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Edited Transcript of SYNT.L earnings conference call or presentation 5-Mar-20 9:00am GMT

London Mar 5, 2020 (Thomson StreetEvents) — Edited Transcript of Synthomer PLC earnings conference call or presentation Thursday, March 5, 2020 at 9:00:00am GMT

* Calum G. MacLean

* Stephen G. Bennett

Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst

Calum G. MacLean, Synthomer plc – CEO & Executive Director [1]

Well, good morning, everyone. We’ll get a kick off, nice and sharp, 9:00. And welcome to our new venue. I’ll just get you on my first agenda slide here. As usual, I’m joined by Stephen, CFO; and Tim, our — Head of our Investor Relations. And we’ll — today’s meeting is, obviously, from our wonderful new location. It’s going to be on webcast again. So if you could please turn your phones off, and we’ll keep all the Q&A till the end.

During the agenda, as you can see here, we’ll involve brief introduction from myself, including a look back at the Synthomer journey. So I wanted you to just take a couple of minutes today to sort of say, right, where we come from, where we’re going and what can you expect as we go forward. And then more detail on the financials from Stephen. I’ll then come back, and we’ll talk about progress made to differentiate Synthomer in the market today. We’ll look at our near-term priorities and also the outlook for the full year.

So let’s get stuck into it. Resilient is the word that we think best captures how we see Synthomer’s 2019 performance. End markets across the global chemical industry have experienced a challenging and trading — a challenging trading environment, including impacts of the trade wars, Brexit, not to mention, difficulties in the automotive and other industrial markets. 2020 has already seen the early impact of the coronavirus on the industry, albeit the impact on Synthomer to date has been very much neutral. Notwithstanding these factors, 2019 EBITDA of GBP 178 million was only 1.7% below a record 2018 result of GBP 181 million. Not many global differentiated chemical companies have performed to these levels in 2019.

All our core business units with the exception of European SBR, which is part of the Performance Elastomers division, have outperformed 2018. We’ll come back to the European SBR and the actions that we are taking. But I’d ask you to look at that at the moment and see that it’s a very robust and creditable performance of our products and our divisions within a challenging market.

R&D continues to be a strong focus for us. We’re pleased to report record levels of innovation. 22% of our sales volume came from products launched in the last 5 years.

Free cash flow, a highlight of this — of the results, if you like, GBP 93 million, despite a relatively high discretionary CapEx spend during the year, and that compares very favorably with the 2018 cash flow of around GBP 28 million, where we also had very high capital expenditure. Strong cash conversion is characteristic of a differentiated company such as Synthomer and bodes well for a focused deleveraging profile post the OMNOVA transaction. We’re happy also to report that Synthomer has virtually completed the capacity expansion program, including investments in Nitriles in Malaysia, Functional Solutions in both Germany and in the U.S.A. 2020 will, therefore, see both a reduced discretionary capital expenditure and additional benefits coming from the newly installed capacity.

Finally, Synthomer announced the acquisition of OMNOVA, which should complete in March 2020. Everything seems to be on schedule there, so within the next 2 to 3 weeks. The delay in completion, albeit frustrating, the time’s being used productively to prepare a fast start to integration during quarter 2 of 2020. We’re confident that the larger asset base, the geographic extension and highly synergistic nature of the transaction will underpin future growth and progress for Synthomer in 2020 and beyond.

Before asking Steve to present the detail behind 2019, I’d like to take a few moments to reflect on the Synthomer journey of the last 5 years. Strategy over this period has been both consistent and clear since day 1. Synthomer are a pure-play, global differentiated chemical company. We manufacture from — post OMNOVA, we manufacture from 38 global assets, utilizing in-house, environmentally friendly technology, and selling increasingly differentiated products. Our blue-chip customer list of over 6,000 operates in diverse and GDP+ growth markets, and I would exclude clearly the SBR from that comment, and has very much stable unitary margins, which I will talk to you in a moment.

We are committed to both inorganic and organic growth in line with our defined capital policy. Progress has been significant over the last 5 years, and with the benefits of the OMNOVA transaction and recently invested capacity, we’re set to continue impressive growth in the coming years.

The graph on this slide shows that EBITDA has increased from GBP 118 million to GBP 178 million in the 5-year period, representing circa 10% CAGR whilst leverage has remained at around 1x EBITDA. I’m going to try pressing this, no, but I don’t switch the screen off, here we go. So EBITDA growth, GBP 118 million to GBP 180 million — or GBP 178 million. And of course, next year, we have the OMNOVA transaction and the synergies that are associated with that as well. So we’re set to continue on this trend.

The other point, same on the revenue of new products here. We have — new products has been gradually increasing, which reflects the investments into R&D of a differentiated product. Volumes, we can talk a little bit about 2019. But clearly, that’s going to continue to go up again next year with OMNOVA and with the new investments we’ve made. This one, I think, is extremely important and that you should note that in that unit gross margin. So often we’re talking about when Synthomer is this is a cyclical chemical business. A cyclical chemical business means it has cyclical profits. If you look at our margins on a unit basis throughout that period of time between ’14 and ’19 have only effectively been flat or gone up, which shows, on a product basis, there’s no cyclicality. On a volume basis, you can see we are subject to the cycles that we see in general industrial markets for whatever they are, no more so than any other business as it was. But you can see that on a unitary margin basis, pretty flat, which I would suggest to you is effectively demonstrating that we are very much a noncyclical business.

Safety performance and manufacturing capability has improved, and we can now boast industry-leading statistics, reflecting underlying practices of our assets. So again, we now — you can see here over that period of time, how the improvements come. We are operating at world-class safety and manufacturing practices and a lot of improvement and still more to come over the course of that period of time. Cash conversion is high despite significant internal investment on organic growth, and we’ve remained with our communicated capital policy throughout, keeping leverage between 1 to 2x EBITDA. So you can see here with — if we haven’t done the equity raise, you can see consistently where we keep this. Now we’ve also said in our capital policy that during a period of time that we do an acquisition that we will allow the leverage to go to 3x. We chose not to go to 3x. When we did this deal, we went to 2.5x. But we will also see a very quick deleveraging profile, which comes clearly as a part of a very high free cash flow from a business such as Synthomer.

Please don’t try and read this slide. It’s one for you to takeaway and to have a look at and to think about Synthomer’s investment case, as represented here on a single page, sets out the ambitious — the ambitions and the vision for the coming years. The OMNOVA transaction has given us good reason to relaunch what we feel is a highly compelling investment opportunity, particularly whilst the share prices are where they are today. I’ll leave you to read it in more detail because there is a lot of detail on here, but — and we’ll come back to it briefly later on in the presentation. But you can see on a page here what we think is the reasons why we are a compelling investment case.

