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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -13.50 | -5.29% | 241.50 | 243.50 | 246.50 | 259.50 | 241.00 | 252.50 | 294,218 | 16:35:17 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Chemicals & Chem Preps, Nec | 2.02B | -67M | -0.4096 | -5.96 | 399.1M |
From Apr 2019 to Apr 2024
TIDMSYNT
RNS Number : 8856W
Synthomer PLC
06 August 2018
6 August 2018
Synthomer plc
Interim Results for the six months ended 30 June 2018
Geographic & product diversity underpins sustainable growth
Underlying profit before tax up 6.4% and full year expectations unchanged
Hot Features
Premium
H1 HIGHLIGHTS 2018 2017 Increase / (decrease)
Underlying performance (1) Reported Constant
Currency(2)
------- ------- --------- -------------
GBPm GBPm % %
Revenue 833.8 770.3 8.2 6.4
------- ------- ---------
Volumes (ktes) 796.6 730.2 9.1 9.1
------- ------- ---------
Europe and North America 64.4 64.3 0.2 (1.4)
(ENA)
Asia and ROW (ARW) 22.5 18.1 24.3 21.5
Unallocated (7.5) (5.9) (27.1) (27.1)
------- ------- ---------
Operating Profit 79.4 76.5 3.8 1.8
------- ------- ---------
Profit before Tax 76.2 71.6 6.4 4.3
------- ------- ---------
EPS (p) 18.4 16.8 9.5
DPS (p) 4.0 3.7 8.1
IFRS Profit before Tax 86.2 53.4 61.4
IFRS EPS (p) 20.6 12.5 64.8
-------------------------------------- ------- ------- --- --------- -------------
1 - Underlying performance excludes Special Items. Comments on Underlying performance and a detailed analysis of the Special Items are set out in note 3.
2 - Constant currency sales and profit: these reflect current year results for the Existing business translated at the prior year's average exchange rates, and include the impact of acquisitions.
H1 highlights:
-- Underlying profit before tax (PBT) up 6.4% to GBP76.2m (constant currency up 4.3%):
-- Good volume growth in Europe & North America (ENA); unit margins slightly softer due to US$ transaction headwind (c.GBP5m)
-- Strong volume growth in Asia & Rest of World (ARW); unit margin growth in Nitriles -- Successful integration of BASF Pischelsdorf following completion in January -- IFRS profit before tax GBP86.2m -- Investment programme to increase capacity across the network on track
-- R&D delivering sustainable growth: new products represent circa 20% of total sales in Existing business (2017: 20%)
-- Effective tax rate reduced to 18.0% (H1 2017: 20.0%) -- Underlying earnings per share up 9.5% at 18.4p per share -- Interim dividend of 4.0p (2017: 3.7p); increase of 8.1% in line with dividend policy -- Strong and flexible balance sheet maintained - leverage 1.1x EBITDA
Commenting on the results, Neil Johnson, Chairman, said:
"Synthomer has had a good first six months of the year, reporting a further increase in Underlying profit, underpinned by our geographic and product diversity alongside the Group's strategy of driving organic growth and investing in bolt-on acquisitions.
We have made strong operational progress, with continued progress on Safety, Health & Environment policies as well as the Manufacturing Excellence initiatives delivering improved efficiency and output. Our investment programme to increase production capacity has continued. We have also invested to strengthen our supply chain resilience and procurement flexibility in a relatively volatile raw material market. Inorganic growth has come through our acquisition of the Pischelsdorf site from BASF during January.
Notwithstanding ongoing political and economic uncertainty, the Group's diversified business means we are well placed to make continued progress and the Board's expectations for the full year remain unchanged.
Looking to 2019, we remain cautiously optimistic about the future prospects of the Group. The growth capex is expected to yield returns in both ENA and ARW and we will continue to explore both bolt-on and transformational acquisitions in a disciplined manner."
IFRS Information H1 2018 H1 2017
-------------------------------
Underlying Special IFRS Underlying Special IFRS
performance Items performance Items
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 833.8 - 833.8 770.3 - 770.3
------------- -------- ------ ------------- -------- ------
Europe and North America
(ENA) 64.4 (7.1) 57.3 64.3 (16.2) 48.1
Asia and ROW (ARW) 22.5 17.1 39.6 18.1 (1.9) 16.2
Unallocated (7.5) - (7.5) (5.9) (0.1) (6.0)
------------- -------- ------ ------------- -------- ------
Operating profit/(loss)
(including share of
JV's) 79.4 10.0 89.4 76.5 (18.2) 58.3
Finance costs (3.2) - (3.2) (4.9) - (4.9)
------------- -------- ------ ------------- -------- ------
Profit/(loss) before
taxation 76.2 10.0 86.2 71.6 (18.2) 53.4
------------- -------- ------ ------------- -------- ------
EPS (p) 18.4 2.2 20.6 16.8 (4.3) 12.5
DPS (p) 4.0 3.7
Underlying performance
As more fully described in note 3, the Group's management uses Underlying business performance to plan, control and assess the Group performance. Underlying performance differs from the statutory IFRS performance as Underlying performance excludes the effect of Special Items, which are also detailed in note 3. The Board's view is that Underlying performance provides additional clarity for the Group's investors and so it is the primary focus of the Group's narrative reporting. Where appropriate, IFRS performance inclusive of Special Items is also described. References to 'unit margin' and 'margin' are used in the commentary on Underlying performance. Unit margin (or margin) is calculated on selling price less variable raw material and logistics costs.
The Existing business is defined as the Synthomer Group at 31 December 2017.
The table below bridges the H1 2017 operating profit to that for the current period, showing the change in the Existing business, the impact of acquisitions, the impact of the weakness of sterling on translation and the effect of the Special Items.
Asia
Europe & Rest Unallocated
& North of corporate
America World expenses Total
GBPm GBPm GBPm GBPm
--------- ------- -------- ------- ------------ -------- ------ ------
2017 - IFRS 48.1 16.2 (6.0) 58.3
Add: 2017 - Special Items 16.2 1.9 0.1 18.2
--------- -------- ------------ ------
2017 - Underlying performance 64.3 18.1 (5.9) 76.5
2018 - Underlying Existing
business change at 2017
exchange rates (2.2) 3.9 (1.6) 0.1
2018 - Impact of acquisition
of Pischelsdorf 1.3 - - 1.3
2018 - Underlying performance
at 2017 exchange rates 63.4 (1.4%) 22.0 21.5% (7.5) 27.1% 77.9 1.8%
2018 - Impact of 2018
exchange rates 1.0 0.5 - 1.5
--------- -------- ------------ ------
2018 - Underlying performance
at 2018 exchange rates 64.4 0.2% 22.5 24.3% (7.5) 27.1% 79.4 3.8%
(Deduct)/Add: 2018 -
Special Items (7.1) 17.1 - 10.0
--------- -------- ------------ ------
2018 - IFRS 57.3 19.1% 39.6 144.4% (7.5) (25.0)% 89.4 53.3%
--------- ------- -------- ------- ------------ -------- ------ ------
Cautionary statement
The purpose of this report is to provide information to the members of the Company. It contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this report and the Company undertakes no obligation to update these forward-looking statements. Nothing in this report should be construed as a profit forecast.
