Synthomer plc

Good morning, and welcome to our 2024 full year results presentation. I'm glad to see you here at the Royal Society of Chemistry in London, with many others joining online. As usual, I'm here with Lily Liu, our CFO, and Faisal Taba, Head of Investor Relations, and we look forward to answering your questions at the end. I will provide an overview of our performance and the robust progress we made in 2024, despite slow demand in most of our end markets. Lily will then walk through the numbers in more detail before I come back to present our continued progress and how we are making Sintermeer a much stronger, more resilient, and more focused specialty chemicals business. Then at the end, we will discuss what we are anticipating for 2025 and beyond. Starting with our performance, against the backdrop of a period of suppressed demand in the chemical sector that lasts now since three years, we have delivered fully results with robust growth in revenue, EBITDA, EBIT, and improved underlying EPS, all in line with expectations. Overall volumes increased by a significant 8.4%. Despite generally slow end market demand, all three divisions showed growing volumes. We gained market share, particularly in AS division, and we are pleased to report today an increase in our revenue of 5%. Our EBITDA increased by 9%, around 10 million pounds, mostly reflecting our self-help, reliability, and cost actions, as well as our strategic reorientation with margins also ahead year on year. And we did this after absorbing the additional operating investments we have made in our people and our assets in the year. As we mentioned in our January update, we were pleased with the strong exit margins coming out of 2024, particularly in our specialty businesses. We maintained our stable financial position to support the delivery of our strategy. Following a successful bond refinancing in 2024, our next major debt maturity is in 2027, giving us a robust platform for continued earnings recovery. As we anticipated, net debt was higher at year end than at the start, mainly due to non-recurring outflows such as the EU fine, a deferred pension payment, and lower use of our factoring facilities than the prior year. It is important to note that our net debt is still 40% or 400 million pounds lower than at the end of 2022, and 600 million pounds lower than at its peak during the second half of that year. We are confident that we will make further progress reducing our leverage during 2025 and onwards, even if there is no significant market improvement and without counting on any divestment proceeds which should come through. Our confidence comes in part from the further earnings progress we are expecting in 2025, driven by our cost and reliability self-help and strategic delivery in terms of a higher margin product mix. Except for MBR, we are counting very little in terms of market recovery in our plans for now. But our operating leverage to improve volumes is substantial. So when we do begin to see a recovery, we will benefit significantly. Turning to strategy, our transformation towards higher margin, more resilient specialty solutions is gaining momentum. Our strategic KPIs are heading in the right direction with a particular highlight being the simplification of our manufacturing footprint from 43 sites and we launched a strategy to 31 today. This reduces cost and allows for more focused capital allocation. We furthered our non-core divestment program with the compounds business sold in 2024. And three other formal processes are making active progress. We also began a technology partnership in the US which leverages our intellectual property and expertise in medical glove ingredients to benefit from changes on the way in this important market at zero capital cost for ourselves. In January, we formally opened our China Innovation Center in Shanghai to support the customers in the region. alongside several carefully selected innovation and manufacturing investments in the U.S. as another growth region for us. Customer-centric innovation gives us a competitive advantage, and this year we also sustained our consistent record of new and protected products, making up at least 20% of our sales volume over the long term. And we continue to innovate to create more sustainable products. We are in a unique position to partner with our upstream suppliers and downstream customers to make more bio-based and circular products possible. And more than two-thirds of the new products we launched in 2024 had enhanced sustainability benefits as desired by our clients. I'm also pleased to see that our stakeholders are beginning to recognize the changes we are making, for instance, with a clear improvement in our customer net promoter score. In addition, our employee engagement score at the end of 2024 was significantly better than 2021, and the world of chemicals was still booming, and the symptomatic bonus situation for employees was at its peak. A lot of transformational and operational work still lies in front of us, but the recipe is working. I will hand over now to Lili.

