Synthomer H1 2026 Earnings Report

Synthomer EPS Results

• Actual EPS: -GBX 4.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Synthomer Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Synthomer Announcement Details

• Quarter: H1 2026
• Date: 8/4/2026
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 4, 2026
• Conference Call Time: 4:00AM ET

Synthomer (LON:SYNT) is a leading supplier of high-performance, highly specialised polymers and ingredients that play vital roles in key sectors such as coatings, construction, adhesives, and health and protection – growing markets for customers who serve billions of end users worldwide. Headquartered in London, UK and listed on the LSE since 1971, we employ c.3,800 employees across our five innovation centres of excellence and 29 manufacturing sites across Europe, North America, Middle East and Asia. With more than 6,000 blue-chip customers and £1.7bn in continuing revenue in 2025, our business serves customers in attractive end markets where demand is driven by global megatrends including urbanisation, demographic change, climate change and sustainability, and shifting economic power. In Coatings & Construction Solutions, our specialist polymers enhance the sustainability and performance of a wide range of coatings and construction products. We serve customers in applications including architectural and masonry coatings, mortar modification, waterproofing and flooring, fibre bonding, and energy solutions. In Adhesive Solutions our products help our customers bond, modify and compatibilise surfaces and components for applications including tapes and labels, packaging, hygiene, tyres and plastic modification, improving permeability, strength, elasticity, damping, dispersion and grip. In Health & Protection and Performance Materials we are a world-leading supplier of water-based polymers for medical gloves, and a major European manufacturer of high-performance binders, foams and other products serving customers in a range of end markets. Our purpose is creating innovative and sustainable solutions for the benefit of customers and society. Around 20% of our sales volumes are from new and patent protected products. At our innovation centres of excellence in the UK, China, Germany, Malaysia and Ohio, USA we collaborate closely with our customers to develop new products and enhance existing ones tailored to their needs, with an increasing range of sustainability benefits.

Synthomer H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: First-half results exceeded expectations: continuing-business revenue rose 5.1% in constant currency, EBITDA increased 13%, EBIT grew nearly 42%, and EBITDA margin expanded 80 basis points to 10.1%.
• Positive Sentiment: The company raised its full-year 2026 outlook to slightly above market expectations, citing recurring specialty-product growth, cost savings, improved free cash flow, and year-end covenant leverage expected at 4.0x–4.35x versus 4.9x at June.
• Positive Sentiment: Synthomer reported progress toward a more specialty-focused portfolio, including strong demand for data-center intumescent coatings, oil-and-gas drilling additives, medical adhesives, and sustainable products; three additional divestment processes could generate approximately £150 million–£200 million of proceeds.
• Neutral Sentiment: All three divisions delivered volume and revenue growth, while CCS EBITDA rose 33% and Adhesive Solutions continued its transformation program; however, the company expects the roughly £6 million benefit from second-quarter market disruption, particularly in NBR, not to recur in the second half.
• Negative Sentiment: Adhesive Solutions lost approximately €10 million of gross margin from intermittent reliability issues at facilities in the Netherlands and Texas, although management expects both problems to be resolved during the third quarter; finance costs are also rising, with full-year income-statement interest expected at £73 million–£75 million.

Presentation

[Michael Willome, CEO at Synthomer]

Good morning. Welcome to our 2026 first-half results presentation. I'm here with Iain Torrens, who joined us in May as interim CFO, and who some of you will already know, and Faisal Tabbah, Head of Investor Relations, and together we look forward to answering your questions at the end. In terms of the agenda, I will provide an overview of our strong performance and the further strategic progress we made in the first half. Iain will walk through the numbers in more detail before I come back to present the strategic actions we have been taking in line with our sustained efforts to become a more specialty-focused business. At the end, we will discuss what we expect for the remainder of the year.

[Michael Willome, CEO at Synthomer]

Let me begin with the highlights and the five headline points that frame our first half performance and the strategic context in which it was delivered. Against the backdrop of a market environment which remained complex to navigate, we delivered a first-half performance that was ahead of expectations. Our revenue grew 5% in constant currency, EBITDA rose 13%, EBIT was up 36% alongside gross margin expansion of nearly 200 basis points and EBITDA margin improvement of 80 basis points to a remarkable 10.1%. This is a strong set of numbers and reflects the compounding effect of the strategic and operational actions we have taken over the past few years, and that we have continued to execute with determination and discipline. Our progress in the first half was primarily driven by consistent strategy delivery and self-help. Innovative new products and accessing new markets are an important part of our strategy.

[Michael Willome, CEO at Synthomer]

In the period, this included positive developments in intumescent coatings for data centers, additives for onshore oil and gas drilling, medical adhesives, and nonwoven fabrics. We have also focused on increasing our global reach with good regional growth in China, the U.S., and the Middle East. All three divisions generated volume and revenue growth in the period. In addition to self-generated growth and ongoing cost savings, we also anticipated our performance would reflect some expected cost headwinds as we identified at the start of the year. Net of wage inflation and bonus normalization, all divisions increased EBITDA margins in the period. In all, but especially in difficult or uncertain times, it is important to have a strong business model, and from this perspective, we are increasingly well-positioned.

[Michael Willome, CEO at Synthomer]

We have robust supply chains, world-class global procurement capabilities, a focused in region for region manufacturing footprint, and differentiated specialty products with real pricing power. These underlying strengths of our business model put us in a robust position to continue to support our customers through a lower demand environment and through the recent dislocation in global chemicals value chains. In some areas, most notably the NBR business, we experienced meaningful increases in activity during Q2 as some of our competitors found it challenging to fulfill supply commitments. These one-off gains we are not currently forecasting to recur in H2. My fourth point, we continue to execute our strategy with consistency. Throughout all the geopolitical and market disruption and uncertainties, this remains our guide.

[Michael Willome, CEO at Synthomer]

Our successful debt refinancing in April has ensured we have a stable financial platform to continue to transform the business and the runway to execute our plans. As part of this, we made further progress in our program of non-core base chemicals divestments. In June, we announced the divestment of Acrylate Monomers, removing a capital-intensive and cyclical upstream base chemicals business that diluted margins and cash conversion. In addition, we have three further divestment projects on the way to enhance our strategic specialty focus and capital efficiency, or put simply, to reduce net debt. My final point before I turn over to Iain, we are today raising our outlook for the full year.

[Michael Willome, CEO at Synthomer]

With a strong first half, driven mainly by recurring strategic progress and cost savings, which we expect to continue into the second half, we now expect to deliver a full year 2026 performance ahead of current market expectations and well ahead of previous year. This and our ongoing cash discipline also supports our expectations of improved free cash flow delivery and faster deleveraging over the course of the year. I will return to discuss strategic progress and the outlook in more detail. Let me now hand over to Iain to walk you through the numbers.

