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Building
sustainable
growth
Synthomer plc
Annual Report 2017
Synthomer is a specialist chemical
company and one of the world’s
leading suppliers of aqueous polymers.
We produce innovative formulations to
support customers in a range of industries
from construction and coatings to healthcare.
4-9
Why Synthomer?
Key pillars of our strategy
20-23
Strategy in action
How we delivered against our strategic
objectives in 2017
26-31
Segmental review
Building sustainable growth in 2017
Strategic report
Highlights
1
2
Our business at a glance
4 Why Synthomer?
10 Chairman’s statement
12 Chief Executive Officer’s review
14 Our market review
16 Business model
18 Strategy at a glance
20 Strategy in action
24 Key performance indicators
26 Segmental reviews
32 Risk management
34 Principal risks and uncertainties
38 Chief Financial Officer’s review
44 Sustainability
Letter from the Chairman
Governance
56
58 Board of Directors
60 Corporate governance
65 Audit Committee report
69 Nomination Committee report
70 Directors’ Remuneration report
85 Report of the Directors
88 Statement of Directors’ responsibilities
Group financial statements
Independent auditors’ report
89
95 Consolidated income statement
95 Consolidated statement of
comprehensive income
96 Consolidated statement of changes in equity
97 Consolidated balance sheet
98 Consolidated cash flow statement
98 Reconciliation of net cash flow from operating
activities to movement in net borrowings
99 Notes to the consolidated financial statements
Company financial statements
138 Statement of financial position
139 Company statement of changes in equity
140 Notes to the Company financial statements
Other information
150 Five year financial summary
151 Glossary of terms
IBC Advisers
Highlights
Building sustainable growth
Commercial highlights
• Sustainable growth in profitability in line with expectations:
– Bolt-on acquisition of the BASF Austrian SBR business
– Organic growth, contribution from acquisitions and
foreign currency translation gains, more than offset
the expected softening of Nitrile latex margins.
• Europe and North America (ENA) momentum
underpinned by volume and margin improvement:
– Underlying operating profit at £117.1m increased
25.5% (2016: £93.3m) due to volume and margin
growth, the acquisition of Oxo Belgium (‘Speciality
Additives’) and foreign currency translation gains.
– IFRS operating profit at £77.5m increased 2.8%
(2016: £75.4m).
and assets in Pischelsdorf, Austria (‘BASF Pischelsdorf’).
The €29.3m acquisition enhances Synthomer’s SBR
business and production network for paper/packaging
applications and completed on 31 January 2018.
• Record capital investment growth programme:
– Capital investment increased to £60.3m (2016: £45.6m)
in the year in line with guidance.
– Significant capacity expansion projects underway at Pasir
Gudang (Malaysia), Worms (Germany) and Roebuck (US)
adding 90ktes of Nitrile latex, and 36ktes and 9ktes of
Dispersions capacity respectively.
• Asia and Rest of the World (ARW) in line with
• R&D driving innovation:
expectations in challenging market environment:
– Underlying operating profit lower by 27.9% at £35.1m
(2016: £48.7m) mainly driven by expected lower unit
margin in Nitrile latex.
– The demand for Nitrile latex continues to grow at 8-10%
pa, with market demand exceeding 1,000ktes in 2017
– IFRS operating profit down 61.6% to £31.2m
(2016: £81.3m) principally reflecting significant
income from land sales in 2016.
• M&A activity:
– 2016 PAC (Dispersions) acquisition fully integrated and in line
to deliver expected $12m run rate synergy savings at the end
of 2018, and a likely further $2m saving by end of 2019.
– Acquisition and integration of Speciality Additives, a
market leading performance additives business serving
the decorative and industrial coatings industries, for an
enterprise value of €78m in March 2017.
– Launch of patented SyNovus®, the next generation
Nitrile latex.
– Products launched in last five years represented 20%
of sales in line with our target (2016: 20%).
• Another year of strong cash generation:
– Cash generated from operations grew 3.6% to £162.6m
(2016: £157.0m).
• Earnings per share:
– Underlying earnings per share for the year rose 8.5%
to 30.7p (2016: 28.3p) and on an IFRS basis earnings
per share declined 32.9% to 21.8p (2016: 32.5p).
• Dividend:
– Full year dividend increased by 8.0% to 12.2p per share
in line with dividend policy (2016: 11.3p per share).
Financial highlights
Volume (ktes)
Revenue (£m)
EBITDA (£m)
Operating Profit (£m)
Profit before tax (£m)
Earnings per share (p)
Ordinary dividends per share (p)
Net Borrowings (£m)
Underlying
IFRS
2017
2016
2017
2016
1,443.8
1,480.2
1,324.9
1,045.7
176.2
139.0
130.0
30.7
12.2
180.5
160.1
130.2
122.2
28.3
11.3
150.3
1,443.8
1,480.2
176.2
95.4
86.4
21.8
12.2
180.5
1,324.9
1,045.7
160.1
144.7
136.7
32.5
11.3
150.3
Underlying Statement
The Group’s management uses Underlying performance to plan for, control and assess the performance of the Group. Underlying performance differs from the statutory
IFRS performance as it excludes the effect of Special Items, which are detailed in note 3. The Board’s view is that Underlying performance provides additional clarity for
the Group’s investors and so it is the primary focus of the Group’s narrative reporting. Where appropriate, IFRS performance inclusive of Special Items is also described.
