TIDMSYNT
RNS Number : 6256H
Synthomer PLC
05 August 2021
5 August 2021
Synthomer plc
Interim Results for the six months ended 30 June 2021
Proven strategy delivering record results
HIGHLIGHTS
Underlying performance(1) Statutory results (IFRS)
-------------------------------- -----------------------------
Half year ended 30 Constant
June 2021 2020 currency(2) 2021 2020 change
-------- ------- ------------- --------- -------- --------
GBPm GBPm % GBPm GBPm %
Revenue 1,230.0 733.7 73.7 1,230.0 733.7 67.6
-------- ------- ------------- --------- -------- --------
Volumes (ktes) 908.9 762.4 19.2
-------- ------- -------------
Performance Elastomers
(PE) 224.0 47.6 398.5
Functional Solutions
(FS) 70.0 46.4 54.7
Industrial Specialities
(IS) 25.1 14.6 78.8
Acrylate Monomers (AM) 14.0 (0.5)
Corporate (10.4) (7.9) 31.6
-------------
EBITDA 322.7 100.2 238.0
Depreciation (34.1) (31.6) 11.4
-------- ------- -------------
Operating profit (EBIT) 288.6 68.6 342.4 266.1 14.8 1,698.0
-------- ------- ------------- --------- -------- --------
Finance costs (16.2) (10.2) 58.8 (11.7) (19.5) (40.0)
Profit before tax 272.4 58.4 392.0 254.4 (4.7)
-------- ------- ------------- --------- -------- --------
Free Cash Flow(3) 89.5 56.2 59.3
EPS (p) 49.3 10.8 356.5 47.1 (3.1)
1. Underlying performance excludes Special Items, unless
otherwise stated.
2. Constant currency revenue and profit retranslate current year
results for heritage Synthomer using the prior
year's average exchange rates. Results from businesses acquired in the year are not retranslated.
3. Free Cash Flow is defined as the movement in net debt before
financing activities, foreign exchange and the cash impact of
Special Items, asset disposals and business combinations.
Threefold increase in Group EBITDA to GBP322.7 million (2020:
GBP100.2 million)
-- Strong growth delivered across all divisions, with all ahead of H1 2020 and H1 2019
-- Exceptional growth in nitrile butadiene rubber (NBR) reflecting COVID-19 related demand
-- Swift action taken to successfully recover raw material price inflation
-- Performance of OMNOVA, acquired 1 April 2020, ahead of acquisition investment case
Investment and strategic initiatives underpin strong
performance
-- Significant historic investment in NBR capacity; long-term
growth market, with 200ktes of new capacity
planned in Asia by 2024
-- Restructuring of European SBR network on track; materially improved H1 2021 performance
-- Excellent growth in Functional Solutions with OMNOVA
integration delivering new opportunities
-- Strong financial and operational performance in Industrial Specialities
Free Cash Flow up 59.3% to GBP89.5 million
-- Continued strong Free Cash Flow conversion at 77%*
-- Significant investment in working capital in H1 2021
reflecting higher raw material prices and activity levels, expected
to reverse in H2
-- Working capital remains in line with guidance at 10% of sales
-- Leverage reduced to 0.8x EBITDA (December 2020: 1.8x)
supporting opportunities for continued organic and inorganic
investment
Launch of Vision 2030 underpins environmental, social and
governance (ESG) programme
-- Vision 2030 roadmap outlines ambitious, measurable goals aligned with UN SDGs
-- Awarded London Stock Exchange's Green Economy Mark, given to
companies that derive more than 50% of revenues from sustainable
solutions
2021 interim dividend confirmed in line with policy
-- Interim 2021 dividend of 8.7p (2020: 3.0p)
Board changes
-- Michael Willome joining as Group CEO on 1 November
-- Steve Bennett standing down as Group CFO in due course;
process to appoint new CFO underway involving external and internal
candidates
*Free Cash Flow conversion excludes movement in working
capital.
Caroline Johnstone, Chair, commented:
"This is an outstanding first half result, driven by both
organic and inorganic investments, strategic initiatives as well as
a significant improvement in demand versus H1 2020. The board
recognises the continuing hard work and dedication of our
employees, which has enabled us to show such strong progress. All
divisions have performed strongly, reporting results that are well
ahead of H1 2019, with additional benefits coming from OMNOVA and
an especially strong performance from our nitrile latex business.
All our sites have continued to operate without any significant
interruptions due to COVID-19, with the health and safety of our
employees remaining our top priority. This focus on safety will
remain the number one priority in everything we do and is a key
element of our new Vision 2030 ESG roadmap.
Synthomer has a proven strategy and a robust balance sheet which
underpin our confidence in being able to continue the Group's
excellent momentum and deliver long term growth and strong returns
for our shareholders."
Outlook
Synthomer expects growth across its three core divisions to
continue in the second half of the year, with ongoing high levels
of demand for NBR as a consequence of the COVID-19 pandemic.
Accordingly, the Board expects FY21 EBITDA to be in excess of
GBP500 million, as previously guided.
Looking ahead, the outlook remains encouraging, with good demand
across all divisions and the ongoing benefits of the OMNOVA
integration, new capacity investment and further efficiency
measures. Our rapid deleveraging and strong balance sheet also
position us well to take advantage of growth opportunities. The
Group also has a proven track record of delivering organic growth
through investment in the business and has a strong platform to
deliver future inorganic growth. While the investment planned in
new NBR capacity demonstrates our confidence in the outlook for
this market, we currently expect the exceptional performance of
Performance Elastomers to normalise early in H1 2022 as the impact
of the COVID-19 pandemic reduces and incremental market capacity
comes online.
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 webcast for analysts and investors at
09.00 BST today. To join, please register at
https://www.synthomer.com/index.php?id=106 , by clicking on the
webcast link provided to register.
BUSINESS REVIEW
Our record H1 2021 EBITDA demonstrates the benefits of our
organic and inorganic investment initiatives as well as a
significant improvement in demand versus H1 2020. In H1 2021, our
three core divisions grew EBITDA by record levels: Performance
Elastomers by 398.5%, Functional Solutions by 54.7%, Industrial
Specialities by 78.8%, while Acrylate Monomers also recovered
strongly. Performance Elastomers was driven by the exceptional
demand that has continued for nitrile butadiene rubber (NBR)
hygiene products as a result of the pandemic. Whilst demand levels
are likely to normalise early in H1 2022, the growth opportunities
in NBR are compelling and underpin today's announcement that we
will invest in 200ktes of new capacity in Asia. This is expected to
come on stream by 2024.
This outstanding performance has enabled us to further
strengthen our balance sheet. We have successfully deleveraged to
0.8x EBITDA from 1.8x in the last six months, meaning that we are
well positioned to pursue further inorganic and organic growth
opportunities in the future.
Overall, the diversity and differentiation of our products,
leadership positions in high-growth markets, and the synergies from
our integration of OMNOVA mean that the Group is well placed for
consistent and sustainable growth as demand in all our main markets
continues to recover. To meet that demand, we are focused on
fulfilling our purpose to continually innovate to meet the needs of
customers and society in a sustainable way, in particular through
our expertise in water-based polymers. In July, the London Stock
Exchange recognised Synthomer's contribution to the global green
economy through the Green Economy Mark, given to companies that
derive more than 50% of revenues from environmental solutions.
Making a sustainable contribution is at the heart of our new Vision
2030 roadmap, which will help guide Synthomer to future
success.
Continued resilient performance through the COVID-19
pandemic
Managing our business through the pandemic has been a
significant challenge for all our stakeholders. Our employees have
shown great resilience, and thanks to their dedication and the fact
that the chemical sector is considered an essential industry by
government authorities, we have been able to operate our 36-site
global network largely as normal. We have had no significant issues
with raw material supply, the distribution of finished goods or the
availability of operating personnel, and we have managed all our
sites in line with local safety requirements.
Group EBITDA increased 238.0% to GBP322.7 million (2020:
GBP100.2 million)
Record growth in EBITDA was driven by a strong performance from
all core divisions and the successful integration of OMNOVA.
Performance Elastomers EBITDA grew by 398.5%, driven not only by
strong demand for hygiene products, reflecting our ability to draw
on our investment in new NBR capacity and strong pricing throughout
H1 2021, but also as a result of improved demand and pricing in our
SBR market marking a step change in this business.
Functional Solutions EBITDA grew by 54.7%, reflecting our
stronger global position and increased market diversity following
the integration of OMNOVA, and strong demand as industrial markets
strengthen and sectors such as oil and gas recover from the
downturns caused by COVID-19.
Industrial Specialities EBITDA grew by 78.8%, which again
reflects the integration of OMNOVA and its engineering surfaces
businesses, as well as strengthening demand in industrial
segments.
Improved demand also saw Acrylate Monomers EBITDA grow to
GBP14.0 million, from a small loss in 2020, enabled by favourable
market conditions and the ongoing transformation of the division.
That transformation includes the closure of the Sokolov (Czech
Republic) coal-fired power station, ending the use of coal across
the Group and significantly reducing our carbon footprint.
Excluding the contribution from the acquisition of OMNOVA,
EBITDA for our PE and FS divisions were well ahead of the first
half of 2019 and IS was in line with the first half of 2019,
reflecting the strength of the performance of the underlying Group
and our successful navigation of the COVID-19 pandemic.
Free Cash Flow up 59.3% to GBP89.5 million; strong balance sheet
providing capacity for future investment
Strong cash generation has helped to drive a rapid reduction of
net debt to GBP354.5 million and leverage of 0.8x EBITDA. Our
long-term committed funding is confirmed until 2024, and we have a
strong financial platform on which to pursue our overall strategy
of organic and inorganic growth.
