Preliminary Results year ended 31 December 2020

RNS Number : 1559R

Synthomer PLC

04 March 2021

Synthomer plc

Preliminary Results for the year ended 31 December 2020

Differentiated and Diversified Business Drives Strong Growth


HIGHLIGHTS	2020	2019	Reported	Constant currency²
Underlying performance ¹	£m	£m	%	%
Group Revenue	1,644.2	1,459.1	12.7	12.8

Volumes (ktes)	1,638.2	1,465.7	11.8

EBITDA
Performance Elastomers	142.5	96.3	48.0	50.8
Functional Solutions	95.6	69.9	36.8	36.5
Industrial Specialities	41.2	23.8	73.1	72.7
Acrylate Monomers	(2.4)	1.0	(340.0)	(350.0)
Corporate	(17.5)	(13.1)	33.6	33.6
EBITDA	259.4	177.9	45.8	47.1

Depreciation	(69.8)	(52.1)	34.0	34.0

Operating profit (EBIT)	189.6	125.8	50.7	52.5

Finance costs	(29.6)	(9.6)	208.3	208.3

Profit before tax	160.0	116.2	37.7	39.6

Free Cash Flow³	167.6	92.8	80.6

EPS (p)	28.9	25.3	14.2

IFRS performance
Operating profit	58.4	110.6	(47.2)
Profit before tax	20.3	100.5	(79.8)
EPS (p)	0.7p	21.5p	(96.7)

1. Underlying performance excludes Special Items, unless otherwise stated.

2. Constant currency revenue and profit measures retranslate current year results for legacy Synthomer using the prior year's average exchange rates. Results from businesses acquired in the year are not retranslated.

3. Free Cash Flow defined as movement in net debt before financing activities, foreign exchange and the cash impact of Special Items, asset disposals and business combinations.

Full Year Highlights

Group EBITDA increased 46% to £259.4 million (2019: £177.9 million), with strong growth in each of Synthomer's three main divisions

- Legacy Synthomer EBITDA up 27% to £226.4 million (2019: £177.9 million). OMNOVA contributed £33.0 million since acquisition

- Performance Elastomers EBITDA up 48% with another record year in NBR, benefitting from investment in new capacity and ongoing growth in demand for hygiene products

- Functional Solutions EBITDA up 37%, helped by a stronger global position following the integration of OMNOVA and increased market diversity

- Industrial Specialities EBITDA up 73%, driven by the integration of the OMNOVA surfaces businesses

- Underlying operating profit up 50.7% at £189.6 million (2019: £125.8 million), IFRS operating profit £58.4 million (2019: £110.6 million)

- New product development remains strong at 22% (2019: 22%)

Free Cash Flow up 81% to £167.6 million, accelerating deleveraging and supporting a robust balance sheet

- Prudent and proactive actions taken at the onset of COVID-19 to preserve cash and liquidity

- Net debt reduced to £462.2 million, since the acquisition of OMNOVA, with proforma leverage of 1.8x

- Issued €520 million of 3.875% unsecured senior loan notes due 2025, providing committed long-term financing

OMNOVA integration ahead of schedule and synergy target increased to $40 million

- $40 million of run rate synergies expected by end of 2022 (vs investment case of $30 million)

- Delivered $30 million of run rate synergies by end of 2020

Good progress on Environment, Social and Governance ('ESG') targets:

- Delivering against three core ESG priorities: Carbon and Climate Change, Diversity and Inclusion, Sustainable Supply Chain Assurance

- 8.5% reduction of Scope 1 and 2 carbon emissions in enlarged Group in 2020

- Diversity and Inclusion targets introduced

Strategic review of European SBR network concluded

- Consultations with employees at Oulu (Finland) and Marl (Germany) completed with planned SBR capacity reduction projects for graphic paper applications in place for 2021

2020 final dividend proposal confirmed

- Final 2020 dividend of 8.6 pence in line with Group's dividend policy, (2019: nil pence)

Commenting on the results, Caroline Johnstone, Chair, said:

"Thanks to the dedication and hard work of our employees, and the differentiation and diversification of the business, Synthomer has delivered a strong performance in the face of COVID-19. We have produced record profits, de‑leveraged and are well funded for future growth. This performance is testament to the consistent delivery of our strategy and the investments we have made over the past five years.

Throughout 2020, all our sites continued to p roduce without any significant interruption and we delivered record volumes to our customers. Alongside this, the business successfully completed and integrated the largest acquisition in its history, largely on a remote basis. Our business model has proven resilient in the toughest of circumstances.

As we look to the future, the business is in a strong position. Whilst the Group will continue to adapt its operations in response to the ongoing COVID-19 pandemic, at this stage we expect no meaningful disruption. The Board is confident that the benefits of the OMNOVA acquisition, recent investment in new capacity, further efficiency measures and a proven strategy will underpin future growth. The current performance of our Performance Elastomers business, driven by exceptional demand for Nitrile latex as a consequence of the COVID-19 pandemic, may drive particularly strong one-off profitability in 2021, but we expect this to return to more normal levels as we move into 2022."

Further information:

Calum MacLean, Chief Executive Officer	Tel: 01279 436211
Stephen Bennett, Chief Financial Officer
Tim Hughes, President, Corporate Development
Charles Armitstead/ Matt Denham, Teneo	Tel: 07703 330 269 / 07825 735596

The Company will host an audiocast for analysts and investors at 09.00 today. To participate please register at www.synthomer.com , please visit the Investor Relations homepage and click on the webcast link provided to register.

Chair's statement

Thanks to the dedication and hard work of our employees, and the differentiation and diversification of the business, Synthomer has delivered a strong performance in the face of COVID-19. We have delivered record profits de‑leveraged and are well funded for future growth. This performance is testament to the strategy that we have been consistently executing and the investments that we have been making over the past five years.

Responding to the pandemic - in the interests of all stakeholders

As an essential industry we have been able to contribute to the pandemic response in a very direct way, continuing to make products critical to society such as our Nitrile latex, which is used in the production of medical protective gloves. We have maintained our supply chains across the world to flexibly meet the needs of our customers where COVID-19 has impacted demand. We have introduced risk assessed social distancing across our plants, laboratories and offices and deployed technology to allow our business to continue safely. On behalf of the Board I would like to thank every one of our employees who have all worked so hard to deliver Synthomer's significant progress in the most challenging conditions.

Like many other businesses, the pandemic presented difficult choices for management and the Board. We took the difficult decision not to recommend the payment of a final dividend for 2019, to significantly reduce capital expenditure and to suspend senior management/Board salary reviews, in order to protect the business and maintain Synthomer's strong liquidity, cash flow and financial position. We maintained a strong balance sheet throughout and closed the year with a return to target levels of leverage. The Group is well positioned to take full advantage of opportunities as we emerge from the immediate effects of the pandemic.

Due to the resilience and performance of the business, we reinstated a 2020 interim dividend. Before taking this decision, the Board agreed that £410,000 UK Government furlough support should be repaid in October 2020.

Integrating OMNOVA and strengthening the growth platform

With the acquisition of OMNOVA, which was completed on 1 April 2020, Synthomer extended its position as a global leader in water-based polymer solutions, strengthening our geographic platform, customer reach and operational network and capabilities. Synthomer welcomed 1,850 OMNOVA employees into the Group across 13 manufacturing sites in 6 countries.

We are focused on driving operational efficiencies, optimising our network and innovating for our 6,000 customers around the world. The speed of integration puts us in a strong position to invest in further growth, innovation and our people.

Embedding our Purpose, Values and Culture

Our purpose, which was refined in 2020, is to create innovative and sustainable polymer solutions for the benefit of customers and society. It is supported by our five values: Safety, Health and Environment (SHE), Accountability, Integrity, Teamwork and Innovation. The Board and Executive Committee has worked hard to engage all employees across the business to build alignment around our purpose, our values and policies and practices, which underpin our culture. There is a can-do and open culture in Synthomer and this is evident in all the people with whom the Board and I interact.

Committed to Sustainability

Sustainability is an increasing priority for Synthomer, stakeholders and the whole of society. Our water-based polymers allow markets to substitute higher carbon containing solvent-based products which also contain high levels of volatile organic compounds. This water-based substitution drives stronger growth in our business and allows customers to comply with stringent sustainability regulations.

Our focus on innovation allows us to introduce latest generation products and processes to meet customer requirements and drive our differentiation strategy. Our manufacturing excellence toolkit allows us to minimise the use of resources by optimising the efficiency of our global operations. We have a strong foundation in sustainability but there is more to do in driving the use of alternative raw materials from the most sustainable suppliers, completing our assessment of Scope 3 greenhouse gas emissions and minimising our carbon footprint to allow us to deliver a net zero position by 2050.

In 2020, we took significant action to drive the ongoing improvement in both our carbon footprint and our sustainable supply chain. The Board made a decision to end the use of coal for energy generation across the Group. The closure of the coal fired power station at our Sokolov (Czech Republic) site will be completed in 2021. The Group made a significant commitment to source renewable electricity across Europe and North America and is exploring further moves in Asia. These decisions are expected to remove over 100ktes of our 415ktes total Scope 1 and Scope 2 greenhouse gas emissions by the end of 2022.

Our latest 2022 ESG targets reflect the new enlarged Group and in 2021 we plan to introduce 2030 targets and evaluate the introduction of science-based targets. We are committed to reporting using the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and will produce our first disclosure in our next Annual Report.

Improving Diversity and Inclusion

Across our industry and at Synthomer, we must do better in developing diverse talent and bringing them through to senior leadership. We make better and more informed decisions when we have diversity right across our business and we will need this to continue to deliver our strategy, and to attract and retain the best talent. In Synthomer, the strategy of growth and sustainable innovation has clearly been attractive to graduates and other new recruits to the business; over the past 3 years, we have had over 50% female graduate recruits (85% in 2020). This will take time to come through to the very highest leadership roles of course, but we have a challenge to retain and develop more diverse senior leaders.

For senior management (Executive Committee and their reports) we have set a target of 20% gender diversity by the end of 2021, 25% by the end of 2022 and 33% by the end of 2025. For ethnicity we have set a target of having 20% senior management from a non-white background by the end of 2025.

At the end of 2020, the Synthomer Board comprised one third female Board membership and 11% non-white membership, in line with the Hampton-Alexander target and Parker Review recommendations. Whilst this represented a step forward in 2020, I recognise that we have more work to do, particularly in the Executive Committee and their direct reports on diversity.

Board changes bring complementary skills and diversity

In March 2020, Neil Johnson announced that he would be stepping down as Chair, at the end of his tenure. During that time, Synthomer has established itself as a leading global differentiated chemicals business and this was, in no small way, due to Neil's deft and careful leadership. On behalf of us all, I would like to thank him for the contribution he made and wish him the very best for the future. I was privileged to be chosen as the next Chair by the Board. I am mindful of the long heritage of the business and I recognise the responsibility to protect and develop it for future success.