References to ‘unit margin’ and ‘margin’ are used in the commentary on Underlying performance. Unit margin (or margin) is calculated on selling price less variable raw
material and logistics costs. Further explanations can be found in notes 4, 5 and 6.
Synthomer plc Annual Report 2017
1
Strategic report Our business at a glance
Building sustainable growth
Employees
2,879
Countries
18
Manufacturing sites
25
Innovation centres
4
Our global reach
Highlights
Volume by market
Europe and North
America (ENA)
Volumes
1,067.7ktes
2016: 936.7ktes
Revenue
Underlying operating profit
£1,134.9m
£117.1m
2016: £746.1m
2016: £93.3m
EBITDA
IFRS operating profit
£140.9m
2016: £111.2m
£77.5m
2016: £75.4m
Read more on pages 26-28
Asia and Rest of
the World (ARW)
Volumes
376.1ktes
2016: 388.2ktes
Revenue
Underlying operating profit
£345.3m
2016: £299.6m
£35.1m
2016: £48.7m
EBITDA
£48.2m
2016: £60.4m
IFRS operating profit
£31.2m
2016: £81.3m
Read more on pages 29-31
7
1
6
5
2
4
3
1 Paper
2 Carpet & Foam
23.6%
14.6%
3 Construction & Coating 21.1%
4 Functional Polymers
17.3%
5 Health & Protection
6 Specialities
7 Other
1.8%
20.9%
0.7%
67
2
1
3
4
5
1 Paper
2 Carpet & Foam
0.0%
1.3%
3 Construction & Coating 28.4%
4 Functional Polymers
5 Health & Protection
6 Specialities
7 Other
2.1%
65.9%
1.1%
1.2%
2
Synthomer plc Annual Report 2017
Synthomer is one of the world’s major suppliers of
aqueous polymers with leadership positions in many
markets including coatings, construction, textiles,
paper and synthetic latex gloves. With the acquisition
in 2017 of the Speciality Additives business and in
2018 of the BASF Pischelsdorf business, Synthomer
continues to grow its global manufacturing network
and introduce new products, geographical strength
and capacity to support future growth.
The Company has its operational headquarters in
London, UK, and provides customer focused services
from regional Innovation centres in Harlow (UK); Marl
(Germany); Kluang (Malaysia) and Roebuck (USA).
Revenue by product
Major Investments
4
1 2
3
1 NBR
2 SBR
3 Specialities
4 Dispersions
2.2%
39.6%
30.4%
27.8%
1
4
3
2
1 NBR
2 SBR
3 Specialities
4 Dispersions
61.0%
2.7%
16.5%
19.8%
Europe
Acquisition and integration of Speciality
Additives, a niche performance additives
business serving the decorative and
industrial coatings industries with strong
market leadership positions (#1 or #2)
and serving a highly attractive, blue-chip
customer base.
Acquisition of the BASF Pischelsdorf SBR
business which enhances our current
business and production network
in high growth paper/packaging
applications as well as increasing
the Group’s access to attractive
new opportunities across Europe.
€20m investment at our Worms (Germany)
site to build two new make-to-order
speciality acrylic lines that will meet the
highest green and clean standards and to
address the pressure sensitive adhesives
and speciality coatings markets in Europe.
Due into production in early 2019.
North America
A new $16m acrylic reactor line is
being constructed at Roebuck (USA)
to secure access to the North American
performance and construction adhesives
markets and is due for commissioning
in Q1 2019.
We are currently evaluating the opportunity
to invest in a new state-of-the-art
Innovation Centre in the region.
Asia
Ongoing construction of 90ktes capacity
expansion at Pasir Gudang for Nitrile latex
representing an increase of 40% of our
current capacity. Nitrile latex continues to
be a rapidly growing market. Completion is
scheduled for Q4 2018.
SyNovus®, a patented next generation
Nitrile latex innovation was developed
and launched in 18 months. The product’s
unique qualities address key customer
requirements around manufacturing
efficiency, odour, colour and chemical
resistance.
Synthomer plc Annual Report 2017
3
Strategic report R&D employees
186
Why Synthomer?
Innovative solutions
that create and
sustain value
We recognise the importance of innovation to our success
and that of our customers. Our team is embedded within the
business and with customers to ensure that we can provide
solutions that deliver value where it matters.
£18.3m
spend on R&D
4
Synthomer plc Annual Report 2017
New products
as % of revenue for
the last two years
20%
Significant
patented product
launch of SyNovus®
in 2017
Harlow
(UK)
Kluang
(Malaysia)
Four
Innovation
Centres
Board approval
to evaluate a state-of-
the-art Innovation
Centre in Asia
Marl
(Germany)
Roebuck
(USA)
Synthomer plc Annual Report 2017
5
Strategic report Why Synthomer?
