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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Synthomer Plc | LSE:SYNT | London | Ordinary Share | GB00BNTVWJ75 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 3.50 | 1.51% | 235.50 | 236.50 | 239.00 | 240.00 | 228.50 | 230.00 | 153,518 | 16:35:11 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Chemicals & Chem Preps, Nec | 2.02B | -67M | -0.4096 | -5.83 | 390.93M |
From Apr 2019 to Apr 2024
TIDMSYNT
RNS Number : 3385V
Synthomer PLC
06 August 2020
6 August 2020
Synthomer plc
Interim Results for the six months ended 30 June 2020
Diversity and differentiation underpin robust H1 performance; FY 2020 guidance reinstated
Hot Features
Premium
HIGHLIGHTS Constant
H1 2020 H1 2019 Reported currency(2)
-------- -------- --------- -------------
Underlying performance GBPm GBPm % %
(1)
Revenue 733.7 762.7 (3.8) (4.0)
-------- -------- --------- -------------
Volumes (ktes) 762.4 750.8 1.5
-------- -------- ---------
EBITDA
Performance Elastomers 47.6 53.5 (11.0) (10.8)
Functional Solutions 46.4 38.9 19.3 19.0
Industrial Specialities 14.6 12.8 14.1 14.1
Acrylate Monomers (0.5) 1.8 (127.8) (127.8)
Unallocated (7.9) (7.3) (8.2) (8.2)
EBITDA 100.2 99.7 0.5 0.5
Depreciation (31.6) (25.0) 26.4 26.4
-------- -------- --------- -------------
Operating profit (EBIT) 68.6 74.7 (8.2) (8.0)
-------- -------- --------- -------------
Finance costs (10.2) (4.5) 126.7 128.9
Profit before tax 58.4 70.2 (16.8) (16.8)
-------- -------- --------- -------------
Free Cash Flow(3) 56.2 11.6 384.5
EPS (p)(4) 10.8 16.5 (34.5)
IFRS performance
Operating profit 14.8 64.1 (76.9)
(Loss)/profit before tax (4.7) 56.6 (108.3)
EPS (p)(4) (3.1) 13.0 (123.8)
1. Underlying performance excludes Special Items, unless otherwise stated.
2. Constant currency revenue and profit retranslate current year results for heritage Synthomer using the prior year's average exchange rates. Results from businesses acquired in the year are not retranslated.
3. 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.
4. Prior year comparative adjusted for bonus factor 1.0713 relating to the rights issue in July 2019.
H1 Highlights
No material disruption to operations through COVID-19 pandemic with chemical sector largely designated as essential industry
- All sites operated in line with local safety requirements - Global network of 38 sites operated effectively during Q2
H1 2020 EBITDA GBP100.2 million in-line with H1 2019 (GBP99.7 million):
- Robust heritage Synthomer H1 2020 EBITDA GBP92.3 million, 7% below comparative H1 2019 EBITDA of GBP99.7 million; OMNOVA Q2 EBITDA GBP7.9 million
- Heritage Synthomer H1 2020 volumes 699kt, 7% below comparative, but strong rebound in June 2020 with volumes flat on June 2019; OMNOVA Q2 volumes 64kt
- Underlying profit before tax GBP58.4 million (2019: GBP70.2 million), IFRS loss before tax GBP4.7 million (2019: profit before tax GBP56.6 million) after Special Items of GBP63.1 million. The Special Items are described in the Chief Executive Officer's review.
Strong balance sheet supported by H1 free cash flow of GBP56.2 million:
- Post-acquisition net debt reduced to GBP575.5 million with proforma leverage steady at 2.5x (reported covenant leverage 2.8x)
- Significant liquidity at circa GBP500 million
- 5 year unsecured high yield bond issued at 3.875% providing committed long-term capital structure and eliminating bridge refinancing risk
OMNOVA integration ahead of schedule and synergy target increased to $40 million:
- Now expect $20 million run rate end of 2020 (increased from $15 million) - $40 million run rate by end of 2022 (increased from $30 million)
Strategic review of European SBR network reaching conclusion
- Intention to initiate consultations with employees at both Oulu (Finland) and Marl (Germany)
Actions taken on cost and cash preservation
- Enlarged group proforma capital expenditure reduced from GBP90 million in 2019 to GBP50 million in 2020
- Fixed cost reduction programme and salary freeze (2020) for Board and Executive Team - 2019 final dividend suspended at onset of COVID-19 and no 2020 interim dividend
2020 guidance reinstated and expect to pay 2020 final dividend
- Assuming demand recovery continues, H2 2020 expected to return to more normalised Group EBITDA levels
- Expect FY 2020 EBITDA to be broadly in-line with current market consensus* - Expect to pay FY 2020 final dividend
* FY 2020 EBITDA consensus: GBP211.3 million (source Teneo)
Commenting on the results, Neil Johnson, Chairman, said:
"Geographic and end market diversity and product differentiation have underpinned Synthomer's resilient performance with our half year EBITDA in line with last year. Delivering these results whilst also making strong strategic progress is testament to the commitment, dedication and sheer hard work of our employees, and I would like to thank them all for their great contribution in these unprecedented times.
OMNOVA has been swiftly integrated leading to a significant increase in our synergy forecast and we have also progressed the strategic review of our European SBR network and have now announced our intention to initiate consultations with employees in Oulu (Finland) and Marl (Germany). We have also taken prudent actions to protect liquidity whilst further strengthening our balance sheet.
We are encouraged by much improved trading in June and July and accordingly we have reinstated guidance and, subject to continued progress, expect to pay a 2020 final dividend."
Further information:
Calum MacLean, Chief Executive Officer Tel: 01279 436211
Stephen Bennett, Chief Financial Officer
Tim Hughes, President, Corporate Development
Charles Armitstead/ Matt Denham, Teneo Tel: 07703 330 269 / 07825
735596
The Company will host an audiocast for analysts and investors at 09.00 today. To participate please register at www.synthomer.com , please visit the Investor Relations homepage and click on the webcast link provided to register.
Chief Executive Officer's review
A resilient performance in challenging conditions
Managing our business through the COVID-19 pandemic has been a significant challenge for all our stakeholders. The chemical sector has been largely designated as an essential industry in the geographies in which we operate and therefore our 38-site global network has operated largely as normal. No significant issues have been experienced to date with regards to raw material supply, the distribution of finished goods or the availability of operating personnel. With safety our priority we have managed all our sites in line with local safety requirements and I would like to thank the dedication, hard work and flexibility of our employees to maintain our supply chains in often very challenging circumstances.
Benefitting from the Group's broad geographic and end market diversity, the heritage Synthomer business experienced a good Q1 2020 with EBITDA 5% ahead of prior year and was largely unimpacted by COVID-19. The impact of the pandemic on demand was felt in Q2 across the enlarged Group. April and May volumes were lower than the comparative period by approximately 20% with June returning to more normal levels in line with the prior year. Demand for Nitrile latex, non wovens and adhesives continued to be strong as a result of COVID-19 but sales into industrial markets including automotive, graphic paper, carpet and the oil and gas sector were impacted more significantly.
Creation of a global differentiated chemical company
We completed the GBP654 million acquisition of OMNOVA, a US listed speciality chemical company, on 1 April 2020. The transaction creates a global differentiated chemical company with significant scale and a robust platform from which to invest and drive its sustainable growth strategy. Synthomer is now a global leader in water-based polymer solutions with greater customer reach, improved market position, strong operational capabilities and superior innovation platform.
Since the completion of the transaction we have made strong progress with the integration of this highly complementary synergistic acquisition. We have now completed the cut and carve of the OMNOVA business into our Functional Solutions, Performance Elastomers and Industrial Specialities divisions of Synthomer. The integration of the acquisition is now expected to result in recurring pre-tax cost synergies of $40 million and we are on track to deliver $20 million of run rate synergies by the end of 2020. This not only reflects a significant increase to the total synergies set out in our investment case of $29.6 million, but also accelerates the timing of the anticipated delivery. Synthomer will continue to utilise its proven best practice processes to improve productivity, reduce costs and accelerate revenue synergy opportunities across the enlarged Group.
Strategic review of SBR business reaching conclusion
The strategic review of our European SBR network was announced in Q4 2019 to address lower plant utilisation rates across our SBR assets resulting from slower economic activity and ongoing weaker demand for coated graphic paper. Following this review, the Company has announced its intention to enter into consultation processes with employees in Oulu (Finland) concerning future options for the site, and with employee representative bodies in Marl (Germany) to consider future capacity requirements for the paper and carpet markets. In parallel the Company is in the early stages of evaluating the prospects for additional NBR latex capacity at its existing facilities in Europe following the increased demand for Nitriles gloves as a result of the COVID-19 pandemic.
Synthomer remains committed to the SBR markets in Europe and is working to ensure its assets continue to remain viable in a highly competitive market. The consultation periods are anticipated to conclude in the next few months after which the outcomes will be announced.
