Synthomer plc

Good morning and welcome to our first half 2025 results presentation. As usual, I'm joined by Lili Liu, our CFO and Faisal Taba, our Head of Investor Relations. Lili and I will present our review of Syntemer's strategic, operational and financial performance in the period and together we look forward to answering your questions at the end. In terms of the agenda, I will start by providing an overview of our performance and the continued progress we are making, despite clearly subdued end markets. Lilly will then walk through the numbers in more detail before I come back to present the key developments in our three divisions, in the execution of our strategy, and how we are continuing to position Syntomer to deliver our medium-term ambitions. I start with trading. In the first half of 2025, we were able to deliver gross margin, EBITDA and relative margin progress, mainly through continued strategic delivery and cost reduction measures, which we are becoming quite good at. We view this as a robust performance overall, given the weak market environment the industry experienced particularly in the second quarter of the year. The gross margin improvement by more than 400 basis points over three years and more than 100 basis points in the first half of this year shows our pricing power and operating leverage which are very important now and even more going forward in a better demand environment. Both revenue and volume broadly tracked 2024 in Q1, but demand conditions became considerably more volatile in the second quarter following the announcement of new US tariffs. Many customers have adopted a wait-and-see attitude in the face of the sometimes day-by-day changes in the tariff situation, and this has affected activity levels in the short term, even as most of the longer-term trends in our end markets remain reasonably stable. Our net debt was higher than at the start of the year, broadly in line with our expectations. This mainly relates to the seasonal net working capital profile, which is why we are confident that free cash flow will be positive in the second half. In terms of the outlook, we are assuming that demand remains subdued as a result of the trade tensions and geopolitical situation for the remainder of the year. We have therefore stepped up our strategic and operational efforts to transform the business, including a new £20-25 million cost reduction programme, which includes removing a further 250 positions across the Group. This will help to mitigate these headwinds and enable us to deliver some earnings progress and broadly neutral free cash flow for the year as a whole. We also continue to change the portfolio in line with our strategy of making Syntomer a more resilient and more specialty-focused chemicals business. In May, we completed the divestment of William Blyth, our non-core inorganic chemicals business, and together with a site closure in China, we have now reached a milestone of less than 30 manufacturing sites down from 43 when we began this process in late 2022. We are not done with portfolio simplification. We have two formal non-core divestment processes currently underway and we are giving consideration to broadening our divestment program to accelerate the group's deleveraging and focus the portfolio further on end markets where we see profitable growth. We also continue with our efforts to allocate capital and other resources in a smart way. You will recall that last year we began a technology partnership in the US to leverage our intellectual property and expertise in medical glove ingredients. And in the first half, we added additional services for our US partner, which contributed positively to earnings. Our sustained focus on targeted innovation, including into more sustainable products for our customers, resulted in good successes in the period and added exciting opportunities ahead. I'll come back to talk further about some of these developments in a moment, but let me first hand over to Lily to run through the numbers in detail.

