TIDMSYNT
RNS Number : 6560L
Synthomer PLC
07 September 2023
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN OR INTO AUSTRALIA, CANADA, HONG
KONG, SINGAPORE, THE UNITED ARAB EMIRATES AND THE UNITED STATES AND
ANY OTHER JURISDICTION TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.
THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND DOES NOT CONSTITUTE A
PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NOTHING HEREIN SHALL
CONSTITUTE AN OFFERING OF ANY SECURITIES. NOTHING IN THIS
ANNOUNCEMENT SHOULD BE INTERPRETED AS A TERM OR CONDITION OF THE
RIGHTS ISSUE. ANY DECISION TO PURCHASE, SUBSCRIBE FOR, OTHERWISE
ACQUIRE, SELL OR OTHERWISE DISPOSE OF ANY NIL PAID RIGHTS, FULLY
PAID RIGHTS OR NEW ORDINARY SHARES MUST BE MADE ONLY ON THE BASIS
OF THE INFORMATION CONTAINED IN THE PROSPECTUS ONCE PUBLISHED.
COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLE
FROM THE REGISTERED OFFICE OF THE COMPANY AND ON ITS WEBSITE AT
WWW.SYNTHOMER.COM/INVESTOR-RELATIONS/, SUBJECT TO APPLICABLE LAW
AND REGULATIONS. PLEASE SEE THE IMPORTANT NOTICE AT THE OF THIS
ANNOUNCEMENT.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION. FOR IMMEDIATE
RELEASE
7 September 2023
SYNTHOMER plc
stronger foundations to drive strategy delivery
Proposed 6 for 1 Rights Issue of 140,200,818 New Ordinary Shares
at 197 pence per New Ordinary Share
and
Proposed Capital Reorganisation of 1 New Ordinary Share of 1
pence nominal value for every 20 Existing Ordinary Shares of 10
pence nominal value
Further to the announcement of its interim results for the for
the six months ended 30 June 2023, Synthomer plc ("Synthomer" or
the "Company", and together with its direct and indirect
subsidiaries, the "Group"), a leading global producer of
high-performance speciality chemical products, today announces that
it proposes to raise gross proceeds of approximately GBP276 million
by way of a rights issue (the "Rights Issue").
In conjunction with the Rights Issue, Synthomer is proposing to
implement a capital reorganisation, comprising a sub-division and
share consolidation, as described more fully below.
HIGHLIGHTS
-- The purpose of the Rights Issue is to support reduction in
the Group's leverage and provide stronger foundations to focus on
delivering its speciality solutions strategy
-- By increasing covenant headroom the Rights Issue will allow
greater focus on strategic delivery and long-term value creation in
addition to short term cash preservation, as well as a reduction of
downside risks from near-term macroeconomic uncertainty for all
stakeholders
-- At the Capital Markets Day in October 2022, Synthomer's new
management team announced its "Focus, Strengthen, Grow" strategy to
increase the speciality weighting of its portfolio and focus on
higher growth end-markets
-- Over the last 18 months, however, Synthomer has navigated an
extremely challenging market backdrop, during which time a
temporary weakness in demand across most of its end-markets and
geographies, exacerbated by supply chain disruptions and sustained
higher raw material and energy costs, has affected financial
performance
-- The Group's earnings have reduced temporarily but
significantly, and combined with the debt taken on to finance the
Eastman Acquisition announced in 2021 and completed in 2022 has
resulted in the Group's leverage increasing significantly, to 5.5x
covenant net debt, based on EBITDA as at 30 June 2023
-- Substantial and decisive management actions have been
successfully executed to preserve cash and manage debt, including
refinancing one debt facility and putting in place two other ones
to strengthen its financial liquidity position, initiating a number
of cash conservation measures, and identifying self-help
cost-saving measures and disposals of non-core businesses,
including the divestment of the Laminates, Films and Coated Fabrics
Businesses which was completed in February 2023 and which generated
total net proceeds of $269 million
-- The Board believes that the earnings power of the Group is
more than double current levels (being LTM EBITDA of GBP158m) in
the medium-term, based on a combination of executing its near-term
management actions, end-market volume recovery, and delivery of the
Group's strategy
-- Stronger foundations, supported by volume recovery, will
underpin delivery of the Group's medium-term ambitions, including
the medium-term targets set out last October: mid-single-digit
growth in constant currency over the cycle, EBITDA margins above
15% and mid-teens return on invested capital
-- The net proceeds of the Rights Issue will initially be
utilised to reduce borrowings under the Revolving Credit Facility
and provide flexibility to deliver strategy and manage balance
sheet leverage
o The Rights Issue will result in a pro forma reduction in the
covenant net debt based on EBITDA ratio from 5.5x to 3.8x as at 30
June 2023
-- On 5 September 2023, Synthomer entered into the RCF Amendment
and Extension, which will extend the Revolving Credit Facility
maturity date from 31 May 2025 to 31 July 2027 and amend total
commitments to $400 million
-- Reducing leverage further towards the 1-2x target range by
the end of 2024 remains a key priority, supported by further
divestments and increased earnings power
-- The Company's largest shareholder, Kuala Lumpur Kepong Berhad
Group (holding approximately 26.9% of the total voting rights in
the Company as at 6 September 2023, being the latest practicable
date prior to the date of this announcement), has irrevocably
committed to take up its full entitlement pursuant to the Rights
Issue and to vote in favour of the Resolutions
-- The Board believes the Rights Issue will allow the Company to
focus its resources on strategic execution and long-term value
creation for shareholders from its platforms of leading businesses
in attractive growth segments
BACKGROUND TO AND REASONS FOR THE RIGHTS ISSUE
Synthomer's portfolio has evolved over a number of years through
both organic growth and significant acquisitions, notably OMNOVA
completed in 2020 and the Eastman Acquisition completed in 2022.
Synthomer's new management team set out a refreshed strategy in
October 2022 to deliver growth and substantial margin improvement.
By increasing the speciality weighting of the Group's product
portfolio, leveraging the Group's enhanced global footprint and
reducing structural complexity within the Group, the Board believes
that the Group will become a more focused, more resilient and
higher quality speciality chemicals business in the medium-term.
Management outlined plans to deploy a more focused capital and
resource allocation framework. Portfolio rationalisation, which
aims to increase the speciality weighting of the business, is
already underway.
The Group today has many market-leading businesses in
end-markets with attractive growth prospects, however, during the
last 18 months, several factors have combined to increase
significantly the Group's leverage. Market conditions have rapidly
deteriorated, significantly, but temporarily, weakening recent
Group performance. The COVID-19 pandemic initially boosted demand
for NBR used in medical gloves but resulted in oversupply later.
Ongoing Russian military action in Ukraine has caused economic
volatility, impacting the Company's supply chain, costs, and energy
prices. High inflation and interest rate rises slowed industrial
activity and reduced demand in most of the Group's markets,
worsened by competition from Asia. The Adhesive Solutions division
faced raw material and reliability challenges, which are being
addressed by the new divisional leadership team.
Deteriorating market conditions, which followed a major
acquisition the Group announced in 2021 and completed in early
2022, predominantly financed from debt, significantly, but
temporarily, weakened recent Group earnings performance.
To navigate the current challenging environment, the Group has
taken substantial and decisive actions to preserve cash and manage
debt. Financial liquidity has been improved by refinancing credit
facilities and implementing cost-saving measures. As of 30 June
2023, Synthomer had over GBP400 million in available liquidity. A
GBP150-200 million cash management programme has been initiated,
which includes a reduction in capital expenditure, working capital
optimisation and dividend suspension. Additionally, the Group
identified GBP30 million in cost-saving measures, with GBP20
million to be realised in the second half of 2023. The strategic
divestment of its non-core Laminates and Films and Coated Fabrics
Businesses for $269 million completed in February 2023, which also
lowered the Group's net debt.
Notwithstanding the successful execution of these mitigation
actions, the Group's covenant leverage position remains elevated at
5.5x net debt, based on EBITDA as at 30 June 2023.
The Rights Issue will enable the Group to increase focus on
strategic delivery and long-term value creation in addition to
short-term cash preservation, as well as reducing the downside
risks from near-term macroeconomic uncertainty for all
stakeholders.
