Synthomer PLC

LSE:SYNT

Earnings Call Transcript 2018-Q3

[Operator]

Hello, and welcome to the Synthomer Q3 Trading Update Call. [Operator Instructions] And just to remind you, this conference call is being recorded. Today, I am pleased to present Calum MacLean, Chief Executive Officer. Please begin your meeting.

[Calum G. MacLean, CEO & Executive Director]

Thank you very much, operator. Good morning, everyone, and thanks for joining the call. I'm joined by Stephen Bennett and Tim Hughes. I'm going to give you a quick overview, and then we'll take your questions. Key message for this morning is that the business is performing in line with our expectations, and we are on track for the full year 2018. Our geographic and product diversity continues to underpin the robust trading and stable profitability. In Europe & North America, volumes were slightly lower, but broadly in line with the same period last year on a like-for-like basis. When I say like-for-like basis, that excludes Pischelsdorf, which is around circa 60 kilotonnes per annum, and you will all remember that's the SBR acquisition that we made from BASF in February 2018. Unit margins in Europe & North America, again, on a like-for-like basis, were stable or up across all parts of the business. In Asia, the Nitrile's business had another strong quarter, and volumes and margins were ahead of a strong comparative Q3 2017. The demand environment remains encouraging, and we expect 2019 growth to be supported by the additional capacity that has come online at Pasir Gudang at the end of September. Other areas of the Asian business continue to perform in line with expectations. Our balance sheet remains strong with net debt only slightly higher than this time last year due to increased CapEx, a further investment in working capital, mainly driven by raw materials, and the full year dividend that was paid this year. Outlook remains unchanged. We're confident in meeting our expectations for the full year and feel that we are well positioned to make continued progress on into 2019, particularly bearing in mind the capital expenditure we've recently invested into the business. And I'd just like to remind you at that stage that excluding acquisitions, Synthomer has grown organically by circa 7% per annum consistently over the last 3 years. Finally, we've also mentioned today that the group will be reorganized from January next year. We'll have 3 reporting segments: Performance and Functional Solutions -- Performance Elastomers, Functional Solutions and Specialities. The objective of this is to accelerate our sales growth, sharpen commercial focus and drive operational efficiencies. We will report numbers as usual in March, that is as per the current reporting, and introduce the new segmental information from 2019 onwards. More details to follow on this and we'll also be arranging sessions with the analysts looking at comparative data before year-end.I think that's enough for me in terms of a summary. And if I could ask the operator to open it up for Q&A.

[Operator]

[Operator Instructions] Our first question is from the line of Charlie Webb from Morgan Stanley.

[Charles L. Webb, Equity Analyst]

Just a couple from me on Europe. Just maybe if you could help us a little to understand what's driving that kind of sequential slow growth dynamic there? Maybe just little bit of color on the end market construction, coatings as well as whether you impacted at all with the low Rhine level [ of Evans ] would be helpful. And then just a little bit of a sense of where unit margins have gone sequentially. I understand up year-on-year, but sequentially typically there's some seasonality in the business. So just trying to understand where that's coming out and what should be helpful.

[Calum G. MacLean, CEO & Executive Director]

Okay. Thanks, Charlie. Let me just kick off and maybe Stephen will add something as well. Volume growth in Europe, as I said, volumes year-on-year are broadly flat. I think most of our businesses, and we mentioned in the trading statement, have moved forward year-on-year. So when I talk about moving forward, I'm talking about a combination of volume and margins. From a volume perspective, I think the only business that hasn't moved forward is more the paper -- coated paper markets. So -- which, as you know, is sort of declining 1% to 2% per annum. So that's broadly where we are. I think I wouldn't read too much into that in terms of you always get some ebbs and flows depending on stocking, restocking, seasonality, et cetera, raw material prices that are moving up and down and positions that customers may choose to take on that basis. So broadly speaking, I think we talk about our dispersions business being GDP-type growth and that's what we've kind of seen there. Rhine river waters. It is an issue in Europe today, and we have, of course, Marl, that Marl's fairly early up on the Rhine and therefore we haven't been materially impacted. We've got a pretty robust supply chain and a lot of our particularly raw materials going into Marl are supplied on pipeline anyway rather than via the Rhine. So we haven't been impacted and nor are we likely to be impacted by the Rhine, other than if we had issues on the site where we've been supplied from and then we would have to ship in from the Rhine. But to this date, no issues, particularly there. From a margin perspective, I think, again, nothing typical to report there. There is a little bit of seasonality, but nothing particular, and we're seeing today if I just run through some of the businesses. I already mentioned paper. I think construction is reasonably in line with expectations. GDP-type levels of growth are what we've seen there. You've seen from quite a number of other people who've come out and reported that coatings are challenging at the moment. But challenging for us means that volumes are broadly in line with where we have last year. And we're having to fight to push through raw material prices which are increasing. But as you can see from the results, or broadly from the results that we are pretty much achieving that as per expectation. And I remind you that, we therefore, renegotiate prices on a monthly basis and raw materials move likewise on a monthly basis.

