Foundations for growth Synthomer plc Interim Results Presentation - - PowerPoint PPT Presentation

INTERIM RESULTS 6 August 2019

Foundations for growth

6 August 2019

Synthomer plc Interim Results Presentation

INTERIM RESULTS 6 August 2019

Agenda

 Highlights  Financials  OMNOVA update  Summary  Q&A

2

INTERIM RESULTS 6 August 2019

Cautionary Statement

This review is intended to focus on matters which are relevant to the interests of shareholders in the Company. The purpose of the review is to assist shareholders in assessing the strategies adopted and performance delivered by the Company and the potential for those strategies to succeed. It should not be relied upon by any

• ther party or for any other purpose. Forward looking statements are made in good faith, based on a number of

assumptions concerning future events and information available to the Directors at the time of their approval of this report. These forward looking statements should be treated with caution due to the inherent uncertainties underlying such forward looking information. The user of this review should not rely unduly on these forward looking statements, which are not a guarantee of performance and which are subject to a number of uncertainties and other facts, many of which are outside the Company’s control and could cause actual events to differ materially from those in these statements. No guarantee can be given of future results, levels of activity, performance or achievements.

3

INTERIM RESULTS 6 August 2019

Challenging H1 2019, full year outlook unchanged

 Underlying operating profit 5.9% lower at £74.7m vs strong H1 2018: – Performance Elastomers benefitted from continued growth in NBR Latex offset by weaker demand and lower margins in SBR Latex – Functional Solutions experienced softer volumes but stronger unit margins versus a strong H1 2018 comparative – Industrial Specialities after a slow start to the year saw an improving trend through H1 2019  Strong R&D: new products represent c. 21% of total sales volumes (2018: 20%)  Underlying profit before tax £70.2m  Effective tax rate reduced to 14.0% (H1 2018: 18.0%)  Underlying earnings per share down 3.5% at 16.5p per share*  Interim dividend 4.0p per share reflecting an 8.1% increase*  Net debt £209.2m (31 December 2018: £214.0m) and leverage unchanged at 1.2x (31 December 2018: 1.2x)  Full year outlook unchanged – Incremental benefits of additional 90ktes NBR capacity – Commissioned 48ktes of capacity in Functional Solutions in Germany and USA  Strategic acquisition of OMNOVA Solutions for £654m announced on 3 July

4 * Reflecting the adjustment to the number of shares following the rights issue

INTERIM RESULTS 6 August 2019

Financials

5

INTERIM RESULTS 6 August 2019

Underlying operating profit 5.9% lower at £74.7m

 Volumes 5.7% lower at 750.8ktes: – Slower start to the year, with the exception of NBR – Sale of Dubai and closure of natural rubber and polyester resins production lines – Challenging SBR market, including customer credit risk  Revenue 8.5% lower at £762.7m: – Reduction in volumes – Softer raw material prices  Operating profit 5.9% lower at £74.7m: – Impact of Dubai sale £0.4m  Effective tax rate lower at 14% (2018: 18%): – Impact of geographic mix – Prior year items – deferred tax  Earnings per share 3.5% lower at 16.5p*  Dividend per share 8.1% higher at 4.0p*

6

H1 2019 H1 2018 % Change % Constant FX Volumes (ktes) 750.8 796.6 (5.7) Revenue (£m) 762.7 833.8 (8.5) (8.6) EBITDA (£m) 99.7 97.9 1.8 1.6 Operating profit (£m) 74.7 79.4 (5.9) (6.2) PBT (£m) 70.2 76.2 (7.9) (8.1) EPS* 16.5p 17.1p (3.5) DPS* 4.0p 3.7p 8.1

* Reflecting the adjustment to the number of shares following the rights issue

79.4

• 0.4

+ 0.3

• 4.8

+ 0.2

74.7

Group Operating Profit Bridge CY vs PY (GBP m)