I was delighted Cynthia Dubin joined the Board in July 2020 - Cynthia's industry, financial and banking experience complements other skills on the Board. She is already adding a different perspective to Board discussions.

In January 2021, Calum MacLean announced that, following 6 successful years, he intends to stand down as Chief Executive Officer of Synthomer by January 2022. I would like to thank Calum for everything that he has done to take Synthomer forward. His leadership and vision have transformed the business into a truly leading global diversified and differentiated chemicals company. The process to select a new Chief Executive Officer is well underway and will include both internal and external candidates.

Dividend

Following the reintroduction of the 2020 interim dividend the Board has recommended a final ordinary dividend of 8.6p (2019: nil p) per share. Taken with the 2020 interim ordinary dividend of 3.0p (2019: 4.0p) per share, the total ordinary dividend is 11.6p (2019: 4.0p). The total dividend for the year is in line with the Group's dividend policy with the dividend representing 40% of the Underlying earnings per share. The final dividend per share is subject to shareholder approval at the Annual General Meeting on 29 April 2021 and will be payable on 5 July 2021 to those shareholders registered at the close of business on 3 June 2021.

Caroline Johnstone
Chair
4 March 2021

Chief Executive Officer's review

Safety, Health and Environment (SHE)

Synthomer's success is directly related to the Group conducting its business in a safe and responsible way. Synthomer sets high standards in relation to SHE activities, which are supported by appropriate levels of investment, improvement initiatives and by rigorous supervision of the Group SHE team. Our performance against these standards is reported at each Executive Committee and Board meeting and we target consistent world class performance in our safety key performance indicators.

2020 has seen significant activity in two areas - firstly the integration of OMNOVA, including the introduction of Synthomer SHE standards and policies and secondly, the safe operation of all our facilities during COVID-19. Our global network of sites operated throughout the pandemic during which time they were defined as "essential industry". All our sites and offices were risk assessed and practices adopted to allow them to operate safely and effectively.

The acquisition of OMNOVA presented the opportunity to deploy our proven SHE techniques across our expanded network of 38 sites (OMNOVA added 13 sites to our 25 site Synthomer network). Intensive activity has seen Synthomer 'Golden Rules and Principles' introduced along with common methods of recording and reporting occupational, process and environmental results. Common ways of working are now fully introduced. OMNOVA sites have SHE key performance indicators results below that of legacy Synthomer sites and improvement plans are now in place to improve this performance.

In 2020 our legacy Synthomer three year rolling all injury rate saw a 65% reduction to 0.21 and our process safety rate saw a 60% reduction to 0.11 over the last three years, with long-term underlying rates reducing significantly over the past six years.

Business environment and performance

Synthomer employees have worked tirelessly in a hugely challenging environment to deliver the strong performance of 2020. Their determination to maintain and deliver products for the benefit of customers, society and the Company whilst continuing to work safely and with due consideration for others has been exceptional. I would like to thank each of them for all they have done in 2020.

At the outset of the pandemic, the Group took tough decisions early to manage the resulting uncertainty. We reduced capex to manage cash flows and preserve liquidity, whilst retaining our focus on SHE and key strategic growth projects. Our final 2019 dividend was cancelled, but 2020 dividends were reinstated at the earliest opportunity as the business delivered a strong and sustainable recovery in Q3 2020.

The Group's robust performance, despite the challenging conditions brought about by the pandemic, is testament to our differentiated portfolio of products serving diverse end markets across the globe. We continue to make strong progress in positioning the business to deliver on its strategy of driving long-term growth through organic and inorganic investment decisions.

Our strong performance in 2020 delivered a year of record Underlying profitability and Free Cash Flow. EBITDA increased by 46% to £259.4 million from £177.9 million in the prior year. Growth came from each of our core global divisions, Performance Elastomers, Functional Solutions, Industrial Specialities.

Performance Elastomers saw a 48% increase in EBITDA to £142.5 million as our Nitriles business continued to benefit from our significant investment in capacity and technology combined with the ongoing growth in demand for medical protective gloves due to the COVID-19 pandemic and the health and hygiene megatrend. This could lead to significant further growth in 2021, but with anticipated further market capacity additions, we expect this to normalise over the second half of 2021 and into 2022. We made significant progress to restructure our SBR business by improving plant utilisation and reducing its cost base, the benefits of which we expect to start to see in 2021.

Functional Solutions saw a 37% increase in EBITDA to £95.6 million as OMNOVA added 9 months of additional profitability and the underlying business continued to benefit from improved differentiation, superior mix and geographical growth.

Industrial Specialities saw a 73% increase in EBITDA to £41.2 million benefiting from 9 months of OMNOVA profitability and the resilience of this business in the face of weaker automotive markets, which were impacted due to COVID-19.

Free cash flow of £167.6 million (2019: £92.8 million) was strong, primarily reflecting the growth in profitability, tight working capital control including the benefits derived from OMNOVA being managed in line with Synthomer processes. The cash saving from proactively reducing capex to £53.8 million reflected the early decisions taken to mitigate the impact of COVID-19 and preserve cash. Capital spend was in line with post COVID-19 plans as we focused on our strategic Nitrile latex capacity growth project, the Asian Innovation Centre as well as our SHE and essential sustenance projects.

Our strong cash flow allowed us to reduce our closing net debt to £462.2 million and our leverage to 1.8x, within our target range of 1 to 2x. This performance was delivered one year ahead of our investment case for the acquisition of OMNOVA and is a sign of the underlying strength of the cash flow of the Group.

Inorganic growth - OMNOVA

We completed the £654 million acquisition of OMNOVA, a US listed speciality chemicals company on 1 April 2020. The transaction creates a truly global differentiated chemicals company with significant scale and a robust platform from which to invest and drive its sustainable growth strategy. As a result of this transaction, Synthomer has extended its position as the global leader in sustainable water-based polymer solutions. We have greater customer reach, improved market positions, stronger operational capabilities and superior innovation platforms. The strong strategic fit brings significant synergy potential which in turn will bring growth and additional stakeholder value.

The integration of the acquisition was completed successfully, ahead of schedule and with enhanced cost synergies. Integration took place during the pandemic and benefited from the preparation in place prior to completion, the strong cultural overlap between the businesses and the commitment of all of those involved. We now expect to deliver $40 million of recurring pre-tax cost synergies by April 2023 and have already delivered $30 million run rate synergies in 2020.

Synthomer successfully introduced a new global business structure in 2019 to better serve our customers, drive operational efficiencies and leverage our product portfolio globally. Due to the common chemistry and markets with OMNOVA, this structure will continue to operate unchanged with larger, lower cost global divisions providing the most efficient and effective structure to operate the integrated business. Synthomer will continue to utilise its proven best practice manufacturing and commercial excellence processes to drive productivity, reduce costs and accelerate revenue synergy opportunities across the enlarged Group.

Whilst our focus in 2021 remains fully embedding OMNOVA and delivering cost and revenue synergies, the Group will resume its disciplined approach to assessing bolt-on and transformational acquisition opportunities to drive further stakeholder value.

Organic growth - benefitting from growth capex and transformation programmes

Our strategy of sustainable growth is built on our strong geographic and end market diversity combined with efficient production of increasingly differentiated chemicals, characterised by high barriers to entry. Our market leading positions, focused innovation and global asset network provide the foundations for our organic growth strategy.

Our continued growth in 2020 came directly as a result of our growth capex programme between 2017 to 2019 and the commissioning of new low-cost capacity as a result of de-bottlenecking existing facilities in Performance Elastomers and Functional Solutions. In Performance Elastomers our £45 million investment in 90ktes Nitrile latex capacity expansion at Pasir Gudang (Malaysia) delivered improved market share to serve the high growth health and protection glove market. This asset was sold out from Q1 2020 due to the strong growth of this market accelerated by COVID-19. Whilst we reduced our capital investment programme in 2020 as a prudent measure due to the uncertainty of COVID-19, we maintained our planned investment to deliver an additional 60ktes at Pasir Gudang in Q4 2021. Synthomer is committed to supporting long-term growth in the Nitrile latex market through capacity expansion and innovation of market leading products such as our patented SyNovus® range.

The strategic review of our European SBR network was announced in Q4 2019 to address lower plant utilisation rates across our SBR assets resulting from slower economic activity and ongoing weaker demand for coated graphic paper. Good progress has been made during the year with the European SBR network review, the benefits of which will start to feed through in 2021 with the closure of the Oulu (Finland) site and the streamlining of our operation in Marl (Germany), rationalising the cost base and increasing the utilisation rates on the remaining assets in Marl, Filago (Italy) and Pischelsdorf (Austria).

The Group continues to focus on transformation and cost reduction programmes across our wider network. Against a backdrop of challenging market conditions, these self-help opportunities are key to the delivery of performance and the generation of long-term value. In addition to work across our SBR network, transformation projects to drive improved long-term profitability are underway in Kluang (Malaysia), Sokolov (Czech Republic), and Ribécourt (France). Our 'Mindset' non-manpower fixed cost reduction programme commenced in 2019 in Europe and will continue to be rolled out further in 2021 with the goal of minimising the impact of inflationary cost pressures.

Innovation

Innovation continues to be a core pillar of our growth strategy. It allows Synthomer to secure improved and differentiated market positions and provide solutions to generate added value for our customers. The acquisition of OMNOVA presented a significant opportunity to increase the innovation pipeline, strengthen the technology portfolio across wider markets and geographies and optimise the structure for innovation globally.

Under the leadership of our newly appointed Chief Technology Officer, Marshall Moore, who joined us from OMNOVA and now sits on the Executive Committee, the Group will focus on four global technology and innovation centres of excellence, with strong local application and technical service centres to ensure we can maximise our global yet local operating model.

New product development is a key KPI for our business measuring innovation and is a measure of the percentage of sales volume coming from products introduced in the past five years and patented products. For the enlarged Group this was 22%, in excess of our 20% target. The legacy OMNOVA and Synthomer businesses have comparable levels of innovation.

To further enhance our innovation facilities and drive greater efficiency and scale, we opened our state-of-the-art Asian Innovation Centre in Malaysia in Q3 2020. The new facility will bring additional space and allow us to build upon the accelerated time-to-market for new innovations that we have delivered in recent years.

Sustainability

We continue to operate to the highest standards in this area and benefit from our focus on water-based polymer solutions, innovation and manufacturing excellence and maintaining the highest levels of corporate governance. We are aware, however, that more needs to be done. In 2021, our priorities for ESG will be on our Carbon and Climate Change, Diversity and Inclusion and Sustainable Supply Chain Assurance.

The decision was taken to close the coal fired power station at Sokolov (Czech Republic). This action will eliminate the use of coal for power generation across the enlarged Synthomer Group. The decision, combined with the move to electricity sourcing from renewable sources in Europe and North America, will begin a material reduction in our Scope 1 and 2 greenhouse gas emissions.

