Synthomer tumbles on rights issue after weak first half

Shares in specialty chemicals firm Synthomer were well into the red on Thursday morning, after the company announced a £276m rights issue alongside a fall in first-half revenue and earnings.

The FTSE 259 firm said revenue from continuing operations was down 12.5% in the six months ended 30 June at £1.08bn, while EBITDA was down 55.8% at £72m.

Underlying operating profit came in at £23.4m, reflecting a decrease of 81.3%.

The company put its performance down to a subdued macroeconomic demand environment, but noted resilience of its speciality businesses.

Even though there were substantially lower volumes compared to the first half of 2022 due to destocking, reduced end-market demand, and increased competition in some base chemical products, robust pricing and a strong focus on margins somewhat cushioned the impact, the board said.

Positively, there was a volume improvement in all divisions compared to the fourth quarter of 2022, most notably led by the coatings and construction solutions sector.

Additionally, EBITDA for the second quarter was stronger than that of the first.

To strengthen its financial foundations, Synthomer announced actions including a proposed £276m rights issue.

That was made in tandem with an announcement of extending its revolving credit facility to July 2027.

Other significant financial moves included garnering $268.5m from the divestment of its laminates, films and coated fabrics, and launching a cash management programme projected to be between £150m to £200m across the group.

It also cited ongoing operational improvements in adhesive solutions which, combined with other cost-saving measures, was expected to result in around £20m in savings during the second half.

Net debt totalled £795.8m as of 30 June, down from £1.03bn at the end of 2022.

With trading patterns in July and August mirroring those in the first half, Synthomer’s board said it did not foresee a significant recovery in customer demand by the end of the year, although it did expect around £20m in self-help measures in the second half.

“Whilst these results reflect the difficult demand environment across most of our end markets and geographies, we are encouraged by areas of significant progress. In particular, our coatings and construction solutions division saw promising EBITDA growth versus the second half of 2022, and many of our speciality businesses grew, testament to our strategy to increase our focus and investment on these parts of the portfolio,” said chief executive officer Michael Willome.

“All divisions have made progress against their strategic priorities as we continue to reposition Synthomer to deliver on its medium term ambitions, supported by anticipated volume recovery in the coming years.”

Willome said the proposed rights issue would allow the company to reduce its leverage towards its medium-term target and increase its focus on strategic execution to drive long term value.

We are confident that Synthomer's medium-term earnings power is more than double our EBITDA performance over the last 12 months, driven by improved market conditions, operational and commercial excellence and our ongoing strategic evolution to become a true specialty chemicals business.”

At 0848 BST, shares in Synthomer were down 31.53% at 41.63p.