Our investment in working capital in H1 2021 was GBP159.4
million, reflecting significant increases in both raw material
prices and activity levels, albeit the ratio of working capital to
sales remained unchanged at approximately 10%. Our expectation is
that the investment in working capital will reverse in H2 as raw
material prices fall and activity returns to more seasonal
levels.
Strong performance from nitrile butadiene rubber (NBR) following
long-term investment
The COVID-19 pandemic accelerated the growing demand for NBR
products, predominantly through their use as protective equipment.
Our nitriles business continued to benefit in H1 2021 from our
significant investment in capacity and technology at a time when
there was an imbalance between demand and supply. NBR remains an
area of long-term growth, driven by megatrends around hygiene and
health, particularly in emerging markets. We aim to maintain our
leadership position in this market and continue to invest in both
the innovation and production of nitriles. Our project to introduce
60ktes of new capacity at Pasir Gudang (Malaysia) remains on track,
and we expect to supply customers from Q1 2022.
As part of our commitment to support the growing demand for NBR,
we are pleased to announce a further investment in 200ktes of new
capacity in Asia, due to come on stream by 2024, increasing our
total NBR capacity by 40%.
Alongside our investment in capacity, we launched SyNovus(R) , a
proprietary patented NBR latex product with significant efficiency
and energy benefits for our customers and which offers superior
sustainability metrics from its Life Cycle Analysis relative to
existing NBR products, PVC and natural rubber.
Restructuring of European styrene butadiene rubber (SBR) network
on track
In H2 2019 we began a strategic review of our European SBR
network with the goal of addressing falling plant utilisation rates
across our SBR assets as demand for coated graphic paper weakened.
In line with that review, in Q1 2021 we closed our Oulu (Finland)
SBR plant and began transformation plans at Marl (Germany)
following consultation to confirm the rationalisation programmes
including the mothballing of a single SBR reactor train. The work
we have done has led to our SBR assets becoming more profitable. We
remain committed to the SBR latex markets in Europe and the US and
are working to continue to optimise our assets in this highly
competitive market.
We also sold our Chonburi (Thailand) site in H1 as part of our
ongoing network efficiency programme, while p rojects to improve
long-term profitability are underway in Kluang (Malaysia), Sokolov
(Czech Republic), and Ribécourt (France).
Our fixed cost reduction programme, 'Mindset', which involved a
line-by-line review of our non-manpower fixed costs, has been
rolling out in Europe since 2019. We will continue to roll it out
across Synthomer during H2, with the goal of minimising the impact
of rising costs.
Functional Solutions benefitting from demand recovery and OMNOVA
integration
Functional Solutions is a key growth platform for Synthomer,
developing innovative and differentiated products for its customers
and serving a wide range of end markets. There was a notable
improvement in demand in the coatings, adhesives, sealants and
elastomers (CASE) and Oil & Gas markets in the first half, and
the division was also able to successfully pass through unusually
high raw material prices and maintain unit margins. The investment
in our Worms plant, which was completed in 2019 and increased
capacity from 80ktes to 120ktes, is continuing to bring significant
benefits. The plant is running at full capacity and allowing us to
deliver differentiated products across our European network.
During the first half, Functional Solutions remained focused on
continuing to deliver the benefits of the acquisition of OMNOVA,
helping to increase the scale and geographic diversity of this
division. In addition to delivering cost synergies, the successful
integration of the Functional Solutions sales team with that of the
former OMNOVA business is opening up significant new sales
opportunities, particularly in the US.
Launch of Vision 2030 underpins environmental, social and
governance (ESG) programme
The environmental and social challenges facing the world are
increasingly urgent, and it has never been so important for
business to play its full part. At the same time, our integration
with OMNOVA has given us the opportunity to embed a single set of
values and a unified ESG approach across a truly global
business.
In July we announced our new 'Vision 2030' roadmap for ESG,
which sets our goals for the next decade on our route to meeting
our long-term 2050 net zero emissions commitment. Vision 2030,
developed from a Group-wide review, is designed to align with the
UN Sustainable Development Goals, and includes targets for our
three 2021 priority ESG issues: carbon and climate change,
diversity and inclusion, and supply chain assurance. It also
commits us to delivering top quartile performance for personal and
process safety, which is central to our culture and values. Further
details on Vision 2030 can be found in our Sustainability Report
2020:
https://www.synthomer.com/fileadmin/files/company/sustainability_2021/Synthomer%20plc_Sustainability%20Report%202020.pdf
Performance Elastomers and Functional Solutions - our two
largest divisions - principally develop water-based polymers, which
offer significant sustainability advantages versus solvent-based
alternatives. The CO(2) intensity of these divisions is top
quartile compared to peer chemical companies and their increasing
adoption of renewable energy will contribute strongly to our
ambitious Vision 2030 Goals for Scope 1 and 2 emissions.
Board updates
In June, we announced the appointment of Michael Willome as
Group Chief Executive Officer. Michael will succeed Calum MacLean,
who announced in January 2021 that he wished to step down once a
suitable successor had been identified. Michael will join the
Synthomer Board as Chief Executive on 1 November 2021.
Steve Bennett has informed the Board that he would like to stand
down as Chief Financial Officer in due course. Steve has a
twelve-month notice period and has agreed to remain in his role
until a successor is appointed to ensure a smooth transition. Steve
has been with the Company for nearly 7 years, during which time he
has made a significant contribution. He has established a strong
team and finance function, overseen several refinancings,
significant investment and multiple acquisitions. The Board has
initiated a process to appoint Steve's replacement involving both
internal and external candidates and will make a further
announcement when a replacement has been appointed.
Outlook
Synthomer expects growth across its three core divisions to
continue in the second half of the year, with ongoing high levels
of demand for NBR as a consequence of the COVID-19 pandemic.
Accordingly, the Board expects FY21 EBITDA to be in excess of
GBP500 million, as previously guided.
Looking ahead, the outlook remains encouraging, with good demand
across all divisions and the ongoing benefits of the OMNOVA
integration, new capacity investment and further efficiency
measures. Our rapid deleveraging and strong balance sheet also
position us well to take advantage of growth opportunities. The
Group also has a proven track record of delivering organic growth
through investment in the business and has a strong platform to
deliver future inorganic growth. While the investment planned in
new NBR capacity demonstrates our confidence in the outlook for
this market, we currently expect the exceptional performance of
Performance Elastomers to normalise early in H1 2022 as the impact
of the COVID-19 pandemic reduces and incremental market capacity
comes online.
DIVISIONAL REVIEW
Our H1 2021 results include a full six months of reporting on
the enlarged division following the acquisition of OMNOVA, compared
to three months from 1 April 2020, in H1 2020.
Performance Elastomers
Constant
currency(1)
H1 2021 H1 2020 % %
Volumes (ktes) 473.5 424.6 11.5
Revenue (GBPm) 551.4 293.9 87.6 96.3
EBITDA (GBPm) 224.0 47.6 370.6 398.5
Operating profit - Underlying
performance (GBPm) 211.3 34.9 505.4 542.1
Operating profit - IFRS (GBPm) 209.4 23.1 806.5
(1) Constant currency revenue and profit retranslate current
year results for heritage Synthomer using the prior year's average
exchange rates. Results from businesses acquired in the year are
not retranslated.
Results
Performance Elastomers delivered an extremely strong
performance, driven by higher volumes and unit margins across the
division and in particular in our NBR business, which ran at full
capacity as a result of extraordinary demand for health and hygiene
products during the COVID-19 pandemic.
Overall, volumes and unit margins were significantly higher than
in H1 2020 in all major business segments in Performance Elastomers
driven by the strong performance of NBR and supported by both our
European SBR business and the Performance Materials businesses
acquired from OMNOVA recovering from the significant impact of
COVID-19 in Q2 2020.
We have announced plans to bring a further 200ktes of new NBR
capacity in Asia, due to come on stream by 2024. This will bring
our global capacity to 660ktes, and the new investment will
manufacture our full range of nitrile products including the latest
patented 'SyNovus(R) ' products we developed in our R&D
facility in Malaysia. We have now procured long-lead items for this
project and expect to complete installation by the end of 2023,
subject to final decisions and regulatory approvals on its
location. We will finalise and announce the location in due course.
The investment in new NBR capacity demonstrates our confidence in
the outlook for the high growth NBR market.
In H2 2019 we began a strategic review of our European SBR
network with the goal of addressing falling plant utilisation rates
across our SBR assets as demand for coated graphic paper weakened.
In line with that review, in Q1 2021 we closed our Oulu (Finland)
SBR plant as planned and began transformation plans at Marl
(Germany) following consultation to confirm the rationalisation
programmes including the mothballing of a single SBR reactor train.
The work we have done has led to our SBR assets becoming more
profitable. We remain committed to the SBR latex markets in Europe
and the US and are working to continue to optimise our assets in
this highly competitive market. The SBR business recovered in H1
through the combination of improved economic conditions in the
majority of our product segments and the good progress with our
European SBR network transformation which allowed us to increase
plant utilisation.
ESG progress
Our strong innovation record continues to deliver differentiated
technology which has an increasing focus on sustainability. Our
'SyNovus(R) ' products deliver best in class sustainability
compared both to competing technologies and earlier generations of
technology through lower processing temperatures and faster
processing speeds but also better consumer properties. Our Vision
2030 Goals set out ambitious KPIs to ensure that our focus of
driving innovation to deliver sustainability benefits adds focus on
meeting both the needs of our customers and society.
In addition the network transformations underway in the division
will improve utilisation rates and efficiency from the closure of
the SBR capacity in Finland and Germany. This will allow us to
concentrate production in our most efficient locations and minimise
our emissions as a result.