ENQUIRIES:
Calum MacLean, Chief Executive Tel: 01279 436211 Officer Stephen Bennett, Chief Financial Tel: 01279 436211 Officer Charles Armitstead / Rosie Oddy, Tel: 020 3603 5220 Teneo
The Company will host a meeting for analysts and investors at 09.00 today at Canaccord Genuity (88 Wood Street, London EC2V 7QR). The presentation will be webcast on the Company's website www.synthomer.com.
Chief Executive Officer's Review
Geographic and product diversity underpins sustainable growth
The Group's strategy of driving sustainable earnings growth through both organic (investment in our assets, people and systems) and inorganic activities (via acquisitions) has resulted in a 6.4% increase in H1 Underlying profit before tax to GBP76.2m.
We have continued to invest in organic initiatives to transform and improve the underlying performance of the Group. This has included plant-by-plant gap analysis to identify areas of cost and volume improvement, and all plants now have this blue-print to work through over the short and medium term. Similarly, our Safety, Health and Environmental processes and systems have been upgraded and have delivered substantial improvement, with Group wide key performance indicators much closer to best-in-class targets. In this same time period, we have successfully ensured that all existing raw materials from outside the EU have been REACH registered ahead of the May 2018 deadline. We have invested further in tankage at key European locations to both improve the resilience in our raw material supply chain and also to provide opportunities to minimise procurement costs.
We announced in 2016 that the Group would be embarking on the largest growth capex programme ever undertaken in Synthomer's history. The Group remains on track to see the larger investments relating to the 90kt expansion in Pasir Gudang and the 36kt expansion in Worms come on line during late Q3 2018 and Q1 2019 respectively.
In terms of inorganic growth during this six month period, the acquisition of the Latex business in Pischelsdorf from BASF underscores our long-term commitment to the paper industry, and improves our access to the growing European packaging end-market.
Finally, the Group is on track to deliver the integration synergies which exceeded the initial estimates for the PAC acquisition in 2016, delivering $12m of annualised savings by the end of 2018, with an extra $2m likely by the end of 2019.
H1 Results - Underlying
Group revenue increased 8.2% to GBP833.8m (2017: GBP770.3m), principally due to increased volumes in both segments, favourable exchange rate movements and raw material price movements year-on-year.
H1 2018 Underlying profit before tax increased to GBP76.2m (2017: GBP71.6m), a rise of 6.4%, or 4.3% at constant currency. This reflected a stable performance in ENA, strong performance in ARW, and a rise in unallocated corporate costs of GBP1.6m, in line with the rise in costs seen in H2 2017 and mainly relating to an increase in the cost of share-based payments. Interest costs were lower in H1 2018 and reflected reduced interest costs associated with the accounting for pension liabilities of GBP0.7m, and lower borrowing costs in overseas currencies.
The Group further benefitted from the movement in sterling relative to the Euro (H1 2018 GBP1:EUR1.14, H1 2017 GBP1:EUR1.16) and relative to Malaysian Ringgit (H1 2018 GBP1:MYR 5.40, H1 2017 GBP1:MYR 5.55), resulting in an overall favourable FX translation impact of GBP1.5m, in part offsetting the adverse US$ transaction impact of approximately GBP5m which was experienced in the local currency results of our European operations.
Underlying earnings per share was up 9.5% at 18.4 pence per share (2017: 16.8 pence per share).
H1 Results - IFRS
IFRS profit before tax was GBP86.2m in H1 2018 relative to GBP53.4m in H1 2017. The IFRS profit before tax reflects the Underlying profit before tax as adjusted for the Special Items set out in note 3.
Special Items in H1 2018 totalled a net income of GBP10.0m, compared to a net cost of GBP18.2m in H1 2017. The net change seen in 2018 Special Items relative to 2017 was principally due to the 2018 profit on disposal of our final tranche of land in Malaysia of GBP16.3m and a reduction in amortisation of intangibles of GBP4.7m. This reduction was mainly due to the intangible assets acquired with the 2011 Polymer Latex transaction reaching the end of their amortisation period (GBP5.9m), offset by new amortisation costs for the Pischelsdorf acquisition (GBP0.6m)
Segmental review
Europe and North America (ENA)
H1 H1 Increase / (decrease)
2018 2017 Reported Constant
Currency
------ ------ ----------- -----------
% %
Volumes (ktes) 594.0 550.7 7.9 7.9
Revenue (GBPm) 646.0 593.2 8.9 7.0
EBITDA 76.1 75.2 1.2 (0.4)
Operating profit - Underlying
performance (GBPm) 64.4 64.3 0.2 (1.4)
Operating profit - IFRS (GBPm) 57.3 48.1 19.1
-------------------------------- ------ ------ ----------- -----------
Underlying operating profit in the ENA segment was GBP0.1m higher at GBP64.4m (2017: 64.3m), an increase of 0.2%, or a decrease of 1.4% at constant currency.
Volumes increased by 2.6% excluding Pischelsdorf, and 7.9% overall. We saw improvements across most areas of the business, including carpets, foam, construction and coatings.
Overall unit margins softened slightly, and the segment has coped well in a market environment characterised by persistently rising raw material prices, which are typically passed on to customers with a one month lag. This was in addition to the impact on our European business margins associated with invoicing customers in US$, where weakness in US$ has reduced margins by an estimated GBP5m.
Supply chain resilience and the ability to buy raw materials efficiently are critical features of our business, and we have invested in securing additional tank storage during the period to strengthen our business in these areas. The incremental tank costs incurred in the period were GBP1.2m, with an annualised cost of GBP3.1m.
The acquisition of the Pischelsdorf site during January 2018 has contributed GBP1.3m of Underlying operating profit during the period. The site was fully integrated into our network and confirms our position as the number one SBR latex producer in Europe.
As we reported to the market in June 2018, European Commission officials carried out unannounced inspections in several Member States at the premises of a number of companies active in styrene monomer purchasing, including Synthomer's London premises. The Group takes competition laws very seriously and will continue to cooperate fully with the Commission throughout its investigation.
Asia and Rest of World (ARW)
H1 H1 Increase / (decrease)
2018 2017 Reported Constant
Currency
------ ------ ----------- -----------
% %
Volumes (ktes) 202.6 179.5 12.9 12.9
Revenue (GBPm) 187.8 177.1 6.0 4.2
EBITDA 29.1 24.6 18.3 15.4
Operating profit - Underlying
performance (GBPm) 22.5 18.1 24.3 21.5
Operating profit - IFRS (GBPm) 39.6 16.2 144.4
-------------------------------- ------ ------ ----------- -----------
Against a softer comparative period, Underlying operating profit in the ARW segment was GBP22.5m (2017: GBP18.1m), an increase of 24.3%, or 21.5% at constant currency. This increase was mainly driven by a strong volume and margin performance in Nitrile latex.
Volumes increased by 12.9% against a comparative period that was adversely impacted by customer buying behaviour in a volatile raw material price environment. The strong growth was supported in part by an improved Nitrile latex product mix, allowing faster throughput and production of the product at our site in Pasir Gudang.
Underlying unit margins strengthened in both Nitrile latex and dispersions businesses. The Nitrile latex demand continued to grow strongly in line with recent historical experience, and the growth has resulted in unit margins firming as we have progressed through the period. The improved supply/demand balance seen in the initial part of the year is expected to be tempered in the latter part of the year with the introduction of our 90kt of incremental capacity in late Q3 2018. This should ensure that the market supply/demand balance remains at similar levels as we look forward into 2019.