[Charles L. Webb, Equity Analyst]

That's very helpful. Maybe just one follow-up on just an update where FX sits for the second half of the year and into next year?

[Stephen G. Bennett, CFO & Executive Director]

Yes, -- sorry, Charlie, FX is broadly at similar levels second half of 2017. So we're not expecting significant FX gains and losses relative to 2017. And indeed, relative to today and looking forward into next year, similar to those levels and similar to second half of 2017.

[Operator]

Next question is from Georgia Harris from Bank of America.

[Georgia Emily Mabel Harris, Research Analyst]

Firstly, just on Asia and rest of the world. Given your new capacity is now online, do you still expect some margin softening in Q4? And could you comment on the trajectory there going into next year? And then the second thing was on the investment in working capital. Was that related to rising raw materials as you've commented as been the case previously or is there anything else in there?

[Calum G. MacLean, CEO & Executive Director]

Okay. Thanks, Georgia. I'll take the first one and ask Stephen to answer on the working capital one. I think you're right. And just to confirm for everyone on the call, we brought on our additional investment capacity, which came online at the end of September 2018, and that was an additional 90,000 tonnes of Nitrile latex. We're going through the process at the moment. That's fully online, fully commissioned and assets working well. Clearly, when you bring on a new line, you have to give the customer the opportunity to just run that through their plant first to make sure there are no changes to the standard material. That's all going on at the moment, and it's happening very successfully, no surprises there. So as we mentioned, we expect some volumes -- some smaller additional volumes in quarter 4 and then ramping up next year. In terms of impact on margins, I think little or no impact anticipated during quarter 4. The only additional -- I mean, the market was pretty tight. Anyway, we were pretty much sold out in quarter 3. So with ourselves bringing on the capacity, introducing that as and when we get approvals and the market ready to absorb some of that, we don't see any movement necessarily in supply/demand and therefore margins. I think next year, the first quarter or even the first half, again, little capacity coming online, but there is additional capacity coming online from our Korean competitors in end of -- sometime during quarter 2 towards the end of quarter 2, and that's an extra 150,000 tonnes. We are not anticipating significant margin decline on that. I mean, this business over the years has got larger. It's more stabilized and technology has got better. And I think most of the people on the call will have followed recent cycles of this business and have seen that the cyclicality of it is not as pronounced as it has been in the past. So we are not expecting major changes there. But modestly from the middle of the year, there will be additional capacity. So you can never completely understand what competitors will do.

[Stephen G. Bennett, CFO & Executive Director]

Okay. Georgia, in terms of working capital, just what we've continued to see through 3Q was our principal raw material prices in Asia and Europe, butadiene, styrene and acrylonitrile, have continued to rise. I have to say we've seen some softening in that recently, but the investment in 3Q was borne out of the rising raw material price. And as we've commented before and as it comments in the statement, our working capital typically runs at 10% of sales. So if our raw material price go up, we expect to see investment in working capital. I think you're always guiding people to where we would be at the end of the year. We expect to see -- based on today's prices, we expect to see the 40 million that we invested in 3Q in working capital coming out in Q4. So net neutral in the second half of the year. But of course that still leaves us with the 50 million we invested in the first half of the year on the back of higher raw material prices being now at the end of the year. So that's the best view today. Ultimately, it will depend on where raw material prices go over the next 2 months. But if people were interested in where we thought it was today, then 4Q would see the GBP 40 million we invest in 3Q coming out, leaving the investments for the year at about GBP 50 million.