Separation of Acrylate Monomers
As set out in the Q1 2020 interim results, following a change in the management structure and reporting lines to provide greater management focus, we have separated the reporting of our Acrylate Monomers business from our Industrial Specialities division. Operating from a single manufacturing site in Sokolov (Czech Republic), the business supplies the Group's European Functional Solutions and external customer monomer demand. A transformation programme has been announced on this site to reduce costs, drive manpower efficiencies and to close the site's coal-based power station. This action will end the use of coal for power generation across the enlarged Synthomer group and allow a material improvement in our carbon footprint. The Group remains committed to the production of the full product range at the Sokolov site and to the supply of product to meet internal and external demand.
Prudent actions to preserve balance sheet strength and liquidity
In light of the uncertainty created by COVID-19, Synthomer has taken a number of prudent and proactive actions to preserve the strength of the balance sheet, reduce capital expenditure and position the cost base of the enlarged Group to allow it to deliver its long term growth strategy. Whilst these decisions were not taken lightly, we have been resolutely focussed on maintaining our balance sheet strength and protecting our significant liquidity and leverage covenant headroom.
Our actions included a senior management and executive pay freeze, suspending our 2019 final dividend and not paying a 2020 interim dividend, preserving approximately GBP47 million of capital and cash for the Group, and reducing our ongoing capital expenditure to approximately GBP50 million for the full year 2020, some GBP40 million lower than the proforma combined spend of the Synthomer and OMNOVA heritage businesses in 2019.
Our investment in growth capital expenditure during 2017-2019 has now brought on stream additional low-cost capacity at our Asian and European plants. This investment provides a catalyst for ongoing growth, the delivery of improved profits, notably in our Asian Nitrile latex business, and has allowed us to reduce capital expenditure in 2020 as we focus our attention on the integration of the OMNOVA acquisition. Our asset base remains well invested and our commitment to invest in growth projects such as the 60kt Nitrile latex plant scheduled to be commissioned in 2021 and the Asian Innovation Centre, above our sustenance capital requirement of approximately GBP30 million, remains.
Successful issuance of first high yield bond
The Group successfully issued its first high yield bond in June raising EUR520 million due 2025, completing the Group refinancing post the acquisition of OMNOVA and eliminating the bridge facility refinancing risk. Synthomer now has its long-term financing structure in place, a strong balance sheet and significant leverage covenant headroom (leverage covenant limits 4.25x and 4.00x EBITDA for 2020 and 2021). The Group also has significant liquidity underpinned by its committed unsecured 5 year EUR460 million revolving credit and $260 million term loan bank facilities due July 2024, and now the EUR520 million high yield bond due 2025. Cashflow remains strong and with raw material prices lower in Q2 2020 net indebtedness reduced from GBP658 million on 1 April 2020 to GBP575.5 million on 30 June 2020.
H1 Results - Underlying performance
Group revenue was GBP733.7 million (2019: GBP762.7 million). The decrease reflected the very significant fall in raw material prices in Q2 2020 as a result of the impact of COVID-19, more than offsetting the overall increase in volumes of approximately 2%. Whilst volumes of the heritage Synthomer business were down by 7% relative to the comparative period, mainly reflecting the challenging Q2 pandemic conditions, OMNOVA contributed 9% incremental volumes following its acquisition on 1 April 2020.
In a period of challenging economic activity, the Group delivered H1 2020 Underlying EBITDA of GBP100.2 million, in line with the H1 2019 of GBP99.7 million. We reported that the Group was making good progress in Q1 2020 with our EBITDA at GBP45 million 5% ahead of the 2019 comparative period results. Whilst Q2 2020 was impacted by COVID-19, the H1 2020 Underlying EBITDA reflected a robust performance of the heritage Synthomer business of GBP92.3 million, just 7% down on the comparative period, and the EBITDA contribution from OMNOVA of GBP7.9 million.
Underlying finance costs increased to GBP10.2 million (2019: GBP4.5 million), mainly reflecting the interest on the borrowings relating to the OMNOVA acquisition from 1 April 2020. The finance costs reflect the interest on the EUR460 million committed unsecured 5 year revolving credit facility, the $260 million committed unsecured 5 year term loan, the EUR520 million committed unsecured bridge, refinanced in June 2020 with the EUR520 million 3.875% 5 year unsecured high yield bond, the associated debt amortisation costs, and the IAS 19 pensions interest costs in respect of our defined benefit pension schemes.
The effective tax rate increased from 14.0% in H1 2019 to 22.1% in H1 2020 principally as a result of the pre-announced ending of the Malaysian Pioneer Status in February 2020, and the impact of COVID-19 on the geographical mix of profits, with proportionately more profits being generated in Malaysia.
Underlying earnings per share was 10.8 pence per share, down 34.5% (2019: 16.5 pence per share), reflecting the lower profits before tax, the higher effective tax rate, and the impact of the pre-emptive acquisition financing 85 million shares rights issue in July 2019 ahead of the acquisition which completed on 1 April 2020.
H1 Results - IFRS performance
IFRS loss before tax was GBP4.7 million relative to a profit before tax of GBP56.6 million in H1 2019. The IFRS loss before tax reflects the Underlying profit as adjusted for the Special Items set out in note 3.
Special Items in H1 2020 totalled a net charge of GBP63.1 million, compared to a net charge of GBP13.6 million in H1 2019. This net charge comprises amortisation of acquired intangibles of GBP11.8 million, acquisition costs and related gains of GBP13.2 million and restructuring and integration costs of GBP11.6 million, the latter two principally in relation to the OMNOVA acquisition. It also includes a GBP10.6 million impairment charge in relation to our European SBR network assets and a GBP6.6 million loss on sale of heritage Synthomer's European Tyre Cord business as required by the European Commission Competition authority as a clearance remedy in relation to the acquisition of OMNOVA. Finance costs within Special Items comprise a fair value loss on unhedged interest derivatives of GBP4.4 million and following the refinance, a GBP4.9 million loss on the extinguishment of earlier financing facilities. The Special Items are described later in this review.
Outlook
T he return to more normalised trading seen in June has continued through July. Following detailed discussions with stakeholders in each of our markets, and subject to continued progress , we are confident that the second half of the year will see a sustained return to more normalised Group EBITDA levels. As a result, we now expect full year EBITDA to be broadly in line with current market consensus* and accordingly the Board expects to pay a full year 2020 final dividend.
*FY 2020 EBITDA consensus: GBP211.3 million (source Teneo)
Divisional - Underlying performance
Performance Elastomers
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 424.6 425.7 (0.3)
Revenue (GBPm) 293.9 317.1 (7.3) (7.5)
EBITDA 47.6 53.5 (11.0) (10.8)
Operating profit - Underlying
performance (GBPm) 34.9 41.0 (14.9) (14.6)
Operating profit - IFRS (GBPm) 23.1 39.3 (41.2)
(1) Constant currency revenue and profit retranslate current year results for heritage Synthomer using the prior year's average exchange rates. Results from businesses acquired in the year are not retranslated.
Following the acquisition of OMNOVA, Performance Elastomers now includes the former OMNOVA Performance Additives and the Paper and Carpet businesses. All of these businesses were part of the Performance Materials division of OMNOVA. Three of the 13 OMNOVA sites are now managed as part of the Performance Elastomers division (Ningbo (China), Caojing (China) and Calhoun (USA)).
Performance Elastomers delivered a solid performance with the Nitrile latex business experiencing strong demand as a result of the increased requirement for health and hygiene products during the pandemic. Divisional volumes were unchanged on 2019 with unit margins modestly ahead. Underlying H1 2020 EBITDA was lower at GBP47.6 million (2019: GBP53.5 million) as the performance of the OMNOVA and SBR businesses were more significantly impacted during Q2 and offset a strong Nitrile latex performance. The majority of the OMNOVA Performance Materials division was transferred to our Performance Elastomers division and contributed an EBITDA loss of GBP3.4 million to Underlying EBITDA in Q2 2020.
Our Nitrile latex business continued to benefit from the additional 90 kilotonnes of capacity introduced in Q4 2018 at our Pasir Gudang site. In addition, we saw further strengthening of demand due to COVID-19 leading to higher Nitrile latex volumes and full utilisation of our assets. Nitrile latex unit margins improved through H1 on the back of lower raw material cost with unit margins marginally lower in H1 2020 relative to a strong comparative in H1 2019.
Following a solid Q1 2020 performance, SBR latex market conditions were impacted by the COVID-19 pandemic in Q2 resulting in weaker demand with volumes and unit margins below prior year in the paper, carpet and foam end markets. A strategic review of our European SBR network was announced in Q4 2019 to address lower plant utilisation rates across our SBR assets resulting from slower economic activity and ongoing weaker demand for coated graphic paper.
Following this review, the Company has announced its intention to enter into consultation processes with employees in Oulu (Finland) concerning future options for the site, and with employee representative bodies in Marl (Germany) to consider future capacity requirements for the paper and carpet markets.
In parallel the Company is in the early stages of evaluating the prospects for additional NBR latex capacity at its existing facilities in Europe following the increased demand for Nitrile gloves as a result of the COVID-19 pandemic.
