business continued its track record of improvement
with its third consecutive record year.
Conversely, the SBR business in Europe experienced the downside.
The continuing overcapacity of XSBR latex was exacerbated by a
COVID-19 driven decline in the demand for graphic paper. Demand
dropped further from previous years and many customers faced
enforced downtime while other mills closed and are unlikely to
reopen. In addition, the drop in demand for Carpet and Foam during
this period also contributed to a poor year for this business in
Europe. Volumes showed a further reduction over 2019 with EBITDA
similarly impacted. However, following the severe decline in the
first half of 2020 the second half showed signs of recovery in
Carpet and Foam and a slightly more stable environment in
Paper.
The Performance Materials and Elastomeric Modifiers' business
inherited from OMNOVA are exposed to the Automotive and Plastics
markets which also experienced difficult trading conditions
throughout the year. However, similar to SBR, there were some signs
of recovery in the final quarter.
Special Items for the year were GBP36.0 million (2019: GBP0.3
million) which includes GBP20.9 million of restructuring and site
closure costs for the rationalisation of the Group's European SBR
network and the associated GBP14.7m impairment charge. The balance
relates to amortisation of acquired intangibles. IFRS operating
profit increased by 13.5% to GBP80.8 million.
NBR
With the impact of COVID-19 driving increased demand for NBR,
and the plants running at nameplate capacity, we focused on product
mix and process improvements. This allowed Pasir Gudang to set a
number of new monthly production records during the year and Kluang
also delivered consistently higher output. In total, the Malaysian
plants increased volume by almost 16% in comparison to prior year
underpinning the EBITDA delivery.
We also remained focused on the delivery of the 60ktes JOB6
project. The project remains on track with beneficial production
expected before the end of December 2021.
The demand for Nitrile latex gloves has increased dramatically
and while there will be an end to the surge in requirements as
personal protective equipment stocks reach optimal levels, the
underlying growth is forecast to remain in double digits for some
time to come. Glove producers have continued to invest in
additional global capacity, with China projecting significant
capacity increases in addition to the prospect of new glove lines
being set up in the US and Europe. However, based on current
forecasts, South East Asia and particularly Malaysia will continue
to be the major production location for Nitrile latex gloves well
into the future. The Company believes it is well positioned to
serve future market needs through its global network of plants. The
next phase of capacity investments are currently being assessed and
the outcome will be announced following the conclusion of this work
during H1 2021.
SBR
2020 saw a continuation of the decline in demand for graphic
paper SBR latex in Europe. The introduction of COVID-19 lockdowns
across the region only increased the pressures in an already
challenged market. It remains to be seen if the declines have now
bottomed out, but overcapacity has put volumes and margins under
sustained pressure.
Throughout the year the operation of the plants in Europe
continued largely uninterrupted despite COVID-19, although
production schedules were adjusted to match the lower demand.
In response to the continuing decline and overcapacity in the
SBR market the Company announced a network review which was
completed during the first half of 2020. As a result of the review,
the Company engaged in a consultation process with employees in
Oulu (Finland) and Marl (Germany). The outcome from these
consultations sadly has been a decision to close the Oulu site. The
plant will cease production in Q1 2021 with decommissioning and
demolition completed by the end of 2021. In addition, the
streamlining of our Marl (Germany) site has been agreed, which will
allow the cost base to be rationalised and utilisation rates on the
remaining assets in Marl, Filago (Italy) and Pischelsdorf (Austria)
to be increased. The exact timing is to be confirmed subject to
regulatory approvals for product transfer to the Pischelsdorf
site.
While these were difficult decisions, they were unfortunately
necessary to protect the longer-term viability of the SBR business
in Europe. Protecting the employment of the remaining workforce
and, ensuring a high quality service to our customers remains the
key focus. The Company remains committed to the European SBR latex
market and has taken these steps to more effectively align capacity
with market demand.
Innovation
Innovation is core to Synthomer's Nitrile latex business and the
Division has an exceptional track record in bringing new products
to market, making it a major contributor to Synthomer's innovation
KPI.
As the demand for customer technical service support and product
innovation increased the existing technology centre in Kluang
reached capacity. The Company response was to support a GBP6.5
million investment in a new Asian Innovation Centre in Kulai,
equidistant between the Pasir Gudang and Kluang operations. This
investment will build upon the successful first phase of the NBR
latex capability upgrade and will support increased laboratory
output and more critically replicate our customers dipping
processes. In addition, we firmly believe the new state-of-the-art
facility will enhance Synthomer as an attractive employer, and the
ability to attract and retain high quality staff in a prime
location. The project was finished in Q3 2020 with all employees
transferred by the end of November.
OMNOVA integration and synergies
The acquisition of OMNOVA brought several new market segments
and chemistries to the Division through the integration of the
Performance Materials and Elastomeric Modifiers portfolio. With
minimal product or regional overlap, the integration required the
formation of two new geographically focused organisations, EUUS
focused on the EMEA and the Americas regions and ASEAN,
incorporating Asia, Australasia and the Indian sub-continent. These
were created to give the business the right balance of market
coverage and opportunity to exploit product market synergies where
they existed. This new organisation is able to draw on skills and
experience from both the legacy operations across the globe and has
created a good platform for integration.
Functional Solutions
Highlights
-- Successfully integrated OMNOVA:
- Functional Solutions global volumes increased by 21%.
- Expanded market leading positions in Europe, with increased
presence and product portfolio, and now top 10 position in North
America
- Established a manufacturing footprint in China.
-- Resilient performance during 2020, with 80% of business
feeling only limited impact from the Covid-19 pandemic.
-- Delivered on cost synergy targets, which included the
benefits from organisational re-alignment by merging two
organisations.
-- Delivering on new growth projects for Worms (Germany) and
Roebuck (USA) sites, following 2018 and 2019 investments in
differentiated acrylic dispersions capacity.
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 591.2 487.4 21.3
Revenue (GBPm) 646.7 612.8 5.5 5.3
EBITDA (GBPm) 95.6 69.9 36.8 36.5
Operating profit - Underlying
performance (GBPm) 69.1 52.3 32.1 31.7
Operating profit - IFRS (GBPm) 31.1 48.0 (35.2)
(1) Constant currency revenue and profit measures retranslate
current year results for legacy Synthomer using the prior year's
average exchange rates. Results from businesses acquired in the
year are not retranslated.
Overview
Functional Solutions saw a GBP25.7 million increase in EBITDA
year-over-year to GBP95.6 million with 9 months of additional
profitability from OMNOVA and a resilient legacy Synthomer
performance. The business held up well during the COVID-19
pandemic, reflecting its diverse end markets, customer base and an
increasingly differentiated product portfolio. The Division now
produces 590ktes of products from its 17 plants operating in
Europe, US, Middle East, South East Asia and China as well as from
shared assets with Performance Elastomers and Acrylate
Monomers.
Financial results
Functional Solutions EBITDA was increased by the acquisition of
OMNOVA and by year-on-year growth of 3% in the legacy Synthomer
businesses. Overall EBITDA of GBP95.6 million represented an
increase of 37% over 2019.
Our Coatings, Adhesives and Surface Treatments (CAST) businesses
exited the year trading ahead of 2019 year-end volumes, recovering
strongly from the impact of Q2 lockdowns in our key markets. Our
Coatings and Construction businesses returned to year-on-year
growth in Q3. Benefitting from an increase in DIY demand in Europe,
the business experienced double-digit volume growth in the region,
whilst Construction showed annual global volume rises in all major
chemistries.
Textiles experienced a slower turnaround in Q3, due to customer
de-stocking in hygiene and a delayed recovery in automotive, before
returning to year-on-year growth in Q4. Adhesives likewise returned
to growth in Q4, driven by improvements in labels and speciality
tapes, and strong mix delivered an increase in annual profits for
the business as a whole.
Sharp falls in key raw material prices led to a temporary
widening of CAST unit margins in Q2, before returning to more
normal levels in H2, with prices showing upward trends as the year
ended.
The acquired Oil & Gas business suffered from weak demand
due to reduced drilling activity during the global downturn.
However, a stable customer base and strong product range mean it is
well positioned to benefit from improving market conditions, and it
ended the year on an improving trend.
Special Items for the year were GBP38.0 million (2019: GBP4.3
million) which includes GBP20.9 million amortisation of acquired
intangibles, the GBP6.6 million loss on disposal of Synthomer's
European Tyre Cord business and a GBP3.3 million impairment charge
taken against our Chonburi site. IFRS operating profit decreased by
35.2% to GBP31.1 million.
