Synthomer Regulatory News (SYNT)

Tuesday 28 August 2012

Yule Catto & Co plc

Interim Results for the six months ended 30 June 2012

SOLID PERFORMANCE IN CHALLENGING MARKET CONDITIONS

·; Solid Group performance despite challenging macroeconomic conditions and tough trading environment in Asian nitrile markets

·; Strong performance in Europe and North America reflecting underlying profit growth and the benefits of the PolymerLatex acquisition synergies

·; £9 million of synergies from PolymerLatex in H1; on track to deliver £25 million of total synergies by March 2013

·; Asia and ROW impacted by previously announced competitive environment in nitrile latex, with continued good levels of growth across other businesses

·; 83.3% increase in interim dividend reflects commitment to deliver a progressive dividend policy

·; Strong balance sheet; Net debt reduced to £174 million (H1 2011: £240 million)

·; Board strengthened by appointments of Ishbel Macpherson and Dr. Just Jansz

* All numbers on an underlying basis. 2011 comparatives, other than EPS, are adjusted to a pro-forma basis

Commenting on the results, Adrian Whitfield, Group Chief Executive, said:

"We have delivered a solid set of results in a challenging environment driven by a strong performance in Europe and North America, which accounted for 84% of our profits. The PolymerLatex acquisition has significantly enhanced our product portfolio and reach, as well as provided additional cash resources which we are using to invest in emerging markets and innovation to position us for future growth.

As previously announced, the nitrile latex business experienced a difficult competitive environment, driving a weaker performance in that part of our Asia and ROW business, with the rest of the portfolio making good progress.

Assuming there is no further deterioration in the global economy, the Board's expectations remain unchanged from the June trading update, for full year underlying profit before tax ahead of 2011 pro-forma of £96 million."

ENQUIRIES:

Adrian Whitfield, Group Chief Executive, and David Blackwood, Group Finance Director will be presenting the Company's results at a meeting for analysts and investors at 09.30 at the offices of Canaccord Genuity (88 Wood Street, London, EC2V 7QR). The presentation will be webcast on the company's website www.yulecatto.com 

Calculation of pro-forma numbers and IFRS information:

The pro-forma adjustment in this report reflects the inclusion of the unaudited results of PolymerLatex for the first quarter of 2011 (pre acquisition period) restated to Yule Catto's accounting policies. An estimate of the impact on finance costs if the business had been owned for that period has been made at the rate of £2.1 million per quarter.

Yule Catto & Co plc (YULC.L) may also be referred to in this report as "Yule Catto", the "Company" or the "Group"

Cautionary statement

This Interim Management Report (IMR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

The IMR contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

This IMR and the consolidated financial statements for the six months ended 30 June 2012 and for the six months ended 30 June 2011 have been reviewed but not audited. All reference to sales and operating profit in the Chairman's statement and business review, which follows, reflect underlying performance including share of joint ventures, as per note 4, unless otherwise stated.

CHAIRMAN'S STATEMENT

Overview

The Group delivered a solid set of results for the first half of 2012 despite a very difficult economic environment, a £2.5 million adverse translation impact of the euro, and the competitive environment in our nitrile latex business in Asia.

As expected, the acquisition of PolymerLatex has significantly benefited our business in Europe, delivering increased scale, an enhanced product portfolio, stronger market positions and greater efficiencies. The strength of our business in Europe underpins Yule Catto's long-term growth strategy providing the necessary cash generation to accelerate its growth into emerging markets.

H1 Results*

Group revenues declined by 9.2% to £603.3 million (2011: £664.3 million), mainly due to the impact of volumes which were 9.5% lower than H1 2011. However, Group EBIT increased by 5.3% to £62.1 million (2011: £59.0 million) due to synergies achieved from the PolymerLatex acquisition and good margin management across our European business. This more than offset the weak results in nitrile and the effect of the weaker euro.

Underlying profit before tax increased to £56.0 million, 6.9% ahead of prior year on a pro-forma basis and 36.0% ahead on a non pro-forma basis.

Earnings per share for the half year, on an underlying basis, were 12.3 pence per share, 29.5% ahead of prior year.

As reported at the time of our full year 2011 results in March, we now expect to achieve a run rate of synergy benefits of £25 million by March 2013. This will result in £16 million benefit to full year 2012 operating profit compared to 2011 with a further £6 million year on year benefit in 2013. Some £3 million of benefits were delivered in 2011. The synergy process remains on plan, and the benefits can clearly be seen in the results of our European and North American business segment.