Summary and outlook

In January 2021, I informed the Board that following 6 years at the Company I intend to stand down as CEO of Synthomer by January 2022. I believe Synthomer has become a truly leading global diversified and differentiated chemicals company with a strong culture and an experienced team capable of driving further strong growth. The business has delivered significant EBITDA growth since I joined in 2015 and with the largest acquisition in the history of the Group now fully integrated, all core parts of the business growing and our financial outlook strong, now is the right time to hand over to build on this exciting momentum. A comprehensive search process has been initiated by the Nomination Committee and I will remain with the business to oversee a seamless transition of responsibilities to my successor.

Calum MacLean

Chief Executive Officer

4 March 2021

Divisional - Underlying performance

Performance Elastomers

Highlights

· Record Nitrile latex volume underpinned by 90ktes capacity expansion in Pasir Gudang.

· Investment in new 60ktes Nitrile latex facility in progress, with capacity expected online Q4 2021.

· State-of-the-art Asian Innovation Centre investment completed Q3 2020.

· Challenging year in SBR latex with lower overall volumes and unit margin mainly driven by weakness of European graphic paper market, exacerbated by impact of COVID-19.

· SBR latex network review largely complete with clear plan to deliver required efficiencies.

	2020	2019	%	Constant currency¹ %

Volumes (ktes)	896.0	849.1	5.5
Revenue (£m)	680.3	623.7	9.1	9.5
EBITDA (£m)	142.5	96.3	48.0	50.8
Operating profit - Underlying performance (£m)	116.8	71.5	63.4	67.0
Operating profit - IFRS (£m)	80.8	71.2	13.5

¹ Constant currency revenue and profit measures retranslate current year results for legacy Synthomer using the prior year's average exchange rates. Results from businesses acquired in the year are not retranslated.

Overview

The Performance Elastomers Division delivered EBITDA of £142.5 million (2019: £96.3 million) and represented 51% of Synthomer's 2020 divisional EBITDA primarily focusing on the Healthcare, Paper, Carpet and Foam markets. In addition to its existing portfolio, the acquisition of OMNOVA has expanded the Division's scope to include the Performance Materials and Elastomeric Modifiers product lines. The Division continues to have its core chemistry platforms in Nitrile Butadiene Latex emulsion 'NBR' and Styrene Butadiene Latex emulsion 'SBR', as well as Powder NBR, Antioxidants and Speciality SBR for the tyre market. The Division produces 896ktes from its 12 plants operating in Europe, Middle East, South East Asia and China, as well as from shared assets with Functional Solutions in the US.

Financial results

2020 was an excellent year for Performance Elastomers setting a new EBITDA record and significantly ahead of 2019 driven by a strong NBR performance in Asia. This more than compensated for a weaker performance from SBR in Europe and the Performance Materials and Elastomeric Modifiers businesses from OMNOVA. Overall, EBITDA at £142.5 million was 48% above 2019, with Underlying Operating profit 63% higher at 116.8 million.

The impact of Covid-19 was felt across the Division but in two quite different ways. Following a sluggish Q1 the NBR business recovered strongly as the impact of the COVID-19 pandemic increased the demand for Nitrile latex gloves. With no new Synthomer capacity scheduled until JOB6 comes online at the end of 2021, volume improvements were delivered through filling the 90ktes JOB5 capacity and additional process improvements. With a surge in customer demand, and limited competitor capacity coming to the market, margins progressively increased throughout the remaining three quarters, partly reflecting a longer raw material market, ensuring the NBR business continued its track record of improvement with its third consecutive record year.

Conversely, the SBR business in Europe experienced the downside. The continuing overcapacity of XSBR latex was exacerbated by a COVID-19 driven decline in the demand for graphic paper. Demand dropped further from previous years and many customers faced enforced downtime while other mills closed and are unlikely to reopen. In addition, the drop in demand for Carpet and Foam during this period also contributed to a poor year for this business in Europe. Volumes showed a further reduction over 2019 with EBITDA similarly impacted. However, following the severe decline in the first half of 2020 the second half showed signs of recovery in Carpet and Foam and a slightly more stable environment in Paper.

The Performance Materials and Elastomeric Modifiers' business inherited from OMNOVA are exposed to the Automotive and Plastics markets which also experienced difficult trading conditions throughout the year. However, similar to SBR, there were some signs of recovery in the final quarter.

Special Items for the year were £36.0 million (2019: £0.3 million) which includes £20.9 million of restructuring and site closure costs for the rationalisation of the Group's European SBR network and the associated £14.7m impairment charge. The balance relates to amortisation of acquired intangibles. IFRS operating profit increased by 13.5% to £80.8 million.

NBR

With the impact of COVID-19 driving increased demand for NBR, and the plants running at nameplate capacity, we focused on product mix and process improvements. This allowed Pasir Gudang to set a number of new monthly production records during the year and Kluang also delivered consistently higher output. In total, the Malaysian plants increased volume by almost 16% in comparison to prior year underpinning the EBITDA delivery.

We also remained focused on the delivery of the 60ktes JOB6 project. The project remains on track with beneficial production expected before the end of December 2021.

The demand for Nitrile latex gloves has increased dramatically and while there will be an end to the surge in requirements as personal protective equipment stocks reach optimal levels, the underlying growth is forecast to remain in double digits for some time to come. Glove producers have continued to invest in additional global capacity, with China projecting significant capacity increases in addition to the prospect of new glove lines being set up in the US and Europe. However, based on current forecasts, South East Asia and particularly Malaysia will continue to be the major production location for Nitrile latex gloves well into the future. The Company believes it is well positioned to serve future market needs through its global network of plants. The next phase of capacity investments are currently being assessed and the outcome will be announced following the conclusion of this work during H1 2021.

SBR

2020 saw a continuation of the decline in demand for graphic paper SBR latex in Europe. The introduction of COVID-19 lockdowns across the region only increased the pressures in an already challenged market. It remains to be seen if the declines have now bottomed out, but overcapacity has put volumes and margins under sustained pressure.

Throughout the year the operation of the plants in Europe continued largely uninterrupted despite COVID-19, although production schedules were adjusted to match the lower demand.

In response to the continuing decline and overcapacity in the SBR market the Company announced a network review which was completed during the first half of 2020. As a result of the review, the Company engaged in a consultation process with employees in Oulu (Finland) and Marl (Germany). The outcome from these consultations sadly has been a decision to close the Oulu site. The plant will cease production in Q1 2021 with decommissioning and demolition completed by the end of 2021. In addition, the streamlining of our Marl (Germany) site has been agreed, which will allow the cost base to be rationalised and utilisation rates on the remaining assets in Marl, Filago (Italy) and Pischelsdorf (Austria) to be increased. The exact timing is to be confirmed subject to regulatory approvals for product transfer to the Pischelsdorf site.

While these were difficult decisions, they were unfortunately necessary to protect the longer-term viability of the SBR business in Europe. Protecting the employment of the remaining workforce and, ensuring a high quality service to our customers remains the key focus. The Company remains committed to the European SBR latex market and has taken these steps to more effectively align capacity with market demand.

Innovation

Innovation is core to Synthomer's Nitrile latex business and the Division has an exceptional track record in bringing new products to market, making it a major contributor to Synthomer's innovation KPI.

As the demand for customer technical service support and product innovation increased the existing technology centre in Kluang reached capacity. The Company response was to support a £6.5 million investment in a new Asian Innovation Centre in Kulai, equidistant between the Pasir Gudang and Kluang operations. This investment will build upon the successful first phase of the NBR latex capability upgrade and will support increased laboratory output and more critically replicate our customers dipping processes. In addition, we firmly believe the new state-of-the-art facility will enhance Synthomer as an attractive employer, and the ability to attract and retain high quality staff in a prime location. The project was finished in Q3 2020 with all employees transferred by the end of November.

OMNOVA integration and synergies

The acquisition of OMNOVA brought several new market segments and chemistries to the Division through the integration of the Performance Materials and Elastomeric Modifiers portfolio. With minimal product or regional overlap, the integration required the formation of two new geographically focused organisations, EUUS focused on the EMEA and the Americas regions and ASEAN, incorporating Asia, Australasia and the Indian sub-continent. These were created to give the business the right balance of market coverage and opportunity to exploit product market synergies where they existed. This new organisation is able to draw on skills and experience from both the legacy operations across the globe and has created a good platform for integration.

Functional Solutions

Highlights

· Successfully integrated OMNOVA:

- Functional Solutions global volumes increased by 21%.

- Expanded market leading positions in Europe, with increased presence and product portfolio, and now top 10 position in North America

- Established a manufacturing footprint in China.

· Resilient performance during 2020, with 80% of business feeling only limited impact from the Covid-19 pandemic.

· Delivered on cost synergy targets, which included the benefits from organisational re-alignment by merging two organisations.

· Delivering on new growth projects for Worms (Germany) and Roebuck (USA) sites, following 2018 and 2019 investments in differentiated acrylic dispersions capacity.

	2020	2019	%	Constant currency¹ %

Volumes (ktes)	591.2	487.4	21.3
Revenue (£m)	646.7	612.8	5.5	5.3
EBITDA (£m)	95.6	69.9	36.8	36.5
Operating profit - Underlying performance (£m)	69.1	52.3	32.1	31.7
Operating profit - IFRS (£m)	31.1	48.0	(35.2)

Overview

Functional Solutions saw a £25.7 million increase in EBITDA year-over-year to £95.6 million with 9 months of additional profitability from OMNOVA and a resilient legacy Synthomer performance. The business held up well during the COVID-19 pandemic, reflecting its diverse end markets, customer base and an increasingly differentiated product portfolio. The Division now produces 590ktes of products from its 17 plants operating in Europe, US, Middle East, South East Asia and China as well as from shared assets with Performance Elastomers and Acrylate Monomers.

Financial results

Functional Solutions EBITDA was increased by the acquisition of OMNOVA and by year-on-year growth of 3% in the legacy Synthomer businesses. Overall EBITDA of £95.6 million represented an increase of 37% over 2019.

Our Coatings, Adhesives and Surface Treatments (CAST) businesses exited the year trading ahead of 2019 year-end volumes, recovering strongly from the impact of Q2 lockdowns in our key markets. Our Coatings and Construction businesses returned to year-on-year growth in Q3. Benefitting from an increase in DIY demand in Europe, the business experienced double-digit volume growth in the region, whilst Construction showed annual global volume rises in all major chemistries.

Textiles experienced a slower turnaround in Q3, due to customer de-stocking in hygiene and a delayed recovery in automotive, before returning to year-on-year growth in Q4. Adhesives likewise returned to growth in Q4, driven by improvements in labels and speciality tapes, and strong mix delivered an increase in annual profits for the business as a whole.

