Synthomer PLC
LSE:SYNT

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Synthomer PLC
LSE:SYNT
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Earnings Call Analysis

Summary
Q4-2021

Strong Growth and Strategic Positioning in Synthomer's Performance

In 2021, Synthomer achieved remarkable sales growth of 47%, reaching ÂŁ2.3 billion, while EBITDA doubled to ÂŁ522 million. Notably, Performance Elastomers drove this success with a staggering 137% increase in EBITDA, benefiting from NBR demand. Despite challenges in the second half, guidance indicates expected EBITDA exceeding ÂŁ500 million for the year. The company anticipates continued margin stability as they leverage enhanced capacity and strategic acquisitions. With a robust free cash flow of ÂŁ300 million, approximately 58% of EBITDA, Synthomer is well-positioned for future growth, making significant investments in the Adhesive Technologies sector to bolster its market presence.

Earnings Call Transcript

Earnings Call Transcript
2021-Q4

from 0
M
Michael Willome

Good

morning,

everyone.

For

those,

I

haven't

had

the

chance

to

meet

yet,

my

name

is

Michael

Willome.

I

spent

most

of

my

professional

life

in

speciality

chemicals.

I

have

worked

and

lived

for

many

years

in

Asia,

in

North

America,

in

Turkey,

in

Europe,

and

now

I'm

very

happy

to

be

here.

I'm

looking

forward

to

meeting

you

in

person

in

the

coming

weeks

or

months.

It

is

a

great

pleasure

to

be

with

you

from

a

maiden

set

of

results,

a

very

warm

welcome

for

those

who

are

in

the

room

and

also

to

everyone

joining

online.

I'm

conscious

that

it

is

a

busy

day

and

we

are

grateful

for

your

time,

so

let's

make

a

start.

In

terms

of

today's

agenda,

I

will

begin

with

some

highlights

before

handing

over

to

Steve,

who

will

provide

a

detailed

overview

of

the

financials.

I

will

then

come

back

to

talk

about

some

of

my

initial

observations

and

a

strong

platform

of

profitable

growth

that

I

believe

we

have

at

Synthomer.

I

will

wrap

up

with

a

summary

and

our

views

on

outlook

before

we

take

your

questions.

2021

was

without

doubt

an

exceptional

year

for

Synthomer.

Sales

increased

by

47%

to

ÂŁ2.3

billion

and

EBITDA

doubled

to

ÂŁ522

million.

This

performance

was

both

materially

ahead

of

last

year

and

very

significantly

improved

in

2019

as

well.

This

significant

uplift

in

profitability

was

led

by

Performance

Elastomers,

with

our

NBR

business

saw

unprecedented

demand

driven

by

the

pandemic.

But

our

results

reflect

strong

growth

in

all

areas

of

the

business.

Functional

Solutions

was

significantly

up

as

we

started

to

see

the

impact

of

our

enhanced

global

positioning

following

the

OMNOVA

acquisition

in

2020.

Industrial

Specialities

also

had

a

good

year,

benefiting

from

its

leading

market

positions

and

speciality

portfolio.

And

Acrylate

Monomers,

while

it's

not

the

core

business

was

up

year-on-year,

completing

a

clean

sweep.

It

is

very

important

to

note

in

the

high

inflation

environment,

we

successfully

passed

on

the

steep

rise

in

raw

material

prices

to

our

customers.

Strong

free

cash

flow

and

the

equity

placing

that

we

did

in

October

meant

that

our

leverage

dropped

markedly

by

the

year-end.

Our

balance

sheet

is

well-positioned

to

accommodate

the

Adhesive

Technologies

acquisition

and

digest

the

normalized

NBR

margins.

It

is

a

priority

for

us

to

use

our

strong

cash

generation

to

bring

the

leverage

to

our

targeted

range

to

1 times

to

2

times

EBITDA

within

12

to

24

months

on

closing

the

transaction.

Today,

we

have

announced

that

we

are

making

a

provision

of

ÂŁ57.2

million

in

relation

to

the

ongoing

investigation

by

the

European

Commission.

In

June 2018,

we

told

the

market

that

the

European

Commission

had

initiated

an

investigation

into

past

practices

relating

to

the

purchase

of

Styrene

monomer

by

companies

operating

in

the

European

Economic

Area,

including

Synthomer.

This

provision

is

based

on

our

understanding

of

the

current

facts

and

circumstances.

The

investigation

is

ongoing

and

due

to

confidentiality

imposed

on

us

by

the

commission,

I'm

afraid

we

cannot

comment

any

further

for

now.

Our

acquisition

of

Eastman

Adhesive

Resins

business

was

an

important

strategic

development

for

us

last

year,

and it

is

something

I'm

very

excited

about.

Not

only

does

it

add

a

new

growth

dimension

to

our

existing

platform,

but

it

enhances

our

position

in

attractive

end-markets

where

we

already

have

a

prominent

position,

most

especially

in

building

and

construction

and

in

packaging.

During

the

year,

we

launched

our

ESG

Vision

2030,

setting

out

10 goals

to

drive

forward

our

climate

and

diversity

ambitions

as

we

look

to

build

on

recent

progress

that

we

have

made.

And

finally,

the

Board

proposes

a

final

dividend

of

ÂŁ0.213

per

share,

in

line

with

the

group's

dividend

policy.

This

represents

a

total

payment

to

our

shareholders

in

July

2022

of

ÂŁ100

million.

One

thing

that

struck

me

very

early

on

was

the

strong

sustainability

story

Synthomer

has.

It

is

stronger

than

many

might

think,

and

it

is

stronger

in

two

ways.

Firstly,

the

progress

that

we

are

making

to

reduce

our

own

carbon

footprint,

34%

lower

than

we

were

in

2019,

and

that

includes

a

significant

reduction

in

2021.

This

year,

we

will

introduce

science-based

targets

as

we

aim

to

decrease

our

Scope

3

emissions

by

10%

by

2030.

Plans

are

in

place

to

ensure

that

we

make

a

significant

improvement

on

this

target

already

this

year,

2022.

We

are

also

closing

our

coal

power

station

in the

Czech

Republic

in

Q1

2022,

ending

the

use

of

coal

at

Synthomer.

The

Vision

2030

roadmap

underlines

our

commitment

to

be

net

zero

by

2050,

with

our

environmental

targets

now

inextricably

linked

to

our

financial

performance.

We

are

also

making

our

culture

more

diverse

and

inclusive,

increasing

the

gender

diversity

in

senior

leadership

to

20%,

with

a

target

to

increase

that

further

in

the

next

three

years.

We

have

also

increased

diversity

on

our

Board

and

that

will

rise

further

this

year.

We

recognize

that

there

is

a

lot

more

to

do,

but

we

are

making

serious

progress.

It

is

a

key

priority

for

the

business.

Secondly,

the

demand

for

more

sustainable

products

has

never

been

greater.

As

the

market

leader

in

water-based

polymers,

which

have

a

lower

environmental

impact

than

solvent-based

alternatives,

the

opportunity

to

take

advantage

of

this

trend

is

very

significant

indeed.

This

year,

we

were

awarded

the

London

Stock

Exchange

Green

Economy

Mark,

given

companies

that

derive

more

than

50%

of

their

revenues

from

sustainable

solutions.

Let

me

pause

here

and

hand

over

to

Steve,

who

is

going

through

the

financials

in

more

detail.

S
Stephen G. Bennett

Thank

you,

Michael.

Good

morning,

everybody.

Welcome

to

those

in

the

room,

and

for

those

joining

us

online.

As

Michael has

already

said,

2021,

our

50th

year

as

a

listed

company,

was

something

of

a

unique

year

for

our

business.

The

bridge

on

the

top

right

hand

part

of

this

slide

sets

out

the

stark

contrast

in

profitability

between

2019,

2020

and

2021.

And

now,

we

have

delivered

a

doubling

in

the

EBITDA

in

2021

itself.

As

you

are

all

aware,

a

significant

part

of

the

increase

in

the

EBITDA

was

the

result

of

the

NBR

contribution

that

came

in

the

last

12

months.

But

we

shouldn't

ignore

SBR

either,

which

has

made

a

meaningful

step

forward

to

the

performance

of

the

Performance

Elastomers

division,

culminating

in

an

increase

in

profitability

of

that

division

of

ÂŁ195

million

EBITDA.

Aside

from

PE,

we

saw

strong

contributions

from

Functional

Solutions,

where

the

EBITDA

increased

by

ÂŁ47.6

million

and

also

a

contribution

from

the

Industrial

Specialities,

a

further

increase

of

ÂŁ7.6

million

(sic) [ÂŁ7.8 million] (00:07:54) of

EBITDA.

