Synthomer posts record profits as Covid-19 drives elastomer demand

Synthomer reported a 12.8% rise in its underlying group revenue at constant currency in its preliminary results on Thursday, to £1.64bn, as its volumes rose 11.8% to 1,638.2 kilotonne equivalents.

The FTSE 250 company said group underlying EBITDA was 47.1% firmer at constant exchange rates, at £259.4m.

EBITDA in its legacy business was up 27% to £226.4m, while Omnova contributed £33m since its acquisition.

Performance elastomers EBITDA was 48% higher with another record year in NBR, benefitting from the company’s investment in new capacity and ongoing growth in demand for hygiene products.

Functional solutions EBITDA was ahead 37%, which the board said was helped by a stronger global position following the integration of Omnova, and increased market diversity.

EBITDA in industrial specialities grew by 73%, driven by the integration of the Omnova surfaces businesses.

Synthomer said its underlying operating profit was ahead 50.7% for the year ended 31 December at £189.6m, with its IFRS operating profit standing at £58.4m.

It added that new product development remained “strong” at 22%, in line with 2019.

Free cash flow grew 81% to £167.6m for the year, accelerating the firm’s deleveraging and supporting its “robust” balance sheet.

The directors said “prudent and proactive” actions were taken at the onset of the Covid-19 pandemic to preserve cash and liquidity, with net debt reducing to £462.2m since the acquisition of Omnova, with its pro forma leverage standing at 1.8x.

Synthmer issued €520m (£449.18m) of 3.875% unsecured senior loan notes due 2025 during the year, providing it with committed long-term financing.

Looking at the integration of Omnova, the company said it was ahead of schedule, with its synergy target increased to $40m (£28.71m).

A total of $40m of run rate synergies were now expected by the end of 2022, compared to its investment case of $30m.

It had already delivered $30m of run rate synergies by the end of 2020.

Finally, the company also noted that its strategic review of the European SBR network had completed, with consultations with employees at Oulu in Finland and Marl in Germany finished, with planned SBR capacity reduction projects for graphic paper applications in place for 2021.

The board proposed a final dividend for 2020 of 8.6p in line with its dividend policy, up from nil final distribution in 2019.

“Synthomer has delivered a strong performance in the face of Covid-19,” said chair Caroline Johnstone.

“We have produced record profits, de‑leveraged and are well funded for future growth.

“This performance is testament to the consistent delivery of our strategy and the investments we have made over the past five years.”

Johnstone said that throughout 2020, all of the company’s sites continued to produce without any significant interruption, as it delivered record volumes to customers.

“Alongside this, the business successfully completed and integrated the largest acquisition in its history, largely on a remote basis.

“Our business model has proven resilient in the toughest of circumstances.

“As we look to the future, the business is in a strong position.”

While the group would continue to adapt its operations in response to the ongoing Covid-19 pandemic, at the current stage Johnstone said the board expected no meaningful disruption.

“The board is confident that the benefits of the Omnova acquisition, recent investment in new capacity, further efficiency measures and a proven strategy will underpin future growth.

“The current performance of our performance elastomers business, driven by exceptional demand for Nitrile latex as a consequence of the Covid-19 pandemic, may drive particularly strong one-off profitability in 2021, but we expect this to return to more normal levels as we move into 2022.”

At 0925 GMT, shares in Synthomer were down 3.27% at 461p.