[Calum G. MacLean, CEO & Executive Director]

I think I'll only add to that, Georgia, is, I mean, as Stephen says, it's primarily driven by raw materials because our sales are -- our working capital is circa 10% so you can work it out from that. If I just think -- look at raw materials at this moment in time, I mean, we have seen them increase during quarter 3. In fact, up until quite recently, they have been on an increasing profile. However, at this moment in time, some of our principal raw materials, which are clearly styrene, butadiene, acrylonitrile and some of the acrylates, they are starting to move in the opposite direction and move downwards. And it will be then just what happens with those over the course of the next 2 to 3 months. But at this moment in time, they are moving downwards which would mean more working capital inflow.

[Operator]

Next question is from Kevin Fogarty from Numis.

[Kevin Christopher Fogarty, Analyst]

Just a quick couple from me. Just in terms of capital allocation, I mean, obviously sort of any absence of any larger transformational deals. I just wondered if you could give us a feel of what you're thinking about alternative uses of capital that go into 2019. And I guess, I think, in terms of an acceleration potentially because of bolt-on opportunities or potentially organic investments. Has anything changed there in your thinking? And just secondly, you have obviously given us a bit of a feel as to thinking for Asia and rest of the world for 2019. I guess, at this point has there been any change to your thinking for Europe & North America as we head towards 2019?

[Calum G. MacLean, CEO & Executive Director]

All right, Thanks, Kevin. I'll have a go at some of those and see what -- if Steve wants to add anything as we go along. Capital allocation, we've consistently grown Synthomer in the last 3 years at broadly 15%, 16% per annum. And about 50% of that has been through bolt-on acquisitions, and 50% of it has been through organic growth. And as we've sort of talked quite openly about, we have increased the CapEx that we're putting into business development in the last 3 years by circa GBP 30 million, GBP 40-million per annum. And quite a bit of that additional capacity that comes as a result of that investment is coming onstream at the end of '18 and certainly in the first half of '19. So we have been investing in this business to support organic growth, and we'll continue to do so. So there are plenty of projects around, which are good return on capital invested that we continue to do. So we're going into a budgetary period at the moment, and it's a case of scaling back the aspirations in some ways and keeping the CapEx down to something that we think is appropriate for the business. And today, that -- in 2018 we'll have spent, broadly speaking, GBP 70 million, and I would expect there or thereabout that to be similar in 2019 in order to keep on funding the organic growth. Next year, we look forward to additional capacity coming out of our Worms plant. We're looking forward to additional capacity coming out of our U.S. dispersions plant, and we also look forward to the additional capacity coming out of the Nitriles and Pasir Gudang. So these are all initiatives which we've been working on for some time now which will help underlying growth. In terms of bolt-on acquisitions, although we've done one only this year, we have looked at a number of others, and we continue to be actively looking at them. We set ourselves aspirations to do 1 or 2 bolt-on acquisitions per annum, and that remains what our aspirations are going forward into '19. And in terms of a larger, more transformational deal, well, I think, as everybody knows, we are ambitious to do that. We are engaged in doing that, but we will be quite disciplined. And we have to make sure that as a speciality chemical company with stable EBITDAs and stable margins, that we buy the right businesses that stay fit for the long-term benefits of Synthomer. So high -- good growth, stable EBITDA margins and businesses we can feel we can add value to. So I'm confident that, that larger acquisition will come, but we'll just have to wait and see when the right opportunity and the timing of that. In terms of -- you mentioned Asia & Rest of the World. I think Asia & Rest of the World will continue to be driven today as almost 65% of what we do in our Asia & Rest of the World sector is Nitriles. So it will continue to be driven by Nitriles. Albeit, we will -- we're looking to do other things in dispersions to try and improve our geographic footprint there as well. In terms of Europe, I think, there are a lot of initiatives going on Europe. I would still say that Europe's fundamentally a GDP-type business. We talked a little bit about coated paper being slightly less, but there are other areas which compensate for that as well in terms of some of our dispersions and our new developments that we're doing in there. So fundamentally, GDP, stable margins and -- but still some, quite some optimization work going on in terms of optimizing our cost base, consolidating our asset base and working clearly on improving raw materials infrastructure contracts to support the profitability of the business. So we're not anticipating any material changes going into 2019 on the European business either.