Functional Solutions
Constant
currency(1)
H1 2021 H1 2020 % %
Volumes (ktes) 346.3 266.5 29.9
Revenue (GBPm) 444.4 301.3 47.5 51.7
EBITDA (GBPm) 70.0 46.4 50.9 54.7
Operating profit - Underlying
performance (GBPm) 56.1 34.8 61.2 65.2
Operating profit - IFRS (GBPm) 42.4 18.4 130.4
(1) Constant currency revenue and profit retranslate current
year results for heritage Synthomer using the prior year's average
exchange rates. Results from businesses acquired in the year are
not retranslated.
Results
Functional Solutions performed strongly, driven by the benefits
of our integration of OMNOVA, which has generated synergies as well
as increasing our scale, geographic diversity and product
differentiation. The division delivered EBITDA of GBP70.0 million
in H1 2021, an increase of 54.7% on H1 2020, reflecting both the
acquisition and continued recovery in our key end markets.
Total volumes grew by 29.9% compared to H1 2020 with unit
margins stronger than the comparative period. Our coatings,
adhesives, sealants and elastomers (CASE) business recorded
significant volume growth across the board in a climate of robust
demand in our major global markets, particularly the Europe, Middle
East and Africa region. Our Oil & Gas business is recovering
more quickly than expected, as oil prices rose and drilling
activity increased. Notably, both our CASE and Oil & Gas
businesses were resilient in the face of unusually high raw
material prices, successfully passing on raw material price
increases and maintaining unit margins.
Functional Solutions is a key global growth platform for
Synthomer, developing innovative and differentiated products for
its customers and serving a wide range of end markets. Growth has
been delivered from both inorganic and organic growth. Our 2019
investment in Worms (Germany) increased our capacity from 80ktes to
120ktes on this world scale speciality dispersion plant which is
located in the heart of Europe to meet the growth in demand
required by our customers in our key segments. The plant is now
running at full capacity and allowing us to deliver differentiated
products across our European network. In Roebuck (USA) our
investment programme delivered 12ktes of new capacity for our
differentiated adhesive focused US customers. The investment
supports our expanded network of US plants following the
acquisition of OMNOVA and further increases our proportion of
higher margin speciality products.
During the first half, Functional Solutions remained focused on
continuing to deliver the benefits of the acquisition of OMNOVA,
which completed in April 2020 and helped to increase the scale and
geographic diversity of this division. In addition to delivering
cost synergies, the successful integration of the Functional
Solutions sales team with that of the former OMNOVA business is
opening up significant new sales opportunities, particularly in the
US.
Growth is driven by the GDP+ end markets in which we operate
supported by favourable megatrends and the drive to the use of
sustainable polymer solutions. Functional Solutions is the most
global of our divisions, and will continue to benefit from revenue
synergy opportunities, the drive to improve our mix to increase
differentiation and to maximise our productivity through
manufacturing excellence and network rationalisation.
ESG progress
Our innovation is helping to meet the growing demand for
sustainable polymer solutions across our 3000 customers through our
portfolio of approximately 900 products. Aligned with our Vision
2030 Goals our target to increase the percentage of new products
with enhanced sustainability benefits is a key target to support
further growth in Functional Solutions.
Our drive to improve productivity and optimise our network led
to the decision to close the Chonburi (Thailand) site, exit its
solvent-based product range and transfer its water-based products
to our existing Asian network to drive stronger utilisation.
Industrial Specialities
Constant
currency(1)
H1 2021 H1 2020 % %
Volumes (ktes) 61.5 41.5 48.2
Revenue (GBPm) 190.1 112.4 69.1 74.7
EBITDA (GBPm) 25.1 14.6 71.9 78.8
Operating profit - Underlying
performance (GBPm) 18.2 9.8 85.7 92.9
Operating profit - IFRS (GBPm) 13.5 5.1 164.7
(1) Constant currency revenue and profit retranslate current
year results for heritage Synthomer using the prior year's average
exchange rates. Results from businesses acquired in the year are
not retranslated.
Results
Industrial Specialities performed very strongly, driven by
robust demand for our products in key end markets, an excellent
operating performance, and a substantial contribution by businesses
acquired through our integration of OMNOVA.
H1 2021 EBITDA at GBP25.1 million was 78.8% higher than H1 2020
(GBP14.6 million). Sales volumes for the division were 48.2% higher
than in the prior year, largely due to continuing strong market
conditions which recovered during the second half of 2020. All
markets saw strong demand, particularly automotive and
consumer-facing industrial.
Our Laminates and Films business in particular grew
significantly in H1 2021, partly due to increased demand for
products in the kitchen and bathroom and recreational vehicle
markets during the pandemic. The business continued to gain market
share and grow ahead of the market, as customers substituted
traditional materials with our superior, lower cost laminates and
films. With a strong consumer and design focus this business has
opportunities for further growth and investment. Having been
acquired from OMNOVA the strategy has been reviewed to focus on
growth and we look forward to developing this business further.
The strong recovery in automotive demand and our investment in
growth has benefitted our Polybutadiene Lithene and Powder Coatings
businesses. Both businesses have grown compared to 2019 benefitting
from the increasingly differentiated product ranges which supply
broad markets in addition to automotive such as construction,
rubber modification and adhesives.
ESG Progress
Our manufacturing excellence programme continues to be a major
focus to drive reliability, plant utilisation and to deliver
growth. The adoption of our 'Value Gap' programme across the
enlarged Industrial Specialities division continues to drive
debottlenecking, cycle time improvements and deliver additional
capacity. This approach delivers improved productivity, increasing
utilisation and identifying opportunities to minimise our
environmental profile.
The emissions intensity in Industrial Specialities is higher
than the other divisions because these products are not water-based
and generally involve higher energy intensity manufacturing to
produce a low volume, more highly specialised often solid end
products. Our Vision 2030 to reduce Scope 1 and 2 emissions by 40%
across our Group will drive an ongoing focused approach to
manufacturing improvement, innovation and targeted investment
across Industrial Specialities.
Acrylate Monomers
Constant
currency(1)
H1 2021 H1 2020 % %
Volumes (ktes) 27.6 29.8 (7.4)
Revenue (GBPm) 44.1 26.1 69.0 67.4
EBITDA (GBPm) 14.0 (0.5)
Operating profit - Underlying
performance (GBPm) 13.8 (2.1)
Operating profit - IFRS (GBPm) 13.8 (2.2)
(1) Constant currency revenue and profit retranslate current
year results for heritage Synthomer using the prior year's average
exchange rates. Results from businesses acquired in the year are
not retranslated.
Results
EBITDA of GBP14.0 million was significantly higher than in the
comparative period (2020: loss of GBP0.5 million), driven by higher
margins. Total external and internal sales volumes were broadly
flat year-on-year, albeit more product was sold internally to the
Group compared with H1 2020. Unit margins increased significantly
due to strong underlying demand and a tightening of the market
caused by a number of competitor force majeures. We expect these
unit margins to reduce gradually in the coming months, as the
competitor force majeures are resolved and more balance returns to
our markets.
The transformation programme at our Sokolov site continues to
progress well, reducing costs and making the division more
resilient. Regrettably the programme will involve making a number
of employees redundant, as part of closing the site's coal-fired
power station, which will take place in Q4 2021. This is the last
key element of the transformation programme and will mark the end
of coal use in Synthomer, contributing to our target to reduce GHG
emissions by 20% by the end of 2021 (compared to 2019), and
reinforcing our strong commitment to reducing our carbon
footprint.
ESG Progress
Acrylate Monomers operates from a single site in Sokolov (Czech
Republic) which remains at the forefront of our ESG agenda. The
site was acquired in 2016 with the improvement of the ESG profile a
key part of our strategy for the Division. The closure in 2021 of
the coal fired power station marks the end of the use of coal for
power generation across the Synthomer Group. The investment will
also allow the us to reduce by 23% our site water requirements and
deliver a 24% reduction in the site CO(2) emissions. The investment
marks a significant milestone for both the Group and the Sokolov
site and ensures the site meets the exacting standards required for
a Synthomer business.
SPECIAL ITEMS
H1 2021 H1 2020
GBPm GBPm
--------
Amortisation of acquired intangibles (18.2) (11.8)
Restructuring and site closure costs (3.8) (11.6)
Acquisition costs and related gains (0.3) (13.2)
Sale of business (0.2) (6.6)
Impairment charge - (10.6)
Total impact on operating profit (22.5) (53.8)
Fair value gain/(loss) on unhedged interest derivatives 4.5 (4.4)
Loss on extinguishment of financing facilities - (4.9)
-------- --------
Total impact on profit before taxation (18.0) (63.1)
Taxation Special Items 6.4 -
Taxation on Special Items 2.4 4.3
-------- --------
Total impact on profit for the period (9.2) (58.8)
-------- --------
The following items of income and expense were reported as
Special Items and accordingly were excluded from Underlying
performance:
-- Amortisation of acquired intangibles increased during the
period reflecting the acquisition of OMNOVA Solutions Inc which
completed on 1 April 2020. Consequently, H1 2021 included six
months of amortisation compared to three months in H1 2020
-- Restructuring and site closure costs comprised GBP3.1 million
of OMNOVA integration costs and GBP0.7 million in relation to the
closure of our plant in Oulu (Finland). The 2020 charge related
entirely to integration costs, principally severance payments to
employees, required to deliver acquisition synergies
-- Acquisition costs incurred during the period related to
acquisition opportunities which did not complete or have yet to
complete. Acquisition costs and related gains in 2020 related to
the acquisition of OMNOVA and comprised mainly professional
advisers' fees, offset by a gain of GBP8.7 million on a foreign
exchange derivative entered into in July 2019 to hedge the
acquisition price
-- Sale of business related to a loss on the sale of Synthomer
(Thailand) Limited on 7 April 2021, on top of the GBP3.3 million
impairment charge taken in 2020. Sale of business in 2020 related
to the disposal of our European Tyre Cord business, which was
required by the European Commission Competition Authority to clear
our acquisition of OMNOVA
-- The impairment charge in 2020 related to our European SBR
assets in Finland and Germany which, as part of our strategic
review, were impaired by GBP10.6 million
-- In July 2018 we entered into swap arrangements to fix euro
interest rates on the full value of the then EUR440 million
committed unsecured revolving credit facility. Over the period we
had no floating rate euro borrowings and the full swap was
unhedged. The fair value gain on unhedged interest rate derivatives
relates to the movement in mark-to-market value of the swaps over
the period.
