Interim Results Presentation 6 August 2018 INTERIM RESULTS 6 - - PowerPoint PPT Presentation

INTERIM RESULTS 6 August 2018

6 August 2018

Interim Results Presentation

INTERIM RESULTS 6 August 2018

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.

2

Cautionary Statement

INTERIM RESULTS 6 August 2018

 Headlines  Financials  Underpinning Sustainable Growth  Summary and Outlook  Q&A

3

Agenda

INTERIM RESULTS 6 August 2018

 Underlying PBT up 6.4% to £76.2m – Europe & North America reports good volume growth, overcoming softer margins from US$ headwind – Asia & Rest of World shows strong volume and unit margin growth – Pischelsdorf latex acquisition completed and successfully integrated  Constant currency profit before tax up 4.3%  R&D delivering sustainable growth: new products represent circa 20% total sales* (2017: 20%)  Underlying earnings per share up 9.5% at 18.4p per share  Interim dividend of 4.0p (2017: 3.7p); increase of 8.1% in line with dividend policy  Strong and flexible balance sheet maintained – leverage 1.1x EBITDA

4

Geographic and product diversity supports sustainable growth

* Existing business: Synthomer Group at 31 December 2017

INTERIM RESULTS 6 August 2018 5

Financials

INTERIM RESULTS 6 August 2018

 Revenue growth driven by: – Higher volumes: principally Nitrile in ARW, foam and construction in ENA, plus Pischelsdorf Acquisition – Foreign Currency  Solid rise in PBT reflects: – Acquisition returns, synergy delivery in ENA – Organic growth of business, particularly in ARW – Foreign Currency translation gains partially offsetting transactional impact of weaker US$ on European US$ sales – Reduction in financing costs for pensions & borrowings

6

Underlying profit before tax up 6.4%

H1 2018 H1 2017 % Change % Change CC Volumes (Ktes) 796.6 730.2 9.1 9.1 Revenue (£m) 833.8 770.3 8.2 6.4 EBITDA (£m) 97.9 94.1 4.0 2.0 EBIT (£m) 79.4 76.5 3.8 1.8 PBT (£m) 76.2 71.6 6.4 4.3 EPS 18.4p 16.8p 9.5 D P S 4.0p 3.7p 8.1 * Existing business: Synthomer Group at 31 December 2017

71.6

+ 1.9 + 1.5 + 1.2

76.2

H1 2017 EXISTING BUSINESS FX ACQUISITION PISCHELSDORF H1 2018

Group PBT Bridge CY vs PY (GBP m)

40 60 80

INTERIM RESULTS 6 August 2018

 ENA 77.5% sales (2017: 77.0%), 74.1% EBIT (2017: 78.0%) – Good volume growth across the portfolio augmented by Pischelsdorf acquisition – Favourable translational currency impact of £1.0m offsetting c£5m US$ transactional sales impact  ARW 22.5% sales (2017: 23.0%), 25.9% EBIT (2017: 22.0%) – H1 2018 Nitrile margins firming as industry utilisation rises – Favourable translational currency impact of £0.5m

7

Robust performance across Group

H1 2018 H1 2017 % Change % Change CC ENA Volumes (Ktes) 594.0 550.7 7.9 7.9 Sales (£m) 646.0 593.2 8.9 7.0 EBITDA (£m) 76.1 75.2 1.2 (0.4) EBIT (£m) 64.4 64.3 0.2 (1.4) ARW Volumes (Ktes) 202.6 179.5 12.9 12.9 Sales (£m) 187.8 177.1 6.0 4.2 EBITDA (£m) 29.1 24.6 18.3 15.4 EBIT (£m) 22.5 18.1 24.3 21.5 * Existing business: Synthomer Group at 31 December 2017

64.3

• 2.2

+ 1.3 + 1.0

64.4

H1 2017 EXISTING BUSINESS ACQUISITION PISCHELSDORF FX H1 2018

ENA EBIT Bridge CY vs PY (GBP m)