*We have set out the interim results on a pro-forma basis to provide a clear like-for-like comparison on the prior period. All comments in this Chairman's statement refer to pro forma numbers unless otherwise stated. The pro-forma adjustment in this report reflects the inclusion of the unaudited results of PolymerLatex for the first quarter of 2011 restated to Yule Catto's accounting policies. An estimate of the impact on finance costs if the business had been owned for that period has been made at the rate of £2.1 million per quarter.

Divisional Performance

Europe & North America (on an underlying pro-forma basis)

Our business in Europe and North America delivered a substantial increase in operating profit, as a result of underlying profit growth and the synergies we have achieved to date from the PolymerLatex acquisition.

Volumes were down by 11.5% on the first half of 2011. This was partly due to margin management, but mainly as a result of a further slowdown in the European economy generally, particularly in the construction industry.

Raw material prices were volatile during the period, increasing through the first quarter and peaking by May, and have since fallen sharply. We continue to mitigate the impact of this volatility through the active management of selling prices and unit margins as we have done over recent years.

Asia & Rest of World (on an underlying pro-forma basis)

As flagged in our May interim management statement and our June trading update, the nitrile market in Asia has become extremely challenging, with excess capacity and aggressive competitive behaviour. As a result, operating profit in Asia and ROW declined 42.1%, on volumes down by 4.2% against a very strong comparative prior year period. The balance of our business, which accounts for circa 50% of revenues in Asia & ROW performed well, with EBIT ahead 18%.

The outlook for nitrile remains unchanged from the update we provided in June, and we do not foresee any meaningful recovery in the trading environment in the next 12 to 18 months. The Group has experienced a drop in market share in nitrile as the competitive environment has developed and this is affecting margins. The Group remains the overall global market leader with around one third of the market.

We remain confident about the underlying long term attractiveness of the high growth Asian nitrile latex glove market. We continue to invest for future growth in this region to improve efficiency, capacity and geographic reach across our entire product range.

Balance sheet

The Group's financial position remains robust, with net borrowings down to £174.2 million from £240.4 million at the midpoint of 2011. Net debt was slightly up on the year end position of £164.3 million, primarily as a result of a substantial increase in working capital over and above the normal seasonal outflow from the year end, reflecting the effect of the higher input prices. This was similar to what we saw in 2011 when a rapid first half escalation in raw material prices affected working capital. Operating levels as a percentage of sales remained broadly unchanged.

There was no significant change in the level of the Group's pension deficit from the start of the year.

At the end of June, the Group had net liquid resources available of £13.8 million (cash and equivalents less short term borrowings) and an undrawn £60.0 million revolving credit line maturing in March 2015 together with various uncommitted overdraft lines.

Dividend

The Board has considered future dividend policy and intends to target a dividend cover of three times by 2015. For 2012 the Board expects to declare a total dividend of 5.5p and progressively move towards the 2015 target.

Consistent with this we are declaring an interim dividend of 2.2p.

IFRS

The Group reported an IFRS profit before tax of £38.2 million (2011 - £26.7 million). This is £17.8 million below underlying profit before tax (2011 - £14.5 million) due to the special items detailed in the 'Special Items' paragraph below.

Special items

The Group had a number of special items in the half year, which are not part of underlying results. The operating expense amount of £17.0 million relates to the PolymerLatex acquisition, comprising £3.1 million of restructuring expenses associated with the continuing integration and synergy extraction and £13.9 million of intangible amortisation. The loss on fair value within finance costs of £0.8 million relates to the cross currency swaps that hedge the Group's US private placement debt into sterling, but do not qualify for hedge accounting under the narrow framework of IAS 39. The majority of the taxation amount of £3.4 million is the notional tax credit on the intangible amortisation expense.

Taxation

The Group benefits from tax holiday arrangements in the nitrile business in Malaysia and no tax is usually payable in the UK, as a result of contributions to the closed defined benefit UK pension fund. The increase in profits earned in Germany with its relatively high tax rate, following the PolymerLatex acquisition and subsequent integration, has resulted in an overall underlying taxation rate of 24%.

Risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2011. These risks include:

• Conditions in the global economy, economic fluctuations in customer industries and volatility and cyclicality of the global chemicals and polymers markets may adversely affect the results of operations, financial condition and cash flows of the Group;

• Volatility in raw material prices and energy prices may adversely affect the profitability of the Group and its working capital position;

• The failure of the Group to procure key raw materials may lead to production interruptions that may adversely affect the profitability of the Group and its working capital position;

• The markets in which the Group operates are highly competitive and the Group may lose market share to other producers or sellers of water based polymers or to other products that can be substituted for the products of the Group;

·; The Group operates in a number of different geographies which may present different legal and regulatory risks. In addition, the Group operates in a number of different tax regimes, which may increase the volatility of the effective tax rate and cash tax rate of the Group;

• The ability of the Group to compete is highly dependent on its ability to develop technological innovations, to introduce new products and to protect its intellectual property, trade secrets and know-how. Failure to do so could have an adverse affect on the Group;

• The Group may be liable for damages based on product liability claims brought against its customers in end-use markets. In addition, compliance with extensive environmental, health and safety laws and regulations could require material expenditure, changes in the operations of the Group or site remediation;

 • The manufacture, storage and transportation of chemicals is inherently dangerous and any incidents relating to the hazards which the Group faces may adversely affect its financial condition, results of operations and reputation;

• Fluctuations in currency exchange rates may significantly impact the results of the operations of the Group and may significantly affect the comparability of financial results between financial periods;

• Credit market conditions and credit ratings may restrict the ability of the Group to obtain credit facilities or to refinance its existing debt facilities in the longer term. In addition, interest rate fluctuations and increases in bank lending margins may increase the Group's costs of borrowing in the longer term;

• The carrying value of goodwill and non-current assets is sensitive to changes in estimates of future growth rates and discount rates; and

• The Group has funding risks relating to defined benefit pension schemes and any deterioration in the value of assets in which the pension scheme has invested as against the financial obligations to make payments to members of the schemes could have an adverse affect on the Group. Changes in interest rates will also affect the Group's pension liabilities.

The Group continues to manage these risks as set out in the annual report.

Outlook

The Board remains cautious regarding the wider economic outlook, given continuing issues in the eurozone and their effect on the global economy. However, Yule Catto's strong portfolio of market leading products, our high percentage of sales into Asia and other developing economies, and the near term synergy benefits from PolymerLatex, all underpin the Board's confidence in the Group's prospects for the longer term.

Assuming there is no further deterioration in the global economy, the Board's expectations remain unchanged from the June trading update, for full year underlying profit before tax ahead of 2011 pro-forma of £96 million.

NEIL JOHNSON

Chairman

28 August 2012

CONsolidated income statement for the SIX MONTHS ENDED 30 JUNE 2012

Special items

The special items are shown in more detail in note 3.

Consolidated income statement for the SIX MONTHS ENDED 30 JUNE 2012 continued

Special items

The special items are shown in more detail in note 3.

Consolidated STATEMENT OF COMPREHENSIVE INCOME for the SIX MONTHS ENDED 30 June 2012

Consolidated STATEMENT OFCHANGES IN EQUITY

Consolidated balance sheet as at 30 June 2012

The Group's US private placement US dollar term debt was economically hedged from dollars into sterling using long dated cross currency swaps at the date it was borrowed. The US dollar term debt is shown at the 30 June 2012 spot rate in net borrowings. The mark to market of the currency element of these swaps which hedges this US dollar term debt is shown as a reconciling item in the above analysis.

The 30 June 2011 balance sheet has been revised, see note 10.

The financial statements were approved by the Board of Directors and authorised for issue on 28 August 2012.

Consolidated cash flow STATEMENT for the SIX MONTHS ENDED 30 JUNE 2012

RECONCILIATION OF NET CASH FLOW FROM OPERATING ACTIVITIES TO MOVEMENT IN NET DEBT FOR THE SIX MONTHS ENDED 30 JUNE 2012

NOTES TO THE FINANCIAL STATEMENTS

 1. General information

The information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not contain a reference to any matters which the auditor drew attention by way of emphasis without qualifying the report, and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

2. Accounting policies

The annual financial statements of Yule Catto & Co plc are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in the half-yearly financial report has been prepared in accordance with International Accounting Standards 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies and methods of computations are followed in these financial statements as in the most recent audited annual financial statements.

Having regard to the financial position and future prospects of the Group, the directors have concluded that the Group is a going concern and have prepared these financial statements on that basis.

3. Special items

The special items disclosed are made up as follows: