SYNTHOMER PLC | Regulatory Story | |||
| Go to market news section | |||
|
Synthomer plc
Preliminary Results for the year ended 31 December 2019
Resilient performance in a challenging market
FULL YEAR HIGHLIGHTS | 2019 | 2018 | Reported increase / (decrease) | Constant currency2 | |
Underlying performance 1 | £m | £m | % | % | |
Revenue | 1,459.1 | 1,618.9 | (9.9) | (9.7) | |
Volumes (ktes) | 1,465.7 | 1,517.6 | (3.4) | ||
EBITDA3 | |||||
Performance Elastomers Functional Solutions Industrial Specialities Unallocated | 96.3 69.9 24.8 (13.1) | 107.9 64.1 23.5 (14.5) | (10.8) 9.0 5.5 (9.7) | (11.3) 9.5 5.5 (9.7) | |
EBITDA3 | 177.9 | 181.0 | (1.7) | (1.9) | |
Depreciation | (52.1) | (38.9) | 33.9 | 33.7 | |
Operating profit (EBIT) | 125.8 | 142.1 | (11.5) | (11.6) | |
Profit before tax | 116.2 | 135.1 | (14.0) | (14.1) | |
Free Cash Flow4 | 92.8 | 27.8 | 233.8 | ||
EPS (p)5 | 25.3 | 30.7 | (17.6) | ||
DPS (p)5 - ordinary | 10.9 | 12.2 | (10.7) | ||
IFRS performance | |||||
Operating profit | 110.6 | 128.7 | (14.1) | ||
Profit before tax | 100.5 | 120.3 | (16.5) | ||
EPS (p)5 | 21.5 | 27.4 | (21.5) | ||
1. Underlying performance excludes Special Items, unless otherwise stated.
2. Constant currency sales and profit: these reflect current year results translated at the prior year's average exchange rates.
3. 2019 EBITDA includes the benefit from adoption of IFRS 16 Leases of £7.9m, (PE £2.0, FS £4.4m, IS £0.8m, unallocated £0.7m). IFRS 16 depreciation and interest in 2019 are £7.3m and £1.1m respectively.
4. Free Cash Flow defined as movement in net debt before financing activities, foreign exchange and the cash impact of Special Items, asset disposals and business combinations.
5. Prior year comparative adjusted for bonus factor 1.0713 relating to the rights issue in July 2019.
Full year highlights:
· Resilient performance in a challenging market
- EBITDA3 1.7% lower at £177.9m (2018: £181.0m). All markets showed growth, with the exception of Performance Elastomers SBR markets, both including and excluding the benefit of IFRS16 Leases
- Underlying operating profit 11.5% lower at £125.8m (2018: £142.1m), and IFRS operating profit 14.1% lower at £110.6m (2018: 128.7m)
- Record return on R&D investment with 22% of sales volumes from new products launched in the past five years (2018: 21%)
· Underlying Earnings per share5: 25.3p (2018: 30.7p)
· Dividend per share5: 10.9p (2018: 12.2p) consistent with dividend policy
· Strong Free Cash Flow of £92.8m (2018: £27.8m)
· 2020 profit growth attributable to
- Highly complementary acquisition of OMNOVA Solutions Inc, bringing synergies, increased speciality products, and step change expansion into North America and China expected to complete March 2020
- Largely complete major capex expansion programme providing additional low-cost capacity to accelerate volume growth
- Transformation and self-help programmes in place, with extensive review of European SBR asset network options nearing completion
Commenting on the results, Neil Johnson, Chairman, said:
'Despite 2019 being a challenging year for the global chemical industry, Synthomer delivered a resilient performance. Whilst Performance Elastomers SBR Latex markets declined driven largely by a difficult European paper sector, Performance Elastomers NBR markets, Functional Solutions and Industrial Specialities all performed in-line with or above 2018 levels. We made considerable progress in developing the Group's platform for long-term growth. This included the acquisition of OMNOVA, completion of a material investment programme to bring on-line additional low-cost capacity for growth markets and record levels of innovation.
In the year ahead, we are not anticipating any change to the economic environment, with industrial end markets remaining challenging and additional uncertainty relating to the potential impact of Coronavirus. Whilst we expect to see benefits from our recent capital investment in 2020, this will be largely offset by foreign exchange translation assuming rates remain at current levels. Nevertheless, the contribution from the acquisition of OMNOVA, and the synergies this will bring, ensures that Synthomer will take a significant step forward this year.'
IFRS Information | 2019 | 2018 | |||||
Underlying performance | Special Items | IFRS | Underlying performance | Special Items | IFRS | ||
£m | £m | £m | £m | £m | £m | ||
Revenue | 1,459.1 | - | 1,459.1 | 1,618.9 | - | 1,618.9 | |
Performance Elastomers | 71.5 | (0.3) | 71.2 | 87.2 | (2.5) | 84.7 | |
Functional Solutions | 52.3 | (4.3) | 48.0 | 53.0 | (2.6) | 50.4 | |
Industrial Specialities | 16.0 | (4.7) | 11.3 | 16.7 | (4.6) | 12.1 | |
Unallocated | (14.0) | (5.9) | (19.9) | (14.8) | (3.7) | (18.5) | |
Operating profit | 125.8 | (15.2) | 110.6 | 142.1 | (13.4) | 128.7 | |
Finance costs | (9.6) | (0.5) | (10.1) | (7.0) | (1.4) | (8.4) | |
Profit before taxation | 116.2 | (15.7) | 100.5 | 135.1 | (14.8) | 120.3 | |
EPS (p)5 | 25.3 | (3.8) | 21.5 | 30.7 | (3.3) | 27.4 | |
DPS (p)5 | 10.9 | 12.2 | |||||
2019 | 2018 | ||||||||||||
Performance Elastomers | Functional Solutions | Industrial Specialties | Unallocated | Total | Performance Elastomers | Functional Solutions | Industrial Specialties | Unallocated | Total | ||||
£m | £m | £m | £m | £m | £m | £m | £m | £m | £m | ||||
EBITDA | 96.3 | 69.9 | 24.8 | (13.1) | 177.9 | 107.9 | 64.1 | 23.5 | (14.5) | 181.0 | |||
Depreciation and amortisation | (24.8) | (17.6) | (8.8) | (0.9) | (52.1) | (20.7) | (11.1) | (6.8) | (0.3) | (38.9) | |||
Underlying operating profit | 71.5 | 52.3 | 16.0 | (14.0) | 125.8 | 87.2 | 53.0 | 16.7 | (14.8) | 142.1 | |||
Special Items | (0.3) | (4.3) | (4.7) | (5.9) | (15.2) | (2.5) | (2.6) | (4.6) | (3.7) | (13.4) | |||
IFRS operating profit | 71.2 | 48.0 | 11.3 | (19.9) | 110.6 | 84.7 | 50.4 | 12.1 | (18.5) | 128.7 | |||
Underlying performance
As more fully described in note 1, the Group's management uses Underlying performance to plan for, control and assess the performance of the Group. Underlying performance differs from the statutory IFRS performance as it excludes the effect of Special Items, which are detailed in note 1. The Board's view is that Underlying performance provides additional clarity for the Group's investors and so it is the primary focus of the Group's narrative reporting. Where appropriate IFRS performance inclusive of Special Items is also described. References to 'unit margin' and 'margin' are used in the commentary on Underlying performance. Unit margin (or margin) is calculated as selling price less variable raw material and logistics costs.
Cautionary statement
The purpose of this report is to provide information to the members of the Company. It contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this report and the Company undertakes no obligation to update these forward-looking statements. Nothing in this report should be construed as a profit forecast.
ENQUIRIES:
Calum MacLean, Chief Executive Officer | Tel: 01279 436211 |
Stephen Bennett, Chief Financial Officer | Tel: 01279 436211 |
Tim Hughes, President, Corporate Development | Tel: 01279436211 |
Charles Armitstead/ Matt Denham, Teneo | Tel: 020 3603 5220 |
The Company will host a meeting for analysts and investors at 09.00 today at Farmers & Fletchers in the City, 3 Cloth Street, London EC1A 7LD. The presentation will be webcast on the Company's websitewww.synthomer.com.
Chairman's statement
Overview
2019 has been a challenging year for the global chemical industry. Despite the underlying market conditions Synthomer has made considerable progress to underpin and deliver long-term growth. In July 2019 we announced the acquisition of OMNOVA Solution Inc, a highly synergistic US speciality chemical business and long-term target for Synthomer. The acquisition, which is expected to complete in March 2020, will ensure continued growth for the coming years. We also largely completed a major investment programme bringing on-line additional low-cost capacity to growth markets and delivered record levels of innovation through customer focused new product development.
Our EBITDA was broadly stable at £177.9m, down 1.7% on the record EBITDA delivered of £181.0m in 2018. This resilient performance reflects growth in Functional Solutions, Industrial Specialities and the Performance Elastomers NBR markets, which helped to offset a shortfall in the Performance Elastomers SBR markets, where European paper has been particularly weak. Underlying profit before tax decreased by 14.0% from £135.1m to £116.2m with depreciation and interest costs up £13.2m (34%) and £2.6m (37%) respectively, as a result of our recent investment in growth capacity and IFRS 16 Leases accounting. IFRS profit before tax decreased by 16.5% from £120.3m in 2018 to £100.5m.
Building a platform for future growth
Our acquisition of OMNOVA Solutions Inc announced in July will be the largest acquisition in the Group's history. OMNOVA brings greater geographical diversity and product differentiation in our core chemistries and markets. It follows the successful completion of three bolt-on transactions since 2016 which combined have seen Synthomer strengthen its market positions, expand its technology and geographic presence and drive significant synergies and profitable growth.
Over the last three years we have made significant investment to organically expand our business which will position us well as markets recover and provide a platform for future growth. New capacity has been introduced in Performance Elastomers and Functional Solutions. In Functional Solutions, our two major speciality acrylic dispersions plant expansions were commissioned successfully with 36ktes at Worms (Germany) and 12ktes at Roebuck (USA). These investments have further optimised our dispersion polymer network, providing large scale, low cost plants with incremental capacity to support growth of our higher margin speciality products. Our largest investment, the 90ktes plant expansion at our Pasir Gudang (Malaysia) NBR latex plant, was completed successfully in late 2018 and is now producing state-of-the-art products to support this high growth market.
Purpose, culture and values
The Board is committed to building a business where the purpose, culture and values of the Group are fully aligned. As a global chemical company with a leadership position in water-based polymer chemistry, our purpose is to continually innovate to meet the needs of our customers and society in a sustainable way.