[Operator]

Next question is from the line of Dominic Convey from Peel Hunt.

[Dominic Convey, Analyst]

Just two, if I may. Firstly, on Automotive, whether you just confirmed just how little automotive exposure you have across the group and what exactly that is. And I guess, perhaps a more broader question just in terms of these operational efficiencies that appear to be a primary driver around this organizational structure change. Whether yet you're prepared to give a little bit more color on run rate for those cost savings or total target, just something that we can pin our colors to with respect to the impact going forward?

[Calum G. MacLean, CEO & Executive Director]

I see. Thanks, Dom. Automotive exposure, I think, you kind of summarized it pretty well for us, and we had this debate before. Our exposure to automotive is limited. It's not large by any account. So you look at our sort of coatings markets. We don't tend to be into automotive coatings. We tend to be into other coatings businesses. So we do have some of our specialties going into specialty rubbers and what have you in Automotive, but as a percentage of our total business, it's very modest. So I wouldn't have a big read-through on the current sort of sluggish automotive markets into the Synthomer portfolio today. Operating efficiencies, I mean, absolutely spot on. It's really important for a business like this that we operate in a sort of upper quartile way. I describe it more as a journey rather than major step changes in what we do. So as you and I, in fact, sat and debated quite recently, all of our plants today, we try to operate them in a sort of best-in-class nature, which means that we're looking to optimize the assets, we're looking to effectively increase the capacity on the same fixed cost base and where necessary, spend some capital to do that. So we are optimizing the cost base or the cost x works that we have to supply. And a lot of things go into that. But ultimately, it's about making more volumes on a lower cost base. So that's something that happened across each and every one of the plants, but I wouldn't put it into your plans as a step change. I'd put it more into an ability to be able to absorb inflation and keep pushing our cost base down during a period of -- over a longer period of time.

[Operator]

Next question is from the line of Sebastian Bray from Berenberg.

[Sebastian Christian August Bray, Analyst]

I would have two, please. The first is on cost inflation. It looks as if the labor cost in Germany and other geographies in Europe will be substantially above inflation from next year onwards. And there are also higher power and energy prices. I was just wondering, is it right for next year to apply for rule of thumb if the cost savings and efficiencies that you can make internally broadly offset these developments? That's the first question. And the second one is on the ramp-up rate for Nitrile. If Synthomer is adding 90 kilotons from this year into next and from -- I was adding about 150, you're looking at capacity expansion of about 22%, 23% of the market as a whole. I was wondering if it looks as if you will stagger, or make perhaps more gentle than the version we anticipated, the rate at which you bring these new volumes online?

[Calum G. MacLean, CEO & Executive Director]