You'll

also

notice

Acrylate

Monomers,

which

we

started to

report

separately

back

in

2019

due

to its

cyclicality

had

a

very

strong

exceptional

year,

and

contributed

an

increase

in

profitability

of

ÂŁ37.6

million

EBITDA

and

moved

forward from

a

small

loss

in

2020.

Aside

from

the

corporate

costs,

FX

was

a

headwind

for

us

this

year,

with

sterling

depreciating

against

our

three

principal

trading

currencies,

the

Malaysian

ringgit,

the

US

dollar

and

the

European

euro,

and

we'll

see

this

later

on

in

the

presentation.

The

tax

rate

was

broadly

in

line

with

last

year

at

22.5%,

and

a

little

bit

lower

than

what

we

reported

at the

half

year,

which

was

just

over

23%.

The

reason

being

the

continued

strong

momentum

in

the

European

results

that

we

saw

in

the

second

half

of

2021.

The

strong

increase

in

profits

has

meant

that

we

have

reported

an

increase

in

the

earnings

per

share

to

ÂŁ0.752,

which

is

160%

ahead

of

the

prior

year.

The

increase

in

profits

is

partly

offset

by

the

increase

in

the

weighted

average

number

of

shares,

following

the

placing

that

we

put

in

October

2021

ahead

of

the

financing

of

the

Adhesive

Technologies

transaction.

Finally,

on

this

slide,

I'm

going

to

reflect

on

the

differences

between

the

group

that

was

there

in

2019

when

we

reported

ÂŁ178

million

EBITDA

and

the

group

we

have

today.

The

2019

EBITDA

predates

the

COVID

pandemic

of

course,

but

it

also

predates

the

OMNOVA

acquisition,

which

came

to

us

in

April

2020.

And

of

course

predates

the

acquisition

of

the

Adhesive

Technologies

transaction,

which

we

expect

to

complete

at

the

end

of

this

month.

It

predates

the

NBR

investment

in

the

extra

60,000 tonnes

expansion,

which

again

comes

online

this

month,

and

it

also

predates

the

investment

in

Functional

Solutions,

both

our Roebuck and Worms

sites.

So

some

quite

marked

changes,

contrast

with

where

we

are

in

2022

EBITDA

that

will

reflect

now

the

two

transformational

transactions

that

we

have

done

being

OMNOVA

and

Adhesive

Technologies,

both

of

which

should

contribute

in

excess

of

$100

million

of

EBITDA

when

they're

fully

integrated

and

the

significant

growth

CapEx

on

NBR

and

Functional

Solutions.

So

what

does

all

that

mean

for

our

business

today?

It

means

the

group

today

is

more

diverse

from

a

geographic

perspective,

more

diverse

from

an

end-market

perspective,

more

specialized

products

from

both

acquisitions,

contributing

a

higher

average

unit

gross

margin

than

the

legacy

Synthomer

business

and

has

more

platforms

for

growth.

And

of

course,

as

a

culmination

of

that,

is

an

order

of

magnitude

bigger

both

in

terms

of

revenue

and

EBITDA

than

it

was

in

2019.

So

turning

to

each

of

the

divisions,

starting

with

Performance

Elastomers. Performance Elastomers

saw

its

EBITDA

grow

by

137% at

constant

currency

to

ÂŁ320.7

million

EBITDA.

Alongside

the

exceptional

demand

for

NBR

that

we've

talked

about,

we

also

benefited

from

being

able to

utilize

the

extra

90,000

tonnes

that

we

brought

online

at

the

backend

of

2019

[indiscernible]



(00:11:32)

start

of

2020,

the

JOB5

expansion

that

you've

heard

us

talk

about

before.

NBR

saw

record

volumes

and

unit

margins

in

the

first

half

of

the

year.

The

picture

changed

in

the

second

half of

the

year

as

anticipated

and

as

indicated

at

our

interim

results,

with

guidance

of

an

excess

of

ÂŁ500 million

for

the

full

year.

When

we've

delivered

ÂŁ322

million

in

the

half

year,

demonstrably

indicating

that

second

half

was

going

to

show

some

slowdown

in

our

NBR

business.

The

Emergency

Movement

Control

Order

imposed

by

the

Malaysian

government

impacted

NBR

customer

growth

capacity

and

production,

and

the

demand

was

also

impacted

towards the

latter

end

of

the

year

by

the

overstocking

that

was

there

in

the

supply

chain.

And

that

notwithstanding

the

ongoing

threat

of

new

COVID

variants

in

the

latter

part

of

the

year.

As

a

result,

margins

started

to

soften

in

the

second

half

and

also

volumes

returning

to

pre-COVID

levels

by

January

2022.

Volumes

were

lower

than

the

very

high

levels

experienced

in

H1

to

H2

2020

and

H1

2021,

and

again

returning

to

2019

levels

at

the

backend

of

2021.

As

I

said

earlier, it's

important

to recognize

that

PE

is

not

just

about

NBR,

it's

also

how's

the

SBR

business

in

that.

And

that

contributed

to

the

record

performance

that

we

had

in

2021,

partly

reflecting

the

rationalization

of

the

European

network

that

we

implemented

at

the

start

of

the

year.

The

closure

of

our

Oulu

site

happened

at

the

end

of

February

and

reduced

the

paper

volumes

in

our

business

by

55,000

tonnes

and

took

100,000

tonnes

of

capacity

out

of

the

market.

An

improved

market

environment

alongside

the

positive

impact

from

OMNOVA

contribution

in

that

part

of

our

business

helped

to

drive

stronger

volume

and

improve

the

mix

to

stronger

unit

margins

in

the second

half

of

2021.

Turning

to

Functional

Solutions.

Functional

Solutions'

EBITDA

itself

grew –

EBITDA

grew

by

an

impressive

50%

constant

currency

to ÂŁ139.2

million,

aided

by

strong

cost

control,

synergy

realization,

with

all

regions

contributing

to

the

growth.

This

reflected

improvements

across

all

end-markets

that

we

served,

as

well

as

the

expanded

global

position

that

we

now

have

following

the

acquisition

of

OMNOVA.

Volumes

were

up

10.9%,

again

partly

reflecting

the

OMNOVA

contribution

on

an

annual

basis,

but

also

due

to

increased

cross-selling

opportunities

as

we

brought

the

legacy

businesses

together.

We

also

benefited,

and

I touched

on

it

earlier,

from

the

increasing

capacity

that

we

brought

online

in

Roebuck

and

Worms

in

the

USA

and

Germany.

Unit

margins

were

up

in

the

year,

a

combination

of

higher

unit

margins

from

OMNOVA

and

also

the

greater

proportion

of

the

speciality

product

portfolio

that

we

have,

where

our

margins

are

higher.

We

have

successfully

been

moving

our

product

portfolio

towards

the

value-enhancing

end

of

the

range,

and

of

course

that

brings

with

it

higher

margins.

And

we

expect

this

trend

to

continue

as

we

move

forwards.

Finally,

and

as

Michael

mentioned

at

the

start,

we

have

seen

a

significant

escalation

in

raw

material

prices

during

the

course

of

2021,

where

our –

some

of

our

main

raw

material

prices,

namely

Butadiene

and

Styrene

increased

by

more

than

50%

over

the

prior

year.

Positively,

and

as

we've

talked

about

before,

we've

been

successful

again

in

passing

on

the

raw

material

cost

increases

through

to

our

customers.

Turning

to

Industrial

Specialities,

the

EBITDA

here

grew

by

19%

at

constant

currency

to

ÂŁ47.6

million.

As

you

are

aware,

our focus

area

is

more

on

speciality

niche

areas,

Speciality

Additives,

which

supplies

coatings,

delivered

a

strong

performance

with

good

volume

and

unit

margin

improvement.

We

also

saw

a

similar

trend

in

Powder

Coatings.

Both

coated

fabrics

and

laminates

and

films,

which

came

to

us

from

the

OMNOVA

business,

also

delivered

strong

top

line

growth

and

on

top

of

a

solid

year

in

2020.

Volumes

were

up

nearly

27%,

reflecting

the

rebound

from

the

legacy

businesses

where

their

volumes

were

up over

10%

and

the

first-time

contribution

from

OMNOVA.

In

terms

of

Acrylate

Monomers,

following

a

small

loss

last

year

2020,

the

business

saw

a

strong

improvement

in

EBITDA

in

2021

and

reported

an

increase

to

ÂŁ35.3

million.

Volumes

slightly

lower,

reflecting

a

change

in

product

mix,

as

well

as

a

challenged

operational

environment

and

raw

material

challenges.