Synthomer remains committed to the SBR latex markets in Europe and is working to ensure its assets continue to remain viable in a highly competitive market. The consultation periods are anticipated to conclude in the next few months after which the outcomes will be announced.
Consistent with the strategic review, the Company has recorded an impairment provision in relation to its European SBR network fixed assets of GBP10.6 million. The charge for the impairment provision has been included in Special Items.
Functional Solutions
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 266.5 258.4 3.1
Revenue (GBPm) 301.3 327.6 (8.0) (8.4)
EBITDA 46.4 38.9 19.3 19.0
Operating profit - Underlying
performance (GBPm) 34.8 30.8 13.0 13.0
Operating profit - IFRS (GBPm) 18.4 28.8 (36.1)
(1) Constant currency revenue and profit retranslate current year results for heritage Synthomer using the prior year's average exchange rates. Results from businesses acquired in the year are not retranslated.
Following the acquisition of OMNOVA, Functional Solutions now includes the majority of the former OMNOVA Speciality Coatings & Ingredients and Oil & Gas businesses. Both of these businesses were part of the Specialty Solutions division of OMNOVA. Six of the 13 OMNOVA sites are now managed as part of the Functional Solutions division (Akron, Mogadore, Fitchburg, Chester (USA), Sintra (Portugal) and Le Havre (France)). The enlarged Functional Solutions business now benefits from greater geographic diversity and product differentiation, superior innovation platforms and increased scale.
Functional Solutions delivered a robust performance supplemented by the OMNOVA acquisition from 1 April 2020. Underlying EBITDA at GBP46.4 million was 19.0% higher than 2019 (GBP38.9 million) with OMNOVA contributing GBP9.1 million of Underlying EBITDA in Q2 2020. Sales volumes were 3.1% higher compared to prior year reflecting incremental volumes contributed by the OMNOVA acquisition offset in part by the impact of COVID-19 on Q2. Unit margins increased as a result of improved mix, impact of the acquired business and softer raw material prices. Underlying unit margins strengthened in coatings, textiles, adhesives and oil and gas markets relative to the prior year period.
After a strong Q1 2020 performance, April and May volumes were lower in all industrial segments as a result of COVID-19 relative to the comparative period. This was compensated for by stronger unit margins with progress supported by the acquisition of OMNOVA and the expansion of our dispersion facilities in Worms (Germany) and Roebuck (USA) which introduced low cost capacity to drive organic growth in increasingly differentiated applications. June saw demand improve with encouraging exit rates as conditions returned to more normalised levels.
Industrial Specialities
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 41.5 35.4 17.2
Revenue (GBPm) 112.4 83.8 34.1 34.0
EBITDA 14.6 12.8 14.1 14.1
Operating profit - Underlying
performance (GBPm) 9.8 10.2 (3.9) (3.9)
Operating profit - IFRS (GBPm) 5.1 8.2 (37.8)
(1) Constant currency revenue and profit retranslate current year results for heritage Synthomer using the prior year's average exchange rates. Results from businesses acquired in the year are not retranslated.
The Industrial Specialities business now includes the former OMNOVA Laminates and Films business (which was part of the Specialty Solutions division of OMNOVA) and the Coated Fabrics business (which was part of the Performance Materials division of OMNOVA). Four of the 13 OMNOVA sites are now managed as part of the Industrial Specialities division (Jeanette, Auburn, Monroe (USA) and Rayong (Thailand)).
Industrial Specialities delivered a resilient performance supplemented by the OMNOVA acquisition from 1 April 2020. Underlying H1 2020 EBITDA at GBP14.6 million was 14.1% higher than 2019 (GBP12.8 million) for the equivalent business excluding the Acrylate Monomers division which is now reported separately. OMNOVA contributed GBP4.6 million of Underlying EBITDA. Sales volumes were 17.2% higher compared to prior year and unit margins increased significantly as a result of the acquired business with heritage margins ahead of prior year. Following a solid Q1 performance, demand in Q2 was impacted by COVID-19 in all industrial segments but notably in products supplied to automotive end markets with June seeing improved demand in key end markets.
Acrylate Monomers
Constant
currency(1)
2020 2019 % %
Volumes (ktes) 29.8 31.3 (4.8)
Revenue (GBPm) 26.1 34.2 (23.7) (21.9)
EBITDA (0.5) 1.8 (127.8) (127.8)
Operating profit - Underlying
performance (GBPm) (2.1) 0.4 (625.0) (650.0)
Operating profit - IFRS (GBPm) (2.2) 0.3 (833.3)
(1) Constant currency revenue and profit retranslate current year results for heritage Synthomer using the prior year's average exchange rates. Results from businesses acquired in the year are not retranslated.
Following a change in management structure and reporting lines, and in order to provide greater management focus, the Acrylate Monomers business will be reported separately going forward. This business comprises the acrylic acid and acrylate monomer production in Sokolov, Czech Republic. The business supplies the Group's European Functional Solutions and external customer monomer demand and was formerly reported within the Industrial Specialities division.
Underlying EBITDA in Acrylate Monomers was lower at a loss of GBP0.5 million relative to the comparative period (2019: profit of GBP1.8 million), comprising a loss in Q1 of GBP1.1 million and a profit in Q2 of GBP0.6 million. Notwithstanding challenging market conditions in Q2 adversely impacting volumes, lower raw material prices and a change in customer mix resulted in sequentially higher unit margins.
A transformation programme is underway at the Sokolov site. A cost reduction programme is now in place which will drive manpower efficiencies whilst maintaining our commitment to the ongoing production of both Acrylate Monomers and Functional Solutions dispersions at the site. A key part of the transformation is the planned closure of the coal fired boiler, which marks the end of coal use in the enlarged Synthomer Group and reinforces our strong commitment to reducing the carbon footprint of the site and the wider Group.
Special Items
2020 2019
GBPm GBPm
------- -------
Amortisation of acquired intangibles (11.8) (4.5)
Acquisition costs and related gains (13.2) (4.8)
Restructuring and site closure costs (11.6) (1.3)
Impairment charge (10.6) -
Sale of business (6.6) -
Total impact on operating profit (53.8) (10.6)
Fair value loss on unhedged interest derivatives (4.4) (3.0)
Loss on extinguishment of financing facilities (4.9) -
------- -------
Total impact on profit before tax (63.1) (13.6)
The following items of income and expense were reported as Special Items and accordingly were excluded from Underlying performance:
-- Amortisation of intangibles increased during the period as a result of the acquisition of OMNOVA Solutions Inc.
-- Acquisition costs and related gains in the six months to June 2020 relate to the acquisition of OMNOVA and comprise GBP18.6 million of costs and the GBP3.3 million impact of unwinding the fair value adjustment on acquisition of inventory offset by a gain of GBP8.7 million on a foreign exchange derivative entered into in July 2019 to hedge the acquisition price. Acquisition costs in 2019 also relate to the acquisition of OMNOVA.
-- Restructuring and site closure costs in 2020 relate to the integration of OMNOVA and were required to deliver the synergies of the acquisition. In 2019 the costs related to the reorganisation of the Group into global business segments.
-- Following the strategic review of our European SBR network we have impaired the European SBR fixed assets by GBP10.6 million.
-- To obtain clearance from the European Commission Competition authority for the acquisition of OMNOVA we were required to dispose of heritage Synthomer European Tyre Cord business, which represented less than 0.5% of 2019 revenue. The disposal resulted in a loss of GBP6.6 million.
-- In July 2018 the Group entered into swap arrangements to fix Euro interest rates on the full value of the EUR440 million committed unsecured revolving credit facility. The fair value of the unhedged interest derivatives relates to the mark-to-market of the swap at the respective period ends in excess of the Group's current floating rate borrowings.
-- Following the Group's successful refinancing, capitalised debt costs relating to the 2018 refinancing and the 2019 bridge to bond were written off, leading to a loss on extinguishment of GBP4.9 million.
Tax
The Group's Underlying tax rate at 22.1% (H1 2019: 14.0%, Full Year 2019: 14.0%) was higher than the prior year principally as a result of the pre-announced ending of the Malaysian Pioneer Status in February 2020, and the impact of COVID-19 on the geographical mix of profits, with proportionately more profits being generated in Malaysia.
Refinancing and covenants
In July 2019, in preparation for the acquisition of OMNOVA, the Group refinanced its 2018 EUR440 million revolving credit facility with financing conditional on the completion of the acquisition. At the same time the Group put in place deal contingent foreign exchange contracts to deliver $480 million at a fixed rate to Euro at completion of the acquisition to hedge the acquisition purchase price currency exposure. These contracts reduced the amount of Euro borrowed to finance the acquisition by GBP12.7 million equivalent and the gain was recognised in Special Items in 2019 (GBP4.0 million) and 2020 (GBP8.7 million).