OMNOVA integration and synergies
Following the acquisition, the OMNOVA businesses of CAST
(Coatings, Adhesives and Surface Treatment) as well as Oil &
Gas, in total representing circa 70% of OMNOVA EBITDA, have been
integrated into Functional Solutions. A new organisational
structure was announced with a Functional Solutions leadership team
consisting of leaders from both legacy organisations. Cost
synergies are being delivered ahead of schedule and projects have
been set up for further synergy delivery over the coming two years,
as part of the Company commitment to deliver $40 million run-rate
savings by the end of 2022. The commercial organisations of both
legacy businesses were combined and harmonised with a
rationalisation of channel partnerships ongoing. Similarly, the
innovation pipelines of both businesses have been reviewed and
strengthened by prioritising the best projects, benefiting from the
increased combined know-how and product portfolio.
As an integrated business, Functional Solutions now has a
substantially enhanced presence in North America, the size of which
increased significantly with the addition of 5 production sites
bringing the total numbers of Functional Solutions sites to 17. In
Europe, the OMNOVA acquisition grew the business by 30% and in Asia
by 28%. Capabilities were added in Textiles through OMNOVA's
expertise in non-wovens and surface treatment, as well as through
the addition of the Oil & Gas business.
The Oil & Gas business mainly focuses on the supply of
additives applied in the drilling and cementing process, where it
is the market leader. About two-thirds of this business relates to
on-shore, with one third going to off-shore. Although the business
clearly felt the impact of the COVID-19 downturn in 2020, it is
well positioned to benefit from growth in 2021 and 2022.
In Coatings, Adhesives and Textiles, and to a lesser extent
Construction, OMNOVA has brought a new range of products that are
additive to the legacy portfolio. Aside from a limited number of
direct product overlap, in the vast majority of cases the business
merger means Functional Solutions has a broader set of offerings to
present to its customers.
Strategy for the combined Functional Solutions Division
The Functional Solutions Division is now a global top 5 provider
of water-based dispersions with leading positions in EMEA and with
the ambition to become a top 3 player through further organic and
inorganic growth. Functional Solutions aims to be the development
partner of choice to our customers, focused on innovation and
customer intimacy and responsiveness that sets it apart from its
competitors. It focuses on the development of a sustainable
solutions platform that responds to and anticipates regulatory
trends and customer expectations. These goals are underpinned by
four strategic pillars of Growth, Mix, Productivity and
Enablers:
Growth is driven by the GDP+ markets in which it operates, with
favourable megatrends and a drive to sustainability. Revenue
synergies resulting from the combination of the two legacy
businesses will provide further opportunity for growth during the
coming years. Inorganic growth opportunities will also continue to
be evaluated and pursued.
Mix improvement towards more differentiated and low cyclical
offerings continues to be a priority, propelled by platform based
innovation.
Productivity is the third pillar, aiming to be competitive
against local players in each region and continent. Manufacturing
Excellence is the vehicle driving ongoing improvement in this area.
Best in class sourcing will continue to ensure highly competitive
procurement of raw materials.
Enablers that underpin the above include the cultivation of the
performance culture of the Division and the focus on our people,
processes and tools.
Industrial Specialities
Highlights
-- All businesses maintained strong niche positions in their
selected speciality chemical markets
-- The acquired OMNOVA Surfaces businesses are well placed in
select end-markets in the US and Asia. Integration is progressing
well, exceeding cost and operational synergy targets
-- The speciality chemicals business volumes were impacted by
COVID-19 in Q2 with a good recovery in H2 2020
-- Investment in asset reliability delivered strong operational
performance through increased utilisation and quality
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 91.1 67.3 35.4
Revenue (GBPm) 264.9 157.9 67.8 67.3
EBITDA (GBPm) 41.2 23.8 73.1 72.7
Operating profit - Underlying
performance (GBPm) 29.0 18.4 57.6 57.6
Operating profit - IFRS (GBPm) 18.8 14.3 31.5
(1) Constant currency revenue and profit measures retranslate
current year results for legacy Synthomer using the prior year's
average exchange rates. Results from businesses acquired in the
year are not retranslated.
Overview
The acquisition of OMNOVA has further diversified the Industrial
Specialities portfolio of businesses both in terms of geography and
end markets, and has resulted in a step-change in the size of the
Division and its platform for growth. The enlarged Division EBITDA
was GBP41.2 million (2019: GBP23.8 million). The Division produces
over 91ktes of products from its 9 plants operating in Europe, US
and South East Asia.
Financial results
The Industrial Specialities Division delivered a robust
performance in markets significantly impacted by COVID-19. EBITDA
in Industrial Specialities at GBP41.2 million was 73% higher than
2019, driven by 9 months of OMNOVA profitability and the resilience
of the legacy Synthomer business in the face of weakened demand
from end markets impacted by COVID-19. Despite the exposure to
automotive markets in some parts of the Division, all businesses
recorded stable unit margins during the year, in part due to
improved product mix from higher sales of products with high
performance properties in their customer processes.
The Vinyl Polymers business had a resilient year despite
customer demand falling due to the impact of COVID-19, particularly
in Q2. Targeted investment has enhanced plant reliability,
delivering greater robustness in product supply and the ability to
produce additional volumes from the plants. With the recovery of
volumes through Q4, this places the business in a good position to
support customers in the growing PVC market in 2021.
Despite the exposure of the Polybutadiene Lithene business to
the automotive market, the business recorded a resilient
year-on-year performance, recovering well from lower volumes which
impacted performance in Q2 and Q3. Strong unit margins and product
mix helped to offset the reduced volumes with significant volume
recovery in Q4.
William Blythe delivered a flat performance year-on-year with
underlying new product sales offsetting the segments adversely
impacted by COVID-19 through the year. Growth in new and existing
products is anticipated in 2021.
Our Speciality Additives business, which supplies speciality
coatings, had a much improved performance with growth on prior year
volumes, unit margins and market share. The business is targeting a
number of new applications which should deliver growth in 2021 and
beyond. The business also drove an aggressive cost improvement plan
reducing site costs and costs associated with key raw
materials.
The Powder Coating business was impacted in Q2 with falling
volumes in automotive markets as a result of COVID-19. The business
experienced a strong recovery in volumes during Q3, and was able to
take advantage of additional volumes following a modest capacity
expansion project in 2019. The business is well placed for further
growth in sales volumes of our differentiated products during
2021.
The Coated Fabrics business experienced a temporary dip in
demand in Q2 with some exposure to the Asian automotive and
motorcycle markets. Like other businesses, the Thailand based
operation experienced a strong recovery during Q3 and is well
placed to deliver increased volumes into 2021.
Laminates & Films has grown significantly in 2020, partly
due to the increased demand for products in the kitchen and
bathroom and recreational vehicles segments during the COVID-19
period. The business has also achieved significant market share
gains and continues to grow well ahead of market through
substitution with superior performance and lower cost of Laminates
& Films against traditional materials. The business also
benefited from significant operational efficiency from the
manufacturing plants, with record operational performance during
the year. With momentum in the business gaining during the second
half of 2020, the business is well placed to deliver another year
of growth in 2021.
Special Items for the year were GBP10.2 million (2019: GBP4.1
million) which mostly relates to amortisation of acquired
intangibles. IFRS operating profit increased by 31.5% to GBP18.8
million.
Value-gap contribution
2020 delivered the targeted improvement in the efficiency and
performance of the asset base as measured by availability, volumes
and a range of manufacturing KPIs. At Harlow (Vinyl Polymers),
Stallingborough (Polybutadiene Lithene), and Accrington (William
Blythe), the key focus has been on improving plant reliability
which has manifested in significantly improved operational
efficiency. De-bottlenecking and cycle time improvement work has
realised increased capacity at both Gent (Speciality Additives) and
William Blythe and the instantaneous rate improvement work from the
expansion project in Sant'Albano (Powder Coatings) was also proven
in 2020. Since acquisition, the Surfaces' plants, comprising Coated
Fabrics and Laminates & Films, have been introduced to, and are
now adopting the Group's manufacturing excellence programme which
targets resources in value accretive activity.