Many thanks Michael and good morning all. I'm pleased with the inline financial result we have delivered despite the continued challenging market conditions across the industry. And I also look forward to taking you through our continued financial progress, put us in a good position to reduce leverage further in 2025 and beyond. Next slide please. Now start with the financial summary. Group revenues for continuing business were 5.1% higher on constant currency basis, just under two pilling pounds. This reflects an 8.4% volume growth, driven principally by adhesive solutions regaining market share and health and protection business recovering from historical low positions seen last year. Our more resilient CCS division, which is already around three quarters speciality, continue to trade robustly. We saw a lower price mix of 3.3%, mainly reflecting the path through of lower raw material input prices versus 2023. Foreign exchange has a negative 2.7% impact on our revenue for the year. Overall, we were encouraged by an improved gross profit contribution of 150 bps from operating leverage. And our result also benefited from 26 million pounds of self help actions across the group. However, as we indicated at the start of the year, we knew we would also be absorbing higher operating costs, partly due to wage inflation. and increased bonus accrues relatively to prior years, which impact all divisions and also the corporate line. Notwithstanding this, we were able to deliver a group continuing EBITDA of 147 million pounds, a 9.2% increase versus comparable period on constant currency basis. Our EBITDA margin was 7.4%, a 30 bps improvement from prior year. EBIT of 50.4 million pounds grew by 55% in constant currency, driven by the combination of higher EBITDA and lower depreciation and amortization cost, reflecting the significant reduction of number of sites, as Michael mentioned, and lower capex spent in the last few years. The interest charge was lower in 2024 by around 8%. reflecting the successful debt reduction from rights issue and also from our divestment programs, and partly offset by higher coupon in our new 350 million Euro bond. We expect the net P&L financing cost to be around 60 to 65 million pounds in 2025, more towards the lower end of that range. Our cash interest costs continue to be lower than P&L charge at around 55 million pounds. These continued operations, being the compounds business, contributed EBITDA of 2.6 million pounds up to its divestment in April 2024. Now we continue to guide our underlying effective tax rate for the group around 25%. But for 2024, our underlying effective tax rate is 43% on a 9.6 million loss before tax. This ETR is outside normal range. due to geographical mix of our P&L of profit and loss and prior year adjustment. The total group continued and discontinued had underlying loss per share of 2.5 pence, very substantially improved from the 35 pence loss in 2023. Special items were broadly similar to prior year for continuing operations and comprised mostly acquired intangible amortization, restructuring and site closure costs in the period. As always, we have included a schedule for special items in the appendix. Our net debt at the end of 2024 was higher than at the end of 2023, which I will take you through in more detail in a moment. But at 4.6 times, our leverage was well within our covenant requirements, and we have plenty of undrawn committed liquidity for our business. Next slide, please. Now turning on to each of our divisions, starting with CCS. Revenues were 791 million pounds, down 1% in constant currency from 2023, mainly as a result of power flow of raw material price reduction versus prior year. Volume was up by 2.4%. In terms of activity levels, our coatings activities were robust. consumer materials were stable, while energy solutions saw a slowdown in growth in the second half. The most challenging end market was construction, which although was poor all year, at least began to improve slightly in Q4. Encouragingly, while reduced raw material costs were reflected in our pricing, the gross margin was expanded by about 70 bps, reflecting the more speculative nature of the portfolio. Total division EBITDA reported at 86 million pounds, a reduction of 12% on constant currency, with EBITDA margin of 10.9%, a reduction of 130 pips. This result was a combination of factors. The market induced weak performance in our construction business, a slower progress in high margin energy solutions business, and as the largest division by number of sites, people, CCS bore a substantial higher share of higher wage and bonus related costs I mentioned earlier. The reduction of divisional EBITDA also reflected the investment in innovation and our effort to expand our market presence in the US, Middle East, and Asia, leveraging our leading European positions in many product areas. Next slide, please. We're very pleased with the step change in our AS division. Its financial performance was excellent, with 57% EBITDA growth in constant currency year on year. Now, revenues increased by 4% in constant currency, boasted by 9% volume growth. Our speciality product portfolio, circa 60% of divisional revenues, continues to be robust. with good pricing and margin management. Our base products have higher volume growth as our improved reliability and cost competitiveness enabled us to regain some of the market shares previously lost to competitors. The substantial growth of EBITDA was driven largely by our performance improvement program, which realized around 21 million pounds of savings in 2024. And we expect additional benefit around 10 million pounds, mainly in 2025. Overall, EBITDA margin of 8.1% was a 270 bps improvement. Very encouraging progress, given we have also absorbed higher operating costs described earlier. Our project to secure hydrocarbon supply in Europe was successfully commissioned in Q3 2024. and volume ramp up close to capacity now. And finally, health protection and performance materials. Revenues