Sharp falls in key raw material prices led to a temporary widening of CAST unit margins in Q2, before returning to more normal levels in H2, with prices showing upward trends as the year ended.

The acquired Oil & Gas business suffered from weak demand due to reduced drilling activity during the global downturn. However, a stable customer base and strong product range mean it is well positioned to benefit from improving market conditions, and it ended the year on an improving trend.

Special Items for the year were £38.0 million (2019: £4.3 million) which includes £20.9 million amortisation of acquired intangibles, the £6.6 million loss on disposal of Synthomer's European Tyre Cord business and a £3.3 million impairment charge taken against our Chonburi site. IFRS operating profit decreased by 35.2% to £31.1 million.

OMNOVA integration and synergies

Following the acquisition, the OMNOVA businesses of CAST (Coatings, Adhesives and Surface Treatment) as well as Oil & Gas, in total representing circa 70% of OMNOVA EBITDA, have been integrated into Functional Solutions. A new organisational structure was announced with a Functional Solutions leadership team consisting of leaders from both legacy organisations. Cost synergies are being delivered ahead of schedule and projects have been set up for further synergy delivery over the coming two years, as part of the Company commitment to deliver $40 million run-rate savings by the end of 2022. The commercial organisations of both legacy businesses were combined and harmonised with a rationalisation of channel partnerships ongoing. Similarly, the innovation pipelines of both businesses have been reviewed and strengthened by prioritising the best projects, benefiting from the increased combined know-how and product portfolio.

As an integrated business, Functional Solutions now has a substantially enhanced presence in North America, the size of which increased significantly with the addition of 5 production sites bringing the total numbers of Functional Solutions sites to 17. In Europe, the OMNOVA acquisition grew the business by 30% and in Asia by 28%. Capabilities were added in Textiles through OMNOVA's expertise in non-wovens and surface treatment, as well as through the addition of the Oil & Gas business.

The Oil & Gas business mainly focuses on the supply of additives applied in the drilling and cementing process, where it is the market leader. About two-thirds of this business relates to on-shore, with one third going to off-shore. Although the business clearly felt the impact of the COVID-19 downturn in 2020, it is well positioned to benefit from growth in 2021 and 2022.

In Coatings, Adhesives and Textiles, and to a lesser extent Construction, OMNOVA has brought a new range of products that are additive to the legacy portfolio. Aside from a limited number of direct product overlap, in the vast majority of cases the business merger means Functional Solutions has a broader set of offerings to present to its customers.

Strategy for the combined Functional Solutions Division

The Functional Solutions Division is now a global top 5 provider of water-based dispersions with leading positions in EMEA and with the ambition to become a top 3 player through further organic and inorganic growth. Functional Solutions aims to be the development partner of choice to our customers, focused on innovation and customer intimacy and responsiveness that sets it apart from its competitors. It focuses on the development of a sustainable solutions platform that responds to and anticipates regulatory trends and customer expectations. These goals are underpinned by four strategic pillars of Growth, Mix, Productivity and Enablers:

Growth is driven by the GDP+ markets in which it operates, with favourable megatrends and a drive to sustainability. Revenue synergies resulting from the combination of the two legacy businesses will provide further opportunity for growth during the coming years. Inorganic growth opportunities will also continue to be evaluated and pursued.

Mix improvement towards more differentiated and low cyclical offerings continues to be a priority, propelled by platform based innovation.

Productivity is the third pillar, aiming to be competitive against local players in each region and continent. Manufacturing Excellence is the vehicle driving ongoing improvement in this area. Best in class sourcing will continue to ensure highly competitive procurement of raw materials.

Enablers that underpin the above include the cultivation of the performance culture of the Division and the focus on our people, processes and tools.

Industrial Specialities

Highlights

· All businesses maintained strong niche positions in their selected speciality chemical markets

· The acquired OMNOVA Surfaces businesses are well placed in select end-markets in the US and Asia. Integration is progressing well, exceeding cost and operational synergy targets

· The speciality chemicals business volumes were impacted by COVID-19 in Q2 with a good recovery in H2 2020

· Investment in asset reliability delivered strong operational performance through increased utilisation and quality

	2020	2019	%	Constant currency¹ %

Volumes (ktes)	91.1	67.3	35.4
Revenue (£m)	264.9	157.9	67.8	67.3
EBITDA (£m)	41.2	23.8	73.1	72.7
Operating profit - Underlying performance (£m)	29.0	18.4	57.6	57.6
Operating profit - IFRS (£m)	18.8	14.3	31.5

Overview

The acquisition of OMNOVA has further diversified the Industrial Specialities portfolio of businesses both in terms of geography and end markets, and has resulted in a step-change in the size of the Division and its platform for growth. The enlarged Division EBITDA was £41.2 million (2019: £23.8 million). The Division produces over 91ktes of products from its 9 plants operating in Europe, US and South East Asia.

Financial results

The Industrial Specialities Division delivered a robust performance in markets significantly impacted by COVID-19. EBITDA in Industrial Specialities at £41.2 million was 73% higher than 2019, driven by 9 months of OMNOVA profitability and the resilience of the legacy Synthomer business in the face of weakened demand from end markets impacted by COVID-19. Despite the exposure to automotive markets in some parts of the Division, all businesses recorded stable unit margins during the year, in part due to improved product mix from higher sales of products with high performance properties in their customer processes.

The Vinyl Polymers business had a resilient year despite customer demand falling due to the impact of COVID-19, particularly in Q2. Targeted investment has enhanced plant reliability, delivering greater robustness in product supply and the ability to produce additional volumes from the plants. With the recovery of volumes through Q4, this places the business in a good position to support customers in the growing PVC market in 2021.

Despite the exposure of the Polybutadiene Lithene business to the automotive market, the business recorded a resilient year-on-year performance, recovering well from lower volumes which impacted performance in Q2 and Q3. Strong unit margins and product mix helped to offset the reduced volumes with significant volume recovery in Q4.

William Blythe delivered a flat performance year-on-year with underlying new product sales offsetting the segments adversely impacted by COVID-19 through the year. Growth in new and existing products is anticipated in 2021.

Our Speciality Additives business, which supplies speciality coatings, had a much improved performance with growth on prior year volumes, unit margins and market share. The business is targeting a number of new applications which should deliver growth in 2021 and beyond. The business also drove an aggressive cost improvement plan reducing site costs and costs associated with key raw materials.

The Powder Coating business was impacted in Q2 with falling volumes in automotive markets as a result of COVID-19. The business experienced a strong recovery in volumes during Q3, and was able to take advantage of additional volumes following a modest capacity expansion project in 2019. The business is well placed for further growth in sales volumes of our differentiated products during 2021.

The Coated Fabrics business experienced a temporary dip in demand in Q2 with some exposure to the Asian automotive and motorcycle markets. Like other businesses, the Thailand based operation experienced a strong recovery during Q3 and is well placed to deliver increased volumes into 2021.

Laminates & Films has grown significantly in 2020, partly due to the increased demand for products in the kitchen and bathroom and recreational vehicles segments during the COVID-19 period. The business has also achieved significant market share gains and continues to grow well ahead of market through substitution with superior performance and lower cost of Laminates & Films against traditional materials. The business also benefited from significant operational efficiency from the manufacturing plants, with record operational performance during the year. With momentum in the business gaining during the second half of 2020, the business is well placed to deliver another year of growth in 2021.

Special Items for the year were £10.2 million (2019: £4.1 million) which mostly relates to amortisation of acquired intangibles. IFRS operating profit increased by 31.5% to £18.8 million.

Value-gap contribution

2020 delivered the targeted improvement in the efficiency and performance of the asset base as measured by availability, volumes and a range of manufacturing KPIs. At Harlow (Vinyl Polymers), Stallingborough (Polybutadiene Lithene), and Accrington (William Blythe), the key focus has been on improving plant reliability which has manifested in significantly improved operational efficiency. De-bottlenecking and cycle time improvement work has realised increased capacity at both Gent (Speciality Additives) and William Blythe and the instantaneous rate improvement work from the expansion project in Sant'Albano (Powder Coatings) was also proven in 2020. Since acquisition, the Surfaces' plants, comprising Coated Fabrics and Laminates & Films, have been introduced to, and are now adopting the Group's manufacturing excellence programme which targets resources in value accretive activity.

Targeted innovation

Innovation is a key feature across all businesses within the Division. A good example is the sustained innovation in the highly innovative inorganics business, William Blythe which continues to develop a number of new products with strong IP. Recent successes have included the commercialisation of a new absorbent product for the gas processing industry, the development of high purity Graphene Oxide and also innovative doped Tungsten Oxide products for a wide range of market applications. Whilst product lead times can be long the business has a strong portfolio of new product families. In addition, the Laminates & Films business continues to successfully innovate in close partnership with its customers' product development teams to deliver customised designs and product solutions to the laminates industry.

Self-help initiatives

There was a significant focus on costs during 2019, as 'Mindset', our non-manpower fixed cost reduction programme was executed across a number of locations. The full year benefit of those initiatives have been realised in 2020 and in addition, to respond to the impact of COVID-19, additional variable and fixed cost reduction actions were taken in the year to further reduce the cost base.

Acrylate Monomers

Highlights

· Separation of Acrylate Monomers business from Industrial Specialities Division to provide greater management focus.

· Challenging market conditions with low margins for Acrylates across the industry.

· Sokolov site transformation programme launched in the year with good progress against key milestones.

· Decision taken to close the coal fired power station during 2021, eliminating coal fired power generation within the Group, and resulting in cost savings.

	2020	2019	%	Constant currency¹ %

Volumes (ktes)	59.9	61.9	(3.2)
Revenue (£m)	52.3	64.7	(19.2)	(17.8)
EBITDA (£m)	(2.4)	1.0	(340.0)	(350.0)
Operating profit - Underlying performance (£m)	(5.6)	(2.4)	133.3	137.5
Operating profit - IFRS (£m)	(26.3)	(3.0)	-

¹ Constant currency revenue and profit measures retranslate current year results for legacy Synthomer using the prior year's average exchange rates.

Overview

The Acrylate Monomers Division was established in early 2020 to separate the internal supply and external sales of manufactured monomers from the Industrial Specialities Division. The Division comprises the Monomers production plant based at Sokolov (Czech Republic) which it shares with the Functional Solutions dispersion business. The Monomers site manufactures and supplies products internally to our Functional Solutions Division as well as being a medium sized supplier to the European Acrylates market.

Financial results

The Acrylate Monomers Division had a challenging year impacted by COVID-19. Volumes reduced by 3.2% and oversupply in Europe and unfavourable feedstock prices led to weaker unit margins during Q4 2019, which continued throughout 2020.

