Synthomer plc (LON:SYNT) today issued a trading update for the quarter ended 31st March 2020.
Q1 Trading
As announced previously, the Group has experienced a solid start to the year with EBITDA approximately 5% ahead of the comparative Q1 period for the heritage business, and in line with expectations set out at the time of Synthomer’s full year results announcement.
Performance Elastomers
Our Nitrile Butadiene Latex business continued to benefit from the additional 90kt of capacity introduced in Q4 2018 at our Pasir Gudang site. We saw higher volumes due to COVID-19, although unit margins were marginally lower relative to a strong comparative period in 2019. Styrene Butadiene Rubber market conditions stabilised with volumes in line and unit margins ahead of prior year. The strategic review of our European SBR network is ongoing and a further update will be provided in due course.
Functional Solutions
Whilst reported volumes were lower than the comparative period this was compensated for by stronger unit margins as a result of improved mix and softer raw material markets. Progress has been supported by the expansion of our Worms, Germany and Roebuck, USA dispersions facilities last year which introduced low cost capacity to drive organic growth in differentiated applications.
Industrial Specialities
Performance has continued in line with expectations. Excluding the impact of our acrylate monomer business, which largely supplies internal demand, all businesses made progress with volumes in line and margins ahead of the comparative period in 2019.
COVID-19 Update
The Group continues to operate 37 of its 38 global manufacturing sites, with speciality chemicals designated as key industrial assets in the geographies in which Synthomer operates. To date, the Group has experienced no significant issues with regards to raw material supply, the distribution of finished goods or the availability of operating personnel.
Notwithstanding Synthomer’s broad geographic and end market diversity, Q2 sales into industrial markets including Automotive and the Oil & Gas sector are currently being impacted. However demand for Nitrile continues to be strong particularly as a result of the COVID-19 pandemic.
As previously announced, the Group has a strong balance sheet with significant leverage covenant headroom (4.25x and 4.00x EBITDA for 2020 and 2021), and significant liquidity underpinned by the 2024 committed unsecured 5 year €460m RCF and $260m term loan bank facilities.
Synthomer expects to reduce its capital expenditure for 2020 to approximately £50m from the £73.5m originally anticipated (including OMNOVA). The Group has recently completed a material capital expenditure programme and its asset base remains well invested.
Under the current circumstances, the Group’s Board, Executive and Senior Management have frozen their salaries at 2019 levels and delayed any further review until October 2020.
Following the completion of the OMNOVA transaction, as announced on the 1st April 2020, the ongoing integration of the business is progressing. We confirm delivery of the expected $29.6m synergy is on track. OMNOVA reported EBITDA Q1 2020 marginally ahead of Q1 2019 but given their exposure to a broad range of industrial markets expect an impact from the COVID-19 pandemic in the months ahead.
Outlook
Given the unprecedented uncertainty around the impact of COVID-19, it is unclear what impact this will have on the Group’s financial performance for the year. As such, the Group is withdrawing its previous guidance for the year ending 31st December 2020 and will update the market when there is better visibility.
Over the medium term the Board remains confident that Synthomer is well positioned due to the Group’s strong geographic and end market diversity combined with self-help initiatives and the future benefits to come from the successful acquisition and integration of OMNOVA.