were up 15.6% in constant currency, benefiting from a 14.1% volume growth with a 1.5% higher pricing and mix from unit margin improvement on higher raw material price path through in H&P. Within health and protection, NBR volumes grew by 24% from the historical low point of 2023, although that only takes them back to 80% of the 2019 level. The benefit of self-help capacity reduction from mothballing of our clone plant was offset by unit margins, which remain substantially lower than the pre-pandemic levels. Our plant utilization currently is around 80%, but the industry as whole remain at lower levels, putting pressure on further margin expansion. We expect to see some positive impact from the US tariff on Chinese glove imports over time. Although in the short term, our Malaysian customers are reporting that there was a bit of a pre-buying at lower prices before the tariff started in January 2025. We received mid-single-digit millings in US dollar technology license income, as Michael mentioned, from our US partners as we're supporting their effort in building a new NPR plant onshore. The performance material side of the division grew volume by 6.9%, but continue to experience ongoing pricing pressure. Overall, our effort to enhance capacity utilization and efficiency meant that even after higher wage and bonus accrues that I described elsewhere, the division EBITDA margin improved by 110 bps in 2024 compared with 2023, with EBITDA increased by 40% in constant currency. We make good progress in non-core part of the division. To date, we have disposed the laminate films in 2023, divested compounds business, and closed the US paper and carpet business. And we have other active divestment programs ongoing, as Michael mentioned a moment ago. Now moving on to cash flow, as I mentioned, our year-end net debt was 597 million pounds, higher than the prior year of 500 million pounds, mainly because of pension payment of 20 million, including deferred deficit reduction contribution to the UK scheme, a 23 million pounds reduction in use of receivable financing, and the 39 million pounds of EU fine. The net debt of 600 million was half of the peak level of 1.2 billion during 2022. the reported free cash flow for the year was an outflow of 54 million pounds. However, adjusting for the reduction of factoring usage and the one-time pension contribution, the underlying free cash flow was broadly neutral. Our 2024 working capital was flat to 2023 position, excluding the impact of factoring. We reversed H1 working capital build in H2. We continue to focus on our inventory and data while balancing the growth requirement of our businesses. A very disciplined net capital spend of 83 million pounds in line with our guidance. Other than safety and maintenance spent, we selectively invested in some strategically important areas, such as our APO line, a new innovation center in China, and new production capability in the US and Middle East for CCS division. We continue to allocate our capital rigorously, supporting our speciality and regional growth strategy. More capital into US, Middle East, and Asia, and more capital into speciality part of the business for growth and for returns. We expect absolute capex spent in 2025 to be similar to the last couple of years. Interest payment potentially decrease slightly, we expect cash tax to be more in line with P&L tax than this year. And following the payment of deferred pension contribution in 2024, the 2025 pension cash cost will be broadly similar or lower than 2023. Of course, we also not have the 39 million EU settlement for the 2018 sterling investigation to pay in 2025 neither. All of these factors coupled with our expectation for the EBITDA progress in 2025, means that even if microeconomic conditions do not improve materially, we will still expect to be free cash flow positive in 2025, with the leveraging taking place relatively to the 2024 level. The level of factoring usage, of course, also continue to have an impact on this. Now, moving on to balance sheet, I'm pleased with progress we have made in strengthening the balance sheet from peak net debt of 1.2 billion pounds during the second half of 2022, now 600 million pounds. As we talk about at the intrams, we successfully issued our new bond in April, which means that together with various financing activities completed in the last couple of years, we have extended our debt maturity substantially. with the next major financing requirement by 2027. And we're now in a much more robust foundation, supporting the ongoing delivery of our strategy. Leverage was 4.6 times net debt to EBITDA at the year end, higher than the 2023 year end by 0.4 times, but well within our covenant requirement. We have committed and drawn liquidity of more than 470 million pounds at the year end, with additional support from the unused portion of our factoring program. We expect to pay down the 150 million euro start amount in July 2025 from our own fund. Our liquidity will reduce accordingly. Let me reiterate our capital allocation priorities. where we intend to continue to invest in carefully selected organic opportunities aligned to our speciality strategy in growing regions. Our key priority is to reduce our leverage towards the one to two time medium term target. Through a combination of increased EBITDA, continued cash focus and generation, supplemented with further non-core divestment proceeds. The board has confirmed that dividends will remain suspended at least until our leverage is below three times. In summary, I'm really pleased with the strategic, operational, and financial progress we made in line with expectations this year. We continue to focus on self-help actions while balancing this with selective investment guided by our strategy. and I'm confident that we have a clear path to deleveraging in 2025 now, and that the non-recurring outflows I mentioned are done with. Let me stop here and hand back to Michael to update you on strategic initiatives and outlook. Michael.