10 20 30 40 50 60 70 80 90

H1 2018 DUBAI DISPOSAL IFRS 16 IMPACT EXISTING BUSINESS FX H1 2019

INTERIM RESULTS 6 August 2019

PE: Robust results in challenging market conditions

 Volumes 4.2% lower at 425.7ktes: – Weaker demand in European SBR including customer credit risk, closure of natural rubber production line – Stronger demand in NBR, gradual utilisation of 90ktes of JOB 5 capacity  Unit margins: – Softer SBR margins – Firmer NBR margins, reflecting transactional FX benefit  Costs: – Reduction in costs consistent with closure of natural rubber production line (£0.3m) – Depreciation charge in relation to JOB 5 – Tight control of production and overhead costs

7

43.2

+1.5

• 4.6

+0.6

40.7

+0.3

41.0

PERFORMANCE ELASTOMERS OPERATING PROFIT BRIDGE (in GBP m) CY vs PY

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 H1 2018 VOLUME UNIT MARGIN COSTS 2019 @ 2018 FX H1 2019

INTERIM RESULTS 6 August 2019

FS: Slower start offset by stronger margins

 Volumes 5.0%* lower at 258.4ktes: – Sale of 51% of Dubai operations, closure of polyester resins production line – Slower start across all end use markets – exception being oil & gas  Unit margins: – Improvement in unit margins across most end markets – construction, coatings, adhesives and

• il & gas

 Costs: – Reduction in costs consistent with sale of Dubai

• perations (£1.1m) and closure of polyester

resins production line (£0.5m) – Tight control of production and overhead costs

8

Source: Company

*Excluding prior year volumes relating to the sale of 51% of Dubai operations in June 2018 and the closure of polyester resins production line in Q4 2018

33.1

• 6.2

+2.4 +1.6

30.9

• 0.1

30.8

FUNCTIONAL SOLUTIONS OPERATING PROFIT BRIDGE (in GBP m) CY vs PY

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 H1 2018 VOLUME UNIT MARGIN COSTS 2019 @ 2018 FX H1 2019

INTERIM RESULTS 6 August 2019

IS: Demand firming during Q2

9

 Volumes 2.8% lower at 66.7ktes: – Lower Q1 demand, improving in Q2 – Softer in Speciality Additives and Lithene – modest automotive exposure  Unit margins: – Resilient unit margins in specialist businesses, favourable product mix  Costs: – Tight control of production and overhead costs

10.6

• 1.4

+0.4 +1.0

10.6

+0.0

10.6

INDUSTRIAL SPECIALITIES OPERATING PROFIT BRIDGE (in GBP m) CY vs PY

0.0 2.0 4.0 6.0 8.0 10.0 12.0 H1 2018 VOLUME UNIT MARGIN COSTS 2019 @ 2018 FX H1 2019

INTERIM RESULTS 6 August 2019

Consistent seasonality in cash flows

10

£m H1 2019 H1 2018 Underlying operating profit 74.7 79.4 JVs (0.6) (0.3) Underlying operating profit (excluding joint ventures) 74.1 79.1 Depreciation and amortisation 21.3 18.5 IFRS 16 depreciation 3.7

• Underlying EBITDA (excluding joint ventures)

99.1 97.6 Working capital (41.4) (52.4) Capital expenditure (28.4) (28.5) Principal element of lease payments (3.4)

• Interest

(3.3) (1.9) Interest element of lease payments (0.6)

• Tax

(7.3) (12.5) Pensions (8.5) (8.3) Other 0.2 (3.8) Underlying operating cash flow 6.4 (9.8)  Depreciation and amortisation: – Rising in line with recent capex investment – Mainly related to Pasir Gudang JOB 5  Working Capital: – Investment reflecting seasonality of business – Remains at circa 10% of sales – Some investment in inventory – preferentially priced deep sea cargoes & shut down  Capital expenditure: – Broadly in line with prior year – Worms, Roebuck, JOB 6, AIC  IFRS 16 leases: – Components separately analysed – No change in underlying cash flows  Tax: – Lower payments on account / phasing of payments  Pensions: – No changes, principally relating to closed UK defined benefit pension scheme deficit recovery payments ~ £15m pa