Notwithstanding

the

site –

the

Sokolov

site

transformation

project,

which

contributed

to

a

lower

cost

base

for

the

site

in

the

year,

the

return

to

profit

was

mainly

driven

by

a

substantial

increase

in

unit

margins,

reflecting

a

significant

increase

in

demand

and

a

tight

supply

demand

balance

across

Europe.

Supply

issues

resulting

from

competitors

mothballing

sites

and

having

[ph]



FMs (00:17:09)

also

contributed

to

it,

as

well

as

logistical

constraints to

get

product

into

the

area.

These

conditions

are

expected

to

normalize

as

we

go

through

2022.

Talking

cash

flow

on

slide

14.

Free

cash

flow,

excluding

working

capital

movements,

more

than

doubled

to

ÂŁ300

million,

representing

58%

of

our

EBITDA

and

continuing

the

strong

historical

cash

flows

of

the

group.

Notwithstanding

the

investment

in

working

capital

for

the

full

year,

ÂŁ82

million

and

you'll

recall

it

was

ÂŁ160

million

at

the

half

year

as a

result

of

significant

raw

material

price

inflation

that

I've touched

on

already.

The

raw

material

prices

stayed

elevated

towards

the

end

of

the

year

and

although

activity

levels

came

off

due

to seasonality,

we

still

have

ÂŁ80

million

invested

in

working

capital.

That

said,

our

rule

of thumb

holds

true

and

we

continue

to

see

working

capital

at

approximately

10%

of

sales.

CapEx

is

higher

this

year,

partly

reflecting

the

lower

investment

in

2020

in

our

part

response

to

the

COVID

pandemic

and

partly

reflecting

our

continued

investment

in

our

Malaysian

NBR

capacity

coming

online

later

this

month,

so

that's

the

60,000 tonnes

you've

heard

of

talk

us

before.

Depending

on

the

development

of

our NBR

opportunities

as

we

look

forward,

we

are

guiding

CapEx

to

ÂŁ130

million

in

2022,

and

this

includes

an

allowance

for

the

Adhesive

Technologies

transaction

again,

which

will

complete

at

the

end

of

this

month.

Looking

at

the

balance

sheet

and

how

we've

set

it

up

to

accommodate

the

Adhesive

Technologies

acquisition,

the

strong

free

cash

flow

I've

already

touched

on

and

the

ÂŁ203

million

equity

placing

ahead

of

the

transaction,

has

reduced

our

net

debt

to

ÂŁ114.2

million

at

the

end

of

2021.

And

that

represents

0.3

times

EBITDA

leverage.

In

line

with

guidance

provided at

the

time

of

the

acquisition,

we

see

the

leverage

rising

to

1.6

times

at

completion,

so at

the

end

of

this

month.

Again,

that

was

in

line

with

the

announcement that

we

made

in

October.

But

similarly

consistent

with

the

announcement

we

made

in

October

with

the

debt

and

equity

financing

structure

put

in

place

at

the

time

of

signing,

leverage

is

expected

to

rise

during

the

course

of

2022

as

the

well-trailed

normalization

of

NBR

occurs,

resulting

in

leverage

at

the

end

of

2022

of

circa

2.5

times

and

reducing

from

that

point

forward.

You

will

recall

that our

capital

allocation

policy,

which

targets

normal

course

leverage

of

between

1

and

2

times,

permits

exceptional

leverage,

i.e.

above

2

times

in

the

event

of

M&A

activity.

And

on

the

understanding

that

it

will

reduce

back

to

the

normal

range

between

1 times

and

2

times

within

12

to

24

months

of

the

transaction

occurring,

and

this

is

the

plan.

Last

slide

for

me

on

technical

guidance,

and

I'm not

going

to

dwell

on

it

too

much.

This

guidance

there

on

the

effective

tax

rate,

which

we

continue

to

see

in

the

range

of

23%

to

25%,

depending

on

the

geographic

mix

of

profits

and

that's broadly

aligned

with

our

neutral

– our

natural

tax

rate

across

the

group

and

absent

any

concessions

from

any

of

the

main

tax

jurisdictions

in

which

the

group

operates

overseas.

Lastly,

I

draw

your

attention

to

the

marked

reduction

in

the

defined

benefit

pension

scheme

liabilities.

The

liabilities

reduced

by

50%,

circa

50%

between

the

end

of

2020

and

2021,

from

ÂŁ221

million

to

ÂŁ122

million

at

the

end

of

the

year.

Material

reduction

not

only

reflects

the

contributions

that

we've

made

to

those

schemes

during

the

course

of

2021,

but

also

improved

asset

returns

and

the

rising

discount

rate

under

favorable

experience

on

actuarial

assumptions,

so

good

news

there.

With

that,

I'm

going

to

hand

you

back

now

to

Michael,

who's

going

to

talk about

the

strong

platform

for

growth.

Thanks,

Michael.

M
Michael Willome

Thank

you

very

much,

Steve.

I

want

to

spend

the

next

few

minutes

talking

about

where

I

think

Synthomer

is

today,

highlight

what

I

believe

are

the

key

attributes

and

why

I'm

excited

to

be

here

as

the

company's

Chief

Executive.

I

also

want

to

talk

a

little

more

in

detail

about

the

NBR space

before

closing

with

an

update

on

our

outlook

on

2022.

One

of

the

things

that

excites

me

the

most

about

the

business

is

the

strength

and

depth

of

our

portfolio

in

across

three,

soon

to

be

four,

core

divisions.

Within

Performance

Elastomers, NBR

is

firmly

established

as

an

integral

part

of

our

business,

with

a

leading

position

in

a

market

that

has

a

proven

track

record

of

growing

8%

to

10%

per

annum.

We

have

significant

opportunity

to

leverage

our

leadership

with

further

innovation

and

by

investing

in

more

capacity,

providing

the

conditions,

the

location

and

the

timing

are

right.

Our

SBR

business

is

being

successfully

restructured,

and

today

it

is

stable

with

improving

levels

of

profitability.

In

Functional

Solutions,

we

are

a

top

five

player

with

strong

geographical

positioning

to

support

our

regional

businesses

and

expand

our

coatings

and

construction

growth

platforms.

This

is

where

the

sustainability

of

that

I talked

about

before

is

especially

compelling

and

where,

of

course,

we

are

seeing

the

benefits

from

OMNOVA.

OMNOVA

has

already

proven

itself

to

be

an

excellent

deal

for

Synthomer

and

we

have

exciting

opportunities

to

build

on

the

progress

that

we

have

made

this

year

with

more

cross-selling.

As

well

as

enhancing

our

portfolio,

OMNOVA

helped

to

address

the

gap

that

we

had

in

North

America,

a

key

market

for

us

and

the

region

where

I

believe

that

we

can

grow

strongly

in

the

years

ahead.

The

Industrial

Specialities

business

has

a

very

attractive

portfolio

of

speciality

products

and

niche

market

positions.

The

decision

to

invest

in

more

capacity

has

paid

significant

dividends

because

we

have

seen

high

capacity

utilization

demonstrating

the

strong

market

positions

that

we

have.

So

here,

too,

I

believe

that

there

are

exciting

opportunities

to

grow.

Finally,

our

new

Adhesive

Technologies

business

adds

to

a

new

growth

dimension

in

Synthomer.

As

we

set

out

at

the

time

of

the

transaction,

it

is

exposed

to

attractive

end

markets

with

GDP

plus

growth

fundamentals,

several

of

which

we

already

have

a

leading

presence

in.

But

the

portfolio

also

takes

us

into

more

specialized,

more

global

and

higher

growth

segments.

As

a

part

of

Synthomer,

we

are

confident

that

this

new

division will

be

able

to

expand

significantly.

We

also

like

the

R&D

capability

and

focus

on

innovation,

something

that

I

think

we will

be

able

to

learn

from

in

due

course.

We

have

talked

a

lot

about

NBR,

but

let

me

say

a

few

more

words

about

this

topic.

Steve

has

highlighted

the

significant

impact

that

the

exceptional

demand

for

NBR

had

on

our

EBITDA

in

the

past

two

years.

We

have

been

able

to

take

full

advantage

of

this

material

increase

in

profits

and

cash

flows

to

make

investments

that

drive

our

future

growth,

more

significantly

the

acquisition

of

Adhesive

Resins.

The

pandemic

fueled

the

unique

period

of

demands

that

we

are

unlikely

to

see

again,

but

that

doesn't

make

the

NBR

market

any

less

attractive.