We continue to develop an open, diverse and transparent culture. We remain resolute in our commitment to achieving world class performance in Safety, Health and Environmental activities. Our updated Code of Conduct has been successfully implemented to provide clarity in the standards we expect as a Group.
Our people agenda has made good progress in 2019 and there is much to come in 2020 as we welcome new colleagues from OMNOVA. In 2019 we have strengthened our international graduate recruitment, leadership and learning development programmes, and further strengthened our employee brand. Our core values of SHE, Accountability, Integrity, Teamwork and Innovation continue to unify the way Synthomer does business and, combined with our culture, underpin the success of the Group. Positively, early impressions suggest OMNOVA shares a similar culture to Synthomer which will allow swift progress as the companies come together.
Governance
With new policies and practices in place from the start of 2019 we were in full compliance with the 2018 Corporate Governance Code throughout the year. We will achieve 30% female representation on our Board in 2020 and fully recognise the importance of improving diversity amongst the wider workforce. Our employee engagement process provided valuable feedback and insight to the Board on employee sentiment.
Environmental, Social and Governance (ESG)
As a global leader in water-based polymer chemistry our products are responsible for avoiding the use of significant amounts of volatile organic compounds and solvents every year. Our product range and strong innovation pipeline deliver materials to meet current and future needs of society and do so in an increasingly sustainable way. Our innovative new products deliver benefits of lower energy intensity, removal of solvents and helping customers to meet more stringent regulatory standards. We recognise that there is much to do to meet the needs of society on carbon and climate change and through our continuous innovation we are committed to addressing the economic, environmental and social aspects of sustainability.
Quantifying, improving and communicating the sustainability of all our activities continues to strengthen with the introduction in 2019 of our first ESG Report aligned with Global Reporting Initiative (GRI) Standards. With increased focus on ESG, our programme identifies key issues affecting our stakeholders, communicates the activities being undertaken and sets key Group performance targets for the future.
Dividend
The Board has recommended a final ordinary dividend of 6.9p (2018: 8.5p) per share. Taken with the 2019 interim ordinary dividend of 4.0p (2018: 3.7p) per share, the total ordinary dividend is 10.9p (2018: 12.2p). The total dividend for the year is consistent with the Group's dividend policy. The final dividend per share is subject to shareholder approval at the Annual General Meeting on 29 April 2020 and will be payable on 7 July 2020 to those shareholders registered at the close of business on 5 June 2020.
Neil Johnson
Chairman
5 March 2020
Chief Executive Officer's review
Performance
2019 has undoubtably been a challenging year for Synthomer and the broader chemical industry driven by economic uncertainty and a slowdown in key markets. Despite these difficult market conditions, the Group has shown resilience across our businesses, testament to our differentiated portfolio of products serving diverse end markets across the globe. We have made strong progress in positioning the business to continue to deliver on its strategy of driving long term growth through proactive organic and inorganic investment decisions.
Our acquisition of OMNOVA Solutions Inc was announced in July and will be the largest acquisition in the history of the Group. OMNOVA is a highly synergistic US based speciality chemicals company which brings greater geographical diversity and product differentiation in our core chemistries and markets.
Synthomer has also made strong operational progress during 2019. New low-cost capacity has been successfully introduced in higher growth markets across our Performance Elastomers and Functional Solutions asset base. This capacity will continue to drive EBITDA growth in the coming years.
In a challenging macro-economic environment our EBITDA decreased by 1.7% from £181.0m to £177.9m including the benefit of the adoption of IFRS 16 Leases of £7.9m. The resilience of our business is underpinned by our geographic, product and end market diversity. In this context we were pleased with the improvements in our Functional Solutions, Industrial Specialities and Performance Elastomers NBR markets largely offsetting the disappointing performance in Performance Elastomers SBR markets principally attributable to a challenging European paper business. Functional Solutions saw a 9.0% increase in EBITDA to £69.9m despite a 7.3% reduction in volumes which was impacted by the sale of 51% of the Group's Dubai operations in June 2018. Industrial Specialities saw a 5.5% increase in EBITDA to £24.8m demonstrating the resilience of this business in the face of challenges in the automotive, monomer and coatings markets. EBITDA in Performance Elastomers decreased by 10.8% to £96.3m where the impact of the SBR slowdown in Europe and closure in Q4 2018 of our Malaysian natural rubber production line exceeded growth in the NBR business.
Underlying profit before tax reduced from £135.1m to £116.2m as a result of reduction in EBITDA, the rise in depreciation reflecting our significant growth capex programme over the last three years, and the rise in interest costs relating to our interest rate fix. IFRS profit before tax decreased by 16.5% from £120.3m in 2018 to £100.5m in 2019 with the reduction consistent with the reduction in Underlying profit before tax.
Free Cash Flow of £92.8m (2018: £27.8m) was strong, primarily reflecting tight working capital control in 2019. Capital spend was in line with expectations at £69.1m (2018: £75.7m) and in line with our capital investment capacity expansion programme. As part of our acquisition of OMNOVA, Synthomer issued shares in a rights issue raising £199.1m net of fees. Until the acquisition completes these proceeds have been used to repay borrowings, leading to a closing net cash position of £20.7m (2018: net debt of £214.0m).
Safety, health and environment
Synthomer's success is directly related to the Group conducting its business in a safe and responsible way. Synthomer sets high standards in relation to safety, health and environmental (SHE) activities which are supported by appropriate levels of investment, improvement initiatives and by rigorous assurance under the supervision of the Group SHE team. Our performance against these standards is reported at each Executive Committee and Board meeting.
Good progress has been made in process safety, occupational health and safety, and environmental compliance with the Group continuing to target consistent world class performance through its strong operating practices. The acquisition of OMNOVA represents the opportunity to deploy our proven techniques across our expanded network.
In 2019 we saw a 25% reduction in our rolling all injury rate and a 21% reduction in our process safety rate with long term underlying rates reducing significantly. Our focus on permit to work system improvements was maintained and targets for auditing high hazard and live permits achieved, embedding our required standards and lessons to learn around our global operations network.
Inorganic growth - Acquisition of OMNOVA
The £654m acquisition of OMNOVA will provide an ideal platform for Synthomer to deliver against its exciting sustainable growth strategy. OMNOVA has been a Synthomer target for some years due to its common chemistry, technology and access to attractive markets. The acquisition will extend Synthomer's geographic platform in the core markets of the US and China making it a truly global leader in water-based solutions with increased specialisation, greater scale for more efficient production and distribution, and an increased innovation pipeline. The combination brings strong synergy potential which in turn will bring growth and additional stakeholder value for the coming years. We expect to deliver $29.6m of synergies over three years from completion. A dedicated and experienced integration team has been identified to ensure that the integration plan is delivered. Synthomer successfully introduced a new global business structure in 2019 to better serve our customers, drive operational efficiencies and leverage our product portfolio globally. Due to the common chemistry and markets with OMNOVA this global business structure will operate unchanged with larger, lower cost global businesses providing the most efficient and effective structure to operate the integrated business.
Our integration of OMNOVA will be a key focus for the Group as soon as the transaction completes, which we expect to be in March 2020. The accelerated reduction of debt will also be a major emphasis in accordance with the business plan for the acquisition of OMNOVA. Once the reduction of leverage has been delivered, the Group will resume its disciplined approach in assessing bolt-on and transformational acquisition opportunities to drive further stakeholder value.
Organic growth
Our strategy of sustainable growth in the chemical sector is built on our expanding broad blue-chip customer base with long-term established relationships, wide global platform and the efficient production of increasingly differentiated chemicals characterised by high barriers to entry. Our market leading positions, focused innovation and global asset network provide the foundations for our organic growth strategy.
In 2019 we saw the results of our investment in the commissioning of new low-cost capacity by debottlenecking existing facilities in Performance Elastomers and Functional Solutions. In Q3 2019 our new dispersion assets in Worms (Germany) (36ktes) and Roebuck (USA) (12ktes) came online. These plants produce higher margin, made to order acrylic dispersions in locations close to their markets. Accessing GDP plus markets, these plants will provide opportunities in Functional Solutions over the next 2 to 3 years. In Performance Elastomers our 90ktes NBR latex capacity expansion at Pasir Gudang (Malaysia) came online at the end of 2018, and through 2019 this has delivered improved market share and growth in our attractive health and protection glove market. With a further investment agreed to deliver an additional 60ktes at Pasir Gudang in Q4 2021, Synthomer is committed to supporting long term growth in the NBR market through capacity expansion and innovation of market leading products such as our patented SyNovus® range.
Continued focus on transformation and cost reduction programmes
2019 has been a difficult year for our SBR business which serves the paper, carpet, compounds and foam markets. A combination of slower economic activity and ongoing reduction in demand for coated paper has substantially depressed demand in the major end use segments during the year. In the absence of growth, our SBR plants ran at lower than anticipated utilisation rates during the year, and significant over capacity now exists in the market. An extensive review of our European SBR network is now largely complete with the objective of optimising the network to operate in the most efficient and effective way. All of our SBR sites remain profitable and we have a range of value-enhancing options available to us. A further update will be provided once the review is complete and the appropriate course of action has been determined.
Through our Operational Excellence the Group continues to focus on transformation and cost reduction programmes across our wider network. Against a backdrop of challenging market conditions, these self-help opportunities are key to the delivery of performance and the generation of long-term value. In addition to work across our SBR network, transformation projects to drive improved long-term profitability are underway in Kluang (Malaysia), Sokolov (Czech Republic), Ribécourt (France) and Chonburi (Thailand). On cost reduction our 'Mindset' non-manpower fixed cost reduction programme commenced in 2019 in Europe and will be rolled out further in 2020 with the target to deliver £1.5m of savings in 2020.
In order to deliver our long-term inorganic growth agenda and to ensure the efficiency, effectiveness and compliance of our organisation, the Group has commenced a business transformation 'Pathway' programme. The programme is designed to deliver a consistent set of global business processes across a unified target operating model, transform our technology architecture into a single set of proven integrated systems and to build additional efficiency and effectiveness globally. The programme will begin to deliver benefits in early 2021, is expected to be completed for the existing group in 2022 and meets the capital expenditure hurdle rates for Synthomer providing an attractive payback for the Group and a sound platform for future growth.
Discipline in capital allocation remains a key focus for the Group, with hurdle rates for capital expenditure growth projects remaining unchanged at a payback of less than five years or a 12% IRR.