Unallocated central costs
Unallocated central costs of GBP7.5m (2017: GBP5.9m) were in line with H2 2017. The variance to H1 2017 reflected the increase in the cost of share-based payments due to the rise in share price and the estimated achievement of strategic targets, and further strengthening of the management team in the London Head Office in 2017.
Special Items
H1 2018 H1 2017
GBPm GBPm
--------- --------
Restructuring and site closure costs - (3.3)
Sale of businesses 4.2 -
Sale of land 16.3 1.4
Acquisition costs (0.1) (1.2)
Amortisation of acquired intangibles (10.4) (15.1)
--------- --------
Impact on operating profit 10.0 (18.2)
--------- --------
Tax on Special Items 2.3 3.5
--------- --------
The following items of income and expense were reported as Special Items and accordingly excluded from Underlying performance:
-- 2017 restructuring costs related to the PAC and Oxo Belgium acquisitions.
-- Profits arising on the sale of businesses are more fully described in note 13.
-- Profit on sale of land related to the disposal of our final tranche of land in Malaysia. The 2017 profit related to a disposal of land in Hapton, UK.
-- Acquisition costs related to the Pischelsdorf acquisition. The 2017 costs mainly related to the Oxo Belgium and Pischelsdorf acquisitions.
-- Amortisation of intangibles decreased during the period, principally due to customer-related intangibles from the 2011 Polymer latex acquisition nearing the end of their amortisation periods (GBP5.9m), offset by new amortisation costs for the Pischelsdorf acquisition (GBP0.6m).
Of the tax credit of GBP2.3m (2017: GBP3.5m), GBP2.5m (2017: GBP3.2m) related to the notional tax credit on the intangibles amortisation expense.
Taxation
The Group's Underlying tax rate at 18% (H1 2017: 20%, Full Year 2017: 19%) was lower than the prior year due to the geographical mix of profits and movement on deferred tax assets previously unrecognised.
Cash performance and balance sheet items
The Group generated operating cash flow of GBP22.7m (2017: GBP13.0m). 2018 was higher than 2017 due to increased EBITDA, lower cash restructuring costs and a smaller investment in working capital in the period.
Cash tax increased to GBP12.5m (2017: GBP11.6m) due to acquisitions and the timing of settlement of tax liabilities.
Capital expenditure in the period amounted to GBP28.5m (2017: GBP17.2m), the rise being principally due to increased payments on growth projects, in particular at Worms (GBP6.5m), Roebuck (GBP1.1m) and Oulu (GBP0.7m). Expenditure for the full year is expected to be approximately in line with 2017 levels, as our investment in capacity expansion continues across the Group.
On 31 January 2018 the Group acquired the Pischelsdorf SBR business from BASF for a total consideration of GBP25.8m, funded through a drawdown of the Revolving Credit Facility. The provisional allocation of the purchase price has resulted in goodwill (GBP1.2m), intangibles (GBP17.6m), tangible fixed assets (GBP5.4m) and other net assets (GBP1.6m) being recorded at the date of acquisition.
The Group paid the 2017 final ordinary dividend of 8.5 pence per share to shareholders on 6(th) July, resulting in a cash outflow of GBP28.9m after the period end.
The final tranche of excess Malaysian land was sold for cash proceeds of GBP16.6m, and accordingly the Group's 70% share of the proceeds post tax will be approximately GBP11.6m
After other operating, investing and financing flows, this led to an increase in cash, cash equivalents and bank overdrafts of GBP29.5m (2017: increase GBP14.2m).
The Group Pension liability has decreased to GBP124.9m from GBP157.2m in December 2017, reflecting a reduction in the UK liability of GBP27.0m and a reduction in overseas liabilities of GBP5.3m. The reduction in the UK pension liability reflected an increase in discount rates and contributions made under the deficit recovery programme. The decrease in overseas liabilities related to an increase in discount rates.
At 30 June 2018 the Group's net debt:EBITDA ratio was 1.1x, (31 December 2017: 1.0x). The conservative leverage of the Group provides significant flexibility and scope to pursue the Group's growth strategy.
Financing
Subsequent to the end of June, the Group completed a refinancing of its main borrowing facilities, comprising a new committed 4 year Revolving Credit Facility of EUR440m. Additionally the Group has renewed its short-term loan of EUR55m for a further 12 months from 27 July 2018, to maintain flexibility in funding arrangements for the future.
To take advantage of historically low interest rates, the Group has fixed EUR275m of its core borrowings.
Dividend and capital management
The Board has declared an interim dividend of 4.0 pence per share, an increase of 0.3 pence or 8.1%. This dividend is consistent with our Group dividend and capital management policy.
Outlook
Notwithstanding ongoing political and economic uncertainty, the Group's geographic and product diversity means we are well placed for continued progress, and the Board's expectations for the full year remain unchanged.
Looking to 2019, we remain cautiously optimistic about the future prospects of the Group. The growth capex is expected to yield returns in both ENA and ARW, and we will continue to explore both bolt-on and transformational acquisitions.
Calum MacLean
Chief Executive Officer
6 August 2018
CONsolidated income statement for the SIX MONTHSED 30 JUNE 2018
Six months ended 30 June Six months ended 30 June
2018 2017
------------------------------------- -------------------------------------
Underlying Special IFRS Underlying Special IFRS
performance Items performance Items
GBPm GBPm GBPm GBPm GBPm GBPm
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Group revenue 833.8 - 833.8 770.3 - 770.3
============= ========== ========== ================= ========== ==========
Company and subsidiaries 79.1 - 79.1 75.8 - 75.8
Restructuring and site
closure costs - - - - (3.3) (3.3)
Sale of businesses - 4.2 4.2 - - -
Sale of land - 16.3 16.3 - 1.4 1.4
Acquisition costs - (0.1) (0.1) - (1.2) (1.2)
Amortisation of acquired
intangibles - (10.4) (10.4) - (15.1) (15.1)
------------- ---------- ---------- ----------------- ---------- ----------
Company and subsidiaries 79.1 10.0 89.1 75.8 (18.2) 57.6
Share of joint ventures 0.3 - 0.3 0.7 - 0.7
------------- ---------- ---------- ----------------- ---------- ----------
Operating profit/(loss) 79.4 10.0 89.4 76.5 (18.2) 58.3
============= ========== ========== ================= ========== ==========
Interest payable (2.1) - (2.1) (3.1) - (3.1)
Interest receivable 0.6 - 0.6 0.6 - 0.6
------------- ---------- ---------- ----------------- ---------- ----------
(1.5) - (1.5) (2.5) - (2.5)
IAS 19 interest charge (1.7) - (1.7) (2.4) - (2.4)
Finance costs (3.2) - (3.2) (4.9) - (4.9)
Profit/(loss) before
taxation 76.2 10.0 86.2 71.6 (18.2) 53.4
Taxation (13.7) 2.3 (11.4) (14.3) 3.5 (10.8)
------------- ---------- ---------- ----------------- ---------- ----------
Profit/(loss) for the
period 62.5 12.3 74.8 57.3 (14.7) 42.6
============= ========== ========== ================= ========== ==========
Profit attributable to
non-controlling
interests 0.1 4.7 4.8 0.3 - 0.3
Profit/(loss)
attributable
to equity holders of
the parent 62.4 7.6 70.0 57.0 (14.7) 42.3
------------- ---------- ---------- ----------------- ---------- ----------
62.5 12.3 74.8 57.3 (14.7) 42.6
============= ========== ========== ================= ========== ==========
Earnings per share
Basic 18.4p 2.2p 20.6p 16.8p (4.3)p 12.5p
Diluted 18.3p 2.2p 20.5p 16.7p (4.3)p 12.4p
Special Items
The Special Items are shown in more detail in note 3.