While there has been some improvement in unit margins during Q4 2020, the unit margins continued to run at record historical lows. As a result of the challenging year and the low unit margins, the Group has recorded an impairment of £18.6 million against the value of the Division's plant assets. The impairment was taken to Special Items along with £2.1 million of restructuring costs in relation to the Sokolov site transformation. Special Items for the year were £20.7 million (2019: £0.6 million) and as a result, the IFRS operating loss increased to £26.3 million (2019: 3.0 million).

Self-help initiatives

A site transformation project was launched in 2020 with a clear plan to return the business to profitability. A significant component of the transformation project is the replacement of the coal fired utility plant with more modern, efficient, gas fired package boilers resulting in a significant reduction in headcount and variable cost savings.

In addition, a number of other headcount and cost savings opportunities were identified and implemented with the full year benefit to be realised in 2021. The cost savings also include lower cost procurement of key raw materials - essential for the ongoing viability of the business.

Chief Financial Officer's review

Highlights

· Strong EBITDA and Free Cash Flow growth in a challenging environment:

- EBITDA up 45.8% at £259.4 million.

- Free Cash Flow up 80.6% at £167.6 million.

· Significant step down in net debt to EBITDA leverage at 31 December 2020, at 1.8x relative to year end covenant of 4.25x.

· 31 December 2020 committed available liquidity at circa £600 million.

· €520 million 3.875% unsecured senior loan notes successfully issued in June 2020 underpinning committed financing facilities and long term capital structure.

· Strong progress on key strategic projects, including OMNOVA integration, European SBR network review and Nitrile latex capacity expansion.

Financial overview

	2020 m	2019 m
EBITDA
Performance Elastomers	142.5	96.3
Functional Solutions	95.6	69.9
Industrial Specialities	41.2	23.8
Acrylate Monomers	(2.4)	1.0
Corporate	(17.5)	(13.1)
Total EBITDA	259.4	177.9
Depreciation	(69.8)	(52.1)
Underlying finance costs	(29.6)	(9.6)
Underlying PBT	160.0	116.2
Special items	(139.7)	(15.7)
IFRS PBT	20.3	100.5
Free cash flow	167.6	92.8

Synthomer has delivered a strong set of results in a truly exceptional year characterised by the marked global economic impact of COVID-19, and completion of the acquisition of OMNOVA Solutions Inc, the largest acquisition in the Group's history.

In a year of almost unprecedented economic turmoil, Synthomer demonstrated resilience as a global differentiated chemicals company benefitting from widespread geographic and end market diversity, and enhanced by the further differentiation and diversification brought by the highly synergistic OMNOVA acquisition. The Group's legacy businesses started the year well with Q1 2020 EBITDA trading ahead of prior year and, although COVID-19 adversely impacted Q2, the enlarged Group EBITDA gradually improved during Q3 with all core divisions performing well and trading ahead of the comparative period in Q4 2020.

In this environment, Synthomer delivered strong progress reporting EBITDA of £259.4 million, 46% higher than 2019, reflecting significant EBITDA growth of £48.5 million in the legacy business and £33.0 million from the OMNOVA acquisition, including the integration synergies delivering higher benefits in a shorter period of time.

Our Performance Elastomers Division reported a significant increase in profitability rising 48% to £142.5 million, largely borne out of the incremental JOB5 Nitrile latex capacity running at full capacity during 2020, and the marked increase in Nitrile latex margins initially benefitting from lower raw material prices at the onset of COVID-19 and subsequently as demand for Nitrile latex tightened. Investment in the further 60ktes of capacity at Pasir Gudang (Malaysia) is progressing and commissioning is expected in Q4 2021.

Good progress has been made during the year with the European SBR network review, the benefits of which will start to feed through in 2021 with the closure of the Oulu (Finland) site and the streamlining of our operation in Marl (Germany), rationalising the cost base and increasing the utilisation rates on the remaining assets in Marl, Filago (Italy) and Pischelsdorf (Austria). Most of our SBR business saw some improvement in trading performance in Q4 2020 relative to the comparative period, albeit our paper business continued to be challenged, not helped by the continuing impact of COVID-19. Consistent with the outcome of the network review, impairment and restructuring charges have been recorded within Special Items and are more fully described later in this report.

The addition of OMNOVA principally benefitted our Functional Solutions and Industrial Specialities Divisions, with these divisions reporting EBITDA of £95.6 million and £41.2 million, some 37% and 73% higher than the prior year, also a significant step up in profitability in a difficult economic environment. Further growth is expected in 2021 with the addition of a full year's results for OMNOVA, continued synergy delivery, a return to more normal economic activity levels particularly in relation to our Oil & Gas business which felt the brunt of the impact of COVID-19, and filling capacity invested in during 2018 and 2019.

Acrylate Monomers, separately reported for the first time in 2020 and previously included in Industrial Specialities, produces monomers at our Sokolov (Czech Republic) site for internal consumption and external supply to its European hinterland and was adversely impacted by COVID-19 which brought monomer margins under pressure as the supply demand balance changed. The site is undergoing a site transformation programme, benefitting both our Acrylate Monomers and Functional Solutions assets on the site, including the closure of the coal fired power station. In line with the site transformation programme and the current lower profitability of the Acrylate Monomers Division, impairment and restructuring charges have been recorded in Special Items and are more fully described later in this report.

Corporate expenses have increased to £17.5 million (2019: £13.1 million) mainly reflecting the corporate expenses associated with the OMNOVA acquisition and higher variable remuneration costs associated with the delivery of a strong performance in 2020.

Special Items

	2020 £m	2019 £m
Amortisation of acquired intangibles	(30.9)	(8.7)
Restructuring and site closure costs	(42.5)	(0.8)
Acquisition costs and related gains	(14.6)	(9.2)
Impairment charge	(36.6)	-
Sale of business	(6.6)	-
Foreign exchange gain on rights issue	-	3.5
Total impact on operating profit	(131.2)	(15.2)
Fair value loss on unhedged interest derivatives	(3.6)	(0.5)
Loss on extinguishment of financing facilities	(4.9)	-
Total impact on profit before tax	(139.7)	(15.7)
Tax Special Items	4.9	-
Taxation on Special Items	10.7	1.4
Total impact on profit for the year	(124.1)	(14.3)

The following items of income and expense have been reported as Special Items:

· Amortisation of acquired intangibles increased during the year reflecting the acquisition of OMNOVA Solutions Inc which resulted in an amortisation charge of £22.6 million for the 9 month period since acquisition on 1 April 2020. The fair value of the intangible assets arising on the acquisition of OMNOVA amounting to £330.1 million are being amortised over a period of 9 - 11 years mainly dependent on the characteristics of the customer relationships.

· Restructuring and site closure costs in 2020 comprise £19.5 million for integration of OMNOVA, £20.9 million for the rationalisation of the Group's European SBR network and £2.1 million to rationalise the Acrylate Monomers site. OMNOVA integration costs were required to deliver the acquisition synergies and mainly relate to employee severance costs. Restructuring costs in the legacy Synthomer business again mainly relate to employee severance costs. In 2019 the costs related to the reorganisation of the Group into global business segments.

· Acquisition costs and related gains relate to the acquisition of OMNOVA and comprise £20.0 million of costs, mainly professional adviser fees, and the £3.3 million impact of unwinding the fair value adjustment on acquisition of inventory. This was offset by a gain of £8.7 million on a foreign exchange derivative entered into in July 2019 to hedge the acquisition price. Acquisition costs in 2019 also relate to the acquisition of OMNOVA.

· A £36.6 million impairment charge was taken in the year, relating to four sites. Following the strategic review of our European SBR network we have impaired fixed assets by £9.2 million in our Oulu site and £5.5 million in Marl. Unfavourable feedstock prices and continued oversupply in Europe, partly reflecting the impact of COVID-19, led to a £18.6 million impairment charge in relation to the Acrylate Monomers site in Sokolov. Reduction in demand for solvent-based products manufactured in our Chonburi site led to a £3.3m impairment charge.

· Sale of business related to the disposal of Synthomer's European Tyre Cord business, which was a requirement of the European Commission Competition Authority in order to obtain clearance for the acquisition of OMNOVA. The disposal was completed on 1 May 2020 and the terms of the disposal agreement resulted in a loss on disposal of £6.6 million.

· Foreign exchange gain on rights issue represents a gain made on a forward contract which was entered into to swap the proceeds of the Sterling rights issue into Euro in order to pay down part of the Group's Euro borrowings in July 2019.

· In July 2018 the Group entered into swap arrangements to fix Euro interest rates on the full value of the then €440 million committed unsecured revolving credit facility. The fair value of the unhedged interest rate derivatives relates to the mark-to-market of the swap at 31 December 2020 in excess of the Group's current borrowings.

· Following the Group's successful refinancing in April 2020, capitalised debt costs relating to the 2018 refinancing and the 2019 bridge to bond were written off, leading to a loss on extinguishment of £4.9 million.

· A current tax charge arose in Malaysia from a disputed assessment from the Malaysian Tax Authorities regarding the tax treatment of the sale of plantation land from 2007 to 2017. This is offset by a current tax credit in relation to the closure of 2001 to 2003 open tax years in the UK by HMRC.

Acquisition of OMNOVA

On 1 April 2020, the Group completed the acquisition of OMNOVA Solutions Inc by acquiring all of the share capital and repaying their financing for a cash outflow of £587.6 million, net of cash acquired.

In accordance with IFRS, the assets and liabilities have been recorded at fair value at the date of acquisition with the balance of consideration recorded as goodwill. KPMG LLP were engaged to advise on the fair value of the Property, Plant and Equipment (PPE) and Intangible assets. The value of PPE was increased by £12.0 million to £190.2 million.

The most significant intangible assets identified were customer relationships. Accordingly, on acquisition the Group recognised goodwill and acquired intangibles in relation to the OMNOVA business of £180.2 million and £330.1 million respectively.

Net working capital of £32.1 million was acquired, offset by a retirement benefit obligation of £89.8 million. Acquired borrowings of £273.6 million were repaid as part of the acquisition refinancing.

The estimation of the fair value of the assets and liabilities is provisional, and this is planned to be finalised by 31 March 2021.

Finance costs

	2020 m	2019 m
Net interest payable	(24.3)	(5.8)
Net interest expense on defined benefit obligation	(3.7)	(2.7)
Interest element of lease payments	(1.6)	(1.1)
Underlying finance costs	(29.6)	(9.6)
Fair value loss on unhedged interest derivatives	(3.6)	(0.5)
Loss on extinguishment of financing facilities	(4.9)	-
Total finance costs	38.1	10.1

Underlying finance costs increased to £29.6 million (2019: £9.6 million), mainly reflecting the interest on the borrowings relating to the OMNOVA acquisition from 1 April 2020.