PAC (Dispersions)
June 2016
Strategic M&A
Our experienced management team has completed
three acquisitions over the last two years which
have expanded Synthomer’s global reach and
strengthened its leadership in key markets.
We diligently assess whether each acquisition
opportunity is a strategic fit for the Group and do not
pursue the targets where our criteria are not met.
The Group continues to actively assess both
transformational and bolt-on acquisition opportunities
in parallel with growing the business organically.
BASF Pischelsdorf
January 2018
Speciality Additives
March 2017
6
Synthomer plc Annual Report 2017
Manufacturing sites
25
Sales office
Operational head office
Manufacturing site
Manufacturing site
and R&D centre
Countries
18
Synthomer plc Annual Report 2017
7
Strategic report Why Synthomer?
A robust
financial position
Three years of Underlying profit growth delivering positive
cash inflows from operating activities which have
allowed us to invest in strategic M&A and capital
investment to drive sustainable growth.
Clear and prudent capital management policy
including leverage and returns to shareholders.
Sustainable
Net debt: EBITDA
1-2x
Ordinary
dividend cover
2.5x
8
Synthomer plc Annual Report 2017
Debt headroom
of £172m and cash
balances of £90m
allowing further investment
in strategic M&A and
growth capital
investment
Net Debt to
EBITDA ratio:
at 31 December
1.0x
Synthomer plc Annual Report 2017
9
Strategic report Chairman’s statement
A strong platform to
build sustainable growth
Neil Johnson
Chairman
Governance highlights
+ Full compliance with applicable UK Corporate
Governance Code
+ Positive feedback on externally facilitated
evaluation of Board and Committees
+ Review and approval of Modern Slavery Act
statement and tax strategy
+ Well prepared for forthcoming governance
changes
Results
Following consecutive years of strong profits growth in 2015 and
2016, I am pleased to report that Synthomer has made further
progress in 2017. Consistent with our expectations, the improved
Underlying profitability of the Group has been delivered, with
incremental profits from our focused M&A activity in 2016 and 2017
and continued organic growth from our investment in our Europe
and North America (ENA) segment more than compensating for the
reduced, but stable, Nitrile latex margins in our Asia and Rest of the
World (ROW) segment. Volumes were higher by 9% to 1,443.8ktes
(2016: 1,324.9ktes) with the increase reflecting a combination of
underlying growth and additional volumes from Oxo Belgium
(Speciality Additives), which was fully integrated during 2017.
Acquisitions helped Group revenue to increase by 42% to a record
£1,480.2m (2016: £1,045.7m), further supported by higher average
raw material prices and favourable currency translation.
Underlying profit before tax increased from £122.2m to £130.0m, an
increase of 6.4% and 3.0% on a constant currency basis. The rise in
Underlying profit before tax reflects underlying volume and margin
growth, the contribution made by Speciality Additives and the
depreciation in Sterling. IFRS profit before tax decreased from
£136.7m to £86.4m mainly as a result of one-off items of income
in 2016 including the profits on the Malaysian land sales (£33.2m).
Our balance sheet is strong with net debt at 1.0 times EBITDA which
allows us significant flexibility to pursue our growth strategy through
capital investment and strategic acquisitions.
Ongoing capital investment programme
We continue to focus on organic growth and see significant
opportunities to drive growth from our existing businesses. To
strengthen our platform for future growth, we initiated a step change
in our capital investment programme in 2016 with significant plant
expansions at our ARW Pasir Gudang (Malaysia) Nitrile latex plant,
and our ENA Worms (Germany) Dispersions plant. The Board is
pleased to see that these investment programmes are progressing
safely, in line with plans, and will be commissioned and brought up
to normal operating levels later in 2018 and early 2019 respectively.
We have made further capital commitments to expand our
capabilities in Sant’Albano (Italy), Marl (Germany) and Oulu (Finland)
and these investments will also come online in late 2018 and early
2019. As well as growth capital investment, the Group has invested
in sustenance and SHE related capital expenditure to ensure we are
both operating our plants safely and in accordance with evolving
legislation.
M&A and integration activity
Acquisitions also remain a key component of our growth strategy.
During the year, we announced two further bolt-ons: Speciality
Additives, which became part of the Group in March 2017, and
BASF Pischelsdorf which was agreed in September 2017 and
completed in January 2018. These bolt-on acquisitions significantly
complement our existing business. Speciality Additives has strong
market positions which we will leverage into our existing coatings
customer base. The Pischelsdorf site expands our SBR asset and
customer base, and will provide further options for our network
optimisation in an SBR market characterised by over-capacity.
Speciality Additives was successfully integrated into the Group
during the year and we are executing the well planned integration
of BASF Pischelsdorf. Following the acquisition of the Pischelsdorf
site, Synthomer has secured its position as market leader in
European aqueous polymers, another milestone for our business.
Our active search continues for a transformational speciality
chemical company acquisition and we considered a number of
options in 2017. However, we have stringent criteria and we will
continue to be disciplined in our approach in terms of quality,
strategic fit, opportunity and price.