[Iain Torrens, CFO at Synthomer]

Many thanks, Michael, and good morning. As Michael has already covered, the first half of 2026 has seen a strong performance by the group with our focus on specialty growth, the strength of our regional manufacturing model, and excellent procurement function underpinning 13% EBITDA growth on an 80 basis point improvement in our EBITDA margin. Let me start on slide six by reminding you that at the end of June, we agreed terms to sell the Acrylate Monomers business in the Czech Republic, with the transaction expected to close at the end of September. Therefore, in line with IFRS, this business has been treated as discontinued for the purposes of the H1 results. Eliminating the prior year losses and increasing the half-year 2025 EBITDA comparator for the business to GBP 83.1 million.

[Iain Torrens, CFO at Synthomer]

One of the key consequences of this change is that it masks the GBP five million improvement the team has delivered in that business. Including this improvement, EBITDA grew more than 20% in H1. It is testament to the skills of the team that we've been able to deliver a step change in the business's operational efficiency, enabling it to capture favorable market conditions and to get set up for the years ahead, where Synthomer will benefit from a share of any excess cash generation. Focusing on the continuing business, we saw revenues increase by 6.7% on a reported basis to GBP 954 million. On a constant currency basis, weakness in the euro and Malaysian ringgit and a stronger US dollar relative to the pound led to 5.1% growth with all three divisions ahead.

[Iain Torrens, CFO at Synthomer]

Volumes increased across all three divisions, with overall volumes up 2.3% on the prior year, led by a strong performance in accessing long-term growth opportunities in CCS and the health and protection business benefiting from its ability to support customers amid the market disruptions created by the Iranian conflict. The business as a whole was fast and bold in passing through increased raw material prices in Q2 to customers, and together with the growth in the more specialist high-margin elements attributed to a further 2.8% to growth in revenue. In total, EBITDA of the continuing business has increased by GBP 14 million versus the prior period, which is after taking account of both wage inflation and the need to normalize our bonus accrual, as previously mentioned.

[Iain Torrens, CFO at Synthomer]

We have attempted to break down the components of that growth, whilst it is difficult to be precise, I would estimate that around GBP 8 million is recurring in nature, including the growth we've seen in some of our more specialist products like intumescent coatings used in data centers, energy solutions used in oil and gas drilling, and the actions taken to manage costs. The remaining GBP 6 million I would attribute more directly to the market disruption seen in Q2, which we are not currently forecasting will continue into H2. Going further down the income statement, EBIT increased by almost 42%, with depreciation down slightly. After taking account of both the stronger performance by Acrylate Monomers and the higher finance costs, we saw total group PBT increase by GBP 11.4 million to GBP 12.7 million.

[Iain Torrens, CFO at Synthomer]

Special items and operating profit were GBP 7 million higher in the period, reflecting a net cost of GBP 36.4 million. The movement principally reflecting a non-cash true up of past pension service costs due to late retirees in our U.S. scheme. For the full year, I would expect that special items will be in the range GBP 60 million-GBP 65 million, two-thirds of which relate to the amortization of acquired intangibles. EPS benefits from an H1 tax credit, which will largely reverse in the second half. Finally, net debt was GBP 671 million at the end of June. Slightly better than we expected, which I will cover in more detail later in the presentation. Turning now to divisions, starting with CCS in slide seven.

[Iain Torrens, CFO at Synthomer]

CCS saw robust earnings and growth in the period as a number of the long-term strategic and commercial initiatives contributed to our journey towards a more specialist product mix. Revenue for CCS was up GBP 8 million, representing headline growth of 7.5%, 5.8% on a constant currency basis. Volume grew 2.5% year-on-year, led by intumescent and other high-performance coatings used in data centers and other industrial applications. A strong performance by energy solutions and a return to growth in construction, particularly in Asia. While decorative coatings and consumer material volumes contracted slightly in the period. On a regional basis, both Asia and the U.S. performed strongly, reflecting recent management changes in the Americas.

[Iain Torrens, CFO at Synthomer]

H1 saw the CCS gross margin continue to strengthen as the shift towards specialty products improved the portfolio price-volume mix and steps were taken in late Q1 to proactively respond to market conditions to increase prices, optimize plant loadings, and leverage central procurement services. These factors, together with continued focus on costs, resulted in EBITDA increasing by 33% to GBP 46 million and the margin expanded by 220 basis points to 11.5%. Turning to the Adhesive Solutions division on slide eight, which grew revenue by 2.6% in constant currency as the combination of volumes increasing by 0.9% and the pass-through of higher raw material prices in Q2 was partially offset by an increased percentage of base chemicals in the mix. Geographically, we saw growth in all three regions, with Asia and China leading the pack, followed by the U.S., with packaging and towers the leading end markets.

[Iain Torrens, CFO at Synthomer]

Whilst overall market demand remained relatively subdued in the period, we are particularly pleased with the volume growth in our sustainability offerings and how the business is harnessing our China Innovation Center to drive domestic growth. Notwithstanding the intermittent reliability issues experienced during H1 at our facilities in Texas and the Netherlands, the business benefited in early Q2 from a number of Asian competitors temporarily implementing force majeure. As a result, the product mix in H1 is slightly more skewed than normal towards base products. The division continues to make further savings from the transformation initiated in 2023, and is on course to achieve GBP 40 million of annualized benefits by the end of this year, with the target remaining to achieve GBP 43 million+.

[Iain Torrens, CFO at Synthomer]

Taking account of these savings and the other progress on a constant currency basis, the EBITDA from AS increased by 4.5% year-over-year to GBP 36.7 million, with the margin expanded by 20 basis points to 12.1%. Turning to the third division, HPPM on slide nine. On a continuing basis, the division as a whole delivered revenue of GBP 249 million in H1, up 11.7% on the prior year. As the Health & Protection business in particular benefited from its market-leading position during the recent supply side disruptions in Asia, with EBITDA for the division growing 13.7% on a reported basis to GBP 24.9 million, and the margin expanded by 20 basis points to 10%.

[Iain Torrens, CFO at Synthomer]

Turning to the individual components of HPPM, the Health & Protection business, and its combination of standalone manufacturing facilities in Malaysia and Italy, coupled with the group's global sourcing capabilities, proved to be uniquely placed to capitalize on recent market disruptions. Volume increased 13.5% year-over-year, with significant volatility in both raw materials and finished good pricing being a feature of both April and May. Looking forward, as prices have somewhat normalized, we are not currently forecasting for the performance seen in Q2 to continue into the second half. However, the Health & Protection leadership team continue to explore opportunities to exploit our market-leading capabilities in NBR manufacturing and support customers in the development of innovative, thinner, and reusable gloves. Conditions across the rest of the division's portfolio were more mixed.

[Iain Torrens, CFO at Synthomer]

Volumes for the continuing performance materials businesses fell by 5% year-on-year, principally from weaker demand in certain foam products and specialty vinyl polymers, both partly also to do with conflict disruption. The combination of raw material prices and mix led to increased revenues overall, and we continue to focus intensively on process optimization and cost efficiency throughout this division. I want to turn next to the balance sheet, slide 10. As reported at the year-end, we completed the refinancing of our core debt facility on the 30th of April, and today have approximately GBP 680 million of bank and UKEF facilities, which mature in February 2029. EUR 350 million of bonds that mature in July 2029.