20 40 60 80 18.1 + 3.9 + 0.5 22.5

H1 2017 EXISTING BUSINESS FX H1 2018

ARW EBIT Bridge CY vs PY (GBP m)

20 40

Includes £5m fx transaction cost

INTERIM RESULTS 6 August 2018

ENA: Solid performance in challenging market

 Volumes: – Volume growth in carpets, foam, construction, coatings  Unit margins: – Adversely impacted by transactional US$ invoicing in some markets c.£5m – Traded through persistently rising raw materials costs.  Costs: – Cost increases reflect inflation and raw material storage costs offset by PAC synergies  FX translation: – Favourable translational FX impact: H1 2018 £1:€1.14; H1 2017 £1:€1.16

8

64.3

+4.4

• 4.4
• 2.2

62.1

+1.0

63.1

+1.3

64.4

ENA BRIDGE CY vs PY (in GBP m)

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 H1 2017 VOLUME UNIT MARGIN COSTS 2018 @ 2017 FX 2018 EXCL ACQ ACQUISITION PICHELSDORF H1 2018

Includes £5m fx transaction cost

INTERIM RESULTS 6 August 2018

 Volumes – 12.9% higher – Nitrile volumes higher vs softer comparative, market continues to expand  Unit Margins: – Strengthening with improvement in Nitriles market utilisation  Cost: – Increase from inflation, bonuses, higher production levels and upscaling for capacity increase  FX translation: – Favourable FX impact: H1 2018 £1:MYR5.40, H1 2017 £1:MYR5.55

9

ARW: Strong performance in volume and unit margin

18.1

+5.4 +1.1

• 2.6

22.0

+0.5

22.5

H1 2017 VOLUME UNIT MARGIN COSTS 2018 @ 2017 FX H1 2018

ARW BRIDGE CY vs PY (in GBP m)

0.0 5.0 10.0 15.0 20.0 25.0 30.0

• 10%

0% 10% 20% 30% 40% 50% 200 400 600 800 1.000 1.200 1.400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018-Q2a

Growth (%) Volume (kwt)

Historical NBR Latex Consumption

Total Market Volume (kwt) Synthomer Volume (kwt) Total Market Growth (%) Synthomer Growth (%)

INTERIM RESULTS 6 August 2018

 Maintenance capex circa £25m pa  Rise in capex reflects growth capex including Dispersions expansion in Germany (£7m) and Roebuck, USA (£1m), and SBR expansion in Oulu, Finland (£1m)  Year end capex guidance unchanged at c.£60- 65m  Working capital remains at circa 10% of revenue  Investment in working capital on higher volumes and raw material price volatility – some investment possible for the full year.  Cash tax increase due to acquisitions and the timing of settlement of tax liabilities

10

Robust EBITDA performance underpins cashflows

£m H1 2018 H1 2017 Underlying EBIT (excluding joint ventures) 79.1 75.8 Depreciation 18.5 17.6 Underlying EBITDA (excluding joint ventures) 97.6 93.4 Capital expenditure (28.5) (17.2) Movement in working capital (52.4) (55.7) Cash Interest (1.9) (2.5) Tax (12.5) (11.6) Pension payments (8.3) (7.8) Other (3.8) (1.3) Business cash flow (9.8) (2.7)

INTERIM RESULTS 6 August 2018

 Refinancing 12 months from expiry of current RCF, in line with normal practice  New €440m RCF agreed July 2018 – 4 years  Expanded bank group  Reduced ratchet margin by 30bps, retained no Euribor floor, eliminated interest covenant  Fixed interest rate on €275m core borrowings  Retain option of Bond market if market moves favourably – OM, Description of Notes, Covenants, Rating, Credit story etc all beneficial for debut issuance

11

Group refinancing completed H1 2018

INTERIM RESULTS 6 August 2018

 Pischelsdorf acquisition £25.8m completed on 31 January 2018  Substantial available liquidity  Low net debt: EBITDA  Scope for future M&A opportunities

12

Group well positioned for both organic and inorganic growth

£m H1 2018 H1 2017 Cash 98.4 147.9 Borrowings (292.5) (372.2) Net debt (194.1) (224.3) Cash headroom 225.0 145.7 Net debt:EBITDA 1.1 1.3