Targeted innovation
Innovation is a key feature across all businesses within the
Division. A good example is the sustained innovation in the highly
innovative inorganics business, William Blythe which continues to
develop a number of new products with strong IP. Recent successes
have included the commercialisation of a new absorbent product for
the gas processing industry, the development of high purity
Graphene Oxide and also innovative doped Tungsten Oxide products
for a wide range of market applications. Whilst product lead times
can be long the business has a strong portfolio of new product
families. In addition, the Laminates & Films business continues
to successfully innovate in close partnership with its customers'
product development teams to deliver customised designs and product
solutions to the laminates industry.
Self-help initiatives
There was a significant focus on costs during 2019, as
'Mindset', our non-manpower fixed cost reduction programme was
executed across a number of locations. The full year benefit of
those initiatives have been realised in 2020 and in addition, to
respond to the impact of COVID-19, additional variable and fixed
cost reduction actions were taken in the year to further reduce the
cost base.
Acrylate Monomers
Highlights
-- Separation of Acrylate Monomers business from Industrial
Specialities Division to provide greater management focus.
-- Challenging market conditions with low margins for Acrylates across the industry.
-- Sokolov site transformation programme launched in the year
with good progress against key milestones.
-- Decision taken to close the coal fired power station during
2021, eliminating coal fired power generation within the Group, and
resulting in cost savings.
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 59.9 61.9 (3.2)
Revenue (GBPm) 52.3 64.7 (19.2) (17.8)
EBITDA (GBPm) (2.4) 1.0 (340.0) (350.0)
Operating profit - Underlying
performance (GBPm) (5.6) (2.4) 133.3 137.5
Operating profit - IFRS (GBPm) (26.3) (3.0) -
(1) Constant currency revenue and profit measures retranslate
current year results for legacy Synthomer using the prior year's
average exchange rates.
Overview
The Acrylate Monomers Division was established in early 2020 to
separate the internal supply and external sales of manufactured
monomers from the Industrial Specialities Division. The Division
comprises the Monomers production plant based at Sokolov (Czech
Republic) which it shares with the Functional Solutions dispersion
business. The Monomers site manufactures and supplies products
internally to our Functional Solutions Division as well as being a
medium sized supplier to the European Acrylates market.
Financial results
The Acrylate Monomers Division had a challenging year impacted
by COVID-19. Volumes reduced by 3.2% and oversupply in Europe and
unfavourable feedstock prices led to weaker unit margins during Q4
2019, which continued throughout 2020.
While there has been some improvement in unit margins during Q4
2020, the unit margins continued to run at record historical lows.
As a result of the challenging year and the low unit margins, the
Group has recorded an impairment of GBP18.6 million against the
value of the Division's plant assets. The impairment was taken to
Special Items along with GBP2.1 million of restructuring costs in
relation to the Sokolov site transformation. Special Items for the
year were GBP20.7 million (2019: GBP0.6 million) and as a result,
the IFRS operating loss increased to GBP26.3 million (2019: 3.0
million).
Self-help initiatives
A site transformation project was launched in 2020 with a clear
plan to return the business to profitability. A significant
component of the transformation project is the replacement of the
coal fired utility plant with more modern, efficient, gas fired
package boilers resulting in a significant reduction in headcount
and variable cost savings.
In addition, a number of other headcount and cost savings
opportunities were identified and implemented with the full year
benefit to be realised in 2021. The cost savings also include lower
cost procurement of key raw materials - essential for the ongoing
viability of the business.
Chief Financial Officer's review
Highlights
-- Strong EBITDA and Free Cash Flow growth in a challenging environment:
- EBITDA up 45.8% at GBP259.4 million.
- Free Cash Flow up 80.6% at GBP167.6 million.
-- Significant step down in net debt to EBITDA leverage at 31
December 2020, at 1.8x relative to year end covenant of 4.25x.
-- 31 December 2020 committed available liquidity at circa GBP600 million.
-- EUR520 million 3.875% unsecured senior loan notes
successfully issued in June 2020 underpinning committed financing
facilities and long term capital structure.
-- Strong progress on key strategic projects, including OMNOVA
integration, European SBR network review and Nitrile latex capacity
expansion.
Financial overview
2020 2019
GBPm GBPm
EBITDA
Performance Elastomers 142.5 96.3
Functional Solutions 95.6 69.9
Industrial Specialities 41.2 23.8
Acrylate Monomers (2.4) 1.0
Corporate (17.5) (13.1)
-------------------------- ------- ------
Total EBITDA 259.4 177.9
Depreciation (69.8) (52.1)
Underlying finance costs (29.6) (9.6)
-------------------------- ------- ------
Underlying PBT 160.0 116.2
Special items (139.7) (15.7)
-------------------------- ------- ------
IFRS PBT 20.3 100.5
-------------------------- ------- ------
Free cash flow 167.6 92.8
-------------------------- ------- ------
Synthomer has delivered a strong set of results in a truly
exceptional year characterised by the marked global economic impact
of COVID-19, and completion of the acquisition of OMNOVA Solutions
Inc, the largest acquisition in the Group's history.
In a year of almost unprecedented economic turmoil, Synthomer
demonstrated resilience as a global differentiated chemicals
company benefitting from widespread geographic and end market
diversity, and enhanced by the further differentiation and
diversification brought by the highly synergistic OMNOVA
acquisition. The Group's legacy businesses started the year well
with Q1 2020 EBITDA trading ahead of prior year and, although
COVID-19 adversely impacted Q2, the enlarged Group EBITDA gradually
improved during Q3 with all core divisions performing well and
trading ahead of the comparative period in Q4 2020.
In this environment, Synthomer delivered strong progress
reporting EBITDA of GBP259.4 million, 46% higher than 2019,
reflecting significant EBITDA growth of GBP48.5 million in the
legacy business and GBP33.0 million from the OMNOVA acquisition,
including the integration synergies delivering higher benefits in a
shorter period of time.
Our Performance Elastomers Division reported a significant
increase in profitability rising 48% to GBP142.5 million, largely
borne out of the incremental JOB5 Nitrile latex capacity running at
full capacity during 2020, and the marked increase in Nitrile latex
margins initially benefitting from lower raw material prices at the
onset of COVID-19 and subsequently as demand for Nitrile latex
tightened. Investment in the further 60ktes of capacity at Pasir
Gudang (Malaysia) is progressing and commissioning is expected in
Q4 2021.
Good progress has been made during the year with the European
SBR network review, the benefits of which will start to feed
through in 2021 with the closure of the Oulu (Finland) site and the
streamlining of our operation in Marl (Germany), rationalising the
cost base and increasing the utilisation rates on the remaining
assets in Marl, Filago (Italy) and Pischelsdorf (Austria). Most of
our SBR business saw some improvement in trading performance in Q4
2020 relative to the comparative period, albeit our paper business
continued to be challenged, not helped by the continuing impact of
COVID-19. Consistent with the outcome of the network review,
impairment and restructuring charges have been recorded within
Special Items and are more fully described later in this
report.
The addition of OMNOVA principally benefitted our Functional
Solutions and Industrial Specialities Divisions, with these
divisions reporting EBITDA of GBP95.6 million and GBP41.2 million,
some 37% and 73% higher than the prior year, also a significant
step up in profitability in a difficult economic environment.
Further growth is expected in 2021 with the addition of a full
year's results for OMNOVA, continued synergy delivery, a return to
more normal economic activity levels particularly in relation to
our Oil & Gas business which felt the brunt of the impact of
COVID-19, and filling capacity invested in during 2018 and
2019.
Acrylate Monomers, separately reported for the first time in
2020 and previously included in Industrial Specialities, produces
monomers at our Sokolov (Czech Republic) site for internal
consumption and external supply to its European hinterland and was
adversely impacted by COVID-19 which brought monomer margins under
pressure as the supply demand balance changed. The site is
undergoing a site transformation programme, benefitting both our
Acrylate Monomers and Functional Solutions assets on the site,
including the closure of the coal fired power station. In line with
the site transformation programme and the current lower
profitability of the Acrylate Monomers Division, impairment and
restructuring charges have been recorded in Special Items and are
more fully described later in this report.
Corporate expenses have increased to GBP17.5 million (2019:
GBP13.1 million) mainly reflecting the corporate expenses
associated with the OMNOVA acquisition and higher variable
remuneration costs associated with the delivery of a strong
performance in 2020.