TAXATION
The Group's Underlying tax rate for H1 2021 was 23.1% (H1 2020:
22.1%; FY 2020: 23.4%). The decrease in the effective tax rate
compared to the year ended 31 December 2020 is a result of the
geographical mix of profits.
The effective tax rate for Special Items was 48.9% (H1 2020:
6.8%; FY 2020: 11.2%). Tax Special Items includes a current tax
credit of GBP6.4 million in relation to the release of a tax
provision following the conclusion of a tax audit in France.
CASH PERFORMANCE
H1 2021 H1 2020
GBPm GBPm
---------
Opening net (debt)/cash (462.2) 20.7
Underlying operating profit (excluding joint ventures) 287.2 67.9
Movement in working capital (159.4) 10.1
Depreciation of property, plant and equipment 32.2 30.4
Amortisation of other intangible assets 1.9 1.2
Share-based payments charge 1.2 0.7
Capital expenditure (29.1) (26.7)
--------- --------
Business cash flow 134.0 83.6
Net interest paid (14.6) (6.4)
Tax paid (18.5) (10.2)
Pension funding (12.3) (11.0)
Dividends received from joint ventures 0.9 0.2
--------- --------
Free Cash Flow 89.5 56.2
Cash impact of restructuring and site closure costs (3.7) (12.2)
Cash impact of acquisition costs (0.3) (13.1)
Purchase of business - (611.1)
Sale of business 0.6 0.1
Repayment of principal portion of lease liabilities (4.9) (4.8)
Foreign exchange and other movements 26.5 (11.3)
--------- --------
Movement in net debt 107.7 (596.2)
Closing net debt (354.5) (575.5)
--------- --------
At 30 June 2021, our net debt was GBP354.5 million, compared to
GBP462.2 million at 31 December 2020 and GBP575.5 million at 30
June 2020. This reflects our generation of strong Free Cash Flow
during H2 2020 and H1 2021.
Underlying operating profit increased by GBP219.3 million to
GBP287.2 million. This was offset by a GBP159.4 million increase in
working capital, reflecting significant increases in both raw
material prices and our volumes. The ratio of working capital to
sales remains unchanged at approximately 10%. Capital expenditure
in the period was GBP29.1 million, as we continued to invest in
additional nitrile capacity in Pasir Gudang (Malaysia), both in
terms of the 60kt of additional capacity due online at the end of
2021 and also the long lead items for the 200kt expansion due
online in 2024. Capital expenditure also included replacement of
the coal-fired power station in Sokolov (Czech Republic), continued
investment in the Pathway Programme and regular recurring SHE and
sustenance expenditure.
Interest paid increased from GBP6.4 million to GBP14.6 million
reflecting the first full period of additional borrowings drawn for
the OMNOVA acquisition and the successful issue of EUR520 million
3.875% unsecured senior loan notes to settle bridging finance
facilities in June 2020.
Our debt is denominated in euros and dollars both of which fell
against sterling during H1 2021, leading to a foreign exchange gain
in net debt; this compares with H1 2020, when sterling fell against
all our principal overseas currencies.
The cash impact of Special Items was GBP4.0 million, offset by
proceeds of GBP0.6 million from the sale of our Chonburi (Thailand)
site.
FINANCING AND LIQUIDITY
We have committed unsecured borrowing facilities until July
2024, comprising a $260 million term loan, a EUR460 million
revolving credit facility, and five-year EUR520 million 3.875%
senior loan notes. These borrowing facilities of approximately
GBP1,080 million are subject to one leverage ratio maintenance
covenant. At 30 June 2021 our leverage ratio was 0.8x, well within
our leverage ratio covenant of 4.0x at 30 June 2021 and 31 December
2021, and 3.5x thereafter. At 30 June 2021, our net borrowings were
GBP354.5 million, and accordingly we had approximately GBP750
million of liquidity.
RETIREMENT BENEFIT PLANS
Our pension liability decreased to GBP163.4 million from
GBP221.4 million at December 2020. This GBP58.0 million reduction
largely comprised GBP13.7 million of cash contributions and
actuarial gains of GBP41.6 million. This actuarial gain arose due
to the GBP43.7 million impact of changes in discount rates which
was offset by GBP2.2 million of experience adjustments.
Consolidated income statement
for the six months ended 30 June 2021
Six months ended Six months ended
30 June 2021 30 June 2020
(unaudited) (unaudited)
---------------------------------- ---------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Revenue 1,230.0 - 1,230.0 733.7 - 733.7
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Company and subsidiaries before
Special Items 287.2 - 287.2 67.9 - 67.9
Amortisation of acquired
intangibles - (18.2) (18.2) - (11.8) (11.8)
Restructuring and site closure
costs - (3.8) (3.8) - (11.6) (11.6)
Acquisition costs and related
gains - (0.3) (0.3) - (13.2) (13.2)
Sale of business - (0.2) (0.2) - (6.6) (6.6)
Impairment charge - - - - (10.6) (10.6)
Company and subsidiaries 287.2 (22.5) 264.7 67.9 (53.8) 14.1
Share of joint ventures 1.4 - 1.4 0.7 - 0.7
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Operating profit/(loss) 288.6 (22.5) 266.1 68.6 (53.8) 14.8
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Interest payable (14.7) - (14.7) (8.8) - (8.8)
Interest receivable 0.5 - 0.5 0.6 - 0.6
Fair value gain/(loss) on unhedged
interest derivatives - 4.5 4.5 - (4.4) (4.4)
Loss on extinguishment of financing
facilities - - - - (4.9) (4.9)
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
(14.2) 4.5 (9.7) (8.2) (9.3) (17.5)
Net interest expense on defined
benefit obligation (1.2) - (1.2) (1.4) - (1.4)
Interest element of lease payments (0.8) - (0.8) (0.6) - (0.6)
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Finance costs (16.2) 4.5 (11.7) (10.2) (9.3) (19.5)
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Profit/(loss) before taxation 272.4 (18.0) 254.4 58.4 (63.1) (4.7)
Taxation (62.9) 8.8 (54.1) (12.9) 4.3 (8.6)
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Profit/(loss) for the period 209.5 (9.2) 200.3 45.5 (58.8) (13.3)
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Profit/(loss) attributable to
non-controlling interests 0.1 (0.1) - (0.2) - (0.2)
Profit/(loss) attributable to
equity holders of the parent 209.4 (9.1) 200.3 45.7 (58.8) (13.1)
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
209.5 (9.2) 200.3 45.5 (58.8) (13.3)
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Earnings/(loss) per share
Basic 49.3p (2.2)p 47.1p 10.8p (13.9)p (3.1)p
Diluted 49.1p (2.2)p 46.9p 10.7p (13.8)p (3.1)p
-------------------------------------- ------- ------ ---------------- ------------ ------- --------
Consolidated income statement for the six months ended 30 June
2021 (continued)
Year ended 31 December
2020
(audited)
------------------------------
Underlying Special
performance Items IFRS
GBPm GBPm GBPm
---------------------------------------- ------------ ------- -------
Revenue 1,644.2 - 1,644.2
---------------------------------------- ------------ ------- -------
Company and subsidiaries before Special
Items 188.4 - 188.4
Amortisation of acquired intangibles - (30.9) (30.9)
Restructuring and site closure costs - (42.5) (42.5)
Acquisition costs and related gains - (14.6) (14.6)
Impairment charge - (36.6) (36.6)
Sale of business - (6.6) (6.6)
Company and subsidiaries 188.4 (131.2) 57.2
Share of joint ventures 1.2 - 1.2
---------------------------------------- ------------ ------- -------
Operating profit/(loss) 189.6 (131.2) 58.4
---------------------------------------- ------------ ------- -------
Interest payable (25.5) - (25.5)
Interest receivable 1.2 - 1.2
Fair value loss on unhedged interest
derivatives - (3.6) (3.6)
Loss on extinguishment of financing
facilities - (4.9) (4.9)
---------------------------------------- ------------ ------- -------
(24.3) (8.5) (32.8)
Net interest expense on defined benefit
obligations (3.7) - (3.7)
Interest element of lease payments (1.6) - (1.6)
---------------------------------------- ------------ ------- -------
Finance costs (29.6) (8.5) (38.1)
---------------------------------------- ------------ ------- -------
Profit/(loss) before taxation 160.0 (139.7) 20.3
---------------------------------------- ------------ ------- -------
Taxation (37.4) 15.6 (21.8)
---------------------------------------- ------------ ------- -------
Profit/(loss) for the year 122.6 (124.1) (1.5)
---------------------------------------- ------------ ------- -------
Loss attributable to non-controlling
interests (0.3) (4.3) (4.6)
Profit/(loss) attributable to equity
holders of the parent 122.9 (119.8) 3.1
---------------------------------------- ------------ ------- -------
122.6 (124.1) (1.5)
---------------------------------------- ------------ ------- -------
Earnings/(loss) per share
Basic 28.9p (28.2)p 0.7p
Diluted 28.8p (28.1)p 0.7p
---------------------------------------- ------------ ------- -------
Consolidated statement of comprehensive income
for the six months ended 30 June 2021
Six months ended 30 Six months ended 30
June 2021 June 2020
(unaudited) (unaudited)
--------------------------------- ---------------------------------
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 period 200.3 - 200.3 (13.1) (0.2) (13.3)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Actuarial gains/(losses) 41.6 - 41.6 (17.4) - (17.4)
Taxation relating to components
of other comprehensive income (1.9) - (1.9) 0.1 - 0.1
------------------------------------- -------- --------------- ------ -------- --------------- ------
Total items that will not be
reclassified to profit or loss 39.7 - 39.7 (17.3) - (17.3)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Exchange differences on translation