As

I

said

earlier,

the

underlying

growth

rate

is

8%

to

10%

and

we

are

a

market

leader. So

we

will

continue

to

invest

in

this

business

to

support

further

innovative

growth.

The

market

is

likely

to

remain

subdued

over

the

coming

months

as

the

high

inventory

levels

of

rubber

gloves

are

gradually

used

up,

but

as

things

stand,

we

expect

conditions

to

have

returned

to

normality

in

the

second

half

of

this

year.

As

you

can

see

from

the

chart,

glove

demand

has

gone

up

every

year.

The

bar

chart

tracks

the

number

of

pieces

sold.

This

has

fueled

demand

in

NBR

and

natural

rubber.

It

highlights

that

hygiene

and

food

safety

are

global

megatrends

driving

strong,

sustainable

demand

for

gloves

and

this

is

not

going

to

go

away.

The

orange

line

illustrates

Synthomer's

margin

profile

over

the

same

period

of

time.

As

you

can

see,

it

has

been

pretty

stable.

The

slight

escalation

that

we

saw

in

2015

was

a

result

of

Ebola.

And

then

clearly,

the

sharp

spike

in

2020

and

into

2022

was

the

result

of

COVID-19.

You

can

see

that

whilst

margins

escalated

very

sharply,

so

they

have

also

dropped

very

sharply,

returning

to

normal

levels.

This

has

more

to

do

with

the

pandemic

rather

than

with

the

cyclicality

in

the

business.

The

dotted

line

represents

the

average

margin.

And

as

you

can

see,

we

have

now

returned

to

those

average

levels.

However,

over

the

medium-term,

we

see

upside

to

this

margin

as

the

business

provides

innovation

and

growth

potential

to

us.

So

turning

next

to

the

priorities

as

I

see

them.

The

first

one

I

want

to

talk

about

is

that

Synthomer

could

be

more

focused

on

our

end

markets.

We

have

to

think

more

through

the

lens

of

the

consumers

to

enhance

the

value

that

we

can

bring

to

our

customers.

Synthomer

has

strong

position

in

some

very

attractive

end

markets,

health

and

protection,

building

and

construction,

coatings

and

shortly

adhesives.

By

getting

even

closer

to

them,

I

think

we

will

be

well-positioned

to

unlock

more

growth.

Innovation

must

be

at

the

heart

of

our

business

and

I

recognized

a

significant

progress

that

has

been

made

in

this

area

over

the

last

five

years.

In

2021,

Synthomer

generated

24%

of

its

sales

from

patented

and

products

launched

in

the

last

five

years.

We

need

to

continue

to

invest

in

application

development

to

drive

innovation

forward,

again

ensuring

that

its

end-market

and

consumer-oriented.

It

also

needs

to

support

our

continued

progress

towards

being

more

specialized.

I

want

also

to

look

at

ways

to

enhance

the

use

of

our

technology

and

digitization

across

the

business

as

a

way

of

engaging

more

frequently

and

more

efficiently

with

our

customers

and

being

more

collaborative

in

the

way

that

we

work

within

the

organization.

I

don't

want

to

[ph]



label

sustainability (00:28:22),

and

I

think

that

I

have

been

clear

already

about

the

enormous

opportunity

I

see

here.

We

have

to

leverage

our

portfolio

more

to

help

our

customers

meet

their

own

sustainability

targets.

Our

new

SyNovus

Plus

product

in

our

NBR

business

is

one

such

example.

We

will

increase

our

focus

on

markets

where

we

see

an

opportunity

to

leverage

our

sustainable

technology.

And

at

the

same

time,

we

will

continue

to

work

hard

to

accelerate

Synthomer's

own

ambitions

to

reduce

carbon

emissions.

The

second

priority

I

would

like

to

talk

about

is

people.

It

is

all

too

easy

to

say

but

our

people

are

the

greatest

asset

that

we

have.

I

want

to

look

at

ways

to

improve

the

speed

of

decision-making

and

increase

accountability

in

the

business.

By

being

more

agile,

decentralized

and

flexible,

we

will

become

more

efficient

and

more

responsive

to

our

customers.

We

will reorganize

ourselves

with

appropriate

levels

of

resources

allocated

according

to

the

size

of

the

market

opportunity.

The

leadership

team

is

being

reshaped

with

increased

diversity

and

[ph]



incentivize

our

performance (00:29:37).

We

will

invest

even

more

in

talent

development.

Whilst

I

have

been

impressed

by

the

way

we

have

integrated

acquired

businesses,

we

need

to

increase

the

levels

of

collaboration

across

the

businesses

to

make

us

a

more

joined-up,

cohesive

organization.

Thirdly,

we

will

continue

to

look

for

ways

to

expand

into

new

markets,

both

organically

and

inorganically.

Inorganic

growth

will

be

especially

focused

on

our

Functional

Solutions

business

and

our

new

Adhesive

Technologies

platform,

as

well

as

looking

into

speciality

adjacencies.

My

geographic

priorities

include,

but

are

not

confined

to

North

America

and

Asia,

including

China.

We

will

allocate

capital

according

to

where

we

see

opportunities

to

support

our

growth

in

attractive

end

markets

with

a

focus

on

higher

margin,

more

speciality,

more

sustainable

and

less

cyclical

areas.

A

critical

KPI

will

be

return

on

invested

capital.

Everything

we

do

has

to

generate

compelling

returns.

And

finally,

business

excellence,

I

have

talked

already

about

the

end

markets

I

want

to

prioritize.

We

will

continue

to

progress

the

excellent

start

that

we

have

made

to

recognize

synergies

from

the

OMNOVA

acquisition.

Whilst

I

think

Synthomer

has

high

manufacturing

standards, we

will

continue

to

look

for

further

improvements

by

reviewing

the

footprints

that

we

have

today

and

by

looking

for

ways

to

use

technology

and

digital

channels

and

tools

more

than

we

do

already.

Commercial

excellence

is

also

a

priority.

I

want

to

review

our

pricing

strategy

and

sales

systems

to

extract

further

benefits

there.

Finally,

as

in

any

well-run

business,

we

will

continue

to

review

all

parts

of

the

portfolio

to

ensure

that

we

are

well-positioned

to

grow

the

value

of

our

company

in

each

of

the

areas

we are

active

in.

As

I

have

already

said,

I

believe

that

I'm

joining

Synthomer

at

a

very

exciting

point.

There

has

been

huge

progress –

a

huge

amount

of

progress

of

strategic

and

financial

items

in

the

business

since

2015.

The

previous

management

team

and

Calum

did

an

excellent

job,

helping

to

enforce

Synthomer

across

four

important

areas.

First,

by

completing

two

strategically

important

acquisitions

in

the

last

two

years,

that

have

meaningfully

enhanced

our

global

position

and

scale.

As

such,

Synthomer

has

evolved

from

being

a

predominantly

European

player

to

having

a

significant

presence

in

the

US

and

growing

positions

in

Asia.

Second,

we

now

have

significantly

enhanced

proximity

to

an

increased

customer

base

and

increased

exposure

to

attractive

end

markets.

Third,

high

levels

of

CapEx

alongside

a

renewed

focus

on

operational

efficiency

mean

that

Synthomer

has

well

invested

assets

that

are

efficiently

run.

And

finally,

as

demonstrated

by

this

year's

financial

performance,

we

have

a

very

attractive

portfolio

across

the

three

core

businesses,

all

of

which

offer

exciting

opportunities

for

GDP

plus

growth.

From

the

second

quarter

this

year,

we

will

have

[indiscernible]



(00:33:14)

division

where

the

growth

perspectives

are

as

compelling,

if

not

more

so.

All

that

adds

up

to

what

we

are

calling

a

new

Synthomer,

and

I'm

confident

that

it

has

an

exciting

future.

I

would

like

to

wholeheartedly

thank

Calum

and

Steve

for

the

work

they

have

done

for

the

company

and

for

the

way

they

have

welcomed

and

introduced

me

to

Synthomer.

So

in

summary,

record

levels

of

profitability

in

2021

have

enabled

the

group

to

make

significant

inorganic

and

organic

investments

to

strengthen

the

platform

for

future

growth

and

value

creation.

We

are

confident

of

being

able

to

generate

significant

opportunities

from

our

enlarged

Functional

Solutions

business

and

our

new

Adhesive

Technologies

division,

which

will

start

to

contribute

from

the

second

quarter

of

this

year.

Looking

ahead,

as

set

out

in

our

February

trading

statement,

NBR

margins

have

normalized.

The

unprecedented

pandemic

premium

is

entirely

gone.

And

we

expect

high

inventory

levels

in

the

global

downstream

channels

in

this

part

of

the

business

to

gradually

be

worked

through

during

the

first

half

of

the

year.