Following our acquisition of the PAC (Dispersions) business in 2016,
integration is substantially complete. The actions that we have taken
during 2017 mean that we will not only deliver the $12m run rate
of synergies at the end of 2018 but are looking to deliver a further
$2m in 2019. As part of this integration, we disposed of one plant
in Leuna (Germany) and are engaged in restructuring our Ribécourt
site (France).
Governance and Board
We were once again in full compliance with the UK Corporate
Governance Code throughout 2017. Our 2017 AGM resolutions
received overwhelming support and we were particularly pleased
to achieve greater than 99% of votes in favour of our new
remuneration policy.
The Board composition remained unchanged until the end of the
year when Jinya Chen retired after five years’ service. I would like to
thank Jinya for his commitment and contribution over that period.
The Nomination Committee has initiated a search for a replacement
independent non-executive director in order to bring the Board
composition back into balance.
An externally facilitated evaluation of the Board and its Committees
was carried out in 2017 with the feedback recognising good
progress in the ongoing programme to improve Board effectiveness.
As we enter 2018, I believe the Board is well positioned to adapt to
the changes in the corporate governance landscape envisaged by
the new Code proposals currently under consultation and likely to
be effective in 2019.
Our people
We now have approximately 2,900 employees in the Group, spread
across 29 manufacturing sites and offices, with 40 joining as part
of the Speciality Additives acquisition. As a Board, we have visited
recently acquired sites over the last year and are delighted to see
how our new colleagues have adapted to our values and culture,
as well as bringing new skills into the Group.
The Group has reported record Underlying profitability in a
challenging and demanding market place and the Board and
Executive team recognise the contribution made by all employees.
Our drive for growth remains unchanged and on behalf of the
Board, I would like to thank each and every employee for their
commitment this year.
Safety, health and environment (SHE)
The nature of our industry involves significant hazards and as
such our high safety, health and environmental standards are
fundamental to what we do across the business. We are pleased
to report that we have recorded our lowest ever level of recordable
injuries (lower than 2016 by 56%).
We are committed to reducing our recordable injuries to zero and
as part of our continuous improvement drive to achieve this we made
the embedding of the SHE Principles and 10 Golden Rules, launched
in 2016, a priority for 2017. There was a focus on systems linked to
permit to work and management of change with the aim of eliminating
work being carried out in a way or in an environment which could
result in a safety incident. New indicators were developed to track
and analyse progress, with specific focus on live monitoring of
permit controlled work and control of high hazard activities.
Notwithstanding the considerable improvement delivered in 2017,
we are not complacent, and remain absolutely resolute in our
campaign for continuous and sustainable improvement.
Dividend
The Board has proposed an increase to the final ordinary dividend
per share to 8.5p (2016: 7.8p), resulting in a total dividend per share
for the year of 12.2p (2016: 11.3p). This is in line with the Group’s
dividend policy of a dividend covered 2.5 times by Underlying
earnings per share. The final dividend per share is subject to
shareholder approval at the Annual General Meeting on 26 April
2018 and will be payable on 6 July 2018 to those shareholders
registered at the close of business on 8 June 2018.
The Board is committed to generating attractive growth for
shareholders through investing in the Group’s significant organic
and inorganic growth plans to secure its future progress and the
Capital Management Policy of the Group remains unchanged. The
Board periodically assesses the balance sheet strength in light of
these growth plans, and will consider returning excess capital to
shareholders, if appropriate.
Outlook
Looking forward, whilst acknowledging the ongoing challenges
in our Nitrile latex and constructions and coatings Dispersions
markets, we are confident of making further solid progress in 2018,
underpinned by underlying growth in both segments, and from
integrating our recent acquisitions.
With our significant organic investment in new capacity being
commissioned in late 2018, we remain confident in continuing
to deliver growth in profitability and driving further value for
shareholders in future years.
Neil Johnson
Chairman
1 March 2018
Synthomer plc Annual Report 2017
11
Strategic report Chief Executive Officer’s review
Driving
sustainable
growth
Calum MacLean
Chief Executive Officer
Strategic highlights
+ Solid and sustainable earnings growth in line
with expectations
+ Integration of two bolt-on acquisitions.
PAC (Dispersions) and Speciality Additives
successfully completed
+ Launch of SyNovus® our innovative patented
next generation Nitrile latex
+ Achievement of 20% sales from products
launched in the last five years
+ Largest capital expenditure programme in the
Group’s history, initiated in 2016, progressing
to plan and on time to contribute from Q4 2018
+ Strong balance sheet (leverage 1 times net debt:
EBITDA) providing flexibility to pursue our strategy
I am pleased to report that we have delivered solid growth in
Underlying profitability in 2017, with the strong growth in ENA profits
more than offsetting the softer but stable ARW profits.
The strong growth in ENA Underlying profitability was underpinned
by further organic growth, particularly in our SBR business, the
benefits of our focused M&A activity and the associated synergies in
2016 and 2017, and the depreciation in Sterling which favourably
impacted our first half results. ARW Underlying profitability has been
resilient, and performed in line with expectations, with Nitrile latex
margins broadly stable throughout 2017 at similar levels to the last
quarter of 2016. Positively, and as guided at the start of 2017, the
overall Underlying profitability of the Group has moved forward in
2017 with the combination of underlying organic growth, M&A
activity and favourable currency impact more than compensating
for the expected softer Nitrile latex margins.