Year ended 31 December 2017
------------------------------ --------
Underlying Special Items IFRS
performance
GBPm GBPm GBPm
Audited Audited Audited
Continuing operations
----------------------------------------- --- -------------- -------------- --------
Revenue 1,480.2 - 1,480.2
============== ============== ========
Company and subsidiaries 138.0 - 138.0
Restructuring and site closure
costs - (11.6) (11.6)
Sale of land - 1.3 1.3
Acquisition costs - (2.3) (2.3)
Amortisation of acquired intangibles - (31.0) (31.0)
Company and subsidiaries 138.0 (43.6) 94.4
Share of joint ventures 1.0 - 1.0
-------------- -------------- --------
Operating profit/(loss) 139.0 (43.6) 95.4
Interest payable (5.7) - (5.7)
Interest receivable 1.0 - 1.0
-------------- -------------- --------
(4.7) - (4.7)
IAS19 interest charge (4.3) - (4.3)
Finance costs (9.0) - (9.0)
Profit/(loss) before taxation 130.0 (43.6) 86.4
Taxation (24.7) 13.1 (11.6)
-------------- -------------- --------
Profit/(loss) for the year 105.3 (30.5) 74.8
Profit attributable to non-controlling
interests 0.8 - 0.8
Profit/(loss) attributable to
equity holders of the parent 104.5 (30.5) 74.0
-------------- -------------- --------
105.3 (30.5) 74.8
============== ============== ========
Earnings per share
Basic 30.7p (8.9)p 21.8p
Diluted 30.5p (8.9)p 21.6p
Special Items
The Special Items are shown in more detail in note 3.
Consolidated STATEMENT OF COMPREHENSIVE INCOME for the SIX MONTHSED 30 June 2018
Six months ended 30 June Six months ended 30 June
2018 2017
--------------------------------------------- ----------------------------------------------
Equity holders Non-controlling Total Equity holders Non-controlling Total
of the Company interests of the Company interests
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
GBPm GBPm GBPm GBPm GBPm GBPm
Profit for the
period 70.0 4.8 74.8 42.3 0.3 42.6
--------------- ---------------- ---------- ---------------- ---------------- ----------
Actuarial gains
on
pension scheme 25.5 - 25.5 1.9 - 1.9
Tax relating to
components
of other
comprehensive
income 1.6 - 1.6 0.3 - 0.3
--------------- ---------------- ---------- ---------------- ---------------- ----------
Total items that
will
not be
reclassified
to profit or
loss 27.1 - 27.1 2.2 - 2.2
--------------- ---------------- ---------- ---------------- ---------------- ----------
Exchange
differences
on translation
of
foreign
operations 6.0 0.6 6.6 (6.2) (0.2) (6.4)
Gains on hedge
of
net investment
taken
to equity 0.7 - 0.7 5.0 - 5.0
Exchange
differences
recycled on
sale of
businesses (0.4) - (0.4) - - -
Total items that
may
be reclassified
subsequently
to profit or
loss 6.3 0.6 6.9 (1.2) (0.2) (1.4)
--------------- ---------------- ---------- ---------------- ---------------- ----------
Other
comprehensive
income
/(expense)
for the period 33.4 0.6 34.0 1.0 (0.2) 0.8
--------------- ---------------- ---------- ---------------- ---------------- ----------
Total
comprehensive
income for the
period 103.4 5.4 108.8 43.3 0.1 43.4
=============== ================ ========== ================ ================ ==========
Year ended 31 December
2017
--------------------------------------------
Equity holders Non-controlling Total
of the Company interests
Audited Audited Audited
GBPm GBPm GBPm
Profit for the year 74.0 0.8 74.8
---------------- ---------------- --------
Actuarial gains on
pension scheme 23.6 - 23.6
Tax relating to components
of other comprehensive
income 2.3 - 2.3
---------------- ---------------- --------
Total items that will
not be reclassified
to profit or loss 25.9 - 25.9
---------------- ---------------- --------
Exchange differences
on translation of foreign
operations 9.2 - 9.2
Losses on hedge of
net investment taken
to equity (7.8) - (7.8)
Total items that may
be reclassified subsequently
to profit or loss 1.4 - 1.4
---------------- ---------------- --------
Other comprehensive
income for the year 27.3 - 27.3
---------------- ---------------- --------
Total comprehensive
income for the year 101.3 0.8 102.1
================ ================ ========
Consolidated STATEMENT OF CHANGES IN EQUITY
Share Share Capital Hedging Retained Total Non-controlling Total
capital premium redemption and earnings interests equity
reserve translation
reserve
--------- --------- ------------ --------------- ---------- ------- ---------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2018 34.0 230.5 0.9 (3.0) 125.5 387.9 18.3 406.2
--------- --------- ------------ --------------- ---------- ------- ---------------- --------
Profit for the
period - - - - 70.0 70.0 4.8 74.8
Other
comprehensive
income for the
period - - - 6.3 27.1 33.4 0.6 34.0
--------- --------- ------------ --------------- ---------- ------- ---------------- --------
Total
comprehensive
income for the
period - - - 6.3 97.1 103.4 5.4 108.8
Share based
payments - - - - (4.3) (4.3) - (4.3)
Dividends
payable - - - - (28.9) (28.9) - (28.9)
At 30 June 2018
(Unaudited) 34.0 230.5 0.9 3.3 189.4 458.1 23.7 481.8
========= ========= ============ =============== ========== ======= ================ ========
Share Share Capital Hedging Retained Total Non-controlling Total
capital premium redemption and earnings interests equity
reserve translation
reserve
--------- --------- ------------ ------------- ---------- ------- ---------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 34.0 230.5 0.9 (4.4) 65.2 326.2 18.0 344.2
--------- --------- ------------ ------------- ---------- ------- ---------------- --------
Profit for the
period - - - - 42.3 42.3 0.3 42.6
Other
comprehensive
income/(expense)
for the period - - - (1.2) 2.2 1.0 (0.2) 0.8
--------- --------- ------------ ------------- ---------- ------- ---------------- --------
Total
comprehensive
income/(expense)
for the period - - - (1.2) 44.5 43.3 0.1 43.4
Share based
payments - - - - (2.3) (2.3) - (2.3)
Dividends payable - - - - (26.5) (26.5) - (26.5)
At 30 June 2017
(Unaudited) 34.0 230.5 0.9 (5.6) 80.9 340.7 18.1 358.8
========= ========= ============ ============= ========== ======= ================ ========
Share Share Capital Hedging Retained Total Non-controlling Total
capital premium redemption and earnings interests equity
reserve translation
reserve
--------- --------- ------------ -------------- ---------- ------- ---------------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2017 34.0 230.5 0.9 (4.4) 65.2 326.2 18.0 344.2
--------- --------- ------------ -------------- ---------- ------- ---------------- --------
Profit for the
year - - - - 74.0 74.0 0.8 74.8
Actuarial gains - - - - 23.6 23.6 - 23.6
Exchange
difference
on translation
of foreign
operations - - - 9.2 - 9.2 - 9.2
Loss on hedge
of net
investment
taken to equity - - - (7.8) - (7.8) - (7.8)
Tax relating to
components of
other
comprehensive
income - - - - 2.3 2.3 - 2.3
--------- --------- ------------ -------------- ---------- ------- ---------------- --------
Total
comprehensive
income for the
year - - - 1.4 99.9 101.3 0.8 102.1