I think, on that, I’ll hand over to Stephen.

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [2]

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Okay. Thanks, Calum, and good morning, everybody. Okay, first off, a reminder that in keeping with previous presentations, the EBITDA, underlying profit before tax and EPS exclude special items of income and expense. Exclusion of special items in determining the EBITDA and underlying profit measures is consistent with providing the clear picture of the underlying trends in our business, excluding the one-off or irregular items that would distort these trends.

In 2019, the special items charge is GBP 15 million and mainly comprise 2 items: the amortization of intangibles as normal, albeit this year, half of what it was last year because of the coming through end of the PolymerLatex intangible amortization. And the other big item was acquisition costs associated with OMNOVA, which is about GBP 9 million. We also put an FX gain through the special items. And that was the FX gain that we had when we translated the rights issue proceeds into euros to pay off our — some of our RCF borrowings.

The big items in 2018, you’ll remember, were profit on sale of land in Malaysia, GBP 16 million; and site closure costs, GBP 12 million last year. Those site closure costs have largely abated this year, and there is no significant item relating to that in 2019.

Short comments on the change in focus, given with the headlines we’re running with in the prelim announcement. You’ll see now that we are headlining with EBITDA and references to EBIT and PBT. Change in focus aligns our external and internal EBITDA reporting and is also aligned with many of our global peers, recognizing its relevance as a measure of cash generation, leverage reporting and chemical company valuations. The change in emphasis has been introduced for the first time on the full year reporting of the new business structure and ahead of the consolidation of OMNOVA, which is, as Calum said, due to complete later on this month. And clearly, when we announced the OMNOVA transaction in the summer, we were referencing valuation multiples based on EBITDA and leverage based on EBITDA multiples as well.

Okay. Turning to this slide. Results like many other chemical companies this year, 2019, as Calum’s touched on already, has been a challenging year, borne out of difficult economic conditions, whether it be China, automotive, Brexit or Germany.

So against this backdrop that we believe the results that we’re reporting today show resilience in delivering EBITDA about the same level as last year at GBP 178 million, remembering that last year’s EBITDA, as Calum talked about a few minutes ago, GBP 181 million was a record year for Synthomer.

Additionally and importantly, you’ll see that all areas of our business with the exception of SBR, moved forward, irrespective of the IFRS 16 adjustment that we’ve had the benefit of this year. So excluding the IFRS 16 benefit that we’ve had, all those business areas, excluding SBR, did move forward. There is a small impact, as you can see, on the translation of overseas earnings this year. It was just GBP 0.3 million.

Depreciation increased by GBP 13 million from GBP 39 million to GBP 52 million as a result of the significant step-up in growth CapEx that, as Calum said, that program is now largely complete, but also is the impact of IFRS 16, which converted operating lease costs into depreciation and interest.

The current major capacity expansion program is nearing completion, as we said. And Pasir Gudang, Worms and Roebuck, importantly, underpin our organic growth going forward over the next few years. And hence, whilst we’re not spending as much on CapEx or growth CapEx in the next few years, the CapEx we’ve already spent underpins the growth in the organic growth.

Interest costs were up by GBP 2.6 million, reflecting mainly the fixed interest rate hedge that we put on a couple of years ago, which was a GBP 2 million increase in cost.

In line with the guidance I gave at this time last year, the tax rate has reduced by 3% to 14%, and the reduction in that is change — is a result of the change in geographic profits and prior year items.

EPS comparative has been restated to reflect the

(technical difficulty)

of 1.0713. And the bonus factor reflects the share price immediately before the rights issue with the theoretical ex rights price of about GBP 3.60. For those who want to do the math, it’s GBP 3.60, and the theoretical ex rights price was GBP 3.35. The EPS is 25.3p and has been impacted by, a, the lower profitability of the group that we have seen that the profits after tax reporting, but also and importantly, impacted by the July rights issue, where we’ve now got the increased number of shares in circulation, but we haven’t got the earnings from the OMNOVA transaction. So the denominator has increased without having the benefits in the numerator.

Had we not have the rights issue, then the earnings per share would have been of the order of 27.3p or 11% down on 2018, which is broadly in line with the reduction in profit after tax.

Moving on to the next slide. So Performance Elastomer’s EBITDA, 11% lower at 96.3p — sorry, it’s GBP 96.3 million, sorry. A strong Nitriles volume growth mitigating the weak European SBR market conditions, and particularly, paper that Calum is going to talk about shortly.

In terms of volumes, our newly commissioned, 90,000 tonne JoB 5 reactor in Pasir Gudang helped underpin record NBR volumes, up 9% on 2018, and resulted in greater market share for us and cementing our position as #2 global NBR producer. In contrast, our SBR volumes had a tough year impacted by soft market conditions and the weakness of the paper producers, where, as Calum said, a couple of them went out of business and others struggled with credit impacting us — our ability to sell to those companies being assured of getting the money back for the product that we have sold. At the end of the year, European SBR volumes were down 7%, and as I said, Calum will talk about the network review we’re doing later in the presentation.

2019 unit margins for NBR started strong and softened later in the year as competitor capacity was brought online, and overall, the annual margin being broadly in line with 2018. Margins have started to firm as we head into 2020, with increased capacity utilization being apparent.

In line with the trading statement that we made in October, our SBR unit margins over the year were approximately down 10%, reflecting the challenging paper market. Notwithstanding the higher production costs associated with running JoB 5, where we’ve got a full year of costs, the costs for the business were broadly flat, reflecting the adoption of IFRS 16 and tight cost control in a year — a more challenging year. And those comments are pervasive through the 3 divisions, whether it’s Performance Elastomers, Functional Solutions or Industrial Specialties.

Functional solutions. As the slide says, a robust performance in the challenging market with EBITDA 9% ahead of 2018 at GBP 69.9 million, with strong unit margins mitigating the impact of lower volumes. Volumes were down by 7% — or 5%, excluding the impact of the sale of Dubai and the closure of the polyester polymer line in Malaysia. The margins were higher across most end markets, reflecting favorable raw material prices and flexible raw material contracts and a clear focus on portfolio management.

Industrial Specialties printed an EBITDA of GBP 24.8 million, some 5.5% higher than the prior year. Volumes were 2% lower on the back of challenging automotive and coatings markets, and also impacted by lower sales to China with the spectra of trade wars persisting through the year.

Unit margins generally held firm across most of the specialty businesses, in part, benefiting from a successful launch of a new absorbent product for the gas processing industry, a product which should see continued growth in coming years.

As with other divisions, and as I’ve already touched on, the costs were tightly controlled in the difficult year.