The Board believes that the medium-term earnings power of the
Group is more than double current levels based on a combination of
executing its near-term management actions, end-market volume
recovery and strategic delivery. These will also drive Synthomer to
become a more focused, more resilient and higher quality speciality
chemicals platform in the medium-term, with the business continuing
to target mid-single digit revenue growth, 15%+ EBITDA margin and
mid-teens return on invested capital. The Group believes that with
the stronger foundations achieved by the Rights Issue, supported by
volume recovery, will underpin the delivery of the Group's strategy
and medium-term ambitions, and thereby create long-term value.
KLK Intentions
The Company's largest shareholder, Kuala Lumpur Kepong Berhad
Group ("KLK") (which holds approximately 26.9% of the total voting
rights in the Company as at 6 September 2023, being the latest
practicable date prior to the date of this announcement), has
irrevocably committed to take up its full entitlement pursuant to
the Rights Issue and to vote in favour of the Resolutions. This
will result in KLK acquiring an aggregate of 37,676,850 New
Ordinary Shares, representing approximately 26.9% of the New
Ordinary Shares to be issued pursuant to the Rights Issue.
Directors' Intentions
Each Director who is able to participate in the Rights Issue
and/or vote at the General Meeting has confirmed in writing their
intention to take up their entitlement in full, or in part, to
subscribe for New Ordinary Shares under the Rights Issue in respect
of their respective holding of Existing Ordinary Shares and intends
to vote in favour of the Resolutions.
Prospectus
A prospectus (the "Prospectus") setting out full details of the
Rights Issue is expected to be published on Synthomer's website at
www.synthomer.com/investor-relations/ later today.
The Prospectus will be submitted to the National Storage
Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism following
publication.
The preceding summary should be read in conjunction with the
full text of the following announcement, together with the
Prospectus.
Unless the context otherwise requires, words and expressions
defined in the Prospectus shall have the same meanings in this
announcement.
Indicative summary timetable of principal events
Announcement of the Rights Issue and publication of the Prospectus 7 September 2023
General Meeting 12:30 p.m. on 25 September 2023
--------------------------------------
Record date for the Capital Reorganisation 6:00 p.m. on 25 September 2023
--------------------------------------
Admission and dealings in the Consolidated Ordinary Shares commence on the 8:00 a.m. on 26 September 2023
London Stock Exchange
--------------------------------------
Record Date for entitlements under the Rights Issue Close of business on 26 September 2023
--------------------------------------
Despatch of Provisional Allotment Letters (to Qualifying Non-CREST 27 September 2023
Shareholders only)
--------------------------------------
Consolidated Ordinary Shares marked "ex-rights" by the London Stock Exchange 8:00 a.m. on 28 September 2023
--------------------------------------
Admission of, and commencement of dealings in, Nil Paid Rights on the London
Stock Exchange; 8:00 a.m. on 28 September 2023
start of subscription period
--------------------------------------
Latest time and date for acceptance, payment in full and registration of 11:00 a.m. on 12 October 2023
renunciation of Provisional
Allotment Letters
--------------------------------------
Announcement of the results of the Rights Issue through a Regulatory By 8:00 a.m. on 13 October 2023
Information Service
--------------------------------------
Dealings in New Ordinary Shares, fully paid, commence on the London Stock 8:00 a.m. on 13 October 2023
Exchange
--------------------------------------
The Rights Issue is fully underwritten (in respect of the
Non-KLK Rights Issue Shares) by Goldman Sachs International, J.P.
Morgan Securities plc and Morgan Stanley & Co. International
plc acting as Joint Global Coordinators and Joint Bookrunners and
Citi acting as Joint Bookrunner, and (in respect of the KLK Rights
Issue Shares) by KLK. J.P. Morgan Cazenove is acting as sole
sponsor to the Company.
The person responsible for making this announcement on behalf of
Synthomer is Anant Prakash, Chief Counsel & Company
Secretary.
For further information, please contact:
Synthomer plc IR@synthomer.com
Michael Willome +44 (0) 1279 775 306
Lily Liu
Faisal Tabbah
J.P. Morgan Cazenove (Sole Sponsor, Joint Corporate Broker, Joint Bookrunner and Joint Global
Coordinator)
Richard Perelman
Alia Malik
Charles Oakes
Will Holyoak +44 (0) 20 7742 4000
---------------------
Morgan Stanley (Joint Corporate Broker, Joint Bookrunner and Joint Global Coordinator)
Andrew Foster
Shirav Patel
Alex Smart
Emma Whitehouse +44 (0) 20 7425 8000
---------------------
Goldman Sachs (Joint Bookrunner and Joint Global Coordinator)
Nick Harper
Bertie Whitehead
Clemens Tripp
Warren Stables +44 (0) 20 7774 1000
---------------------
Citi (Joint Bookrunner)
Robert Way
Sean Weissenberger
Patrick Evans
Ram Anand +44 (0) 20 7500 5000
---------------------
Teneo
Charles Armitstead +44 (0) 20 3603 5220
---------------------
IMPORTANT NOTICES
This announcement has been issued by and is the sole
responsibility of the Company. The information contained in this
announcement is for background purposes only and does not purport
to be full or complete. No reliance may or should be placed by any
person for any purpose whatsoever on the information contained in
this announcement or on its accuracy, fairness or completeness. The
information in this announcement is subject to change without
notice.
This announcement is not a prospectus (or a prospectus
equivalent document) but an advertisement for the purposes of the
Prospectus Regulation Rules of the Financial Conduct Authority
("FCA"). Neither this announcement nor anything contained in it
shall form the basis of, or be relied upon in conjunction with, any
offer or commitment whatsoever in any jurisdiction. Investors
should not acquire any Nil Paid Rights, Fully Paid Rights or New
Ordinary Shares referred to in this announcement except on the
basis of the information contained in the Prospectus to be
published by the Company in connection with the Rights Issue.
A copy of the Prospectus will, following publication, be
available from the registered office of the Company and on its
website at www.synthomer.com/investor-relations/. Neither the
content of the Company's website nor any website accessible by
hyperlinks on the Company's website is incorporated in, or forms
part of, this announcement. The Prospectus will provide further
details of the New Ordinary Shares, the Nil Paid Rights and the
Fully Paid Rights being offered pursuant to the Rights Issue.
This announcement (and the information contained herein) is not
for release, publication or distribution, directly or indirectly,
in whole or in part, in, into or within the United States of
America, its territories and possessions, any State of the United
States or the District of Columbia (collectively, the "United
States"). This announcement is not an offer for sale or the
solicitation of an offer to purchase securities in the United
States. Securities may not be offered or sold in the United States
absent registration under the US Securities Act of 1933, as amended
(the "US Securities Act"), or an exemption therefrom. The Nil Paid
Rights, the Fully Paid Rights and the New Ordinary Shares have not
been and will not be registered under the US Securities Act or
under any securities laws of any state or other jurisdiction of the
United States and may not be offered, sold, pledged, taken up,
exercised, resold, renounced, transferred or delivered, directly or
indirectly, in or into the United States except pursuant to an
applicable exemption from, or in a transaction not subject to, the
registration requirements of the US Securities Act and in
compliance with any applicable securities laws of any state or
other jurisdiction of the United States or other jurisdiction.
There will be no public offer of the Nil Paid Rights, the Fully
Paid Rights or the New Ordinary Shares in the United States.
Subject to certain limited exceptions, Provisional Allotment
Letters have not been, and will not be, sent to, and Nil Paid
Rights have not been, and will not be, credited to the CREST
account of, any Qualifying Shareholder with a registered address in
or that is known to be located in the United States, or to holders
of the Synthomer's
American depositary shares. None of the New Ordinary Shares, the
Nil Paid Rights, the Fully Paid Rights or the Provisional Allotment
Letters, this announcement or any other document connected with the
Rights Issue has been or will be approved or disapproved by the
United States Securities and Exchange Commission or by the
securities commissions of any state or other jurisdiction of the
United States or any other regulatory authority, nor have any of
the foregoing authorities passed upon or endorsed the merits of the
offering of the New Ordinary Shares, the Nil Paid Rights or the
Fully Paid Rights, or the accuracy or adequacy of the Provisional
Allotment Letters, this announcement or any other document
connected with the Rights Issue. Any representation to the contrary
is a criminal offence in the United States.