Innovation
Innovation continues to be a core pillar of business growth allowing Synthomer to secure improved differentiated market positions and provide solutions to generate added value for our customers. In 2019, the Group had 16 new product launches across a broad base of application areas. Our key performance indicator for innovation is the proportion of a year's sales volumes attributed to new products launched in the past five years, which increased to 22% in 2019, and remains a key differentiator for the Group. We continue to focus on protecting our proprietary intellectual property through patents with eleven filings in 2019.
The acquisition of OMNOVA presents significant innovation opportunities for the Group. An increased innovation pipeline, a strengthened technology portfolio across wider markets and geographies and further opportunities for synergies as we focus our activities and standards. Our operational excellence teams will be key to the delivery of product and technology transfers as we meet the needs of a wider customer and geographic base to deliver best in class differentiated solutions to accelerate the delivery of our business strategies.
To further enhance our innovation facilities the Group has invested in a state-of-the-art Innovation Centre in Malaysia which will open in Q3 2020. The new facility will bring additional space and allow us to build upon the accelerated time to market for new innovations we have delivered in recent years.
In 2019 Synthomer increased its collaborative research with supply chain partners and academic institutions. We have supported a large European Union project, involving the Universities of Montpellier and Torino, looking at the use of plant derived sustainable raw materials as components of Synthomer's core water-based polymer systems. Broad collaboration allows the Group to address more effectively the new requirements resulting from mega trends which will drive long term growth, regulations and changes to product and market requirements. Our innovation activities increasingly focus on the sustainability of our products to develop less energy intensive products, to ensure ease of recyclability for our supply chain, and to allow our customers to meet ever more stringent regulatory requirements.
Outlook
In the year ahead, we are not anticipating any change to the economic environment, with industrial end markets remaining challenging and additional uncertainty relating to the potential impact of Coronavirus. Whilst we expect to see benefits from our recent capital investment in 2020, this will be largely offset by foreign exchange translation assuming rates remain at current levels. Nevertheless, the contribution from the acquisition of OMNOVA, and the synergies this will bring, ensures that Synthomer will take a significant step forward this year.
Calum MacLean
Chief Executive Officer
5 March 2020
Divisional Review
Performance Elastomers
Highlights
· Record NBR latex volumes underpinned by 90ktes capacity expansion in Pasir Gudang
· Investment in new 60ktes NBR latex facility approved with capacity on line Q4 2021
· State of the art Asian Innovation Centre investment underway with completion Q3 2020
· Challenging year in SBR latex with lower volumes and margins mainly driven by weakness of European paper market
· SBR latex asset network review nearing completion; range of value-enhancing options available
· Cost reduction programmes implemented
Divisional performance
2019 | 2018 | % | Constant currency1 % | |
Volumes (ktes) | 849.1 | 859.5 | (1.2) | |
Revenue (£m) | 623.7 | 704.5 | (11.5) | (11.5) |
EBITDA2 | 96.3 | 107.9 | (10.8) | (11.3) |
Operating profit - Underlying performance (£m) | 71.5 | 87.2 | (18.0) | (18.6) |
Operating profit - IFRS (£m) | 71.2 | 84.7 | (15.9) | |
1Constant currency revenue and profit: these reflect current year results translated at the prior year's average exchange rates.
22019 includes the impact of the adoption of IFRS 16 Leases of £2.0m.
Performance Elastomers EBITDA2 was 10.8% lower in 2019 at £96.3m (2018: £107.9m) with Underlying operating profit 18.0% lower at £71.5m. Our SBR performance was impacted by weaker market conditions mainly in our European paper business which offset another strong year of growth in our NBR business.
Market performance - NBR
Following the successful commissioning of the JOB5 reactor in late 2018 NBR has delivered another year of profitable growth.
After two very strong years of double-digit demand growth from glove customers, 2019 has shown single digit growth as the additional glove capacity installed in 2017/18 was consumed in the market. However, the addition of JOB5 capacity in Malaysia in conjunction with increased production of NBR in Italy, was reflected in strong volume growth for Synthomer, up 12% over the prior year. Unit margins were in line with expectations throughout the first half of the year, however, H2 saw a modest impact as competitors' new capacity came into the market. This factor, and the ongoing sluggishness in the global economy, meant the second half of the year was more challenging. Nonetheless, overall margin was ahead of prior year on the higher volumes sold, while average unit margins were a little lower than 2018 as result of the new competitor capacity.
2019 saw the closure of the Natural Rubber production line. While it is disappointing to have to exit any market, the need for change was indisputable and the closure has had little effect on the overall growth experienced in NBR. It has also allowed for a transformation programme to be launched at the Kluang site to address some of the infrastructure costs that remained as a result of the closure. This initiative was launched during the final months of the year to ensure a more streamlined operation in Kluang in 2020 when the initiative is fully delivered.
While 2019 has been a year of consolidation, mainly as a result of the significant increases in glove capacity installed since 2017, it has been another year of progress. Investments in new glove capacity continue to be announced and given the increasing demand for healthcare provision in the developing world, the market looks set for further growth.
During 2019 we continued to invest capital in NBR sites. With JOB5 complete and running successfully the next phase of investment focused on JOB6 where the Front-End Engineering Design (FEED) Study was successfully completed at midyear with the full capital approval by the Board following in August. The long lead-time items were ordered in Q3 and the EPCM contractor appointed in Q4. The project is now formally underway with beneficial production anticipated in Q4 2021.
Innovation has been a key cornerstone of NBR growth and 2019 was another strong year of development. Sales of NBR products launched in the prior five years continue to exceed 20% reflecting positively on the R&D investments made in both human capital and equipment. During the year we continued to strengthen NBR's position, filing four patents, doubling the number from the previous two years.
As part of our commitment to sustainability, Synthomer has conducted the very first full cradle-to-grave life-cycle analysis for NBR latex, which was carried out by the independent LCIE Bureau Veritas France in accordance to ISO14071. The study showed Synthomer's latest patented SyNovus® technology allows the glove manufacturing industry to create a significantly more sustainable NBR medical examination glove. This step-change delivers a lower impact on both users and the environment in comparison to earlier generations of NBR latex as well as natural rubber latex and PVC. Our patented Synovus® product continues to be evaluated by a range of customers to verify the in-use benefits of accelerator free technology and lower energy costs in glove production and we anticipate continued uptake for this product in 2020.
As we continue to expand NBR's innovation activity the need for additional space in the laboratories has become a more pressing issue. To support the innovation momentum which has been created, the Board approved an investment of £6.5 million to create a new Asian Innovation Centre (AIC) in Malaysia, equidistant from operations in Kluang and Pasir Gudang. The new facility has been built with future expansion in mind and at 6,000 sqm this is over four times larger than the existing R&D Centre in Kluang. Ground was broken in April 2019 and construction is well advanced and on target for the planned opening in Q3 2020.
Market performance - SBR
2019 has been a very challenging year for SBR which serves the paper, carpet, compounds and foam markets. A combination of slower economic activity in Europe and Asia along with the continuing reduction in demand for coated paper has substantially depressed demand in the major end-user segments during the year, particularly paper.
Volumes declined across SBR driven by weaker performance in paper, carpet, and compounds with a degree of mitigation in foam, where sales of HSSBR increased during the year. Paper suffered throughout the year on the back of falling raw material price and pressure on margins driven by overcapacity in European SBR production resulting in a double-digit decline in both volume and margin. This very disappointing performance, although supported by some good cost management, flowed through with SBR results being substantially below prior year and our expectations.
The very difficult paper market has seen several paper producers cease to trade, and the weaker financial position of the sector has led to credit insurance cover being reduced or removed. With several bad debts incurred during 2018, we have taken a more proactive position on credit risk which has constrained sales in this sector. Mill closure or capacity reductions and conversions have been another recurring feature of the coated paper market in recent years. 2019 saw an announcement from Stora Enso concerning the future of its mill in Oulu which will have a direct impact on the capacity utilisation of Synthomer's Oulu site during the second half of 2020.
The foam market has offered steady growth in recent years and we again experienced volume growth in 2019 with growth in China offsetting weaker demand in Europe. However, lower raw material prices and strong competition in Asia saw margins fail to keep pace with volume growth. We continue to explore new areas for the development of this product range both geographically and in terms of new areas of application to meet the anticipated capacity growth.
In the absence of sales growth, several of the SBR plants ran at lower than anticipated utilisation rates during the year, and in particular those plants with an exposure to the paper market. A review of the supply/demand balance for SBR latex in Europe points to significant over capacity amongst the major producers. An extensive review of our European SBR network is now largely complete with the objective of optimising the network to operate in the most efficient and effective way. All of our SBR sites remain profitable and we have a range of value-enhancing options available to us. A further update will be provided once the review is complete and the appropriate course of action has been determined.
Against a background of a slowdown in the European business, several initiatives were taken during the year to ensure costs were effectively managed. All sites focused on optimising their fixed cost base and made good progress during the year. In the larger sites Project Mindset was launched aimed at delivering a sustained reduction in non-manpower fixed costs which will be reflected in the 2020 performance. Other cost initiatives were deployed across the business to ensure effective cost control in the challenging environment.
Functional Solutions
Highlights
· Market leading position in water-based polymers in Europe
· Resilient performance in challenging market conditions
· Growth in unit margins offsets impact of lower volumes with EBITDA2 9.0% ahead
· Benefits realised from reorganisation into global business seen in product innovation and global collaboration with customers
· Successful commissioning of 36ktes Worms (Germany) and 12ktes Roebuck (USA) differentiated acrylic dispersion investments in Q3 2019 to drive future growth
· Productivity gain plans in place through Operational Excellence and Commercial Excellence initiatives
Divisional performance
2019 | 2018 | % | Constant currency1 % | |
Volumes (ktes) | 487.4 | 526.0 | (7.3) | |
Revenue (£m) | 612.8 | 680.1 | (9.9) | (9.7) |
EBITDA2 | 69.9 | 64.1 | 9.0 | 9.5 |
Operating profit - Underlying performance (£m) | 52.3 | 53.0 | (1.3) | (0.8) |
Operating profit - IFRS (£m) | 48.0 | 50.4 | (4.8) | |
1Constant currency revenue and profit: these reflect current year results translated at the prior year's average exchange rates.
22019 includes the impact of the adoption of IFRS 16 Leases of £4.4m.
Business performance was resilient in 2019 despite a challenging macro environment. EBITDA2 was 9.0% higher at £69.9m with Underlying operating profit flat as improved margins offset the impact of lower volumes. Volumes were down by 7.3% (5.0% for ongoing businesses) but margins were higher due to good cost management, favourable raw material prices and purchasing initiatives combined with a clear focus on portfolio management, including the introduction of a number of innovative speciality products.