Strong cash generation. Group continues to be highly cash generative as you’ve seen from the chart that Calum put out with a 5-year track record, a few minutes ago, with the free cash flow this year being GBP 92.8 million, and this is after a further GBP 70 million of CapEx spend in 2019. Underlying SHE and sustenance CapEx remains around GBP 20 million to GBP 25 million that we’ve guided before. And we expect to see Synthomer legacy growth CapEx reduce in 2020, as we’ve talked about, as our major capacity expansion program reduces.

As I’ve already commented, the depreciation charge is high mainly due to the capacity expansion coming online and the IFRS 16 adjustment. Investments in working capital positively this year reduced following raw material — lower raw material prices and disciplined working capital management. As noted on the slide, working capital as a percentage of sales remains about 10%.

Cash interest costs, GBP 2.7 million lower — sorry, GBP 2.7 million higher, mainly reflecting the interest rate swap that we did a couple of years ago to swap the euro interest rate from variable to fixed. Cash tax costs were lower at GBP 11 million, representing 10% of the underlying tax rate. Why? We have some refunds this year, particularly from Germany on lower profitability, and also accordingly, lower payments on account.

Pension cash flow is relatively stable and mainly related to the deficit recovery payments on the closed U.K. defined benefit scheme amounting to some GBP 16 million.

Robust balance sheet. In keeping with our discussions to shareholders 12 months ago, which gave us a clear steer on hard underwrites on share issues and a more conservative leverage appetite, we redid the balance sheet in the summer for the acquisition of OMNOVA. We issued GBP 200 million of equity through a rights issue. We have committed significant financing facilities in terms of a fixed term loan and an RCF. And also, we have a bridge in place for the debt capital markets to come. The new committed 5-year facilities running from July ’19 are unsecured, conditional only on closing, and will comprise the GBP 260 million and the GBP 460 million RCF, as I’ve just mentioned.

The bridge is a 27-month bridge, takes us through to October 2021, and will allow us sufficient time to go to the debt capital markets to refinance the bridge in due course and as soon as practicable.

The facilities are subject to only 1 financial covenant, which is leverage. And at the outset, it will be set at 4.25x leverage and run to 3.25x by 2022, ensuring that we’ve got a strong and stable balance sheet, and also the capacity for leverage to come down as we get the acquisition under our belts. The out-of-the-box leverage on OMNOVA, just to remind you, was — is 2.5x.

The group net debt at the end of December ’19 was actually a positive cash balance of GBP 21 million compared to the GBP 214 million debt at the end of December ’18, reflecting the proceeds of the rights issue, about GBP 200 million, and net cash movements in the year of GBP 36 million after the dividend payment. The net debt leverage at the end of December was negative 0.1, i.e., was a cash balance. On a like-for-like basis, as Calum mentioned a few minutes ago, excluding the rights issue would have been just 1x levered compared to 1.2 at the end of 2018.

We remain resolutely focused on deleveraging the profile promised to our shareholders post the close of the OMNOVA transaction and on fulfilling our commitment to get the leverage back down to less than 2x within the next 24 months.

With this in mind, we have proposed a dividend for — a final dividend for the end of 2019 of 6.1p (sic) [6.9p], bringing the full year dividend to 10.9p per share. The full year dividend is in line with the company’s dividend policy of paying 40% of the EPS as dividends per share, and on this occasion, we have adjusted it for the rights issue to reduce the denominator.

Just a final word on OMNOVA. We have paid — or we will be paying $450 million for the equity of OMNOVA later on this month. OMNOVA has historically generated, as you know, GBP 75 million to GBP 80 million of EBITDA, to which will be added the synergies of circa GBP 30 million. The net assets of OMNOVA are about $20 million, including a goodwill number of just over $100 million. And accordingly, as we go through the transaction, we will be recognizing $500 million of intangible/goodwill on this transaction for your note.

We will update the — those numbers when we have done the fair value exercise, and we’ll provide further technical guidance when we get to the half year when we’ve got OMNOVA in the stable, and as I said, we’ve done the fair value exercise.

Okay. I’m going to hand you back to Calum now, who’s going to take you through a few more topics in relation to the group.

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [3]

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Thank you, Stephen. A few slides now on some of the things that we are working on and some of the things which are topical at the moment. So before I put them, having established the Synthomer’s margins on a unitary basis as stable or increasing over a 5-year period, and hence, should not be considered as cyclical, our goal is to increase differentiation in our portfolio and grow the underlying unitary margins, whilst continuing to operate in GDP+ markets.

A reminder on the key pillars of our investment case and how our product portfolio aligns with the global mega trends. In summary, you should look at Synthomer as very much a global differentiated chemical company with a growing portion — a growing proportion of speciality chemicals, resilient demand underpinned by the global mega trends, strong inorganic and organic growth drivers, sustainable and responsible operator and with attractive financial metrics. I’ll pick up a few of those topics now that will influence our progress.

Synthomer portfolio dynamics, first. So as mentioned by Steve, during 2019, Performance Elastomers NBR, Functional Solutions and Industrial Specialties, all outperformed 2018, which was a record year. Performance, despite the market environment, was very much in line with the long-term market trends of GDP+ growth. I’m sure it’s not gone unnoticed that our recent increased capital expenditure has been focused on the higher margin and more differentiated markets.

The European SBR business has had a more difficult year, and although the underlying market declined at circa 1% to 2%, mainly due to graphic paper, Synthomer lost additional market share through a combination of paper mill closures, to which we were a major supplier and the competitive market conditions.

SBR prices and margins have now stabilized in the second half of 2019. And indeed, in the first half of — first quarter of 2020. But there is an ongoing need to address overcapacity through asset consolidation, and my next slide will talk a little bit about that.

In our October trading statement, we said that we were conducting an extensive review of our SBR assets in Europe. For context, and it’s worth remembering that we have a leading position in this market. SBR is sold into several different industries, such as oilfield, construction, carpet and foam, most of which continue to grow. Graphic paper, which accounts for approximately 1/3 of our SBR volumes has been declining year-on-year. Our European asset base is currently underutilized, different by assets, but — let’s say, circa 70%, but does have good upper quartile economics. In that, they have scale, technology, good integration to raw materials, and indeed, our customers. It’s important to bear in mind that this is a cash-generative business, and all 4 of our assets remain profitable.

We have several options that we are looking closely at either an outright sale of an asset, asset closure under which circumstances we would transfer sales to the remaining assets to increase utilization and reduce cost per tonne of production or indeed something more creative allowing Synthomer to load their existing assets. We’re well advanced on all of the above. And in the meantime, we’re confident that the situation is stable and will, therefore, take actions during Q2/Q3 following completion of the full review. The key objective clearly here is to generate value for our shareholders, and a further announcement will be made in due course in that period of time.

Impressive track record of R&D. R&D remains a key focus for Synthomer, and we’ve continued to invest approximately 2% of our annual revenue each year. In 2019, this resulted in 16 new products being brought to market with 11 new patent filings and record sales volumes from products developed in the last 5 years. Increasing the differentiation of the portfolio by introducing new products with higher margins goes to the core of our investment case.

Turning attention to OMNOVA now. I think you’re all familiar with OMNOVA. And as I said at the outset, this is an acquisition that enhances our pure-play differentiated offering. The acquisition is an industry consolidation transaction, which brings low-risk and high-synergy potential. OMNOVA operate in 2 segments, which very naturally slot into the existing company structure. As a reminder, this is a GBP 55 million EBITDA business, pre-synergies. So this will significantly enhance our financial profile as well as the global footprint and product portfolio. As I’ve said before, it’s a step-change transaction for Synthomer. The enlarged business will be a stronger competitor globally with a highly attractive product portfolio and increased internal — international reach. We’ll have access to more customers and an expanded exposure to GDP+ business segments. The transaction multiple as agreed with OMNOVA shareholders is attractive. We financed this conservatively and are confident of being able to get leverage back down to below 2x within the next 2 years. It’s a deal that fits perfectly with the rationale that this management team has set out when we came on board 5 years ago. We’ve been patiently waiting for the right and larger asset to come along at the right place, and we’re confident that the enlarged business will generate real value for our shareholders in coming years.

During the 9 months since the transaction was announced, we’ve built a bottom-up integration plan. We’ve done as much as we can while still being competitors to give us a quick start to day 1 post completion. The cultural fit between both organizations cannot be underestimated, and I’m confident that this stands us in good stead as we work to bring these 2 businesses together. We have a dedicated team ready to move across to the U.S. imminently, and I expect them to be there for at least the next 6 months. The team will be overseen by 2 members of the existing Synthomer executive management team, who will also relocate during that period of time.

The integration process falls into 2 stages. Phase 1 will predominantly focus on aligning business and functional plans to ensure that we can move forward as 1 global entity as quickly as possible. It will also be verifying the synergy per plan and construct a detailed delivery program.

Phase 2 will be about the implementation of our plans with new ways of working announced and all the organizational changes that we will have decided upon put into place. There’s quite a bit more detail on this slide, which, again, I’d ask you to read at your leisure.

ESG, very much at the core of our business. We’ve laid out on this slide our 6-pillar framework on our ESG work that’s going on in Synthomer today. We’re focused on our environmental impact and the role our business plays in society generally. We’ve made a number of changes to the way the business is run to ensure that it’s fully focused on both the opportunity that presents itself by being a sustainable water-based polymers business, and indeed, ensuring that we do the right thing as an organization. We’ve evolved our code of conduct and significantly improved our interaction with employees around the world. In our supply chain, there is a greater focus on efficiency and waste with a contingent approach to the way we use our resources.

Health and safety remains our highest priority today. We’ve made impressive progress in our track record as demonstrated in the earlier slide. We have set ourselves targets, which we will, of course, be accountable for and update you as we go forward.

In the year ahead, we’re not anticipating any change to economic conditions. We’ve proven our relative resilience in 2019, but we’re not immune from what is going on in an industrial end markets. As everyone is aware, the coronavirus appears to be escalating. And it’s incredibly difficult to know what impact that will have in due course. At this stage, we continue to operate as normal and have experienced no disruptions to our supply chain. In China itself, we currently have no assets, but operate an import-export business, which has continued throughout the crisis with modest disruption.

On the counter side, the medical gloves business has seen increased demand, which we are supplying from our existing capacity. More broadly, we are confident that the investment that we’ve made in our core businesses will serve us well in the year ahead, and OMNOVA provides considerable upside in terms of what it will bring to Synthomer in coming years.

Thank you for that. And I think we will go to Q&A. We’ve got 2 ladies who have got the microphones. First one down here with Kevin.

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Questions and Answers

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Kevin Christopher Fogarty, Numis Securities Limited, Research Division – Analyst [1]

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Kevin Fogarty from Numis Securities. Can I start with SBR, please. Obviously, you’ve talked about stability in the second half of the year. Could you just talk about a bit more granularity on the pricing environment? Clearly, the sort of margin and volume mix suggests that’s been reasonably aggressive in H2. Equally on NBR, stable margins. They have a good volume growth. Just wondered if you’d update us on the competitive dynamics there. And what’s happened in H2? And just in terms of OMNOVA, obviously, confident on that completing later this month. In terms of the resolutions, et cetera, what needs to happen now for completion to take place?

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [2]

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All right. Thank you, all. I think I’ll probably pick up most of those actually. SBR first. So SBR was clearly the problem child of last year. I think, as I mentioned, the market probably reduced it — or the SBR, certainly, the paper side of the market reduced at 1% or 2%. And Synthomer absolutely lost more market share last year, 10% volumes were down. And that came as a result of a couple of paper mills going out of business, but also some pretty strong competition. So as you know, that competition in Europe today, which is where our main SBR market is, is primarily through BSF and Trinseo. All 3 of which players are probably operating their assets at below capacity and certainly underutilized. And at that time, last year, there was a bit of a, call it, a fight for volume, and we saw prices more at the beginning of 2019 drop as we went into the new contract from negotiations. That reduced our margins, and the margins reduced. We then, for the course of 2019, which you saw, we had about a 10% drop in margins. But as I mentioned in my presentation, all our assets still remain profitable, and the business is still generating good cash flows.

That being said, going now into the second half of 2019, no change. And going into the first quarter of 2020, where all the new contracts, and most of these businesses are on a contractual relationship, have been negotiated. And again, I can confirm that there is no change to the dynamics and the profitability of that business compared to where it was in 2019. So what does that mean? It means that the profitability in ’20 is, looking at this stage, very much in line with ’19, excluding us doing something with regards to our asset rationalization. And that again, in this slide, what I talked about is we started and have, to all intents and purposes, completed our study on what we can do. We’ve got 4 assets within the European network. And if they’re all running at 70%, it’s pretty clear that with a market that’s pretty flat for SBR. I mean although paper is declining, I mentioned there are other areas which are growing, but the overall SBR market today is reasonably flat. So therefore, we’re looking to look at some asset consolidation. The concept of that being that we’ll make more products on fewer assets at a lower cost. So we will drive our margins back up by reducing our cost to serve and not assuming any increase in the profitability in the market, which is kind of what I said, Kevin, in terms of how 2020 is looking from 2019. So we’re well advanced with that.