INTERIM RESULTS 6 August 2018

 Seasonality – H1/H2 split continues to be circa 55%/45%  FX rates  Tax rate: – Full year rate ETR estimated at 18% (2017: 19%), broadly aligned with cash tax rate – Likely rising trajectory unchanged - Base Erosion and Profit Shifting (“BEPS”) legislation, Malaysia pioneer status  Pensions recap: – Pension deficit decrease from £157m at December 2017 to £125m at June 2018 – mainly driven by increased discount rates in UK from 2.5% to 2.8% – UK 2018 payment in line with prior year  Malaysian land sale – Final tranche sold – proceeds £16.6m, net share after tax £11.6m

13

Technical Guidance

H1 2017 Ave H2 2017 Ave H1 2018 Ave 30 June 2018 € 1.16 1.14 1.14 1.13 $ 1.27 1.30 1.37 1.32 MYR 5.55 5.56 5.40 5.33

INTERIM RESULTS 6 August 2018

Strategy driving sustainable growth

14

M&A Organic

Strategy generating stable, consistent, and growing Free Cash Flow

Research and development and technical expertise to exploit new markets 1 Efficiency and excellence through operations 2 Capacity utilisation 3 4 6 5 Investment in capacity Bolt-on acquisitions Transformational transactions

 Strong track record of anticipating market trends and customer requirements to deliver improved and differentiated products  R&D delivering sustainable growth; new products represent 20% of sales  Driving profitability through maximum utilisation of assets  Good progress to address production bottlenecks and find innovative solutions  Delivered further improvements acrossour operations  Best practice being shared more widely throughout the business  Improved commercial, HR, IT and procurement functions  BASF Pischelsdorf completed in January  Continue to actively seek opportunistic bolt-on M&A  Investment programme to increase capacity across the network on track  Transformational acquisitions not limited by geography or chemistry  Growth, stable EBITDA margins, R&D are some of the target criteria

INTERIM RESULTS 6 August 2018 15

SHE and Manufacturing Excellence

Our Manufacturing Excellence Programme is improving performance by implementation of best in class practices

1.32 1.04 0.70 0.51 0.55 0.30 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Injuries per 100,000 hours Recordable Injury Case Rates

Investment in Strategic Sites Safety, Health and Environmental Manufacturing Excellence

Source: Company information; (1) Infrastructure in place for further 60kte expansion. (2) Excluding acquisitions. Largest manufacturer in global customer centre

• f Malaysia operating the

largest and most competitive assets in the world

36kte expansion

High capability plant to become the largest plant in Europe for complex speciality acrylics Phased debottlenecking and expansion of unique process operating some of thelargest batch reactors in industry Pasir Gudang, MY

90kte expansion(1)

Worms, Germany Marl, Germany

90%

FY14A FY15A FY16A FY17A FY18F FY20P HSSBR Production Output (kte) 0.13 2011 2012 2013 2014 2015 2016 2017 FY14A FY15A FY16A FY17A EU Plant Polymer Production Costs (€m)(2)

INTERIM RESULTS 6 August 2018

Styrene Butadiene Rubber (“SBR”) Nitrile Butadiene Rubber (“NBR”) ▪

Market leading position: #1 producer in Europe

▪

FY 2017 Revenue: £459m (31% of Group)

▪

Key product areas: Coated paper, packaging, bindings for carpets, foams for mattresses, pillows and shoes

▪

No.2 producer globally: Leading position in the disposable nitrile gloves market

▪

FY 2017 Revenue: £236m (16% of Group)

▪

Key products: Medical gloves, medical devices and dipped latex products

Dispersions Specialities ▪

Market leading position: #1 producer in Europe, Middle East and Malaysia

▪

FY 2017 Revenue: £384m (26% of Group)

▪

Key product areas: Cement modifications, primers, flooring adhesives, emulsions and specialist paints

▪

Leading positions in selected niche specialities markets globally

▪

FY 2017 Revenue: £401m (27% of Group)

▪

Key product areas: PVC additives, polyester resins for powder coatings, coatings and polymer modifiers

Market Leading Positions

16

INTERIM RESULTS 6 August 2018

Styrene Butadiene Rubber (SBR) Nitrile Butadiene Rubber (NBR) Dispersions Specialities

17

Blue chip customer base with long term established relationships and high barriers to entry

Synthomer benefits from a blue chip customer base

4,000+ customers 1.9%

• f Sales = Largest

18.6%

• f Sales = Top20

15 average length ofrelationship

Source: Company information.