Special Items
2020 2019
GBPm GBPm
Amortisation of acquired intangibles (30.9) (8.7)
Restructuring and site closure costs (42.5) (0.8)
Acquisition costs and related gains (14.6) (9.2)
Impairment charge (36.6) -
Sale of business (6.6) -
Foreign exchange gain on rights issue - 3.5
--------------------------------------- -------- ------
Total impact on operating profit (131.2) (15.2)
--------------------------------------- -------- ------
Fair value loss on unhedged interest
derivatives (3.6) (0.5)
Loss on extinguishment of financing
facilities (4.9) -
--------------------------------------- -------- ------
Total impact on profit before tax ( 139.7) (15.7)
Tax Special Items 4.9 -
Taxation on Special Items 10.7 1.4
--------------------------------------- -------- ------
Total impact on profit for the year (124.1) (14.3)
--------------------------------------- -------- ------
The following items of income and expense have been reported as
Special Items:
-- Amortisation of acquired intangibles increased during the
year reflecting the acquisition of OMNOVA Solutions Inc which
resulted in an amortisation charge of GBP22.6 million for the 9
month period since acquisition on 1 April 2020. The fair value of
the intangible assets arising on the acquisition of OMNOVA
amounting to GBP330.1 million are being amortised over a period of
9 - 11 years mainly dependent on the characteristics of the
customer relationships.
-- Restructuring and site closure costs in 2020 comprise GBP19.5
million for integration of OMNOVA, GBP20.9 million for the
rationalisation of the Group's European SBR network and GBP2.1
million to rationalise the Acrylate Monomers site. OMNOVA
integration costs were required to deliver the acquisition
synergies and mainly relate to employee severance costs.
Restructuring costs in the legacy Synthomer business again mainly
relate to employee severance costs. In 2019 the costs related to
the reorganisation of the Group into global business segments.
-- Acquisition costs and related gains relate to the acquisition
of OMNOVA and comprise GBP20.0 million of costs, mainly
professional adviser fees, and the GBP3.3 million impact of
unwinding the fair value adjustment on acquisition of inventory.
This was offset by a gain of GBP8.7 million on a foreign exchange
derivative entered into in July 2019 to hedge the acquisition
price. Acquisition costs in 2019 also relate to the acquisition of
OMNOVA.
-- A GBP36.6 million impairment charge was taken in the year,
relating to four sites. Following the strategic review of our
European SBR network we have impaired fixed assets by GBP9.2
million in our Oulu site and GBP5.5 million in Marl. Unfavourable
feedstock prices and continued oversupply in Europe, partly
reflecting the impact of COVID-19, led to a GBP18.6 million
impairment charge in relation to the Acrylate Monomers site in
Sokolov. Reduction in demand for solvent-based products
manufactured in our Chonburi site led to a GBP3.3m impairment
charge.
-- Sale of business related to the disposal of Synthomer's
European Tyre Cord business, which was a requirement of the
European Commission Competition Authority in order to obtain
clearance for the acquisition of OMNOVA. The disposal was completed
on 1 May 2020 and the terms of the disposal agreement resulted in a
loss on disposal of GBP6.6 million.
-- Foreign exchange gain on rights issue represents a gain made
on a forward contract which was entered into to swap the proceeds
of the Sterling rights issue into Euro in order to pay down part of
the Group's Euro borrowings in July 2019.
-- In July 2018 the Group entered into swap arrangements to fix
Euro interest rates on the full value of the then EUR440 million
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 2020 in excess of the
Group's current borrowings.
-- Following the Group's successful refinancing in April 2020,
capitalised debt costs relating to the 2018 refinancing and the
2019 bridge to bond were written off, leading to a loss on
extinguishment of GBP4.9 million.
-- A current tax charge arose in Malaysia from a disputed
assessment from the Malaysian Tax Authorities regarding the tax
treatment of the sale of plantation land from 2007 to 2017. This is
offset by a current tax credit in relation to the closure of 2001
to 2003 open tax years in the UK by HMRC.
Acquisition of OMNOVA
On 1 April 2020, the Group completed the acquisition of OMNOVA
Solutions Inc by acquiring all of the share capital and repaying
their financing for a cash outflow of GBP587.6 million, net of cash
acquired.
In accordance with IFRS, the assets and liabilities have been
recorded at fair value at the date of acquisition with the balance
of consideration recorded as goodwill. KPMG LLP were engaged to
advise on the fair value of the Property, Plant and Equipment (PPE)
and Intangible assets. The value of PPE was increased by GBP12.0
million to GBP190.2 million.
The most significant intangible assets identified were customer
relationships. Accordingly, on acquisition the Group recognised
goodwill and acquired intangibles in relation to the OMNOVA
business of GBP180.2 million and GBP330.1 million respectively.
Net working capital of GBP32.1 million was acquired, offset by a
retirement benefit obligation of GBP89.8 million. Acquired
borrowings of GBP273.6 million were repaid as part of the
acquisition refinancing.
The estimation of the fair value of the assets and liabilities
is provisional, and this is planned to be finalised by 31 March
2021.
Finance costs
2020 2019
GBPm GBPm
Net interest payable (24.3) (5.8)
Net interest expense on defined
benefit obligation (3.7) (2.7)
Interest element of lease payments (1.6) (1.1)
-------------------------------------- ------ -----
Underlying finance costs (29.6) (9.6)
Fair value loss on unhedged interest
derivatives (3.6) (0.5)
Loss on extinguishment of financing
facilities (4.9) -
-------------------------------------- ------ -----
Total finance costs 38.1 10.1
-------------------------------------- ------ -----
Underlying finance costs increased to GBP29.6 million (2019:
GBP9.6 million), mainly reflecting the interest on the borrowings
relating to the OMNOVA acquisition from 1 April 2020.
The finance costs reflect the interest on the EUR460 million
committed unsecured 5 year revolving credit facility, the $260
million committed unsecured 5 year term loan, the EUR520 million
committed unsecured bridge, refinanced in June 2020 with the 5 year
EUR520 million 3.875% unsecured senior loan notes, the associated
debt amortisation costs, and the IAS 19 pensions interest costs in
respect of our defined benefit pension schemes.
The charge for the fair value loss on unhedged interest
derivatives has increased to GBP3.6 million (2019: GBP0.5 million)
as a result of lower drawn amounts under the RCF, and the changes
in the fair value between 31 December 2019 and 2020.
Taxation
The Group's effective tax rate is impacted by the tax impact of
Special Items. It is therefore helpful to consider the Underlying
and Special Items affecting tax rates separately:
-- The effective tax rate on Underlying profit before tax for
the year increased to 23.4% (2019: 14.0%) due to the previously
announced end of the Group's Malaysian pioneer status in February
2020. The impact of COVID-19 on the geographical mix of profits
also increased the proportion of profits generated in Malaysia.
-- The effective tax rate for Special Items was 11.2% (2019:
8.9%) and was driven by deferred tax credits on the amortisation of
acquired intangibles and restructuring and site closure costs and a
current tax charge in relation to historical tax issues in the UK
and Malaysia. A current tax charge arose in Malaysia from a
disputed assessment from the Malaysian Tax Authorities regarding
the tax treatment of the sale of plantation land from 2007 to 2017.
This is offset by a current tax credit in relation to the closure
of 2001 to 2003 open tax years in the UK by HMRC.
Non-controlling interest
The Group continues to hold 70% of Revertex (Malaysia) Sdn Bhd
and its subsidiaries. These entities form a relatively minor part
of the Group and hence the impact on Underlying performance from
non-controlling interests is not significant.
Earnings per share
Earnings per share is calculated based on the average number of
shares in issue during the year. The weighted average number of
shares for 2020 was 424,843,000 (2019: 393,349,000), this being the
first full year following the one for four rights issue in July
2019.
Underlying earnings per share for the year is 28.9pence, an
increase of 14.2% relative for 2019, and the IFRS earnings per
share is 0.7pence (2019: 21.5pence). The increase in Underlying
earnings per share reflects the increase in Underlying profit
before tax as offset by the rise in the effective tax rate and the
increase in the weighted average number of shares as set out
above.
Balance sheet
Net assets of the Group decreased by 6.3% to GBP628.1 million
mainly reflecting the GBP21.6 million net translation effect of
foreign exchange on operating assets denominated in foreign
currency, actuarial losses of GBP7.6 million and the interim
dividend of GBP15.9 million.