And as you can imagine, we’re pretty clear as to where we want to go, but there are a number of things that we’re still working on in terms of how we actually deliver that. And as you can imagine, not hugely as simple as just saying, close an asset down because if you close an asset down, you have to transfer the products you’re making on that asset into another asset. And therefore, you need to get approvals and recipes and transfers and things. So all that work and understanding is clearly going on, and we’d expect to make an announcement there in quarter 2, quarter 3 of this year.

So overall, in summary, SBR, stable results in an annual contracts that are negotiated and agreed volumes are stable as well, very much in line with what we saw in 2019.

Moving on to your second question, which was around NBR. I think we’ve talked about NBR quite extensively over the years. It is becoming a more mature business. It’s a larger business in that respect. And therefore, when incremental capacity comes online in a higher growth market, which has got a larger base volume, then it has a smaller impact. And that’s exactly what we saw. We brought capacity on during 2019 at the beginning of the year, 90,000 tonnes. We gradually sold that product. And by the end of the year, the asset was running pretty much flat out. So we didn’t sell all the capacity because it started low and got towards capacity, not entirely full, but almost full. And during that period of time, although the margins in the second half of 2019 were a bit lower than the margins in the first half, directly related to the fact that there was a lot of new capacity came into the market, particularly from our Korean competitors but also from ourselves. It wasn’t materially impacted.

So we come into the new year in 2020, and clearly, the impact there has been the coronavirus. And the coronavirus has absolutely underpinned the volumes that we are making on that plant — on our plants. So we have another plant also. We have 3 major plants that are producing Nitrile latex today around the group. One is in Italy — in Filago in Italy, one is in Kluang, which is also in Malaysia. And then we have the big griller of a plant, which is our plant in Pasir Gudang, which is the one we spent a lot of money on debottlenecking, and we’ll continue to look at other opportunities. Most — all of those plants today can sell anything they can make, as you would imagine.

So demand is good. Not surprisingly, if, unfortunately, for the wrong reasons, but demand is good and the growth we’d expect to see this year will be good. So we don’t clearly think there will be a problem in selling out the capacity.

Margins starts at the same level they came in — they came out of 2019 as we go into 2020, clearly, as global demand gets tight, then there will be opportunities to restore the margins back to maybe where they were in the first half of 2019 as well. So we’re expecting a good year in Nitriles in 2020.

OMNOVA. Where are we? What’s our situation today? Been very frustrating is the answer. I mean I stood up to you after we announced the deal,and sort of said that I fully expected this to complete before the end of the year. And initially, my target was that it was going to complete by the end of November. We knew that there was some minor issues that we would have to face on the competition clearance. But to be honest, we didn’t think that they would go as far as

(technical difficulty)

but clearly, as the commission went out and investigated that market, they decided that there was a remedy necessary before we could complete the transaction.

Now I think I’ve said to you in previous times that the remedy is extremely modest. It’s 6,000 tonnes of product that we produce in one plant. And it’s a relatively small EBITDA contributor to the total business and to the total deal. But what it has done is it’s frustrated the process. But I can sort of say to you today that where we are is we have documents now in the commission with an agreed buyer ready for approval, which we are confident, but we can never guarantee these things. We’re confident that completion will happen during the course of March this year. So within the next 3 — 2 to 3 weeks. So we’re in pretty good shape there in terms of having a remedy that meets the requirements of the commission and is in — documentation forum is ready to sign. So my expectation is by the end of March, we will have the keys to the door. As I mentioned, likewise, in my presentation, we haven’t wasted the last 9 months. We’ve got a $30 million synergy on the table on a sort of mid-$70 million EBITDA business, relatively conservative synergies because it represents about 3% of sales revenues, and in a consolidation deal like this, you’d probably expect to see a bit more, and let’s see what happens over the course of the next 1 to 2 years of what we deliver, but we’d expect a lot of the early synergy wins to come upfront as we delist the company, and we take out some of the costs, which are no longer needed when you combine these 2 public listed companies together. So we’re in good shape.

I think just on OMNOVA, what I would say in this sort of a crazy world of M&A at the moment, where prices still remain extremely high. And from what I see and what I hear in the market, there are other deals in the pipeline where multiples remain very high today because there are a lot of money around that’s been put to work. I think the price we paid for OMNOVA is very fair and reasonable. I think if they marketed and sold the company again today, it wouldn’t be any different than where it is. So I think we paid a market price. I think unlike a lot of transactions that are going on at the moment, this is a very, very logical transaction. It’s 2 companies that are coming together, which is a consolidation in the industry, which allows us to extend our geographic presence which will have synergies, undoubted synergies because of the nature of it. There are 3 divisions slot extremely well into our company, which means that we will be one working entity integrated business within a very short period of time.

So in my view, very low risk, very high synergies, and we have not been in any way overly leveraged the company in any way to do this deal. So I think straight — my personal view, straight down the view and very attractive deal for us to have done at this time. Let’s wait and see whether that proves to be the case.

Sorry, I’ll come back. Dom.

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Dominic Convey, Peel Hunt LLP, Research Division – Analyst [3]

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Dominic Convey from Peel Hunt. 2 questions, if I may. Steve, firstly, I wonder whether you might be kind of to break out the EBITDA movement in PE. I think it’s on Slide 7. Just the direct split between the SBR and NBR businesses?

And secondly, in terms of additional color around OMNOVA, I think previously, you said it’s more akin to your Functional Solutions biz, therefore, more resilient. Just intrigued as to what sort of visibility you have on the current run rate because it’s been 9 months since they last updated?

And secondly, just conscious that there was a decent business in there into U.S. onshore activity, which remains pretty tough. And so whether you’ve got any thoughts there with regard to the way we should think about the full year or the 9-month contribution from the base business pre synergies?

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [4]

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Okay. Do you want to add?

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [5]

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Yes. I mean it’s — so we’re not going to break it out. We are precluded from reporting requirements to break that number out. We really just own business, albeit we have technically clearly had 2 different product groups. And perhaps more importantly, from a commercial perspective, we have always been sensitive to NBR and NBR reporting breaking out from dispersions when it — where it’s at when we reported Asia & Rest of World because the dynamics in that market are highly competitive. So I’m sorry, Dom, I’m not going to break it out for you. But we have given a clear indication of the trends in those businesses, both in terms of unit margins and in terms of volumes. And hopefully, that’s helpful.