The finance costs reflect the interest on the €460 million committed unsecured 5 year revolving credit facility, the $260 million committed unsecured 5 year term loan, the €520 million committed unsecured bridge, refinanced in June 2020 with the 5 year €520 million 3.875% unsecured senior loan notes, the associated debt amortisation costs, and the IAS 19 pensions interest costs in respect of our defined benefit pension schemes.

The charge for the fair value loss on unhedged interest derivatives has increased to £3.6 million (2019: £0.5 million) as a result of lower drawn amounts under the RCF, and the changes in the fair value between 31 December 2019 and 2020.

Taxation

The Group's effective tax rate is impacted by the tax impact of Special Items. It is therefore helpful to consider the Underlying and Special Items affecting tax rates separately:

• The effective tax rate on Underlying profit before tax for the year increased to 23.4% (2019: 14.0%) due to the previously announced end of the Group's Malaysian pioneer status in February 2020. The impact of COVID-19 on the geographical mix of profits also increased the proportion of profits generated in Malaysia.

• The effective tax rate for Special Items was 11.2% (2019: 8.9%) and was driven by deferred tax credits on the amortisation of acquired intangibles and restructuring and site closure costs and a current tax charge in relation to historical tax issues in the UK and Malaysia. A current tax charge arose in Malaysia from a disputed assessment from the Malaysian Tax Authorities regarding the tax treatment of the sale of plantation land from 2007 to 2017. This is offset by a current tax credit in relation to the closure of 2001 to 2003 open tax years in the UK by HMRC.

Non-controlling interest

The Group continues to hold 70% of Revertex (Malaysia) Sdn Bhd and its subsidiaries. These entities form a relatively minor part of the Group and hence the impact on Underlying performance from non-controlling interests is not significant.

Earnings per share

Earnings per share is calculated based on the average number of shares in issue during the year. The weighted average number of shares for 2020 was 424,843,000 (2019: 393,349,000), this being the first full year following the one for four rights issue in July 2019.

Underlying earnings per share for the year is 28.9pence, an increase of 14.2% relative for 2019, and the IFRS earnings per share is 0.7pence (2019: 21.5pence). The increase in Underlying earnings per share reflects the increase in Underlying profit before tax as offset by the rise in the effective tax rate and the increase in the weighted average number of shares as set out above.

Balance sheet

Net assets of the Group decreased by 6.3% to £628.1 million mainly reflecting the £21.6 million net translation effect of foreign exchange on operating assets denominated in foreign currency, actuarial losses of £7.6 million and the interim dividend of £15.9 million.

Capital expenditure

Capital expenditure in the year was £53.8 million for the enlarged Group, including OMNOVA for the 9 months to 31 December 2020, relative to £69.1 million for the legacy Synthomer business for the year ended 31 December 2019. The marked reduction in capital expenditure reflects the proactive decision taken by the Board at the onset of COVID-19 to manage capital expenditure lower to preserve cash, liquidity and balance sheet strength. Investment continued to be made in the critical growth projects for the Group, including the JOB6 Nitrile latex expansion at Pasir Gudang (Malaysia), and in SHE and sustenance activities underpinning the ongoing safe and reliable operation of the Group's assets.

The Group invested a further £12.2 million in its Pathway business transformation programme in the year. This investment remains as an intangible asset under construction.

Provisions

As a result of the restructuring and site closure costs set out above, the restructuring provision has increased to £29.6 million (2019: £6.9 million).

The closing balance includes £5.9 million and £13.4 million in relation to the rationalisation of the Group's European SBR network in Oulu and Marl respectively and £5.7 million in relation to the onerous contract arising on the disposal of the European Tyre Cord business.

Retirement benefit plans

The Group's principal funded defined benefit pension schemes are in the UK and now following the acquisition of OMNOVA, the US and both are closed to new entrants and future accrual. The Group also operates an unfunded scheme in Germany and various other defined contribution overseas retirement benefit arrangements.

The Group's net retirement benefit obligation increased to £221.4 million at 31 December 2020 (31 December 2019: £140.0 million). The increase is principally attributable to the inclusion of OMNOVA obligations which at 31 December 2020 contributed £68.0 million to the Group's net retirement benefit obligation, and a further reduction in the valuation discount rates.

The trustees of the UK scheme have agreed that the Group will continue to fund the deficit recovery plan in line with the previously agreed recovery plan. Funding in the current year was £16.5 million (2019: £16.2 million). The next triennial valuation of the UK scheme will be undertaken in 2021, and a revised deficit recovery plan will be agreed with the trustees at the conclusion of the valuation.

Cash performance

The Group's primary focus is on managing net debt rather than on cash. The following table summarises the movement in net debt and is in the format used by management:

	2020 £m	2019 £m
Opening net cash/(debt)	20.7	(214.0)

Underlying operating profit (excl joint ventures)	188.4	124.9
Movement in working capital	23.5	18.5
Depreciation of property, plant and equipment	64.9	50.7
Amortisation of other intangible assets	4.9	1.4
Share-based payments charge	2.0	0.6
Capital expenditure	(53.8)	(69.1)
Business cash flow	229.9	127.0
Net interest paid	(14.0)	(7.2)
Tax paid	(31.4)	(11.1)
Pension funding	(18.8)	(17.5)
Dividends received from joint ventures	1.9	1.6
Free Cash Flow	167.6	92.8
Cash impact of restructuring and site closure costs	(25.3)	(4.4)
Cash impact of acquisition costs	(7.4)	(7.5)
Cash impact of foreign exchange gain on rights issue	-	3.5
Acquisition costs and purchase of business	(587.6)	-
Sale of business	0.1	-
Rights issue proceeds	-	199.1
Repayment of principal portion of lease liabilities	(9.7)	(6.8)
Dividends paid	(12.8)	(47.9)
Dividends paid to non-controlling interests	(3.1)	(0.6)
Foreign exchange and other movements	(4.7)	6.5
Movement in net debt	(482.9)	234.7
Opening net cash/(debt)	20.7	(214.0)
Closing net (debt)/cash	(462.2)	20.7

At 31 December 2020, the Group had net debt of £462.2 million compared to net cash of £20.7 million at 31 December 2019. The increase in the level of debt is due to the acquisition of OMNOVA as offset by the strong Free Cash Flow generation during 2020.

Underlying operating profit increased by £63.5 million to £188.4 million and the addition of OMNOVA increased the depreciation and amortisation of other intangibles charge by £17.7 million to £69.8 million.

Capital expenditure was reduced to £53.8 million following the proactive measures taken by the Board to preserve cash and liquidity at the onset of COVID-19 in March 2020, and lower raw material prices led to a £23.5 million cash inflow on working capital (2019: inflow of £18.5 million).

Interest paid increased to £14.0 million reflecting a part of the interest charge on the borrowings relating to the acquisition of OMNOVA.

Tax paid increased by £20.3 million to £31.4 million due to tax repayments of £4.8 million received in 2019, higher profitability in 2020 and the end of the Malaysian pioneer status in February 2020, resulting in a higher overall effective tax rate and cash tax cost for the Group.

The cash impact of Special Items was £25.3 million for restructuring costs and net £7.4 million for acquisition costs which comprised £20.1 million of costs offset by a £12.7 million cash gain on deal contingent foreign exchange contracts.

The cash outflow for the purchase of OMNOVA was £587.6 million net of cash acquired, as more fully set out in note 8 to the financial statements.

Repayment of lease liabilities increased to £9.7 million due to the addition of OMNOVA.

Dividends reduced in the year due to suspension and subsequent cancellation of the 2019 final dividend to preserve cash, liquidity and balance sheet strength at the onset of COVID-19 in March 2020.

Financing and liquidity

In July 2019, in preparation for the acquisition of OMNOVA, the Group refinanced its €440 million revolving credit facility with financing conditional on the completion of the acquisition. At the same time the Group put in place deal contingent foreign exchange contracts to deliver $480 million at a fixed rate to Euro at completion of the acquisition to hedge the acquisition purchase price currency exposure. At completion these contracts reduced the amount of Euro borrowed to finance the acquisition relative to the spot foreign currency rates on 1 April 2020, by £12.7 million and the gain was recognised in Special Items in 2019 (£4.0 million) and 2020 (£8.7 million).

Upon completion of the OMNOVA acquisition on 1 April 2020, the Group's new facilities were drawn. These comprised a $260 million term loan and a €520 million acquisition financing bridging facility, both of which were fully drawn, and the €460 million revolving credit facility which was partially drawn. Subsequently, on 25 June 2020, the €520 million acquisition financing bridging facility was repaid with the proceeds of the 5 year €520 million 3.875% unsecured senior loan notes. The committed unsecured term loan and the revolving credit facility have terms ending July 2024.

The Group now has committed unsecured borrowing facilities comprising the $260 million term loan, €460 million revolving credit facility and the 5 year €520 million 3.875% unsecured senior loan notes, and accordingly has committed borrowing facilities of approximately £1,100 million through until July 2024. At 31 December 2020, the Group's net borrowings were £462.2 million and therefore the Group had approximately £600 million of liquidity.

The borrowing facilities are subject to one Net Debt to EBITDA leverage ratio maintenance covenant measured at 30 June and 31 December each year. At 31 December 2020 the Group's leverage ratio was 1.8x, well within the leverage ratio covenant of 4.25x at 31 December 2020 and well within the leverage covenant of 4.0x for the year to 31 December 2021.

Stephen Bennett

Chief Financial Officer

4 March 2021

Consolidated income statement

for the year ended 31 December 2020

		2020						2019
	Underlying performance			Special Items		IFRS		Underlying performance	Special Items	IFRS
			£m		£m		£m	£m	£m	£m

Revenue			1,644.2		-		1,644.2	1,459.1	-	1,459.1

Company and subsidiaries before Special Items			188.4		-		188.4	124.9	-	124.9
Amortisation of acquired intangibles			-		(30.9)		(30.9)	-	(8.7)	(8.7)
Restructuring and site closure costs			-		(42.5)		(42.5)	-	(0.8)	(0.8)
Acquisition costs and related gains			-		(14.6)		(14.6)	-	(9.2)	(9.2)
Impairment charge			-		(36.6)		(36.6)	-	-	-
Sale of business			-		(6.6)		(6.6)	-	-	-
Foreign exchange gain on rights issue			-		-		-	-	3.5	3.5
Company and subsidiaries			188.4		(131.2)		57.2	124.9	(15.2)	109.7
Share of joint ventures			1.2		-		1.2	0.9	-	0.9
Operating profit/(loss)			189.6		(131.2)		58.4	125.8	(15.2)	110.6

Interest payable			(25.5)		-		(25.5)	(6.7)	-	(6.7)
Interest receivable			1.2		-		1.2	0.9	-	0.9
Fair value loss on unhedged interest derivatives			-		(3.6)		(3.6)	-	(0.5)	(0.5)
Loss on extinguishment of financing facilities			-		(4.9)		(4.9)	-	-	-
			(24.3)		(8.5)		(32.8)	(5.8)	(0.5)	(6.3)
Net interest expense on defined benefit obligations			(3.7)		-		(3.7)	(2.7)	-	(2.7)
Interest element of lease payments			(1.6)		-		(1.6)	(1.1)	-	(1.1)
Finance costs			(29.6)		(8.5)		(38.1)	(9.6)	(0.5)	(10.1)