This announcement is for information purposes only and is not
intended to and does not constitute or form part of any offer or
invitation to purchase or subscribe for, or any solicitation to
purchase or subscribe for, Nil Paid Rights, Fully Paid Rights or
New Ordinary Shares or to take up any entitlements to Nil Paid
Rights in any jurisdiction. No offer or invitation to purchase or
subscribe for, or any solicitation to purchase or subscribe for,
Nil Paid Rights, Fully Paid Rights or New Ordinary Shares or to
take up any entitlements to Nil Paid Rights will be made in any
jurisdiction in which such an offer or solicitation is unlawful.
The information contained in this announcement and the Prospectus
is not for release, publication or distribution to persons in
Australia, Canada, Hong Kong, Singapore, the United Arab Emirates
and the United States, and any other jurisdiction where the
extension or availability of the Rights Issue (and any other
transaction contemplated thereby) would breach any applicable law
or regulation, and, subject to certain exceptions, should not be
distributed, forwarded to or transmitted in or into any
jurisdiction, where to do so might constitute a violation of local
securities laws or regulations.
The distribution of this announcement, the Prospectus, the
Provisional Allotment Letter and the offering or transfer of Nil
Paid Rights, Fully Paid Rights or New Ordinary Shares into
jurisdictions other than the United Kingdom may be restricted by
law, and, therefore, persons into whose possession this
announcement, the Prospectus, the Provisional Allotment Letter
and/or any accompanying documents comes should inform themselves
about and observe any such restrictions. Any failure to comply with
any such restrictions may constitute a violation of the securities
laws of such jurisdiction. In particular, subject to certain
exceptions, this announcement, the Prospectus (once published) and
the Provisional Allotment Letters (once printed) should not be
distributed, forwarded to or transmitted in or into Australia,
Canada, Hong Kong, Singapore, the United Arab Emirates and the
United States, or any other jurisdiction where the extension or
availability of the Rights Issue (and any other transaction
contemplated thereby) would breach any applicable law or
regulation.
This announcement does not constitute a recommendation
concerning any investor's options with respect to the Rights Issue.
The price and value of securities can go down as well as up. Past
performance is not a guide to future performance. The contents of
this announcement are not to be construed as legal, business,
financial or tax advice. Each shareholder or prospective investor
should consult his, her or its own legal adviser, business adviser,
financial adviser or tax adviser for legal, financial, business or
tax advice.
NOTICE TO ALL INVESTORS
Each of Goldman Sachs International ("Goldman Sachs"), J.P.
Morgan Securities plc (which conducts its UK investment banking
business as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove"), Morgan
Stanley & Co. International plc ("Morgan Stanley") and
Citigroup Global Markets Limited ("Citi") is authorised by the
Prudential Regulation Authority and regulated by the FCA and the
Prudential Regulation Authority in the United Kingdom. Each of
Goldman Sachs, J.P. Morgan Cazenove, Morgan Stanley and Citi is
acting exclusively for Synthomer plc and no one else in connection
with this announcement and the Rights Issue will not be responsible
to anyone other than Synthomer plc for providing the protections
afforded to its clients nor for providing advice to any person in
relation to the Rights Issue or any matters referred to in this
announcement.
None of Goldman Sachs, J.P. Morgan Cazenove, Morgan Stanley or
Citi, nor any of their respective subsidiaries, branches or
affiliates, nor any of their respective directors, officers or
employees owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client
of Goldman Sachs, J.P. Morgan Cazenove, Morgan Stanley or Citi in
connection with the Rights Issue, this announcement, any statement
contained herein, or otherwise.
INFORMATION TO DISTRIBUTORS
Solely for the purposes of the product governance requirements
of Chapter 3 of the FCA Handbook Product Intervention and Product
Governance Sourcebook (the "UK Product Governance Requirements"),
and disclaiming all and any liability, whether arising in tort,
contract or otherwise, which any "manufacturer" (for the purposes
of the UK Product Governance Requirements) may otherwise have with
respect thereto, the Nil Paid Rights, Fully Paid Rights and the New
Ordinary Shares have been subject to a product approval process,
which has determined that they each are: (a) compatible with an end
target market of retail investors and investors who meet the
criteria of professional clients and eligible counterparties, each
as defined in Chapter 3 of the FCA Handbook Conduct of Business
Sourcebook; and (b) eligible for distribution through all permitted
distribution channels (the "Target Market Assessment").
Notwithstanding the Target Market Assessment, "distributors" (for
the purposes of the UK Product Governance Requirements) should note
that: the price of the Nil Paid Rights, Fully Paid Rights and the
New Ordinary Shares may decline and investors could lose all or
part of their investment; the Nil Paid Rights, Fully Paid Rights
and the New Ordinary Shares offer no guaranteed income and no
capital protection; and an investment in the Nil Paid Rights, Fully
Paid Rights and the New Ordinary Shares is compatible only with
investors who do not need a guaranteed income or capital
protection, who (either alone or in conjunction with an appropriate
financial or other adviser) are capable of evaluating the merits
and risks of such an investment and who have sufficient resources
to be able to bear any losses that may result therefrom. The Target
Market Assessment is without prejudice to any contractual, legal or
regulatory selling restrictions in relation to the Rights Issue.
Furthermore, it is noted that, notwithstanding the Target Market
Assessment, the Underwriters will only procure investors who meet
the criteria of professional clients and eligible
counterparties.
For the avoidance of doubt, the Target Market Assessment does
not constitute: (i) an assessment of suitability or appropriateness
for the purposes of Chapters 9A or 10A, respectively, of the FCA
Handbook Conduct of Business Sourcebook; or (ii) a recommendation
to any investor or group of investors to invest in, or purchase, or
take any other action whatsoever with respect to, the Nil Paid
Rights, Fully Paid Rights and the New Ordinary Shares. Each
distributor is responsible for undertaking its own target market
assessment in respect of the Nil Paid Rights, Fully Paid Rights and
the New Ordinary Shares and determining appropriate distribution
channels.
FORWARD-LOOKING STATEMENTS
This announcement contains forward-looking statements, including
with respect to financial information, that are based on current
expectations or beliefs, as well as assumptions about future
events. These forward-looking statements can be identified by the
fact that they do not relate only to historical or current facts.
In some cases, forward-looking statements use words such as
"anticipate", "target", "expect", "estimate", "intend", "plan",
"goal", "believe", "will", "may", "should", "would", "could", "is
confident", or other words of similar meaning.
None of the Company, its officers, advisers or any other person
gives any representation, assurance or guarantee that the
occurrence of the events expressed or implied in any
forward-looking statements in this announcement will actually
occur, in part or in whole.
No undue reliance should be placed on any such statements
because they speak only as at the date of this announcement and, by
their very nature, they are subject to known and unknown risks and
uncertainties and can be affected by other factors that could cause
actual results, and the Company's plans and objectives, to differ
materially from those expressed or implied in the forward-looking
statements. No representation or warranty is made that any
forward-looking statement will come to pass. You are advised to
read the Prospectus when published and the information incorporated
by reference therein in their entirety, and, in particular, the
section of the Prospectus headed "Risk Factors", for a further
discussion of the factors that could affect the Group's future
performance and the industry in which it operates. In light of
these risks, uncertainties and assumptions, the events described in
the forward-looking statements, including statements regarding
prospective financial information, in this announcement may not
occur. In addition, even if the Group's actual results of
operations, financial condition and the development of the business
sectors in which it operates are consistent with the
forward-looking statements contained in the Prospectus, those
results or developments may not be indicative of results or
developments in subsequent periods. These statements are not fact
and should not be relied upon as being
necessarily indicative of future results, and readers of this
announcement are cautioned not to place undue reliance on the
forward-looking statements, including those regarding prospective
financial information.
No statement in this announcement is intended as a profit
forecast or estimate for any period, and no statement in this
announcement should be interpreted to mean that underlying
operating profit for the current or future financial years would
necessarily be above a minimum level, or match or exceed the
historical published operating profit or set a minimum level of
operating profit, nor that earnings or earnings per share or
dividend per share for the Company for the current or future
financial years would necessarily match or exceed the historical
published earnings or earnings per share or dividend per share for
the Company.