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [6]

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Yes. I mean I think when we put those 2 businesses together, SBR and NBR, although you can say they’re quite different in some respects, but they do have a lot of other similarities. So they’re both water-based latexes, they’re large volume products which have got increasing margins, very specific customers. So the dynamics of those 2 businesses and how they run, albeit they’re on different points in the life cycle, means they do fit very well together in terms of the way you manage them and you manage them that you want upper quartile assets, you want good integration to raw materials, you want close facility to your customers. And you need lowest cost productions. So — and very similar raw materials in some respects as well in terms of the way you buy petrochemical-based raw materials. So there are a lot of good reasons why those 2 businesses are together. One of the reasons why we clearly don’t divide the 2 businesses and make it more visible, albeit we give you a lot of guidance is, it’s quite commercially sensitive when we start getting into volumes and margins and different products, particularly when you’ve got big customers working in these areas. So apologies for that, Dom, but please keep trying. And we’ll see — we always set a little bit more out each time, I think.

On the OMNOVA side, and you talked about mainly being Functional Solutions. And I talked a little bit about saying that a lot of our growth profile and our internal organic investments as well as our inorganic investments very much into products where we think we have a differentiated product offering. And therefore, we’re constantly trying to drive up the specialty chemical side of it.

So like Performance Elastomers, have got the dynamics I just described, Functional Solutions are somewhat different. And they are smaller volumes that are going into more diverse markets. There is a lot of R&D involved in producing products, specifically tailor-made products for customers. And we do have higher margins, higher underlying margins. So those are kind of different dynamics in terms of the plants we make them on, we’re selling them in different industries, but also in different pack types, these sort of things. So it’s a more complicated business, and I would argue to you some ways, it’s a more differentiated business.

And in buying OMNOVA, we’ve deliberately focused on, what we call, our core business, where we can add value, we can use the technology and the R&D to differentiate ourselves and a very high proportion, and I’ll put a number on it as saying 60%, 70% of the OMNOVA portfolio, drops into that Functional Solutions division. I actually have the Executive Director, who runs Functional Solutions sitting at the back, so you can challenge him with any questions later on over coffee if you want as well. So that’s Rob Tupker. So it’s a different dynamic business, but we very selectively chosen which one we want to invest into. Now you’re right that it fits in. So the Functional Solutions business of OMNOVA is primarily in the U.S., but it has some divisions, some products also in Europe, but mainly in the U.S. and that will all fall under Rob once the deal has happened. And Rob will integrate those 2 businesses, establish his management team, which will clearly be a combination of both OMNOVA people and the Synthomer people.

In terms of how we — what visibility we’ve got, well, it’s difficult because at the end of the day, we’re still competitors. So they can’t give us a degree of visibility at customer level, but they can give us a degree of visibility of how the business is performing. And it’s very much at this stage — I mean it’s the same trends that we’ve got, but very much at this stage, it’s performing in line with our investment case. They may be disappointed a little bit, but that’s not where our investment case was. Our investment case was where we saw the business going. So it’s falling very much in line with our investment case. And we don’t see anything substantially changed to what we bought, 6, 9 months ago.

You talked specifically about onshore where you’re talking about the oil field. And the oil field is an interesting area for us because it’s an area — and it’s another example of the synergy here. It’s an area we were spending quite a lot of money in R&D. We were trying to develop — we’re trying to develop this sales in some of our European, but also some of our U.S. customers. And we were — but we were absolutely chasing the technology that OMNOVA had and they were the larger player and had the largest market share of these products into these markets. So my understanding is that, that business is still performing reasonably well, in line with expectations. But we are looking forward to putting those 2 divisions together, which again will fall under Rob. And effectively, we’ll — that will lead to certain synergies as a result of doing that, whether we give them access to some of our customers, particularly on the European side, but we also get some of their technology to bring to our customers and things as well. So there will be benefits of that. And it’s one of the exciting higher-margin areas that we hope to work on.

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Jaroslaw Marek Pominkiewicz, Jefferies LLC, Research Division – Equity Analyst [7]

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A couple of questions from me. It’s Jarek from Jefferies. Without giving specific numbers, can I ask about — a little bit about the unit margin development in Nitriles. I remember that in H1, the margins expanded a little bit, partly helped by the FX dynamics. It was Malaysian ringgit versus USD. Did you see the same development in the second half, helping them being more than offset by the impact of the incremental capacity coming to the market? And whether how this is developing so far this year?

My next question is bearing in mind that you think that unit margins could climb to where they were in the first half of last year. What — how should we think about it in percentage terms? Or would it be low to mid-single-digit percentage increase in unit margins?

In terms of outlook, correct me if I’m wrong, but excluding the impact of OMNOVA, it feels like you’re guiding to a broadly flat development year-on-year, is that on EBITDA or operating profit level, given that your depreciation, I think, has increased following the capacity expansions?

And on SBR asset repurposing, and this is just effectively to close the loss. From technological point of view, you’re effectively considering supplying SBR latex or different grades from different assets, but it’s not possible to convert these plants into producing Nitrile latex? Just to confirm.

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [8]

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Okay. I noticed nobody is standing up to answer these questions. So I’ll start and pick them up. I think Nitriles, I kind of said as much as I can say, because I don’t want to sort of lead the market or whatever or give indications because we have to sort of play that as it goes along. And it’s very uncertain at the moment in terms of what’s happening. In terms of Nitriles, demand is good. In 2019, prior to the new capacity coming on, the market was extremely tight. And therefore — that’s in the first half, and therefore, margins were at a good level, high level, if you like. They dropped off in the second half. And again, I can’t really put numbers on that for you, not because I don’t know them, but because I can’t really say that, but they did drop off somewhat in the second half purely as a result of additional capacity and people looking to pick up that extra volume, which is normal in any market in any business, but not materially in terms of it significantly affected the business in any way. But it did come off somewhat. Coming back in now to the beginning of this year, I think the market continues to grow and the underlying market growth here has been pretty much 8% to 10% on average over the last 4 to 5 years. And that capacity has been absorbed. So therefore, we now find ourselves in a situation, which is what I said during the presentation, that we can effectively sell all that we make. And that’s not surprising in the current circumstances.

Now what does that mean? I mean we clearly have put a lot of money into the investment and the capital investment on these assets, and we’d like to get a return on that. Does that mean that there is an opportunity to increase the margin somewhat back to the — certainly, the higher levels that we saw in the half one? I think the answer is probably yes, that’s where we look to go to. But it’s not entirely in our gift at the end of the day because we’re one supplier out of a number of suppliers there. But it wouldn’t be unreasonable to think that, that would be possible during that period of time. So that’s kind of what I would say about nitriles. I know it’s not exactly answering your question, but it gives you the trend of where these things are going and why we would be confident that the performance of — the average margin of 2019 should be repeated in 2020, and we should get some extra volume out of that business as well because current markets, we can run the capacity all year, flat out, is our expectation. But again, it’s an expectation.