Capital expenditure
Capital expenditure in the year was GBP53.8 million for the
enlarged Group, including OMNOVA for the 9 months to 31 December
2020, relative to GBP69.1 million for the legacy Synthomer business
for the year ended 31 December 2019. The marked reduction in
capital expenditure reflects the proactive decision taken by the
Board at the onset of COVID-19 to manage capital expenditure lower
to preserve cash, liquidity and balance sheet strength. Investment
continued to be made in the critical growth projects for the Group,
including the JOB6 Nitrile latex expansion at Pasir Gudang
(Malaysia), and in SHE and sustenance activities underpinning the
ongoing safe and reliable operation of the Group's assets.
The Group invested a further GBP12.2 million in its Pathway
business transformation programme in the year. This investment
remains as an intangible asset under construction.
Provisions
As a result of the restructuring and site closure costs set out
above, the restructuring provision has increased to GBP29.6 million
(2019: GBP6.9 million).
The closing balance includes GBP5.9 million and GBP13.4 million
in relation to the rationalisation of the Group's European SBR
network in Oulu and Marl respectively and GBP5.7 million in
relation to the onerous contract arising on the disposal of the
European Tyre Cord business.
Retirement benefit plans
The Group's principal funded defined benefit pension schemes are
in the UK and now following the acquisition of OMNOVA, the US and
both are closed to new entrants and future accrual. The Group also
operates an unfunded scheme in Germany and various other defined
contribution overseas retirement benefit arrangements.
The Group's net retirement benefit obligation increased to
GBP221.4 million at 31 December 2020 (31 December 2019: GBP140.0
million). The increase is principally attributable to the inclusion
of OMNOVA obligations which at 31 December 2020 contributed GBP68.0
million to the Group's net retirement benefit obligation, and a
further reduction in the valuation discount rates.
The trustees of the UK scheme have agreed that the Group will
continue to fund the deficit recovery plan in line with the
previously agreed recovery plan. Funding in the current year was
GBP16.5 million (2019: GBP16.2 million). The next triennial
valuation of the UK scheme will be undertaken in 2021, and a
revised deficit recovery plan will be agreed with the trustees at
the conclusion of the valuation.
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:
2020 2019
GBPm GBPm
Opening net cash/(debt) 20.7 (214.0)
Underlying operating profit (excl joint
ventures) 188.4 124.9
Movement in working capital 23.5 18.5
Depreciation of property, plant and
equipment 64.9 50.7
Amortisation of other intangible assets 4.9 1.4
Share-based payments charge 2.0 0.6
Capital expenditure (53.8) (69.1)
--------------------------------------------- -------- -------
Business cash flow 229.9 127.0
Net interest paid (14.0) (7.2)
Tax paid (31.4) (11.1)
Pension funding (18.8) (17.5)
Dividends received from joint ventures 1.9 1.6
--------------------------------------------- -------- -------
Free Cash Flow 167.6 92.8
Cash impact of restructuring and site
closure costs (25.3) (4.4)
Cash impact of acquisition costs (7.4) (7.5)
Cash impact of foreign exchange gain
on rights issue - 3.5
Acquisition costs and purchase of business (587.6) -
Sale of business 0.1 -
Rights issue proceeds - 199.1
Repayment of principal portion of lease
liabilities (9.7) (6.8)
Dividends paid (12.8) (47.9)
Dividends paid to non-controlling interests (3.1) (0.6)
Foreign exchange and other movements (4.7) 6.5
--------------------------------------------- -------- -------
Movement in net debt ( 482.9) 234.7
Opening net cash/(debt) 20.7 (214.0)
--------------------------------------------- -------- -------
Closing net (debt)/cash (462.2) 20.7
--------------------------------------------- -------- -------
At 31 December 2020, the Group had net debt of GBP462.2 million
compared to net cash of GBP20.7 million at 31 December 2019. The
increase in the level of debt is due to the acquisition of OMNOVA
as offset by the strong Free Cash Flow generation during 2020.
Underlying operating profit increased by GBP63.5 million to
GBP188.4 million and the addition of OMNOVA increased the
depreciation and amortisation of other intangibles charge by
GBP17.7 million to GBP69.8 million.
Capital expenditure was reduced to GBP53.8 million following the
proactive measures taken by the Board to preserve cash and
liquidity at the onset of COVID-19 in March 2020, and lower raw
material prices led to a GBP23.5 million cash inflow on working
capital (2019: inflow of GBP18.5 million).
Interest paid increased to GBP14.0 million reflecting a part of
the interest charge on the borrowings relating to the acquisition
of OMNOVA.
Tax paid increased by GBP20.3 million to GBP31.4 million due to
tax repayments of GBP4.8 million received in 2019, higher
profitability in 2020 and the end of the Malaysian pioneer status
in February 2020, resulting in a higher overall effective tax rate
and cash tax cost for the Group.
The cash impact of Special Items was GBP25.3 million for
restructuring costs and net GBP7.4 million for acquisition costs
which comprised GBP20.1 million of costs offset by a GBP12.7
million cash gain on deal contingent foreign exchange
contracts.
The cash outflow for the purchase of OMNOVA was GBP587.6 million
net of cash acquired, as more fully set out in note 8 to the
financial statements.
Repayment of lease liabilities increased to GBP9.7 million due
to the addition of OMNOVA.
Dividends reduced in the year due to suspension and subsequent
cancellation of the 2019 final dividend to preserve cash, liquidity
and balance sheet strength at the onset of COVID-19 in March
2020.
Financing and liquidity
In July 2019, in preparation for the acquisition of OMNOVA, the
Group refinanced its EUR440 million revolving credit facility with
financing conditional on the completion of the acquisition. At the
same time the Group put in place deal contingent foreign exchange
contracts to deliver $480 million at a fixed rate to Euro at
completion of the acquisition to hedge the acquisition purchase
price currency exposure. At completion these contracts reduced the
amount of Euro borrowed to finance the acquisition relative to the
spot foreign currency rates on 1 April 2020, by GBP12.7 million and
the gain was recognised in Special Items in 2019 (GBP4.0 million)
and 2020 (GBP8.7 million).
Upon completion of the OMNOVA acquisition on 1 April 2020, the
Group's new facilities were drawn. These comprised a $260 million
term loan and a EUR520 million acquisition financing bridging
facility, both of which were fully drawn, and the EUR460 million
revolving credit facility which was partially drawn. Subsequently,
on 25 June 2020, the EUR520 million acquisition financing bridging
facility was repaid with the proceeds of the 5 year EUR520 million
3.875% unsecured senior loan notes. The committed unsecured term
loan and the revolving credit facility have terms ending July
2024.
The Group now has committed unsecured borrowing facilities
comprising the $260 million term loan, EUR460 million revolving
credit facility and the 5 year EUR520 million 3.875% unsecured
senior loan notes, and accordingly has committed borrowing
facilities of approximately GBP1,100 million through until July
2024. At 31 December 2020, the Group's net borrowings were GBP462.2
million and therefore the Group had approximately GBP600 million of
liquidity.
The borrowing facilities are subject to one Net Debt to EBITDA
leverage ratio maintenance covenant measured at 30 June and 31
December each year. At 31 December 2020 the Group's leverage ratio
was 1.8x, well within the leverage ratio covenant of 4.25x at 31
December 2020 and well within the leverage covenant of 4.0x for the
year to 31 December 2021.