Many thanks, Michael, and good morning all. I'm pleased to take you through our H125 results, which show EBITDA and margin progress over the prior period, despite the backdrop of increased demand uncertainty created by tariff policy changes. As usual, I'll start with the financial summary. Group revenue for continuing businesses was 8.8% lower on a constant currency basis at just over £925 million. This was largely driven by lower volume, especially in Q2 after the tariff announcements. as well as reflecting path through of lower raw material prices and the robust prior period for energy solutions and coatings businesses. Despite this, we delivered EBITDA and EBITDA margin growth overall, with encouraging progress in our DCIF solutions and HPPM divisions, partially offset by lower performance of energy solutions within CCS. The growth margin for our businesses improved by 110 bps versus prior year. Supported by £17 million from cost efficiency programs and reliability improvements, as well as a lower bonus accrual compared to 2024, we were able to deliver a group continuing EBITDA of £78 million, a 5.4% increase on a constant currency basis. EBITDA margin continues to improve versus prior period, now standing at 8.4%. Continuing business underlying profit was £28.3 million for the half, in line with H1-24, with slightly higher depreciation in the period, reflecting the capital expenditure profile. Underlying finance costs increased by 4%, higher coupon from new bond partially offset by lower base rates. We continue to expect net financing costs of around 60 to 65 million pounds for the year. Cash interest costs continues to be lower than P&L charge by around five million pounds. we continue to guide the underlying group effective tax rate around 25%. For 2025, our ETR is expected to be significantly outside of the normal range due to geographical mix of profit and loss and adjustment on deferred tax asset in the US and UK. These continued operations, being the William Blythe business, contributed an EBITDA of 3.6 million pounds up to its divestment in May, 2025. The total group continued and discontinued had underlying earnings per share of 3.6 pence loss for the half down from 1.3 P in H1, 2024. Special items are coming down for continuing operations. and comprise mostly intangible amortization and restructuring and site closure costs in the period. As always, we have included schedule for special items in the appendix. As usual, our net debt at the end of June was higher than at the December year end, reflecting seasonal working capital movements, which I will take you through in more detail in a moment. and our leverage of 4.8 times was slightly higher than at the year end, but within the covenant. Turning to each of the divisions, in CCS, revenue was 372 million pounds, down 12.2% in constant currency from H1 2024. Volume was down 6.5%, in part reflecting a strong prior period, including a good coating season and tariff-induced demand uncertainty. But the biggest driver was lower oil and gas drilling activity, which resulted in smaller orders from our oil field services customers in the high margin energy solution segment. We have seen some improvements in our construction business in Europe, which has particularly challenged in 2024. But this was not enough to offset the muted activities elsewhere, particularly in the US. The energy solutions slowdown was also reflected in the mixed reduction of 5.7%. As a result, EBITDA reduced to £35 million, or down 34% in constant currency. In response, we have taken decisive steps, introducing the cost reduction program in the period that Michael mentioned. CCS bears a substantial share of Group's overall cost base, and so, while this is already bearing some fruit, we anticipate acceleration of this savings in H225, driving more balanced performance between the halves for 2025. Now, we're very pleased with the further progress achieved in improving the DCIF Solutions Division. which increased EBITDA by 64.8% in constant currency versus H124, raising EBITDA margin to almost 12%. Revenue was 1.4% lower in constant currency, in line with 1.8% volume reduction. This was partially driven by required operational shutdowns and delays to a capital investment project on our speciality line. The site and the contract work are managed by third party. The project came on stream in July, and so we expect it to make positive contribution in H2 2025. Our improved reliability and cost competitiveness has enabled AS to remain resilient in a period of market volatility. With the business continuing to report operational efficiencies and cost savings expected through 2025 and beyond. Now finally, Health and Protection Performance Materials Division. Revenue was down 12.4% in constant currency, reflecting a 10.2% volume contraction and path through of lower raw material price. Within health and protection, NBR volumes fell by 16%, reflecting some pre-buying in the supply chain prior to Biden administration's changes to US PPE tariff went into effect in January 2025, which muted customers' demand in H1-25. Our customers expect this to moderate in H2-25. Margin pattern in H&P benefited from mixed effect, as demand for our higher margin reusable product was more robust than for disposables in the period. but this continued to be substantially lower than the pre-pandemic levels. Our Pasigudan plant utilization is currently around 65 to 70%, with the industry as a whole at lower levels. We received further income from our U.S. technology partner, where we support their efforts in building a new U.S. NBR plant. including for a new package built and delivered in the period. The performance material side of the division reflects the volatile market conditions for these businesses and two manufacturing shutdowns in the period. Process optimization and cost efficiency initiatives have driven performance improvement and margin