All

other

divisions

have

had

an

encouraging

start

to

the

year,

and

we

are

confident

of

continued

strategic,

commercial

and

operational

progress

in

2022.

The

Board

remains

confident

that

the

benefits

from

recent

acquisitions

and

a

disciplined

capital

allocation

focused

on

organic

growth,

inorganic

growth

and

dividends

will

underpin

growing

sustainable

profits

and

value

creation

in

the

coming

years.

Let

me

stop

here.

Steve,

and

I

would

be

very

happy

to

take

your

questions.

Operator

Thank you...

M
Michael Willome

Yes,

Sebastian,

please.

S
Sebastian Bray

Hello,

good

morning.

Sebastian

Bray

of

Berenberg

Bank.

Thank

you

for

taking

my

questions.

I

have

two

categories

please.

The

first

focus

is

on

the

graph

showing

the

Nitrile

gross

margins and

the

gross

unit

margins

at

Synthomer.

What

does

the

capacity

outlook

on

a

two

or

three

year

view

looks

like,

because

the

fear

is

that

those

margins

might

revert

back

to

the

level

of

2014,

if

LG, Kumho

and

others

start

to

add

aggressively

to

the

market

as

opposed

to

just

stay

normal?

So

if

you

could

give

us

an

outlook

of

what

that

capacity

looks

like?

My

second

is

on

the

CapEx

levels

of

the

group.

Am

I

right

in

saying

that

most

of

the

businesses

at

Functional

Solutions

and

Industrial

Specialities

are

now

running

close

to

100%

utilization?

And

what

scope

is

there

for

growing

volumes

ex-acquisition

over

the

next

two

or

three

years?

Do

you need

more

CapEx

to

do

this?

Thank

you.

M
Michael Willome

Thank

you

very

much,

Sebastian.

On

your

first

questions,

I

would

separate

the

question

to

a

short-term

and

the

long-term

or

mid-term

outlook.

I

think

short-term

in

the

current

situation

of

the

destocking,

which

we

said

will

go

on

into

the

– into

this

year,

gradually

coming

back

to

normal

during

the

second

half

of

the

year,

we

can

see

some

overcapacity

or

underutilization.

I

have

to

say

that

we

have

seen

this

in

the

past

as

well.

And

if

you

look

at

our

margin

charts,

the

margins

were

stable

even

in

times

of

overcapacity.

So

I

would

make

– not

make

a

natural

link

that

overcapacity

means

reduced

margins.

I

believe

we

have

seen

this

in

the

past.

It

was

not

the

case.

Looking

at

the

broader

picture,

probably

second

half

of

this

year

going

forward,

we

are

studying

and

we

have

quite

a

good

knowledge

what

happens

in

the

markets,

including

in

China.

What

we

see

is

that

we

have

a

market

that

grows

8%

to

10%

per

annum.

We

assume

that

we

have

about

2

million

tonnes

right

now

of

demand.

So

that

means

that

each

year

you

need

something

between

160,000

tonnes

and

200,000 tonnes

of

new

capacity.

When

we

look

forward

in

all the

announced

investment,

we

see

this

as

a

balanced

market

going

forward.

So

we

do

not

see

any

significant

overcapacity

in

the

mid-term,

which

I

would

call

again

starting

second

half

of

this

year.

We

see

it

quite

balanced.

I

have

one

thing

which

you

have

seen

on

one

slide.

You

mentioned

that

there

is

limited

visibility

in

China.

We

know

all

the

players

that

contemplate

investing

that

are

investing,

but

we

see

sometimes

a

bit

of

an

erratic

behavior

there

because

everybody

sees

the

destocking

and

the

problems

in

the

markets

that

we

are

having

now

since

the

second

half

of

last

year.

So

there

are

some

decisions

of

delaying it.

It

is

sometimes

a

bit

erratic.

Some

of

the

companies,

especially

in

China,

they

are

redirecting

investments

into

SBR

again

instead

of

NBR.

So

that

is

the

only

thing

which

I

think

is

now

going

on.

Some

of

the

decisions

to

invest

of our Kumho's

and

LG's,

the

most

immediate

competitors

or

the

companies

that

are

downstream

our

customers

to

invest

upstream

in

the

NBR space.

Here,

we

see

some

of

them

are

hesitating,

some

of

them

are

delaying

it,

moving

it

out

of

them.

But

as

I

said,

our

company

is

committed

to

this

business.

We

see

mid-term

a

balanced

capacity

situation.

We

believe

as

a

market

leader

with

top

innovation

features

and

with

the

potential

to

grow

our

technology,

our

center

of

excellence

in

Asia

in

Malaysia

is

the

ideal

location

to

continue

this

leadership

position.

So

I

think

going

forward

after

this

destocking

ends,

we

will

come

back

to

our

leadership

position,

our

innovation.

And

that's

why

I

believe

that

those

are

the

margins

compared

to

where

we

are

now,

we'll

have

some

further

upsides

again

because

of

capacity

we

have

and

because

of

the

innovation

potential

in

this

business.

Now,

on

your

second

question

about

CapEx

levels.

You

are

right

and

that

is

an

important

feature

for

I

think

every

speciality

chemicals

business. We

are

very –

running

at

very

good

capacity

utilizations.

I

think

our

CapEx

plans,

and

Steve

lined

it

out,

is

relatively

high

this

year

for

ÂŁ130

million. We'll

see

how

much

of

this

we'll

be

using

because

a

big

chunk

of

it

is

geared

towards

the

NBR investments

where

we

do

have

some

flexibility.

So,

I

think

we

are

absolutely

in

a

position

to

support

the

IS

business

and

the

FS

business

to

make

the

necessary

capacity

investments.

As

I

have

mentioned

in

my

words,

we

will

also

look

at

the

footprint.

You

can

rationalize

capacities

there

to

have

certain

closures

has

been

done.

And Steve

mentioned

of

Marl

3

of

Oulu

in

Finland

in

the

SBR space.

So

I

think

we

are

quite

well-positioned

to

support

these

businesses.

And as

I

say,

especially

in

speciality

chemicals

company,

you

need

the

high

capacity

utilization,

but

we

will

not

allow

that

we

cannot

supply

the

market.

So,

I

think

here

we

are

relatively

flexible.

We

own

this

space.

You

don't

need

long,

long

lead

times,

you

can add

capacity

in

relatively

short-term.

So,

I

think

we

are

absolutely

positioned

to

capture

those

opportunities.

But

as I

said,

capital

allocation

in

a

disciplined

way

where

we

get

a

return

on

the

invested

capital

back.

So,

we

will not

invest

into

low

margin

businesses. We'll

invest

into

again

most

speciality

higher

margins,

less

cyclicality

areas

where

we

see

the

future.

So,

I

think

having

this

disciplined

allocation,

having

the

balance

sheet

what

we

are

having,

I

think

we

are

in

a

good

position

to

support

the

business

[indiscernible]



(00:41:04) again

the

attractive

end

markets

that

we

want

to

be.

So

I

think

we

are

well-placed

here.

K
Kevin Fogarty
Analyst, Numis Securities Ltd.

Great.

Kevin

Fogarty

from

Numis.

Three,

if

I

could

do.

One

just

in

terms

of

NBR

stabilization,

I

just

wondered

if

you

could

talk

about

sort

of what

you've

seen

year-to-date

that

gives

you

some

sort

of

evidence

of

stabilization.

Second

one

was

on

capital

allocation.

I

just

wondered

given

the

outlook

now,

what

does

that

do

for

your

sort

of

desire

for

transformational

M&A?

How

sort

of

staged

might

that

be,

I

guess,

as

you

roll

forward?

And

then

just

finally

in

terms

of

your

key

priorities

outlined,

you've

talked

about

portfolio

optimization.

Does

that

sort

of

open

the

door

for

disposals

as

well,

given

the

returns

metrics

you

might

use

to

measure

businesses?

M
Michael Willome

Thank

you,

Kevin.

So

on

the

NBR

margins

we

have

seen,

let's

say,

from

the third

quarter

of

2021,

we

have

seen

a

relatively

steep

decline

in

the

margins,

you

have

seen

it

on

the

chart.

Unprecedented

upwards

4.5

fold

upwards,

sharply

downwards.

The

most

steepest

decline

we

have

seen

in

December

and

January.

We

see

now

in

February,

going

into

March,

we

see

a

stabilization

of

this.

We

have

less

of

a

decline;

you

can

also

see

it

on

the

chart.

We

have

kind

of

a

stop

in

the

level

of

the

average

margins,

if

you

go

back

to

the

last

– to

the

last

several

years.

