Synthomer continues positive trend in third quarter

Synthomer issued a trading update for the third quarter ended 30 September on Wednesday, saying Europe and North America continued to trade well, in line with the board’s expectations and consistent with the positive trends experienced through the first half.

The FTSE 250 company said third quarter reported volumes in ENA were in line with last year whilst reported unit margins for the quarter were ahead of Q3 2015 and Q2 2016.

As a result, and with the notable exception of paper latex, gross margins across all of Synthomer’s businesses in the region were stronger than last year.

“This performance reflects the improved trading environment as well as the group's focus on efficiency, new product initiatives, strengthened procurement function and investment in business development activities,” its board said in a statement.

Asia and Rest of World continued to trade in line with expectations too, with the competitive dynamics in Synthomer’s Asian Nitrile business evolving broadly as expected following the introduction of additional industry capacity.

Reported Asian volumes were marginally lower than last year but sequentially higher than the second quarter of this year, which the board said was largely driven by increased volumes in the Asian Nitrile business.

“As expected, the market environment has led to overall unit margins softening from the highs seen in H2 2015 and H1 2016,” it explained.

“Whilst the competitive dynamics in our Asian Nitrile business are continuing to evolve, this downward price pressure has not been as marked as the Group experienced in previous years.”

Synthomer said it expected full year volumes and margins for this business to be similar to the 2015 financial year.

The board said the integration of Hexion PAC was now well underway and progressing to plan.

“The underlying annual EBITDA and expected synergies remain unchanged from the guidance given to the market in March 2016.”

Synthomer also continued to benefit from the translation effect of the ongoing weakness of sterling.

Average year-to-date foreign exchange rates were €1.24 and $1.38 per £1 which - if unchanged for the remainder of the year - would provide a translational benefit of approximately £10m for the full year.

The group said it generated strong cash flows in the quarter, benefiting from Malaysian land sales and South African business sale receipts of £21m and £13m respectively.

Net debt was reduced to £159m on 30 September, from £215m at 30 June.2016.

Synthomer’s balance sheet remained strong with a net debt-to-EBITDA ratio at circa 1.1x.

“The board's expectations for Full Year 2016 remain unchanged from the interim results in August,” it said.

“Looking forward, the outlook in 2017 also remains consistent with our previous expectations underpinned by resilient trading in Europe despite a challenging macroeconomic environment, the Asian Nitrile market continuing to evolve broadly in line with our expectations and the ongoing integration of Hexion PAC.”