Thank you, Lily. Most of you will be familiar with this slide, which sets out the five pillars and three key enablers which we have driven our strategy since 2022. Although we always challenge ourselves, we believe this strategy is serving us well and remains a crucial guide for all of our decisions. Moreover, we are beginning to see the benefits of consistently implementing the strategy across the business. Starting with Pillar 1, we delivered robust organic growth of 5.1% in 2024 against the constraint of slow demand in our end markets. This was driven primarily by our focus on cost efficiency, innovation, and reliability for our customers, leading to market share gains in the chosen target and end markets by product and geography. As part of our ongoing portfolio management, we furthered our non-core divestment program, Pillar 2. We divested our compounds business during the year, consolidated manufacturing sites, and several similar projects are making active progress. We continue to produce globally in order to be close to our customers, but we now do so more efficiently, and this frees up capital, time, and energy to redeploy into our target growth areas, a good example of pillar four in action. For example, we have invested in our coatings manufacturing capability in the USA, increasing the flexibility to supply customers with a wider range of products. We invested in the Middle East to increase production volumes there too. We also allocate innovation resources more rigorously to where we see the greatest future benefits. We remain focused on enduring operational and commercial excellence in how we run our business, Pillar 3, including, for example, our transformation program in AS division or our procurement program with benefits of 40 to 50 million pounds in 2025 and 2026. We have increased our cinema excellence capability and learned a lot from our first two projects using advanced data analytics in polymer innovation and to optimize manufacturing throughput at one of our busiest sites. We are also investing in our people, Pillar 5, with continued growth in our graduate program and other actions to develop the diverse range of talent and experience we need. This slide will also be familiar, illustrating the direction of our strategic evolution in three key dimensions. You see that we are growing the specialty weighting of our portfolio with higher margin, more resilient specialty products now accounting for 55% of revenues. In 2024, the US and Asia together accounted for the majority of our revenues. Europe continues to be our historic core region and the United Kingdom our corporate home. But we are successfully repositioning Sintermeer to be a more balanced business geographically. And while we continue to operate with the vast majority of our production activity in the region for the region, close to our customers, we have carried out work of simplifying our business. Since 2022, we have streamlined our footprint from 43 sites to 31 through a combination of divestments and rationalization and expect further developments on both tracks going forward. Let me briefly take you through each of the divisions to demonstrate how these various aspects of the strategy are playing out. CCS is currently our most specialty-weighted division. During the year, we continue to leverage our leading market positions in niche European markets into other markets globally. Through a more end-market aligned approach with key account management and value selling, we are targeting opportunities to grow our market share, particularly in the USA and in the Middle East. We successfully commissioned an investment which enhances our coatings capacity in the Middle East. We're also increasing our focus on growing our customer base in China, capitalizing on our new innovation center in Shanghai. In line with accelerating our portfolio transformation, we have reviewed and begun to overhaul our approach to innovation with a view to becoming more end customer focused and especially faster to market with new products. All our growth plans are integrated with our asset optimization and excellence projects and other cost and capacity management activities. We have recently invested to improve the manufacturing flexibility of a number of our major facilities in the US and Asia, giving us the optionality to manufacture a number of products in those regions that were previously only made in Europe. We believe digitalization and the use of artificial intelligence will be increasingly important in optimizing our production activities. And during the year, we use digital analytics tools for pilot project to enhance throughput at our capacity constrained site in Le Havre, France. And finally, our Fitchburg, Massachusetts facility successfully transferred products to other sites and ceased production ahead of schedule with the site subsequently sold after year end. In recent years, our main focus at our adhesive solutions business has been on fixing a range of reliability issues and making the division more cost efficient. And while there is more to do, we have significant headway in these critical areas during the year. Lilly has already commented on the step change in financial performance in this division, which is highly encouraging. Our dedicated performance improvement program has focused on systematically transforming the business by reducing costs and improving end-to-end operations from supplier network improvement to production site efficiency and delivery logistics, enabling substantially better service for our customers. Having delivered 26 million pounds in cumulative benefits over the past two years, we are now expanding the program to target 35 plus million pounds in cumulative benefits by the end of 2026. In line with our differentiated strategy, in our base product areas, we continue to focus any investment on enhancing cost leadership and reliability, such as our project to strengthen the supply chain for hydrocarbon resin production in Europe, which began to ship during Q3 2024 as