And I also would add on Nitriles that we do have the capability to have some flexibility, and it’s a little bit of your third question, to move some of our assets into making Nitriles that we’re currently making SBRs and our assets in Italy is a good example of that where it’s a pretty flexible piece of a plant, which can make SBR, but it can also make NBR, and it could also make some dispersions as well the one time, particularly if a market like SBR is declining. We can backfill in that particular plant, we can backfill with NBR capacity, which is some parts of the study that we’re talking about. So when you look at our SBR capacity in Europe, and we’re looking at how we consolidate and how we rationalize that. One of the best ways to do that is to clearly make something else on the plant rather than close it. And in the case of Italy, we are moving that plant gradually more and more towards making NBR. You should also remember in that, though, that the NBR market is primarily — the market for NBR is primarily today, although that is changing with time is primarily today in Asia. So you’re making the resin in Europe, but you’re shipping it to Asia. But that’s sometimes more attractive to do when you’ve got an asset there that can do that than investing large amounts of CapEx in Asia to put new capacity on the ground. So it’s all part of that study. Now it’s not the case, and if I’m sort of half answering the third question, but it’s not the case that all SBR assets can be converted into making NBR. And if that was the case then other people would try to do it. And that’s not the case, there are other barriers to doing that. The plant has got to be very specific and sometimes there will be large investments to make that happen. So our other SBR assets are not suitable or appropriate for making NBR, which is probably good and bad in many ways. Good in that, people can’t to do that, embedding the fact that we’re not able to reutilize those assets to make something which we probably could have sold. But in the case of our Italian asset, that is the case.

So I think I answered the Nitrile question. The OMNOVA, so you’re talking about the outlook now, and OMNOVA and what have you.

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Jaroslaw Marek Pominkiewicz, Jefferies LLC, Research Division – Equity Analyst [9]

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Putting OMNOVA side.

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [10]

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Putting OMNOVA side. Okay. So putting OMNOVA aside, the outlook for the heritage Synthomer business is challenging, right? It’s challenging to stand up here and to give you today a hard forecast on what this business is going to go. So we have to talk to you generally about our views and our trends of where we see this thing going. Last year was a difficult year, but you saw that our businesses move forward in Functional Solutions, move forward in Industrial Specialties and move forward in NBR. So — and then it went backwards in SBR. So if you look at what might happen there in 2020 and then you override on top of that the economic environment that we’re in and that can include coronavirus, it can include Brexit, it can include trade wars and all the things that may come our way, it’s not easy to give that guidance. But I think you should just sort of look at it and say, Functional Solutions move forward last year on a sort of GDP+ — GDP basis. So it wouldn’t be unreasonable to do something like that again. Industrial Specialities, some of these markets — Industrial Specialties is a group of half a dozen different businesses which are unrelated, but go into specialty chemicals, but pretty flat would be my view on that business for next year. I think paper, we’ve talked about our SBR, we’ve talked about that we should anticipate another year similar to 2019. The volumes in SBR paper are not increasing. But there is some growth in the other areas. The margins, we pretty much talked in Kevin’s question are reasonably flat. So that would sort of bring you to the fact that this business and the economy is broadly flat to date, plus something that we might earn from some of the other investments we’ve made. So difficult. I’m not being — I’m not avoiding the question, it’s just a challenging market at the moment with lots of things changing. So what we’ve kind of said is that we would have, same as last year, plus some small growth that will come through some of the investments that we’ve made.

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Jaroslaw Marek Pominkiewicz, Jefferies LLC, Research Division – Equity Analyst [11]

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And that will be (inaudible)

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [12]

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Correct. And then we’ve mentioned in there as well that FX rates have moved against us somewhat as well. So you put all that in around and to come back and say that it’s broadly flat as plus or minus is where I think we would be.

Alex? Sorry, I now also got Martin, I’m going to come back to you.

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Alexander Samuel Brooks, Canaccord Genuity Corp., Research Division – Analyst [13]

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It’s Alex Brooks from Canaccord Research. A couple of slight technical questions. Can I just confirm in these bridge charts that there is an IFRS impact in the bridge somewhere. Where is it?

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [14]

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It’s coming out of costs, it was in the notes. If you look in the text on the left, it’s out of costs because the cost would have been shown as operating lease costs, and it comes back in as depreciation in those bridges. The interest comes in, in the group, but there is no interest in the bridges for the divisions that you see.

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Alexander Samuel Brooks, Canaccord Genuity Corp., Research Division – Analyst [15]

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And then the same question on the impact from the debt covenants.

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [16]

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Same question on the impact…

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Alexander Samuel Brooks, Canaccord Genuity Corp., Research Division – Analyst [17]

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Because you’ve got this debt limit, and obviously, the EBITDA has been inflated.

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [18]

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Yes, yes. So the EBITDA for debt covenants is based on a frozen gap, which is before IFRS 16. I mean it’s in the notes, to be honest, but it costs that way, yes.

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Alexander Samuel Brooks, Canaccord Genuity Corp., Research Division – Analyst [19]

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And then 2 simple ones. When is the next pension valuation, given the ongoing collapse in interest rates?

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [20]

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The next pension valuation is 2021. We did one in 2018 and next triennial.

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Alexander Samuel Brooks, Canaccord Genuity Corp., Research Division – Analyst [21]

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And lastly…

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [22]

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A lot of quick questions.

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Alexander Samuel Brooks, Canaccord Genuity Corp., Research Division – Analyst [23]

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And lastly, you gave some comments, you also gave some comments on OMNOVA’s equity on consolidation, can you give us some comments on the debt position (inaudible)

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [24]

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Yes, I mean that the — it hasn’t changed materially since the numbers we gave out when we announced the transaction. So it’s $450 million of equity, about $300 million of third-party debt and about $50 million, $60 million of pensions deficit from memory, it’s about $824 in total.

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [25]

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Geoff, are you okay? You’re okay. Sebastian.

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Sebastian Christian Bray, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [26]

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Sebastian Bray of Berenberg Bank. I would have 3 questions, please. The first 2 of which are on Nitrile. As far as the situation today is concerned, as of the 5th of March, am I right in saying that unit margins in Nitrile Latex have already gone up substantially? Or has that not happened yet because of the stronger volume growth, because of coronavirus?

The second is a question on capacity. What is the expected capacity addition, a quick update on that by LG Chem and other players potentially Kumho over the next 2 years?

And the third one is a conceptual question on cash. If you add the — what seems to be flattish EBITDA for underlying course and from a business and OMNOVA, I imagine you get to a number of about GBP 240 million. And if you say, well, okay, GBP 80 million of CapEx on that, maybe GBP 30 million to GBP 35 million of interest, that leaves a fair amount a year for the potential uses elsewhere. Now if you deduct a GBP 40 million of dividend, it’s still just under GBP 100 million, your own equity is quite cheap, why not buy back shares at this point in the cycle?

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [27]

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Right. Here we go. Nice short answers again. Okay, Sebastian. Nitriles, as of this moment in time, margins have not increased. So they sit where they sit. But that was post January. So I’m not talking in February, that the goal is clearly to try and move them up as we go forward.

Expansion, LG Chemicals and Kumho, there is nothing really anticipated coming on in 2020. No more new capacity. I think LG Chemicals are planning to bring on up to 100 kilotonnes in early 2021. Kumho have made no current announcements around new capacities. And we ourselves are looking to bring 60,000 tonnes on probably towards later in Q — ’21. So that’s probably the new — the next 2 tranches of capacity come on, both of which would have — particularly in the current market, both of which will be absolutely needed by the time they’re available. But there is nothing at this point in time due to come online in 2020. Stephen, do you want to?

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Stephen G. Bennett, Synthomer plc – CFO & Executive Director [28]

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Yes, what I would say is we have set up a capital structure in the middle of last year that involved issuing equity, putting in place some significant facilities under debt bridge to take us to the bond market in the near future as soon as the market is there. What — clearly, the numbers you’re talking about, we could take some of that money and buy some of the shares back. But in my mind, what the market wants today is a strong capital structure and a deleveraging profile. And if in due course, we have excess cash, then we can look at what we’re doing with it. But here and now, what we’re clearly focused on is the financial stability of the group financially and put it in place a strong financing structure and the deleveraging profile, which the shareholders have said many times over the last 12 months that our focus must be on deleveraging, and that’s what we’re setting them out to do very clearly. And part of that was reflected in the adherence to the dividend policy that we have as a clear note to — that’s what you’ve asked us to do, and that’s what we’re about doing. No deviation in the next 12 months.

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Calum G. MacLean, Synthomer plc – CEO & Executive Director [29]

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Yes, I think I emphasized in my presentation that it’s been clear and consistent in terms of how we’re trying to grow this company, both inorganically and organically. We’ve invested a lot of money inorganically. Yes, we’re coming to the end of what was a series of investments, and there will be some going forward, but perhaps not as heavy as been in the past. And that’s conscious of that as well because we need resources to concentrate on OMNOVA integration and the promises that we will deleverage.

The second side of it is M&A. This is probably the first meeting of this group that we’ve not had spent a large number of questions on M&A. M&A is still a very, very bullish market. There is lots of things going on. There is good opportunities there. And it’s a bit like buses, you wait half an hour for 1 and no bus and then 3 come at the same time. Well, there are lots of opportunities around in the market today that, under different circumstances, we could participate in.

But we’ve been very clear and investors have been very clear to us, we’ve been given the opportunity to buy OMNOVA. The next 12 to 18 months, the priority of OMNOVA — the priority of Synthomer is to integrate OMNOVA, is to deliver the synergies and to delever. And that gets us back into the market to looking at how we may grow again, whether that’s in 18 months, whether that’s in 2 years’ time or whatever, when we can get leverage below 2x, to be very clear, that’s our priority today. And if we get there faster because we throw off more cash and if we get there faster because I don’t know, we do some small divestments or something like that, then it allows us to come back into the market sooner, but our priority today, and it’s what we will focus on internally, is to do OMNOVA, but it’s also what the shareholders and the investors are looking for, for the company in a public listed thing. It’s difficult for us to raise any more debt today to go and do any more transactions. So we have to delever first.

Next question. I think we’re just about done then. So just to sort of bring it to a conclusion, I take you back really to this slide. All the way back. I would say to you today that Synthomer has to be a highly attractive investment opportunity. We’ve got 5-year track record now of having done 3 transactions and now a bigger, more transformational transaction. We’ve invested into the assets. So this growth, you can see on EBITDA there, 50% by inorganic, 50% by organic investments. So we’re growing on both fronts. We’ve been growing it on average 10% per EBITDA, an average 10% per annum. You can see us going from GBP 118 million to GBP 177 million. You can see a gross — unit gross margins, which are fairly stable, which says that products are not cyclical. Maybe the end markets are a little bit cyclical, but those end markets are so diverse. Whether we’re selling into construction, whether we’re selling into adhesives, whether selling into coatings, paints, textiles, the company is so geographically diverse that you see the huge impact of automotive industry didn’t really impact us overly. It did a bit, but not overly. You see the impact of Brexit, you see the impact of trade wars, you see the impact of coronavirus, but we trade through these things because the business is so diverse, and you can see that during all those periods of time, the unit margins per tonne are fairly stable. So we aren’t immune, but as a company, we’re fairly robust and we’re fairly stable in terms of what we can do.

And then if you look forward in terms of, well, what are we going to do? And within, as Stephen described, a very, very strict capital policy, we want to continue to grow the company, and OMNOVA will be that next step. So if you imagine where that graph will be in a year’s time, it’s clearly going to go up through the M&A work that we’re doing through the synergies that we’re doing. And through the better quality of products on average that we’re delivering into the portfolio as a result of the acquisitions we’ve chosen to do. So what I would say to you is that those are all moving in the right direction. The only thing that’s not moving in the right direction is the share price. And it makes us a highly attractive opportunity today for people to invest into. And that’s the story we will be trying to get around to our investors. So I think we’re in good shape. I think we’re well poised for continuing to grow. We’re not going to be immune. I don’t genuinely know and people may write after the presentation that we’ve been vague on the outlook, but please show me someone who really knows where coronavirus is going to go in the next 3 months or the next 2 or 3 months. And I don’t think anybody does. So it’s a bold person who makes that prediction and also bold person who puts a number on it. I can tell you today that coronavirus has been pretty neutral for us. I can tell you today that we are well organized, and we are well ready to manage whatever is the case that comes our way. And that will be the case. But I think in terms of looking forward into the next 2 or 3 years, you’re looking at a business that will continue to grow. It will continue to grow because we’ve invested into the assets, and we haven’t seen the full upside of that yet. It will continue to grow because we’ve done the M&A. We will deleverage because we’ve got a high free cash flow. And when we do that, we’ll be back in looking at how we best grow the business again. So we are optimistic that we’re well placed. We’re well poised to continue this growth. So thanks very much for your time, and I look forward to meeting you all later, no doubt, one-on-one as we go around the houses. Thank you.

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