Synthomer reports resilience as demand remains subdued

(Sharecast News) - Specialty chemicals company Synthomer reported resilient trading in an update on Tuesday, despite a tough market amid a depression in customer demand. The FTSE 250 firm said that during the first half, it achieved a continuing group revenue of £1.1bn.

EBITDA for the period was expected to fall within the range of £72m to £74m, aligning with the board's expectations outlined in the 2022 results announcement in March.

Although the second quarter saw higher EBITDA compared to the first, the company said it faced lower volumes resulting from destocking, subdued demand levels across most end markets, and increased competition in certain base chemical product ranges.

However, robust pricing and a focus on margins helped to mitigate those challenges, the board reported.

Synthomer said it maintained a strong emphasis on cash generation during the half-year, achieving reductions in capital expenditure, working capital, and costs across the group.

As at 30 June, its net debt totalled £795m, while its net debt-to-EBITDA ratio, based on leverage covenant, was 5.5 times.

Synthomer also had committed liquidity of more than £400m.

Within its divisions, Synthomer reported progress in key areas aligned with its refreshed strategy announced in October last year.

In the coatings and construction solutions (CCS) division, Synthomer reported robust pricing and margins, delivering an improved trading performance during the period compared to the last quarter of 2022.

The division recently implemented strategic actions aimed at expanding its geographic and customer reach, enhancing organic growth, increasing market share, and improving margins.

Its adhesive solutions (AS) division faced challenges in the period, reflecting the lower volume environment and previously-disclosed operational and supply chain issues related to the adhesive resins business, which was acquired in early 2022.

However, Synthomer said it anticipated that its reliability and performance improvement measures would have a positive impact in the second half of the year, despite continued weak demand.

Additionally, the company said it had committed to expanding its specialty amorphous polyolefins capacity in North America to support growth in the region.

The heath and protection and performance materials (HPPM) division continued to confront the demanding dynamics of the medical glove market, which were persisting from the extraordinary activity during the Covid-19 pandemic.

Synthomer said it expected low nitrile butadiene rubber (NBR) production levels to remain high until the end of 2023.

The company added that it remained focused on managing capacity and controlling costs in the segment.

Synthomer's non-core portfolio rationalisation programme meanwhile also progressed during the half-year, as part of the company's ongoing strategic efforts.

Looking ahead, Synthomer said it was cautiously optimistic, explaining that despite its first-half challenges, its focus on cash generation, cost control and strategic actions was expected to support its performance in the coming months.

"The board does not anticipate a material recovery in customer demand before the end of the current year," the company said in its statement.

"However, we anticipate £20m in self-help measures expected mainly in the second half.

"Overall the Group remains confident of making sequential progress in the second half relative to the first."

Synthomer said it was continuing to take "decisive action" to strengthen its business, to position it for profitable growth when demand starts to recover.

"We remain confident in our ability to execute our refreshed strategy and deliver the medium-term targets set out last October, which were mid-single-digit growth in constant currency over the cycle, EBITDA margins above 15% and mid-teens return on invested capital."

Synthomer said it would report its half-year results for the six months ended 30 June on 7 September.

At 0817 BST, shares in Synthomer were up 1.45% at 81.16p.

Reporting by Josh White for Sharecast.com.