INTERIM RESULTS 6 August 2018 18

R&D delivering impressive track record and pipeline

Always Developing

(1) during FY17A; (2) over the last 5 years.

New products (% of sales)

16% 18% 20% 20% FY14A FY15A FY16A FY17A

Always Innovating

20% of sales generated from products

launched in the last 5 years

£18m

• f R&D

Investment(1)

15

Product launches(1)

20

Patent fillings(2)

186

R&D employees

4

Technical centres globally

13

Active university collaborations

INTERIM RESULTS 6 August 2018 19

Cash conversion underpinned by low capex

Resilient EBITDA and low maintenance capex Cash flow generation pre and post growth capex(1)

118 125 160 176 50 100 150 200 FY14A FY16A FY17A

EBITDA(£m)

68% 66% 39% 29% 32% 34% 61% 71% 22 23 46 60 20 40 60 FY14A FY17A FY15A

Capex (£m)

FY15A Maintenance FY16A Growth

Strong cash flow generation and profitability

Source: Company information, Annual reports; (1) FCF conversion defined as FCF (excluding working capital movements) over EBITDA.

51% 58% 48% 39% 57% 64% 65% 63% FY14A FY15A FCF conversion post growth capex FY16A FY17A FCF conversion pre growth capex

INTERIM RESULTS 6 August 2018 20

Conservative capital policy well established including disciplined approach to acquisitions

Source: Company information.

Capital management strategy; Balance sheet, Dividend and Capital Management policy

• Not to move structurally below

1x EBITDA

• Not to exceed 2x EBITDA fora

sustained period

• Maximum 3x for large acquisitionwith

deleveraging within 12-24 months

• Drive M&Aactivity
• Bolt-on/Adjacent Chemistry
• New Geographies
• New Technology
• Consolidation
• Capital Expenditure for growth

projects

• Capex hurdle rate is paybackless

than 5 years or 12% IRR

• Ordinary dividend cover 2.5x

Underlying Earnings per Share

• Periodic assessment of balance

sheet strength and investment

• pportunities
• Consider one off returns, asdeemed

appropriate, to maintain balance sheet policy position to not be structurally below 1.0x EBITDA Balance Sheet Investment Opportunities Shareholder Returns

Maintain efficient and flexible capital structure over longer term

Building Growth Momentum

INTERIM RESULTS 6 August 2018

Summary and outlook

 Growth a combination of organic and from recent acquisition  Robust performance underpinned by geographic and product diversity  Capital investment into high return growth projects well underway  Balance sheet remains strong and flexible  ENA resilient in the face of currency and raw material headwinds  ARW market primed for capacity growth  Continue to manage volatile raw material environment  Capital investment projects expected to yield Underlying PBT growth in 2019  Continued focus on M&A opportunities  Board’s expectations for 2018 unchanged

21

FY Outlook Key messages

INTERIM RESULTS 6 August 2018

Appendix

INTERIM RESULTS 6 August 2018

 Devaluation of USD between in H1 2017 and H1 2018 had significant impact on earnings, in particular in ENA.  Constant currency 2017 rates basis for Constant Currency consensus  Currency profit impact: – €0.01 change = +/- £0.5m per annum – $0.01 change = +/- £0.9m per annum

23

Currency sensitivities

H1 2017 Ave H2 2017 Ave H1 2018 Ave 30 June 2018 € 1.16 1.14 1.14 1.13 $ 1.27 1.30 1.37 1.32 MYR 5.55 5.56 5.40 5.33