Foundations for growth Synthomer plc Interim Results Presentation 6 August 2019 INTERIM RESULTS 6 August 2019
Agenda Highlights Financials OMNOVA update Summary Q&A INTERIM RESULTS 6 August 2019 2
Cautionary Statement This review is intended to focus on matters which are relevant to the interests of shareholders in the Company. The purpose of the review is to assist shareholders in assessing the strategies adopted and performance delivered by the Company and the potential for those strategies to succeed. It should not be relied upon by any other party or for any other purpose. Forward looking statements are made in good faith, based on a number of assumptions concerning future events and information available to the Directors at the time of their approval of this report. These forward looking statements should be treated with caution due to the inherent uncertainties underlying such forward looking information. The user of this review should not rely unduly on these forward looking statements, which are not a guarantee of performance and which are subject to a number of uncertainties and other facts, many of which are outside the Company’s control and could cause actual events to differ materially from those in these statements. No guarantee can be given of future results, levels of activity, performance or achievements. INTERIM RESULTS 6 August 2019 3
Challenging H1 2019, full year outlook unchanged Underlying operating profit 5.9% lower at £74.7m vs strong H1 2018: – Performance Elastomers benefitted from continued growth in NBR Latex offset by weaker demand and lower margins in SBR Latex – Functional Solutions experienced softer volumes but stronger unit margins versus a strong H1 2018 comparative – Industrial Specialities after a slow start to the year saw an improving trend through H1 2019 Strong R&D: new products represent c. 21% of total sales volumes (2018: 20%) Underlying profit before tax £70.2m Effective tax rate reduced to 14.0% (H1 2018: 18.0%) Underlying earnings per share down 3.5% at 16.5p per share * Interim dividend 4.0p per share reflecting an 8.1% increase * Net debt £209.2m (31 December 2018: £214.0m) and leverage unchanged at 1.2x (31 December 2018: 1.2x) Full year outlook unchanged – Incremental benefits of additional 90ktes NBR capacity – Commissioned 48ktes of capacity in Functional Solutions in Germany and USA Strategic acquisition of OMNOVA Solutions for £654m announced on 3 July * Reflecting the adjustment to the number of shares following the rights issue INTERIM RESULTS 6 August 2019 4
Financials INTERIM RESULTS 6 August 2019 5
Underlying operating profit 5.9% lower at £74.7m % Constant Volumes 5.7% lower at 750.8ktes: H1 2019 H1 2018 % Change FX – Slower start to the year, with the exception of NBR Volumes (ktes) 750.8 796.6 (5.7) – Sale of Dubai and closure of natural rubber and polyester resins Revenue (£m) 762.7 833.8 (8.5) (8.6) production lines EBITDA (£m) 99.7 97.9 1.8 1.6 – Challenging SBR market, including customer credit risk Operating profit (£m) 74.7 79.4 (5.9) (6.2) Revenue 8.5% lower at £762.7m: PBT (£m) 70.2 76.2 (7.9) (8.1) – Reduction in volumes EPS* 16.5p 17.1p (3.5) – Softer raw material prices DPS* 4.0p 3.7p 8.1 Operating profit 5.9% lower at £74.7m: – Impact of Dubai sale £0.4m Group Operating Profit Bridge CY vs PY (GBP m) Effective tax rate lower at 14% (2018: 18%): 90 – Impact of geographic mix 79.4 - 0.4 + 0.3 - 4.8 + 0.2 74.7 80 – Prior year items – deferred tax 70 60 Earnings per share 3.5% lower at 16.5p* 50 40 Dividend per share 8.1% higher at 4.0p* 30 20 10 0 H1 2018 DUBAI IFRS 16 EXISTING FX H1 2019 DISPOSAL IMPACT BUSINESS * Reflecting the adjustment to the number of shares following the rights issue INTERIM RESULTS 6 August 2019 6
PE: Robust results in challenging market conditions Volumes 4.2% lower at 425.7ktes: – Weaker demand in European SBR including PERFORMANCE ELASTOMERS OPERATING PROFIT BRIDGE (in GBP m) CY vs PY customer credit risk, closure of natural rubber production line – Stronger demand in NBR, gradual utilisation of 43.2 40.7 41.0 +1.5 -4.6 +0.6 +0.3 50.0 90ktes of JOB 5 capacity 45.0 40.0 Unit margins: 35.0 – Softer SBR margins 30.0 25.0 – Firmer NBR margins, reflecting transactional FX 20.0 benefit 15.0 10.0 Costs: 5.0 – Reduction in costs consistent with closure of natural 0.0 H1 2018 VOLUME UNIT MARGIN COSTS 2019 @ 2018 FX H1 2019 rubber production line (£0.3m) – Depreciation charge in relation to JOB 5 – Tight control of production and overhead costs INTERIM RESULTS 6 August 2019 7