INTERIM RESULTS 6 August 2019

Balance sheet strength and flexibility

11 £m H1 2019 H1 2018 Cash and cash equivalents 98.7 98.4 Overdrafts in current borrowings (3.6) (2.3) Net cash 95.1 96.1 Loans in current borrowings (49.3)

• Loans in non-current borrowings

(255.0) (290.2) Net debt (209.2) (194.1) Facilities cash headroom 137.3 128.1 Total cash headroom 232.4 224.2 Net debt/EBITDA 1.2x 1.1x

 Substantial headroom: – Existing facilities – remain in place until OMNOVA acquisition – New facilities – commence on completion of OMNOVA acquisition  Euribor fix at 0.5% to 2025  Deal contingent hedging in place to fix € : $ FX rate  Interim dividend maintained at 4.0p per share – Equivalent to 8.1% increase post rights issue bonus factor – Dividend policy maintained at 2.5x cover based on Underlying EPS

Existing New RCF €440m(1) €460m(3) Term loan

• $260m(3)

Bilateral €55m(2)

• Bond bridge facility
• €520m

Equity bridge facility

• £200m

1. 4 year committed unsecured to 2022 2. 12 months committed unsecured 2019 3. 5 year committed unsecured to 2024

INTERIM RESULTS 6 August 2019

Technical guidance – excluding impact of acquisition

 FX translation sensitivity to €, $ and MYR (indicative) – €0.01 = £0.5m, $0.01 = £0.1m, MYR0.01 = £0.1m  FX transactional sensitivity to $ (indicative) – Europe exposure to $: €1:$1.13  €1:$1.12 ~ €0.6m – Malaysia exposure to $: MYR1:$0.243  MYR1:$0.253 ~ MYR14m  Underlying effective tax rate – 2019 ETR reduced to 14% - geographic profit mix, prior year items – Looking forward Underlying ETR expected to gradually rise to long term sustainable rate of circa 22%, impacted by: – European Business Model – Likely cessation of Malaysian Pioneer Status – Recognition of prior year items  UK pensions recap – April 2018 triennial valuation complete – Allowance made for GMP equalisation – Positively no change in deficit recovery plan expected = pension payroll +£2m = 2019/2020 circa £16m  Capital expenditure – Capital expenditure to support organic growth momentum – Expected to be £75m 2019, including £25m of sustenance capex  Guidance will be updated following completion of acquisition

12

INTERIM RESULTS 6 August 2019

Foundations for Growth

13

INTERIM RESULTS 6 August 2019

OMNOVA 2018 Financials

• $769.8m Revenue(1)
• $86.3m EBITDA(2)

Terms & Valuation

• All cash acquisition at $10.15 per OMNOVA share
• Represents $824m (approx. £654m(3)) Enterprise Value

‒ 9.9x OMNOVA’s May 2019 LTM Adj. EBITDA(4) ‒ 9.6x OMNOVA’s 2018 EBITDA(2) ‒ Target $29.6m annual run-rate pre-tax cost synergies Financing

• Fully underwritten rights issue

‒ Gross proceeds of £204m (approx. $257m(3))

• Drawings under new bridge and syndicated debt facilities
• Leverage of approx. 2.5x net debt/EBITDA(5) expected at completion
• Targeting deleveraging to below 2.0x by end of 2021(6)