[Iain Torrens, CFO at Synthomer]

At the 30th of June, total borrowings against these facilities was GBP 874 million, with a net debt standing at GBP 671 million, which on a covenant basis resulted in leverage of 4.9x. As a reminder, under the terms of our new facilities, the year-end covenant requirement is now 6.25x, and the first quarterly covenant on the 30th of September is higher than that. Our headroom is significant, and we had nearly GBP 270 million in committed liquidity. As Michael mentioned, this gives us a robust financial platform and the runway to focus on completing our overall disposal program, which will help to reduce gross debt levels and support our medium-term target to bring the leverage back below 2x. As part of our capital structure, we use non-recourse receivable financing, often called factoring, to both diversify our sources of finance and also to reduce cost.

[Iain Torrens, CFO at Synthomer]

At the prior year-end, we benefited from a GBP 50 million one-off arrangement with KLK and also utilized around GBP 115 million of non-recourse facilities provided by banks. The KLK purchase arrangement was fully repaid in Q1. At 30 June, bank factoring was circa GBP 150 million. Overall, we reduced net factoring usage, which reduces our operating cash flow by GBP 15 million in the period. Turning finally to cash flow and our year-end expectations for leverage on slide 11. As a result of the significant increases in raw material prices and the normal seasonality in our business, the usual H1 net working capital outflow was higher than last year at GBP 90 million, partially offset by a reduction of 8% in inventory volumes since the year-end as we continue to manage our stock levels.

[Iain Torrens, CFO at Synthomer]

As seen in previous years, this seasonal outflow will reverse in the second half, especially assuming raw material prices moderate as we have already started to see. CapEx in H1 was GBP 33.5 million. Of this, GBP 9 million relates to growth initiatives, GBP 5 million to the rollout of the penultimate wave of our ERP program, and the balance is SHE and maintenance. For the full year, we continue to expect CapEx to be around GBP 70 million, significantly less than 2025 Finance costs for the first half were GBP 35.4 million. This was up GBP 5.3 million on the prior year, reflecting the higher average level of drawn debt, repayment of the bond stub in July 2025, and the increased interest costs within our new facility, where the weighted average cost of debt on a cash basis is now 50 basis points higher than H1 2025.

[Iain Torrens, CFO at Synthomer]

For the full year, we now expect interest costs to edge up a little to around GBP 73 million-GBP 75 million in the income statement, but remain around the GBP 65 million level in terms of cash. As mentioned, the reduction in receivables financing use reduced our free cash flow in the period, whereas last year it improved it. However, if we strip the receivables movements out, the underlying free cash flow in H1 2026 was GBP 66 million, only slightly higher than the GBP 57 million outflow in H1 2025, reflecting the higher raw material prices. Looking forward to the year-end, taking the seasonal reverse in the working capital, together with our other forecast assumptions for H2, we would expect to see the free cash flow for H2 significantly strengthen.

[Iain Torrens, CFO at Synthomer]

On the same basis, excluding receivable financing movements, we now expect to be free cash flow positive for the year as a whole, an improvement on our expectations at the April results. Taking all of this together with the disposal of Acrylate Monomers, which involves a dowry payment of GBP 5 million-GBP 7 million, we would expect to reduce covenant leverage to between 4 and 4.35x by the year-end, which is also ahead of our expectations at the start of the year. With that, I will pass back to Michael to discuss our strategic progress, and at the end, we will open the lines for Q&A.

[Michael Willome, CEO at Synthomer]

I'm now going to take you through our strategic progress in the first half. Before I do, let me briefly remind you of the key elements of the strategy which has guided, and will continue to guide, how we are transforming the business. All five pillars and three enablers on slide 13 provide executable actions for us. This is our strategic direction, another slide which you will be familiar. All our plans are focused on progressively creating a business that is more specialty-weighted, more geographically balanced, and more streamlined. I will take you through each of our three divisions in turn to highlight the key actions we took in the first half in support of our strategy. Let's start with CCS on slide 15, our most specialty-weighted division. The strategic opportunity in CCS is compelling.

[Michael Willome, CEO at Synthomer]

We have leading positions in solutions that enhance coatings applications, energy efficiency, and waterproofing in all sorts of construction. A global network in high-performance technology platforms, sustainability and regulatory tailwinds which underpin GDP plus growth and, maybe most important, a healthy innovation pipeline. From that position of strength, CCS is working on an increasing range of profitable growth opportunities. In the first half, that focus translated into strengthening our presence in several high-growth subsegments. For example, our volumes in intumescent coatings doubled year-on-year, driven by demand from AI data centers and infrastructure projects, and we are working with a growing number of customers in battery storage, medical, and filtration applications. We continue to improve the geographical balance of CCS through refreshed regional growth strategies, which means key account management for our top global customers and targeted marketing to new customers in North America, the Middle East, and Asia.

[Michael Willome, CEO at Synthomer]

Our specialty focus, value-selling disciplines, and pricing strategies ensured prompt passthrough of high raw material costs to customers. Our portfolio improvements, we continue to embed a more end-market focused and faster speed to market innovation strategy, and we are managing our manufacturing footprint through partnerships to localize production, increase efficiency, and be closer to our customers. Ongoing cost optimization measures include annualizing and further adding to the benefits of the cost reduction program initiated in 2025, continuous capacity management, including temporary reallocation of people and assets, and progressing further inventory management measures to enhance cash flow. Turning now to Adhesive Solutions. As a reminder, AS benefits from leading positions in EMEA and the Americas, deep and long-term customer relationships, and a market-focused innovation pipeline with a strong sustainability angle.

[Michael Willome, CEO at Synthomer]

AS delivered a robust performance despite relatively subdued underlying market conditions, driven by growth in new sustainability-focused products such as specialty tapes and labels, including our new CLIMA-branded lower carbon footprint products, benefiting from ISCC PLUS mass balance certification. We have also made progress in new medical end markets, and we are winning additional business in China. Our China Innovation Center and local partnerships are helping to localize manufacturing, win additional customers, and broaden our end-market exposure. Demand for some of AS-based chemical products in Europe and the U.S. also benefited from selective competitor capacity challenges during the second quarter. As I mentioned, our performance improvement program, launched in 2023, has now delivered cumulative benefits of GBP 40 million since inception, massively improving the margins in this division, and we are targeting GBP 43 million or more going forward.

[Michael Willome, CEO at Synthomer]

The AS EBITDA margin of 12.1% in the first half compares with 5.4% at the time of the division's total transformation program launch three years ago, a transformation that speaks for itself. As Iain mentioned, volume growth in the period would have been higher but for continued intermittent reliability issues in the Netherlands and the Longview facility in Texas, shared with Eastman, both of which are expected to be resolved in the third quarter. In fact, we are back up and running in Middelburg, Netherlands, as of last week. Let's look at HPPM now, our predominantly base chemicals division. The most significant business in HPPM remains our position as market leader in the GBP 3 billion NBR market, with hygiene and emerging market megatrends supporting approximately 6% annual growth. Elsewhere, we are focused on selective attractive niches within performance materials, driven by strong customer relations, process innovation, and emissions reduction.