Neither the Company nor any of the Underwriters are under any
obligation to update or revise publicly any forward-looking
statement contained within this announcement, whether as a result
of new information, future events or otherwise, other than in
accordance with their legal or regulatory obligations (including,
for the avoidance of doubt, the Prospectus Regulation Rules, the
Listing Rules, MAR, FSMA and Disclosure Guidance and Transparency
Rules). Additionally, statements of the intentions or beliefs of
the board of directors of the Company reflect the present
intentions and beliefs of the board of directors of the Company as
at the date of this announcement and may be subject to change as
the composition of the board of directors of the Company alters, or
as circumstances require.
Synthomer PLC
6 FOR 1 FULLY UNDERWRITTEN RIGHTS ISSUE TO RAISE GROSS PROCEEDS
OF APPROXIMATELY GBP276 MILLION
1. INTRODUCTION TO THE RIGHTS ISSUE
Synthomer announces today that it proposes to raise gross
proceeds of approximately GBP276 million through a Rights
Issue.
Pursuant to the Rights Issue and taking into account the Capital
Reorganisation, Synthomer is proposing to offer 6 New Ordinary
Shares for every 1 Consolidated Ordinary Share held on the Record
Date.
This is equivalent to 6 New Ordinary Shares for every 20
Existing Ordinary Shares, based on a Consolidation Ratio of 1
Consolidated Ordinary Share in substitution for every 20 Existing
Ordinary Shares.
Taking into account the Capital Reorganisation, the Rights Issue
Price represents a discount of (83.8%) to the Consolidated Closing
Price on 6 September 2023 (the last Business Day prior to the date
of this announcement), and a discount of (42.5%) to the theoretical
ex-rights price of 343 pence per Existing Ordinary Share calculated
by reference to the Consolidated Closing Price on the same
basis.
The Rights Issue is fully underwritten (in respect of the
Non-KLK Rights Issue Shares) by Goldman Sachs International, J.P.
Morgan Securities plc, Morgan Stanley & Co. International plc
and Citigroup Global Markets Limited, and (in respect of the KLK
Rights Issue Shares) by KLK.
2. BACKGROUND TO THE RIGHTS ISSUE
2.1 SYNTHOMER'S STRATEGY AND STRENGTHS
Strengths
The Directors believe that the following are among the Group's
key competitive strengths:
(i) Global speciality chemicals company with leading positions
in its markets
Synthomer is a global speciality chemicals company which is one
of the world's leading suppliers of water-based polymers, with a
number of its product types holding market-leading positions
globally, as well as more specifically in Europe, the United States
and the Middle East.
As a speciality chemicals producer, the Group channels its
technical expertise, customer and end-market knowledge to help
customers develop these and other end products. The Group's
long-term customer partners benefit from the Group's knowledge and
understanding of their technical needs, the Group's customer
service and R&D, which has allowed the Group to develop
innovative solutions which help its customers' businesses.
As of 1 January 2023, the Group reorganised its divisional
structure along three new, market focused divisions, to better
serve the Group's end-market customers, comprised of: (i) Coatings
& Construction Solutions, (ii) Adhesive Solutions and (iii)
Health & Protection and Performance Materials. The new
divisions and the production areas and markets they focus on and
serve will be described in greater detail in the Prospectus.
The Coatings & Construction Solutions and Adhesive Solutions
divisions form the core strategic growth areas of the business. The
Health & Protection and Performance Materials division includes
the NBR base business as well as the business units which were
identified as non-core as part of the strategic review in 2022.
The Group's new Coatings & Construction Solutions division
brings together a range of the Group's businesses focused on the
coatings and construction end-markets, reflecting the Group's
strategy to strengthen its position in these markets and to improve
its portfolio through sustainable innovation and customer value
propositions. It is the Group's largest division in terms of both
revenue and EBITDA contribution. The Group is one of the leading
suppliers in Europe across each of the Group's key coatings and
construction products.
The Group's Adhesive Solutions division has one of the broadest
offerings of adhesive solutions products in the industry, with
leading manufacturing positions in EMEA and the Americas across all
tackifier product groups.
The Group's Health & Protection and Performance Materials
division includes products that enhance protection and performance
in a wide range of industries. Globally, the Group is the second
largest producer of NBR latex by volume (which the Group's
customers use in the manufacturing of medical gloves).
(ii) Attractive end-markets with strong long-term growth
outlook
The Group's portfolio of products serves a wide range of
geographies and end-markets. Within its core strategic growth
markets, served by its speciality businesses, there are significant
R&D capabilities and a high level of technical expertise
required to develop the chemical products the Group produces.
The Group's R&D is driven largely by its ability to apply
technical know-how, rather than on pure research, hence making it
difficult for new and less established entrants to compete in these
markets and across these product types. Moreover, the Group
believes that it tends to not only compete within these markets on
product price but that it also competes because of the quality of
technical services that the Group provides to customers alongside
the products themselves. The Group's new product development,
innovation, technical services provision and tailored solutions add
value to customers' end products and help differentiate the Group
from other competing companies. The Group also seeks to anticipate
market trends and customer requirements as it believes this will
continue to enable it to deliver improved products with better
margins and product differentiation among customers. Overall, this
allows the Group to maintain margins and protect against low-cost
market entrants.
In its base businesses, principally comprising the NBR business,
the Group believes it is able to leverage its market leading
position and will, by strengthening cost competitiveness and
driving customer intimacy, be able to harness the long-term demand
growth expected in this market.
The Group believes its presence in the end-markets for each of
the Group's divisions is supported by favourable market dynamics.
For example, the Group's speciality businesses within the Coatings
& Construction Solutions and Adhesive Solutions divisions were
successful in passing through substantial increases in raw material
and energy costs in 2022 in most of their markets, demonstrating
the resilience of these speciality businesses over base businesses.
Both divisions sustained EBITDA margins of 12% for the year ended
31 December 2022, despite unit material costs reaching record
levels in some cases. The Group's focus on more differentiated
products and robust pricing management contributed to solid
performance in most of the Group's major businesses in 2022,
particularly in the US.
The Group's continuing revenue by division for the 12 months
ending 30 June 2023 were: Coatings & Construction Solutions
(40.3%), Adhesive Solutions (29.5%), Health & Protection and
Performance Materials (30.2%).
The Group's diversified and customer focused approach enables
the Group to address changing conditions in the end-markets of each
of the Group's divisions :
Coatings & Construction Solutions
Both coatings and construction end-markets have historically
been driven by GDP+ growth, and require specialised, highly
differentiated products with sustainability benefits. The global
market for coatings and construction is estimated to grow at a CAGR
of approximately 4% per annum from 2020 to 2025.
-- Coatings : Increasing regulatory requirements and the Group's
customers' ambitions to use more sustainable products continues to
deliver growth opportunities for water-based coatings technology,
in which the Group is a leader amongst its peers.
-- Construction : The demand for the Group's portfolio of
construction products has been driven by favourable megatrends
including accelerated urbanisation and increased chemical usage due
to the increased professionalism of the construction business. The
Group's capabilities in innovation give the Group the potential to
grow its presence in these markets and the Group has a strong
innovation pipeline across the construction end-market.
-- Energy Solutions : As a supplier of speciality wellbore
chemicals, the Group offers a wide range of solutions including
fluid loss control and sealing, emulsifiers, lubricants and
rheological modifiers for drilling fluids. The Group also offers
flow control and properties enhancement in cementing operations,
gel additives for hydraulic fracturing fluids and strengthening
agents. The Group designs polymers that meet conventional and
unconventional drilling and completion requirements.
-- Consumer Materials : This part of the Group's business
comprises fibre bonding and SBR latex for foam applications.
Adhesive Solutions
The Group's Adhesive Solutions division serves growth
end-markets such as tapes and labels, packaging, and tyres which
are underpinned by sustainability trends and with strong revenue
synergies with the Group's other divisions. The overall market
demand for adhesive solutions is estimated to grow at a CAGR of
approximately 3-4% per annum from 2022 to 2025.
Across the Adhesive Solutions division, the Group has more than
300 customers and sells products in more than 600 locations around
the world. The Group has strong relationships with many of its
customers and certain end-users, with an average customer
relationship length of approximately 15 years and in many cases
much longer than that. This helps the Group understand the needs of
customers and develop a uniquely market focused innovation
pipeline. Within Adhesive Solutions, the Group is continuing to
focus on improving asset and supply chain reliability, broadening
the Group's raw material supply and reducing working capital and
cost levels. The Group is also exploring investment opportunities,
such as through the recently committed expansion in its capacity to
deliver speciality APOs.