Underlying profit before tax increased by 6.4% from £122.2m
to £130.0m. This reflected a 25.5% increase in ENA Underlying
operating profits, up from £93.3m to £117.1m and a decrease in ARW
Underlying operating profits, lower at £35.1m from £48.7m. The rise in
ENA Underlying profits reflected strong organic growth (£16.0m),
including a first full year contribution from PAC (Dispersions), the 2017
acquisition of Speciality Additives (£3.7m) and favourable foreign
currency translation impact (£4.1m). The reduction in ARW Underlying
profits principally related to the expected softening in Nitrile latex
margins seen in the last quarter of 2016, albeit reassuringly the
margins broadly held firm at this level throughout 2017.
IFRS profit before tax decreased by 36.8% from £136.7m in 2016
to £86.4m in 2017, reflecting the inclusion in 2016 of large gains
on Malaysian land sales (£33.2m) and disposal of our South African
business (£4.7m), and the foreign currency hedge gain associated
with the PAC (Dispersions) acquisition purchase price (£13.1m).
Cash generated from operations increased to £162.6m (2016:
£157.0m) and the cash flows were again strong with good
conversion of EBITDA to cash. The cash performance of the
business over the year meant that the Group’s leverage at the year
end was 1 times net debt:EBITDA. Capital spend increased to a
record £60.3m in line with guidance and our stated strategy to
invest in our principal sites. We also invested in our inorganic growth
strategy with the acquisition of Speciality Additives, our second
bolt-on acquisition, for £66.1m, and completion of our third bolt-on
acquisition which took place after the year end on 31 January 2018
for a further £25.7m. Our strong balance sheet continues to give us
options for both organic and inorganic investment opportunities to
support future growth.
Safety, health and environment
In 2017 we had the best ever recordable injury rate, which was
reduced by 56% relative to 2016, and we are reassured to see
positive movement in our other SHE key performance measures.
Whilst we are pleased with the marked improvement, this is a
consequence of daily attention and vigilance in our working
practices and processes, and we recognise that there is no place
for complacency in this regard. The high standards set by the Group
in relation to safety, health and environment are complemented by
the significant investment we continue to make, and our Group SHE
team monitor the Group’s adherence to our standards and report on
our performance against those standards at each Executive team
and Board meeting.
The Group built on the strong platform of safety standards put in
place in the prior year by embedding the SHE Principles and 10
Golden Rules in our operations as well as focusing on eliminating
the opportunity for work to be carried out in an unsafe way or unsafe
environment. A rolling programme of Process Hazard Assessment
Revalidation has been completed on all our high risk sites and
prioritised action plans are being implemented to address identified
gaps. This programme will be expanded to all sites in 2018.
Strong progress has been made in our commitment to the
environment with a 10% reduction in VOC emissions through
making operational changes in our sites, particularly the UK.
With the M&A activity adding new sites to our network, we are in
the process of setting new targets for all our environmental key
performance indicators.
Innovation
In 2017, sales of new products launched in the last five years was
again 20%, in line with 2016 and meeting our stated target. We are
excited at the launch of more new products in 2017 with the major
launch being our new and patented Nitrile latex, SyNovus®. The new
product launch of SyNovus® represented a further milestone for our
innovation team in Malaysia, reducing the development time from
inception to commercialisation, including patenting the proprietary
technology, to just 18 months. The shortened innovation process,
representing a reduction of almost 50% on previous new product
developments, is a testament to the dedication, skill and expertise
of our in-house R&D team.
This patented product delivers significant value to both our
customers and the end user markets as the SyNovus® formulation
significantly reduces the required operating temperature of glove
manufacturing lines, reducing both energy costs and the associated
environmental impact. It also reduces maturation time thus enabling
glove manufacturing lines to run at higher throughput providing
manufacturers with increased capacity without capital expenditure,
and additionally eliminates certain additives introduced to Nitrile
latex formulations reducing the risk of potential allergic reactions
with end users.
These benefits, coupled with superior tensile strength, improved
colour and reduced odour resulted in a positive, well-received
product launch in Kuala Lumpur with over 150 glove manufacturing
leaders and guests in attendance.
M&A integration
With three acquisitions, PAC (Dispersions), Speciality Additives
and BASF Pischelsdorf, over the last two years, and ongoing
discussions in relation to transformational and further bolt-on
acquisitions, our ability to successfully integrate is crucial to
capturing value. We are pleased with the progress made in the
integration of PAC (Dispersions) and Speciality Additives and are
already implementing a detailed plan for the BASF Pischelsdorf
acquisition. The integration of PAC (Dispersions) is substantially
complete with the final two major actions initiated in 2017, the sale of
the Leuna (Germany) site and the announcement of the restructuring
of Ribécourt (France) site. We are on target to deliver the run rate
synergies of $12m by the end of 2018, with a further $2m run rates
savings to be delivered in 2019.