progress. We continue to focus our efforts on enhancing capacity utilization and efficiency within the division, resulting in 180 bps EBITDA margin improvements versus H1 2024, increasing EBITDA by 21.5% in constant currency to nearly 17 million pounds. As Michael mentioned, We have also disposed of William Bly's business this year and ended operations at our Ningbo site in China, with further divestment programs ongoing. As I've mentioned, our half-year net debt was £638 million, higher than the year-end position of £597 million, as we expected. This increase reflects our typical seasonal working capital investment, bonus payout, a capex phasing, and translation of foreign currency debt, partly offset by the proceeds from William Bly's divestment and increased receivable factoring. We reported working capital outflow in the first half as is typical for us, with higher activity levels in June versus December reflected in the working capital balances. Our continued focus on inventory efficiency, coupled with seasonal unwind, we are expecting good working capital inflow in the second half. We demonstrated exactly the same pattern last year between the two halves. CapEx remains disciplined, with forecast full-year spend now expected to be just below prior. Increased spend versus H1-24 is driven by project timing. Other than health, safety, and sustenance spend, we selectively invested in some strategically important areas, such as our new speciality APO line in ACE, Middle East capacity for CCS, technology improvements, and lower carbon solutions for our customers. Cash tax benefited from refund in H125, which we expect to unwind to a neutral position by year end. And pension costs in excess P&L are significantly lower than last year as guided. Taken together with further self-help actions, we expect a positive second half free cash flow and the board live free cash flow neutral position over 2025 as a whole. Regarding our co-debt facilities, the remaining stop of the 2025 bond was repaid in early July. Our RCF expires in July, 2027 and UCAP facility has maturity to October, 2027. As always, we keep our financing needs under review in case of opportunities ahead of that. Net debt to EBITDA was 4.8 times at the half year on covenant definition basis, which mainly adjusts for IFRS 16 and is therefore about 0.4 times to 0.5 times higher than using headline net debt and EBITDA figures. leverage was slightly higher than the 2024 year end due to the aforementioned factors, but well within our covenants. In the period, we extended the time of additional headroom under the covenants through 2026, in the event that expected recovery in demand is more drawn out. Prior to the £129 million bounce-up, repayment in early July. Our committed liquidity facilities totaled more than £400 million, with additional support from the unused portion in our factoring programme. Let me reiterate our capital allocation priorities. where we intend to continue to invest very selectively in organic growth opportunities aligned to our speciality strategy. Our key priority is to reduce our leverage towards our one- to two-time medium-term target level through a combination of increased EBITDA, continued cash generation focus, supplemented with proceeds from divestments. The board has confirmed that dividends will remain suspended at least until our leverage is below three times. In summary, I'm pleased with the strategic, operational, and financial progress we have made in the period through difficult market conditions. We continue to focus on our self-help actions, balancing this with selective investment guided by our strategy. Let me stop here and hand back to Michael to update you on our strategic initiatives and outlook.

Thank you, Lily. I would like to begin this section as usual by reiterating the key elements of the strategy which continue to guide how we are transforming the business. All five pillars and three enablers provide executable actions for us also in the current trading environment. The period since we launched the strategy in October 2022 has not been the easiest environment to demonstrate progress, but our actions are showing a positive effect on the quality of the portfolio. I mentioned our significant and continuous gross margin improvement. And together with all the work we have done on the operating and overhead costs, we have increased the operational leverage in the business substantially, resulting in a drop-through rate from revenue down to EBITDA of 30% or more. As previously outlined, our ambition is to make Syntomer a more specialty-weighted, more geographically balanced and more streamlined business, And whilst this will always remain work in progress, the quality of our business is improving. While individual periods can be heavily affected by mixed effects, we are moving towards the specialty objectives while broadening out the geographic exposure. One point I would like to draw out is the progress we have made in the last three years to reduce our site footprint through non-core divestments and rationalization and how we continue to challenge ourselves here. Following the divestment of William Blyth and another site rationalisation, we have now reached the milestone set out in 2022 of having less than 30 sites globally. And we are today setting a new objective of further streamlining our footprint to less than 25 sites. This allows for a more meaningful capital allocation, reduces capex intensity and eliminates cost. While we will continue our overall production strategy of producing in region for region to be close to our customers, we believe there are further opportunities to make Syntomer a simpler, more efficient organisation with less complexity also in terms of overhead and fixed cost. In addition, it allows the gross capital to be deployed to our best assets and opportunities. Having sold laminates and films in 2023, compounds in 2024 