Thank you, Sebastian. As usual, very good questions. Let me try and pick them off one by one. I think you sort of -- you sort of gave the answers as well as the questions in some of those as well. But from a cost inflation perspective, power, energy, all these sort of things, absolutely, you're spot on. We are seeing inflation in Germany, particularly on things like salaries, typically around the 3% mark today. So that's not insignificant. But generally, it's not just Germany, of course; that's sort of a European phenomenon. And also on power and energy, I mean, a lot of power and energy driven by crude prices, driven by generally that move in the power and energy market. And this is exactly what I was talking about when Dom asked the question around the improved efficiencies and what have you, and why we are on a journey and unless you are constantly driving down your cost base, particularly of those elements that you can control, then what you would see is that you're gradually increasing, and you are losing your efficiencies. So yes is the answer, that's the target is that we should absorb inflation on an annual basis. So when we stick to our budgetary periods, we want to absorb inflation and that doesn't mean we are not paying people the 3% because like everywhere else, we have to do that because it's part of these agreements and it's right and appropriate to do that, but we do have to find another ways to improve our efficiency and make more products for the same cost and therefore make the unit cost per tonne not move up, and that's a challenge, and that's absolutely, particularly as we go through budgets at the moment what we are looking for. In terms of moving out to the Nitrile latex, again, correct, you've got the numbers right. It's 90 kilotonnes from us, 150 which would be available by the mid-year by Kumho. That's at sort of 22%, as you say, growth in overall capacity. We're seeing it today about 1.2 million, 1.3 million tonnes of Nitrile latex world demand. As you know, most of that is consumed in Malaysia, Thai and certainly in Asia, and then moved around as the finished gloves. But what we have seen, and this is quite important, is that underlying growth in the last 12 to 18 months in this business has certainly been greater than double digit and probably nearer the 15% rate. So the rate at which this market is growing is actually increasing rather than decreasing. And therefore, that volume can be absorbed quite quickly into the market. That being said, you're also correct in saying that we don't expect to load it all up overnight and nor would it be a strategy to go up, go out and load it up overnight. And I'd be very surprised if that was the Kumho strategy as well. Because clearly both Kumho and Synthomer are the 2 largest individual players in that market. So we are expecting a not dissimilar introduction of this product into the market as what we saw 2 years ago when similar capacity came online. And more importantly, this is not abnormal now in this market. If a market is growing at 15% per annum, and it's 1.3 million, 1.4 million tonnes, then that's the sort of capacity you need to bring online just to support the growth. And there will be small periods where it's slightly oversupplied or undersupplied.

[Sebastian Christian August Bray, Analyst]

In practice, does that mean about an 18-month ramp-up for your own facility?

[Calum G. MacLean, CEO & Executive Director]

No, I think, it will be faster than that. I think next -- by the course of next year we'll be running that plant flat out.

[Operator]

Next question is from Geoff Haire from UBS.

[Geoffrey Robert Haire, Managing Director and Equity Research Analyst]

Most of my questions have been answered, but I just want to ask one question. I was wondering, could you give us some idea, particularly in Europe, how you have left Q3 moving into Q4 just from a volume point of view?

[Calum G. MacLean, CEO & Executive Director]

Very good question, Geoff. Because it's something you look at quite carefully in what's generally a volatile market. And what I would say to you is, it came out of the summer period that was August going into September a little bit slow. And we wondered at that stage whether that was going to be indicative of the quarter. However, we, volume-wise, we had a good October. So that sort of reflects my comment on earlier questions that it's sort of business as usual with respect to volume. So we've been fairly flat in the first half, small growth, but GDP is small anyway. And I would anticipate that that's order of magnitude where we will be in the second half as well.

[Operator]

Next question is from the line of Martin Evans from HSBC.

[Martin John Evans, Analyst of Global Chemicals]

Just a quick question on the planned organizational structure change for next year and sort of motivation behind it. And obviously, you're talking about commercial focus and operational efficiency and some. But I'm interested in the phrase that you're hoping to accelerate sales growth by creating these 3 distinct units. I mean, it's honestly early days, but could you maybe give us an example of how you think that might be achieved? Or is it due to possibly realigning incentive payments into your sales force as part of this creation of the 3 separate new divisions?

[Calum G. MacLean, CEO & Executive Director]