[Michael Willome, CEO at Synthomer]

The performance of our health and protection business in the period was strongly correlated with competitors' dynamics. Our strong market position, manufacturing expertise, and procurement capabilities meant that H&P volumes and pricing inflected significantly upwards, particularly in April and May, as the Iran conflict disrupted competitors' value chains. Underlying glove demand growth remains robust, but pricing and margins across the industry continue to be volatile, reflecting the changes in the supply side environment since the pandemic. We continue to make longer-term progress through innovation in reusable gloves, more complex disposables, and lower carbon materials. Our foam and specialty vinyl polymer businesses experienced reduced end market demand during the second quarter, in particular, while paper and carpet markets in Europe proved relatively more resilient.

[Michael Willome, CEO at Synthomer]

We maintain a continued focus on cost savings and efficiencies, and we are making encouraging progress in selective innovation projects, such as enhancing the circularity of the carpet value chain. As previously touched upon, we announced the divestment of our Acrylate Monomers business in June, our fourth transaction since the 2022 strategy review. Achieving this important goal, which removes a highly cyclical and capital-intensive upstream business from our portfolio, was supported by the team's success in substantially reducing AM's losses from GBP 5 million last year H1 to almost breakeven this year. We will provide further updates on our ongoing broadened divestment program as it advances. Coming now to current trading and the outlook. As we have described, in H1, we delivered strong progress driven primarily by sustainable strategic growth and continued self-help initiatives.

[Michael Willome, CEO at Synthomer]

This has been led by new products and new markets and customers, a focus on innovation, deliberate steps to strengthen our market position, and targeted cost actions. We achieved this despite a substantially more complex operating and commercial environment, a testament to the speed and agility of our teams, our in-region, for-region manufacturing model, our world-class procurement capabilities, and ability to pass through raw material price increases to customers. As Iain said, the majority of this was from the EBITDA progress we are making from strategic growth initiatives and self-help, approximately GBP 8 million net in H1, and which we expect to continue. The reminder was from Q2 activity uplifts, mainly in base chemical product areas, principally in Health & Protection, that we are not currently forecasting will recur in the second half.

[Michael Willome, CEO at Synthomer]

Combining the strong H1 outturn and a broadly similar level of recurring strategic and self-help progress as we saw in the first half to the second half, the result is an upgrade to our full-year outlook. This now sits slightly ahead of current market expectations for 2026. And as Iain took us through, our free cash flow expectations have also increased, and we expect to reduce leverage meaningfully by this year-end to between 4 and 4.35x, excluding any further divestments from 4.9 in June. Bringing all this together, our ambition is to substantially and sustainably grow earnings in the medium term, and the first half of 2026 has reinforced our confidence in achieving that objective.

[Michael Willome, CEO at Synthomer]

We are continuing to deliver the multi-year strategic transformation to improve the quality of our earnings and increase our operating leverage by focusing on higher margin, more resilient specialty products in long-term attractive markets. This is the right strategy for us. We are encouraged by the new product growth and market developments achieved in the first half, with the business delivering its opportunities for sustained long-term growth in a tangible way. Of course, it was also helpful that our robust business model meant we saw some additional upside from the market disruption in Q2, but we do not count on this continuing in the outlook or in our plans. Instead, our upgraded outlook for full-year earnings and cash generation reflects the progress we are making against our strategic objectives and the operational discipline we have maintained throughout.

[Michael Willome, CEO at Synthomer]

The recent refinancing and our ongoing portfolio rationalization plans provide further runway to reduce debt, which has been our most significant challenge over recent years. The opportunity to sustainably improve the earnings power of Synthomer is becoming increasingly clear. It rests on three reinforcing drivers: further self-help actions, our continued focus on innovation and strategic delivery, and end market growth. We are now happy to take your questions.

[Operator]

Thank you very much, sir. Ladies and gentlemen, if you'd like to ask an audio question, please press star one on your telephone keypad and just make sure that your line is not muted to allow your signal to reach our equipment. That's star one for questions. Our very first question today is coming from Stephanie Vincent of Bank of America. Please go ahead.

[Stephanie Vincent, Analyst at Bank of America]

Hi. Thank you very much for taking my questions. You talk about three further divestment projects. I just wanted to know if you'd be willing to disclose the impact in terms of reducing net debt. Do you actually think, though, that this is going to be deleveraging to Synthomer's credit profile? In terms of, you said that in Adhesive Solutions that there were some reliability challenges in the Netherlands as well as your hosted site in Texas. Just wanting to know, is that going to be able to be recouped in the second half of 2026? How much EBITDA impact or revenue impact do you think was achieved during this period so we know the impacts of that? That's it from me.

[Michael Willome, CEO at Synthomer]

Thank you very much, Stephanie. On your first question, the divestments, we have four processes right now underway. Number one is Acrylate Monomers, which we announced the signing. We are still fully on track to close it by the end of September, 30th of September. This should be done, and that is not a deleveraging effect. That is more a P&L effect because, as you know, we lost GBP 10 million last year. We have two processes in due diligence phase. Over the next coming few months, we hope that we can come to a signing. As I said, due diligence, you know these days, it's more complicated. It takes longer time to do diligence than in the old days, but it's a strict process. We are talking to several interested parties, and we are very confident that we have news in the next few months.

[Michael Willome, CEO at Synthomer]

Due diligence phase 1 process which we launched just recently, we expect non-binding offers in September of this year. This will obviously then take a little bit longer, but also it's a formal process. We have very nice inbound interest as I just saw this morning. We will take it from there. As I said, September non-binding offers. All together, our assumption is that we can get GBP 150 million to GBP 200 million of proceeds, which obviously would be a massive deleveraging effect. That's the number what we have said already a few months ago, and I think we have no reason to deviate from this number. Just take this GBP 150 million to GBP 200 million. If we are talking about deleveraging, I think it's also interesting to note that you can deleverage in two ways.

[Michael Willome, CEO at Synthomer]

Number one is the divestments I just explained. Number two is to sell chemicals, which produces EBITDA. We were last year even below GBP 140 million. You take GBP 140 million minus GBP 70 million interest, minus GBP 70 million CapEx, you don't have a lot to further deleverage. If this year we go to, let's call it GBP 165 million, you take GBP 70 and GBP 70 away, you have GBP 25 million left. For next year, you have less interest because you have a lower leverage. That could take another GBP 10 million down. You probably have GBP 10 million, GBP 20 million more EBITDA, and you have lower CapEx because on the CapEx situation we had last year, we had GBP 86 million. This year, we have GBP 70 million. As Iain mentioned before, we have our ERP system that is phasing out. You can take there about GBP 10 million away.

[Michael Willome, CEO at Synthomer]

We have some CapEx dragger such as Acrylate Monomers will be out of the books. Suddenly this GBP 25 million, GBP 30 million becomes GBP 75 million, GBP 80 million. Then it becomes an interesting part to deleverage the company. I think these are the two levers what we have to deleverage. So far we were mainly focused on the divestments because, as I said, the EBITDA didn't leave too much of cash available. I think this situation is changing. I think we showed quite impressively in the first half how this can go and also how fast it can go. On your second question, AS reliability, it is unfortunate, but we did have some occurrences again. I mentioned Middelburg. Middelburg is up and running again, but we did lose probably something in the neighborhood of EUR 10 million on gross margin level, which we lost in the first half.