Dividends paid
to shareholders - - - - (39.1) (39.1) - (39.1)
Dividends paid
to
non-controlling
interests - - - - - - (0.5) (0.5)
Share-based
payments - - - - (0.5) (0.5) - (0.5)
At 31 December
2017 (Audited) 34.0 230.5 0.9 (3.0) 125.5 387.9 18.3 406.2
========= ========= ============ ============== ========== ======= ================ ========
Consolidated balance sheet as at 30 June 2018
30 June 30 June 31 December
2018 2017 2017
---------- ---------- ------------
Unaudited Unaudited Audited
GBPm GBPm GBPm
Non-current assets
Goodwill 331.6 328.0 329.1
Acquired intangible assets 73.8 81.7 66.2
Other intangible assets 2.1 0.2 1.9
Property, plant and equipment 340.9 304.1 322.1
Deferred tax assets 25.7 18.4 23.3
Investment in joint ventures 9.0 8.5 7.5
---------- ---------- ------------
Total non-current assets 783.1 740.9 750.1
---------- ---------- ------------
Current assets
Inventories 127.3 139.6 125.1
Trade and other receivables 289.0 264.6 229.1
Cash and cash equivalents 98.4 147.9 89.6
Total current assets 514.7 552.1 443.8
---------- ---------- ------------
Asset classified as held for sale - 0.3 6.8
---------- ---------- ------------
Current liabilities
Borrowings (2.3) (80.7) (73.1)
Trade and other payables (286.6) (254.5) (279.3)
Current tax liability (41.8) (42.0) (40.2)
Dividends payable (28.9) (26.5) -
Provisions for other liabilities
and charges (1.9) (2.9) (2.4)
Total current liabilities (361.5) (406.6) (395.0)
---------- ---------- ------------
Non-current liabilities
Borrowings (290.2) (291.5) (197.0)
Trade and other payables (0.6) (1.3) (2.3)
Deferred tax liability (33.8) (44.0) (35.4)
Post retirement benefit obligations (124.9) (184.5) (157.2)
Provisions for other liabilities
and charges (5.0) (6.6) (7.6)
---------- ---------- ------------
Total non-current liabilities (454.5) (527.9) (399.5)
---------- ---------- ------------
Net assets 481.8 358.8 406.2
========== ========== ============
Equity
Called up share capital 34.0 34.0 34.0
Share premium 230.5 230.5 230.5
Capital redemption reserve 0.9 0.9 0.9
Hedging and translation reserve 3.3 (5.6) (3.0)
Retained earnings 189.4 80.9 125.5
---------- ---------- ------------
Equity attributable to equity
holders of the parent 458.1 340.7 387.9
Non-controlling interests 23.7 18.1 18.3
---------- ---------- ------------
Total equity 481.8 358.8 406.2
========== ========== ============
Analysis of net borrowingS
Cash and cash equivalents 98.4 147.9 89.6
Current borrowings (2.3) (80.7) (73.1)
Non-current borrowings (290.2) (291.5) (197.0)
-------- -------- --------
Net borrowings (194.1) (224.3) (180.5)
======== ======== ========
The interim financial statements were approved by the Board of Directors and authorised for issue on 6 August 2018.
Consolidated cash flow STATEMENT for the SIX MONTHSED 30 JUNE 2018
Six months ended Six months ended Year ended
30 June 2018 30 June 2017 31 December
2017
---------------------- ---------------------- --------------------
Unaudited Unaudited Unaudited Unaudited Audited Audited
GBPm GBPm GBPm GBPm GBPm GBPm
Operating
Cash generated from
operations 37.1 27.1 162.6
Interest received 0.6 0.6 1.0
Interest paid (2.5) (3.1) (5.8)
---------- ---------- --------
Net interest paid (1.9) (2.5) (4.8)
UK corporation tax - - -
paid
Overseas corporate
tax paid (12.5) (11.6) (26.1)
---------- ---------- --------
Total tax paid (12.5) (11.6) (26.1)
---------- ---------- --------
Net cash inflow from
operating activities 22.7 13.0 131.7
---------- ---------- --------
Investing
Dividends received
from joint ventures 0.5 1.0 2.0
Purchase of property,
plant and equipment (28.5) (17.2) (60.3)
Sale of property, plant
and equipment 16.6 2.2 2.2
Net capital expenditure (11.9) (15.0) (58.1)
Purchase of businesses (25.8) (64.1) (64.1)
Sale of businesses 4.3 - 7.6
Net cash outflow from
investing activities (32.9) (78.1) (112.6)
---------- ---------- --------
Financing
Ordinary dividends
paid - - (39.1)
Dividends paid to non-controlling
interests - - (0.5)
Settlement of equity-settled
share based payments (5.1) (2.8) (3.1)
Proceeds of borrowings 96.8 133.1 (102.0)
Repayment of borrowings (52.0) (51.0) 136.3
Net cash inflow/(outflow)
from financing activities 39.7 79.3 (8.4)
---------- ---------- --------
Increase in cash, cash
equivalents and bank
overdrafts during the
period 29.5 14.2 10.7
========== ========== ========
Comprised of:
Cash, cash equivalents
and bank overdrafts
at 1 January 65.4 52.0 52.0
Cash inflows/(outflows)
Cash and cash equivalents 7.7 28.1 (28.5)
Bank overdrafts 21.8 (13.9) 39.2
---------- ---------- --------
29.5 14.2 10.7
Exchange and other
movements 1.2 1.0 2.7
---------- ---------- --------
Cash, cash equivalents
and bank overdrafts
at period end 96.1 67.2 65.4
========== ========== ========
Reconciliation of net cash flow from operating activities to movement in net borrowings
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
-------------- -------------- -------------
Unaudited Unaudited Audited
GBPm GBPm GBPm
Net cash inflow from operating
activities 22.7 13.0 131.7
Add back: dividends received
from joint ventures 0.5 1.0 2.0
Less: net capital expenditure (11.9) (15.0) (58.1)
Less: net purchase of businesses (21.5) (64.1) (56.5)
(10.2) (65.1) 19.1
Ordinary dividends paid - - (39.1)
Dividends paid to non-controlling
interests - - (0.5)
Settlement of equity-settled
share based payments (5.1) (2.8) (3.1)
Exchange movements 1.7 (6.1) (6.6)
-------------- -------------- -------------
Increase in net borrowings (13.6) (74.0) (30.2)
============== ============== =============
NOTES TO THE FINANCIAL STATEMENTS
1. General information
The information for the year ended 31 December 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not contain a reference to any matters which the auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under section 498 (2) or (3) of the Companies Act 2006. These interim financial statements have been reviewed, not audited
2. Accounting policies and basis of preparation
The annual financial statements of Synthomer plc are prepared in accordance with IFRSs as adopted by the European Union and applicable law. These interim financial statements have been prepared in accordance with applicable law, the Disclosure and Transparency Rules of the Financial Conduct Authority and with International Accounting Standards 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies and methods of computations are followed in these financial statements as in the most recent audited annual financial statements except as described below.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to the expected total annual profit or loss.
The Group has changed its accounting policies as a result of adopting the following new standards:
- IFRS 9 Financial Instruments - IFRS 15 Revenue from Contracts with Customers
The Group will also make a further change to its accounting policies when it adopts IFRS 16 Leases, on 1 January 2019.