Thanks, Martin. I mean, no rocket science behind this one, to be honest. I think Synthomer has evolved over the last 3 years. We have made 3 acquisitions. And we have made -- most of those acquisitions have been bolt-on type deals, which means we have been adding assets, complementary, consolidation-type assets, to the business. Particularly in the Functional Solutions, where over the last 3 years, we have put our first assets in the ground in the U.S. We put additional assets on the ground in Thailand. We've increased sales in China. So a lot of globalization, if you like, of those businesses. But also through making acquisitions, you brought new technology into the group as well, where we've got some interesting technology in the U.S. So we wanted to make sure that we are actually exploit that across the whole platform rather than work in sort of geographic silos. It's not that we want to do that; that's the way we've been tending to run the business anyway. And what we prefer to do is report externally in line with the way that we run the business. And I think, that's what this reflects. And it will mean that we will be driving transfer of technology, we'll be driving asset rates to make sure we sell out assets, volumes globally and not just regionally. So that's main [ area ]. It's more a management internal thing and giving global responsibility around product portfolios to individuals. And in many ways, it's not a massive change to us. Specialities was already run globally. If you think about performance elastomers, well, the vast majority of the Nitrile latex is a manufactured and run business from Asia. So it's a global business, but run from Asia. SBR is a global business, but it's run mainly from Europe because that's where our asset bases are, but we want to be able to exploit the geographic areas where we are not potentially present and pushback technology might help us with a bit more focus on some of our bolt-ons in that particular area. And then our functional solutions is the truly global business where we have global assets in all regions. And there I want to make sure we take advantage of the pockets of technology we have in different regions, and we are pushing that and growing that across the global business. So -- and I think the last thing I would say on this reorganization, it is something that we've been kind of asked to do as well by a lot of our investors who are saying, "Look, we a bit more clarity on this if we understood how the individual businesses were performing." So -- and I think that will give more clarity to the way the business is operating. I would hasten to add that we are going to spend some time between now and the end of the year, whatever or beginning of next year, with the analysts to sort of walk through how that's changing and also give them some comparative data in terms of how you relate historic performance with what will be future reporting from effectively August 2019 onwards. So I think that's my summary, Martin.

[Operator]

Next question is from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, Research Analyst]

Just one clarification. You said you think full year will be in line with management expectations. If I'm not wrong, Steve, at the first half results, you talked about 55-45 split in terms of first half, second half EBITDA. Is that something which you think is consistent right now at this point? Because just looking at the consensus, it does imply probably a stronger second half than that.

[Stephen G. Bennett, CFO & Executive Director]

Yes, I mean, the 55-45 that we've talked about before is the rule of thumb, isn't it? And it oscillates around that, Chetan. But it's a good guide. I'm not saying it's going to be exactly 55-45 because that would be a profit forecast, obviously, but it's -- there's definitely less profitability in the second half than there is in the first half. But we are moving towards where we are expected to be.

[Operator]

[Operator Instructions] We do have a follow-up from the line of Charlie Webb from Morgan Stanley.

[Charles L. Webb, Equity Analyst]

Just quickly. I mean, can we talk now about the 150 KT from Kumho, the EUR 90,000 tonnes that isn't ramping up. There has also been, I guess, a bit of news out there that there's additional capacity coming from -- in China. Is this something that you've cited, is it something we should think about, or is it more just market movement?

[Calum G. MacLean, CEO & Executive Director]

I don't think there are any large plants coming on or any material incremental capacity coming on. There are always a few minor debottlenecks with bits and pieces and that's kind of taken in the roundings, Charlie. There are 1 or 2 companies who are looking at this market in China and saying they would like to invest, but I think that's -- you've normally got this visibility certainly before anything's done of a good couple of years. And there's certainly nothing committed to being put on the ground and therefore would have an impact on us -- any material impact on us in the next two years, in our view. And should that change, then we will be quite open about what we're seeing and what we're hearing. So nothing at this stage. We have in our release said today that this market's genuinely growing. It's growing at 15% per annum at this moment in time, then the capacity that's coming on, which is the 150 and the 90, will quite quickly be absorbed. And you know that we spent a slightly additional CapEx on our last debottleneck to put infrastructure in place to do a further debottleneck in Malaysia of an additional 60 kilotons, which would just involve putting a new reactor in. So we have flexibility as to when we choose to put that online. But if the market's growing at 15%, 16%, and we want to maintain our market leadership position, then as we've said, we're starting to look at how we might bring that online ourselves in 2020. And that clearly puts a flag in the ground within the market in terms of what capacity is coming on and how the market -- how the producers in general will support the growth of this market. And that's clearly a consideration for anyone else who is choosing to invest into the market.