FS: Slower start offset by stronger margins Volumes 5.0%* lower at 258.4ktes: – Sale of 51% of Dubai operations, closure of FUNCTIONAL SOLUTIONS OPERATING PROFIT BRIDGE (in GBP m) CY vs PY polyester resins production line – Slower start across all end use markets – 33.1 30.9 30.8 -6.2 +2.4 +1.6 -0.1 exception being oil & gas 35.0 30.0 Unit margins: 25.0 – Improvement in unit margins across most end markets – construction, coatings, adhesives and 20.0 oil & gas 15.0 10.0 Costs: 5.0 – Reduction in costs consistent with sale of Dubai 0.0 operations (£1.1m) and closure of polyester H1 2018 VOLUME UNIT MARGIN COSTS 2019 @ 2018 FX H1 2019 resins production line (£0.5m) – Tight control of production and overhead costs *Excluding prior year volumes relating to the sale of 51% of Dubai operations in June 2018 and the closure of polyester resins production line in Q4 2018 Source: Company INTERIM RESULTS 6 August 2019 8
IS: Demand firming during Q2 Volumes 2.8% lower at 66.7ktes: INDUSTRIAL SPECIALITIES OPERATING PROFIT BRIDGE (in GBP m) CY vs PY – Lower Q1 demand, improving in Q2 10.6 10.6 10.6 – Softer in Speciality Additives and Lithene – 12.0 -1.4 +0.4 +1.0 +0.0 modest automotive exposure 10.0 Unit margins: 8.0 – Resilient unit margins in specialist businesses, 6.0 favourable product mix 4.0 Costs: 2.0 – Tight control of production and overhead costs 0.0 H1 2018 VOLUME UNIT MARGIN COSTS 2019 @ 2018 FX H1 2019 INTERIM RESULTS 6 August 2019 9
Consistent seasonality in cash flows Depreciation and amortisation: – Rising in line with recent capex investment £m H1 2019 H1 2018 – Mainly related to Pasir Gudang JOB 5 74.7 79.4 Underlying operating profit Working Capital: JVs (0.6) (0.3) – Investment reflecting seasonality of business Underlying operating profit (excluding joint 74.1 79.1 – Remains at circa 10% of sales ventures) – Some investment in inventory – preferentially priced deep sea cargoes 21.3 18.5 Depreciation and amortisation & shut down IFRS 16 depreciation 3.7 - Capital expenditure: Underlying EBITDA (excluding joint ventures) 99.1 97.6 – Broadly in line with prior year (41.4) (52.4) Working capital – Worms, Roebuck, JOB 6, AIC Capital expenditure (28.4) (28.5) (3.4) - Principal element of lease payments IFRS 16 leases: Interest (3.3) (1.9) – Components separately analysed – No change in underlying cash flows Interest element of lease payments (0.6) - (7.3) (12.5) Tax Tax: Pensions (8.5) (8.3) – Lower payments on account / phasing of payments Other 0.2 (3.8) Pensions: 6.4 (9.8) Underlying operating cash flow – No changes, principally relating to closed UK defined benefit pension scheme deficit recovery payments ~ £15m pa INTERIM RESULTS 6 August 2019 10
Balance sheet strength and flexibility Substantial headroom: £m H1 2019 H1 2018 – Existing facilities – remain in place until OMNOVA acquisition Cash and cash equivalents 98.7 98.4 Overdrafts in current borrowings (3.6) (2.3) – New facilities – commence on completion of OMNOVA acquisition Net cash 95.1 96.1 Euribor fix at 0.5% to 2025 Loans in current borrowings (49.3) - Loans in non-current borrowings (255.0) (290.2) Deal contingent hedging in place to fix € : $ FX rate Net debt (209.2) (194.1) Interim dividend maintained at 4.0p per share – Equivalent to 8.1% increase post rights issue bonus factor Facilities cash headroom 137.3 128.1 – Dividend policy maintained at 2.5x cover based on Underlying EPS Total cash headroom 232.4 224.2 Net debt/EBITDA 1.2x 1.1x Existing New 1. 4 year committed unsecured €440m (1) €460m (3) RCF to 2022 Term loan - $260m (3) 2. 12 months committed unsecured 2019 €55m (2) - Bilateral 3. 5 year committed unsecured to 2024 - €520m Bond bridge facility - £200m Equity bridge facility INTERIM RESULTS 6 August 2019 11
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