The impact of the adoption of these standards and the new accounting policies are disclosed in note 19 below.
After making enquiries and taking account of reasonably possible changes in trading performance, the Directors are satisfied that, at the time of approving the interim financial statements for the Group, it is appropriate to adopt the going concern basis.
3. Segmental performance & Special Items
The Group's Executive Committee, chaired by the Chief Executive Officer, examines the Group's performance and has identified two reportable segments of its business:
Europe & North America
These markets are well developed and are typically growing at GDP.
Asia & Rest of World
These markets are characterised by growth rates generally above GDP coupled with an increased penetration of more sophisticated products into wider uses.
The Group's Executive Committee primarily uses Underlying operating profit, being operating profit before Special Items to assess the performance of the operating segments. No information is provided to the Executive Committee at the segment level concerning interest income, interest expenses, income taxes or other material non-cash items.
No single customer accounts for more than 10% of the Group's revenues.
The chief operating decision maker is the Group's Executive Committee.
IFRS and Underlying Performance
The IFRS profit measures show the performance of the Group as a whole and as such includes all sources of income and expense, including both one-off items and those that do not relate to the Group's ongoing businesses. To provide additional clarity on the ongoing trading performance of the Group's businesses, management uses "Underlying" performance as an alternative performance measure to plan for, control and assess the performance of the segments. Underlying performance differs from the IFRS measures as it excludes Special Items.
Special Items
The definition of Special Items is shown in note 22 and has been consistently applied. These Special Items are either irregular, and therefore including them in the assessment of a segment's performance would lead to a distortion of trends, or are technical adjustments which ensure the Group's financial statements are in compliance with IFRS but do not reflect the operating performance of the segment in the year, or both. An example of the latter is the amortisation of acquired intangibles, which principally relates to acquired customer relationships. The Group incurs costs, which are recognised as an expense in the income statement, in maintaining these customer relationships. The Group considers that the exclusion of the amortisation charge on acquired intangibles from Underlying performance avoids the potential double counting of such costs and therefore excludes it as a Special Item from Underlying performance.
A segmental analysis of Underlying performance and Special Items is shown below.
Reconciliation of Six months ended June 2018 Six months ended June 2017
Underlying
performance
to IFRS
------------------------------------------------ ----------
Europe Asia Unallocated Total Europe Asia Unallocated Total
& North & Rest corporate & North & Rest corporate
America of World expenses America of World expenses
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
---------- ---------- ------------ ---------- ------------ ---------- ------------ ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue -
Underlying
and IFRS 646.0 187.8 833.8 593.2 177.1 770.3
---------- ---------- ---------- ------------ ---------- ----------
Operating
profit/(loss)
- including share
of joint ventures
Underlying
operating
profit/(loss) 64.4 22.5 (7.5) 79.4 64.3 18.1 (5.9) 76.5
Special Items
Restructuring
and
site closure
costs - - - - (3.2) - (0.1) (3.3)
Sale of
businesses 1.4 2.8 - 4.2 - - - -
Sale of land - 16.3 - 16.3 1.4 - - 1.4
Acquisition
costs (0.1) - - (0.1) (1.2) - - (1.2)
Amortisation
of acquired
intangibles (8.4) (2.0) - (10.4) (13.2) (1.9) - (15.1)
---------- ---------- ------------ ---------- ------------ ---------- ------------ ----------
(7.1) 17.1 - 10.0 (16.2) (1.9) (0.1) (18.2)
---------- ---------- ------------ ---------- ------------ ---------- ------------ ----------
IFRS operating
profit/(loss) 57.3 39.6 (7.5) 89.4 48.1 16.2 (6.0) 58.3
---------- ---------- ------------ ---------- ------------ ---------- ------------ ----------
Year ended December 2017
-------------------------------------------
Europe Asia Unallocated Total
& North & Rest corporate
America of expenses
World
Audited Audited Audited Audited
--------- -------- ------------ --------
GBPm GBPm GBPm GBPm
Revenue - Underlying
and IFRS 1,134.9 345.3 1,480.2
--------- -------- --------
Operating profit/(loss)
- including share
of joint ventures
Underlying operating
profit/(loss) 117.1 35.1 (13.2) 139.0
Special Items
Restructuring and
site closure costs (11.3) (0.2) (0.1) (11.6)
Sale of land 1.3 - - 1.3
Acquisition costs (2.3) - - (2.3)
Amortisation of acquired
intangibles (27.3) (3.7) - (31.0)
(39.6) (3.9) (0.1) (43.6)
--------- -------- ------------ --------
IFRS operating profit/(loss) 77.5 31.2 (13.3) 95.4
--------- -------- ------------ --------
The following items of income and expense were reported as Special Items and accordingly were excluded from Underlying performance:
-- 2017 restructuring costs related to the PAC and Oxo Belgium acquisitions. -- Profits arising on the sale of businesses are more fully described in note 13.
-- Profit on sale of land related to the disposal of our final tranche of land in Malaysia. The 2017 profit related to a disposal of land in Hapton, UK.
-- Acquisition costs related to the Pischelsdorf acquisition. The 2017 costs mainly related to the Oxo Belgium and Pischelsdorf acquisitions.
-- Amortisation of intangibles decreased during the period, principally due to customer-related intangibles from the 2011 Polymer latex acquisition nearing the end of their amortisation periods (GBP5.9m), offset by new amortisation costs for the Pischelsdorf acquisition (GBP0.6m).
Further details are provided in the Chief Executive's Business Review and the glossary of terms in note 22.
4. EBITDA
The Group uses EBITDA as an alternative performance measure as it provides an indication of the level of cash being generated by the business from its trading activities in the period by excluding the "non cash" depreciation and amortisation charges. This is also the principal profit measure used for the financial covenants in the Group's debt facilities. The definition of EBITDA is shown in note 22.