[Michael Willome, CEO at Synthomer]

You have to bear in mind, as annoying it is for ourselves especially, these are big assets in Longview and in Middelburg. These assets, they have a multi-year program to rectify and to change certain items. You talk here very granular, very simple mechanical things such as tubes. We are going to refurbish them. We are going to change them. That's what we did the last two years. That's why everything got much better last year. This year there was nothing else than these two events. It did cost us money. As I said, it's fixed in Middelburg for sure. Also in Longview, we are on the right track. These are intermittent things. This is not stopping the whole site. These are certain intermittent troubles in one plant, is one week out. Then it comes back again. Again, it did cost us money.

[Michael Willome, CEO at Synthomer]

As I always say, the problem of today is the upside of tomorrow. I think for the second half, we are very confident that this will not reoccur again. Yeah.

[Stephanie Vincent, Analyst at Bank of America]

Okay, thank you very much. If I can just ask one more question about the phasing of volume increases and restocking with the Iran conflict. If we go back to March, April versus May, June, if the March, April sort of cadence continued, how much do you think just generally, volumes would have been up for your business? I'm just interested to see the restocking, de-stocking impact of all this volatility, if you see what I mean.

[Michael Willome, CEO at Synthomer]

I can start, Stephanie, maybe Iain would add a bit. I think it's less the volumes. You see that our growth was only 2.3%. It's less the volumes.

[Stephanie Vincent, Analyst at Bank of America]

Right

[Michael Willome, CEO at Synthomer]

The margin helped us. As we said in the presentation, it was predominantly the base chemical areas such as NBR as the most prominent one. The margins there, we can be very tangible on this, the margin in January and February was on NBR, especially, was GBP 180 per ton, went up to GBP 600 and is down now to GBP 250-GBP 300. I think this gives you a pretty good feeling where we were, where the conflict at the peak when really our Korean, especially, competitors had a problem on the supply side, and now it's going down and we believe that this is for the foreseeable future now, kind of the proper level, this GBP 180, GBP 600, GBP 250-GBP 300. I think this gives you a bit of an idea.

[Michael Willome, CEO at Synthomer]

Maybe one more thought on your previous question about Longview in Texas, the shared site with Eastman.

[Michael Willome, CEO at Synthomer]

We are implementing now as we speak a little bit the new operating model there, which I think will help us a lot. We become more independent and we take certain functions such as engineering and other kind of less operating functions in the site we will take in our hands. We change the business model. We do it ourselves rather than Eastman does it for us. I think this should be a very good situation going forward because logically, we have more interest, more capability. It's our business and we should take more care of it rather than we kind of outsource it to Eastman. Nothing against Eastman. It's a great relationship that we have on the site. I think if we have the fate, let's say, in our own hands, I think this should also improve the situation there.

[Stephanie Vincent, Analyst at Bank of America]

That's great. Thank you very much.

[Iain Torrens, CFO at Synthomer]

The only thing I would add to that is I think if you look where the growth came from, particularly in CCS, it was in the specialty coatings, which weren't really driven by what happened in Iran, and also the energy products. I think those more innovative, more specialty products really were some of the tailwinds that came through the business and we expect to continue through the balance of this year. We had a short period of time when some of our competitors were under force majeure, but that was a defined period of time, end of March into April. Again, I think we look at those as very time blocks and therefore not necessarily ever going to extend through time.

[Stephanie Vincent, Analyst at Bank of America]

Right. Thank you very much. I'll get in queue. Thank you.

[Michael Willome, CEO at Synthomer]

Thank you.

[Operator]

Thank you much for your questions there, Stephanie. We'll be taking questions now from Harry Philips of Peel Hunt. Please go ahead. Your line is open.

[Harry Philips, Analyst at Peel Hunt]

Good morning, everyone. Three from myself, please. Just continuing on the Iran theme, just to be maybe unduly pessimistic, is there a situation where that actually might get a reversal in the second half and therefore that GBP 6 million sort of nets out totally for the year, let alone no recurring feature through the balance of this year or into next year? The second is just on factoring, where broadly speaking, your GBP 150 million, I'm guessing, given the sort of circumstances around the KLK situation back end of last year, that's sort of pretty much as far as you can go, albeit I know you've got a EUR 200 million facility, but is that as far as it goes and that sort of we get some back in the second half?

[Harry Philips, Analyst at Peel Hunt]

Finally, the scope for further restructuring, sort of moving forward, if you like, as the sort of new Synthomer emerges, and then what sort of impact does that have around drop-throughs going forward? I've got in mind sort of late 2020 drop-through as we go forward and how that might progress notwithstanding disposals, but again, as the sort of new Synthomer starts to mature.

[Michael Willome, CEO at Synthomer]

Yeah. Thank you. I think I take Harry your first question and your third one, and Iain probably takes the second one. On the Iran reversal, I have a short answer. We don't think that this will reverse. I think the GBP 6 million are ours and we will not give them away again. I think it is prudent for us not to plan for more, even so we all know that the situation in Iran is anything but resolved. I think supply chains kind of reorganized themselves a little bit. It's probably not a big benefit, but if anything in the second half, it's more a slight benefit rather than that we have to give it back. I go with the third question on restructuring.

[Michael Willome, CEO at Synthomer]

We said already in October 2022 that we are going to divest more than one third of our business, that we want to become a clean, also with a different rating than a clean specialty chemicals company. We are about 60% through this, we will get the last three divestments done. Actually, the two of them that really cater for the base chemical situation. We will get them done. We will definitely have some stranded cost, but these are stranded costs. They are not huge. You talk here about in single early double-digit millions. After we have done four or three closed transactions, it's clear that we are pretty good in reducing stranded costs. I wouldn't worry too much about the stranded cost. You will not eliminate them immediately.

[Michael Willome, CEO at Synthomer]

It will take you one or two years, but you will get them down to pretty much that it becomes a zero effect. I think stranded costs should be under control. Also bearing in mind that the assets that we are selling, they're pretty much isolated, so you don't have a lot of internal agreements and white lines between plants and so on. These are standalone businesses. You see it now, Sokolov, that's one site in the Czech Republic, the other asset is the same. That concerns another three assets, which are standalone assets. I think if you go forward, the drop-through rate, or we call it operating leverage, is clearly, and you can see it in the results of this half year, is clearly more than 30%.

[Michael Willome, CEO at Synthomer]

I think this is the attractive part because we took so much cost out in the past, we increased our margin. Probably in the whole statement that you were reading this morning, the number I maybe like the best is that we had since four years an uplift in gross margin of 600%. That's a totally different new world, this shows you that we are really becoming specialty chemicals. The dilution effect, if those diluters then are gone, I think is massive. That's why also you can see that now we produce an EBITDA of 10.1%. 10.1%, I know some people in 2022, when we presented the strategy at about 6% EBITDA, I said that we can go up to 15%, some people didn't believe it. Now you see a CCS division and an AS division.