Delivering organic growth
The largest capital investment programme in the Group’s history is
well underway. This will help to maintain and upgrade our current
asset base and respond to market demand for our products. This
programme commenced in 2016 and we spent £60.3m in 2017
across the Group. Our Project Excellence approach has been
introduced Group-wide and aims to ensure that all of the projects
are completed safely, on time and within budget.
Given the global mega-trends of urbanisation, aging demographics,
evolving middle class, increasing mobility and the ever more stringent
environmental legislation, there is increasing demand from the market
for more of our speciality chemicals and for enhancements to our
product portfolio, and we have invested accordingly with capacity
as well as capability expansions in a number of our sites.
• Nitrile latex: 90ktes expansion of our Pasir Gudang (Malaysia)
site due for completion in late 2018 with a further expansion in
an advanced stage of planning to address a market which is
growing at 8% to 10% per annum.
• Dispersions: 36ktes capacity of made-to-order speciality acrylic
lines in Worms (Germany) and a 9ktes increase in acrylic capacity
in Roebuck (USA) scheduled to be complete in early 2019.
• SBR latex: Enhancement to our Marl (Germany) site to improve
output levels to take advantage of opportunities in the Foam
Market and an upgrading of our Oulu (Finland) site to move from
supplying the declining graphic paper market to the growth
markets of speciality paper and packaging.
We continue to invest in the organisational structure and, over
the last 3 years, have established teams in Operational and
Manufacturing Excellence, Business Development and Specialist
Feedstock Procurement. In 2018 the programmes will be further
enhanced by the introduction of our Commercial Excellence
programme to our commercial organisation, designed to ensure
we work more closely with our customers in generating value.
Delivering M&A growth
Growth through acquisitions is a key part of our growth strategy.
We are highly active in targeting and reviewing speciality chemical
acquisition opportunities. These will include both bolt-on
acquisitions, similar to the ones we have completed, and more
transformational step-change strategic transactions in adjacent
chemistries. Our experienced M&A and due diligence teams will
be opportunistic but disciplined in their approach to acquisitions.
We have made three speciality chemical company acquisitions in
the last two years, all bolt-on acquisitions complementing our
existing businesses, and have reviewed many other opportunities
that have not resulted in completed acquisitions. Whilst we remain
highly active in M&A processes, we have a clear focus on what
constitutes an attractive acquisition target, what price we are
prepared to pay and a firm commitment to incisive due diligence.
We will remain resolute and disciplined in pursuing only the right
value-enhancing opportunities.
Outlook
Looking forward, whilst acknowledging the ongoing challenges
in our Nitrile latex and constructions and coatings Dispersions
markets, we are confident of making further solid progress in 2018,
underpinned by underlying growth in both segments, and from
integrating our recent acquisitions.
With our significant organic investment in new capacity being
commissioned in late 2018, we remain confident in continuing to
deliver growth in profitability and driving further value for
shareholders in future years.
Calum MacLean
Chief Executive Officer
1 March 2018
Synthomer plc Annual Report 2017
13
Strategic report Our market review
Global trends driving
our growth strategy
What we make
Dispersions
Nitrile Butadiene Rubber (NBR)
Styrene Butadiene Rubber (SBR)
(including compounds, high solid SBR formulations)
Specialities
What we do
Market position
No.1 producer in Europe and Middle East
and No.1 producer in Malaysia.
No.2 producer globally.
No.1 producer in Europe.
Principal
markets served
Construction, coatings, adhesives
and textiles.
Health and protection.
Paper, carpet and foam markets.
Specialist markets including automotive, PVC manufacture,
construction and polymer manufacture.
Main product
areas
Mega-trends
Cement modification, primers, flooring
adhesives, flexible roof coatings,
emulsion and specialist paints, coatings
and oilfields.
Europe and North America
Medical gloves, medical devices (e.g. catheters) and other
dipped latex products.
Coated paper, packaging, bindings for carpet, foams for
Automotive sound dampening, PVC, polyester resins for
mattresses, pillows and shoes. Compounds for carpet backing
powder coatings, catalysts, flame retardants and monomers.
and high solid latex applications.
Urbanisation
Ageing demographics
Where we
manufacture
Revenue
Market trends
Outlook
Priorities
USA, Germany, Italy, Spain, France, UK
and Czech Republic.
Italy.
£315.7m
£25.3m
Germany, Italy, Finland, UK, Netherlands and Egypt.
UK, Italy, Belgium and Czech Republic.
£449.7m
£344.2m
Markets are growing, environmental
regulations moving to waterbased
products support growth.
Continued operational and sales synergies.
Capacity and capability expansion and
debottlenecking, operational efficiencies
and plant network optimisation.
Demand in line with strong growth mainly Asia/US markets.
Foam and compounds growing, carpet flat, graphic paper
Positive outlook, though challenges in certain catalysts
declining being partly offset by speciality paper and packaging.
markets continue.
Innovation and operational efficiencies.
Integration of new acquisition, debottlenecking and asset
Innovation, integration, operational efficiencies, capacity
rationalisation. Expansion into new markets.
debottlenecking.
Asia and Rest of the World
Where we
manufacture
Revenue
Market trends
Outlook
Priorities
Malaysia, Vietnam, Thailand and
Middle East.