and William Blyth earlier this year, we have a number of other non-core divestment processes underway, fully in line with our specialty solutions strategy launched in October 2022. At the same time, we are giving consideration to broadening our divestment program to accelerate the leveraging. Now let me run through each of our divisions, touching on the key actions or developments we took in the first half to advance the strategy. CCS is our most specialty-weighted division and it faced a very mixed demand environment across its end markets in the period, as Lilly has described, with some encouraging signs in construction and consumer materials, more than offset by the energy solutions market situation and the US slowdown. In response, we stepped up our efficiency measures in the first half and CCS actions are an important part of the new £20-25 million cost reduction programme we have initiated. This focuses on capacity management, including temporarily idling excess capacity and reducing shift patterns and includes a broader review of operating costs, including headcount and implementing a number of inventory management measures to enhance cash flow. Alongside these near-term actions, we have continued to further align CCS with its strategic end markets, and we are targeting specific growth segments during this generally subdued demand environment, such as data centres and energy transition-related opportunities. We successfully continue with our strategic key account management for top global customers and are using targeted marketing to further develop relationships with additional regional clients in North America and Asia. Alongside our growing focus on value selling and optimising our product mix, we changed the Group CRM system in the period to what I believe is now best in class and this will boost our targeted and data-driven customer approach in all three divisions. Our innovation process is becoming more end-market focused to enable us to get products to market quicker. We launched a number of new construction products in the first half and our bio-based emulsion polymer coatings are progressing to market for launch in the second half. We are making selective investments in our manufacturing capability in the US to enable the localization of products previously only made and imported from Europe. and we enhanced our coatings capacity in the Middle East to support further growth in the region. The recent reduction in global oil and gas drilling activity levels has resulted in a tough period for CCS earnings in H1, but I am convinced that the business continues to offer significant opportunities. Turning to adhesive solutions, the division delivered consistent and significant progress in earnings driven by further solid work on its reliability and performance improvement plan. This is supported by the division's total customer focus and end markets that are overall more consumer-led and hence more resilient than other parts of the group. The principal focus of the plan put in place by the incoming divisional management team in 2023 has been on increasing the operational reliability and cost efficiency of the adhesive resin business acquired in 2021 and integrated in 2022. At the start we had issues in most of the six acquired sites but this has steadily been improved and today there is only one third-party hosted site in the US left where I would say we have further work to do. An important site in Europe delivers now record output levels. The plan realised a further £5 million of benefits in the first half and has achieved a total of £30 million in benefits to date. We remain on track to exceed the current £35 million target by the end of 2026. The optimisation of our supplier network for key raw materials, including planning, procurement and logistics enhancements, has been a main focus and we continue to seek opportunities to reduce working capital intensity. Our improved reliability and cost competitiveness means we are regaining market share and we are building on this progress by targeting new business. Our key investment project to increase the specialty APO capacity at our Texas facility commenced several weeks behind schedule due to third-party contractor issues but has been on stream and working well since mid-July and is now contributing to divisional earnings in the second half. The division also made progress with a number of strategic growth initiatives designed to build on our leading positions in a range of specialty adhesive applications, leveraging our multi-year relationships with many high-quality customers and global production network. For example, in April we announced a novel whole value chain partnership with Henkel, focused on enabling carbon emission reductions in its hot melt adhesive product portfolio. This partnership follows Sintermeer's recent launch of Klima branded products. Products with this designation deliver at least a 20% reduction cradle-to-gate in the product carbon footprint by using renewable energy in the production process. Henkel and Sintermeer have jointly developed a framework that links this renewable energy use directly and certifiably to specific adhesive products, enabling measurable reductions in carbon emissions. This partnership approach to sustainability improvements is supported by our investment in ISCC Plus certification of our major manufacturing sites. In addition, AS has a number of other customer collaborations for sustainable fast-moving consumer goods packaging applications progressing, which we anticipate to begin to add sales in the second half. Finally, our new innovation centre in Shanghai has improved our technical reach in China. Overall, I am pleased with the continued momentum in the AS division, where we have more than doubled the EBITDA margin in two years to a very promising 11.9% in H1 2025. Coming to health and protection and performance materials. Recognizing