Reconciliation Six months ended June 2018 Six months ended June 2017
of
Underlying
performance
to IFRS
------------------------------------------------ ----------
Europe Asia Unallocated Total Europe Asia Unallocated Total
& North & Rest corporate & North & Rest corporate
America of World expenses America of World expenses
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
---------- ---------- ------------ ---------- ------------ ---------- ------------ ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
EBITDA 76.1 29.1 (7.3) 97.9 75.2 24.6 (5.7) 94.1
Depreciation and
amortisation (11.7) (6.6) (0.2) (18.5) (10.9) (6.5) (0.2) (17.6)
---------- ---------- ------------ ---------- ------------ ---------- ------------ ----------
Operating profit
-
Underlying
performance 64.4 22.5 (7.5) 79.4 64.3 18.1 (5.9) 76.5
Special Items (7.1) 17.1 - 10.0 (16.2) (1.9) (0.1) (18.2)
---------- ---------- ------------ ---------- ------------ ---------- ------------ ----------
Operating profit
-
IFRS 57.3 39.6 (7.5) 89.4 48.1 16.2 (6.0) 58.3
========== ========== ============ ========== ============ ========== ============ ==========
5. Reconciliation of profit from operations to cash generated from operations
Six months Six months Year ended
ended 30 June ended 31 December
2018 30 June 2017 2017
--------------- -------------- -------------
Unaudited Unaudited Audited
GBPm GBPm GBPm
IFRS Operating profit - continuing
operations 89.4 58.3 95.4
Less: share of profit of
joint ventures (0.3) (0.7) (1.0)
--------------- -------------- -------------
89.1 57.6 94.4
Adjustments for:
Depreciation 18.1 17.5 36.4
Amortisation (Underlying) 0.4 0.1 0.8
Amortisation (Special Items) 10.4 15.1 31.0
Restructuring and site closure
(Special Items) - 3.3 11.6
Acquisition costs (Special
Items) 0.1 1.2 2.3
Share based payments 0.8 0.5 2.8
Profit on sale of land (Special
Items) (16.3) (1.4) (1.3)
Profit on sale of businesses (4.2) - -
(Special Items)
Cash impact of restructuring
and site closure (0.5) (2.2) (6.0)
Cash impact of acquisition
costs (0.1) (1.1) (2.1)
IAS 19 interest charge (1.7) (2.4) (4.3)
Pension funding in excess
of IAS 19 charge (6.6) (5.4) (12.5)
Increase in inventories (0.6) (28.2) (13.3)
Increase in trade and other
receivables (62.4) (59.7) (24.0)
Increase in trade and other
payables 10.6 32.2 46.8
Cash generated from operations 37.1 27.1 162.6
=============== ============== =============
6. Tax
Tax on the Underlying profit before taxation for the six month period was charged at 18.0% (six months ended 30 June 2017: 20.0%; year ended 31 December 2017: 19.0%), representing the best estimate of the annual effective income tax rate expected for the full year. Inclusion of the best estimate for the tax charge on the Special Items results in a tax rate of 13.2% (six months ended 30 June 2017: 20.2%; year ended 31 December 2017: 13.4%), 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. Dividends
The interim dividend of 4.0 pence per ordinary share was approved by the Board on 6 August 2018 and will be paid on 6 November 2018 to members on the register at the close of business on 5 October 2018.
The final dividend in respect of 2017, which was approved by the AGM on 26 April 2018, was paid on 6 July 2018.
8. Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 2018 30 June 2017 2017
-------------- -------------- -------------
Unaudited Unaudited Audited
'000 shares '000 shares '000 shares
Weighted average number of
shares in issue - basic 339,770 339,881 339,881
Weighted average number of
shares in issue - diluted 341,882 342,142 342,139
Six months ended 30 June Six months ended 30
2018 June 2017
------------------------------------- -------------------------------------
Underlying Special IFRS Underlying Special IFRS
performance Items performance Items
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
GBPm GBPm GBPm GBPm GBPm GBPm
Earnings Profit/(loss)
attributable to
equity holders
of the parent 62.4 7.6 70.0 57.0 (14.7) 42.3
------------- ---------- ---------- ------------- ---------- ----------
Basic earnings
per share 18.4p 2.2p 20.6p 16.8p (4.3)p 12.5p
Diluted earnings
per share 18.3p 2.2p 20.5p 16.7p (4.3)p 12.4p
Year ended 31 December
2017
---------------------------------
Underlying Special IFRS
performance Items
Audited Audited Audited
GBPm GBPm GBPm
Earnings Profit attributable
to equity holders
of the parent 104.5 (30.5) 74.0
------------- -------- --------
Basic earnings per
share 30.7p (8.9)p 21.8p
Diluted earnings per
share 30.5p (8.9)p 21.6p
9. Assets classified as held for sale
The assets classified as held for sale at 31 December 2017 comprised GBP0.3m in respect of the decision to sell agricultural land owned by the Group in Malaysia (30 June 2017: GBP0.3m) and GBP6.5m in respect of the fixed assets and working capital of Synthomer Leuna GmbH. As disclosed in notes 3 and 13, both assets were sold in the six month period to 30 June 2018. As at 30 June 2018 there were no remaining assets classified as held for sale.
10. Financial instruments
The risks associated with the Group's financial instruments and related polices are detailed in note 23 of the 2017 annual financial statements. There have been no changes in the risks and the management thereof since 31 December 2017.
Fair 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 are 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.
11. Defined benefit schemes
The value of the defined benefit plan assets have been updated to reflect their market value as at 30 June 2018. Actuarial gains or losses are recognised in the 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 assumption.
12. Acquisition of business
On 31 January 2018 the Group acquired the BASF Pischelsdorf Styrene Butadiene Rubber (SBR) business for a total consideration of GBP25.8m, to complement the Group's existing SBR markets and customers.
Provisional
fair value
------------
GBPm
Net assets acquired
Intangible assets 17.6
Property, plant and equipment 5.4
Inventories 2.2
Post retirement benefit obligations (0.6)
------------
Provisional fair value of net
assets acquired 24.6
------------
Goodwill arising on acquisition 1.2
------------
Total consideration 25.8
------------
Satisfied by
Cash consideration and movement
in net borrowings 25.8
Including provisional amounts, the total expected impact on borrowings is -
GBPm
Net movement on borrowings per above 25.8
Cash impact of acquisition costs 1.0
Total movement on borrowings relating to acquisition,
to 30 June 2018 26.8
International Financial Reporting Standard 3 "Business Combinations" (revised 2008) requires the assets acquired to be initially recorded at Fair Value at the date of acquisition. Any such Fair Value adjustments are provisional and will be finalised within twelve months of the acquisition date. Any resulting changes in the fair values may have an impact on the depreciation from the date of acquisition and would be recorded in the financial statements.
The goodwill arising on the acquisition of the business represents the premium the Group paid to acquire a business which complements the existing business and create significant opportunities for cross-selling and other synergies.
Transaction costs expensed relating to acquisition GBPm
of business
In 12 months to 31 December
2017 0.9
In 6 months to 30 June 2018 0.1
-----
1.0
-----
The acquired business contributed revenue of GBP19.0m and an operating profit of GBP1.3m to the results of the Group in the six month period to 30 June 2018. If the acquisition had been made on 1 January 2018, then the business would have contributed revenue of GBP22.6m and an operating profit of GBP1.5m to the results of the Group.
13. Disposal of subsidiaries
On 1 January 2018, the Group disposed of 100% of the share capital of Synthomer Leuna GmbH for GBP7.6m, generating a profit on disposal of GBP1.3m.
On 28 June 2018, the Group disposed of 51% of its shareholding in Synthomer FZE Limited for GBP2.9m, generating a profit on disposal of GBP2.4m
During the year, the Group transferred certain assets and liabilities to Synthomer Functional Solutions FZCO Limited. On 28 June 2018, Group disposed of 51% of its shareholding in Synthomer Functional Solutions FZCO Limited for GBP1.4m, generating a profit on disposal of GBP0.5m.
14. Capital commitments
The capital expenditure authorised but not provided for in the interim financial statements as at 30 June 2018 was GBP20.4m (30 June 2017: GBP22.3m, 31 December 2017: GBP23.7m).
15. Contingent liability
In June 2018, European Commission officials carried out unannounced inspections in several Member States at the premises of a number of companies active in styrene monomer purchasing, including Synthomer's London premises. Whilst the Group takes competition laws very seriously and will continue to fully cooperate with the Commission, it is possible that a fine may result from the findings of this investigation. It is not possible to quantify the value of a fine, if any, at this time.
16. 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. There were no other related party transactions requiring disclosure.
17. Post balance sheet events
Subsequent to the end of June, the Group completed a refinancing of its main borrowing facilities, comprising a new committed 4 year Revolving Credit Facility of EUR440m. Additionally the Group has renewed its short-term loan of EUR55m for a further 12 months from 27 July 2018, to maintain flexibility in funding arrangements for the future.