Malaysia.
£68.3m
£210.5m
Market growth forecast in South
East Asia. Middle East construction
sector remains subdued.
High growth in end user demand for Nitrile latex gloves.
Next generation of product introduced to the market.
Strong demand expected medium term, particularly in niche
Increase in demand expected.
Bring Thailand up to Synthomer
operational standard and innovation.
Delivery of Nitrile latex project in Malaysia, commercialisation
of SyNovus® and operational efficiencies.
maximise asset capacity.
Expansion of local market with products from Europe and look to
Continue to supplement market growth from Europe.
Malaysia.
£9.2m
products.
Malaysia.
£57.3m
14
Synthomer plc Annual Report 2017
We provide products to a broad range of manufacturing industries.
Whilst trends within the various industries vary, we aim to drive value
from the differing market dynamics whilst focusing our investments
on growth markets.
are the key driver for Synthomer’s investment decisions. These
trends and industry descriptions are contained in the table below.
Read more about our Business Model and Strategy in action
on pages 16 – 23
One of our aims is to add value by differentiating our products
to make them more efficient in use, offering superior quality and
enhanced product performance. The trends in the market segments
Read more on how we manage risks on pages 32 – 37
What we make
Dispersions
Nitrile Butadiene Rubber (NBR)
Styrene Butadiene Rubber (SBR)
(including compounds, high solid SBR formulations)
Specialities
What we do
Principal
markets served
and textiles.
Market position
No.1 producer in Europe and Middle East
No.2 producer globally.
and No.1 producer in Malaysia.
No.1 producer in Europe.
Construction, coatings, adhesives
Health and protection.
Paper, carpet and foam markets.
Specialist markets including automotive, PVC manufacture,
construction and polymer manufacture.
Cement modification, primers, flooring
Medical gloves, medical devices (e.g. catheters) and other
adhesives, flexible roof coatings,
dipped latex products.
emulsion and specialist paints, coatings
and oilfields.
Coated paper, packaging, bindings for carpet, foams for
mattresses, pillows and shoes. Compounds for carpet backing
and high solid latex applications.
Automotive sound dampening, PVC, polyester resins for
powder coatings, catalysts, flame retardants and monomers.
Energy conservation
Green clean
Europe and North America
Read more on pages 26 – 28
USA, Germany, Italy, Spain, France, UK
Italy.
Germany, Italy, Finland, UK, Netherlands and Egypt.
UK, Italy, Belgium and Czech Republic.
and Czech Republic.
£315.7m
£25.3m
£449.7m
£344.2m
Outlook
Markets are growing, environmental
Demand in line with strong growth mainly Asia/US markets.
Foam and compounds growing, carpet flat, graphic paper
declining being partly offset by speciality paper and packaging.
Positive outlook, though challenges in certain catalysts
markets continue.
Priorities
Continued operational and sales synergies.
Innovation and operational efficiencies.
Integration of new acquisition, debottlenecking and asset
rationalisation. Expansion into new markets.
Innovation, integration, operational efficiencies, capacity
debottlenecking.
Malaysia, Vietnam, Thailand and
Malaysia.
Middle East.
£68.3m
£210.5m
Malaysia.
£9.2m
Malaysia.
£57.3m
Read more on pages 29 – 31
Market growth forecast in South
High growth in end user demand for Nitrile latex gloves.
East Asia. Middle East construction
Next generation of product introduced to the market.
Strong demand expected medium term, particularly in niche
products.
Increase in demand expected.
sector remains subdued.
Bring Thailand up to Synthomer
Delivery of Nitrile latex project in Malaysia, commercialisation
operational standard and innovation.
of SyNovus® and operational efficiencies.
Expansion of local market with products from Europe and look to
maximise asset capacity.
Continue to supplement market growth from Europe.
Synthomer plc Annual Report 2017
15
Main product
areas
Mega-trends
Where we
manufacture
Revenue
Market trends
Where we
manufacture
Revenue
Market trends
Outlook
Priorities
regulations moving to waterbased
products support growth.
Capacity and capability expansion and
debottlenecking, operational efficiencies
and plant network optimisation.
Asia and Rest of the World
Strategic report Business model
Creating and sustaining value
through innovative solutions
Our sustainable
value chain
Logistics
Our specialist logistics teams work on ensuring
safe and timely deliveries of excellent products
in more than 140 countries.
Quality control
Our quality control procedures and
laboratories ensure that we manufacture
and store finished products in a manner
that assures quality.
Production
Experienced operations teams continue to
optimise the production process to be most
efficient by using complex production
techniques and removing bottlenecks.
Sourcing raw materials
We work closely with our suppliers to obtain
competitive prices, correct specification, and
to improve supply chain resilience.
Our strategy
Our mission is to provide our customers
with innovative and high performance
solutions that enable them to efficiently
produce their own high quality products.
Our strategy is composed of five key elements:
1. Research and development and technical
expertise to exploit new markets
We anticipate market trends and customer
requirements to deliver improved products
with improved margin and product
differentiation.