Stephen Bennett
Chief Financial Officer
4 March 2021
Consolidated income statement
for the year ended 31 December 2020
2020 2019
------------------------------------------------------------------- ------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Revenue 1,644.2 - 1,644.2 1,459.1 - 1,459.1
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Company and subsidiaries before
Special Items 188.4 - 188.4 124.9 - 124.9
Amortisation of acquired intangibles - (30.9) (30.9) - (8.7) (8.7)
Restructuring and site closure
costs - (42.5) (42.5) - (0.8) (0.8)
Acquisition costs and related
gains - (14.6) (14.6) - (9.2) (9.2)
Impairment charge - (36.6) (36.6) - - -
Sale of business - (6.6) (6.6) - - -
Foreign exchange gain on rights
issue - - - - 3.5 3.5
Company and subsidiaries 188.4 (131.2) 57.2 124.9 (15.2) 109.7
Share of joint ventures 1.2 - 1.2 0.9 - 0.9
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Operating profit/(loss) 189.6 (131.2) 58.4 125.8 (15.2) 110.6
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Interest payable (25.5) - (25.5) (6.7) - (6.7)
Interest receivable 1.2 - 1.2 0.9 - 0.9
Fair value loss on unhedged interest
derivatives - (3.6) (3.6) - (0.5) (0.5)
Loss on extinguishment of financing
facilities - (4.9) (4.9) - - -
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
(24.3) (8.5) (32.8) (5.8) (0.5) (6.3)
Net interest expense on defined
benefit obligations (3.7) - (3.7) (2.7) - (2.7)
Interest element of lease payments (1.6) - (1.6) (1.1) - (1.1)
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Finance costs (29.6) (8.5) (38.1) (9.6) (0.5) (10.1)
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Profit/(loss) before taxation 160.0 (139.7) 20.3 116.2 (15.7) 100.5
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Taxation (37.4) 15.6 (21.8) (16.3) 1.4 (14.9)
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Profit/(loss) for the year 122.6 (124.1) (1.5) 99.9 (14.3) 85.6
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
(Loss)/profit attributable to
non-controlling interests (0.3) (4.3) (4.6) 0.4 0.6 1.0
Profit/(loss) attributable to
equity holders of the parent 122.9 (119.8) 3.1 99.5 (14.9) 84.6
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
122.6 (124.1) (1.5) 99.9 (14.3) 85.6
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Earnings/(loss) per share
Basic 28.9p (28.2)p 0.7p 25.3p (3.8)p 21.5p
Diluted 28.8p (28.1)p 0.7p 25.2p (3.8)p 21.4p
--------------------------------------------- ------- ------- ------- ------------ ------- ---------
Consolidated statement of comprehensive income
for the year ended 31 December 2020
2020 2019
--------------------------------- ---------------------------------
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/(loss) for the year 3.1 (4.6) (1.5) 84.6 1.0 85.6
------------------------------------- -------- --------------- ------ -------- --------------- ------
Actuarial losses (7.6) - (7.6) (27.2) - (27.2)
Tax relating to components of
other comprehensive income 3.5 - 3.5 4.7 - 4.7
------------------------------------- -------- --------------- ------ -------- --------------- ------
Total items that will not be
reclassified to profit or loss (4.1) - (4.1) (22.5) - (22.5)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Exchange differences on translation
of foreign operations (37.5) (0.3) (37.8) (15.3) (0.4) (15.7)
Fair value loss on hedged interest
derivatives (0.8) - (0.8) (8.7) - (8.7)
Gain/(loss) on net investment
hedge taken to equity 15.9 - 15.9 (1.9) - (1.9)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Total items that may be reclassified
subsequently to profit or loss (22.4) (0.3) (22.7) (25.9) (0.4) (26.3)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Other comprehensive expense
for the year (26.5) (0.3) (26.8) (48.4) (0.4) (48.8)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Total comprehensive (expense)/income
for the year (23.4) (4.9) (28.3) 36.2 0.6 36.8
------------------------------------- -------- --------------- ------ -------- --------------- ------
Consolidated statement of changes in equity
for the year ended 31 December 2020
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 2020 42.5 421.1 0.9 (19.5) 204.4 649.4 21.1 670.5
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Profit/(loss) for the
year - - - - 3.1 3.1 (4.6) (1.5)
Other comprehensive
expense
for the year - - - (22.4) (4.1) (26.5) (0.3) (26.8)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
expense
for the year - - - (22.4) (1.0) (23.4) (4.9) (28.3)
Dividends - - - - (12.8) (12.8) (3.1) (15.9)
Share-based payments - - - - 1.8 1.8 - 1.8
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 31 December 2020 42.5 421.1 0.9 (41.9) 192.4 615.0 13.1 628.1
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
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
expense
for the year - - - (25.9) (22.5) (48.4) (0.4) (48.8)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
(expense)/income
for the year - - - (25.9) 62.1 36.2 0.6 36.8
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
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Consolidated balance sheet
as at 31 December 2020
2020 2019
GBPm GBPm
--------------------------------------------- --------- -------
Non-current assets
Goodwill 493.4 324.4
Acquired intangible assets 341.0 56.8
Other intangible assets 36.6 22.0
Property, plant and equipment 521.8 404.9
Deferred tax assets 23.8 22.8
Investment in joint ventures 6.6 7.5
--------------------------------------------- --------- -------
Total non-current assets 1,423.2 838.4
--------------------------------------------- --------- -------
Current assets
Inventories 170.3 121.9
Trade and other receivables 262.4 190.6
Cash and cash equivalents 201.8 103.6
Derivative financial instruments 1.4 4.9
--------------------------------------------- --------- -------
Total current assets 635.9 421.0
--------------------------------------------- --------- -------
Total assets 2,059.1 1,259.4
--------------------------------------------- --------- -------
Current liabilities
Borrowings (20.1) -
Trade and other payables (334.1) (232.9)
Lease liabilities (10.6) (7.5)
Current tax liabilities (58.5) (38.7)
Provisions for other liabilities and charges (25.7) (4.9)
Derivatives financial instruments (19.4) (14.3)
--------------------------------------------- --------- -------
Total current liabilities (468.4) (298.3)
--------------------------------------------- --------- -------
Non-current liabilities
Borrowings (643.9) (82.9)
Trade and other payables (3.7) (0.5)
Lease liabilities (44.4) (34.4)
Deferred tax liabilities (43.3) (30.8)
Retirement benefit obligations (221.4) (140.0)
Provisions for other liabilities and charges (5.9) (2.0)
--------------------------------------------- --------- -------
Total non-current liabilities (962.6) (290.6)
--------------------------------------------- --------- -------
Total liabilities (1,431.0) (588.9)
--------------------------------------------- --------- -------
Net assets 628.1 670.5
--------------------------------------------- --------- -------
Equity
Share capital 42.5 42.5
Share premium 421.1 421.1
Capital redemption reserve 0.9 0.9
Hedging and translation reserve (41.9) (19.5)
Retained earnings 192.4 204.4
--------------------------------------------- --------- -------
Equity attributable to equity holders of the
parent 615.0 649.4
Non-controlling interests 13.1 21.1
--------------------------------------------- --------- -------
Total equity 628.1 670.5
--------------------------------------------- --------- -------
The financial statements were approved by the Board of Directors
and authorised for issue on 4 March 2021.
Consolidated cash flow statement
for the year ended 31 December 2020
2020 2019
--------------- -----------------
GBPm GBPm GBPm GBPm
----------------------------------------------- ------ ------- ------ -------
Operating
Cash generated from operations 232.2 170.2
Interest received 1.2 0.9
Interest paid (13.6) (7.0)
Interest element of lease payments (1.6) (1.1)
----------------------------------------------- ------ ------- ------ -------
Net interest paid (14.0) (7.2)
UK corporation tax paid - -
Overseas corporate tax paid (31.4) (11.1)
----------------------------------------------- ------ ------- ------ -------
Total tax paid (31.4) (11.1)
----------------------------------------------- ------ ------- ------ -------
Net cash inflow from operating activities 186.8 151.9
----------------------------------------------- ------ ------- ------ -------
Investing
Dividends received from joint ventures 1.9 1.6
Purchase of property, plant and equipment
and intangible assets (53.8) (69.1)
Sale of property, plant and equipment - 0.3
----------------------------------------------- ------ ------- ------ -------
Net capital expenditure (53.8) (68.8)
Purchase of business (314.0) -
Proceeds from sale of business 0.1 -
----------------------------------------------- ------ ------- ------ -------
Net cash outflow from investing activities (365.8) (67.2)
----------------------------------------------- ------ ------- ------ -------
Financing
Dividends paid (12.8) (47.9)
Dividends paid to non-controlling interests (3.1) (0.6)
Proceeds on issue of shares - 199.1
Settlement of equity-settled share-based
payments (0.2) (2.5)
Repayment of principal portion of lease
liabilities (9.7) (6.8)
Repayment of borrowings (718.3) (216.3)
Repayment of borrowings on acquisition (273.6) -
Proceeds of borrowings 1,290.9 15.0
----------------------------------------------- ------ ------- ------ -------
Net cash inflow/(outflow) from financing
activities 273.2 (60.0)
----------------------------------------------- ------ ------- ------ -------
Increase in cash, cash equivalents and
bank overdrafts during the year 94.2 24.7
Cash, cash equivalents and bank overdrafts
at 1 January 103.6 76.2
Foreign exchange and other movements (6.5) 2.7
----------------------------------------------- ------ ------- ------ -------
Cash, cash equivalents and bank overdrafts
at 31 December 191.3 103.6
----------------------------------------------- ------ ------- ------ -------
Reconciliation of net cash flow from operating activities to
movement in net debt
2020 2019
GBPm GBPm
----------------------------------------------------- ------- ------
Net cash inflow from operating activities 186.8 151.9
Add back: dividends received from joint ventures 1.9 1.6
Less: net capital expenditure (53.8) (68.8)
Less: purchase of business (587.6) -
Add back: proceeds from sale of business 0.1 -
----------------------------------------------------- ------- ------
(452.6) 84.7
Ordinary dividends paid (12.8) (47.9)
Dividends paid to non-controlling interests (3.1) (0.6)
Proceeds on issue of shares - 199.1
Settlement of equity-settled share-based payments (0.2) (2.5)
Repayment for principal portion of lease liabilities (9.7) (6.8)
Foreign exchange and other movements (4.5) 8.7
----------------------------------------------------- ------- ------
(Increase)/decrease in net debt (482.9) 234.7
----------------------------------------------------- ------- ------
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 a segment in the year, or both. An example of the latter is the
amortisation of acquired intangibles, which principally relates to
acquired customer relationships. The Group incurs costs, which are
recognised as an expense in the income statement, in maintaining
these customer relationships. The Group considers that the
exclusion of the amortisation charge on acquired intangibles from
Underlying performance avoids the potential double counting of such
costs and therefore excludes it as a Special Item from Underlying
performance.