To take advantage of historically low interest rates, the Group has fixed EUR275m of its core borrowings.
18. 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.
19. Changes in accounting policies
New Standards Applied
The Group has adopted IFRS 9 Financial Instruments from 1 January 2018, and has amended its accounting policies accordingly. IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.
In accordance with the transition provisions in IFRS 9, the Group has adopted the new rules retrospectively. After a detailed assessment, the Group has identified no material amendments to the results for 2017 or 2018 which are required on adoption of the Standard.
The Group has applied the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.
The Group has elected to exercise the option under IFRS 9 to continue to apply the hedge accounting requirements of IAS 39, rather than adopt the new requirements of IFRS 9.
The Group has also adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018, and has amended its accounting policies accordingly. In accordance with the transition provisions in IFRS 15, the Group has adopted the new rules retrospectively. After a detailed assessment, the Group has identified no material amendments to the results for 2017 or 2018 which are required on adoption of the Standard
Under IFRS 15, Revenue is defined as income arising in the course of the Group's ordinary activities. Revenue is recognised when control of a good or service transfers to the customer. Revenue is also required to be apportioned to individual performance obligations. The Group manufactures and sells aqueous polymers to customers. No other material separate performance obligations have been identified.
For contracts with customers where the revenue earned is variable, management estimates the amount of consideration to which it expects to be entitled, and reassesses the estimate at each reporting date. Where cash received from customers is in excess of the expected final consideration, the difference is deferred on the balance sheet as a contract liability.
Standards Issued but not yet applied
IFRS 16 Leases is effective from, and will be applied for, the financial year beginning on 1 January 2019. The interim results for 2019 will be IFRS 16 compliant, with the first annual report published in accordance with IFRS 16 being the 31 December 2019 report.
Under IFRS 16, for almost all leases, an asset (the right-to-use the leased item) and a financial liability to pay rentals will be recognised. The right-to-use asset will be initially measured at the value of the lease liability plus any initial direct costs, and will be depreciated on a straight-line basis over the life of the lease. The lease liability will be initially measured based on the present value of lease payments to be made over the lease term, and interest will be measured on the lease liability as the discount unwinds.
The total expense recognised in the Income statement over the life of the lease will be unaffected by this new standard. However, IFRS 16 will result in the timing of the lease expense recognition being accelerated for leases currently accounted for as operating leases.
The Group has a portfolio of leases mainly comprising vehicles, chemical tanks and land and buildings, the minimum lease commitments for which have been disclosed in the annual report. The Group has made good progress in identifying all the leases and quantifying the new impact of this standard, working through a transition exercise across the Group. This will be completed before the year-end, at which point the impact on the Group's income statement, balance sheet and classification of cash flows will be quantified.
The Group currently plans to adopt a modified retrospective transition approach and so comparative information will not be adjusted. Rather, the cumulative effect of initially applying the standard is recognised as an adjustment to the opening balance sheet.
20. Risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report for the year ended 31 December 2017. These risks include:
-- The global chemicals and polymers markets are inherently volatile affecting volumes and margins and may adversely
affect the results of the Group.
-- Our markets are highly competitive and the Group could lose market share to other producers of speciality
chemicals or to other products that can be substituted for the products of the Group.
-- The value of the Group is dependent on our ability to identify and secure our own intellectual property and
ensure we do not breach third parties intellectual property rights which could lead to reputational damage.
-- Enhancements to our plants to increase manufacturing capacity to take advantage of growth markets are dependent
on project management. Poor execution of our various projects could impact on our ability to deliver the capacity
enhancements.
-- The Group's strategic plan involves significant M&A activity to grow our business. There is a risk that we
identify the wrong targets, pay too high a price, fail to integrate acquired assets and drive planned synergies,
or encounter performance, funding and cashflow issues and potentially unknown liabilities.
-- The chemical industry is inherently dangerous involving the safe transport, storage and manufacture of hazardous
chemicals. Failure to manage the impact on our staff, manufacturing sites and the environment of these risks
could lead to regulatory fines, reputational damage and lost production.
-- Volatility in the prices of our key raw materials can affect the profitability of the Group and its working
capital position.
-- A site might be unable to operate, whether temporarily or longer term, due to a risk event, including natural
disaster, safety incident, failure of a key supplier or the supply chain, sabotage and cyber-attack, and would
have an adverse impact on operations and business unit profitability.
-- We are reliant on various systems to run our business. As the frequency, sophistication and effect of
cyber-attacks continues to grow across the world, all of our systems, including our industrial control systems,
Enterprise Resource Planning (ERP), and communications could be targeted. We could lose intellectual property and
customer data which might undermine our competitive position or a cyber attack could leave one of our plants out
of action or used for sabotage.
-- Product quality and reliability is a key element of our competitive position. The Group may lose customers and
potentially be liable for damages for any quality issues.
-- Failure to comply with extensive and constantly evolving environmental, health and safety laws and regulations
could lead to significant fines, reputational damage and loss of operating licences.
-- The Group could suffer substantial penalties, damage to reputation and other sanctions for any failure to control,
for example, anti-competitive behaviour, bribery and corruption, or breaches of trade sanctions. New enhanced
rules for data privacy in the European Union with greater potential penalties could impact the Group.
-- A significant proportion of the Group's turnover and assets are in currencies other than UK sterling and
fluctuations in currency exchange rates may significantly impact the results of the Group.
-- The Group's balance sheet and cash flow, and also credit market conditions and credit ratings, may restrict the
ability of the Group to obtain credit facilities or to refinance its existing debt facilities in the longer term.
-- The Group has funding risks relating to defined benefit pension scheme obligations, the value of which are highly
dependent on volatile financial markets.
The Group continues to manage these risks as set out in the Annual Report.
21. Further information
The interim financial statements were approved by the Board of Directors on 6 August 2018.
This statement can be obtained by the public from the Company's registered office at Temple Fields, Harlow, Essex, CM20 2BH, or on the company website www.synthomer.com.
22. 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 irregular items, whose inclusion
could lead to a distortion of trends, or technical
adjustments which ensure the Group's financial statements
are in compliance with IFRS, but do not reflect
the operating performance of the segment in the
year, or both.
These include the following, inter alia, which are
disclosed separately as Special Items in order to
provide a clearer indication of the Group's Underlying
performance:
* Amortisation of acquired intangible assets;
* Impairment of non-current assets;
* Costs of business combinations as defined by IFRS 3
and related or accelerated debt issue costs;
* Re-structuring and site closure costs;
* Fair value adjustment - mark to market adjustments in
respect of cross currency and interest rate
derivatives used for hedging purposes where IAS 39
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 cash /(borrowings) Net cash/(borrowings) represent cash and cash equivalents
less short and long term borrowings, as adjusted
for the effect of related derivative instruments
irrespective of whether they qualify for hedge accounting,
non-recourse factoring arrangements, and the inclusion
of financial assets.
------------------------------------------------------------------------------
Ktes Kilotonne 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 and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, 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 last Annual Report
The directors of Synthomer plc are listed in the Synthomer plc Annual Report for 31 December 2017.
On behalf of the Board
C G MacLean S G Bennett Chief Executive Officer Chief Financial Officer
6 August 2018
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 2018. 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 2018;
-- 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
6 August 2018
London
Notes:
a) The maintenance and integrity of the Synthomer plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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 UGUCARUPRPGA
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