We

have

some

indications

from

our

customers,

from

our

end

customers,

from

our

distributors,

especially

the

smaller

ones

that

it

has

coming

to,

I

wouldn't

say

a

stop,

but

it

has

– it

is

finding

the

bottom.

These

are

early

indications.

As

I

said,

the

situation

in

December

and

in

January

was

unfortunate,

but

we

see

now

since

the

last

six

to

eight

weeks,

we

see

kind

of

the

market,

the

margins,

the

volumes,

finding

the

bottom.

But

again

let's

not

get

too

much

excited.

It's

very

clear

that

the

problem

of

the

destocking

will

continue

for

the

next

several

months.

I

believe

that

only

then

the

margins

can

come

up.

And

us

as

an

innovation

lead,

will

get

the

premiums

again

that

I

believe

we

deserve

in

our

offerings.

So

in

a

nutshell,

early

signs

that

it

is

stabilizing,

early

signs

that

the

demand

might

go

up

again

in

the

next

couple

of

months.

Your

second

question

on

leverage

and

our

appetite

for

M&A.

I

believe

we

are

soon

going

to

spend

$1

million.

So

clearly

that

puts

our

leverage

to

1.6

times,

as

Steve

has

pointed

out,

as

we

have

pointed

out

at

the

time

of

the

transaction

in

October.

So

I

think

we

are

very

consistent

here.

This

will

go

further up.

We

know

all

our

cash

outflows.

We

have

decided

to

pay

the

dividend,

[ph]

a ÂŁ100

million (00:44:06).

You

have

seen

the

fine

discussion

on

which

I

will

not

go

further

in,

but

you

have

a

number

for

this.

We

are

confident

that

we

have

reasonable

EBITDA

levels

for

the

months

going

forward.

So

I

think

we

have

a

strong

balance

sheet

as

Steve

has

pointed

out,

and

that

means

that

in

line,

consistent

with

our

strategy

and

I

mentioned

it

a

few

times,

inorganic

growth

remains

part

of

the

strategy.

Now

I

would

focus

right

now

more

on

bolt-on

acquisitions.

We

have

an

absolute

appetite

to

look

into

bolt-on

acquisitions.

As

I

mentioned

it,

it

is

mainly

in

the

space

of

the

Functional

Solutions,

the

construction

and

coatings

and

markets,

it

will

be

second

in

the

space

of

Adhesive

Technologies.

Even

so,

you

have

to

do

first

the

closing

on

the

division.

But

as

you

know

in FS,

we

do

have

some

exposure

to

adhesives

markets

already,

so

we

know

these

markets

more

or

less.

And

thirdly,

as

mentioned,

we

are

looking

into

speciality

adjacencies.

I

think

that

is

a

third space,

which

is

absolutely

open.

Again

more

speciality,

less

cyclicality,

more

sustainability.

So

these

are

the

areas

just

from

topics

what

we

are

looking

at.

I

think

you

should

not

expect

a

big

transformational

M&A

in

the

next

12

to

18

months

because

obviously,

it

is

our

priority

now

to

integrate

the

Eastman

business.

It

is

our

priority

to

do

this

operationally

properly,

like

we

have

done

in

all

our

acquisitions

in

the

past

and

to

get

the

synergies,

hopefully,

even

a little

bit

more

as

it

is

also

in

the

history

of

the

company.

So

I

think

these

are

our priorities

for

now.

And

as

I

always

say,

if

there

is

some

magic

opportunity

in

the

market

coming

up,

we'll

be

looking

into

it.

We

will

always

have

opportunities

to

look

into

our

balance

sheet,

but

it's

definitely

not

the

priority

and

such

a

thing

would

mean

that

it

is

this

unbelievable

target

that

would

100%

fit

to

our

company.

And

in

a

way,

the

leverage

discussion

now

on

the

balance

sheet

and

the

M&A

discussion

brings

me

to

your

third

question,

what

about

portfolio

management?

I

have

said

I

think

portfolio

management

for

me,

for

the

management

team

is

a

key

standing

issue, and

is

part

of

our

job.

I

think

portfolio

management

has

two

directions;

inbound

and

outbound.

I

have

no

plans

that we

will make

a

strategy

exercise

within

the

next

three

months

until

June.

I

have

no

plans

to

divest

business.

We

have

no

imminent

M&A

business

inbound

right

now.

Our

focus,

again,

is

to

make

money

in

an

organic

way.

Our

focus

is

to

integrate

the

Eastman

business.

So

there

are

no

imminent

plans,

but

we

are

watching

the

market

carefully.

So

the

answer

to your

question

is

very

clearly

that

divestments

are

not

excluded,

but

as

always,

it

has

to

make

sense.

It

has

to

make

sense

for

our

return

on

invested

capital,

for

our

speciality

profile

and

for

the

overarching

targets

we

have

in

our

company.

But

portfolio

management

is

in

and

out,

that

is

correct.

K
Kevin Fogarty
Analyst, Numis Securities Ltd.

Thank

you

very much.

M
Michael Willome

Yeah.

More

questions

from

the

room.

Yeah,

Sebastian.

S
Sebastian Bray

So

just

one

more,

can

I

ask

about

the

confirmed

Nitrile

capacity

increases?

Because

this

–

the 200

kilotonne

figure

that I

believe

is

referenced

in

the

slides,

but

it's

not

an

exact

date.

Is

it

just

fair

to

assume

this

is

Malaysia

and

2022?

And

likewise

for this

year, am I right in

saying

it's

60 kilotonnes

from

Malaysian

expansion

and

40 kilotonnes

from

the

conversion

of

SBR

in

Italy?

Is

that

a

fair

summary

or?

M
Michael Willome

I

think

the

60,000 tonnes

that

is

our

famous

JOB6,

we

are

completing

this,

we

are

bringing

it

online.

That

is

the

line

where

we

have

the

highest

productivity

because

we

have

the

latest

technology

there

we

can

produce

in

this

line

more

capacity

for

our

SyNovus

Plus.

That

means

our

mix

is

positively

affected

because

we

get

the

premium

on

our

SyNovus

Plus

offering.

So,

definitely

we'll bring

this

on

stream

that

is

almost

completed.

We

are

now

into

technical

commissioning.

So,

I

think

by

end

of

March,

early

April,

we

will

have

it

online.

That's

a

60,000

tonnes.

On

the

Italian

part

that

you

are

mentioning,

I

think

that

is

something

which

we

are

reviewing

right

now,

because

as

I

said,

our

capital

allocations,

they

have

to

be

the

right

sites

that

you

have

economies

of

scale,

they

have

to

be

the

right

continent,

the

right

location, and

has

to

be

the

right

timing.

So

I

think

that

is

something

we

are

reviewing

and

we

will decide

in

due

course

if

we

are

going

ahead

with

this

project

or

not.

Right

now,

as

you

see

the

capacity

utilization

situation

until

the

second

half

of

this

year,

there's

definitely

no

urgency

for

this.

And

again

we

will

look

where

we

put

our

capital,

and

potentially

Italy

is

not

the

right

location.

But

again,

it

is

under

review

and

we

will see,

but we

will

only

make

things

that

makes

sense

for

us

long-term.

As

I

have

mentioned

in

general,

the

capacity

utilization

for

this

year,

there

will

be

underutilization,

there

will

be

overcapacity

until

the

destocking

has

ended

but

then

mid-term

after

this

period

is

over,

we

believe

in

a

balanced

– in

a

balanced

situation.

S
Sebastian Bray

That

is

helpful.

And

just

as

a

final

one,

the

CapEx

level of –

over

the

next

two,

three

years; are

we

talking

ÂŁ140

million, ÂŁ150

million

for

2023

if

your

Nitrile

plant

in

Malaysia

goes

ahead

and

approved?

And

just

is

it

simply

a

question

of

timing

why

this

hasn't

been

made

official

yet

we

are

building

XYZ

or

is

there

a

consideration

about

either

resizing

or

delaying

the

project

to

until

there's

visibility

on

the

market

situation?

Thank

you.

M
Michael Willome

I

mean

here

again

the

commitment

to

the

NBR

market

for

our

side

is clear,

and

that's

why

the

projects

in

Asia

but

we

also

have

projects

in

the

US.

I

can

say

that

we

are

in

discussions

with

governments

in

the

US

and

in

Asia

because

a

lot

of

countries

these

days

post-pandemic

they

would

like

to

localize

the

production

of

those

gloves.

So

that

is

for

us

a

unique

opportunity.

And

if

we

could

find

agreements

with

those

governments,

which

we

don't

know

yet,

it

would

obviously

have

a

severe

impact

on

the

levels

of

CapEx

that

is

required

from

our

side.