of foreign operations (13.1) (0.5) (13.6) 21.7 0.7 22.4
Fair value loss on hedged interest
derivatives - - - (0.8) - (0.8)
Gains/(losses) on net investment
hedges taken to equity 3.0 - 3.0 (0.3) - (0.3)
Exchange differences recycled
on sale of business 0.3 - 0.3 - - -
------------------------------------- -------- --------------- ------ -------- --------------- ------
Total items that may be reclassified
subsequently to profit or loss (9.8) (0.5) (10.3) 20.6 0.7 21.3
------------------------------------- -------- --------------- ------ -------- --------------- ------
Other comprehensive income/(expense)
for the period 29.9 (0.5) 29.4 3.3 0.7 4.0
Total comprehensive income/(expense)
for the period 230.2 (0.5) 229.7 (9.8) 0.5 (9.3)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Year ended 31 December
2020 (audited)
---------------------------------
Equity
holders
of the Non-controlling
parent interests Total
GBPm GBPm GBPm
---------------------------------------------------------- -------- --------------- ------
Profit/(loss) for the year 3.1 (4.6) (1.5)
---------------------------------------------------------- -------- --------------- ------
Actuarial losses (7.6) - (7.6)
Taxation relating to components of other comprehensive
income 3.5 - 3.5
---------------------------------------------------------- -------- --------------- ------
Total items that will not be reclassified to profit
or loss (4.1) - (4.1)
---------------------------------------------------------- -------- --------------- ------
Exchange differences on translation of foreign operations (37.5) (0.3) (37.8)
Fair value loss on hedged interest derivatives (0.8) - (0.8)
Gains on net investment hedges taken to equity 15.9 - 15.9
---------------------------------------------------------- -------- --------------- ------
Total items that may be reclassified subsequently
to profit or loss (22.4) (0.3) (22.7)
---------------------------------------------------------- -------- --------------- ------
Other comprehensive expense for the year (26.5) (0.3) (26.8)
---------------------------------------------------------- -------- --------------- ------
Total comprehensive expense for the year (23.4) (4.9) (28.3)
---------------------------------------------------------- -------- --------------- ------
Consolidated statement of changes in equity
for the six months ended 30 June 2021
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 2021 42.5 421.1 0.9 (41.9) 192.4 615.0 13.1 628.1
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Profit for the period - - - - 200.3 200.3 - 200.3
Other comprehensive
income/(expense)
for the period - - - (9.8) 39.7 29.9 (0.5) 29.4
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
income/(expense)
for the period - - - (9.8) 240.0 230.2 (0.5) 229.7
Share-based payments - - - - 0.3 0.3 - 0.3
Dividends - - - - (36.5) (36.5) - (36.5)
At 30 June 2021
(unaudited) 42.5 421.1 0.9 (51.7) 396.2 809.0 12.6 821.6
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
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
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Loss for the period - - - - (13.1) (13.1) (0.2) (13.3)
Other comprehensive
income/(expense)
for the period - - - 20.6 (17.3) 3.3 0.7 4.0
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
income/(expense)
for the period - - - 20.6 (30.4) (9.8) 0.5 (9.3)
Share-based payments - - - - 0.6 0.6 - 0.6
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 30 June 2020
(unaudited) 42.5 421.1 0.9 1.1 174.6 640.2 21.6 661.8
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
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)
Share-based payments - - - - 1.8 1.8 - 1.8
Dividends - - - - (12.8) (12.8) (3.1) (15.9)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 31 December 2020
(audited) 42.5 421.1 0.9 (41.9) 192.4 615.0 13.1 628.1
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Consolidated balance sheet
as at 30 June 2021
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
-------------------------------------- ----------- ----------- -----------
Non-current assets
Goodwill 484.8 509.8 493.4
Acquired intangible assets 314.1 381.8 341.0
Other intangible assets 40.0 32.7 36.6
Property, plant and equipment 497.5 586.0 521.8
Deferred tax assets 32.3 29.7 23.8
Investment in joint ventures 7.3 8.4 6.6
-------------------------------------- ----------- ----------- -----------
Total non-current assets 1,376.0 1,548.4 1,423.2
-------------------------------------- ----------- ----------- -----------
Current assets
Inventories 218.2 172.9 170.3
Trade and other receivables 394.9 261.5 262.4
Cash and cash equivalents 284.7 208.5 201.8
Derivative financial instruments - 0.7 1.4
-------------------------------------- ----------- ----------- -----------
Total current assets 897.8 643.6 635.9
-------------------------------------- ----------- ----------- -----------
Total assets 2,273.8 2,192.0 2,059.1
-------------------------------------- ----------- ----------- -----------
Current liabilities
Borrowings (15.3) (0.5) (20.1)
Trade and other payables (372.9) (288.2) (334.1)
Lease liabilities (10.1) (12.0) (10.6)
Current tax liabilities (92.8) (47.4) (58.5)
Dividends payable (36.5) - -
Provisions for other liabilities and
charges (17.8) (6.0) (25.7)
Derivative financial instruments (15.4) (20.0) (19.4)
-------------------------------------- ----------- ----------- -----------
Total current liabilities (560.8) (374.1) (468.4)
-------------------------------------- ----------- ----------- -----------
Non-current liabilities
Borrowings (623.9) (783.5) (643.9)
Trade and other payables (2.2) (0.6) (3.7)
Lease liabilities (39.8) (49.9) (44.4)
Deferred tax liabilities (52.4) (71.5) (43.3)
Retirement benefit obligations (163.4) (243.9) (221.4)
Provisions for other liabilities and
charges (9.7) (6.7) (5.9)
-------------------------------------- ----------- ----------- -----------
Total non-current liabilities (891.4) (1,156.1) (962.6)
-------------------------------------- ----------- ----------- -----------
Total liabilities (1,452.2) (1,530.2) (1,431.0)
-------------------------------------- ----------- ----------- -----------
Net assets 821.6 661.8 628.1
-------------------------------------- ----------- ----------- -----------
Equity
Share capital 42.5 42.5 42.5
Share premium 421.1 421.1 421.1
Capital redemption reserve 0.9 0.9 0.9
Hedging and translation reserve (51.7) 1.1 (41.9)
Retained earnings 396.2 174.6 192.4
-------------------------------------- ----------- ----------- -----------
Equity attributable to equity holders
of the parent 809.0 640.2 615.0
Non-controlling interests 12.6 21.6 13.1
-------------------------------------- ----------- ----------- -----------
Total equity 821.6 661.8 628.1
-------------------------------------- ----------- ----------- -----------
Consolidated cash flow statement
for the six months ended 30 June 2021
Six months Six months Year ended
ended ended
30 June 2021 30 June 2020 31 December
2020
(unaudited) (unaudited) (audited)
--------------- --------------- -----------------
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------- ------- ------ ------ ------- ------ -------
Operating
Cash generated from operations 146.8 74.0 232.2
Interest received 0.5 0.6 1.2
Interest paid (14.3) (6.4) (13.6)
Interest element of lease payments (0.8) (0.6) (1.6)
------------------------------------------- ------- ------ ------ ------- ------ -------
Net interest paid (14.6) (6.4) (14.0)
Total tax paid (18.5) (10.2) (31.4)
------------------------------------------- ------- ------ ------ ------- ------ -------
Net cash inflow from operating activities 113.7 57.4 186.8
------------------------------------------- ------- ------ ------ ------- ------ -------
Investing
Dividends received from joint ventures 0.9 0.2 1.9
Purchase of property, plant and equipment
and intangible assets (29.1) (26.7) (53.8)
Purchase of business - (337.5) (314.0)
Sale of business 0.6 0.1 0.1
Net cash outflow from investing activities (27.6) (363.9) (365.8)
------------------------------------------- ------- ------ ------ ------- ------ -------
Financing
Dividends paid - - (12.8)
Dividends paid to non-controlling
interests - - (3.1)
Purchase of employee trust shares (0.9) (0.2) (0.2)
Repayment of principal portion of
lease liabilities (4.9) (4.8) (9.7)
Repayment of borrowings - (593.7) (718.3)
Repayment of borrowings on acquisition - (273.6) (273.6)
Proceeds of borrowings - 1,279.9 1,290.9
------------------------------------------- ------- ------ ------ ------- ------ -------
Net cash (outflow)/inflow from financing
activities (5.8) 407.6 273.2
------------------------------------------- ------- ------ ------ ------- ------ -------
Increase in cash and bank overdrafts
during the period 80.3 101.1 94.2
------------------------------------------- ------- ------ ------ ------- ------ -------
Cash, cash equivalents and bank overdrafts
at 1 January 191.3 103.6 103.6
Foreign exchange and other movements (2.2) 3.3 (6.5)
------------------------------------------- ------- ------ ------ ------- ------ -------
Cash, cash equivalents and bank overdrafts
at period end 269.4 208.0 191.3
------------------------------------------- ------- ------ ------ ------- ------ -------
Notes to the interim financial statements
1. Basis of preparation
Synthomer plc is a public limited company incorporated and
domiciled in the United Kingdom under the Companies Act. The
Company is listed on the London Stock Exchange and the address of
the registered office is Temple Fields, Harlow, Essex CM20 2BH.