Special Items comprise:
2020 2019
GBPm GBPm
---------------------------------------------------- ------- ------
Special Items
Amortisation of acquired intangibles (30.9) (8.7)
Restructuring and site closure costs (42.5) (0.8)
Acquisition costs and related gains (14.6) (9.2)
Impairment charge (36.6) -
Sale of business (6.6) -
Foreign exchange gain on rights issue - 3.5
Operating loss (131.2) (15.2)
---------------------------------------------------- ------- ------
Finance costs
Fair value loss on unhedged interest derivatives (3.6) (0.5)
Loss on extinguishment of financing facilities (4.9) -
---------------------------------------------------- ------- ------
Loss before taxation (139.7) (15.7)
Tax Special Items 4.9 -
Taxation on Special Items 10.7 1.4
---------------------------------------------------- ------- ------
Loss for the year (124.1) (14.3)
---------------------------------------------------- ------- ------
The following items of income and expense have been reported as
Special Items:
-- Amortisation of acquired intangibles increased during the
year reflecting the acquisition of OMNOVA Solutions Inc which
resulted in an amortisation charge of GBP22.6 million for the 9
month period since acquisition on 1 April 2020. The fair value of
the intangible assets arising on the acquisition of OMNOVA
amounting to GBP330.1 million is being amortised over a period of 9
- 11 years mainly dependent on the characteristics of the customer
relationships.
-- Restructuring and site closure costs in 2020 comprise GBP19.5
million for integration of OMNOVA, GBP20.9 million for the
rationalisation of the Group's European SBR network and GBP2.1
million to rationalise the Acrylate Monomers site. OMNOVA
integration costs were required to deliver the acquisition
synergies and mainly relate to employee severance costs.
Restructuring costs in the legacy Synthomer business again mainly
relate to employee severance costs. In 2019 the costs related to
the reorganisation of the Group into global business segments.
-- Acquisition costs and related gains relate to the acquisition
of OMNOVA and comprise GBP20.0 million of costs, mainly
professional adviser fees, and the GBP3.3 million impact of
unwinding the fair value adjustment on acquisition of inventory.
This was offset by a gain of GBP8.7 million on a foreign exchange
derivative entered into in July 2019 to hedge the acquisition
price. Acquisition costs in 2019 also relate to the acquisition of
OMNOVA.
-- A GBP36.6 million impairment charge was taken in the year,
relating to four sites. Following the strategic review of our
European SBR network we have impaired fixed assets by GBP9.2
million in our Oulu site and GBP5.5 million in Marl. Unfavourable
feedstock prices and continued oversupply in Europe, partly
reflecting the impact of COVID-19, led to a GBP18.6 million
impairment charge in relation to the Acrylate Monomers site in
Sokolov. Reduction in demand for solvent-based products
manufactured in our Chonburi site led to a GBP3.3m impairment
charge.
-- Sale of business related to the disposal of Synthomer's
European Tyre Cord business, which was a requirement of the
European Commission Competition Authority in order to obtain
clearance for the acquisition of OMNOVA. The disposal was completed
on 1 May 2020 and the terms of the disposal agreement resulted in a
loss on disposal of GBP6.6 million.
-- Foreign exchange gain on rights issue represents a gain made
on a forward contract which was entered into to swap the proceeds
of the Sterling rights issue into Euro in order to pay down part of
the Group's Euro borrowings in July 2019.
-- In July 2018 the Group entered into swap arrangements to fix
Euro interest rates on the full value of the then EUR440 million
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 2020 in excess of the
Group's current borrowings.
-- Following the Group's successful refinancing in April 2020,
capitalised debt costs relating to the 2018 refinancing and the
2019 bridge to bond were written off, leading to a loss on
extinguishment of GBP4.9 million.
-- A current tax charge arose in Malaysia from a disputed
assessment from the Malaysian Tax Authorities regarding the tax
treatment of the sale of plantation land from 2007 to 2017. This is
offset by a current tax credit in relation to the closure of 2001
to 2003 open tax years in the UK by HMRC.
2. Segmental analysis
The Group's Executive Committee, chaired by the Chief Executive
Officer, examines the Group's performance.
With the acquisition of OMNOVA the Group has reassessed how the
business will be managed going forwards. The Group's Acrylate
Monomers Division, which was previously managed and reported within
the Industrial Specialities Division has been identified as a
separate segment by the Group's Executive Committee. A new
management structure has been implemented and management
information for Acrylate Monomers is now reported separately to the
Executive Committee. The Group's 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 and
also includes the Performance Materials and Elastomeric Modifiers
businesses.
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, and also includes the Laminates & Films and
Coated Fabrics businesses.
Acrylate Monomers
Acrylate Monomers is focused on the production of acrylate
monomers which are sold to external customers in European markets
as well as our European Functional Solutions dispersions
business.
The Group's Executive Committee is the chief operating decision
maker and primarily uses a measure of earnings before interest,
tax, depreciation and amortisation (EBITDA) to assess the
performance of the operating segments. No information is provided
to the Group's Executive Committee at the segment level concerning
interest income, interest expense, income tax or other material
non-cash items.
No single customer accounts for more than 10% of the Group's
revenue.
A segmental analysis of Underlying performance and Special Items
is shown below.