Timing

• Transaction expected to complete in Q4 2019 subject to competition clearance
• Subject to approval by OMNOVA shareholders, regulatory approvals and customary closing

conditions

14

OMNOVA transaction

Note: 1. Source: OMNOVA 2018 10-K and related investor presentation 2. OMNOVA announced 2018 Adj. EBITDA. Source: OMNOVA Q4 2018 Earnings Release 3. £/$ exchange rate of 1.2595 as at 2 July 2019 4. Based on OMNOVA announced May 2019 LTM Adj. EBITDA of $73.5m plus: pre-acquisition results of Resiquimica (relating to the period from 1 Jun 2018 to 25 Sep 2018, when Resiquimica was acquired by Omen) of $0.9m, pre-tax cost synergies of Resiquimica acquisition (as previously announced by OMNOVA) of $1.1m not yet achieved and pre-tax cost savings of Green Bay disposal (as previously announced by OMNOVA) of $7.7m 5. Based on estimated net debt following a hypothetical completion date of October 2019 and completion of Rights Issue and the acquisition. Estimated EBITDA for the Enlarged Group is based on OMNOVA’s May 2019 LTM Adj. EBITDA (see footnote 4), Spirit 2018 EBITDA and estimated 50% of run-rate pre-tax cost synergies for the acquisition. The estimated net debt is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will occur on that date 6. End of the second full financial year following a hypothetical completion date of October 2019. The estimated leverage is a forward looking statement and an estimate at a hypothetical date. There can be no assurance that completion will occur on that date

INTERIM RESULTS 6 August 2019

• 2018 Revenue $769.8m(1) and EBITDA $86.3m(1)
• Performance-enhancing chemicals for broad range of end-sectors
• Significant global positions across two segments: Specialty Solutions and Performance Materials
• HQ in Ohio, US; 13 manufacturing sites across North America, Europe and Asia
• c.1,900 employees

15

OMNOVA snapshot

Oil & Gas Laminates & Films Speciality Solutions Performance Materials Paper and Carpet Performance Additives Coated Fabrics Business Line Overview Specialty Coatings & Ingredients(4)

Note: OMNOVA financial year end as at 30 November 2018 1. EBITDA defined as OMNOVA’s announced 2018 Adj. EBITDA. Source: OMNOVA 2018 10-K and OMNOVA Q4 2018 Earnings Release 2. Based on Synthomer 2018 reported revenue 3. Based on OMNOVA 2018 reported revenue and £/$ average exchange rate for FY2018 of 1.3410. Source: Omen 2018 10-K 4. Includes C.A.ST and Elastomers activities of OMNOVA 19% 58% 23%

• N. America

Europe Asia & RoW 5% 71% 24%

• N. America

Europe Asia & RoW 58% 21% 20%

• N. America

Europe Asia & RoW

OMNOVA(3)

Revenue by Geography

Synthomer(2)

£0.6bn £1.6bn

Synthomer+ OMNOVA(2,3)

£2.2bn

INTERIM RESULTS 6 August 2019 16

Strong strategic fit

OMNOVA Key Activities

C.A.ST(3) Oil & Gas Elastomers Performance Additives Paper and Carpet Laminates & Films Coated Fabrics

1. Nitrile Butadiene Rubber 2. Styrene Butadiene Rubber 3. Coatings, Adhesives & Sealants and Surface Treatment

Synthomer Key Activities

Functional Solutions

• Aqueous (acrylic & vinylic

based) dispersions Industrial Specialities Performance Elastomers

• NBR(1) latex
• SBR(2) latex
• High solids SBR
• Speciality chemical additives
• Non-aqueous based chemistry
• Attractive positions in niche

segments of construction, transport & other sectors

• Speciality coatings
• Construction
• Adhesives & sealants
• Textiles
• Oilfield
• Additives
• Additives for gloves
• Coatings for speciality paper and

packaging

• Compounds and carpet

INTERIM RESULTS 6 August 2019

Summary

17

 Weaker Q1 impacts H1 2019 but improving Q2 trend underpins confidence – Strong R&D – Dividend of 4.0p per share  Full year outlook unchanged – Incremental benefits of additional 90ktes NBR capacity – Commissioned 48ktes of capacity in Functional Solutions in Germany and USA  Step change acquisition of OMNOVA – Highly complementary products, markets, assets – Significant synergy opportunities – Integration plans taking shape – Conservative financial structure, low leverage and strict adherence to capital policy