Interim Results Presentation 6 August 2018 INTERIM RESULTS 6 August 2018
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 2018 2
Agenda Headlines Financials Underpinning Sustainable Growth Summary and Outlook Q&A INTERIM RESULTS 6 August 2018 3
Geographic and product diversity supports sustainable growth Underlying PBT up 6.4% to £76.2m – Europe & North America reports good volume growth, overcoming softer margins from US$ headwind – Asia & Rest of World shows strong volume and unit margin growth – Pischelsdorf latex acquisition completed and successfully integrated Constant currency profit before tax up 4.3% R&D delivering sustainable growth: new products represent circa 20% total sales* (2017: 20%) Underlying earnings per share up 9.5% at 18.4p per share Interim dividend of 4.0p (2017: 3.7p); increase of 8.1% in line with dividend policy Strong and flexible balance sheet maintained – leverage 1.1x EBITDA * Existing business: Synthomer Group at 31 December 2017 INTERIM RESULTS 6 August 2018 4
Financials INTERIM RESULTS 6 August 2018 5
Underlying profit before tax up 6.4% Group PBT Bridge CY vs PY (GBP m) % Change H1 2018 H1 2017 % Change CC 71.6 + 1.9 + 1.5 + 1.2 76.2 Volumes (Ktes) 796.6 730.2 9.1 9.1 80 Revenue (£m) 833.8 770.3 8.2 6.4 EBITDA (£m) 97.9 94.1 4.0 2.0 EBIT (£m) 79.4 76.5 3.8 1.8 60 PBT (£m) 76.2 71.6 6.4 4.3 EPS 18.4p 16.8p 9.5 40 D P S 4.0p 3.7p 8.1 ACQUISITION H1 2017 EXISTING BUSINESS FX H1 2018 PISCHELSDORF Revenue growth driven by: – Higher volumes: principally Nitrile in ARW, foam and construction in ENA, plus Pischelsdorf Acquisition – Foreign Currency Solid rise in PBT reflects: – Acquisition returns, synergy delivery in ENA – Organic growth of business, particularly in ARW – Foreign Currency translation gains partially offsetting transactional impact of weaker US$ on European US$ sales – Reduction in financing costs for pensions & borrowings * Existing business: Synthomer Group at 31 December 2017 INTERIM RESULTS 6 August 2018 6
Robust performance across Group H1 2018 H1 2017 % Change % Change CC ENA EBIT Bridge CY vs PY (GBP m) ENA 80 64.3 64.4 - 2.2 + 1.3 + 1.0 Volumes (Ktes) 594.0 550.7 7.9 7.9 60 Sales (£m) 646.0 593.2 8.9 7.0 EBITDA (£m) 76.1 75.2 1.2 (0.4) Includes £5m fx 40 transaction cost EBIT (£m) 64.4 64.3 0.2 (1.4) ARW 20 Volumes (Ktes) 202.6 179.5 12.9 12.9 0 Sales (£m) 187.8 177.1 6.0 4.2 ACQUISITION H1 2017 EXISTING BUSINESS FX H1 2018 PISCHELSDORF EBITDA (£m) 29.1 24.6 18.3 15.4 EBIT (£m) 22.5 18.1 24.3 21.5 ARW EBIT Bridge CY vs PY (GBP m) 40 ENA 77.5% sales (2017: 77.0%), 74.1% EBIT (2017: 78.0%) 18.1 22.5 + 3.9 + 0.5 – Good volume growth across the portfolio augmented by Pischelsdorf acquisition – Favourable translational currency impact of £1.0m offsetting c£5m US$ transactional sales impact 20 ARW 22.5% sales (2017: 23.0%), 25.9% EBIT (2017: 22.0%) – H1 2018 Nitrile margins firming as industry utilisation rises – Favourable translational currency impact of £0.5m 0 H1 2017 EXISTING BUSINESS FX H1 2018 * Existing business: Synthomer Group at 31 December 2017 INTERIM RESULTS 6 August 2018 7
ENA: Solid performance in challenging market ENA BRIDGE CY vs PY (in GBP m) 100.0 Volumes: 64.3 62.1 63.1 64.4 +4.4 -4.4 -2.2 +1.0 +1.3 – Volume growth in carpets, foam, construction, 90.0 Includes £5m fx coatings transaction cost 80.0 Unit margins: 70.0 – Adversely impacted by transactional US$ invoicing in some markets c.£5m 60.0 – Traded through persistently rising raw materials 50.0 costs. 40.0 Costs: – Cost increases reflect inflation and raw material 30.0 storage costs offset by PAC synergies 20.0 FX translation: 10.0 – Favourable translational FX impact: H1 2018 £1:€1.14; H1 2017 £1:€1.16 0.0 H1 2017 VOLUME UNIT COSTS 2018 @ 2017 FX 2018 EXCL ACQ ACQUISITION H1 2018 MARGIN PICHELSDORF INTERIM RESULTS 6 August 2018 8