2020
-----------------------------------------------------------------------
Performance Functional Industrial Acrylate
Elastomers Solutions Specialities Monomers Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- ----------- --------- -------
Revenue
Total Revenue 680.3 646.7 264.9 64.4 - 1,656.3
Inter-segmental revenue - - - (12.1) - (12.1)
------------------------------ ----------- ---------- ------------- ----------- --------- -------
680.3 646.7 264.9 52.3 - 1,644.2
------------------------------ ----------- ---------- ------------- ----------- --------- -------
EBITDA 142.5 95.6 41.2 (2.4) (17.5) 259.4
Depreciation and amortisation
- Underlying performance (25.7) (26.5) (12.2) (3.2) (2.2) (69.8)
------------------------------ ----------- ---------- ------------- ----------- --------- -------
Operating profit/(loss)
- Underlying performance 116.8 69.1 29.0 (5.6) (19.7) 189.6
Special Items (36.0) (38.0) (10.2) (20.7) (26.3) (131.2)
Operating profit/(loss)
- IFRS 80.8 31.1 18.8 (26.3) (46.0) 58.4
------------------------------ ----------- ---------- ------------- ----------- --------- -------
Finance costs (38.1)
Profit before taxation 20.3
------------------------------ ----------- ---------- ------------- ----------- --------- -------
2019
-------------------------------------------------------------- -------
Industrial Acrylate
Performance Functional Specialities Monomers
Elastomers Solutions (restated) (restated) Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- ----------- --------- -------
Revenue
Total Revenue 623.7 612.8 157.9 70.9 - 1,465.3
Inter-segmental revenue - - - (6.2) - (6.2)
------------------------------ ----------- ---------- ------------- ----------- --------- -------
623.7 612.8 157.9 64.7 - 1,459.1
------------------------------ ----------- ---------- ------------- ----------- --------- -------
EBITDA 96.3 69.9 23.8 1.0 (13.1) 177.9
Depreciation and amortisation
- Underlying performance (24.8) (17.6) (5.4) (3.4) (0.9) (52.1)
------------------------------ ----------- ---------- ------------- ----------- --------- -------
Operating profit/(loss)
- Underlying performance 71.5 52.3 18.4 (2.4) (14.0) 125.8
Special Items (0.3) (4.3) (4.1) (0.6) (5.9) (15.2)
Operating profit/(loss)
- IFRS 71.2 48.0 14.3 (3.0) (19.9) 110.6
------------------------------ ----------- ---------- ------------- ----------- --------- -------
Finance costs (10.1)
Profit before taxation 100.5
------------------------------ ----------- ---------- ------------- ----------- --------- -------
3. Reconciliation of operating profit to cash generated from
operations
2020 2019
GBPm GBPm
--------------------------------------------------- ------ ------
Operating profit 58.4 110.6
Less: share of profit of joint ventures (1.2) (0.9)
---------------------------------------------------- ------ ------
57.2 109.7
Adjustments for:
Depreciation of property, plant and equipment 54.0 43.4
Depreciation of right of use assets 10.9 7.3
Amortisation of other intangibles 4.9 1.4
Share-based payments 2.0 0.6
Special Items 131.2 15.2
Cash impact of restructuring and site closure
costs (25.3) (4.4)
Cash impact of acquisition costs and related
gains (7.4) (7.5)
Cash impact of foreign exchange gain on rights
issue - 3.5
Pension funding in excess of service cost (18.8) (17.5)
Movement in working capital 23.5 18.5
---------------------------------------------------- ------ ------
Cash generated from operations 232.2 170.2
Reconciliation of movement in working capital
Decrease in inventories 17.1 15.0
Decrease in trade and other receivables 19.1 34.3
(Decrease) in trade and other payables (12.7) (30.8)
Movement in working capital 23.5 18.5
---------------------------------------------------- ------ ------
4. Dividends
2020 2019
--------------- ---------------
Pence per GBPm Pence per GBPm
share share
------------------------ --------- ---- --------- ----
Interim dividend 3.0p 12.8 4.0p 17.0
Proposed final dividend 8.6p 36.6 - -
------------------------ --------- ---- --------- ----
11.6p 49.4 4.0p 17.0
------------------------ --------- ---- --------- ----
The proposed final 2019 dividend was suspended and subsequently
cancelled to preserve cash, liquidity and balance sheet strength at
the onset of COVID-19 in March 2020.
5. Earnings per share
2020 2019
------------------------------ ------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items Total
Earnings
Profit/(loss) attributable
to equity holders of the
parent GBPm 122.9 (119.8) 3.1 99.5 (14.9) 84.6
Number of shares
Weighted average number
of ordinary shares - basic '000 424,843 393,349
Effect of dilutive potential
ordinary shares '000 2,505 2,109
------------------------------ ----- ------------ ------- ------- ------------ ------- -------
Weighted average number
of ordinary shares - diluted '000 427,348 395,458
------------------------------ ----- ------------ ------- ------- ------------ ------- -------
Earnings per share
Basic earnings per share p 28.9 (28.2) 0.7 25.3 (3.8) 21.5
Diluted earnings per share P 28.8 (28.1) 0.7 25.2 (3.8) 21.4
6. Finance costs
2020 2019
GBPm GBPm
--------------------------------------------------- ----- -----
Interest payable on bank loans and overdrafts 25.5 6.7
Less: interest receivable (1.2) (0.9)
24.3 5.8
Net interest expense on defined benefit obligation 3.7 2.7
Interest element of lease payments 1.6 1.1
Underlying finance costs 29.6 9.6
Fair value loss on unhedged interest derivatives 3.6 0.5
Loss on extinguishment of financing facilities 4.9 -
--------------------------------------------------- ----- -----
Total finance costs 38.1 10.1
--------------------------------------------------- ----- -----
7. Analysis of net debt
1 January Cash Exchange
2020 inflows/ and other 31 December
(outflows) movements 2020
GBPm GBPm GBPm GBPm
------------------------------------------- --------- ----------- ---------- -----------
Bank overdrafts - (10.4) (0.1) (10.5)
Current bank borrowings - - (9.6) (9.6)
------------------------------------------- --------- ----------- ---------- -----------
Current borrowings - (10.4) (9.7) (20.1)
------------------------------------------- --------- ----------- ---------- -----------
Non-current bank borrowings (82.9) (109.6) 6.3 (186.2)
EUR520m 3.875% senior unsecured loan notes
due 2025 - (463.0) 5.3 (457.7)
------------------------------------------- --------- ----------- ---------- -----------
Non-current borrowings (82.9) (572.6) 11.6 (643.9)
Total borrowings (82.9) (583.0) 1.9 (664.0)
------------------------------------------- --------- ----------- ---------- -----------
Cash and cash equivalents 103.6 104.6 (6.4) 201.8
Net cash/(debt) 20.7 (478.4) (4.5) (462.2)
------------------------------------------- --------- ----------- ---------- -----------
Net debt is defined in the glossary of terms in note 9.
8. Acquisition of OMNOVA Solutions Inc
On 1 April 2020, the Group completed its acquisition of 100 per
cent of the issued share capital of OMNOVA Solutions Inc at a price
of $10.15 per share for a total consideration of GBP382.3
million.
The asset identification and fair value allocation processes are
currently under review. Accordingly, at the date of this report it
is only practicable to disclose the provisional fair values of the
acquired assets, liabilities, contingent liabilities and
goodwill.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out below.
GBPm
----------------------------------------------------- -------
Identifiable intangible assets 330.1
Property, plant and equipment 190.2
Other non-current assets 48.9
Inventory 70.3
Trade and other receivables 81.1
Cash and cash equivalents 68.3
Borrowings (273.6)
Trade and other payables (119.3)
Lease liabilities (21.7)
Retirement benefit obligations (89.8)
Other non-current liabilities (82.4)
Provisional fair value of net assets acquired 202.1
Goodwill 180.2
Total consideration 382.3
------------------------------------------------------ -------
Satisfied by:
Cash 382.3
Total consideration transferred 382.3
------------------------------------------------------ -------
Net cash outflow arising on acquisition:
Cash consideration 382.3
Less: cash and cash equivalent balances acquired (68.3)
------------------------------------------------------ -------
Cash flow from investing activities 314.0
Settlement of external financing of OMNOVA Solutions
Inc 273.6
587.6
----------------------------------------------------- -------
The goodwill arising on the acquisition of the business
represents the premium the Group paid to acquire OMNOVA Solutions
Inc which complements the existing business, strengthening
Synthomer's presence in North America and increasing its presence
in Europe and Asia.
In the period from acquisition to 31 December 2020 the business
contributed GBP343.0 million to the Group's revenue, GBP33.0
million of the Group's EBITDA, GBP17.6 million to the Group's
Underlying operating profit and a loss of GBP7.7 million to the
Group's IFRS operating profit.
If the acquisition had been completed on the first day of the
financial year the business would have contributed GBP475.2 million
to the Group's revenue, GBP46.1 million of the Group's EBITDA,
GBP25.2 million to the Group's Underlying operating profit and a
loss of GBP0.1 million to the Group's IFRS operating profit.
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 or significant asset;
* Acquisition costs;
* Amortisation of acquired intangible assets;
* Impairment of non-current assets;
* Fair value adjustments in respect of derivative
financial instruments where hedge accounting is not
applied;
* Items of income and expense that are considered
material, either by their size and/or nature;
* Tax impact of above items; and
* Settlement of prior period tax issues.
----------------------------------------------------------------------
Underlying performance This represents the statutory performance of the
Group under IFRS, excluding Special Items.
----------------------------------------------------------------------
Free Cash Flow The movement in net debt before financing activities,
foreign exchange and the cash impact of Special Items,
asset disposals and business combinations.
----------------------------------------------------------------------
Net debt Net debt represents cash and cash equivalents less
short- and long-term borrowings.
----------------------------------------------------------------------
Leverage Net debt divided by EBITDA.
The Group's financial covenants are calculated using
the accounting standards adopted by the Group at
31 December 2018 and accordingly, leverage excludes
the impact of IFRS 16 Leases.
----------------------------------------------------------------------
Ktes Kilotonnes or 1,000 tonnes (metric).
----------------------------------------------------------------------
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