The main macro drivers that impacted volumes were the general economic slowdown in Europe and a broad-based weakness in construction and the automotive markets. Specific initiatives were undertaken to offset the softer market conditions including in the redispersible powders (RDP) business where volumes recovered from a weak second half of 2018 with share gains in both existing and new geographic markets driven by focused sales efforts based around a streamlined product portfolio.
Global business structure, local delivery
Functional Solutions was reorganised into a global business in January 2019 and in the course of the year has started to see the benefit from a global approach to customers, product portfolio, new product development and plant operations. Collaboration has been intensified with customers who have a global presence and with regional customers who now have access to the full breadth of the global Functional Solutions product portfolio. A platform-based approach for new product development has been introduced, balancing the need for global solutions with the need for regional and local customisation to meet specific market and customer requirements. Global teams have worked successfully on improving product transfer methodology across regions and an initiative was launched to benchmark plant performance and ensure best practice is applied across all sites producing dispersions.
Capacity and capability expansion
To position the business for future growth, a number of key capital expenditure programmes have been launched during the past years, with some key milestones reached in 2019. In Worms, the most important site for the Functional Solutions business globally, a major expansion programme was completed and new lines commissioned, adding 36ktes per annum of new capacity to support the manufacture of bespoke differentiated products to serve key speciality markets in the DACH (Germany, Austria and Switzerland) and broader Central European regions. Also, in Europe, as part of a wider transformation programme, major upgrades were realised at our Ribécourt facility in France, including new product silos and an automated packaging line. In the United States, a 12ktes replacement and expansion project was commissioned at our Roebuck facility, allowing the business to expand its speciality range of products to serve the North American market.
Innovation pipeline and new product introductions
2019 saw the launch of a number of new products including a high performance water-based Pressure Sensitive Adhesive (PSA) product (Plextol Prime™) to replace solvent based versions for speciality tapes, a PSA for wash-off bottle labels that improves recyclability and contributes to improved sustainability, and a new technical textile product range that allows for improved productivity and higher energy efficiency at the customers' plants (Litex QuickShield™, Revacryl Design™, Litex SkyShield™). The business also launched a low VOC binder for high pH biocide-free premium interior wall paints (Revacryl UltraGreen™), a major driver in the coatings industry due to regulatory changes and end-user expectations. Structurally, the Functional Solutions business has defined a number of strategic product platforms that tie in with medium- and long-term macro trends as well as with core Synthomer competencies. These platforms will bring clear focus and guide future development priorities.
Functional Solutions remains focused on its four strategic pillars: growth, mix, productivity and enablers, with a strong SHE performance as the overriding priority. In terms of growth, maximising the output from the new plant capabilities in Worms (Germany) and Roebuck (USA) is a priority, combined with a clear focus on growing the speciality range of products to drive a favourable mix and associated margins in 2020. Ambitious targets have been set in terms of launching new products based on the global product platforms. Growth momentum in RDP is to be maintained, as is the growth in Oilfield in target regions with new customers and in binders for batteries. Productivity gains are to come through Operational Excellence initiatives in plants and through Commercial Excellence and cost improvement initiatives. Growth, mix improvement and productivity gains are underpinned by sustained efforts in our enablers to deliver systemic improvements in our people, processes and tools.
In addition to driving organic growth in the business, the OMNOVA acquisition will have a transformative impact to the Functional Solutions business in terms of global reach and breadth of portfolio. A smooth integration and delivery of both commercial and cost synergies will be a key priority for 2020.
Industrial Specialities
Highlights
· Leading positions in selected niche speciality chemical markets globally
· Growth in unit margin across a number of speciality products offsets the impact of lower volume with EBITDA2 5.5% stronger
· Benefits starting to be realised from expansion in Sant'Albano (Italy) and reliability investment in Harlow (UK)
· Strong production performance with further operational efficiencies realised
· Successful development and launch of new absorbent product for the gas processing industry
· Cost saving opportunities identified and realised
Divisional performance
2019 | 2018 | % | Constant currency1 % | |
Volumes (ktes) | 129.2 | 132.1 | (2.2) | |
Revenue (£m) | 222.6 | 234.3 | (5.0) | (4.3) |
EBITDA2 | 24.8 | 23.5 | 5.5 | 5.5 |
Operating profit - Underlying performance (£m) | 16.0 | 16.7 | (4.2) | (4.2) |
Operating profit - IFRS (£m) | 11.3 | 12.1 | (6.6) | |
1Constant currency revenue and profit: these reflect current year results translated at the prior year's average exchange rates.
22019 includes the impact of the adoption of IFRS 16 Leases of £0.8m.
The Industrial Specialities division delivered a robust performance in markets generally impacted by difficult economic conditions. EBITDA2 in Industrial Specialities at £24.8m was 5.5% higher than 2018. Sales volumes were 2.2% lower compared to 2018, impacted by some of the more challenging end markets of automotive and coatings, and a weaker demand in our monomer business, as well as sales into the China region where the threat of a trade war impacted demand. Most businesses within the division recorded stable or increased unit margins during the year, in part due to the performance properties of the speciality products supplied by the businesses.
Strong year-on-year growth was achieved in the Vinyl Polymers business following targeted investment to enhance plant reliability and thereby deliver additional volumes to meet increasing customer demand, enhanced customer service and driven by the growing PVC market. The work to sustain operational improvements will deliver further growth in 2020.
Despite our polybutadiene Lithene business having some exposure to the automotive market, the business recorded modest growth in volumes and stable unit margins to deliver steady year-on-year growth.
Our Speciality Additives business which supplies coatings ingredients had a very challenging year. While unit margins were stable, volumes were impacted by end market demand and increased competition in some of our markets. One of our products, which is used in cold weather applications, was significantly down year-on-year due to the mild European winter at the end of 2019. While markets remain challenging, we have targeted a number of growth opportunities from new applications which are starting to be realised and we anticipate a return to growth in 2020.
The division also benefitted from the Powder Coating business' differentiated specialist polyester expansion at Sant' Albano (Italy) during 2019. This capacity expansion increased total site capacity by 20% and this forms a solid platform for further growth in sales volumes of our differentiated products during 2020.
While William Blythe (UK) delivered a flat performance year on year, a major milestone was reached in 2019 with the successful development and launch of a new absorbent product for the gas processing industry which will form a strong growth platform for coming years. William Blythe's excellence in innovation was recognised when they were announced as winners in the Innovation category at the Chemicals Northwest Awards (UK) in March 2019.
Our monomers business in Sokolov (Czech Republic), which supplies our Functional Solutions business and external European markets with acrylate monomers, saw weaker market conditions in H2 2019. Whilst our volumes were maintained, oversupply in Europe and unfavourable feedstock prices lead to weaker unit margins during Q4.
Value-gap contribution
Our operations team at all sites across the division continue to focus on process engineering reliability and manufacturing excellence to identify opportunities to maximise production volumes. A number of our plants delivered a very strong production performance during 2019 and whilst this was not fully utilised during 2019, the business is well placed to capitalise on the growth capacity and opportunities for further debottlenecking and reliability for the division in future years.
Targeted innovation
Innovation continues to be a key driver of growth across the division. An example is the highly innovative inorganics business, William Blythe. This business continues to develop a number of new products with strong patent and know-how protection typically sold to bespoke applications in niche markets. Recent successes have included high-purity Graphene Oxide and doped Tungsten Oxide products, with other new product families using differentiated inorganic chemistry in the pipeline.
Self-help initiatives
Given the challenging market conditions there has been a significant focus on costs during the year. 'Project Mindset', our non-manpower fixed cost reduction initiative, was launched across a number of locations delivering cost savings, with the full year benefit to be realised in 2020. We have also invested in capital projects to reduce the costs of production at our Lithene plant in Stallingborough (UK) and have further focused value-gap opportunities across most assets.
Whilst there is uncertainty in a number of our end markets and businesses, we remain confident in delivering growth in the future. Spare capacity created across a number of our plants has enabled the opportunity to target a number of initiatives across our end markets. The division continues to invest in R&D with a number of patents and industry leading properties in chosen applications. In addition, with the full year benefits of Project Mindset and other cost saving projects, further operational efficiency and cost savings should be realised.
Chief Financial Officer's Review
Highlights · Resilient EBITDA performance in challenging economic environment · Strong Free Cash Flow generation in 2019· Conservative capital structure implemented, including hard underwrite of acquisition rights issue
· Committed unsecured long term and bridge facilities ahead of OMNOVA acquisition
· Disciplined application of capital allocation policy and dividend policy unchanged
Alternative performance measures
The Group has consistently used two significant Alternative Performance Measures ('APMs') since its adoption of International Financial Reporting Standards ('IFRS') in 2005:
· Underlying performance, which excludes Special Items from IFRS profit measures; and
· EBITDA, which excludes Special Items, amortisation and depreciation from IFRS operating profit.
The Board's view is that Underlying performance provides additional clarity for the Group's investors and so it is the primary focus of the Group's narrative reporting. Further information and the reconciliation to the IFRS measures are included in note 1.
Coinciding with the first annual reporting of results under the new divisional structure, the Group has placed more emphasis on EBITDA reporting, whilst continuing to provide full disclosure of Underlying and IFRS operating profit and profit before tax. The greater emphasis on divisional EBITDA reporting is consistent with internal reporting metrics, is a commonly used metric by other European chemical businesses, and is a key metric which the market uses to value companies in the chemicals sector.
Overview
EBITDA and Underlying operating profit | 2019 | 2018 | Movement | |
£m | £m | £m | % | |
Performance Elastomers | 96.3 | 107.9 | (11.6) | (10.8) |
Functional Solutions | 69.9 | 64.1 | 5.8 | 9.0 |
Industrial Specialities | 24.8 | 23.5 | 1.3 | 5.5 |
Unallocated | (13.1) | (14.5) | 1.4 | (9.7) |
EBITDA1 | 177.9 | 181.0 | (3.1) | (1.7) |
Depreciation | (52.1) | (38.9) | (13.2) | 33.9 |
Underlying operating profit1 | 125.8 | 142.1 | (16.3) | (11.5) |
12019 includes the impact of the adoption of IFRS 16 Leases of £7.9m on EBITDA and £0.6m on Underlying operating profit.
In a challenging environment, the Group has delivered a resilient performance, benefiting from geographic, product and end market diversity, with EBITDA down 1.7% at £177.9m relative to £181.0m in 2018. Whilst overall volumes are a little softer, largely reflecting a difficult SBR market and in particular the paper market, the Group's overall margin per tonne has again remained stable. The reported EBITDA performance of £177.9m has benefitted from the adoption of IFRS 16 Leases, improving EBITDA by £7.9m while increasing depreciation by £7.3m and interest by £1.1m respectively.