Profit/(loss) before taxation			160.0		(139.7)		20.3	116.2	(15.7)	100.5
Taxation			(37.4)		15.6		(21.8)	(16.3)	1.4	(14.9)
Profit/(loss) for the year			122.6		(124.1)		(1.5)	99.9	(14.3)	85.6

(Loss)/profit attributable to non-controlling interests			(0.3)		(4.3)		(4.6)	0.4	0.6	1.0
Profit/(loss) attributable to equity holders of the parent			122.9		(119.8)		3.1	99.5	(14.9)	84.6
			122.6		(124.1)		(1.5)	99.9	(14.3)	85.6

Earnings/(loss) per share
Basic			28.9p		(28.2)p		0.7p	25.3p	(3.8)p	21.5p
Diluted			28.8p		(28.1)p		0.7p	25.2p	(3.8)p	21.4p

Consolidated statement of comprehensive income

for the year ended 31 December 2020

	2020			2019
	Equity holders of the parent	Non-controlling interests	Total	Equity holders of the parent	Non-controlling interests	Total
	£m	£m	£m	£m	£m	£m

Profit/(loss) for the year	3.1	(4.6)	(1.5)	84.6	1.0	85.6

Actuarial losses	(7.6)	-	(7.6)	(27.2)	-	(27.2)
Tax relating to components of other comprehensive income	3.5	-	3.5	4.7	-	4.7
Total items that will not be reclassified to profit or loss	(4.1)	-	(4.1)	(22.5)	-	(22.5)

Exchange differences on translation of foreign operations	(37.5)	(0.3)	(37.8)	(15.3)	(0.4)	(15.7)
Fair value loss on hedged interest derivatives	(0.8)	-	(0.8)	(8.7)	-	(8.7)
Gain/(loss) on net investment hedge taken to equity	15.9	-	15.9	(1.9)	-	(1.9)
Total items that may be reclassified subsequently to profit or loss	(22.4)	(0.3)	(22.7)	(25.9)	(0.4)	(26.3)

Other comprehensive expense for the year	(26.5)	(0.3)	(26.8)	(48.4)	(0.4)	(48.8)
Total comprehensive (expense)/income for the year	(23.4)	(4.9)	(28.3)	36.2	0.6	36.8

Consolidated statement of changes in equity

for the year ended 31 December 2020

	Share capital	Share premium	Capital redemption reserve	Hedging and translation reserve	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m

At 1 January 2020	42.5	421.1	0.9	(19.5)	204.4	649.4	21.1	670.5
Profit/(loss) for the year	-	-	-	-	3.1	3.1	(4.6)	(1.5)
Other comprehensive expense for the year	-	-	-	(22.4)	(4.1)	(26.5)	(0.3)	(26.8)
Total comprehensive expense for the year	-	-	-	(22.4)	(1.0)	(23.4)	(4.9)	(28.3)
Dividends	-	-	-	-	(12.8)	(12.8)	(3.1)	(15.9)
Share-based payments	-	-	-	-	1.8	1.8	-	1.8
At 31 December 2020	42.5	421.1	0.9	(41.9)	192.4	615.0	13.1	628.1

	Share capital	Share premium	Capital redemption reserve	Hedging and translation reserve	Retained earnings	Total	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m

At 1 January 2019	34.0	230.5	0.9	6.4	192.1	463.9	21.1	485.0
Profit for the year	-	-	-	-	84.6	84.6	1.0	85.6
Other comprehensive expense for the year	-	-	-	(25.9)	(22.5)	(48.4)	(0.4)	(48.8)
Total comprehensive (expense)/income for the year	-	-	-	(25.9)	62.1	36.2	0.6	36.8
Dividends	-	-	-	-	(47.9)	(47.9)	(0.6)	(48.5)
Issue of shares	8.5	190.6	-	-	-	199.1	-	199.1
Share-based payments	-	-	-	-	(1.9)	(1.9)	-	(1.9)
At 31 December 2019	42.5	421.1	0.9	(19.5)	204.4	649.4	21.1	670.5

Consolidated balance sheet

as at 31 December 2020

	2020	2019
	£m	£m
Non-current assets
Goodwill	493.4	324.4
Acquired intangible assets	341.0	56.8
Other intangible assets	36.6	22.0
Property, plant and equipment	521.8	404.9
Deferred tax assets	23.8	22.8
Investment in joint ventures	6.6	7.5
Total non-current assets	1,423.2	838.4

Current assets
Inventories	170.3	121.9
Trade and other receivables	262.4	190.6
Cash and cash equivalents	201.8	103.6
Derivative financial instruments	1.4	4.9
Total current assets	635.9	421.0
Total assets	2,059.1	1,259.4

Current liabilities
Borrowings	(20.1)	-
Trade and other payables	(334.1)	(232.9)
Lease liabilities	(10.6)	(7.5)
Current tax liabilities	(58.5)	(38.7)
Provisions for other liabilities and charges	(25.7)	(4.9)
Derivatives financial instruments	(19.4)	(14.3)
Total current liabilities	(468.4)	(298.3)

Non-current liabilities
Borrowings	(643.9)	(82.9)
Trade and other payables	(3.7)	(0.5)
Lease liabilities	(44.4)	(34.4)
Deferred tax liabilities	(43.3)	(30.8)
Retirement benefit obligations	(221.4)	(140.0)
Provisions for other liabilities and charges	(5.9)	(2.0)
Total non-current liabilities	(962.6)	(290.6)
Total liabilities	(1,431.0)	(588.9)

Net assets	628.1	670.5

Equity
Share capital	42.5	42.5
Share premium	421.1	421.1
Capital redemption reserve	0.9	0.9
Hedging and translation reserve	(41.9)	(19.5)
Retained earnings	192.4	204.4
Equity attributable to equity holders of the parent	615.0	649.4
Non-controlling interests	13.1	21.1
Total equity	628.1	670.5

The financial statements were approved by the Board of Directors and authorised for issue on 4 March 2021.

Consolidated cash flow statement

for the year ended 31 December 2020

	2020		2019
	£m	£m	£m	£m
Operating
Cash generated from operations		232.2		170.2
Interest received	1.2		0.9
Interest paid	(13.6)		(7.0)
Interest element of lease payments	(1.6)		(1.1)
Net interest paid		(14.0)		(7.2)
UK corporation tax paid	-		-
Overseas corporate tax paid	(31.4)		(11.1)
Total tax paid		(31.4)		(11.1)
Net cash inflow from operating activities		186.8		151.9

Investing
Dividends received from joint ventures		1.9		1.6
Purchase of property, plant and equipment and intangible assets	(53.8)		(69.1)
Sale of property, plant and equipment	-		0.3
Net capital expenditure		(53.8)		(68.8)
Purchase of business		(314.0)		-
Proceeds from sale of business		0.1		-
Net cash outflow from investing activities		(365.8)		(67.2)

Financing
Dividends paid		(12.8)		(47.9)
Dividends paid to non-controlling interests		(3.1)		(0.6)
Proceeds on issue of shares		-		199.1
Settlement of equity-settled share-based payments		(0.2)		(2.5)
Repayment of principal portion of lease liabilities		(9.7)		(6.8)
Repayment of borrowings		(718.3)		(216.3)
Repayment of borrowings on acquisition		(273.6)		-
Proceeds of borrowings		1,290.9		15.0
Net cash inflow/(outflow) from financing activities		273.2		(60.0)
Increase in cash, cash equivalents and bank overdrafts during the year		94.2		24.7

Cash, cash equivalents and bank overdrafts at 1 January		103.6		76.2
Foreign exchange and other movements		(6.5)		2.7
Cash, cash equivalents and bank overdrafts at 31 December		191.3		103.6

Reconciliation of net cash flow from operating activities to movement in net debt

	2020	2019
	£m	£m

Net cash inflow from operating activities	186.8	151.9
Add back: dividends received from joint ventures	1.9	1.6
Less: net capital expenditure	(53.8)	(68.8)
Less: purchase of business	(587.6)	-
Add back: proceeds from sale of business	0.1	-
	(452.6)	84.7

Ordinary dividends paid	(12.8)	(47.9)
Dividends paid to non-controlling interests	(3.1)	(0.6)
Proceeds on issue of shares	-	199.1
Settlement of equity-settled share-based payments	(0.2)	(2.5)
Repayment for principal portion of lease liabilities	(9.7)	(6.8)
Foreign exchange and other movements	(4.5)	8.7
(Increase)/decrease in net debt	(482.9)	234.7

Notes to the financial statements

1. Special Items

IFRS and Underlying performance

The IFRS profit measures show the performance of the Group as a whole and as such include all sources of income and expense, including both one-off items and those that do not relate to the Group's ongoing businesses. To provide additional clarity on the ongoing trading performance of the Group's businesses, management uses 'Underlying' performance as an alternative performance measure to plan for, control and assess the performance of the segments. Underlying performance differs from the IFRS measures as it excludes Special Items.

Special Items

The definition of Special Items is shown in note 9 and has been consistently applied. These Special Items are either irregular, and therefore including them in the assessment of a segment's performance would lead to a distortion of trends, or are technical adjustments which ensure the Group's financial statements are in compliance with IFRS but do not reflect the operating performance of a segment in the year, or both. An example of the latter is the amortisation of acquired intangibles, which principally relates to acquired customer relationships. The Group incurs costs, which are recognised as an expense in the income statement, in maintaining these customer relationships. The Group considers that the exclusion of the amortisation charge on acquired intangibles from Underlying performance avoids the potential double counting of such costs and therefore excludes it as a Special Item from Underlying performance.

Special Items comprise:

	2020	2019
	£m	£m
Special Items
Amortisation of acquired intangibles	(30.9)	(8.7)
Restructuring and site closure costs	(42.5)	(0.8)
Acquisition costs and related gains	(14.6)	(9.2)
Impairment charge	(36.6)	-
Sale of business	(6.6)	-
Foreign exchange gain on rights issue	-	3.5
Operating loss	(131.2)	(15.2)
Finance costs
Fair value loss on unhedged interest derivatives	(3.6)	(0.5)
Loss on extinguishment of financing facilities	(4.9)	-
Loss before taxation	(139.7)	(15.7)
Tax Special Items	4.9	-
Taxation on Special Items	10.7	1.4
Loss for the year	(124.1)	(14.3)

The following items of income and expense have been reported as Special Items:

· Amortisation of acquired intangibles increased during the year reflecting the acquisition of OMNOVA Solutions Inc which resulted in an amortisation charge of £22.6 million for the 9 month period since acquisition on 1 April 2020. The fair value of the intangible assets arising on the acquisition of OMNOVA amounting to £330.1 million is being amortised over a period of 9 - 11 years mainly dependent on the characteristics of the customer relationships.