The new facilities comprising the $260 million term loan and the EUR520 million acquisition financing bridging facility were fully drawn and the EUR460 million revolving credit facility was partially drawn on the acquisition of OMNOVA. Subsequently, on 25 June 2020, the EUR520 million acquisition financing bridging facility was repaid with the proceeds of the 5 year EUR520 million 3.875% unsecured high yield bond due 2025. The committed unsecured term loan and the revolving credit facility have terms ending on 3 July 2024.
The Group now has committed unsecured borrowing facilities comprising the $260 million term loan, EUR460 million revolving credit facility and the 5 year EUR520 million 3.875% high yield bond, and accordingly has committed borrowing facilities of approximately GBP1,080 million through until July 2024. The borrowing facilities are subject to one leverage ratio maintenance covenant. At 30 June 2020 the Group's leverage ratio was 2.8x, well within the leverage ratio covenant of 4.25x at 30 June 2020 and 31 December 2020 and at 4.0x at the same dates in 2021. At 30 June 2020, the Group's net borrowings were GBP575.5 million and accordingly the Group had approximately GBP520 million of liquidity.
Acquisition
On 1 April 2020, the Group completed the acquisition of OMNOVA Solutions Inc by acquiring all of the share capital and repaying their financing for a cash outflow of GBP611.1 million, net of cash acquired. In accordance with IFRS, the assets and liabilities have been included at fair value with the balance of consideration reported as goodwill. KPMG LLP were engaged to advise on the fair value of the Property, Plant and Equipment (PPE) and Intangibles. The value of PPE was increased by GBP12.8 million. The most significant intangible assets are customer relationships. Accordingly, on acquisition the Group recognised goodwill and acquired intangibles in relation to the OMNOVA business of GBP170.2 million and GBP330.1 million respectively. The estimation of the fair value of the assets and liabilities is provisional and this is planned to be finalised by the end of 2020.
The disposal of heritage Synthomer's European Tyre Cord business was required by the European Commission Competition authority as part of the competition clearance for the OMNOVA acquisition. The disposal was completed on 1 May 2020 and the terms of the disposal agreement resulted in a loss on disposal of GBP6.6 million.
Cash flow summary
The Group generated an operating cash flow of GBP57.4 million (2019: GBP36.5 million). The GBP20.9 million increase was due to an increase of GBP26.3 million in cash generated from operations partly offset by a GBP2.9 million increase in cash tax and a GBP2.5 million increase in interest paid (comprising an increase of GBP0.3 million on the Euro fixed interest rate derivatives and GBP2.2 million higher interest charges as a result of the OMNOVA acquisition).
The increase in cash generated by operations mainly reflected the relative movement in working capital of GBP51.5 million as offset by the acquisition costs of GBP25.8 million, integration and restructuring costs of GBP12.2 million, mitigated by the exchange gain on the deal contingent foreign exchange contracts of GBP12.7 million. Cash tax increased to GBP10.2 million (2019: GBP7.3 million) due to the changes in the geographical mix of profits and the non recurrence of a tax refund received in the prior year.
Capital expenditure in the period was GBP26.7 million (2019: GBP28.4 million), as the Group continued its investment in Pasir Gudang JOB 6, the Asia Innovation Centre, the Pathway Programme and regular recurring SHE and sustenance expenditure.
After other operating, investing and financing flows, the cash, cash equivalents and bank overdrafts increased by GBP101.1 million (2019: GBP19.3 million).
The Group pension liability increased to GBP243.9 million from GBP140.0 million at December 2019, reflecting the acquisition of OMNOVA pension liabilities of GBP89.8 million with a subsequent increase of GBP1.8 million, an increase in the heritage Synthomer UK liability of GBP6.5 million and an increase in heritage Synthomer overseas liabilities of GBP5.8 million. The increase in heritage Synthomer liability in the period primarily reflected the net impact of a decrease in discount rates in Group's UK defined benefit schemes, partly offset by asset returns.
Dividend position
On 26 March 2020 we announced that despite the Group's strong financial position, the uncertainty relating to COVID-19 meant that alongside other prudent and proactive actions we were taking to maintain a strong balance sheet and liquidity, the Board had decided not to recommend the payment of the 2019 final dividend.
In accordance with the announcement the Board has reviewed its dividend position. Whilst our trading performance has improved in June and July providing confidence to reinstate guidance for the full year, consistent with our proactive cautious measures taken earlier in the year, the Board has decided to cancel the 2019 final dividend and not to pay an interim dividend for 2020. Subject to continued progress, we are confident that the second half of the year will see a sustained return to more normalised Group EBITDA levels, and accordingly, the Board expects to pay a full year 2020 dividend.
Consolidated income statement
for the six months ended 30 June 2020
Six months ended Six months ended
30 June 2020 30 June 2019
(unaudited) (unaudited)
----------------------------------- ---------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items IFRS
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Revenue 733.7 - 733.7 762.7 - 762.7
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Company and subsidiaries before
Special Items 67.9 - 67.9 74.1 - 74.1
Amortisation of acquired
intangibles - (11.8) (11.8) - (4.5) (4.5)
Acquisition costs and related
gains - (13.2) (13.2) - (4.8) (4.8)
Restructuring and site closure
costs - (11.6) (11.6) - (1.3) (1.3)
Impairment charge - (10.6) (10.6) - - -
Sale of business - (6.6) (6.6) - - -
Company and subsidiaries 67.9 (53.8) 14.1 74.1 (10.6) 63.5
Share of joint ventures 0.7 - 0.7 0.6 - 0.6
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Operating profit/(loss) 68.6 (53.8) 14.8 74.7 (10.6) 64.1
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Interest payable (8.8) - (8.8) (3.1) - (3.1)
Interest receivable 0.6 - 0.6 0.5 - 0.5
Fair value loss on unhedged interest
derivatives - (4.4) (4.4) - (3.0) (3.0)
Loss on extinguishment of financing
facilities - (4.9) (4.9) - - -
------------------------------------- ------- ------- ---------------- ------------ ------- --------
(8.2) (9.3) (17.5) (2.6) (3.0) (5.6)
Net interest expense on defined
benefit obligation (1.4) - (1.4) (1.3) - (1.3)
Interest element of lease payments (0.6) - (0.6) (0.6) - (0.6)
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Finance costs (10.2) (9.3) (19.5) (4.5) (3.0) (7.5)
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Profit/(loss) before taxation 58.4 (63.1) (4.7) 70.2 (13.6) 56.6
Taxation (12.9) 4.3 (8.6) (9.8) 0.6 (9.2)
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Profit/(loss) for the period 45.5 (58.8) (13.3) 60.4 (13.0) 47.4
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Profit/(loss) attributable to
non-controlling interests (0.2) - (0.2) 0.2 (0.2) -
Profit/(loss) attributable to
equity holders of the parent 45.7 (58.8) (13.1) 60.2 (12.8) 47.4
------------------------------------- ------- ------- ---------------- ------------ ------- --------
45.5 (58.8) (13.3) 60.4 (13.0) 47.4
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Earnings/(loss) per share
Basic 10.8p (13.9)p (3.1)p 16.5p (3.5)p 13.0p
Diluted 10.7p (13.8)p (3.1)p 16.4p (3.5)p 12.9p
------------------------------------- ------- ------- ---------------- ------------ ------- --------
Consolidated income statement
for the six months ended 30 June 2020 (continued)
Year ended 31 December
2019
(audited)
------------------------------
Underlying Special
performance Items IFRS
GBPm GBPm GBPm
---------------------------------------- --- ------------ ------- -------
Revenue 1,459.1 - 1,459.1
--------------------------------------------- ------------ ------- -------
Company and subsidiaries before
Special Items 124.9 - 124.9
Amortisation of acquired intangibles - (8.7) (8.7)
Acquisition costs - (9.2) (9.2)
Restructuring and site closure
costs - (0.8) (0.8)
Foreign exchange gain on rights
issue - 3.5 3.5
Company and subsidiaries 124.9 (15.2) 109.7
Share of joint ventures 0.9 - 0.9
--------------------------------------------- ------------ ------- -------
Operating profit/(loss) 125.8 (15.2) 110.6
--------------------------------------------- ------------ ------- -------
Interest payable (6.7) - (6.7)
Interest receivable 0.9 - 0.9
Fair value loss on unhedged
interest derivatives - (0.5) (0.5)
--------------------------------------------- ------------ ------- -------
(5.8) (0.5) (6.3)
Net interest expense on defined
benefit obligation (2.7) - (2.7)
Interest element of lease
payments (1.1) - (1.1)
--------------------------------------------- ------------ ------- -------
Finance costs (9.6) (0.5) (10.1)
--------------------------------------------- ------------ ------- -------
Profit/(loss) before taxation 116.2 (15.7) 100.5
Taxation (16.3) 1.4 (14.9)
--------------------------------------------- ------------ ------- -------
Profit/(loss) for the year 99.9 (14.3) 85.6
--------------------------------------------- ------------ ------- -------
Profit attributable to non-controlling
interests 0.4 0.6 1.0
Profit/(loss) attributable
to equity holders of the parent 99.5 (14.9) 84.6
--------------------------------------------- ------------ ------- -------
99.9 (14.3) 85.6
-------------------------------------------- ------------ ------- -------
Earnings/(loss) per share
Basic 25.3p (3.8)p 21.5p
Diluted 25.2p (3.8)p 21.4p
--------------------------------------------- ------------ ------- -------
Consolidated statement of comprehensive income
for the six months ended 30 June 2020
Six months ended 30 Six months ended 30
June 2020 June 2019
(unaudited) (unaudited)
--------------------------------- ---------------------------------
Equity Equity
holders holders
of the Non-controlling of the Non-controlling
parent interests Total parent interests Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- --------------- ------ -------- --------------- ------
(Loss)/profit for the period (13.1) (0.2) (13.3) 47.4 - 47.4
------------------------------------- -------- --------------- ------ -------- --------------- ------
Actuarial losses (17.4) - (17.4) (21.1) - (21.1)
Tax relating to components of
other comprehensive income 0.1 - 0.1 4.3 - 4.3
------------------------------------- -------- --------------- ------ -------- --------------- ------
Total items that will not be