that much of the division has base chemicals characteristics, our differentiated approach is to focus on improving cost efficiency whilst enhancing our overall value proposition through selective investments in process innovation and sustainability. In the period, our health and protection business had to be agile in responding to evolving market dynamics, working closely with customers as they reacted to recent changes in the global latex gloves market. These were mainly the result of the tariffs announced for Chinese imports in summer 2024 by the Biden administration, which came into effect in January 2025 and are set to increase in 2026. While we have not seen a meaningful uptick in volumes as yet for our Malaysian customers due to massive pre-buying, These tariffs have made them more competitive in the critical US market, and we anticipate this to benefit the Malaysian value chain over time. Meanwhile, in H1 2025, we received good single-digit US dollar millions in income for our services from our open-ended technology partnership to support growth in the onshore US glove market. In addition, we continued to explore a number of partnership opportunities to capture growth and value from this business with little or no capital investment. As I mentioned, we continued to strengthen our overall cost competitiveness and implemented further operating cost efficiencies to align with market developments. We also closed a manufacturing site in China but maintained the business via a different business model. Within performance materials, specialty vinyl polymers out of Harlow, antioxidants in China, and our European paper activities delivered a robust performance in H1. In February, we were proud to announce that Syntomer, together with Neste of Finland and PCS in Singapore, has established one of the first ISCC-certified value chains to manufacture bio-based nitrile latex for the glove industry. As mentioned, we successfully completed the divestment of William Blyth in May and further divestment processes are ongoing. Ensuring excellence across all aspects of our operations is pillar 3 of our strategy. On procurement, you will recall that we launched the project last year to identify and capture material savings in this area. We realised £5 million in benefits from this project in the first half and expect cumulative benefits of more than £20 million to have come through by the end of next year. Our Synex program, which focuses on building the Group's capability to deliver end-to-end continuous improvement in processes and systems, has continued to deliver the expected financial and operational benefits. We consistently invest in broadening our expertise across the Group in this important area. Cinex led the implementation of the group-wide new CRM system and we are proud of an increase in our Net Promoter Score by 13 points over the last two years, which will translate into greater organic growth over time. Turning to the innovation and sustainability agenda, we made further progress on a number of key initiatives which underpin the group's future growth. I have touched on several of these already, including the Henkel collaboration, so I do not intend to spend long on this slide. However, to pull out a few key points. In the period we added the number of sites with ISCC Plus certification up to 11 from 8. This continues to move us on to the center of our value chains in supplying more bio-based and circular products to our customers. We are now beginning to use advanced data analytics to speed up polymer formulation innovation and our sustainability efforts continue to be recognized by key external ratings providers. Turning to current trading and outlook, whilst our direct tariff exposure is limited as a result of our in-region, for-region manufacturing strategy and our efforts to pass on potential surcharges, the indirect consequences are adding uncertainty and volatility to our customers' demand patterns. Customers are cautious overall, resulting in smaller order sizes and the wait-and-see approach. However, at the same time, we are seeing customers reporting low inventories in many markets And we also recognise that there are always growth opportunities in selected markets for us, as I mentioned a few of them when talking about the divisions. For 2025 as a whole, our outlook is for some earnings progress on a continuing group basis and for free cash flow to be broadly neutral. We are on track to deliver the self-help actions we had already built into our outlook since the start of the year. We are assuming that the subdued end market conditions we have seen in Q2 will persist for the remainder of the year, but that the effect of this will be mitigated by our existing and additional cost reduction programs as outlined before. These programs will logically provide additional run rate savings in 2026 as well. In summary, we are continuing to drive strategic and financial progress in a challenging environment. We have delivered significant gross margin improvement, demonstrated pricing power and showed the EBITDA growth we committed to. The building blocks of our earnings recovery remain intact and there is evidence that longer-term relevant market dynamics for Sintermeer are becoming more supportive, including a continued improvement in European infrastructure and construction spending, for example. In the meantime, we continue with our proven self-help programmes built on strategic and operational portfolio changes, margin improvements and cost savings. We have a total focus on de-risking and de-leveraging the balance sheet through rigorous capital discipline and further cost and portfolio actions. We remain encouraged by our progress to date in difficult markets and we believe that we are well positioned to deliver our medium-term targets and ambitions. I finish here and hand over to questions which both Lilly and I are happy to take.