[Charles L. Webb, Equity Analyst]

Just to do on that point around demand being so strong over the last couple of years or so, and currently. This market hasn't always grown linearly, and I don't think any chemical markets do with, I guess, destocking, stocking events and then obviously changes in the underlying demand year-on-year. I mean, it has been so strong for so long now. Do you think customer inventories are full or do you think just underlying the structural growth of this market has changed? Does it accelerate to that, that makes it more sustainable at this high level double digit growth rate going forward or would you expect at some point we'll get a softer year, but net effect is the underlying trends continue?

[Calum G. MacLean, CEO & Executive Director]

Yes, I mean, crystal ball, I think, in terms of that, Charlie, I mean, what I would say to you is just a couple of things, right: Number one is inventories are not, in my view, a massive player in this market. Our inventories, that's as a producer of Nitrile latex, are maximum a couple of weeks, so products in, out very quickly. And we have very little capacity, and nor in our view do any of our competitors to hold a lot of inventory. So any inventory buildup in the chain normally comes through finished product, so i.e., gloves. And I don't think there's a lot of inventory there, and there's not a lot of storage capacity there either as well. So although there may be inventory build, which might have an impact on a monthly basis, where they would up or slow down, it's not material. And I don't think if you look at the end customers in this market, which is primarily into medical or whatever, that these are the sorts of customers who are stock building inventory based on prices of gloves or whatever. They simply order what they need, and they expect it to be there. And likewise, it's not too seasonal either. So unlike other areas whether you're talking about construction or whatever, medical gloves are not seasonal. They tend to be used pretty consistently throughout the year. So inventory, stock builds, not a big issue. It only gets an issue today that capacity outstrips -- that is, of glove manufacturing, by the way -- outstrips a demand where people carry on running, and then maybe they do that, but it will only happen for a shorter period of time. In terms of growth of this business, yes, you're right, it has oscillated a lot, but there have been other factors included in that. My view is, it's consistently grown over the last 10 years or whatever at 8% plus per annum, maybe a bit higher. But during that period of time, when you have had years of low growth and years of high growth, you've also had other impacts as well. So we went through a period over the last few years where they reduced the glove weight from 4 grams to 3 grams. Well, that means you're producing 25% more gloves for the same weight of -- same production of Nitrile latex. And yet, that was also absorbed at the same time. Then you have -- so that was another thing that was absorbed, which has an impact as well at the same time around -- on the growth rates, so the growth rate might look less, but in reality it's not the growth rates of the gloves; it's the growth rate of the Nitrile latex because they have improved the efficiency of the gloves they're making. So I think it's difficult to the underlying growth. The only thing you can absolutely say is that over the period of time, it's grown consistently 8% to 10%. And I don't think stocking in inventories had a massive impact on that. There is still quite a lot of growth to come in this market. We've talked about the Asian, the U.S. market being broadly in the medical area dedicated to Nitrile latex gloves. But that's the case, but it's still growing because there are new applications. You've talked about Europe effectively being 60%, 70% on Nitrile latex and the remainder still on other products. But the way things are moving is more towards Nitrile latex. We've talked about Asia as being relatively modest in its infancy of its growing of the use of gloves, but also the substitution of natural rubber and PVC. So if you look at all of those things today, and you look at the stats that are available, then our view and the market's view is that this market will continue to grow at, let's call, a broadly double digits, 10% or whatever, even though it's growing at more than that today, for the foreseeable future.

[Operator]

And there are currently no further questions registered. So I will hand the call back to the speaker. Please go ahead.

[Calum G. MacLean, CEO & Executive Director]

Yes, thank you very much. I appreciate the attendance, appreciate all the interesting questions. I think just in summary, what I would say is it's businesses as usual at Synthomer. We continue to invest, and we are seeing organic growth coming through. We are in line with expectations for the end of the year. So don't expect any surprises there. And we continue to look at the M&A situation, but as we've always said to you, we will remain, in what's today a very volatile market, we will remain very disciplined. But as I said, we also are ambitious to grow the company through both the M&A side and also the organic growth. So thank you for your attendance, and I look forward to speaking to you again on the next call.

[Stephen G. Bennett, CFO & Executive Director]

Thank you.

[Operator]

This now concludes the conference call. Thank you all for attending. You may all now disconnect your lines.