Notwithstanding the economic backdrop, Functional Solutions and Industrial Specialities EBITDA performance was ahead of 2018, with Performance Elastomers EBITDA lower. In this context we were pleased with the improvements in our Functional Solutions, Industrial Specialities and Performance Elastomers NBR markets largely offsetting the disappointing performance in Performance Elastomers SBR markets principally attributable to a challenging European paper business.
The Underlying operating profit of the Group was £125.8m, 11.5% lower than 2018 (£142.1m), with the significant rise in depreciation of £13.2m (33.9%) attributable to the significant capacity expansion programme 2017 to 2019 (£5.9m) and the accounting changes relating to the adoption of IFRS 16 Leases (£7.3m). The IFRS operating profit was £110.6m (2018: £128.7m).
The Group continued to generate strong Free Cash Flow in the year at £92.8m, back to similar levels reported in 2016 and 2017 with the marked improvement over the prior year mainly reflecting a working capital outflow in 2018 and an inflow in 2019, largely following the trend in raw material prices, and tight working capital management.
We refinanced the Group in July in anticipation of the OMNOVA acquisition. The post-completion capital structure is consistent with our capital allocation policy, raising equity and targeting a more conservative level of leverage at completion (2.5x) than allowed for in the policy (3.0x), and only this on the basis that we expect leverage to return to less than 2.0x within two years post completion.
Our major capital investment in capacity expansion is largely complete and accordingly our attention will now focus on the integration of OMNOVA, driving synergy benefits and cash flows to ensure the deleveraging profile is delivered in accordance with our capital allocation policy.
Special Items
2019 | 2018 | |
£m | £m | |
Acquisition costs | (9.2) | (0.5) |
Restructuring and site closure costs | (0.8) | (12.2) |
Foreign exchange gain on rights issue | 3.5 | - |
Amortisation of acquired intangibles | (8.7) | (16.4) |
Sale of businesses | - | 3.8 |
Sale of land | - | 16.4 |
Aborted bond costs | - | (1.7) |
UK Guaranteed Minimum Pension equalisation | - | (2.8) |
(15.2) | (13.4) |
The following items of income and expense have been reported as Special Items:
· Acquisition costs relate to the proposed acquisition of OMNOVA partly offset by a gain of £4.0m on a foreign exchange derivative entered into in July 2019 to hedge the acquisition price. The 2018 costs related to the BASF Pischelsdorf acquisition.
· Restructuring and site closure costs largely comprise a charge of £1.9m in relation to the reorganisation of the Group into global business segments. This is partly offset by a partial reversal of the provision recognised in 2018 for the closure of the natural rubber and polyester resins production lines as certain elements have been less expensive than originally estimated.
· Foreign exchange gain on rights issue represents a gain made on a forward contract which was entered into to swap the proceeds of the Sterling rights issue into Euro in order to pay down part of the Group's Euro borrowings.
· Amortisation of acquired intangibles decreased during the year as the customer-related intangibles relating to the 2011 PolymerLatex acquisition reached the end of their amortisation period in H1 2018.
· Sale of businesses in 2018 related to the disposal of the Leuna (Germany) site and the disposal of 51% of the Group's Dubai operations.
· Sale of land in 2018 related to the disposal of the final tranche of Malaysian land at Kluang.
· Ahead of the Group's 2018 refinancing, a process was undertaken to issue unsecured fixed rate senior notes. Despite a strong response from investors, the Group decided not to complete the transaction due to unfavourable market conditions.
· A £2.8m adjustment to pension liabilities was booked in H2 2018 following the UK High Court's ruling on equalisation of male and female Guaranteed Minimum Pensions. This was treated as a pension plan amendment, unrelated to the Underlying performance of the Group.
2019 | 2018 | ||||||
Underlying performance | Special Items | IFRS | Underlying performance | Special Items | IFRS | ||
£m | £m | £m | £m | £m | £m | ||
Operating profit (including share of joint ventures) | 125.8 | (15.2) | 110.6 | 142.1 | (13.4) | 128.7 | |
Net interest payable | (5.8) | - | (5.8) | (3.8) | - | (3.8) | |
Fair value loss on unhedged interest derivatives | - | (0.5) | (0.5) | - | (1.4) | (1.4) | |
Net interest expense on defined benefit obligations | (2.7) | - | (2.7) | (3.2) | - | (3.2) | |
Interest element of lease payments | (1.1) | - | (1.1) | - | - | - | |
Finance costs | (9.6) | (0.5) | (10.1) | (7.0) | (1.4) | (8.4) | |
Profit before taxation | 116.2 | (15.7) | 100.5 | 135.1 | (14.8) | 120.3 | |
Finance costs
Underlying finance costs increased by £2.6m to £9.6m. The drivers were the adoption of IFRS 16 Leases with a charge of £1.1m (2018: £nil) and the full year impact of the Euro interest rate fix transacted in July 2018 of £3.6m (2018: £1.2m). This was partly offset by £0.4m of lower net interest as the RCF amounts drawn have been reduced with the rights issue in July 2019, and a reduction in net interest expense on defined benefit obligations as a result of a higher return on assets in the year.
In July 2018 the Group entered into swap arrangements to fix Euro interest rates on the full value of the €440m committed unsecured revolving credit facility. The fair value loss on unhedged interest rate derivatives relates to the movement in mark-to-market value of the swap in respect of the proportion of the derivatives in excess of the Group's borrowings. The charge has reduced to £0.5m (2018: £1.4m) as a result of lower drawn amounts under the RCF, and the changes in the fair value between 31 December 2018 and 2019.
Exchange
The impact of movements in exchange rates on reported numbers is based on the following exchange rates:
2019 | 2018 | ||
Closing rate | £1= | $1.33 | $1.27 |
£1= | €1.18 | €1.11 | |
£1= | MYR 5.38 | MYR 5.27 | |
Average rate | £1= | $1.28 | $1.33 |
£1= | €1.14 | €1.13 | |
£1= | MYR 5.29 | MYR 5.37 | |
Taxation
2019 | 2018 | ||||||
Underlying performance | Special Items | IFRS | Underlying performance | Special Items | IFRS | ||
£m | £m | £m | £m | £m | £m | ||
Profit before taxation | 116.2 | (15.7) | 100.5 | 135.1 | (14.8) | 120.3 | |
Taxation | (16.3) | 1.4 | (14.9) | (23.0) | 6.0 | (17.0) | |
Effective tax rate (%) | 14.0 | 8.9 | 14.8 | 17.0 | 40.5 | 14.1 | |
Profit for the year | 99.9 | (14.3) | 85.6 | 112.1 | (8.8) | 103.3 | |
Profit attributable to non-controlling interests | 0.4 | 0.6 | 1.0 | 0.5 | 3.0 | 3.5 | |
Profit attributable to equity holders | 99.5 | (14.9) | 84.6 | 111.6 | (11.8) | 99.8 | |
The IFRS effective tax rate is impacted by the tax credit on the Special Items. It is therefore helpful to consider the Underlying and Special Items affecting tax rates separately:
· The effective tax rate on Underlying performance for the year reduced to 14.0% (2018: 17.0%) in the year primarily as a result of changes in geographical split of profits with increased profitability of the business in Malaysia, which benefited from the Pioneer Status tax exemption, relative to the European businesses.
· The effective tax rate for Special Items is driven by deferred and current tax credits on the amortisation of acquired intangibles along with current tax credits on restructuring costs.
Non-controlling interests
The Group continues to hold 70% of Revertex (Malaysia) Sdn Bhd and its subsidiaries. These entities form a relatively minor part of the Group and hence the impact on Underlying performance from non-controlling interests is not significant.
Special Items arose from the partial reversal of the 2018 restructuring provision for the closure of the natural rubber and polyester resins production lines at the Kluang site as certain elements have been less expensive than originally estimated. 2018 Special Items included the non-controlling interest share of 2018 restructuring provision as well as profits from the sale of a parcel of land, owned by Kind Action Sdn Bhd, a wholly owned subsidiary of Revertex (Malaysia) Sdn Bhd.
Earnings per share
2019 | 2018 | ||||||
Underlying performance | Special Items | IFRS | Underlying performance | Special Items | IFRS | ||
Earnings | |||||||
Profit attributable to equity holders (£m) | 99.5 | (14.9) | 84.6 | 111.6 | (11.8) | 99.8 | |
Number of shares | |||||||
Weighted average number of shares ('000) | 393,349 | 363,977 | |||||
Earnings per share | |||||||
Basic EPS (p) | 25.3 | (3.8) | 21.5 | 30.7 | (3.3) | 27.4 | |
Diluted EPS (p) | 25.2 | (3.8) | 21.4 | 30.5 | (3.2) | 27.3 | |
Earnings per share is calculated based on the average number of shares in issue during the year. Following the rights issue in July 2019, the Company issued a further 84,970,192 ordinary shares, bringing the total issued shares of the Company to 424,850,961 and the weighted average number of the shares for 2019 to 393,348,792.
Underlying earnings per share for the year is 25.3p, a reduction of 17.6% relative for 2018, and the IFRS earnings per share is 21.5p, a reduction of 21.5% relative to 2018. The reduction in the earnings per share reflects the change in profit after tax referred to above, and the dilutive effect of the rights issue ahead of the completion of the acquisition of OMNOVA.
Following the rights issue, the prior year earnings per share figures have been restated by an adjustment factor of 1.0713 to reflect the bonus element of the rights issue.
Cash performance
The Group's primary focus is on managing net debt rather than on cash. The following table summarises the movement in net debt and is in the format used by management:
2019 | 2018 | |
£m | £m | |
Underlying operating profit (excluding joint ventures) | 124.9 | 141.7 |
Movement in working capital | 18.5 | (35.2) |
Depreciation of property, plant and equipment | 43.4 | 37.8 |
Depreciation of right of use assets | 7.3 | - |
Amortisation of other intangibles | 1.4 | 1.1 |
Share-based payments charge | 0.6 | 1.5 |
Capital expenditure | (69.1) | (75.7) |
Business cash flow | 127.0 | 71.2 |
Net interest paid | (7.2) | (4.5) |
Tax paid | (11.1) | (23.0) |
Pension funding | (17.5) | (17.0) |
Dividends received from non-controlling interests | 1.6 | 1.1 |
Free Cash Flow | 92.8 | 27.8 |
Cash impact of restructuring and site closure costs | (4.4) | (3.3) |
Cash impact of foreign exchange gain on rights issue | 3.5 | - |
Cash impact of aborted bond costs | - | (1.2) |
Sale of property, plant and equipment | 0.3 | 17.5 |
Acquisition costs and purchase of business | (7.5) | (26.3) |
Sale of business | - | 3.7 |
Rights issue proceeds | 199.1 | - |
Repayment of principal portion of lease liabilities | (6.8) | - |
Dividends paid | (47.9) | (42.5) |
Dividends paid to non-controlling interests | (0.6) | (1.5) |
Settlement of share-based payments | (2.5) | (5.4) |
Foreign exchange and other movements | 8.7 | (2.3) |
Movement in net debt | 234.7 | (33.5) |
Opening net debt | (214.0) | (180.5) |
Closing net cash/(debt) | 20.7 | (214.0) |
At 31 December 2019, the Group had net cash of £20.7m compared to net debt of £214.0m at 31 December 2018. The £234.7m movement in net debt primarily reflects:
· A reduction in working capital investment leading to an inflow of £18.5m (2018: outflow of £35.2m) reflecting lower raw material prices and measures taken to structurally manage working capital. Working capital remains at circa 10% of sales on a twelve-month rolling basis.