reclassified to profit or loss (17.3) - (17.3) (16.8) - (16.8)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Exchange differences on translation
of foreign operations 21.7 0.7 22.4 2.1 0.1 2.2
Fair value loss on hedged interest
derivatives (0.8) - (0.8) (10.0) - (10.0)
Losses on net investment hedges
taken to equity (0.3) - (0.3) (0.2) - (0.2)
Total items that may be reclassified
subsequently to profit or loss 20.6 0.7 21.3 (8.1) 0.1 (8.0)
------------------------------------- -------- --------------- ------ -------- --------------- ------
Other comprehensive income/(expense)
for the period 3.3 0.7 4.0 (24.9) 0.1 (24.8)
Total comprehensive income/(expense)
for the period (9.8) 0.5 (9.3) 22.5 0.1 22.6
------------------------------------- -------- --------------- ------ -------- --------------- ------
Year ended 31 December
2019 (audited)
---------------------------------
Equity
holders
of the Non-controlling
parent interests Total
GBPm GBPm GBPm
------------------------------------------ -------- --------------- ------
Profit for the year 84.6 1.0 85.6
------------------------------------------- -------- --------------- ------
Actuarial losses (27.2) - (27.2)
Tax relating to components of other
comprehensive income 4.7 - 4.7
------------------------------------------- -------- --------------- ------
Total items that will not be reclassified
to profit or loss (22.5) - (22.5)
------------------------------------------- -------- --------------- ------
Exchange differences on translation
of foreign operations (15.3) (0.4) (15.7)
Fair value loss on hedged interest
derivatives (8.7) - (8.7)
Losses on net investment hedges
taken to equity (1.9) - (1.9)
Total items that may be reclassified
subsequently to profit or loss (25.9) (0.4) (26.3)
-------------------------------------------
Other comprehensive expense for
the year (48.4) (0.4) (48.8)
Total comprehensive income for the
year 36.2 0.6 36.8
------------------------------------------- -------- --------------- ------
Consolidated statement of changes in equity
for the six months ended 30 June 2020
Capital Hedging
Share Share redemption and translation Retained Non-controlling Total
capital premium reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 1 January 2020 42.5 421.1 0.9 (19.5) 204.4 649.4 21.1 670.5
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Loss for the period - - - - (13.1) (13.1) (0.2) (13.3)
Other comprehensive
income
for the period - - - 20.6 (17.3) 3.3 0.7 4.0
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
income/(expense)
for the period - - - 20.6 (30.4) (9.8) 0.5 (9.3)
Share-based payments - - - - 0.6 0.6 - 0.6
At 30 June 2020
(Unaudited) 42.5 421.1 0.9 1.1 174.6 640.2 21.6 661.8
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Capital Hedging
Share Share redemption and translation Retained Non-controlling Total
capital premium reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 1 January 2019 34.0 230.5 0.9 6.4 192.1 463.9 21.1 485.0
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Profit for the period - - - - 47.4 47.4 - 47.4
Other comprehensive
expense
for the period - - - (8.1) (16.8) (24.9) 0.1 (24.8)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
income
for the period - - - (8.1) 30.6 22.5 0.1 22.6
Share-based payments - - - - (1.0) (1.0) - (1.0)
Dividends - - - - (30.9) (30.9) - (30.9)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 30 June 2019
(Unaudited) 34.0 230.5 0.9 (1.7) 190.8 454.5 21.2 475.7
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Capital Hedging
Share Share redemption and translation Retained Non-controlling Total
capital premium reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 1 January 2019 34.0 230.5 0.9 6.4 192.1 463.9 21.1 485.0
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Profit for the period - - - - 84.6 84.6 1.0 85.6
Other comprehensive
expense
for the year - - - (25.9) (22.5) (48.4) (0.4) (48.8)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Total comprehensive
income
for the year - - - (25.9) 62.1 36.2 0.6 36.8
Issue of shares 8.5 190.6 - - - 199.1 - 199.1
Share-based payments - - - - (1.9) (1.9) - (1.9)
Dividends - - - - (47.9) (47.9) (0.6) (48.5)
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
At 31 December 2019
(Audited) 42.5 421.1 0.9 (19.5) 204.4 649.4 21.1 670.5
---------------------- -------- -------- ----------- ---------------- --------- ------ --------------- -------
Consolidated balance sheet
as at 30 June 2020
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
-------------------------------------- ----------- ----------- -----------
Non-current assets
Goodwill 509.8 336.5 324.4
Acquired intangible assets 381.8 64.3 56.8
Other intangible assets 32.7 12.7 22.0
Property, plant and equipment 586.0 409.2 404.9
Deferred tax assets 29.7 29.2 22.8
Investment in joint ventures 8.4 7.8 7.5
-------------------------------------- ----------- ----------- -----------
Total non-current assets 1,548.4 859.7 838.4
-------------------------------------- ----------- ----------- -----------
Current assets
Inventories 172.9 143.2 121.9
Trade and other receivables 261.5 251.1 190.6
Cash and cash equivalents 208.5 98.7 103.6
Derivative financial instruments 0.7 - 4.9
-------------------------------------- ----------- ----------- -----------
Total current assets 643.6 493.0 421.0
-------------------------------------- ----------- ----------- -----------
Total assets 2,192.0 1,352.7 1,259.4
-------------------------------------- ----------- ----------- -----------
Current liabilities
Borrowings (0.5) (52.9) -
Trade and other payables (288.2) (244.2) (232.9)
Lease liabilities (12.0) (8.1) (7.5)
Current tax liabilities (47.4) (40.9) (38.7)
Dividends payable - (30.9) -
Provisions for other liabilities and
charges (6.0) (8.2) (4.9)
Derivative financial instruments (20.0) (18.1) (14.3)
-------------------------------------- ----------- ----------- -----------
Total current liabilities (374.1) (403.3) (298.3)
-------------------------------------- ----------- ----------- -----------
Non-current liabilities
Borrowings (783.5) (255.0) (82.9)
Trade and other payables (0.6) (0.7) (0.5)
Lease liabilities (49.9) (34.2) (34.4)
Deferred tax liabilities (71.5) (35.1) (30.8)
Retirement benefit obligations (243.9) (146.5) (140.0)
Provisions for other liabilities and
charges (6.7) (2.2) (2.0)
-------------------------------------- ----------- ----------- -----------
Total non-current liabilities (1,156.1) (473.7) (290.6)
-------------------------------------- ----------- ----------- -----------
Total liabilities (1,530.2) (877.0) (588.9)
-------------------------------------- ----------- ----------- -----------
Net assets 661.8 475.7 670.5
-------------------------------------- ----------- ----------- -----------
Equity
Share capital 42.5 34.0 42.5
Share premium 421.1 230.5 421.1
Capital redemption reserve 0.9 0.9 0.9
Hedging and translation reserve 1.1 (1.7) (19.5)
Retained earnings 174.6 190.8 204.4
-------------------------------------- ----------- ----------- -----------
Equity attributable to equity holders
of the parent 640.2 454.5 649.4
Non-controlling interests 21.6 21.2 21.1
-------------------------------------- ----------- ----------- -----------
Total equity 661.8 475.7 670.5
-------------------------------------- ----------- ----------- -----------
Consolidated cash flow statement
for the six months ended 30 June 2020
Six months Six months Year ended
ended ended
30 June 2020 30 June 2019 31 December
2019
(unaudited) (unaudited) (audited)
--------------- --------------- -----------------
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------------- ------ ------- ------- ------ ------ -------
Operating
Cash generated from operations 74.0 47.7 170.2
Interest received 0.6 0.5 0.9
Interest paid (6.4) (3.8) (7.0)
Interest element of lease payments (0.6) (0.6) (1.1)
----------------------------------------------- ------ ------- ------- ------ ------ -------
Net interest paid (6.4) (3.9) (7.2)
UK corporation tax paid - - -
Overseas corporate tax paid (10.2) (7.3) (11.1)
----------------------------------------------- ------ ------- ------- ------ ------ -------
Total tax paid (10.2) (7.3) (11.1)
----------------------------------------------- ------ ------- ------- ------ ------ -------
Net cash inflow from operating activities 57.4 36.5 151.9
----------------------------------------------- ------ ------- ------- ------ ------ -------
Investing
Dividends received from joint ventures 0.2 1.3 1.6
Purchase of property, plant and equipment
and intangible assets (26.7) (28.4) (69.1)
Sale of property, plant and equipment - 0.1 0.3
----------------------------------------------- ------ ------- ------- ------ ------ -------
Net capital expenditure (26.7) (28.3) (68.8)
Purchase of business (337.5) - -
Sale of business 0.1 - -
Net cash outflow from investing activities (363.9) (27.0) (67.2)
----------------------------------------------- ------ ------- ------- ------ ------ -------
Financing
Dividends paid - - (47.9)
Dividends paid to non-controlling
interests - - (0.6)
Proceeds on issue of shares - - 199.1
Settlement of equity-settled share-based
payments (0.2) (1.8) (2.5)
Repayment of principal portion of
lease liabilities (4.8) (3.4) (6.8)
Repayment of borrowings (593.7) - (216.3)
Repayment of borrowings on acquisition (273.6) - -
Proceeds of borrowings 1,279.9 15.0 15.0
----------------------------------------------- ------ ------- ------- ------ ------ -------
Net cash inflow/(outflow) from financing
activities 407.6 9.8 (60.0)
----------------------------------------------- ------ ------- ------- ------ ------ -------
Increase in cash and bank overdrafts
during the period 101.1 19.3 24.7
----------------------------------------------- ------ ------- ------- ------ ------ -------
Comprising increase/(decrease) to:
Cash and cash equivalents 99.7 1.3 4.1
Bank overdrafts 1.4 18.0 20.6
----------------------------------------------- ------ ------- ------- ------ ------ -------
Increase in cash and bank overdrafts
during the period 101.1 19.3 24.7
----------------------------------------------- ------ ------- ------- ------ ------ ------- Cash, cash equivalents and bank overdrafts at 1 January 103.6 76.2 76.2 Foreign exchange and other movements 3.3 (0.4) 2.7 ----------------------------------------------- ------ ------- ------- ------ ------ ------- Cash, cash equivalents and bank overdrafts at period end 208.0 95.1 103.6 ----------------------------------------------- ------ ------- ------- ------ ------ -------
Notes to the interim financial statements
1. Basis of preparation
Synthomer plc is a public limited company incorporated and domiciled in the United Kingdom under the Companies Act. The Company is listed on the London Stock Exchange and the address of the registered office is Temple Fields, Harlow, Essex, CM20 2BH.