Health & Protection and Performance Materials
Long-term demand for health and protection products is an
important megatrend underpinning the Group's strategy in Health
& Protection. The Group is a world leader in NBR, which the
Group's customers use for glove-dipping, and the leading NBR
producer, by volume, in Europe, which the Group's customers use in
a wide range of end-markets. The Group's NBR products serve a
fast-growing market which is expected to grow at a rate of 6%+
during the coming years The Group has responded to these market
trends through significant R&D investment to drive innovation
of market leading products with strong intellectual property
protection, investment in new low-cost capacity and efficient
capacity utilisation.
In the Health & Protection and Performance Materials
division, the Group continues to work towards strengthening the
overall cost competitiveness of the Group's Malaysian supply chain
and to enhancing customer intimacy and the Group's share of demand
globally.
The price of NBR has been volatile over the past three years.
Initially, increased demand for medical gloves drove high prices
during the COVID-19 pandemic, which were then followed more
recently by historical lows, as a result of destocking by the
Group's end-users and their customers. However, underlying end
customer demand for medical gloves remains similar to pre-COVID-19
pandemic levels and the market is expected to continue to grow in
the medium-term (including as a result of urbanisation and
healthcare in emerging markets), while the impact of destocking is
expected to abate as end-users and customers make use of their
existing inventories at pre-COVID-19 rates.
(iii) Global footprint with balanced geographic exposure and
strong customer relationships
As at 30 June 2023, Synthomer has 36 sites (taking account of
announced closures) across 17 countries in the Americas, EMEA and
Asia. It has a balanced geographic exposure with 48% of revenues
for the year ended 31 December 2022 generated in Europe, 19% in
Asia, 27% in North America, and 6% in the rest of the world.
The Group served approximately 6,000 customers across the world
in the year ended 31 December 2022, including many global blue-chip
companies. The Group believes it has strong and long-term customer
relationships. The Group's customer base is widespread and well
balanced across geographies and end-markets. For the year ended 31
December 2022, the Group's largest customer represented
approximately 2% of total revenues while revenues from the Group's
twenty largest customers represented approximately 22% of total
revenues. Some examples of key customers include: 1) with respect
to Coatings & Construction Solutions - PPG Industries, Inc.,
Sherwin Williams Company, Akzo Nobel N.V., Sika AG, Proctor &
Gamble Company and Haliburton Company; 2) with respect to Adhesive
Solutions - Henkel Ltd, HB Fuller Company, Shurtape Technologies,
LLC, Pirelli & C. S.p.A. and Continental AG; and 3) with
respect to Health & Protection and Performance Materials - Top
Glove Corporation Bhd, Sappi Limited, Honeywell International,
Inc., Lanxess AG and BASF SE .
(iv) Impressive track record and pipeline of new product
development through customer focused R&D
The Group has an impressive track record and pipeline of new
product development through customer focused R&D which supports
the Group's growth potential. The Group maintains four Centres of
Excellence as part of an innovation network comprising sites across
the world. The Group's four Centres of Excellence include sites in
Germany and the US, as well as the new industry leading Asia
Innovation Centre established in 2019. For the year ended 31
December 2022, the Group invested GBP33.7 million in R&D and
launched 18 new products. These investments in R&D continue to
have a significant effect on the Group's revenues, with 20% of the
Group's sales volume for the year ended 31 December 2022 derived
from products that the Group developed in the previous five years
or with patent protection. Since 2019, the Group has filed patent
applications on 39 new inventions and registered 16 new patents.
The Group is committed to quantifying, improving and communicating
the sustainability of all the Group's activities through Global
Reporting Initiative reporting.
(v) Sustainability embedded in products and a tailwind for
future growth
Sustainability is a key trend that will drive demand from
Synthomer's customers. Regulation is driving the requirement for
cleaner, more environmentally friendly solutions, and for renewable
raw materials. The Group's portfolio is positioned to help drive
circular solutions (for example, recyclable packaging) and the
Group's high-performance water-based polymers can displace
solvent-borne polymers, leading to further demand for the Group's
products. As a market leader in water-based and emission reducing
polymers, this creates a huge opportunity for Synthomer. The Group
is targeting 60% of its new products to have sustainability
benefits by 2030.
Synthomer has a long track record of helping customers towards
their own sustainability goals. The Group's emission-reducing
solutions and lower-carbon intensity operations all make a positive
contribution towards customers' Scope 3 carbon footprints.
Synthomer's capabilities and products can help customers in
multiple areas, whether that is replacing solvent-based coatings
with water-based alternatives, developing water-based polymers and
re-dispersible powders for construction customers, or innovating
bio-based, low-carbon footprint and circular solutions for
adhesives.
(vi) Deliverable medium-term targets supporting shareholder
value creation
At Synthomer's Capital Markets Day in October 2022, the Group
laid out financial targets which will drive sustained value for
shareholders. These include:
-- Organic revenue growth: Mid-single-digit through the cycle,
supported by innovation, sustainability and end-market focus;
-- EBITDA margins: 15%+ over the medium-term, delivery of this
will be underpinned by a combination of innovation, a higher mix of
speciality products, cost leadership and operational excellence;
and
-- Return on invested capital: Mid-teens over the medium-term,
supported by stronger organic growth, higher margins and the
Company's more focused capital allocation policy.
Strategy
The Group's growth strategy is driven by global megatrends and
the Group is focused on driving sustainable growth through business
efficiency, R&D and capital investment projects.
The Group's strategy is composed of the following key
pillars:
(i) Organic growth in attractive end-markets
The Group's core strategic growth markets, comprising coatings,
construction, adhesives, and health and protection, each benefit
from robust GDP+ growth dynamics. These markets are driven by
accelerating global megatrends including accelerating urbanisation,
demographic and social change, climate change and sustainability
and shifting economic power. In October 2022, as part of its new
strategy, the Group announced a new divisional organisational
structure aligning the Group's organisation with its core markets.
This alignment of operational segments and end-markets is expected
to assist the Group in anticipating and meeting customers' needs at
pace and deliver better products with improved margin and product
differentiation.
Innovation and sustainable products, such as water-based
solutions displacing solvents in the construction, coatings and
adhesives markets, are key drivers of growth across the Group's
core markets and developing products through focused
customer-centric R&D is a key component of the Group's
strategy. For the year ended 31 December 2022, 20% of the Group's
sales volumes derived from products that the Group launched in the
previous five years. In the year ended 31 December 2022, the Group
launched 18 new products across multiple application areas.
(ii) Rigorous and consistent portfolio management to build
focused, leading positions
As part of focusing the business, the Group intends to increase
the weighting of speciality chemicals versus base chemicals in the
Group's portfolio, create a more balanced geographic exposure,
streamline operational footprint and apply more rigorous capital
allocation across the Group's businesses.
The Group's strategic review in 2022 identified its core
markets, which combine the most attractive growth prospects and
where the Group is most differentiated. The Group will focus its
resources on these segments and the new divisional structure
enables differentiated steering in the allocation of financial and
operational resources.
In addition, the Group identified a number of non-core
businesses which have limited synergies with the rest of the
Group's identified growth platforms and which are less attractive
areas for the Group to deploy its capital. In line with its
strategy, on 28 February 2023, the Group announced that it
completed the disposal of its Laminates, Films and Coated Fabrics
Businesses, which were identified as non-core businesses through
the strategic review. Moving forward, the Group will continue to
assess its strategic position in terms of disposing of non-core
businesses to rationalise the Group's portfolio, reduce complexity
and increase the Group's focus on attractive end-markets and
speciality products.
Over the medium-term, the Group's strategic plan will involve
targeted M&A to grow the business once leverage is restored to
the guided range. The Group will continue to review speciality
chemicals acquisition opportunities through both bolt-on
acquisitions and more transformational step-change strategic
transactions in adjacent chemistries and geographies, if the Group
identifies appropriate acquisition targets and believes that the
Group has sufficient balance sheet flexibility to do so at that
time.
(iii) Operational and commercial excellence in how the Group
runs the business
The Group is focused on continuous improvement across its
operations to advance production efficiency, sales effectiveness
and functional excellence while remaining committed to the Group's
sustainability standards. To achieve these aims, the Group seeks to
identify good practice in all areas of the business and ensure that
relevant learnings are disseminated across the business.