· Depreciation of right of use assets relates to depreciation of assets arising on the adoption of IFRS 16 Leases in 2019. Similarly the repayment of principal portion of lease liabilities relates to cash payments on liabilities recognised on adoption of IFRS 16.
· Capital expenditure is lower relative to the prior year, reflecting the substantial completion of our major capacity expansion projects in Pasir Gudang (Malaysia), Worms (Germany) and Roebuck (USA) in 2018 and 2019. The Group commenced investment in a new Innovation Centre and a new 60ktes NBR capacity expansion in Malaysia and began a three-year business transformation programme. Recurring expenditure on SHE and sustenance in the year is £21m (2018: £24m).
· Cash tax paid is lower at £11.1m (2018: £23.0m). The decrease is due to cash tax refunds received from Tax Authorities in 2019 relating to prior years and lower profitability in 2019.
· Pension funding relates mainly to the UK defined benefit deficit recovery funding of £16.2m (2018: £15.5m). The rise in the deficit recovery payment in 2019 reflects the schedule of contributions agreed with the Trustees in 2019 as a part of the 2018 triennial pension scheme valuation. The outcome of the 2018 triennial valuation is discussed below in retirement benefit plans.
· Acquisition costs and purchase of business of £7.5m relate to the OMNOVA acquisition. In 2018, the £26.3m outflow principally related to the purchase of BASF Pischelsdorf.
· The sale of property, plant and equipment in 2018 related to the sale of the final parcel of Malaysian land.
· Rights issue net proceeds relates to the share issue in July 2019, raising £199.1m in anticipation of settling the OMNOVA acquisition purchase consideration.
· Foreign exchange and other movements reflect the impact of the significant strengthening of Sterling during the year where the Group has benefitted from a gain on translation of its Euro borrowings.
Financing and liquidity
The Group continues to make use of a €440m four-year multicurrency revolving credit facility ('RCF') expiring in July 2022 with an option to request an extension to July 2023. The financial covenant for the RCF is for net debt to be less than 3.25 times EBITDA.
In July 2019 the Group repaid its €55m committed unsecured short-term loan facility upon expiry.
As part of the OMNOVA acquisition financing, the Group put in place new facilities conditional on completion of the acquisition. These consist of a $260m Term Loan and €460m RCF with five-year terms ending on 3 July 2024, and a €520m acquisition financing bridging facility. The bridging facility is available for 15 months from July 2019 and may be extended for two periods of six months.
In 2018 the Group entered into swap derivative contracts to fix the Euribor interest rate on the full value of the €440m RCF until 2025. The full interest cost of these swaps is booked to finance costs as incurred. Fair value movement on the portion of the swap contracts that forms an effective hedging relationship with the Group's floating rate borrowings is taken to other comprehensive income. Fair value movement on the swap contacts in excess of the Group's borrowings is taken to profit and loss. It is treated as a Special Item, as it is not reflective of Underlying performance.
IFRS 16
On 1 January 2019, the Group adopted IFRS 16 Leases using the modified retrospective approach. The adoption of the new standard had the following impact on the Group's results:
Property, plant and equipment | Increase | £38.9m |
Lease liability | Increase | £41.9m |
Depreciation charge | Increase | £7.3m |
EBITDA | Increase | £7.9m |
Finance cost | Increase | £1.1m |
Profit before tax | Decrease | £0.5m |
Net debt to EBITDA | No impact | |
Basic EPS | Decrease | 0.1p |
Other intangible assets
The Group has commenced a business transformation 'Pathway' programme which is designed to deliver a consistent set of global business processes across a unified target operating model, transform our technology architecture into a single set of proven integrated systems and to build additional efficiency and effectiveness globally. The programme will begin to deliver benefits in early 2021, is expected to be completed for the existing group in 2022 and meets the capital expenditure hurdle rates for Synthomer providing an attractive payback for the Group and a sound platform for future growth. The investment is shown as an intangible asset under construction until the deployment phase begins.
Retirement benefit plans
The Group's principal funded defined benefit pension scheme is in the UK and is closed to future accrual. The Group also operates an unfunded scheme in Germany and various other overseas retirement benefit arrangements.
The Group's net defined benefit obligation increased by 5.7% to £140.0m at 31 December 2019. The increase is principally attributable to a decrease in discount rates only partially offset by our deficit recovery funding of £16.5m, a decrease in inflation assumptions and strong return on plan assets.
The triennial valuation of the UK scheme was undertaken in 2018 and completed in 2019. The trustees of the scheme have agreed that the Group will continue to fund the deficit recovery plan in line with the previously agreed recovery plan, currently expected to end in April 2023.
Stephen Bennett
Chief Financial Officer
5 March 2020
Consolidated income statement for the year ended 31 December 20192019 | 2018 | |||||||||||
Underlying performance | Special Items | IFRS | Underlying performance | Special Items | IFRS | |||||||
£m | £m | £m | £m | £m | £m | |||||||
Revenue | 1,459.1 | - | 1,459.1 | 1,618.9 | - | 1,618.9 | ||||||
Company and subsidiaries before Special Items | 124.9 | - | 124.9 | 141.7 | - | 141.7 | ||||||
Acquisition costs | - | (9.2) | (9.2) | - | (0.5) | (0.5) | ||||||
Restructuring and site closure costs | - | (0.8) | (0.8) | - | (12.2) | (12.2) | ||||||
Foreign exchange gain on rights issue | - | 3.5 | 3.5 | - | - | - | ||||||
Amortisation of acquired intangibles | - | (8.7) | (8.7) | - | (16.4) | (16.4) | ||||||
Sale of businesses | - | - | - | - | 3.8 | 3.8 | ||||||
Sale of land | - | - | - | - | 16.4 | 16.4 | ||||||
Aborted bond costs | - | - | - | - | (1.7) | (1.7) | ||||||
UK Guaranteed Minimum Pension equalisation | - | - | - | - | (2.8) | (2.8) | ||||||
Company and subsidiaries | 124.9 | (15.2) | 109.7 | 141.7 | (13.4) | 128.3 | ||||||
Share of joint ventures | 0.9 | - | 0.9 | 0.4 | - | 0.4 | ||||||
Operating profit/(loss) | 125.8 | (15.2) | 110.6 | 142.1 | (13.4) | 128.7 | ||||||
Interest payable | (6.7) | - | (6.7) | (4.9) | - | (4.9) | ||||||
Interest receivable | 0.9 | - | 0.9 | 1.1 | - | 1.1 | ||||||
Fair value loss on unhedged interest derivatives | - | (0.5) | (0.5) | - | (1.4) | (1.4) | ||||||
(5.8) | (0.5) | (6.3) | (3.8) | (1.4) | (5.2) | |||||||
Net interest expense on defined benefit obligation | (2.7) | - | (2.7) | (3.2) | - | (3.2) | ||||||
Interest element of lease payments | (1.1) | - | (1.1) | - | - | - | ||||||
Finance costs | (9.6) | (0.5) | (10.1) | (7.0) | (1.4) | (8.4) | ||||||
Profit/(loss) before taxation | 116.2 | (15.7) | 100.5 | 135.1 | (14.8) | 120.3 | ||||||
Taxation | (16.3) | 1.4 | (14.9) | (23.0) | 6.0 | (17.0) | ||||||
Profit/(loss) for the year | 99.9 | (14.3) | 85.6 | 112.1 | (8.8) | 103.3 | ||||||
Profit attributable to non-controlling interests | 0.4 | 0.6 | 1.0 | 0.5 | 3.0 | 3.5 | ||||||
Profit/(loss) attributable to equity holders of the parent | 99.5 | (14.9) | 84.6 | 111.6 | (11.8) | 99.8 | ||||||
99.9 | (14.3) | 85.6 | 112.1 | (8.8) | 103.3 | |||||||
Earnings/(loss) per share1 | ||||||||||||
Basic | 25.3p | (3.8)p | 21.5p | 30.7p | (3.3)p | 27.4p | ||||||
Diluted | 25.2p | (3.8)p | 21.4p | 30.5p | (3.2)p | 27.3p | ||||||
2019 | 2018 | ||||||
Equity holders of the parent | Non-controlling interests | Total | Equity holders of the parent | Non-controlling interests | Total | ||
£m | £m | £m | £m | £m | £m | ||
Profit for the year | 84.6 | 1.0 | 85.6 | 99.8 | 3.5 | 103.3 | |
Actuarial (losses)/gains | (27.2) | - | (27.2) | 15.5 | - | 15.5 | |
Tax relating to components of other comprehensive income | 4.7 | - | 4.7 | (2.3) | - | (2.3) | |
Total items that will not be reclassified to profit or loss | (22.5) | - | (22.5) | 13.2 | - | 13.2 | |
Exchange differences on translation of foreign operations | (15.3) | (0.4) | (15.7) | 16.9 | 0.8 | 17.7 | |
Exchange differences recycled on sale of businesses | - | - | - | (0.4) | - | (0.4) | |
Fair value loss on hedged interest derivatives | (8.7) | - | (8.7) | (3.9) | - | (3.9) | |
Loss on net investment hedge taken to equity | (1.9) | - | (1.9) | (3.2) | - | (3.2) | |
Total items that may be reclassified subsequently to profit or loss | (25.9) | (0.4) | (26.3) | 9.4 | 0.8 | 10.2 | |
Other comprehensive (expense)/income for the year | (48.4) | (0.4) | (48.8) | 22.6 | 0.8 | 23.4 | |
Total comprehensive income for the year | 36.2 | 0.6 | 36.8 | 122.4 | 4.3 | 126.7 |
Share capital | Share premium | Capital redemptionreserve | Hedging and translation reserve | Retained earnings | Total | Non-controlling interests | Total equity | |
£m | £m | £m | £m | £m | £m | £m | £m | |
At 1 January 2019 | 34.0 | 230.5 | 0.9 | 6.4 | 192.1 | 463.9 | 21.1 | 485.0 |