These interim financial statements have been prepared in accordance with applicable law, the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting, as adopted by the European Union.
These interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 were approved by the Board of Directors on 5 March 2020 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.
The interim financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 31 December 2019 and any public announcements made by the Company during the interim reporting period.
Going concern
The directors have considered the appropriateness of adopting the going concern basis in preparing the interim report and financial statements by reviewing a range of scenarios including the impact of COVID-19.
We updated our latest forecast for the estimated impact of COVID-19 and considered a number of scenarios. The most severe scenario assumes a recurrence of the trading conditions experienced during Q2 of 2020 for a prolonged four month period along with the unavailability of one of our largest facilities for a period of two months. Q2 was when we experienced the largest impact on our business as a result of COVID-19 when each of our diverse businesses was impacted to differing degrees. We believe that the risk of enforced plant closure is low and have implemented additional health and safety measures in each of our sites to reduce the risk of a major supply disruption.
No mitigating actions other than those already taken (capital expenditure and cost reductions, dividend suspension or salary freezes) were required under each scenario looked at. If required, further similar mitigating actions will be initiated, such as further capital expenditure and cost reductions, which are all within management control. These further actions relate to discretionary spend, and do not impact the ability to meet demand.
As at 30 June 2020, the condensed consolidated balance sheet reflects a net asset position of GBP661.8 million and the liquidity of the Group remains strong with headroom of more than GBP500 million of cash and committed facilities. The earliest maturity date of our facilities is July 2024. In all scenarios modelled our liquidity requirements are well within our committed facilities. Debt leverage covenant limits for the term loan and revolving credit facility are set at a ratio of 4.25x at 30 June 2020 and 31 December 2020 and at 4.0x at the same dates in 2021. At the half year, the net debt position was GBP575.5 million and our covenant ratio was 2.8x. Under all scenarios modelled our forecasts did not indicate a debt leverage covenant breach on any of the dates through to December 2021.
On the basis of this review, the directors consider it appropriate for the going concern basis to be adopted in preparing the interim report and financial statements.
Goodwill and acquired intangible assets
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. As a result of the impact of COVID-19 the Group undertook a review of the carrying value of goodwill and acquired intangibles.
The Group's four cash generating units ('CGUs') are Performance Elastomers, Functional Solutions, Industrial Specialities and Acrylate Monomers and their recoverable amounts are determined from value in use calculations.
The key assumptions for the value in use calculations are the discount rate, profitability and growth rate. These assumptions have been revised in the year in light of the current economic environment. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The discount rate is based on the Group's weighted average cost of capital adjusted, where appropriate, for the risk premium attributable to the particular CGU's activities and geography of operation. A pre-tax discount rate of 8.6% has been used in the above calculations for each CGU.
The Group prepares cash flow forecasts derived from the most recent five-year business plans. These forecasts were updated to take account of the impact of COVID-19 in 2020 and 2021, and were approved by the Board. These cash flows were extrapolated for the following five years based on estimated growth rates. These rates do not exceed average long-term growth rates for relevant markets. The cash flow for year ten is then assumed to apply without further growth into perpetuity.
The Group has conducted a sensitivity analysis on these impairment tests. For each CGU, the Directors believe that there is no reasonably possible change in the key assumptions on which the recoverable amount is based that would cause the aggregate carrying amount to exceed the aggregate recoverable amount.
2. Accounting policies
The annual financial statements of Synthomer plc are prepared in accordance with IFRSs as adopted by the European Union and applicable law. The same accounting policies and methods of computations are followed in these financial statements as in the most recent audited annual financial statements. There are no updates to IFRSs effective from 1 January 2020 that impact the Group.
3. 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
Special Items are disclosed separately in order to provide a clearer indication of the Group's underlying performance.
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 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.
The definition of Special Items is shown in note 17 and has been consistently applied.
Special Items comprise:
Six months Six months Year ended
ended 30 ended 30 31 December
June 2020 June 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
-------------------------------------------------- ---------- ---------- ------------
Special Items
Amortisation of acquired intangibles (11.8) (4.5) (8.7)
Acquisition costs and related gains (13.2) (4.8) (9.2)
Restructuring and site closure costs (11.6) (1.3) (0.8)
Impairment charge (10.6) - -
Sale of business (6.6) - -
Foreign exchange gain on rights issue - - 3.5
Operating loss (53.8) (10.6) (15.2)
-------------------------------------------------- ---------- ---------- ------------
Fair value loss on unhedged interest
derivatives (4.4) (3.0) (0.5)
Loss on extinguishment of financing facilities (4.9) - -
-------------------------------------------------- ---------- ---------- ------------
Finance costs (9.3) (3.0) (0.5)
-------------------------------------------------- ---------- ---------- ------------ Loss before taxation (63.1) (13.6) (15.7) -------------------------------------------------- ---------- ---------- ------------
The following items of income and expense were reported as Special Items and accordingly were excluded from Underlying performance:
-- Amortisation of intangibles increased during the period as a result of the acquisition of OMNOVA Solutions Inc.
-- Acquisition costs and related gains in the six months to June 2020 relate to the acquisition of OMNOVA and comprise GBP18.6 million of costs and the GBP3.3 million impact of unwinding the fair value adjustment on acquisition of inventory offset by a gain of GBP8.7 million on a foreign exchange derivative entered into in July 2019 to hedge the acquisition price. Acquisition costs in 2019 also relate to the acquisition of OMNOVA partly offset by a gain of GBP4.0 million on a foreign exchange derivative in the second half of 2019.
-- Restructuring and site closure costs in 2020 relate to the integration of OMNOVA and were required to deliver the synergies of the acquisition. In 2019 the costs related to the reorganisation of the Group into global business segments.
-- Following the strategic review of our European SBR network we have impaired the European SBR fixed assets by GBP10.6 million.
-- To obtain clearance from the European Commission Competition authority for the acquisition of OMNOVA we were required to dispose of heritage Synthomer European Tyre Cord business, which represented less than 0.5% of 2019 revenue. The disposal resulted in a loss of GBP6.6 million.
-- 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.
-- In July 2018 the Group entered into swap arrangements to fix Euro interest rates on the full value of the EUR440 million committed unsecured revolving credit facility. The fair value of the unhedged interest derivatives relates to the mark-to-market of the swap at the respective period ends in excess of the Group's current floating rate borrowings.
