- Revenue: GBP1 billion, 3.5% higher on a constant currency basis.
- Volume Growth: 10.7%, driven by Adhesive Solutions and Health and Protection businesses.
- Price Mix: Lower by 7.2%, reflecting lower raw material input prices.
- Gross Profit Contribution: Improved due to operating leverage.
- Self-Help Actions: GBP13 million benefit.
- EBITDA: GBP76 million, a 7.6% increase on constant currency.
- EBITDA Margin: 7.2%, improved from H1 2023.
- Operating Profit: GBP29 million, an 18.7% increase on constant currency.
- Net Finance Cost: Expected to be GBP60 million to GBP65 million in 2024.
- Effective Tax Rate (ETR): Expected to be outside the normal range of 23% to 25% for 2024.
- Earnings Per Share (EPS): 1.3p, up from an 8p loss in H1 2023.
- Net Debt: GBP561 million, higher than the year-end position of GBP500 million.
- Leverage: 4.7 times net debt to EBITDA.
- CCS Division Revenue: GBP430 million, down 2.1% in constant currency.
- CCS Division EBITDA: GBP53 million, with a margin increase to 12.3%.
- Adhesive Solutions Revenue: Increased by 2.2% in constant currency.
- Adhesive Solutions Volume Growth: 11.7%.
- Adhesive Solutions EBITDA: Grew by 43% on constant currency.
- Health & Protection and Performance Materials Revenue: Up 13.8% in constant currency.
- Health & Protection Volume Growth: 21%, with NBR volume up 37%.
- Health & Protection EBITDA: Increased by 24.4% in constant currency.
- CapEx: GBP38 million, with expectations similar to the last couple of years.
- Committed Liquidity: More than GBP500 million.
Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Synthomer PLC (SYHMY, Financial) reported a 3.5% increase in group revenues for continuing businesses on a constant currency basis, reaching over GBP1 billion.
- The company achieved a 10.7% volume growth, primarily driven by the Adhesive Solutions and Health and Protection businesses.
- Synthomer PLC (SYHMY) saw an improvement in EBITDA margin to 7.2%, a 7.6% increase versus the comparable period on a constant currency basis.
- The company successfully reduced its manufacturing footprint from 43 to 32 sites in less than two years, enhancing operational efficiency.
- Synthomer PLC (SYHMY) continues to make strategic investments, such as the new innovation center in China and new production capabilities in the US, supporting future growth.
Negative Points
- Net debt increased to GBP561 million at the end of June, up from GBP500 million at the end of 2023, partly due to the payment of a European Commission fine.
- The company is facing higher operating costs, including wage inflation and increased bonus accruals, impacting overall profitability.
- The Health & Protection division's NBR business, despite volume growth, is still operating at margins substantially lower than pre-pandemic levels.
- Synthomer PLC (SYHMY) continues to face challenges in the Construction business within the CCS division due to market conditions.
- Dividends remain suspended until the company's leverage is reduced below 3 times, impacting shareholder returns.
Q & A Highlights
Q: Michael, on your outlook comments, we've seen recently some weakening of macro data points in China, US, and Europe. Is that visible in your forward order book or Q3 trends?
A: The outlook is stable; it's not getting better but also not getting worse. We do not see a weakening over the last one or two months. Our self-help measures are working, and we are confident in making progress even in a stable market. (Michael Willome, CEO)
Q: Can you confirm the GBP60 million of savings from the self-help cost savings program? Are they incremental in 2025 on top of what you will achieve in 2024?
A: The GBP30 million to GBP40 million from the procurement program and GBP25 million from the AS program are cumulative by 2025. We expect up to half of each to be realized this year, so not all GBP60 million would be incremental in 2025. (Lily Liu, CFO)
Q: Is the reliability performance where you wanted it to be at this time? Are there any incremental market share gains?
A: Reliability in AS is improving month by month. We are regaining market share lost due to reliability issues. We are at about 80%-85% and aim to reach 100% by the end of the year. (Michael Willome, CEO)
Q: How do you think about the pricing outlook for NBR over the next five years?
A: The market has structurally changed post-COVID with Chinese market share stabilizing at 50%-55%. Volumes will continue to pick up, but margins will remain below pre-COVID levels due to industry-wide capacity utilization around 50%. (Michael Willome, CEO)
Q: Innovation continues to be a big focus. Is R&D spend expected to increase?
A: We are approaching 2% of sales for R&D spend, which is a healthy level for our industry. We focus on high-potential projects and believe 2% is sufficient for increasing sales and margins. (Michael Willome, CEO)
Q: Could you provide a sense of how price cost spreads have developed, especially for nitrile and adhesive solutions as we move into Q3?
A: Margins are stable, and our pricing power is strong. We have seen gross margins increase by about 100 points across all divisions in H1. We are confident in managing margins regardless of raw material price fluctuations. (Michael Willome, CEO)
Q: What is Synthomer's comfort level in terms of cash holdings on the balance sheet?
A: We currently hold about GBP270 million in cash and have over GBP500 million in committed liquidity. After paying down debt, we will still have sufficient cash and liquidity to comfortably run the business. (Lily Liu, CFO)
Q: How do you view the impact of capital-light investments on overall CapEx over the medium term?
A: Growth CapEx mainly goes into core businesses with single-digit million investments. For base businesses like NBR, we are exploring capital-light partnerships, particularly in the US and China, to avoid significant capital expenditure. (Michael Willome, CEO)
Q: Could you clarify the seasonality impact on CCS and overall expectations for H2?
A: Seasonality is limited; CCS division is about 50-48 in H1, and other divisions are roughly 50-50. We reiterate our guidance for some earnings progress compared to last year. (Michael Willome, CEO)
Q: What is the current status of inventory levels in the NBR supply chain?
A: The destocking phase is over, and inventory levels have normalized. The situation is stable, and we do not see elevated inventory levels impacting the market. (Michael Willome, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