These interim financial statements for the six-month period
ended 30 June 2021 have been prepared on the basis of the policies
set out in the 2020 annual financial statements and in accordance
with UK adopted IAS 34 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the UK's
Financial Conduct Authority.
These interim financial statements need to be read in
conjunction with the annual consolidated financial statements for
the year ended 31 December 2020 which were prepared in accordance
with IFRS in conformity with the requirements of the Companies Act
2006 and IFRS adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union. This change does not constitute a
change in accounting policy but rather a change in framework which
is required to ground the use of IFRS in company law. There is no
impact on recognition, measurement or disclosure between the two
frameworks in the period reported.
These interim financial statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act
2006 and do not include all the notes normally included in annual
financial statements. Statutory accounts for the year ended 31
December 2020 were approved by the Board of Directors on 4 March
2021 and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
Going concern
We have modelled our cash flow projection and stress test for
the next 18-month period by including several severe but plausible
downside scenarios which are linked to our principal risks. These
downside scenarios include additional COVID-19 impacts on trading
volatility, the expected duration of restrictions, and the length
of time to recovery. In determining these impacts, we took account
of the experience we gained from the COVID-19 pandemic in 2020. The
most severe scenario assumes a recurrence of the trading conditions
experienced during Q2 of 2020 for a prolonged four-month period
along with the unavailability of one of our largest manufacturing
facilities for a period of two months. We believe that the risk of
enforced plant closure remains low and have implemented additional
health and safety measures in each of our sites to reduce the risk
of a major disruption in supply.
No mitigating actions have been included for any of the
scenarios. Mitigations within management's control, should they be
required, include reduction of capital spend and dividend payments
as well as other reductions to costs and cash outflows similar to
those we implemented during the course of 2020.
As at 30 June 2021, the condensed consolidated balance sheet
reflects a net asset position of GBP821.6 million and the liquidity
of the Group remains strong with headroom of more than GBP750
million of cash and committed facilities. The earliest maturity
date of our facilities is July 2024. Debt leverage covenant limits
for the term loan and revolving credit facility are set at a ratio
of 4.0x at 30 June and 31 December 2021, 3.5x at 30 June 2022 and
31 December 2022 and 3.25x thereafter. At the half year, net debt
was GBP354.5 million and our covenant ratio was 0.8x. Under all
scenarios modelled, our forecasts did not indicate insufficient
liquidity or a debt leverage covenant breach on any of the dates
through to December 2022.
Having considered the outcome of these assessments, the
Directors have, at the time of approving the interim report and
financial statements, a reasonable expectation that the Company and
the Group will have adequate resources to continue in operational
existence for the foreseeable future. Thus, they continue to adopt
the going concern basis of accounting in preparing the financial
statements.
Goodwill and acquired intangible assets
The Group tests goodwill annually for impairment, or more
frequently if there are indications that goodwill might be
impaired. In the six months to 30 June 2021 no such indications
were identified.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting date that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are set out in the 2020 Annual Report. Estimates and underlying
assumptions are reviewed on an ongoing basis and at 30 June 2021
there were no changes to existing estimates and assumptions and no
new sources of estimation uncertainty were identified.
2. Accounting policies
The annual financial statements of Synthomer plc are prepared in
accordance with UK-adopted IFRSs and applicable law. The same
accounting policies and methods of computations are followed in
these financial statements as in the most recent audited annual
financial statements. Effective from 1 January 2021, no updates to
IFRSs have been made that would affect the Group.
In April 2021, the IFRS Interpretations Committee issued a new
interpretation in relation to accounting for customisation and
configuration costs of cloud computing arrangements. Following an
initial review, this new interpretation is not expected to
materially impact the accounting treatment for costs incurred on
the Group's Pathway programme. A detailed assessment will be
completed later 2021 and reported on in the full year financial
statements.
3. Special Items
IFRS and Underlying performance
The IFRS profit measures show the performance of the Group as a
whole and as such include all sources of income and expense,
including both one-off items and those that do not relate to the
Group's ongoing businesses. To provide additional clarity on the
ongoing trading performance of the Group's businesses, management
uses 'Underlying' performance as an alternative performance measure
to plan for, control and assess the performance of the segments.
Underlying performance differs from the IFRS measures as it
excludes Special Items.
Special Items
Special Items are disclosed separately in order to provide a
clearer indication of the Group's underlying performance.
Special Items are either irregular, and therefore including them
in the assessment of a segment's performance would lead to a
distortion of trends, or are technical adjustments which ensure the
Group's financial statements are in compliance with IFRS but do not
reflect the operating performance in the year;, or both. An example
of the latter is the amortisation of acquired intangibles, which
principally relates to acquired customer relationships. The Group
incurs costs, which are recognised as an expense in the income
statement, in maintaining these customer relationships. The Group
considers that the exclusion of the amortisation charge on acquired
intangibles from Underlying performance avoids the potential double
counting of such costs and therefore excludes it as a Special Item
from Underlying performance.
The definition of Special Items is shown in note 18 and has been
consistently applied.
Special Items comprise:
Six months Six months Year ended
ended 30 ended 30 31 December
June 2021 June 2020 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
-------------------------------------------------- ----------- ----------- ------------
Special Items
Amortisation of acquired intangibles (18.2) (11.8) (30.9)
Restructuring and site closure costs (3.8) (11.6) (42.5)
Acquisition costs and related gains (0.3) (13.2) (14.6)
Sale of business (0.2) (6.6) (6.6)
Impairment charge - (10.6) (36.6)
Total impact on operating profit (22.5) (53.8) (131.2)
-------------------------------------------------- ----------- ----------- ------------
Finance costs
Fair value gain/(loss) on unhedged interest
derivatives 4.5 (4.4) (3.6)
Loss on extinguishment of financing facilities - (4.9) (4.9)
-------------------------------------------------- ----------- ----------- ------------
Total impact on profit before taxation (18.0) (63.1) (139.7)
-------------------------------------------------- ----------- ----------- ------------
Taxation Special Items 6.4 - 4.9
Taxation on Special Items 2.4 4.3 10.7
-------------------------------------------------- ----------- ----------- ------------
Total impact on profit for the period (9.2) (58.8) (124.1)
-------------------------------------------------- ----------- ----------- ------------
3. Special Items (continued)
The following items of income and expense were reported as
Special Items and accordingly were excluded from Underlying
performance:
-- Amortisation of acquired intangibles increased during the
period reflecting the acquisition of OMNOVA Solutions Inc which
completed on 1 April 2020. Consequently, H1 2021 included six
months of amortisation compared to three months in H1 2020.
-- Restructuring and site closure costs comprised GBP3.1 million
of OMNOVA integration costs and GBP0.7 million in relation to the
closure of our plant in Oulu (Finland). Integration costs are
required to deliver acquisition synergies and mainly relate to
employee severance costs. The GBP11.6 million charge in the six
months to 30 June 2020 related entirely to integration costs. The
full year 2020 charge comprised GBP19.5 million of integration
costs, GBP20.9 million rationalising our European SBR network and
GBP2.1 million rationalising the Acrylate Monomers site.
-- Acquisition costs incurred during the period related to
acquisition opportunities which did not complete or have yet to
complete. Acquisition costs and related gains in 2020 related to
the acquisition of OMNOVA and comprised mainly professional
advisers' fees, offset by a gain of GBP8.7 million on a foreign
exchange derivative entered into in July 2019 to hedge the
acquisition price.
-- Sale of business related to a loss on the sale of Synthomer
(Thailand) Limited on 7 April 2021, on top of the GBP3.3 million
impairment charge taken in 2020. Sale of business in 2020 related
to the disposal of our European Tyre Cord business, which was
required by the European Commission Competition Authority to clear
our acquisition of OMNOVA.
-- The impairment charge of GBP36.6 million in 2020 related to
four sites, with the first two resulting from the strategic review
of our European SBR network:
o Oulu (Finland): property, plant and equipment was impaired by
GBP9.2 million
o Marl (Germany): property, plant and equipment was impaired by
GBP5.5 million
o Sokolov (Czech Republic): unfavourable feedstock prices and
continued oversupply in Europe, partly reflecting the impact of
COVID-19, led to a GBP18.6 million impairment charge
o Chonburi (Thailand): reduction in demand for solvent-based
products led to a GBP3.3 million impairment charge.
The impairment charge in the six months to June 2020 related to
Oulu and Marl.
-- In July 2018 we entered into swap arrangements to fix euro
interest rates on the full value of the then EUR440 million
committed unsecured revolving credit facility. Over the period we
had no floating rate euro borrowings and the full swap was
unhedged. The fair value gain on unhedged interest rate derivatives
relates to the movement in mark-to-market value of the swaps over
the period.
-- Tax Special Items of GBP6.4 million relates to the release of
a tax provision following the conclusion of a tax audit in France.
The 2020 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 was offset by a
tax credit in relation to the closure of 2001 to 2003 open tax
years in the UK by HMRC.
4. Segmental analysis
The Group's Executive Committee, chaired by the Chief Executive
Officer, examines the Group's performance.
The Group's reportable segments are:
Performance Elastomers
Performance Elastomers is focused on healthcare, paper, carpet
and foam markets through our water-based nitrile butadiene rubber
latex (NBR) and styrene butadiene rubber latex (SBR) products and
also includes our performance materials and elastomeric modifiers
businesses.
Functional Solutions
Functional Solutions is focused on coatings, construction,
adhesives and technical textiles markets, through our water-based
acrylic and vinylic based dispersions products.
Industrial Specialities
Industrial Specialities is focused on speciality chemical
additives and non-water-based chemistry for a broad range of
applications from polymer additives, coated fabrics, and laminates
and films, to emerging materials and technologies.
Acrylate Monomers
Acrylate Monomers is focused on the production of acrylate
monomers which are sold to external customers in European markets
as well as our European Functional Solutions dispersions
business.