So

I

think

that

is

also

an

angle

we

have

to

look

at.

If

you

look

at

CapEx

levels

going

forward,

I

believe

they

will

be

lower than

[indiscernible]



(00:50:48)

have

right

now.

I

believe

they

will

be

back

in

the

area

like

of

last

year

ÂŁ80

million

to

ÂŁ90 million

more,

half

of

this

being

sustenance

and

safety.

We

will

have

these

chunks

if

you

would

invest

into

a

new

NBR

capacity.

We

have

ordered

long

lead

time

items

for

this

expansions.

As

we

have

announced

I

think

one

year

ago

[ph]



three (00:51:12)

or

even

longer.

But

having

ordered

these

long

time

items

it

also

gives

you

a bit

of

flexibility

because

it

doesn't

say

where

exactly

you

have

to

put

them.

So

I

think

here

we

do

have

some

flexibility,

we

are

looking

into

this

projects.

And

again,

as

I

have

mentioned,

we

only

invest

if

the

conditions,

which

means

the

economies

are

right,

if

the

timing

is

right

and

if

the

location

is

right.

So

I

would

say

we

are

evaluating

this

situation,

there's

no

rush

for

us

right

now

to

come

to

a

final

conclusion

where

we

do

this

investment.

Because

right

now,

and

for

the

foreseeable

future,

including

this

JOB6

60,000

tonnes,

we

are

very

well

balanced

to

supply

the

markets.

S
Sebastian Bray

Just

to

confirm

it

means

we

–

you

don't

necessarily

say

this

will

go

ahead

in

2024

or

is

that

just

a

[indiscernible]



(00:52:05)?

M
Michael Willome

I

think

that

is

safe

to

assume. We –

I

cannot

tell

you

exactly

when

this

is

coming

online.

I

know

that

usually

you

invest

when

the

market

is

lower,

that

you

are

ready

when

the

market

is

higher.

We

believe

in

this

8%

to

10%

market

growth,

but

we

will

have

to

see

because

as

I

mentioned,

there are a

few

items

playing

into

this

decision.

Is

it

Malaysia?

Is

it

the

US?

Is

it

other

countries

in

Asia?

So

we

have

options

here.

I

just

want

to

come

to –

I

don't

want

to

come

to

a

decision

which

at

the

end

plays

out

that

it

has

been

the

wrong

one.

I

think

we

want

to

be really

sure

that

in

terms

of

all

those

aspects,

again

also

as

the

government

angles

that

we

do

the

right

decision.

How

long

this

will

take?

I

think

we

are

–

it's

a

question

of

the

next

few

months.

We

are

doing

these

calculations.

We

are

doing

these

reviews.

And

what

I'm

absolutely

sure

with

our

offering

that

we're

having

right

now,

we

will

not

be

in

a

position

that

we

cannot

supply

the

market

in

2024.

I

think

this

capacity

will

be

available.

If

it

comes

a

new

capacity

potentially

wherever

that

is,

comes

online

a bit

late.

I

think

that's

not

a

problem

for

us.

But

important

is

that

these

are

sizeable

investment

amounts,

and it's

important

to

study

this

is the right

project.

Further

questions?

S
Stephen G. Bennett

Are

there

any

questions

from

the

operator?

Operator

Thank

you.

[Operator Instructions]



We

have

a

question

from

Matthew

Yates

from

Banks

of America.

Please

go

ahead.

Your

line

is

now

open.

M
Matthew Yates
Analyst, Bank of America Merrill Lynch

Hi,

gentlemen.

Sorry, couldn't

be

there

in

person.

I'd

just

like

to

ask a

question

about

the

start

you've

seen

to

2022,

and

particularly

in

terms

of

volume

growth

in

parts

of

the

Functional

Solutions

division.

Obviously,

I

guess

it's

in

certain

parts

of

your

portfolio

that

has

benefited

from

some

of

the

so-called

lockdown

trades

like

DIY

that

you've called

out.

Are

you

seeing

any

change

in

the

volume

trajectory

there

in

the

order

book and

in

early

trading

so

far

this

year?

Thank

you.

M
Michael Willome

Yeah.

Thank

you.

Yeah.

We

have

a

clear

answer

on

this.

I

mentioned

that

we

had

an

encouraging

start

into

all

businesses,

except

well-known

NBR

situation.

I

have

to

say

that

it

is

mainly

the

stronger

part

of

this

encouraging

start

into

2022

is

on

the

margin

side

and

less

on

the

volume

side,

but

also

on

the

volume

side,

what

I

have

heard

many

times

towards

the

end

of

last

year

that

the

do-it-yourself

business

is

going

down,

we

can

actually

not

confirm

this.

There

is

less

of

an

increase,

less

of

a

growth

there,

but

there's

absolutely

no

decline.

And

I

would

call

[ph]



it

an E

slight

growth (00:55:12),

so

we

cannot

confirm

these

concerns

about

the

do-it-yourself

markets.

Generally

I

would

call

it,

again

as

I

said,

there

is

volume

growth.

There

is

volume

growth

in

our

order

books

going

forward,

but

the

stronger

item

on

the

equation

is

on

the

margins

right

now

and

it

is now

in

our

hands

as

good

management

to

balance

exactly

how

much

margin

would

we

potentially

give

up

to

secure

more

volumes. But

I

think

that

is

the

natural

game.

We

do

not

have

kind

of

a

used

price

over

volume

strategy.

I

think

this

in

the

long-term

doesn't

work.

So

we

will

not

hold

on

to

high

margins

if

not

needed

but

I

think

that

is

just

our

management,

which

in

the

past

I

have

to

say

works

extremely

well.

You

have

seen

our

pricing

power.

And

I

have

hardly

seen

this

in

my

mind

more

than

20

years

in

chemicals

where

the

FS

division

last

year

they've

done

on

price

pass

on

to

our

customers.

I

think

that

was

an

excellent

job

being

done.

Excellent.

And

I

have

no

reasons

to

believe

that

we

do

have

this

position

and

that

this

will

go

on.

I

have

no

reasons

to

believe

that

we

will

have

to

give

up

and

make

too

much

of

compromises

there.

So

short

answer;

encouraging

start

mainly

driven

by

margins,

very

high

margins

also

driven

by

volumes,

but

to

a

lesser

degree

order

books

full

for

the

next

three,

four

months.

That's

usually

our

visibility.

The

same

is

valid

for

the

IS

division.

I

can

say

also

here

capacity

and

again

for

us

it's

crucial

that

the

sites

are

full,

capacity

situation

remains

very

positive.

And

if

you

mention

especially

the

DIY

market, we

do

not

see

massive

growth

there but we do

not

see declines

at all.

M
Matthew Yates
Analyst, Bank of America Merrill Lynch

Thanks. And maybe just a follow up, your point to

pricing power,

which

has

proved

to

be

pretty

good

recently.

Potentially

I

guess

there

may

be

another

need for

another

round

of

price

increases.

Can

you

just

remind

me

across

the

FS

and

IS

divisions,

how

much

of your

portfolio

has

sort

of

natural

indexation

clause

built

into

contracts?

How

much

is

more

bilateral

negotiations?

And

are

you

seeing

any

pushback

from

customers

in

terms

of

digesting

potentially

another

round

of

price

increases

over

the

coming

months?

M
Michael Willome

Yeah.

Yeah.

We

have

about

30%

indexed

formula

pricing.

Our

30%

if

you

go

over

IS

and

FS

divisions,

is

about

30%.

So

here

there

is

little

space

to

maneuver.

So

the

large

majority

of

70%

is

kind

of

spot

business

or

longer-term

business,

or

un-contracted

business

or

contracted

business

with

open

terms.

And

as

I

said,

I

think

I

cannot

give

you

a

guidance

how

this

is

going

to

play

up.

I

think

we

have

to

make

sure

that

we

find

the

right

balance

between

keeping

the

volumes,

keeping

our

sites

full,

keeping

our

market

positions

in

these

attractive

end

markets

of

coatings,

adhesives,

construction

and

how

much

of

pricing

power

we

will

exercise.

But

definitely,

I

see

no

change

to

the

fundamentals of

last

year.

So,

I

believe

if

you

had

pricing

power

last

year,

you'll

also

have

pricing

power

this

year.

M
Matthew Yates
Analyst, Bank of America Merrill Lynch

Thank

you,

Michael.

And

thank

you,

Stephen,

as

well

for

everything.

Bye.

Operator

We

have

another

question

from

Geoff

Haire

from

UBS.

Please

go

ahead.