[Michael Willome, CEO at Synthomer]

They are at 12%, 11.5%, and 12.1% EBITDA. I think there's another 1.5% in there. I think my 15% at the time suddenly become very realistic, and that will be then the profile of the Synthomer going forward. That's why for us, operating leverage is so important. That's why last year's result were okay, but they were definitely not where we wanted them to be because we had 7% less volumes. Operating leverage goes the wrong way around. This year, we have just a slight volume increase, but you see the drop-through rate I think is quite impressive. I think that's how I see a bit the situation. I think it's also interesting that when the last two base chemical businesses are gone, you have a very clean situation how to run the company.

[Michael Willome, CEO at Synthomer]

There is a lot of cost of complexity in our pillar four, the differentiated steering. That costs you money in a way, and it costs you efforts. If you can focus and you can run a fully specialty model, you can reduce costs, you have less complexity, and you have more focus. I think that's the target which gives you additional benefits then on top of the 30% operating leverage what we have right now. Iain, would you take the factoring?

[Iain Torrens, CFO at Synthomer]

On factoring, I think maybe it's worth standing back and just recapping how we think about it. At the end of last year, we had GBP 165 of total factoring, GBP 115 from banks, GBP 50 from KLK. That KLK facility was repaid in the early part of the year. When we think about factoring, we think about it on the basis of diversifying the sources of funding available to the group and also cost. As you rightly say, there's a EUR 200 million facility available from our existing banks. There's no reason that that couldn't be extended modestly. If we look at the size of the receivable book we have, then we have headroom to factor more receivables should we decide to do that.

[Iain Torrens, CFO at Synthomer]

The most important bit, I think, is to look at what's it cost and also not to tie it up with the free cash flow numbers. We've shown free cash flow numbers this time round, which exclude the impact of factoring. Clearly, as you reduce or increase factoring, it has an impact on the presented operating cash flow, and that was a GBP 15 million outflow in H1. GBP 105 of gross outflow at the free brings you down to ultimately GBP 80 negative free cash flow. Take off the GBP 15 that relates to reducing the receivable got you to GBP 66 million of free cash flow outflow in H1, that's comparable to last year. Sort of up 15%. Does that answer the question of factoring?

[Michael Willome, CEO at Synthomer]

In an environment where we have massively higher raw material costs, which obviously gives you much more receivables, you have more sales. We didn't do a lot of stretch in June compared to December, so that's an impact on the payables. The most management-controlled item on net working capital is inventory is flat compared to last year in December. Actually, if you take it in days, it's significantly down. I think we have a lot of room here to play on the cash flow, I agree that face value of minus GBP 80 million outflow is not ideal. I think if you put it a little bit more granular, including the factoring, including the net working capital, as I explained, the inventory piece, the payables piece, the receivables piece, I think you come into a totally different situation.

[Michael Willome, CEO at Synthomer]

That's why we are also very much sure that we can produce free cash flow except the factoring moves in the second half and for the whole year. At the end, it all ends up in something which you haven't heard from Synthomer in a long time, that we are anticipating an year-end leverage between 4.0 and 4.35. I remind you that last year we had a reported leverage of 4.75, and if you take the GBP 50 million from KLK away, it would have been 5.2. Within one year, leverage reduction from 5.2, like for like, to, if you go in the middle, 4.15, 4.2 of our range, I think that is rather significant.

[Michael Willome, CEO at Synthomer]

That brings me then back to the point I made to Stephanie, then you make the calculation of significant EBITDA, minus reduced interest, minus reduced CapEx, suddenly you have a meaningful deleveraging effect from selling chemicals at the end of the day. I think this is a pretty nice path forward for us.

[Harry Philips, Analyst at Peel Hunt]

No, that's fabulous. Thank you very much indeed.

[Operator]

Thank you, sir. The next question will be coming from Kevin Fogarty of Deutsche Numis. Please go ahead. Your line's open, sir.

[Kevin Fogarty, Analyst at Deutsche Numis]

Great. Thanks very much, thanks for taking my questions. Actually, well done on the half. Good outturn. Just wondered if you could put a bit more clarity on CCS and just the impact of some of those specialist product areas you called out, particularly some of your data center applications, et cetera. Just trying to help us build what contribution they had, what the pricing differential might be. I guess energy, we can see how much of the portfolio that is, but perhaps some of the other areas to just help us get comfortable with the contribution I guess they've made in the half. Just a second question in terms of exceptionals for the second half of the year, given what you said in terms of the outlook, what you're likely to get on with and portfolio transformation, et cetera.

[Kevin Fogarty, Analyst at Deutsche Numis]

Is there any number you could help us with just in terms of likely exceptional run rates in H2?

[Michael Willome, CEO at Synthomer]

Yeah. On the CCS, I can even answer the second one question. I think there are very limited exceptionals that we are planning. Iain is looking into it. I think it's pretty much negligible.

[Michael Willome, CEO at Synthomer]

On your CCS question, look, these data centers, we always had a very strong construction business, this year in the first half is even better. That has basically two reasons. It's partially coatings, partially construction. It's in Asia, it is very strong, is strong in the U.S. predominantly, that links a lot into the data centers. The data center applications are new for us because there's a huge boom in constructing this, I think we all, if you look at market reports, this will go for another few years, we have a very good position there. The impact is significant. It definitely explains a portion of the delta, the positive delta in CCS division. As I said, we expect this to continue going forward.

[Michael Willome, CEO at Synthomer]

These are very specialist applications, not every company can do it. I think a truly specialty chemical company like us, we put a lot of innovation behind it. We have close customer relations to those data center providers. I think that is something which makes us sure that it will continue for a while. It's not only the data centers that's the most prominent example in CCS. Then you can go to Consumer Care, which was lagging a little bit behind in the first half compared to the Energy Solutions business and Coatings & Construction. There are new nonwoven applications for medical gowns and medical, how do you say, nonwoven fabrics that absorbs the blood. That is something which is, again, it's an innovation project. It's something totally new. It's something we are working on.

[Michael Willome, CEO at Synthomer]

You can imagine the medical sector is quite high margin. These are true innovations in CCS. I would say this one is more kind of in the [children's feet]. Also this contributed to the H1 results. The one in terms of contribution somewhere in the middle in CCS, that's the onshore drilling. As you know, in our Energy Solutions business, the oil and gas drilling fluids is something that we know since many, many years, we always develop, we try to innovate, we try to find new customers. It's a bit of a breakthrough what we did now over the last, let's say, 12 months. We were always in these complicated deep sea rigs far out offshore. Now we found solutions. Again, that's true innovation and customer centricity. These are new customers.

[Michael Willome, CEO at Synthomer]

These are not the good old three big, Halliburton, Baker Hughes, Schlumberger. These are new customers. They are focused on the U.S. and Canadian onshore drilling. For us, it's new customers, new application, it's true innovation work. I think this is also something which is very encouraging. Somewhere in the middle, as I mentioned, in terms of impact in the first half. It's also something that is definitely sustainable because onshore drilling will go ahead. It's well established. As opposite to in the past, we do have a solution for it, we do have a customer base, a new one for it. I think these are three very interesting developments for sustainable growth and profitable growth, especially in CCS division. Iain, do we have anything more on exceptionals?