The Group aims to drive profitability through maximising the
utilisation of the Group's assets. To achieve this, the Group
focuses on identifying the root causes of production bottlenecks
and finding innovative solutions. For example, at the Sant Albano
site in Italy, the Group has reduced water extraction by 30% by
reconfiguring the borehole management process.
For decades, the Group has been a world leading supplier of
sustainable water-based polymers that avoid the use of solvents and
keep harmful volatile organic compounds out of the atmosphere. The
Group has also become a global innovator in driving the use of
water-based technology. Over the last few years, the Group has
worked hard to improve its ESG credentials while remaining
committed to driving efficiency. This can be seen with the launch
of the Group's 2030 Vision, which sets ESG targets for the Group
and a roadmap to achieve them, as well as the creation of the
Group's Executive Sustainability Steering Committee last year.
(iv) Differentiated steering to address the differentiated
positions across the Group's portfolio
The Group's new divisional structure enables differentiated
steering of the allocation of financial and operational resources,
including capital allocation. The Group intends to allocate
approximately 75% of capital to the Coatings & Construction
Solutions and Adhesive Solutions divisions and approximately 25% to
the Health & Protection and Performance Materials division over
the medium-term.
(v) Diversity, equity and inclusion and holistic people
development
Across all businesses in the Group, the Group's employees drive
strategy and deliver for all stakeholders and the Group continues
to develop them to be prepared for the opportunities and challenges
that lie ahead. To support this, the Group is implementing four
strategic employee priorities: (i) promoting holistic people
development; (ii) strengthening its leadership capability; (iii)
embracing Synthomer excellence; and (iv) establishing an innovative
workplace culture.
2.2 CHALLENGING MARKET BACKDROP AND OTHER FACTORS HAVE
SIGNIFICANTLY, BUT ONLY TEMPORARILY, WEAKENED RECENT
PERFORMANCE
Over the last 18 months, Synthomer has navigated an extremely
challenging market backdrop, during which time a temporary weakness
in demand across most of its end-markets and geographies have
significantly affected financial performance. In 2020 and 2021, the
COVID-19 pandemic created exceptional demand for NBR, used in the
manufacture of medical gloves. Since then, as a result of the
elevated inventory levels of medical gloves and new capacity added
during the COVID-19 pandemic, there has been a prolonged and
unprecedented period of oversupply, resulting in far weaker levels
of demand for NBR. The Russian military action in Ukraine
contributed further to economic volatility, with the Company
impacted by supply chain disruptions, sustained higher raw material
costs and sharp rises in the cost of energy. More recently, the
high inflation environment and resultant interest rate rises have
slowed industrial activity and led to subdued levels of demand
across most of the Group's end-markets, exacerbated by destocking
and increased competition, including from Asia, in some of
Synthomer's base chemical product ranges. Volumes have also been
adversely impacted in the Adhesive Solutions division by
constrained access to raw materials and site reliability
challenges, which the Company is in the process of resolving under
a new divisional leadership team.
As a result of these factors, the Group's earnings have reduced
temporarily but significantly, and combined with the debt taken on
to finance the Eastman Acquisition has resulted in the Group's
leverage increasing significantly, to 5.5x covenant net debt, based
on EBITDA as at 30 June 2023.
2.3 SUBSTANTIAL AND DECISIVE MANAGEMENT ACTIONS SUCCESSFULLY
EXECUTED TO PRESERVE CASH AND MANAGE DEBT IN RESPONSE
The management team and the Board have taken substantial and
decisive actions to strengthen the business and the balance sheet
to manage through this challenging period. Synthomer strengthened
its financial liquidity position, refinancing the Revolving Credit
Facility and putting in place the UKEF Facilities and the Factoring
Facilities. The Group extended covenant headroom in October 2022
and also as part of the Revolving Credit Facility refinancing in
March 2023. As at 30 June 2023, Synthomer had committed and
available liquidity of more than GBP 400 million. The Company also
initiated a GBP150-200 million cash management programme, which
included a reduction and re-prioritisation of capital expenditure,
including the downsizing or deferral of a number of growth
opportunities, working capital optimisation and a suspension of the
dividend. The Group also identified approximately GBP30 million in
'self-help' cost-saving measures on a run-rate basis in 2022, with
approximately GBP20 million remaining to be delivered during the
second half of 2023, including actions within the Adhesive
Solutions division. In line with its portfolio rationalisation
strategy, the Company also completed the disposal of the Laminates,
Films and Coated Fabrics Businesses in February 2023, generating
total net proceeds of $269 million.
On 5 September 2023, Synthomer entered into the RCF Amendment
and Extension to the Revolving Credit Facility with the RCF
Lenders, which is subject to and conditional upon, among other
things, the Company's receipt of the proceeds from the Rights
Issue. If effective, the RCF Amendment and Extension will, amongst
other matters, reduce the total commitments under the Revolving
Credit Facility from $480 million to $400 million, and extend the
maturity date from 31 May 2025 to 31 July 2027.
2.4 EARNINGS POWER OF THE GROUP IS MORE THAN DOUBLE CURRENT LEVELS IN THE MEDIUM-TERM
The Group generated GBP158 million of EBITDA in the 12 months to
June 2023 from continuing operations. This reflects reduced
industrial demand, destocking, medical glove oversupply and the
reliability issues relating to the Adhesive Resins Business. The
Board believes that the earnings power of the Group is more than
double current levels based on a combination of executing its
near-term management actions, end-market volume recovery, and
delivery of the Group's strategy. Near-term actions include
approximately GBP20 million in self-help cost savings, whilst
end-market recovery has the potential to generate more than GBP100
million in additional EBITDA across the business, as outlined
below.
While Coatings & Construction Solutions has seen encouraging
progress in the first half of 2023, led by the speciality products
within its portfolio, the Group expects further recovery potential.
The division generated average EBITDA of approximately GBP110
million per annum in 2021 and 2022. This compares to LTM EBITDA of
GBP96 million for the period ending 30 June 2023. The Group
anticipates a full recovery as demand in the division's end-markets
recovers and the destocking cycle abates.
The Adhesive Resins Business acquired from Eastman, which makes
up the majority of the Adhesive Solutions division, generated
EBITDA of approximately GBP71 million in the 12 months to June
2021. Factoring in a further approximately GBP24 million of EBITDA
from legacy Synthomer businesses that now form part of the
division, the Adhesive Solutions division generated EBITDA of
approximately GBP95 million in LTM June 2021, before the identified
run-rate acquisition costs synergies of approximately GBP23 million
per annum (approximately GBP118 million in total). This compares to
LTM EBITDA of GBP48 million for the period ending 30 June 2023.
Synthomer is highly confident that the performance of the acquired
Eastman business will improve towards these levels, as demand
recovers and destocking ends, supported by the Group's performance
improvement plan and other self-help actions (including the
executed synergy actions). The Group also continues to make
investments in capacity and other growth opportunities in certain
key speciality products, such as the recently announced expansion
of speciality amorphous polyolefins in North America, which are
also expected to drive growth.
Synthomer's NBR business, which is part of the Health &
Protection and Performance Materials division, operates in a market
where underlying end-use volume growth rates are consistent with
pre-COVID-19 pandemic levels, supported by rising hygiene standards
and increasing access to healthcare in emerging markets where the
current medical glove consumption base is low. However, production
levels have been exceptionally low due to elevated stock built up
during the COVID-19 pandemic, as well oversupply in the market as a
result of new capacity introduced in response to unprecedented
demand. Prior to the COVID-19 pandemic, the NBR business in 2018
and 2019 generated average EBITDA of approximately GBP70 million
per annum compared to LTM EBITDA of GBP5 million for the period
ending 30 June 2023. The Group has announced plans to reduce its
own NBR capacity (by approximately 20%) by consolidating production
and closing a legacy plant and notes that other participants in the
market have also begun to adjust capacity in response to current
market conditions, with the current oversupply situation therefore
expected to resolve over time. Synthomer is confident in recovery
over time towards levels achieved pre-COVID-19 pandemic as the
medical glove oversupply normalises, demand growth continues
supported by the hygiene megatrend and the supply side adjust to
post-COVID-19 pandemic conditions.
While visibility remains low, the Board believes Group volumes
reached a cyclical trough in the first half of 2023, and the Board
does not expect further demand deterioration in key end-markets in
the second half of the year.