2. Segmental analysis

The Group's Executive Committee, chaired by the Chief Executive Officer, examines the Group's performance.

With the acquisition of OMNOVA the Group has reassessed how the business will be managed going forwards. The Group's Acrylate Monomers Division, which was previously managed and reported within the Industrial Specialities Division has been identified as a separate segment by the Group's Executive Committee. A new management structure has been implemented and management information for Acrylate Monomers is now reported separately to the Executive Committee. The Group's reportable segments are:

Performance Elastomers

Performance Elastomers is focused on healthcare, paper, carpet, compounds and foam markets through our Nitrile Butadiene Rubber latex (NBR) and Styrene Butadiene Rubber latex (SBR) products and also includes the Performance Materials and Elastomeric Modifiers businesses.

Functional Solutions

Functional Solutions is focused on coatings, construction, adhesives and technical textiles markets through our acrylic and vinylic water-based dispersions products.

Industrial Specialities

Industrial Specialities is focused on speciality chemical additives and non-water-based chemistry for a broad range of applications from polymer additives to emerging materials and technologies, and also includes the Laminates & Films and Coated Fabrics businesses.

Acrylate Monomers

Acrylate Monomers is focused on the production of acrylate monomers which are sold to external customers in European markets as well as our European Functional Solutions dispersions business.

The Group's Executive Committee is the chief operating decision maker and primarily uses a measure of earnings before interest, tax, depreciation and amortisation (EBITDA) to assess the performance of the operating segments. No information is provided to the Group's Executive Committee at the segment level concerning interest income, interest expense, income tax or other material non-cash items.

No single customer accounts for more than 10% of the Group's revenue.

A segmental analysis of Underlying performance and Special Items is shown below.

	2020
	Performance Elastomers		Functional Solutions		Industrial Specialities		Acrylate Monomers		Corporate	Total
	£m		£m		£m		£m		£m	£m
Revenue
Total Revenue	680.3		646.7		264.9		64.4		-	1,656.3
Inter-segmental revenue	-		-		-		(12.1)		-	(12.1)
	680.3		646.7		264.9		52.3		-	1,644.2

EBITDA	142.5		95.6		41.2		(2.4)		(17.5)	259.4
Depreciation and amortisation - Underlying performance	(25.7)		(26.5)		(12.2)		(3.2)		(2.2)	(69.8)
Operating profit/(loss) - Underlying performance	116.8		69.1		29.0		(5.6)		(19.7)	189.6
Special Items	(36.0)		(38.0)		(10.2)		(20.7)		(26.3)	(131.2)
Operating profit/(loss) - IFRS	80.8		31.1		18.8		(26.3)		(46.0)	58.4
Finance costs										(38.1)
Profit before taxation										20.3
	2019
	Performance Elastomers	Functional Solutions		Industrial Specialities (restated)		Acrylate Monomers (restated)		Corporate			Total
	£m	£m		£m		£m		£m			£m
Revenue
Total Revenue	623.7	612.8		157.9		70.9		-			1,465.3
Inter-segmental revenue	-	-		-		(6.2)		-			(6.2)
	623.7	612.8		157.9		64.7		-			1,459.1

EBITDA	96.3	69.9		23.8		1.0		(13.1)			177.9
Depreciation and amortisation - Underlying performance	(24.8)	(17.6)		(5.4)		(3.4)		(0.9)			(52.1)
Operating profit/(loss) - Underlying performance	71.5	52.3		18.4		(2.4)		(14.0)			125.8
Special Items	(0.3)	(4.3)		(4.1)		(0.6)		(5.9)			(15.2)
Operating profit/(loss) - IFRS	71.2	48.0		14.3		(3.0)		(19.9)			110.6
Finance costs											(10.1)
Profit before taxation											100.5

3. Reconciliation of operating profit to cash generated from operations

	2020	2019
	£m	£m

Operating profit	58.4	110.6
Less: share of profit of joint ventures	(1.2)	(0.9)
	57.2	109.7

Adjustments for:
Depreciation of property, plant and equipment	54.0	43.4
Depreciation of right of use assets	10.9	7.3
Amortisation of other intangibles	4.9	1.4
Share-based payments	2.0	0.6
Special Items	131.2	15.2
Cash impact of restructuring and site closure costs	(25.3)	(4.4)
Cash impact of acquisition costs and related gains	(7.4)	(7.5)
Cash impact of foreign exchange gain on rights issue	-	3.5
Pension funding in excess of service cost	(18.8)	(17.5)
Movement in working capital	23.5	18.5
Cash generated from operations	232.2	170.2

Reconciliation of movement in working capital
Decrease in inventories	17.1	15.0
Decrease in trade and other receivables	19.1	34.3
(Decrease) in trade and other payables	(12.7)	(30.8)

Movement in working capital	23.5	18.5

4. Dividends

	2020		2019
	Pence per share	£m	Pence per share	£m

Interim dividend	3.0p	12.8	4.0p	17.0
Proposed final dividend	8.6p	36.6	-	-
	11.6p	49.4	4.0p	17.0

The proposed final 2019 dividend was suspended and subsequently cancelled to preserve cash, liquidity and balance sheet strength at the onset of COVID-19 in March 2020.

5. Earnings per share

		2020			2019
		Underlying performance	Special Items	IFRS	Underlying performance	Special Items	Total
Earnings
Profit/(loss) attributable to equity holders of the parent	£m	122.9	(119.8)	3.1	99.5	(14.9)	84.6

Number of shares
Weighted average number of ordinary shares - basic	'000			424,843			393,349
Effect of dilutive potential ordinary shares	'000			2,505			2,109
Weighted average number of ordinary shares - diluted	'000			427,348			395,458

Earnings per share
Basic earnings per share	p	28.9	(28.2)	0.7	25.3	(3.8)	21.5
Diluted earnings per share	P	28.8	(28.1)	0.7	25.2	(3.8)	21.4

6. Finance costs

	2020	2019
	£m	£m
Interest payable on bank loans and overdrafts	25.5	6.7
Less: interest receivable	(1.2)	(0.9)
	24.3	5.8
Net interest expense on defined benefit obligation	3.7	2.7
Interest element of lease payments	1.6	1.1
Underlying finance costs	29.6	9.6
Fair value loss on unhedged interest derivatives	3.6	0.5
Loss on extinguishment of financing facilities	4.9	-
Total finance costs	38.1	10.1

7. Analysis of net debt

	1 January 2020	Cash inflows/ (outflows)	Exchange and other movements	31 December 2020
	£m	£m	£m	£m
Bank overdrafts	-	(10.4)	(0.1)	(10.5)
Current bank borrowings	-	-	(9.6)	(9.6)
Current borrowings	-	(10.4)	(9.7)	(20.1)

Non-current bank borrowings	(82.9)	(109.6)	6.3	(186.2)
€520m 3.875% senior unsecured loan notes due 2025	-	(463.0)	5.3	(457.7)
Non-current borrowings	(82.9)	(572.6)	11.6	(643.9)
Total borrowings	(82.9)	(583.0)	1.9	(664.0)

Cash and cash equivalents	103.6	104.6	(6.4)	201.8

Net cash/(debt)	20.7	(478.4)	(4.5)	(462.2)

Net debt is defined in the glossary of terms in note 9.

8. Acquisition of OMNOVA Solutions Inc

On 1 April 2020, the Group completed its acquisition of 100 per cent of the issued share capital of OMNOVA Solutions Inc at a price of $10.15 per share for a total consideration of £382.3 million.

The asset identification and fair value allocation processes are currently under review. Accordingly, at the date of this report it is only practicable to disclose the provisional fair values of the acquired assets, liabilities, contingent liabilities and goodwill.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out below.

		£m

Identifiable intangible assets		330.1
Property, plant and equipment		190.2
Other non-current assets		48.9
Inventory		70.3
Trade and other receivables		81.1
Cash and cash equivalents		68.3
Borrowings		(273.6)
Trade and other payables		(119.3)
Lease liabilities		(21.7)
Retirement benefit obligations		(89.8)
Other non-current liabilities		(82.4)

Provisional fair value of net assets acquired		202.1

Goodwill		180.2

Total consideration		382.3

Satisfied by:
Cash		382.3
Total consideration transferred		382.3

Net cash outflow arising on acquisition:
Cash consideration		382.3
Less: cash and cash equivalent balances acquired		(68.3)
Cash flow from investing activities		314.0
Settlement of external financing of OMNOVA Solutions Inc		273.6

		587.6

The goodwill arising on the acquisition of the business represents the premium the Group paid to acquire OMNOVA Solutions Inc which complements the existing business, strengthening Synthomer's presence in North America and increasing its presence in Europe and Asia.

In the period from acquisition to 31 December 2020 the business contributed £343.0 million to the Group's revenue, £33.0 million of the Group's EBITDA, £17.6 million to the Group's Underlying operating profit and a loss of £7.7 million to the Group's IFRS operating profit.

If the acquisition had been completed on the first day of the financial year the business would have contributed £475.2 million to the Group's revenue, £46.1 million of the Group's EBITDA, £25.2 million to the Group's Underlying operating profit and a loss of £0.1 million to the Group's IFRS operating profit.

9. Glossary of terms

EBITDA	EBITDA is calculated as operating profit from continuing operations before depreciation, amortisation and Special Items.
Operating profit	Operating profit represents profit from continuing activities before finance costs and taxation.
Special Items	Special Items are irregular items, whose inclusion could lead to a distortion of trends, or technical adjustments which ensure the Group's financial statements are in compliance with IFRS, but do not reflect the operating performance of the segment in the year, or both. These include the following, inter alia, which are disclosed separately as Special Items in order to provide a clearer indication of the Group's Underlying performance: · Restructure and site closure costs; · Sale of a business or significant asset; · Acquisition costs; · Amortisation of acquired intangible assets; · Impairment of non-current assets; · Fair value adjustments in respect of derivative financial instruments where hedge accounting is not applied; · Items of income and expense that are considered material, either by their size and/or nature; · Tax impact of above items; and · Settlement of prior period tax issues.
Underlying performance	This represents the statutory performance of the Group under IFRS, excluding Special Items.
Free Cash Flow	The movement in net debt before financing activities, foreign exchange and the cash impact of Special Items, asset disposals and business combinations.
Net debt	Net debt represents cash and cash equivalents less short- and long-term borrowings.
Leverage	Net debt divided by EBITDA. The Group's financial covenants are calculated using the accounting standards adopted by the Group at 31 December 2018 and accordingly, leverage excludes the impact of IFRS 16 Leases.
Ktes	Kilotonnes or 1,000 tonnes (metric).

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