The Group's Executive Committee is the chief operating decision
maker and primarily uses a measure of earnings before interest,
tax, depreciation and amortisation (EBITDA) to assess the
performance of the operating segments. No information is provided
to the Group's Executive Committee at the segment level concerning
interest income, interest expense, income tax or other material
non-cash items.
No single customer accounts for more than 10% of the Group's
revenue.
A segmental analysis of Underlying performance and Special Items
is shown below.
Six months ended 30 June 2021 (unaudited)
---------------------------------------------------------------------
Performance Functional Industrial Acrylate
Elastomers Solutions Specialities Monomers Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- --------- --------- -------
Revenue
Total revenue 551.4 444.4 190.1 50.9 - 1,236.8
Inter-segmental revenue - - - (6.8) - (6.8)
------------------------------ ----------- ---------- ------------- --------- --------- -------
551.4 444.4 190.1 44.1 - 1,230.0
------------------------------ ----------- ---------- ------------- --------- --------- -------
EBITDA 224.0 70.0 25.1 14.0 (10.4) 322.7
Depreciation and amortisation
- Underlying performance (12.7) (13.9) (6.9) (0.2) (0.4) (34.1)
------------------------------ ----------- ---------- ------------- --------- --------- -------
Operating profit/(loss) -
Underlying performance 211.3 56.1 18.2 13.8 (10.8) 288.6
Special Items (1.9) (13.7) (4.7) - (2.2) (22.5)
------------------------------ ----------- ---------- ------------- --------- --------- -------
Operating profit/(loss) -
IFRS 209.4 42.4 13.5 13.8 (13.0) 266.1
Finance costs (11.7)
------------------------------ ----------- ---------- ------------- --------- --------- -------
Profit before taxation - IFRS 254.4
------------------------------ ----------- ---------- ------------- --------- --------- -------
Finance costs for the period included a GBP4.5 million gain in
Special Items (six months ended 30 June 2020: a GBP9.3 million
loss; year ended 31 December 2020: an GBP8.5 million loss) as set
out in note 3.
4. Segmental analysis (continued)
Six months ended 30 June 2020 (unaudited)
---------------------------------------------------------------------
Performance Functional Industrial Acrylate
Elastomers Solutions Specialities Monomers Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- --------- --------- -------
Revenue
Total revenue 293.9 301.3 112.4 32.0 - 739.6
Inter-segmental revenue - - - (5.9) - (5.9)
------------------------------ ----------- ---------- ------------- --------- --------- -------
293.9 301.3 112.4 26.1 - 733.7
------------------------------ ----------- ---------- ------------- --------- --------- -------
EBITDA 47.6 46.4 14.6 (0.5) (7.9) 100.2
Depreciation and amortisation
- Underlying performance (12.7) (11.6) (4.8) (1.6) (0.9) (31.6)
------------------------------ ----------- ---------- ------------- --------- --------- -------
Operating profit/(loss)
- Underlying performance 34.9 34.8 9.8 (2.1) (8.8) 68.6
Special Items (11.8) (16.4) (4.7) (0.1) (20.8) (53.8)
------------------------------ ----------- ---------- ------------- --------- --------- -------
Operating profit/(loss)
- IFRS 23.1 18.4 5.1 (2.2) (29.6) 14.8
Finance costs (19.5)
------------------------------ ----------- ---------- ------------- --------- --------- -------
Loss before taxation -
IFRS (4.7)
------------------------------ ----------- ---------- ------------- --------- --------- -------
Year ended December 2020 (audited)
---------------------------------------------------------------------
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
- IFRS 20.3
------------------------------ ----------- ---------- ------------- --------- --------- -------
5. Reconciliation of operating profit to cash generated from
operations
Six months Six months Year ended
ended 30 ended 30 31 December
June 2021 June 2020 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
----------------------------------------- ----------- ----------- ------------
Operating profit 266.1 14.8 58.4
Less: share of profit of joint ventures (1.4) (0.7) (1.2)
------------------------------------------ ----------- ----------- ------------
264.7 14.1 57.2
Adjustments for:
Depreciation of property, plant and
equipment 27.2 25.7 54.0
Depreciation of right of use assets 5.0 4.7 10.9
Amortisation of other intangibles 1.9 1.2 4.9
Share-based payments 1.2 0.7 2.0
Special Items 22.5 53.8 131.2
Cash impact of acquisition costs (0.3) (25.8) (7.4)
Cash impact of restructuring and site
closure costs (3.7) (12.2) (25.3)
Cash impact of foreign exchange gain
on deal contingent - 12.7 -
Pension funding (12.3) (11.0) (18.8)
(Increase)/decrease in inventories (52.5) 25.6 17.1
(Increase)/decrease in trade and other
receivables (146.3) 22.3 19.1
Increase/(decrease) in trade and other
payables 39.4 (37.8) (12.7)
Cash generated from operations 146.8 74.0 232.2
------------------------------------------ ----------- ----------- ------------
6. Tax
The Group's underlying tax rate for H1 2021 was 23.1% (H1 2020:
22.1%; FY 2020: 23.4%), representing the best estimate of the
annual effective corporate income tax rate we expect for the full
year. We estimate the rate by applying the expected corporate
income tax rate for each tax jurisdiction in which we operate. The
decrease in the effective tax rate compared to the year ended 31
December 2020 is a result of the geographical mix of profits.
The effective tax rate for Special Items was 48.9% (H1 2020:
6.8%; FY 2020: 11.2%). Tax Special Items includes a current tax
credit of GBP6.4 million in relation to the release of a tax
provision following the conclusion of a tax audit in France. Tax on
Special Items includes deferred tax credits of GBP2.5 million and
GBP5.4 million in relation to the amortisation of acquired
intangibles and the recognition of UK deferred tax assets, net of a
charge of GBP5.5 million which relates to the utilisation of US tax
attributes brought on balance sheet through acquisition.
7. Dividends
The interim dividend of 8.7 pence per ordinary share was
approved by the Board on 4 August 2021 and will be paid on 4
November 2021 to members on the register at the close of business
on 8 October 2021.
The final dividend of 8.6 pence per ordinary share in respect of
2020, which was approved by the AGM on 29 April 2021, was paid on 5
July 2021.
8. Earnings per share
Six months ended 30 Six months ended
June 2021 30 June 2020
------------------------------ ------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items Total
Earnings
Profit/(loss) attributable
to equity holders of the
parent GBPm 209.4 (9.1) 200.3 45.7 (58.8) (13.1)
Number of shares
Weighted average number
of ordinary shares - basic '000 424,832 424,846
Effect of dilutive potential
ordinary shares '000 1,981 2,455
Weighted average number
of ordinary shares - diluted '000 426,813 427,301
Earnings/(loss) per share
Basic earnings/(loss) per
share pence 49.3p (2.2)p 47.1p 10.8p (13.9)p (3.1)p
Diluted earnings/(loss)
per share pence 49.1p (2.2)p 46.9p 10.7p (13.8)p (3.1)p
Year ended 31 December
2020
------------------------------
Underlying Special
performance Items Total
Earnings
Profit/(loss) attributable
to equity holders of the
parent GBPm 122.9 (119.8) 3.1
Number of shares
Weighted average number
of ordinary shares - basic '000 424,843
Effect of dilutive potential
ordinary shares '000 2,505
Weighted average number
of ordinary shares - diluted '000 427,348
Earnings/(loss) per share
Basic earnings/(loss) per
share pence 28.9p (28.2)p 0.7p
Diluted earnings/(loss)
per share pence 28.8p (28.1)p 0.7p
9. Financial instruments
Financial risk management
The Group's financial risk management policies are approved by
the Board and provide written principles on the management of
financial risk. These risks include market risk (including currency
risk and interest rate risk), credit risk and liquidity risk.
The condensed interim financial statements do not include all
financial risk management information and disclosures required in
annual financial statements. There have been no changes in these
risks and the management thereof since 31 December 2020 and this
note should be read in conjunction with note 22 to the 2020 Annual
Report.
Fair value measurement
Certain of the Group's financial instruments are held at fair
value. The fair value of a financial instrument is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
balance sheet date.
As prescribed by IFRS 13 'Fair Value Measurement', fair values
are measured using a hierarchy with the following inputs:
-- Level 1 - quoted prices in active markets for identical assets or liabilities.
-- Level 2 - not level 1 but are observable for that asset or
liability either directly or indirectly.
-- Level 3 - not based on observable market data.
Interest rate swaps and foreign currency forwards and swaps are
valued using discounted cash flow techniques. These techniques
incorporate inputs such as foreign exchange rates and interest
rates, which are used in a discounted cash flow calculation
incorporating the instrument's term, notional amount and discount
rate, and taking credit risk into account. As significant inputs to
the valuation are observable in active markets, all of the Group's
financial instruments are classified as level 2 financial
instruments.
The fair value of forward foreign exchange contracts, interest
rate swaps and currency swaps is estimated by discounting the
future contractual cash flows using forward exchange rates,
interest rates and prices at the balance sheet date.
There were no transfers of any financial instrument between the
levels of the fair value hierarchy during the current or prior
period.
There are no significant differences between the carrying value
and fair value of either financial assets or financial liabilities
with the exception of the following:
30 June 2021 30 June 2020 31 December
2020
-------------------- -------------------- --------------------
Carrying Carrying Carrying
amount Fair value amount Fair value amount Fair value
GBPm GBPm GBPm GBPm GBPm GBPm
Borrowings (639.2) (649.0) (784.0) (796.6) (664.0) (675.2)
10. Analysis of net debt
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
----------------------------------------------- ------- ------- -----------
Bank overdrafts (15.3) (0.5) (10.5)
Current borrowings - - (9.6)
----------------------------------------------- ------- ------- -----------
Current liabilities (15.3) (0.5) (20.1)
Bank loans (184.6) (320.5) (186.2)
EUR520m 3.875% senior unsecured loan notes due
2025 (439.3) (463.0) (457.7)
----------------------------------------------- ------- ------- -----------
Non-current liabilities (623.9) (783.5) (643.9)
Total borrowings (639.2) (784.0) (664.0)
----------------------------------------------- ------- ------- -----------
Cash and cash equivalents 284.7 208.5 201.8
Net debt (354.5) (575.5) (462.2)
----------------------------------------------- ------- ------- -----------
Net debt is defined in the glossary of terms in note 18.