planned and is already close to capacity. Continued performance improvement remains a key objective in 2025, but we are increasingly focusing on the longer term growth of the division. We see clear opportunities to build on our leading positions in the range of specialty adhesive applications in attractive end markets with our long lasting blue chip customer relationships. The depth and nature of our technical dialogue and joint projects with many customers evolved considerably during the year, particularly in relation to innovation and sustainability. This includes replacing solvent pressure-sensitive adhesives in specialty tapes, new APO types for improved performance in packaging and hygiene applications, our first sales of a Forest Stewardship Council certified resin to one of our tire customers. Most of our investment for future growth also aims to build on the strengths of our specialty portfolio, such as our investment to increase APO capacity at our Texas facility, which is expected to come on stream in Q2 of this year. HPPM, in contrast to CCS and AS, is primarily a base chemicals business, and we therefore manage it and allocate resources, including capital, to it very differently. Here the prime focus is on cost competitiveness with the majority of innovation focus on process innovation to support our customers. In our core health and protection business, this approach was demonstrated in the year through our formation of a significant zero capital and profitable technology partnership for the US domestic medical gloves market, which is evolving rapidly in part due to government procurement policies to support growth of US made PPE. We are now receiving technology licensing fee payments, which are the first stage of a multi-year partnership that leverages our health and protection IP, technology and manufacturing expertise. We also continue to actively explore other potential partnership opportunities for this business with little or no capital investment. Process innovation is key to helping customers lower their energy costs, and in early 2025, we established a pioneering value chain partnership with Neste and PCS to manufacture bio-based nitrile latex for the glove industry. Moving on to the non-core portfolio, at the end of April 2024, we completed the divestment of our latex compounding business. Three other non-core portfolio rationalisation processes continue to progress, including the divestment of our SPR for paper, carpet and foam in Europe. As I have alluded to already, ensuring excellence across all aspects of our operations has been a major focus over the last few years. I have previously touched on our procurement saving program. This is now increasingly well established. We have done a huge amount of work to improve the way we purchase the long tail of hundreds of raw materials as well as our indirect spend. Our excellence program is delivering improvements both in manufacturing and in commercial operations. Initially, this program was having to push its way into helping local operations. But I'm pleased to say that as it becomes more embedded, our business units now want to pull Cinex in to help them solve problems. On the commercial side, we are building on our more systematic approach to value selling, as well as investing in our new sales force CRM and opportunity management capabilities. Finally, we are proud of our safety record and we continue to steadily improve the sites that we have acquired in recent years. I have mentioned a number of specific innovation and sustainability projects elsewhere and throughout this presentation, so I won't dwell on this page other than to restate that our approach is and always will be customer or even end consumer led. Turning now to our expectations for 2025, trading so far has been in line with our expectations, which assumed a muted start to the year compared with the relatively strong first quarter in 2024, which included significant restocking and benefits from the Red Sea disruption. When we look at 2025 as a whole, we expect to deliver further earnings progress compared with 2024. In this, we are targeting a further 25 million to 30 million pounds in expected benefits from delivering our self-help and strategic plans with less cost headwind than in 2024. The strong exit margins we had out of 2024 support our confidence, as does the volume improvement in health and protection we saw last year. We expect the volume recovery in this market to continue, but otherwise we are prudently assuming limited end market demand improvement in 2025 at this stage. On these earnings assumptions and applying the cash flow line item comments Lily made earlier, we would expect to deliver positive free cash flow and deleveraging in 2025 without assuming any divestment proceeds or material market recovery. To finish, I want to confirm that our self-help actions plus operating leverage to volume recovery, plus our strategy execution have the potential to double recent EBITDA levels. First, further cost and efficiency self-help actions have a potential of 40 to 50 million pounds. Second, all three of our divisions delivered volume growth in 2024, and in doing so demonstrated their operational leverage potential, resulting in a 150 basis points higher gross profit margin for the group. All still have substantial runway to recover to pre-pandemic levels of demand in their markets, and they all have sufficient manufacturing capacity to meet the demand when it comes. We estimate around 90 million pounds in EBITDA potentially in a recovered end market environment. The third bucket for increased EBITDA is delivering our specialty strategy, reallocating our resources towards the business portfolio of higher margin specialty solutions in growth markets. So in summary, while our markets continue to be slow, our response has allowed us to grow revenues, increase earnings at all levels, progress our strategy, and improve employee engagement. On this, we are building our momentum in 2025. Now, Lilly and I are happy to take your questions.