-- Following the Group's successful refinancing, capitalised debt costs relating to the 2018 refinancing and the 2019 bridge to bond were written off, leading to a loss on extinguishment of GBP4.9 million.
4. Segmental analysis
The Group's Executive Committee, chaired by the Chief Executive Officer, examines the Group's performance.
With the acquisition of OMNOVA the Group has reassessed how the business will be managed going forwards. The Group's Acrylate Monomers business, which was previously managed and reported within the Industrial Specialities division has been identified as a separate segment by the Group's Executive Committee. A new management structure has been implemented and management information for Acrylate Monomers is now reported separately to the Committee.
The Group's reportable segments are:
Performance Elastomers
Performance Elastomers is focused on healthcare, paper, carpet and foam markets through our water-based 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 water-based acrylic and vinylic 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 and laminates and films to emerging materials and technologies.
Acrylate Monomers
Acrylate Monomers is focused on the production of acrylate monomers which are sold to external customers in European markets as well as our European Functional Solutions dispersions business.
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.
Six months ended 30 June 2020 (unaudited)
Unallocated
Performance Functional Industrial Acrylate corporate
Elastomers Solutions Specialities Monomers expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- --------- ----------- ------
Revenue
Total revenue 293.9 301.3 112.4 32.0 - 739.6
Inter-segmental revenue - - - (5.9) - (5.9)
------------------------------ ----------- ---------- ------------- --------- ----------- ------
293.9 301.3 112.4 26.1 - 733.7
------------------------------ ----------- ---------- ------------- --------- ----------- ------
EBITDA 47.6 46.4 14.6 (0.5) (7.9) 100.2
Depreciation and amortisation (12.7) (11.6) (4.8) (1.6) (0.9) (31.6)
------------------------------ ----------- ---------- ------------- --------- ----------- ------
Operating profit/(loss)
before Special Items 34.9 34.8 9.8 (2.1) (8.8) 68.6
Special Items (11.8) (16.4) (4.7) (0.1) (20.8) (53.8)
------------------------------ ----------- ---------- ------------- --------- ----------- ------
Operating profit/(loss) 23.1 18.4 5.1 (2.2) (29.6) 14.8
Finance costs (19.5)
------------------------------ ----------- ---------- ------------- --------- ----------- ------
Loss before taxation (4.7)
------------------------------ ----------- ---------- ------------- --------- ----------- ------
Six months ended 30 June 2019 (unaudited)
-------------------------------------------------------------------------
Industrial Acrylate Unallocated
Performance Functional Specialities Monomers corporate
Elastomers Solutions (restated) (restated) expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Revenue
Total revenue 317.1 327.6 83.8 37.5 - 766.0
Inter-segmental revenue - - - (3.3) - (3.3)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
317.1 327.6 83.8 34.2 - 762.7
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
EBITDA 53.5 38.9 12.8 1.8 (7.3) 99.7
Depreciation and amortisation (12.5) (8.1) (2.6) (1.4) (0.4) (25.0)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Operating profit/(loss)
before Special Items 41.0 30.8 10.2 0.4 (7.7) 74.7
Special Items (1.7) (2.0) (2.0) (0.1) (4.8) (10.6)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Operating profit/(loss) 39.3 28.8 8.2 0.3 (12.5) 64.1
Finance costs (7.5)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Profit before taxation 56.6
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Year ended December 2019
-------------------------------------------------------------------------
Industrial Acrylate Unallocated
Performance Functional Specialities Monomers corporate
Elastomers Solutions (restated) (restated) expenses Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Revenue
Total revenue 623.7 612.8 157.9 70.9 - 1,465.3
Inter-segmental revenue - - - (6.2) - (6.2)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
623.7 612.8 157.9 64.7 - 1,459.1
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
EBITDA 96.3 69.9 23.8 1.0 (13.1) 177.9
Depreciation and amortisation (24.8) (17.6) (5.4) (3.4) (0.9) (52.1)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Operating profit/(loss)
before Special Items 71.5 52.3 18.4 (2.4) (14.0) 125.8
Special Items (0.3) (4.3) (4.1) (0.6) (5.9) (15.2)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Operating profit/(loss) 71.2 48.0 14.3 (3.0) (19.9) 110.6
Finance costs (10.1)
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Profit before taxation 100.5
------------------------------ ----------- ---------- ------------- ----------- ----------- -------
Finance costs for the period include GBP9.3 million of Special Items (six months ended 30 June 2019: GBP3.0 million; year ended 31 December 2019: GBP0.5 million) as set out in note 3.
5. Reconciliation of operating profit to cash generated from operations
Six months Six months Year ended
ended 30 ended 30 31 December
June 2020 June 2019 2019
Unaudited Unaudited Audited
GBPm GBPm GBPm
------------------------------------------ ---------- ---------- ------------
Operating profit 14.8 64.1 110.6
Less: share of profit of joint ventures (0.7) (0.6) (0.9)
------------------------------------------- ---------- ---------- ------------
14.1 63.5 109.7
Adjustments for:
Depreciation of property, plant and
equipment 25.7 20.9 43.4
Depreciation of right of use assets 4.7 3.7 7.3
Amortisation of other intangibles 1.2 0.4 1.4
Share-based payments 0.7 0.7 0.6
Special Items 53.8 10.6 15.2
Cash impact of acquisition costs (25.8) (0.1) (7.5)
Cash impact of integration, restructuring
and site closure (12.2) (2.1) (4.4)
Cash impact of foreign exchange gain
on deal contingent 12.7 - -
Cash impact of foreign exchange gain
on rights issue - - 3.5
Pension funding (11.0) (8.5) (17.5)
(Increase) / decrease in inventories 25.6 (1.1) 15.0
(Increase) / decrease in trade and
other receivables 22.3 (17.3) 34.3
Increase / (decrease) in trade and
other payables (37.8) (23.0) (30.8)
Cash generated from operations 74.0 47.7 170.2
------------------------------------------- ---------- ---------- ------------
6. Tax
Tax on the Underlying profit before taxation for the six month period was charged at 22.1% (six months ended 30 June 2019: 14.0%; year ended 31 December 2019: 14.0%), representing the best estimate of the annual effective income tax rate expected for the full year. This rise in the effective tax rate reflects the pre-announced ending of the Malaysian Pioneer Status in February 2020, and the impact of COVID-19 on the geographical mix of profits, with proportionately more profits being generated in Malaysia.
Inclusion of the best estimate for the tax charge on the Special Items results in a tax rate of 183.0% (six months ended 30 June 2019: 16.3%; year ended 31 December 2019: 14.8%), on the IFRS profit before taxation. The difference in the effective tax rate on the Underlying profit before tax and the IFRS profit before tax reflects the tax associated with the Special Items, some of which are not taxable or subject to tax deductions.
7. Earnings per share
Six months ended 30 Six months ended
June 2020 30 June 2019
------------------------------ ------------------------------
Underlying Special Underlying Special
performance Items IFRS performance Items Total
Earnings
Profit/(loss) attributable
to equity holders of the
parent GBPm 45.7 (58.8) (13.1) 60.2 (12.8) 47.4
Number of shares(1)
Weighted average number
of ordinary shares - basic '000 424,846 364,009
Effect of dilutive potential
ordinary shares '000 2,455 2,105
Weighted average number
of ordinary shares - diluted '000 427,301 366,114
Earnings/(loss) per share(1)
Basic earnings/(loss) per
share pence 10.8p (13.9)p (3.1)p 16.5p (3.5)p 13.0p
Diluted earnings/(loss)
per share pence 10.7p (13.8)p (3.1)p 16.4p (3.5)p 12.9p
1 - The weighted average number of ordinary shares for the six months to 30 June 2019 used in the calculation of earnings per share, has 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.
Year ended 31 December
2019
------------------------------
Underlying Special
performance Items Total
Earnings
Profit/(loss) attributable
to equity holders of the
parent GBPm 99.5 (14.9) 84.6
Number of shares
Weighted average number
of ordinary shares - basic '000 393,349
Effect of dilutive potential
ordinary shares '000 2,109
Weighted average number
of ordinary shares - diluted '000 395,458
Earnings/(loss) per share
Basic earnings/(loss) per
share pence 25.3p (3.8)p 21.5p
Diluted earnings/(loss)
per share pence 25.2p (3.8)p 21.4p
8. Financial instruments
The risks associated with the Group's financial instruments and related polices are detailed in the 2019 Annual Report in note 22 to the financial statements. There have been no changes in the risks and the management thereof since 31 December 2019.
F air values have been obtained from the relevant institutions where appropriate. Where market values are not available, fair values of financial assets and financial liabilities have been calculated by discounting expected future cash flow at prevailing interest rates and by applying period end exchange rates. The carrying amount of borrowings approximates to book value.
The fair value of the Group's financial instruments is measured using inputs other than quoted prices that are directly or indirectly observable (Level 2 as defined in IFRS 13). There are no significant differences between the carrying value and fair value of either financial assets or financial liabilities.