G
Geoff Haire
Analyst, UBS AG (London Branch)

Yeah.

Good

morning,

everybody.

I'm

sorry,

I couldn't

be

there.

Just

had

one

question

just

on

the

outlook.

If

I

look

at

where

the

margins

in

Performance

Elastomers

were

in

the

second

half

of

2019,

that's

roundabout a

14%

EBITDA

margin,

if

my

numbers

are

right.

What

is

– is

there

a

potential

that

you

may

see

that? And

you

say

you're

returning

to

the

trading

environment

of

the

second

half

of

2019.

Does

that

also

comment

on

where

the

margins

are

going

as

well

for

the

Performance

Elastomers

business?

M
Michael Willome

I

thank

you

for

this

question

because

that

is

really

the

comparison.

The

2019

performance

of

the

business

and

the

2019

margins

for

the

business,

I

think

we're all

a

bit

blinded

by

the

events

which

started

in

Q2

2020

and

culminated

in

the

middle

of

2021.

So

the

fair

comparison

really

is

going

back

to

2019,

which

is

exactly

what

you

are

doing.

We

have

now,

I

would

say,

2019

and

again

you

can

see

it

in

the

chart.

2019

had

margins,

which

are

pretty

much

average

margins

over

the

last

I

think 10

years

we

have

it

in.

Again,

there's

only

this

one

spike

in

2015;

Ebola,

but

the

rest

was

kind

of

consistent,

stable

margins.

So

we

are

back

there

basically

in

2019

margins.

What

I

can

say

is

that

our

expectations

is

that

we

will not

reach

the

2020

levels

on

the

Performance

Elastomer

side

because

they

were,

as

of

Q2,

highly

influenced

by

exploding

NBR

margins.

But

we

will

expect

to

come

in

higher

than

2019.

And

why

is

that?

Because

we

do

have

more

capacity

on

the

ground,

including

the

JOB6,

we

do

have

higher

productivity

because

it

is

latest

production

technology.

And

most

especially,

thirdly,

we

do

have

our

SyNovus

Plus,

we

have

our

innovation

offerings

which

we

didn't

have

at

the

time

in

2019.

So

if

you

want

to

have

a

statement

from

me,

I

think

we

will

come

clearly

ahead of

2019

and

we

will

come

below

2020

in

the

Performance

Elastomers

division

on

the

PE

side.

And

then

also

as

we

have

mentioned

today,

and

it's

only

15%

to

20%

of

the

division.

Also

on

the

SBR

side,

we

have

made

progress.

We

are

clearly

not

there

where

we

want

to

be.

The

business

is

clearly

not

accretive

to

the

divisional

or

to

the

company's

percentages

of

returns,

but

we

have

made

clear

focusing

of

the

business,

we

have

made

site

closures,

we

have

[indiscernible]



(01:01:35)

we

try

to

bet

more

on the

attractive

end

markets

because

I

think

that

is

what

guiding

us.

So

we

have

made

clear

progress

there,

but

definitely

we

are

not

yet

there

where

we

want

to

be.

But

even

this

business

is

going

into

the

right

direction.

But

the

main

music

obviously

plays

in

the

NBR

business

and

there

the

situation

is

that

I

have

mentioned

with

clear

progress

compared

to

2019.

For

the

three

reasons

I

mentioned;

capacity,

innovation

and

production

technology,

more

productive,

better

yields.

Is

that

okay

or?

S
Stephen G. Bennett

Silence

probably

means

okay.

M
Michael Willome

Yeah.

S
Stephen G. Bennett

Okay.

And

we

have

– we just

have

one

other

question

come

through

the

webcast

from

David

Farrell

at

Jefferies.

So

could

you

give

some

comment

Michael,

on

the

data

points

that

you're

looking

at

as

you

build

your

confidence

that

the

destocking

is

happening

in

the

first

half of

this

year

on

the

Nitriles

business?

M
Michael Willome

I

mean first,

I

would

like

to

make

a

different

comment

actually.

I

would

like

to

say

that

you

saw

on

the

chart

of

the

new

Synthomer,

you

saw

that

PE

division

again

80%

let's

say

NBR,

20%

SBR

is

36%

of

our

sales

in

terms

of

revenue.

Now

this

is

driven

– these

are –

that's

based

in

2021

numbers

with

the

super

high

fly

sales

and

margins

of

the

PE

division.

Probably

going

forward,

the

share

of

our

PE

division

is

more

30%.

So

I

would

like

to

highlight

that

70%

of

our

business

is

actually

in

a

way

the

business

we

should

talk

about

because

it

is

70%

now.

We

mentioned

our

leading

positions,

our

super

high

attractive

end

markets

in

IS

speciality

portfolios

and

in

Functional

Solutions.

So

I

would

like

– I

speak

so

much

about

NBR

and

I

know

that

we

have

to

and

I

know

that

the

impact

of

NBR

is

huge,

and

the

sensitivity

on

our

results

basically

every

tonne

makes

a

difference

in

our

EBITDA.

I

fully

recognize

that.

But

I

would

still

suggest

that

we

also

talk

about the

70%

of

the

business

which

is

becoming

more

and

more

important,

Adhesive

Technologies,

IS

and

Functional

Solutions.

So

the

NBR,

the

NBR

space

now

I

think

it

is

the

margins

are –

as

I

said,

the

margins

are

coming,

we

believe

they

are

stabilizing

now.

The

destocking

will

last

another –

till

the

middle

of

the

year.

I

mentioned

that

we

have

certain

signs

of

finding

the

bottoms.

I

mentioned

that

smaller

distributors,

not

yet

the

large

ones,

smaller

distributors

are

reordering

which

we

haven't

seen

now

for

a

long

time.

So

there

are

these

signs

in

the

markets.

We

are

in intensive

contact

with

our

customers.

We

try

to

liaise

with

our

end-consumers

often government

institutions.

But

we

just

have

to

say

that

there

are

warehouses

in

this

world

still

full

of

medical

gloves

and

this

has

to

be

worked

through

and

this

will

take

another

several

months

until

we

are

in

kind

of

a

normal

supply/demand

situation.

So

I

think,

Steve,

I

don't

know

if

you

have

more,

but

there's

not

much

more

we

can

say.

The

only

thing

is

sometimes

you

are

blamed

of

that

we

don't

have

the

visibility,

and

I

have

to

say

we

do

sometimes

not

have

the

visibility

because

again

this

is

not

a

cyclical

business,

that's

a

pandemic

business.

You

go

back

in

the

chart,

the

famous

chart

that

says

it

all,

you

go

back

like

10 years

and

the

demand

was

all

the

time,

we

have

a

CAGR

of

8%

to

10%

in

the

market.

We

have

margins

that

are

relatively

stable.

We

have

upside

on

the

margins

because

of

Synthomer's

leading

position

in

innovation,

in

production

technology.

So,

I

believe

that

this

rebalancing

will

take –

will

come

in.

It

is

only

driven

by

the

pandemic

and

if

this

pandemic

is

gone

and

we

have

found

again

a

balanced

solution,

I

think

then

we

can

go

on

and

then

we

can

play

our

advantages,

which

I

have

mentioned

before.

But

none

of

us

has

seen

a

pandemic.

None

of

us

has

seen

an

explosion

of

margins.

I

have

never

seen

this

in

my

25

years

or

so

in

chemicals

that

margins

went

up

by

4.5

times

within

months

and

came

down

within

months

to

levels

again

4.5

times

below.

So,

I

think

this

is

just

a

unique

situation

which

we

all

have

to

learn

from.

We

have

to

try

to

map

this

in

the

future

that

we

can

see

it,

but

we

have

to

accept

that

there

will

be

a

certain

uncertainty

when

exactly

the

destocking

ends

for

the

next

coming

few

months.

I

think

much

more,

I

cannot

say.

I

can

ensure

you

that

we

have

extreme

close

intelligence

on

our

competitors,

what

are

they

doing

with

capacities.

We

have

very

good

intelligence

together

with

our

customers

looking

into

the

end

consumers

of

the

business,

which

I

mentioned

I

think

is

something

we

should

do

more

in

Synthomer.

So,

I

think

that

is

the

situation

where

we

are

right

now.

But

again,

we

are

a

market

leader

in

a

fundamentally

positive

position

to

continue

this

market.

S
Stephen G. Bennett

No

more

questions.

No.

M
Michael Willome

Well good.

Okay.

S
Stephen G. Bennett

That's

it for

questions.

Yeah.

M
Michael Willome

If

there

are

no

more

questions,

then

I

thank

everybody

for

the

interest,

and

I

wish

you

a

good

day.

Thank

you

very

much.

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