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Synthomer plc (LSE:SYNT) has released its interim results for the six months ended 30 June 2024, showcasing continued strategic and operational progress. The company’s performance aligns with expectations, driven by resilience in key divisions and ongoing strategic transformation towards higher-margin specialty solutions.
Incremental Improvement in Activity Levels
During the first half of 2024, Synthomer observed gradual improvements in activity levels across its operations. The Coatings, Construction & Specialties (CCS) division remained stable and resilient, while the Adhesives & Sealants (AS) and High-Performance Polymers & Materials (HPPM) divisions began to recover from the substantial volume declines experienced in 2023. Notably, specialty products across the Group continued to outperform base products.
Despite these positive trends, activity levels and capacity utilization are still significantly below pre-pandemic levels. However, Synthomer managed to achieve a 3.5% increase in revenue at constant currency, even as it passed through lower raw material prices compared to the first half of 2023.
EBITDA and Margin Improvement
Synthomer’s EBITDA and margins saw progress, largely attributed to the company’s self-help actions. Gross profit improved as a result of the Group’s specialty strategy and higher capacity utilization. Cost savings and reliability improvement programs contributed £13 million in benefits during the period, partially offset by previously disclosed operating cost increases.
Strong Financial Position and Strategic Focus
Synthomer remains on track for positive free cash flow for the full year, with debt maturities extended. The company’s net debt increased as expected during the period, driven by the European Commission settlement and net working capital movements, which were influenced by seasonality and higher raw material prices since the beginning of the year.
Despite these challenges, Synthomer's net debt to EBITDA ratio of 4.7x remains well within covenant requirements, with more than £500 million in committed liquidity. The company successfully completed the refinancing of a €350 million bond, with the next major debt maturity not due until 2027.
Progress in Strategic Transformation
Synthomer’s strategic transformation towards higher-margin, more resilient specialty solutions continues to make significant strides. The Group completed the divestment of its Compounds business in April, further focusing the company and reducing site complexity. Additional non-core divestments and partnership opportunities are progressing as Synthomer shifts resource allocation towards areas with the greatest future potential.
The company is also becoming more end-customer-focused, innovative, and sustainability-led, with clear evidence of progress in these areas.
Outlook for 2024
Looking ahead, Synthomer’s recent trading remains in line with expectations. Volumes in several businesses continue to improve from historically low levels, though there is no evidence yet of sustained end-market demand improvement. Nonetheless, Synthomer reiterates its 2024 outlook, expecting some earnings progress on a continuing Group basis and to be at least modestly free cash flow positive, even without broad-based macroeconomic demand improvement.
