Synthomer plc (LON: SYNT) has issued a trading update for the third quarter ended September 30th 2019.
The growing weakness in the global economy has created a more challenging backdrop for the Chemical industry. Depressed European industrial activity combined with increased political and economic uncertainties have resulted in an overall slower trading environment throughout Q3.
In this environment, Nitrile Butadiene Latex (NBR) had another positive quarter with continued growth supported by the additional 90 ktes of capacity introduced during Q4 2018. NBR volumes increased further during Q3 with year-to-date unit margins remaining stable.
In SBR, the Group highlighted challenging conditions in Europe at its H1 results in August. Conditions have not improved during Q3 and the Group’s Paper segment has also continued to remain particularly weak. Accordingly, management now expect SBR volumes to be approximately 10% behind 2018 and unit margins to also be similarly lower than last year. A review of network utilisation is currently underway and an update on asset re-purposing and cost base will be provided in conjunction with the Full Year results in March 2020.
Notwithstanding the impact of tough market conditions, overall performance was in line with the first nine months of 2018, with lower volumes offset by higher unit margins. The Group expects to see the benefits of additional capacity at Worms (Germany) and Roebuck (USA) continue to come through in line with the investment case.
Industrial Specialities continued to trade in-line with management expectations. Volumes and margins were broadly flat with the first nine months of 2018.
At 30 September 2019, the Group remained conservatively levered with net debt/EBITDA, excluding the net proceeds of the rights issue, of 1.4x (30 September 2018: 1.4x).
Proposed acquisition of Omnova Solutions Inc.
Following approval by both sets of shareholders and competition clearance in the US, the transaction remains subject only to regulatory approval from the European and Turkish competition authorities, and the Group continues to target completion in late 2019.
There has been no material change to the expected de-leveraging profile of the Enlarged Group as announced at the time of the transaction.
Management remain confident of delivering a swift integration and synergies during 2020.
Whilst Synthomer plc continues to benefit from its strong product portfolio, end market diversification and geographic presence, the slower trading environment is expected to continue through the remainder of the year and into 2020, particularly in Europe.
Whilst Functional Solutions and Industrial Specialities are now expected to be in-line with the prior year, with NBR ahead of 2018, results for the Full Year will be adversely impacted by the increased weakness in the European SBR business.
If the current weakness in macroeconomic conditions persist through Q4, excluding any impact from the potential acquisition of OMNOVA, the Board expects underlying profit before tax for FY 2019 to be approximately 10% below 2018 and accordingly current consensus expectations.