Capitalised debt costs reflected in the table above, which have
been recognised as a reduction in borrowings in the financial
statements, amounted to GBP9.8 million at 30 June 2021 (30 June
2020: GBP12.6 million; 31 December 2020: GBP11.2 million).
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
---------------------------------------------- ------------ ------------ ------------
Net cash inflow from operating activities 113.7 57.4 186.8
Add: dividends received from joint ventures 0.9 0.2 1.9
Add: proceeds on sale of business 0.6 0.1 0.1
Less: net capital expenditure (29.1) (26.7) (53.8)
Less: net cash outflow arising on acquisition - (611.1) (587.6)
Dividends paid - - (12.8)
Dividends paid to non-controlling interests - - (3.1)
Purchase of employee trust shares (0.9) (0.2) (0.2)
Repayment of principal portion of lease
liabilities (4.9) (4.8) (9.7)
Foreign exchange and other movements 27.4 (11.1) (4.5)
---------------------------------------------- ------------ ------------ ------------
Decrease/(increase) in net debt 107.7 (596.2) (482.9)
---------------------------------------------- ------------ ------------ ------------
Net debt at 1 January (462.2) 20.7 20.7
---------------------------------------------- ------------ ------------ ------------
Net debt at period end (354.5) (575.5) (462.2)
---------------------------------------------- ------------ ------------ ------------
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows are classified in the Group's consolidated
cash flow statement as cash flows from financing activities.
Non-cash changes
------------------------
Financing Exchange
1 January cash (inflows)/ and other 30 June
2021 outflows Acquisitions movements 2021
GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- ---------------- ------------ ---------- -------
Borrowings (excluding bank
overdraft) (653.5) - - 29.6 (623.9)
Lease liabilities (55.0) 4.9 - 0.2 (49.9)
--------------------------- --------- ---------------- ------------ ---------- -------
(708.5) 4.9 - 29.8 (673.8)
--------------------------- --------- ---------------- ------------ ---------- -------
11. Defined benefit schemes
We have updated the value of the defined benefit plan assets to
reflect their market value as at 30 June 2021. Actuarial gains or
losses are recognised in the Consolidated Statement of
Comprehensive Income in accordance with the Group's accounting
policy. We have updated the liabilities to reflect the change in
the discount rate and other assumptions.
The Group's pension liability decreased to GBP163.4 million from
GBP221.4 million at December 2020. This GBP58.0 million reduction
largely comprises GBP13.7 million of cash contributions and
actuarial gains of GBP41.6 million. This actuarial gain arose due
to the GBP43.7 million impact of changes in discount rates which
was offset by GBP2.2 million of experience adjustments.
12. Capital commitments
The capital expenditure authorised but not provided for in the
interim financial statements as at 30 June 2021 was GBP20.1 million
(30 June 2020: GBP20.6 million; 31 December 2020: GBP18.9
million).
13. Contingent liabilities
During 2018, the European Commission (the Commission) initiated
an investigation into practices relating to the purchase of Styrene
monomer by companies, including Synthomer, operating in the
European Economic Area. The Company has and will continue to fully
cooperate with the Commission during its investigation.
Given the ongoing investigation and the inherent uncertainties
associated with it, it is not possible to determine whether or not
a liability exists. Similarly, given the many variables in the
Commission's fining framework and accordingly the range of possible
outcomes, the Directors are not able to reliably estimate any
potential possible liability at this time. In the event the
Commission does find against the Company, then any fine could be
material to the results, cash flows and balance sheet for the
period in which the matter becomes resolved or it becomes probable
and a reliable estimate can be made.
14. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
included in this note. Other than the relationships with defined
benefit pension schemes as disclosed in note 26 of the 2020 Annual
Report, there were no other related party transactions requiring
disclosure.
Kuala Lumpur Kepong Berhad Group holds 21.34% of the Company's
shares and is considered to be a related party.
15. Acquisition of OMNOVA Solutions Inc
On 1 April 2020, we completed the acquisition of 100% 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 was
completed by 31 March 2021, and the final adjustments to the assets
and liabilities acquired comprised a GBP1.8 million increase in
deferred tax liabilities, a GBP0.4 million adjustment to inventory
provisions and a GBP0.6 million reversal of a revaluation gain in a
property treated as an investment property under local GAAP. This
led to a corresponding GBP2.2 million increase in the value of
goodwill recognised on acquisition, compared with the balance at 31
December 2020. These adjustments are not considered material and
the balance sheets at 30 June 2020 and at 31 December 2020 have not
been restated.
16. Seasonality
Historically, there has been no visible fixed pattern to
seasonality in H1 compared to H2 performance in the Group, and
macroeconomic conditions remain uncertain given the ongoing
COVID-19 pandemic.
17. Risks and uncertainties
The Group faces a number of risks which, if they arise, could
affect our ability to achieve our strategic objectives. As with any
business, risk assessment and the implementation of mitigating
actions and controls are vital to successfully achieving the
strategy. The Directors are responsible for determining the nature
of these risks and ensuring appropriate mitigating actions are in
place to manage them.
These principal risks are categorised into the following
types:
-- Strategic
-- Operational
-- Compliance
-- Financial
These risks are detailed on pages 45 to 48 of the 2020 Annual
Report which is available on our website at
www.synthomer.com/investor-relations .
The Directors continuously monitor the Group's risk environment
and have not identified any significant new or emerging risks or
uncertainties which would have a material impact on the Group's
performance in the remaining part of the year. However, with the
continuation of the COVID-19 pandemic there is the potential for
governments to impose lockdowns or require workers to self-isolate
which could result in disruption to the production of our plants or
those of our customers and/or suppliers. Whilst we believe the risk
of disruption remains low, we have elevated the likelihood of
disruption from the following risks:
-- Loss or failure of a Synthomer site
-- Security of supply of raw materials, goods and services
We continue to mitigate these risks by following, at a minimum,
any government mandated health and safety requirements at our
sites; by ensuring that we have multiple sources of raw materials;
and by maintaining a diverse customer base.
18. Glossary of terms
EBITDA EBITDA is calculated as operating profit from continuing
operations before depreciation, amortisation and
Special Items.
Operating profit Operating profit represents profit from continuing
activities before finance costs and taxation.
----------------------------------------------------------------------
Special Items Special Items are either irregular, and therefore
including them in the assessment of a segment's
performance would lead to a distortion of trends
or are technical adjustments which ensure the Group's
financial statements are in compliance with IFRS
but do not reflect the operating performance in
the year, or both. An example of the latter is
the amortisation of acquired intangibles, which
principally relates to acquired customer relationships.
The Group incurs costs, which are recognised as
an expense in the income statement, in maintaining
these customer relationships. The Group consider
that the exclusion of the amortisation charge on
acquired intangibles from underlying performance
avoids the potential double counting of such costs
and therefore exclude it as a Special Item from
Underlying performance.
The following are consistently disclosed separately
as Special Items in order to provide a clearer
indication of the Group's underlying performance:
* Restructuring and site closure costs;
* Sale of a business or significant asset;
* Acquisition costs;
* Amortisation of acquired intangible assets;
* Impairment of non-current assets;
* Fair value adjustments in respect of derivative
financial instruments where hedge accounting is not
applied;
* Items of income and expense that are considered
material, either by their size and/or nature;
* Tax impact of above items; and
* Settlement of prior period tax issues.
----------------------------------------------------------------------
Underlying performance Underlying performance represents the statutory
performance of the Group under IFRS, excluding
Special Items.
----------------------------------------------------------------------
Net debt Cash and cash equivalents together with short-
and long-term borrowings excluding leases.
----------------------------------------------------------------------
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,
the net debt and EBITDA, for this calculation,
exclude the impact of IFRS 16.
----------------------------------------------------------------------
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.
----------------------------------------------------------------------
Ktes Kilotonnes or 1,000 tonnes (metric).
----------------------------------------------------------------------
Statement of Directors' responsibilities
The Directors confirm that these condensed interim financial
statements have been prepared in accordance with UK adopted IAS 34
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and that the interim management report includes a
fair review of the information required by the DTR 4.2.7 R and DTR
4.2.8 R, namely :
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the 2020 Annual Report.
The Directors of Synthomer plc are listed in the Synthomer plc
annual report for 31 December 2020 with the exception of the
following change: Roberto Gualdoni was appointed as a Non-Executive
Director on 8 July 2021. A list of current directors is maintained
on the Synthomer plc website: www.synthomer.com .
The Directors are responsible for the maintenance and integrity
of, amongst other things, the financial and corporate governance
information as provided on the Synthomer website. Legislation in
the United Kingdom governing the preparation and dissemination of
financial information may differ from legislation in other
jurisdictions.
On behalf of the Board of Directors
C G MacLean S G Bennett
Chief Executive Officer Chief Financial Officer
5 August 2021
INDEPENDENT REVIEW REPORT TO SYNTHOMER PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Synthomer plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
Interim Results of Synthomer plc for the 6-month period ended 30
June 2021 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2021;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated cash flow statement for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
of Synthomer plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the Interim Results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
P ricewaterhouseCoopers LLP
Chartered Accountants
London
5 August 2021
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END
IR EANPLEAEFEFA
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