[Iain Torrens, CFO at Synthomer]

Exceptionals, first half was GBP 36.4 million. For the full year, GBP 60 million-GBP 65 million P&L impact from exceptionals. About two-thirds of that is amortization of intangibles, non-cash related. Cash outflow GBP 5 million-GBP 6 million in the first half. Second half, I would expect it's a little bit lower than that. Again, non-cash items coming through on that exceptional or special items line.

[Michael Willome, CEO at Synthomer]

On the operational exceptional it's very limited. The biggest portion is this amortization of acquired intangibles, which goes back obviously to the time when we made all this big acquisition, and at the time of the purchase price allocation, it was allocated there. It's a statutory item, but it's not an operational item in a way.

[Kevin Fogarty, Analyst at Deutsche Numis]

Sure. Okay. That's very helpful. Thanks very much.

[Michael Willome, CEO at Synthomer]

Thank you, Harry.

[Operator]

Thank you, sir. Next question will be from Angelina Glazova, calling from JPMorgan. Please go ahead.

[Angelina Glazova, Analyst at JPMorgan]

Good morning. Thank you very much for taking my questions, and congratulations on good results for the first half. I have three questions, please. Firstly, your full year guidance seems to suggest that in the second half, the year-on-year improvement will mostly be driven by self-help measures and some growth initiatives. Similar to what we have seen in first half without any one-off tailwinds that we had. This brings me to two questions. First of all, when you look at the month of July and maybe your current order book in Q3, is this the trend that you're already seeing in that there is some deceleration visible compared to the Q2 numbers?

[Angelina Glazova, Analyst at JPMorgan]

Secondly, if we think a bit further forward from second half 2026 and maybe an early look into 2027, how do you see the potential from the self-help measures and strategic growth initiatives contributing to 2027? Appreciate this might be a bit of an early stage, but if we take an early look, is this the magnitude comparable to what we have seen in 2026 year-over-year, or is it something somewhat smaller? Do you expect that the growth initiatives to become a more prominent driver as opposed to self-help measures? My third question is just on CapEx. You have confirmed the guidance this time of GBP 70 million for this year, which seems to be at around 3%-4% as percentage of sales. You have also mentioned that this number could decrease somewhat just by virtue of divestments.

[Angelina Glazova, Analyst at JPMorgan]

My question is whether you think that this is a sustainable level of CapEx for the medium term, and is this a level of CapEx that you think sets Synthomer up well to increase production as might be required if we have an improvement in the underlying environment? Is this the level of CapEx that can help minimize the reliability issues potentially in the future? If you see the need for the CapEx to somewhat step up, what is the level that you see as sustainable for the cycle?

[Michael Willome, CEO at Synthomer]

Thank you very much for your kind words at the beginning, Angelina. If I answer your question, July, we have seen as a reasonable month. That's why we are putting out the numbers we are putting out now, very much in line with our expectations. August will now be a lower month as every year in August because Europe is kind of on holidays. As of today, 4th of August, we are sure that's why we put up this guidance we are putting up. Actually it looks pretty good, pretty reasonable. Order books are fine. We mention always the geopolitical uncertainty, which you don't know what kind of happens tomorrow.

[Michael Willome, CEO at Synthomer]

Also here we have proven that when things happen and rather dramatic things happen like on the 28th of February, that we are really, as Iain mentioned it, bold and fast to react to situations. I am quite comfortable here that we are having a few good months ahead of us. Looking further into 2027, it is probably not unreasonable to assume if you think that last year we had GBP 137 million. This year we are guiding now to the GBP 162 million a little bit plus. You can calculate it easily. You take the numbers, you take the GBP 6 million away, which we call a one-time benefit. We always said on revenue level, we have H1 of 52/48. On EBITDA level it is more 55/45. This gives you very nice indications of where we think that we could land.

[Michael Willome, CEO at Synthomer]

If you take a progress of some GBP 25 million, I think for 2027, we really, as you say, it's a bit premature, I think a similar step forward is definitely doable because as I mentioned, a lot of those benefits that we put in are sustainable ones. Let's see how it goes. I do not commit to any number, we will see closer to the end of this year where we land. Definitely our view is that we can make a good progress again. Your CapEx questions, I mentioned it, and I think it's a very good question. When is enough? What is enough and when it's not enough anymore? We have a depreciation of GBP 96 million. This will go down with all the divestments already with Acrylate Monomers, which is a big site and a lot of investments went in over time.

[Michael Willome, CEO at Synthomer]

This will go down. We guide now for GBP 70 million this year, I am absolutely convinced that with GBP 70 million you can put quite some nice growth capital behind it. We have maybe GBP 35 million at the time, GBP 40 million we need for SHE and sustenance, which includes the reliability work on AS. Here it is important. There is no option that we take now, let's say GBP 30 million and then we fix the AS sites. It does not work like this. Then you would have to shut down a site for one year to change everything. Obviously we do not want to do that. You cannot buy yourself out of the problem. That is why we designed this multi-year program, especially in Middelburg and Longview again, this will go on for another some time, piece by piece until everything is done.

[Michael Willome, CEO at Synthomer]

As I said, we had now for a long time, we had peace and quiet. Now in the first half, these two issues came up again, which we assume are rectified for the second half. You still need some, and these are low mid-single-digit millions, what you need going forward for the next probably two or three years until everything is really clean and the site is on the situation where you want. Important, I do not speak about safety. Safety, we do everything what is needed. I talk about reliability issues. I believe that when you have then down a depreciation probably of GBP 85 million, GBP 90 million, that with a GBP 70 million, you can actually do a very good job. I think that is a reasonable investment rate, which allows you to invest into growth as well.

[Michael Willome, CEO at Synthomer]

We are not in a situation that we need now a GBP 300 million, GBP 400 million new site to go into something bigger. I think with gross CapEx of GBP 40 million, let's say GBP 40 million, I think you can achieve a lot of things. I remind you the APO investment was $89 million. The China Innovation Center was $8 million. The CMA, continuous monomer addition in Mogadore in the U.S. was some four, five, six million. That is in our industry where you can meaningfully invest into growth. What I would exclude is that we have special project, if something comes up that requires a higher CapEx, one project where we need GBP 20 million, GBP 30 million, that will be out of this scope, we will look at it, we will make the usual non-emotional calculations. Where is our payback? When do we get our money back?

[Michael Willome, CEO at Synthomer]

That would not be included. This could always happen that if we have the funds available, that we will do a bigger project. If we get the proper payback, we can create proper returns on it. I think that's a bit out of the system, but I wouldn't exclude it because our divisions do have a lot of brilliant ideas, and one day one of these might land. If you take those ones out, as I said, I think with GBP 70 million, like for like, we can invest nicely into the business, including into growth.

[Angelina Glazova, Analyst at JPMorgan]

Thank you very much for your answer. It's all very clear.