3. STRONGER FOUNDATIONS, SUPPORTED BY VOLUME RECOVERY, WILL
UNDERPIN DELIVERY OF THE GROUP'S MEDIUM-TERM AMBITIONS
The Board believes that a reduction in Synthomer's current
elevated leverage position will enable the Group to increase focus
on strategic execution and long-term value creation in addition to
short-term cash preservation as well as reducing the downside risks
from near-term macroeconomic uncertainty for all stakeholders. This
will also ensure that the Company is well-positioned to deliver its
strategy and medium-term ambitions for profitable growth as demand
recovers. It is accordingly announcing a fully underwritten rights
issue to raise total proceeds of GBP276 million, with an
irrevocable commitment received from KLK to subscribe for their
pro-rata entitlements in full. This will increase covenant headroom
and strategic and financial flexibility, resulting in a pro forma
reduction in the covenant net debt based on EBITDA ratio from 5.5x
to 3.8x as at 30 June 2023. Reducing leverage further towards the
1-2x target range by the end of 2024 remains a key priority. This
will be supported by further divestment proceeds and earnings power
more than doubling over the medium-term through continued cost
control, volume recovery and strategic delivery.
In summary, the Board believes the Rights Issue will allow the
Company to focus its resources on strategic execution and long-term
value creation for shareholders from its platforms of leading
businesses in attractive growth segments .
4. USE OF PROCEEDS
The Rights Issue is expected to raise approximately GBP276
million in gross proceeds and approximately GBP261 million in net
proceeds (after deduction of estimated commissions, fees and
expenses). The net proceeds will initially be utilised to reduce
borrowings under the Revolving Credit Facility and provide
flexibility to deliver the Group's strategy and manage balance
sheet leverage. The Rights Issue will result in a pro forma
reduction in the covenant net debt based on EBITDA ratio from 5.5x
to 3.8x as at 30 June 2023.
5. CURRENT TRADING AND OUTLOOK
Trading in July and August was similar to the 2023 Half Year
Results, with limited visibility and subdued volumes given
challenging macro conditions. The Group's outlook for the remainder
of 2023 provided in July is reiterated: the Board does not
anticipate a material recovery in customer demand before the end of
the current year. However, the Board anticipates approximately
GBP20 million in self-help measures to be delivered mainly in the
second half of 2023. Overall, the Group remains confident of making
sequential progress in the second half relative to the first.
The Group continues to take decisive action to strengthen its
business so that it is positioned for profitable growth when demand
does begin to recover. As stated elsewhere, through the Group's
near-term actions, end market volume recovery (which alone has the
potential to improve Group EBITDA by more than GBP100 million over
time) and execution of the strategy, the Board believes the Group's
medium-term earnings power is more than double the GBP158 million
of continuing EBITDA generated over the year to the end of June
2023. Reducing leverage further toward the 1-2x target range
remains a key priority. Overall, the Board remains confident in the
Group's ability to deliver the medium-term targets set out last
October, which were mid-single-digit growth in constant currency
over the cycle, EBITDA margins above 15% and mid-teens return on
invested capital.
6. RISK FACTORS AND FURTHER INFORMATION
Shareholders should consider fully and carefully the risk
factors associated with Synthomer, as set out in the
Prospectus.
Shareholders should read the whole of the Prospectus and not
rely solely on the information set out in this announcement.
7. DIVIDS AND DIVID POLICY
In October 2022, as part of a covenant amendment process with
the Group's banking syndicates to give the Group increased
headroom, Synthomer suspended dividend payments, including the
interim dividend of 4p announced on 12 October 2022 that was due to
be paid in November 2022.
Whilst the Company will continue to prioritise reducing leverage
towards its 1-2x target range by the end of 2024 and execution of
strategy, including sustainability commitments and predominantly
organic-led growth in the near-term, it recognises the importance
of dividends for Shareholders and therefore will look to reinstate
a dividend when appropriate to do so .
8. CAPITAL REORGANISATION
The Capital Reorganisation, comprised of the Sub-division and
the Share Consolidation, is proposed in order to achieve a higher
market price for the Consolidated Ordinary Shares and, accordingly,
a more appropriate Rights Issue Price.
Under the Capital Reorganisation:
-- each Existing Ordinary Share of 10 pence nominal value will
be subdivided and converted into one Intermediate Share of 0.05
pence nominal value and 1 Deferred Share of 9.95 pence nominal
value; and
-- immediately thereafter, every 20 Intermediate Shares of 0.05
pence nominal value will be consolidated into 1 Consolidated
Ordinary Share of 1 pence nominal value.
The Existing Ordinary Shares will be consolidated such that
Shareholders will receive Consolidated Ordinary Shares on the
Consolidation Ratio of 1 Consolidated Ordinary Share in
substitution for every 20 Existing Ordinary Shares. Following
Consolidation, the Consolidated Ordinary Shares will have the same
rights as the Existing Ordinary Shares, including voting, dividend
and other rights.
The purpose of the Deferred Shares is solely to facilitate the
reduction in the nominal value of the Shares to 1 pence . The
Deferred Shares will be effectively valueless as they will carry
very limited rights, including no voting or dividend rights. The
Company has the right to acquire and then cancel the Deferred
Shares for an aggregate price of GBP0.01 and intends to exercise
this right immediately following the creation of the Deferred
Shares. Further information on the Deferred Shares will be set out
in the Prospectus.
Immediately following the implementation of the Capital
Reorganisation, the market price of a Consolidated Ordinary Share
should be approximately equal to a multiple of 20 times the market
price of an Existing Ordinary Share immediately beforehand. The
Consolidation Ratio used for the Share Consolidation has been set
by the Directors after consultation with the Underwriters. Existing
Shareholders will own the same proportion of the Company as they
did immediately prior to the implementation of the Share
Consolidation, subject only to fractional rounding.
The Closing Price of each Existing Ordinary Share on 6 September
2023 (being the last Business Day prior to the date of the
Prospectus) was 60.8 pence (as derived from the Daily Of cial List
of London Stock Exchange plc). In accordance with the Consolidation
Ratio, the Consolidated Closing Price of each Consolidated Ordinary
Share would have been 1,216 pence on that date.
The Capital Reorganisation, if approved by Shareholders, will be
made by reference to holdings of Existing Ordinary Shares on the
Company's register of members as at 6.00 p.m. on 25 September 2023
(or such other time or date as the Directors may determine).
Holdings of Existing Ordinary Shares in certi cated and uncerti
cated form will be treated as separate holdings for the purpose of
calculating entitlements under the Rights Issue. Fractions of New
Ordinary Shares will not be allotted to Qualifying Shareholders and
fractional entitlements will be rounded down to the nearest whole
number of New Ordinary Shares.
Any fractional entitlements to Consolidated Ordinary Shares
which arise will be aggregated into whole Consolidated Ordinary
Shares and sold in the market on behalf of the relevant
Shareholders. The total proceeds of the sale (net of related
expenses (including any applicable brokerage fees and commissions
and amounts in respect of related irrecoverable VAT)) will be paid
in due proportion to each of the relevant Shareholders. Any
proceeds of sale (net of related expenses (including any applicable
brokerage fees and commissions and amounts in respect of related
irrecoverable VAT)) to each of the relevant Shareholder(s) of less
than GBP5.00 will be aggregated and will accrue for the bene t of
the Company.
It is expected that dealings in the Existing Ordinary Shares
will continue until close of business on 25 September 2023 and
admission of the Consolidated Ordinary Shares to the premium
listing segment of the Of cial List and to trading on the London
Stock Exchange's main market for listed securities will become
effective at 8.00 a.m. on 26 September 2023.
If you hold Existing Ordinary Shares in certi cated form, you
will be issued with a new share certi cate in respect of your
Consolidated Ordinary Shares following the issue of Consolidated
Ordinary Shares.
With effect from Admission, share certi cates in respect of
Existing Ordinary Shares will cease to be valid. Share certi cates
in respect of Consolidated Ordinary Shares will only be issued
following the Share Consolidation. It is therefore important that,
if you hold certi cate(s) in respect of your Existing Ordinary
Shares, you retain them for the time being until share certi cates
in respect of Consolidated Ordinary Shares are despatched, which is
expected to be within 10 Business Days of Admission. On receipt of
share certi cates in respect of Consolidated Ordinary Shares, certi
cates in respect of Existing Ordinary Shares can be destroyed.