Profit for the year | - | - | - | - | 84.6 | 84.6 | 1.0 | 85.6 |
Other comprehensive loss for the year | - | - | - | (25.9) | (22.5) | (48.4) | (0.4) | (48.8) |
Total comprehensive (loss)/income for the year | - | - | - | (25.9) | 62.1 | 36.2 | 0.6 | 36.8 |
Dividends | - | - | - | - | (47.9) | (47.9) | (0.6) | (48.5) |
Issue of shares | 8.5 | 190.6 | - | - | - | 199.1 | - | 199.1 |
Share-based payments | - | - | - | - | (1.9) | (1.9) | - | (1.9) |
At 31 December 2019 | 42.5 | 421.1 | 0.9 | (19.5) | 204.4 | 649.4 | 21.1 | 670.5 |
Share capital | Share premium | Capital redemption reserve | Hedging and translation reserve | Retained earnings | Total | Non-controlling interests | Total equity | |
£m | £m | £m | £m | £m | £m | £m | £m | |
At 1 January 2018 | 34.0 | 230.5 | 0.9 | (3.0) | 125.5 | 387.9 | 18.3 | 406.2 |
Profit for the year | - | - | - | - | 99.8 | 99.8 | 3.5 | 103.3 |
Other comprehensive income for the year | - | - | - | 9.4 | 13.2 | 22.6 | 0.8 | 23.4 |
Total comprehensive income for the year | - | - | - | 9.4 | 113.0 | 122.4 | 4.3 | 126.7 |
Dividends | - | - | - | - | (42.5) | (42.5) | (1.5) | (44.0) |
Share-based payments | - | - | - | - | (3.9) | (3.9) | - | (3.9) |
At 31 December 2018 | 34.0 | 230.5 | 0.9 | 6.4 | 192.1 | 463.9 | 21.1 | 485.0 |
2019 | 2018 | ||
£m | £m | ||
Non-current assets | |||
Goodwill | 324.4 | 336.5 | |
Acquired intangible assets | 56.8 | 69.1 | |
Other intangible assets | 22.0 | 5.1 | |
Property, plant and equipment | 404.9 | 370.0 | |
Deferred tax assets | 22.8 | 23.4 | |
Investment in joint ventures | 7.5 | 8.6 | |
Total non-current assets | 838.4 | 812.7 | |
Current assets | |||
Inventories | 121.9 | 141.9 | |
Trade and other receivables | 190.6 | 232.9 | |
Cash and cash equivalents | 103.6 | 96.9 | |
Derivative financial instruments | 4.9 | - | |
Total current assets | 421.0 | 471.7 | |
Total assets | 1,259.4 | 1,284.4 | |
Current liabilities | |||
Borrowings | - | (70.1) | |
Trade and other payables | (232.9) | (263.2) | |
Lease liabilities | (7.5) | - | |
Current tax liabilities | (38.7) | (38.3) | |
Provisions for other liabilities and charges | (4.9) | (9.4) | |
Derivatives financial instruments | (14.3) | (5.3) | |
Total current liabilities | (298.3) | (386.3) | |
Non-current liabilities | |||
Borrowings | (82.9) | (240.8) | |
Trade and other payables | (0.5) | (0.7) | |
Lease liabilities | (34.4) | - | |
Deferred tax liabilities | (30.8) | (34.3) | |
Retirement benefit obligations | (140.0) | (132.5) | |
Provisions for other liabilities and charges | (2.0) | (4.8) | |
Total non-current liabilities | (290.6) | (413.1) | |
Total liabilities | (588.9) | (799.4) | |
Net assets | 670.5 | 485.0 | |
Equity | |||
Share capital | 42.5 | 34.0 | |
Share premium | 421.1 | 230.5 | |
Capital redemption reserve | 0.9 | 0.9 | |
Hedging and translation reserve | (19.5) | 6.4 | |
Retained earnings | 204.4 | 192.1 | |
Equity attributable to equity holders of the parent | 649.4 | 463.9 | |
Non-controlling interests | 21.1 | 21.1 | |
Total equity | 670.5 | 485.0 |
The financial statements were approved by the Board of Directors and authorised for issue on 5 March 2020.
Consolidated cash flow statement for the year ended 31 December 20192019 | 2018 | |||||
£m | £m | £m | £m | |||
Operating | ||||||
Cash generated from operations | 170.2 | 124.9 | ||||
Interest received | 0.9 | 1.1 | ||||
Interest paid | (7.0) | (5.6) | ||||
Interest element of lease payments | (1.1) | - | ||||
Net interest paid | (7.2) | (4.5) | ||||
UK corporation tax paid | - | - | ||||
Overseas corporate tax paid | (11.1) | (23.0) | ||||
Total tax paid | (11.1) | (23.0) | ||||
Net cash inflow from operating activities | 151.9 | 97.4 | ||||
Investing | ||||||
Dividends received from joint ventures | 1.6 | 1.1 | ||||
Purchase of property, plant and equipment and intangible assets | (69.1) | (75.7) | ||||
Sale of property, plant and equipment | 0.3 | 17.5 | ||||
Net capital expenditure | (68.8) | (58.2) | ||||
Purchase of business | - | (25.8) | ||||
Proceeds from sale of businesses | - | 3.7 | ||||
Net cash outflow from investing activities | (67.2) | (79.2) | ||||
Financing | ||||||
Dividends paid | (47.9) | (42.5) | ||||
Dividends paid to non-controlling interests | (0.6) | (1.5) | ||||
Proceeds on issue of shares | 199.1 | - | ||||
Settlement of equity-settled share-based payments | (2.5) | (5.4) | ||||
Repayment of principal portion of lease liabilities | (6.8) | - | ||||
Repayment of borrowings | (216.3) | (63.5) | ||||
Proceeds of borrowings | 15.0 | 103.9 | ||||
Net cash outflow from financing activities | (60.0) | (9.0) | ||||
Comprising inflows to: | ||||||
Cash and cash equivalents | 4.1 | 5.6 | ||||
Bank overdrafts | 20.6 | 3.6 | ||||
Increase in cash and bank overdrafts during the year | 24.7 | 9.2 | ||||
Cash, cash equivalents and bank overdrafts at 1 January | 76.2 | 65.4 | ||||
Foreign exchange and other movements | 2.7 | 1.6 | ||||
Cash, cash equivalents and bank overdrafts at year end | 103.6 | 76.2 |
Reconciliation of net cash flow from operating activities to movement in net debt
2019 | 2018 | ||
£m | £m | ||
Net cash inflow from operating activities | 151.9 | 97.4 | |
Add back: dividends received from joint ventures | 1.6 | 1.1 | |
Less: net capital expenditure | (68.8) | (58.2) | |
Less: net purchase of business | - | (22.1) | |
84.7 | 18.2 | ||
Ordinary dividends paid | (47.9) | (42.5) | |
Dividends paid to non-controlling interests | (0.6) | (1.5) | |
Proceeds on issue of shares | 199.1 | - | |
Settlement of equity-settled share-based payments | (2.5) | (5.4) | |
Principal element of lease payments | (6.8) | - | |
Foreign exchange and other movements | 8.7 | (2.3) | |
Decrease/(increase) in net debt | 234.7 | (33.5) |
1. Special Items
IFRS and Underlying performance
The IFRS profit measures show the performance of the Group as a whole and as such include all sources of income and expense, including both one-off items and those that do not relate to the Group's ongoing businesses. To provide additional clarity on the ongoing trading performance of the Group's businesses, management uses 'Underlying' performance as an alternative performance measure to plan for, control and assess the performance of the segments. Underlying performance differs from the IFRS measures as it excludes Special Items.
Special Items
The definition of Special Items is shown in note 9 and has been consistently applied. These Special Items are either irregular, and therefore including them in the assessment of a segment's performance would lead to a distortion of trends, or are technical adjustments which ensure the Group's financial statements are in compliance with IFRS but do not reflect the operating performance of the segment in the year, or both. An example of the latter is the amortisation of acquired intangibles, which principally relates to acquired customer relationships. The Group incurs costs, which are recognised as an expense in the income statement, in maintaining these customer relationships. The Group considers that the exclusion of the amortisation charge on acquired intangibles from Underlying performance avoids the potential double counting of such costs and therefore excludes it as a Special Item from Underlying performance.
Special Items comprise:
2019 | 2018 | |
£m | £m | |
Special Items | ||
Acquisition costs | (9.2) | (0.5) |
Restructuring and site closure costs | (0.8) | (12.2) |
Foreign exchange gain on rights issue | 3.5 | - |
Amortisation of acquired intangibles | (8.7) | (16.4) |
Sale of businesses | - | 3.8 |
Sale of land | - | 16.4 |
Aborted bond costs | - | (1.7) |
UK Guaranteed Minimum Pension equalisation | - | (2.8) |
Operating loss | (15.2) | (13.4) |
Finance costs | ||
Fair value loss on unhedged interest derivatives | (0.5) | (1.4) |
Total Special Items | (15.7) | (14.8) |
The following items of income and expense have been reported as Special Items:
• Acquisition costs relate to the proposed acquisition of OMNOVA partly offset by a gain of £4.0m on a foreign exchange derivative entered into in July 2019 to hedge the acquisition price. The 2018 costs related to the BASF Pischelsdorf acquisition.
• Restructuring and site closure costs largely comprise a charge of £1.9m in relation to the reorganisation of the Group into global business segments. This is partly offset by a partial reversal of the provision recognised in 2018 for the closure of the natural rubber and polyester resins production lines as certain elements have been less expensive than originally estimated.
• Foreign exchange gain on rights issue represents a gain made on a forward contract which was entered into to swap the proceeds of the Sterling rights issue into Euro in order to pay down part of the Group's Euro borrowings.
• Amortisation of acquired intangibles decreased during the year as the customer-related intangibles from the 2011 PolymerLatex acquisition reached the end of their amortisation period in H1 2018.
• Sale of businesses in 2018 related to the disposal of the Leuna (Germany) site and the disposal of 51% of the Group's Dubai operations.
• Sale of land in 2018 related to the disposal of the final tranche of Malaysian land at Kluang.
• Ahead of the Group's 2018 refinancing, a process was undertaken to issue unsecured fixed rate senior notes. Despite a strong response from investors, the Group decided not to complete the transaction due to unfavourable market conditions.
• A £2.8m adjustment was booked in H2 2018 following the UK High Court's ruling on equalisation of male and female Guaranteed Minimum Pensions. This was treated as a pension plan amendment, unrelated to the Underlying performance of the Group.
• In July 2018 the Group entered into swap arrangements to fix Euro interest rates on the full value of the €440m committed unsecured revolving credit facility. The fair value of the unhedged interest rate derivatives relates to the mark to market of the swap at 31 December 2019 in excess of the Group's current borrowings
2. Segmental analysis
Following a review in 2018, a new Group structure was adopted with effect from 1 January 2019 to reflect the increasingly global nature of the Group's operations. The new structure enables Synthomer to better serve its customers, provide a global product offering and to drive operational efficiencies. The three new reportable segments are:
Performance Elastomers
Performance Elastomers is focused on healthcare, paper, carpet, compounds and foam markets through our Nitrile Butadiene Rubber latex (NBR) and Styrene Butadiene Rubber latex (SBR) products.
Functional Solutions
Functional Solutions is focused on coatings, construction, adhesives and technical textiles markets through our acrylic and vinylic water-based dispersions products.
Industrial Specialities
Industrial Specialities is focused on speciality chemical additives and non-water-based chemistry for a broad range of applications from polymer additives to emerging materials and technologies.
The Group's Executive Committee is the chief operating decision maker and primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA) to assess the performance of the operating segments. No information is provided to the Group's Executive Committee at the segment level concerning interest income, interest expense, income tax or other material non-cash items.
No single customer accounts for more than 10% of the Group's revenue.
A segmental analysis of Underlying performance and Special Items is shown below.
2019 | |||||
Performance Elastomers | Functional Solutions | Industrial Specialities | Unallocated corporate expenses | Total | |
£m | £m | £m | £m | £m | |
Revenue | 623.7 | 612.8 | 222.6 | - | 1,459.1 |
EBITDA | 96.3 | 69.9 | 24.8 | (13.1) | 177.9 |
Depreciation and amortisation | (24.8) | (17.6) | (8.8) | (0.9) | (52.1) |
Underlying operating profit | 71.5 | 52.3 | 16.0 | (14.0) | 125.8 |
Special Items | (0.3) | (4.3) | (4.7) | (5.9) | (15.2) |
Operating profit | 71.2 | 48.0 | 11.3 | (19.9) | 110.6 |
Finance costs2 | (10.1) | ||||
Profit before taxation | 100.5 |
2018 (restated)1 | |||||
Performance Elastomers | Functional Solutions | Industrial Specialities | Unallocated corporate expenses | Total | |
£m | £m | £m | £m | £m | |
Revenue | 704.5 | 680.1 | 234.3 | - | 1,618.9 |
EBITDA | 107.9 | 64.1 | 23.5 | (14.5) | 181.0 |
Depreciation and amortisation | (20.7) | (11.1) | (6.8) | (0.3) | (38.9) |
Underlying operating profit | 87.2 | 53.0 | 16.7 | (14.8) | 142.1 |
Special Items | (2.5) | (2.6) | (4.6) | (3.7) | (13.4) |
Operating profit | 84.7 | 50.4 | 12.1 | (18.5) | 128.7 |
Finance costs2 | (8.4) | ||||
Profit before taxation | 120.3 |
1 - Restated to reflect the new global organisational structure effective from 1 January 2019.
2 - Finance costs include £0.5m (2018: £1.4m) of fair value losses on unhedged interest derivatives which are treated as a Special Item.
3. Reconciliation of operating profit to cash generated from operations
2019 | 2018 | ||
£m | £m | ||
Operating profit | 110.6 | 128.7 | |
Less: share of profit of joint ventures | (0.9) | (0.4) | |
109.7 | 128.3 | ||
Adjustments for: | |||
Depreciation of property, plant and equipment | 43.4 | 37.8 | |
Depreciation of right of use assets | 7.3 | - | |
Amortisation of other intangible assets | 1.4 | 1.1 | |
Share-based payments | 0.6 | 1.5 | |
Special Items | 15.2 | 13.4 | |
Cash impact of restructuring and site closure | (4.4) | (3.3) | |
Cash impact of acquisition costs | (7.5) | (0.5) | |
Cash impact of foreign exchange gain on rights issue | 3.5 | - | |
Cash impact of aborted bond costs | - | (1.2) | |
Pension funding | (17.5) | (17.0) | |
Decrease/(increase) in inventories | 15.0 | (13.5) | |
Decrease/(increase) in trade and other receivables | 34.3 | (5.6) | |
Decrease in trade and other payables | (30.8) | (16.1) | |
Cash generated from operations | 170.2 | 124.9 | |
4. Dividends
2019 | 2018 | ||||
Pence per share | £m | Pence per share (restated) | £m | ||
Interim dividend | 4.0p | 17.0 | 3.7p | 13.6 | |
Proposed final dividend | 6.9p | 29.3 | 8.5p | 30.9 | |
10.9p | 46.3 | 12.2p | 44.5 |
The 2018 dividend per share figures have been restated to reflect the bonus factor of 1.0713 arising from the rightsissue which completed on 29 July 2019.
5. Earnings per share
2019 | 2018 (restated) | |||||||
Underlying performance | Special Items | IFRS | Underlying performance | Special Items | Total | |||
Earnings | ||||||||
Profit/(loss) attributable to equity holders of the parent | £m | 99.5 | (14.9) | 84.6 | 111.6 | (11.8) | 99.8 | |
Number of shares | ||||||||
Weighted average number of ordinary shares - basic | '000 | 393,349 | 363,977 | |||||
Weighted average number of ordinary shares - diluted | '000 | 395,458 | 365,914 | |||||
Earnings per share | ||||||||
Basic earnings per share | p | 25.3p | (3.8)p | 21.5p | 30.7p | (3.3)p | 27.4p | |
Diluted earnings per share | p | 25.2p | (3.8)p | 21.4p | 30.5p | (3.2)p | 27.3p |
The weighted average number of ordinary shares for year to 31 December 2018, used in the calculation of earnings per share, have been adjusted by multiplying by an adjustment factor of 1.0713 to reflect the bonus element in the shares issued under the terms of the rights issue which completed on 29 July 2019.
6. Finance costs
2019 | 2018 | |
£m | £m | |
Interest payable on bank loans and overdrafts | 6.7 | 4.9 |
Less: interest receivable | (0.9) | (1.1) |
5.8 | 3.8 | |
Net interest expense on defined benefit obligation | 2.7 | 3.2 |
Interest element of lease payments | 1.1 | - |
Net interest payable | 9.6 | 7.0 |
Fair value loss on unhedged interest derivatives | 0.5 | 1.4 |
Total finance costs | 10.1 | 8.4 |
The fair value of the unhedged derivatives relates to the mark-to-market of the swap arrangements at 31 December 2019 in excess of the current borrowings of the Group. This has been taken through Special Items as it is not reflective of the Underlying performance.
7. Analysisof net debt
2019 | 2018 | |
£m | £m | |
Current borrowings | ||
Bank overdrafts | - | (20.7) |
Bank loans - Unsecured €55m loan expiring 26 July 2019 | - | (49.4) |
- | (70.1) | |
Non-current borrowings | ||
Bank loans - €440m committed unsecured revolving credit facility expiring 23 July 2022 | (82.9) | (240.8) |
(82.9) | (240.8) | |
Total borrowings | (82.9) | (310.9) |
Cash and cash equivalents | 103.6 | 96.9 |
Net debt | 20.7 | (214.0) |
Net debt is defined in the glossary of terms in note 9.
8. Changes in accounting policies
The Group adopted IFRS 16 Leases with effect from 1 January 2019 but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.
A summary of the impact of the adoption of IFRS 16 is set out below:
2019 | |||
Amounts without adoption of IFRS 16 | IFRS 16 Impact | As reported | |
£m | £m | £m | |
Impact on the consolidated income statement: | |||
EBITDA | 170.0 | 7.9 | 177.9 |
Depreciation and amortisation | (44.8) | (7.3) | (52.1) |
Underlying operating profit | 125.2 | 0.6 | 125.8 |
Special Items | (15.2) | - | (15.2) |
Operating profit | 110.0 | 0.6 | 110.6 |
Finance costs | (9.0) | (1.1) | (10.1) |
Profit before taxation | 101.0 | (0.5) | 100.5 |
Taxation | (14.9) | - | (14.9) |
Profit for the year | 86.1 | (0.5) | 85.6 |
Impact on earnings per share: | |||
Basic | 21.6p | (0.1)p | 21.5p |
31 December 2019 | |||
Lease liabilities included in the balance sheet: | £m | ||
Current | 7.5 | ||
Non-current | 34.4 | ||
Total | 41.9 |
EBITDA | EBITDA is calculated as operating profit from continuing operations before depreciation, amortisation and Special Items. |
Operating profit | Operating profit represents profit from continuing activities before finance costs and taxation. |
Special Items | Special Items are irregular items, whose inclusion could lead to a distortion of trends, or technical adjustments which ensure the Group's financial statements are in compliance with IFRS, but do not reflect the operating performance of the segment in the year, or both. These include the following, inter alia, which are disclosed separately as Special Items in order to provide a clearer indication of the Group's Underlying performance: · Restructure and site closure costs; · Sale of a business of significant asset; · Acquisition costs; · Amortisation of acquired intangible assets; · Impairment of non-current assets; · Fair value adjustments in respect of derivative financial instruments where hedge accounting is not applied; · Items of income and expense that are considered material, either by their size and/or nature; · Tax impact of above items; and · Settlement of prior period tax issues. |
Underlying performance | This represents the statutory performance of the Group under IFRS, excluding Special Items. |
Free Cash Flow | The movement in net debt before financing activities, foreign exchange and the cash impact of Special Items, asset disposals and business combinations. |
Net debt | Net debt represents cash and cash equivalents less short- and long-term borrowings. |
Leverage | Net debt divided by EBITDA. The Group's financial covenants are calculated using the accounting standards adopted by the Group at 31 December 2018 and accordingly, leverage excludes the impact of IFRS 16 Leases. |
Ktes | Kilotonnes or 1,000 tonnes (metric). |
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
| London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply. |
| ©2014London Stock Exchange plc. All rights reserved |
Preliminary Results for the year ended 31 Dec 2019 - RNS
Attachments
- Original document
- Permalink
Disclaimer
Synthomer plc published this content on 05 March 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 March 2020 07:05:16 UTC