9. Defined benefit schemes
The value of the defined benefit plan assets has been updated to reflect their market value as at 30 June 2020. Actuarial gains or losses are recognised in the Consolidated Statement of Comprehensive Income in accordance with the Group's accounting policy. The liabilities have been updated to reflect the change in the discount rate and other assumptions.
The Group pension liability increased to GBP243.9 million from GBP140.0 million at December 2019, reflecting the acquisition of OMNOVA pension liabilities of GBP89.8 million with a subsequent increase of GBP1.8 million, an increase in the heritage Synthomer UK liability of GBP6.5 million and an increase in heritage Synthomer overseas liabilities of GBP5.8 million. The increase in heritage Synthomer liability in the period primarily reflected the net impact of a decrease in discount rates in Group's UK defined benefit schemes, partly offset by asset returns.
10. Analysis of net debt
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
-------------------------- ------- ------- -----------
Bank overdrafts (0.5) (3.6) -
Current borrowings - (49.3) -
-------------------------- ------- ------- -----------
Current liabilities (0.5) (52.9) -
Non-current borrowings (783.5) (255.0) (82.9)
-------------------------- ------- ------- -----------
Non-current liabilities (783.5) (255.0) (82.9)
Total borrowings (784.0) (307.9) (82.9)
-------------------------- ------- ------- -----------
Cash and cash equivalents 208.5 98.7 103.6
Net debt (575.5) (209.2) 20.7
-------------------------- ------- ------- -----------
Net debt is defined in the glossary of terms in note 17. Capitalised debt costs, which have been recognised as a reduction in borrowings in the financial statements, amounted to GBP12.6 million at 30 June 2020 (30 June 2019: GBP1.8 million, 31 December 2019: GBP1.7 million).
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
---------------------------------------------- ------------ ------------ ------------
Net cash (outflow)/inflow from operating
activities 57.4 36.5 151.9
Add: dividends received from joint ventures 0.2 1.3 1.6
Add: proceeds on sale of business 0.1 - -
Less: net capital expenditure (26.7) (28.3) (68.8)
Less: net cash outflow arising on acquisition (611.1) - -
(580.1) 9.5 84.7
Dividends paid - - (47.9)
Dividends paid to non-controlling interests - - (0.6)
Proceeds on issue of shares - - 199.1
Settlement of equity-settled share-based
payments (0.2) (1.8) (2.5)
Repayment of principal portion of lease
liabilities (4.8) (3.4) (6.8)
Foreign exchange and other movements (11.1) 0.5 8.7
---------------------------------------------- ------------ ------------ ------------
(Increase)/decrease in net debt (596.2) 4.8 234.7
---------------------------------------------- ------------ ------------ ------------
Net debt at 1 January 20.7 (214.0) (214.0)
---------------------------------------------- ------------ ------------ ------------
Net debt at period end (575.5) (209.2) 20.7
---------------------------------------------- ------------ ------------ ------------
11. Capital commitments
The capital expenditure authorised but not provided for in the interim financial statements as at 30 June 2020 was GBP20.6 million (30 June 2019: GBP11.4 million, 31 December 2019: GBP11.7 million).
12. Contingent liabilities
During 2018, the European Commission (the 'Commission') initiated an investigation into practices relating to the purchase of Styrene monomer by companies, including Synthomer, operating in the European Economic Area. The Company has and will continue to fully cooperate with the Commission during its investigation. As the investigation is ongoing and the Commission does not provide feedback on its work until the investigation is complete, it is not possible to determine whether or not a liability exists in relation to this matter.
13. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not included in this note. Other than the relationships with defined benefit pension schemes as disclosed in note 26 of the 2019 Annual Report, and the acquired defined benefit schemes, there were no other related party transactions requiring disclosure.
Following the rights issue which completed on 29 July 2019, Kuala Lumpur Kepong Berhad Group holds 20.98% of the Company's shares and is considered to be a related party from this date.
14. Acquisition of OMNOVA Solutions Inc
On 1 April 2020, the Group completed its acquisition of 100 per cent of the issued share capital of OMNOVA
Solutions Inc at a price of $10.15 per share for a total consideration of GBP382.3 million.
The asset identification and fair value allocation processes are currently under review. Accordingly, at the date of this report it is only practicable to disclose the provisional fair values of the acquired assets, liabilities, contingent liabilities and goodwill.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below.
GBPm
----------------------------------------------------- -------
Identifiable intangible assets 330.1
Property, plant and equipment 189.9
Other non-current assets 53.2
Inventory 74.8
Trade and other receivables 82.5
Cash and cash equivalents 44.8
Borrowings (273.6)
Trade and other payables (88.6)
Lease liabilities (21.7)
Retirement benefit obligations (89.8)
Other non-current liabilities (89.5)
Provisional fair value of net assets acquired 212.1
Goodwill 170.2
Total consideration 382.3
------------------------------------------------------ -------
Satisfied by:
Cash 382.3
Total consideration transferred 382.3
------------------------------------------------------ -------
Net cash outflow arising on acquisition:
Cash consideration 382.3
Less: cash and cash equivalent balances acquired (44.8)
------------------------------------------------------ -------
Cash flow from investing activities 337.5
Settlement of external financing of OMNOVA Solutions
Inc 273.6
611.1
----------------------------------------------------- -------
Due to the short period of time since acquisition, fair value adjustments are provisional and will be finalised within twelve months of the acquisition date.
The goodwill arising on the acquisition of the business represents the premium the Group paid to acquire companies which complement the existing business, strengthening Synthomer's presence in North America and increasing its presence in Europe and Asia. This will create significant opportunities for cross-selling and other synergies.
In the period from acquisition to 30 June 2020 the business contributed GBP110.0 million to the Group's revenue, GBP2.1 million to the Group's Underlying operating profit and a loss of GBP5.5 million to the Group's IFRS operating loss.
If the acquisition had been completed on the first day of the financial year the business would have contributed GBP243.6 million to the Group's revenue, GBP9.2 million to the Group's Underlying operating profit and GBP0.9 million to the Group's IFRS operating profit.
15. Seasonality
Historically, there has been no visible fixed pattern to seasonality in H1 compared to H2 performance in the Group, but, everything else being equal, because of the summer and Christmas break periods in Europe, management would normally expect the first half profits to be slightly stronger than the second half year.
In 2020, because of the pronounced effect of COVID-19 on the results of our business, particularly in Q2 2020, assuming the improving trading conditions seen in June and July continue for the remainder of the year, we expect the second half profits to be slightly stronger than the first half profits.
16. Risks and uncertainties
The Group faces a number of risks which, if they arise, could affect its ability to achieve its strategic objectives. As with any business, risk assessment and the implementation of mitigating actions and controls are vital to successfully achieving the Group's strategy. The Directors are responsible for determining the nature of these risks and ensuring appropriate mitigating actions are in place to manage them.
These principal risks are categorised into the following types:
-- Strategic -- Operational -- Compliance -- Financial
With the exception of the impact of COVID-19, referred to in the Going Concern section in note 1, the Directors consider that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining part of the financial year, and include volatility in chemicals and polymers market, remain the same as those stated on pages 32 to 36 of 2019 Annual Report which is available on our website www.synthomer.com/investor-relations.
17. Glossary of terms
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 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 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.
The following are consistently disclosed separately
as Special Items in order to provide a clearer
indication of the Group's underlying performance:
* Restructuring and site closure costs;
* Sale of a business or 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 Underlying performance represents the statutory
performance of the Group under IFRS, excluding
Special Items.
----------------------------------------------------------------------
Net debt Cash and cash equivalents together with short-
and long-term borrowings excluding leases.
----------------------------------------------------------------------
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,
the net debt and EBITDA, for this calculation,
exclude the impact of IFRS 16.
----------------------------------------------------------------------
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.
----------------------------------------------------------------------
Ktes Kilotonnes or 1,000 tonnes (metric).
----------------------------------------------------------------------
Responsibility statement
The Directors confirm that these interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.
The interim management report includes a fair review of the information required by the Disclosure and Transparency Rules paragraphs 4.2.7 R and 4.2.8 R, namely:
-- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the 2019 Annual Report.
The Directors of Synthomer plc are listed in the 2019 Annual Report with the exception of Cynthia Dubin who was appointed as a Non-Executive Director on 15 July 2020.
The Directors are responsible for the maintenance and integrity of, amongst other things, the financial and corporate governance information as provided on the Synthomer website. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.
On behalf of the Board of Directors
C G MacLean S G Bennett Chief Executive Officer Chief Financial Officer 6 August 2020
INDEPENT REVIEW REPORT TO SYNTHOMER PLC
Report on the interim financial statements
Our conclusion
We have reviewed Synthomer plc's interim financial statements (the "interim financial statements") in the Interim Results of Synthomer plc for the 6 month period ended 30 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2020;
-- the consolidated income statement and consolidated statement of comprehensive income for the period then ended;
-- the consolidated cash flow statement for the period then ended; -- the consolidated statement of changes in equity for the period then ended; and -- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Interim Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
6 August 2020
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.
END
IR KKABNQBKKKFK
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