[Operator]

Thank you very much. Ladies and gentlemen, just once again, if you have any questions or follow-up questions, please press star one. We'll now go to Sebastian Bray of Berenberg. Please go ahead, sir.

[Sebastian Bray, Analyst at Berenberg]

Hello, good morning, and thank you for taking my questions. I'd have two, please. The first is on nitrile markets. What happened in China that allowed the availability of raw material to improve so much and nitrile to come down? Because it's difficult to see where the country is getting the butadiene from to manufacture this. Any update on rumored potential divestment of this segment is welcome. My second one is on receivables. The one-off factoring arrangement of GBP 50 million was repaid, but from what I can see, the total factoring utilization still stands at GBP 150 million. Why is this so high at the moment? Is it something to do about arbitraging the cost versus the revolving credit facility? What do you think this will end up at by year-end? Will it stay at GBP 150, go up, or go down a bit? Thank you.

[Michael Willome, CEO at Synthomer]

Yeah. I take the first one. I think on NBR, the situation was really in March, middle of March, started April and May, was a very pronounced situation because mainly not the Chinese, but the Korean competitors, they had a problem with raw material supply. What we also saw is that the Chinese, they are producing butadiene, and the largest acrylonitrile supplier is a company very well known to us in China. Also, butadiene is available there, and I think they just rectified the issue. If we look at the level of problems in these two months, the Koreans were most affected with a lack of feedstock, then the Taiwanese, then the Japanese, and then the Chinese. Because China, they have a lot of access to, let's say, other countries' feedstock. The Chinese, they have still a lot of coal to burn. The Chinese are very fast.

[Michael Willome, CEO at Synthomer]

I think this all together resulted that it took them maybe two months, and they will get back into the game. There are NBR flows coming from China into Southeast Asia. Sometimes the quality is not there yet, but then customers might do some blending. We all know that when Chinese enter an industry, it takes them a while until the quality is on a top level, but it always at the end, after one to three years, they are on the top level. I think going forward, we have to calculate NBR supply coming from us as market leader together with a Korean company. I think this will go on. I always say our NBR business, it's market leading and has critical mass. I think that the Chinese NBR players, they will also play a role over time.

[Michael Willome, CEO at Synthomer]

There's no reason why they should not only be in gloves and not in NBR. Having said that, the big glove maker, Intco, is focusing on the gloves rather than of the NBR, but there are others that might take it over. I think it's just always the same. There's a disruption in the market, and then people find ways. It's like the water that flows always down somehow. That's why this situation normalized again. Sebastian, I think it is important to say my example that I made at the beginning, that the margins, and it's quite a good proxy for the whole business because the volumes do not have such swings. The margin is now somewhere clearly below the peak months in April and May, but it is still higher than end of last year and early this year.

[Michael Willome, CEO at Synthomer]

I think that is a situation which we think is going to go forward. You hint at the divestment comment. I can only say what I always say. NBR is a very well managed, very good market leading position-based business, and our strategy is specialty strategy. I think at one point it is clear what we are anticipating. Maybe the receivables question, Iain, if you would.

[Iain Torrens, CFO at Synthomer]

Yeah. I guess on receivables, I would start with the free cash flow impact. If we ignore the receivables finance, and the way we think about receivable finance is a different source of capital, and it is cheaper than going to the bond market and the bank market for the business today. If we take out the GBP 15 million outflow in the first half, we are back to a free cash flow negative of GBP 66 million in H1. We have said today we expect that to be positive by the end of the year. Part of that is seasonality, but a big part of it is what has happened in raw material prices. They, of course, push up inventory in monetary terms. Underlying inventory was down by 8% on a volume basis. Michael referenced it as well in terms of inventory days.

[Iain Torrens, CFO at Synthomer]

Underlying real action is being taken to manage working capital. The receivables in GBP terms, again, increase because of that higher price being charged through to clients, and we get some benefit on the payable side. Net working capital increased in H1. When we look at factoring, of course, we are now factoring more valuable invoices, which in part contributes into the face value you are saying. Looking out to the year end, we have given some guidance around leverage, and we have said between 4 and 4.35x. You put that together with a reduction in terms of improvement of free cash flow to break even for the year. I think that will guide you into the low 600s in terms of where we expect debt for the full year to land.

[Iain Torrens, CFO at Synthomer]

Absolute amount of factoring at the end of the day comes down to the level of availability of invoices. We have a EUR 200 million line. Actually, does it make commercial sense to factor versus borrow under the bank facilities? Today it makes commercial sense. I would expect we continue to use that. Continue to talk about free cash flow excluding it, excluding that impact.

[Sebastian Bray, Analyst at Berenberg]

That is helpful. Just to clarify, do we have at the moment a covenant net debt and a factoring amount, the factoring amount separate to that is the GBP 150. The factoring amount is excluded from the free cash flow guidance, which is for roughly break even at the end of the year, but it might still go up for day-to-day trading reasons by the end of the year. Is that fair?

[Iain Torrens, CFO at Synthomer]

Yeah. Implicit in our free cash flow guidance is the guidance we are providing around EBITDA for the year and our assumptions in particular around raw materials. If raw material prices remain elevated, then arguably that would be a positive to the business, but it could be a negative to working capital and therefore of course flow through into debt.

[Michael Willome, CEO at Synthomer]

We foresee a positive free cash flow.

[Iain Torrens, CFO at Synthomer]

Our expectation is a positive free cash flow.

[Sebastian Bray, Analyst at Berenberg]

That is helpful. Thank you for taking my questions.

[Michael Willome, CEO at Synthomer]

Faisal?

[Faisal Tabbah, VP of Investor Relations at Synthomer]

No, all I was going to say. Just in terms of the level of activity at year end, there is just inherently less to factor at December than there would be at June in the volume sense, which may also have net of potential for reducing the overall absolute amount of factoring at that point. Again, it is hugely dependent on raw material prices at the time.

[Sebastian Bray, Analyst at Berenberg]

That is helpful. Thank you.

[Michael Willome, CEO at Synthomer]

Thank you, Sebastian.

[Operator]

Thank you, Sebastian. As we have no further audio questions at this time, I will turn the call back over to your hosts for any additional or closing remarks. Thank you.

[Michael Willome, CEO at Synthomer]

Okay.

[Faisal Tabbah, VP of Investor Relations at Synthomer]

We don't have anything else?

[Michael Willome, CEO at Synthomer]

No.

[Faisal Tabbah, VP of Investor Relations at Synthomer]

Thank you all very much.

[Michael Willome, CEO at Synthomer]

Thank you very much for your interest, everybody, and have a good day. Thank you. Bye

Participants

Executives

• Michael Willome, CEO
• Iain Torrens, CFO
• Faisal Tabbah, VP of Investor Relations

Analysts

• Stephanie Vincent, Analyst at Bank of America
• Harry Philips, Analyst at Peel Hunt
• Kevin Fogarty, Analyst at Deutsche Numis
• Angelina Glazova, Analyst at JPMorgan
• Sebastian Bray, Analyst at Berenberg