If you currently hold Existing Ordinary Shares in uncerti cated
form, it is currently expected that the Existing Ordinary Shares
under ISIN GB0009887422 will be disabled by 6.00 p.m. on the day
before Admission (which such date is currently expected to be 25
September 2023) and on or soon after 8.00 a.m. on Admission (which
is currently expected to be 26 September 2023) your CREST account
will be credited with Consolidated Ordinary Shares under ISIN
GB00BNTVWJ75. Your CREST account will also be credited with the New
Ordinary Shares (nil paid) under the Rights Issue. The ISIN for the
New Ordinary Shares will be that of the Consolidated Ordinary
Shares.
Temporary documents of title will not be issued in respect of
Consolidated Ordinary Shares and, pending despatch of de nitive
share certi cates, transfers of Consolidated Ordinary Shares held
in certi cated form will be certi ed against the register of
members.
All share certi cates will be sent by rst class post, at the
risk of the Shareholder(s) entitled thereto, to the registered
address of the relevant Shareholder (or, in the case of joint
Shareholders, to the address of the joint Shareholder whose name
stands rst in the register of members in respect of such joint
shareholding).
9. PRINCIPAL TERMS AND CONDITIONS OF THE RIGHTS ISSUE
9.1 OVERVIEW
Synthomer proposes to raise gross proceeds of approximately
GBP276 million (approximately GBP261 million after deduction of
estimated commissions, fees and expenses) by way of the Rights
Issue.
(A) PRICING
Taking into account the Capital Reorganisation, the Rights Issue
Price represents a discount of 83.8% to the Consolidated Closing
Price on 6 September 2023 (being the latest practicable date prior
to the date of this announcement), and a discount of 42.5% to the
theoretical ex-rights price of 343 pence per Existing Ordinary
Share calculated by reference to the Consolidated Closing Price on
the same basis. Upon completion of the Capital Reorganisation and
the Rights Issue, the New Ordinary Shares will represent
approximately 600% of the Company's Consolidated Ordinary Shares
that will be in issue immediately following the Share Consolidation
and approximately 85.7% of the Company's enlarged issued share
capital following the Capital Reorganisation and the Rights
Issue.
The Rights Issue Price has been set, following discussions with
major Shareholders, at the level which the Board considers
necessary to ensure the success of the Rights Issue, taking into
account the aggregate proceeds to be raised. The Board believes
that the Rights Issue Price, and the discount which it represents,
is appropriate.
(B) DILUTION
The Rights Issue will result in 140,200,818 New Ordinary Shares
being issued and, taking into account the Capital Reorganisation,
the number of Ordinary Shares being increased by approximately
600%.
If a Qualifying Shareholder does not (or is not permitted to)
take up any New Ordinary Shares under the Rights Issue, such
Qualifying Shareholder's shareholding in Synthomer will be diluted
by 85.7% as a result of the Rights Issue.
For the purposes of calculating: (i) the number of New Ordinary
Shares to be issued pursuant to the Rights Issue; (ii) the
specified increases to the Company's issued share capital resulting
from the Rights Issue; and (iii) the specified dilutive effect of
the Rights Issue, the issuance of any Ordinary Shares in respect of
the vesting or exercise of any awards under the Share Plans which
may occur between the Latest Practicable Date and the Record Date
has been disregarded.
9.2 KEY TERMS
On and subject to, among other things, the terms and conditions
described in the Prospectus, and taking into account the Capital
Reorganisation, 140,200,818 New Ordinary Shares will be offered by
way of rights at the Rights Issue Price of 197 pence per New
Ordinary Share to Qualifying Shareholders on the basis of:
6 New Ordinary Shares for every 1 Consolidated Ordinary
Share
this is equivalent to
6 New Ordinary Shares at 197 pence each for every 20 Existing
Ordinary Shares
held and registered in their name on the Record Date (and so in
proportion for the number of Existing Ordinary Shares then held,
subject to fractional entitlements).
Qualifying Non-CREST Shareholders with registered addresses in
the United States or in any of the other Excluded Territories will
not be sent Provisional Allotment Letters and will not have their
CREST stock accounts credited with Nil Paid Rights, except where
the Company and the Underwriters are satisfied that such action
would not result in the contravention of any registration or other
legal or regulatory requirement in such jurisdiction.
Entitlements to New Ordinary Shares under the Rights Issue will
be rounded down to the nearest whole number and fractions of New
Ordinary Shares will not be provisionally allotted to Qualifying
Shareholders. Holdings of Existing Ordinary Shares in certificated
and uncertificated form will be treated as separate holdings for
the purpose of calculating entitlements under the Rights Issue.
Any fractional entitlements to New Ordinary Shares which arise
will be aggregated into whole New Ordinary Shares and sold in the
market on behalf of the relevant Shareholders. The total proceeds
of the sale (net of related expenses (including any applicable
brokerage fees and commissions and amounts in respect of related
irrecoverable VAT)) will be paid in due proportion to each of the
relevant Shareholders. Any proceeds of sale (net of related
expenses (including any applicable brokerage fees and commissions
and amounts in respect of related irrecoverable VAT)) to each of
the relevant Shareholder(s) of less than GBP5.00 will be aggregated
and will accrue for the bene t of the Company.
The Rights Issue has been fully underwritten by (in respect of
the Non-KLK Rights Issue Shares) the Underwriters and (in respect
of the KLK Rights Issue Shares) KLK. The underwriting from the
Underwriters is in accordance with the terms and subject to the
conditions of the Underwriting Agreement, and the underwriting from
KLK is in accordance with the terms and subject to the conditions
of the KLK Undertakings.
The Rights Issue is conditional upon (among other things): (i)
the passing of the Resolutions at the General Meeting without
material amendment; (ii) the Underwriting Agreement having become
unconditional in all respects (save for the condition relating to
Admission of the Nil Paid Rights); and (iii) Admission of the Nil
Paid Rights becoming effective by not later than 8.00 a.m. on 28
September 2023 (or such later date as the Company and the
Underwriters may agree).
Application will be made to the FCA for the New Ordinary Shares
(nil and fully paid) to be admitted to listing on the premium
listing segment of the Official List and to the London Stock
Exchange for the New Ordinary Shares (nil and fully paid) to be
admitted to trading on its main market for listed securities. It is
expected that Admission of the Nil Paid Rights will become
effective, and that dealings in the New Ordinary Shares, nil paid,
on the London Stock Exchange's main market for listed securities
will commence, at 8:00 a.m. on 28 September 2023. It is also
expected that Admission of the New Ordinary Shares (fully paid)
will become effective, and dealings in New Ordinary Shares, fully
paid, on the London Stock Exchange's main market for listed
securities will commence, at 8:00 a.m. on 13 October 2023.
The New Ordinary Shares will, when issued and fully paid, rank
pari passu in all respects with, and will carry the same voting and
dividend rights as, the Consolidated Ordinary Shares.
Overseas Shareholders, including Shareholders resident in the
United States should refer to the Prospectus for further
information regarding their ability to participate in the Rights
Issue.
10. RELATED PARTY TRANSACTIONS
KLK is a related party of the Company for the purposes of the
Listing Rules as it is a substantial shareholder of the Company
which is entitled to exercise, or control the exercise of, 10% or
more of the votes that are able to be cast at general meetings of
the Company.
Pursuant to the KLK Undertakings and the Rights Issue, KLK has
irrevocably committed to take up its entitlement pursuant to the
Rights Issue in full and to vote in favour of the Resolutions. This
will result in KLK acquiring an aggregate of 37,676,850 New
Ordinary Shares, representing approximately 26.9% of the New
Ordinary Shares to be issued pursuant to the Rights Issue. This
transaction is classified as a smaller related party transaction
under LR11.1.10R(1) and is therefore disclosed in accordance with
LR11.1.10R(2)(C).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
ARIFDLBBXKLFBBX
(END) Dow Jones Newswires
September 07, 2023 02:00 ET (06:00 GMT)
Grafico Azioni Synthomer (LSE:SYNT)
Storico
Da Mar 2024 a Apr 2024
Grafico Azioni Synthomer (LSE:SYNT)
Storico
Da Apr 2023 a Apr 2024