ARW: Strong performance in volume and unit margin ARW BRIDGE CY vs PY (in GBP m) 30.0 18.1 22.0 22.5 +5.4 +1.1 -2.6 +0.5 Volumes 25.0 – 12.9% higher 20.0 – Nitrile volumes higher vs softer comparative, 15.0 market continues to expand 10.0 Unit Margins: 5.0 – Strengthening with improvement in Nitriles market utilisation 0.0 H1 2017 VOLUME UNIT COSTS 2018 @ 2017 FX H1 2018 Cost: MARGIN – Increase from inflation, bonuses, higher Historical NBR Latex Consumption production levels and upscaling for capacity 1.400 50% increase 1.200 40% 1.000 Volume (kwt) FX translation: 30% Growth (%) 800 – Favourable FX impact: H1 2018 £1:MYR5.40, 20% 600 H1 2017 £1:MYR5.55 10% 400 0% 200 0 -10% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018-Q2a Total Market Volume (kwt) Synthomer Volume (kwt) Total Market Growth (%) Synthomer Growth (%) INTERIM RESULTS 6 August 2018 9
Robust EBITDA performance underpins cashflows Maintenance capex circa £25m pa £m H1 2018 H1 2017 Rise in capex reflects growth capex including Dispersions expansion in Germany (£7m) and Underlying EBIT (excluding joint ventures) 79.1 75.8 Roebuck, USA (£1m), and SBR expansion in Depreciation 18.5 17.6 Oulu, Finland (£1m) Underlying EBITDA (excluding joint ventures) 97.6 93.4 Year end capex guidance unchanged at c.£60- Capital expenditure (28.5) (17.2) 65m Movement in working capital (52.4) (55.7) Working capital remains at circa 10% of Cash Interest (1.9) (2.5) revenue Tax (12.5) (11.6) Investment in working capital on higher volumes and raw material price volatility – Pension payments (8.3) (7.8) some investment possible for the full year. Other (3.8) (1.3) Cash tax increase due to acquisitions and the Business cash flow (9.8) (2.7) timing of settlement of tax liabilities INTERIM RESULTS 6 August 2018 10
Group refinancing completed H1 2018 Refinancing 12 months from expiry of current RCF, in line with normal practice New €440m RCF agreed July 2018 – 4 years Expanded bank group Reduced ratchet margin by 30bps, retained no Euribor floor, eliminated interest covenant Fixed interest rate on €275m core borrowings Retain option of Bond market if market moves favourably – OM, Description of Notes, Covenants, Rating, Credit story etc all beneficial for debut issuance INTERIM RESULTS 6 August 2018 11
Group well positioned for both organic and inorganic growth Pischelsdorf acquisition £25.8m £m H1 2018 H1 2017 completed on 31 January 2018 Cash 98.4 147.9 Borrowings (292.5) (372.2) Substantial available liquidity Net debt (194.1) (224.3) Low net debt: EBITDA Cash headroom 225.0 145.7 Scope for future M&A opportunities Net debt:EBITDA 1.1 1.3 INTERIM RESULTS 6 August 2018 12
Technical Guidance Seasonality – H1/H2 split continues to be circa 55%/45% FX rates H1 2017 H2 2017 H1 2018 30 June 2018 Ave Ave Ave € 1.16 1.14 1.14 1.13 $ 1.27 1.30 1.37 1.32 MYR 5.55 5.56 5.40 5.33 Tax rate: – Full year rate ETR estimated at 18% (2017: 19%), broadly aligned with cash tax rate – Likely rising trajectory unchanged - Base Erosion and Profit Shifting (“BEPS”) legislation, Malaysia pioneer status Pensions recap: – Pension deficit decrease from £157m at December 2017 to £125m at June 2018 – mainly driven by increased discount rates in UK from 2.5% to 2.8% – UK 2018 payment in line with prior year Malaysian land sale – Final tranche sold – proceeds £16.6m, net share after tax £11.6m INTERIM RESULTS 6 August 2018 13
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