16
Synthomer plc Annual Report 2017
2. Driving efficiency and excellence
through operations
4. Investment in capacity
We seek to add capacity in growth markets.
We operate continuous improvement
across our operations to improve production
efficiency, sales effectiveness and functional
excellence. We seek to identify good
practice in all areas of our business
and ensure that relevant learnings are
disseminated throughout the business.
3. Capacity utilisation
Our aim is to drive profitability through
maximum utilisation of our assets. This
involves identifying the root causes of
production bottlenecks and finding
innovative solutions to eliminate them.
5. Business growth through acquisition
We actively seek opportunistic bolt-on
acquisitions in similar chemistries or
transformational step change transactions
not limited by geography or chemistry.
Read more on pages 18-19
Synthomer is a speciality chemical company
which uses its Technical Services expertise
and R&D capability to understand and
anticipate customer needs to drive
competitive advantage.
We produce chemical formulations for
thousands of customers in a range of
industries, from construction and coatings
to healthcare and automotive. Our strategic
procurement specialists acquire the
upstream raw materials used in our complex
production processes which involve
controlling the pressure, temperature and
duration of mixing reactions in order to
create specific formulations. Our highly
skilled and experienced Operations teams,
supported by R&D, deliver cost effective
and flexible operational capabilities to
maximize output and quality.
Our production sites are local to our
customers to better understand their
needs and reduce the cost of logistics
and our environmental impact. We have
leading market positions in Europe and
South East Asia, which continue to be
underpinned by our drive for environmentally
friendly technology and exposure to global
mega-trends.
Effective risk management is the key
method we deploy to ensure our strategy
is delivered and sustainable value created.
Research and development
Under central leadership our four research and development
‘centres of excellence’ work to both develop products that meet
our customers’ needs and to improve the efficiency of
their manufacture.
Consumers
We monitor mega-trends and market developments to ensure
our formulations meet the requirements not only of our customers
but the end users of their products.
Technical services
Our technical service teams work with our customers to ensure
we provide the right formulation for their needs.
Formulations
Our formulations are designed for use in customer specific products.
Key beneficiaries of our value chain
Employees
Our employees are a critical part of our
success. Employees contribute to all aspects
of our value chain and all employees benefit
from the success of our business. We are
committed to providing a safe and rewarding
environment in which to work.
Communities
We look to be a valued part of communities in
which we operate, providing highly skilled
employment opportunities, being aware of
how our plans may impact on a community,
and demonstrating that we respect the
community and its environment.
Suppliers
Our suppliers are an important part of
our business and we look to work closely
with them using the skills of our strategic
sourcing teams to ensure we get the right
specification of products for our needs at
competitive prices.
Governments
We see local safety and environment
legislative compliance as the minimum
level at which we should operate, and
we strive for higher standards. We look to
ensure that we follow the letter and spirit
of tax regulations within each of the
jurisdictions in which we operate and
contribute fairly to public policy goals.
Customers
Our customers expect us to provide them
with innovative, high quality, competitive
products. We seek to work in partnerships
with customers, using our skilled R&D
and Technical Services teams, to develop
products that support their goals.
Shareholders
Our shareholders, as the owners of our
business, should see the benefits of our focus
on long term sustainable growth, regulatory
compliance and strong governance.
Synthomer plc Annual Report 2017
17
Strategic report Strategy at a glance
Strategic priority
Description
2017 achievements
Key performance indicators
2018 priorities
Risk
We anticipate market trends and
customer requirements to deliver
improved products with improved
margin and product differentiation.
1 Research and
development
and technical
expertise to
exploit new
markets
2 Driving efficiency
and excellence
through
operations
We operate continuous improvement
across our operations to improve
production efficiency, sales effectiveness
and functional excellence. We seek
to identify good practice in all areas of
our business and ensure that relevant
learnings are disseminated throughout
the business.
3 Capacity
utilisation
Our aim is to drive profitability through
maximum utilisation of our assets.
This involves identifying the root
causes of production bottlenecks
and finding innovative solutions.
4 Investment
in capacity
We seek to add capacity, particularly
in growth markets.
5 Business
growth through
acquisitions
We actively seek opportunistic bolt-
on acquisitions in similar chemistries
or transformational step change
transactions not limited by geography
or chemistry.
18
Synthomer plc Annual Report 2017
Sales of new products launched in the
last five years was at 20.0% of total
revenue for the second consecutive year.
Launch of patented SyNovus®, next
generation Nitrile latex product.
Concept to commercialisation process
accelerated to meet market demand.
Board approval to evaluate a new
state-of-the-art Innovation centre in Asia.
Utilised value gap analysis to embed
operational excellence tools and drive
improved performance.
Begun the roll out of our Customer
Relationship Management system across
business to trace new product leads,
capitalise on customers’ needs and enhance
cross selling opportunities.
Delivery of strategic procurement initiative
to provide resilience to security of supply
and leverage our procurement of key
raw materials.
Debottlenecked our site in Marl (Germany)
to increase production of Foam.
Disposal of Leuna (Germany) site and
announcement of rationalisation of Ribécourt
(France) site as part of the development of the
manufacturing network following the
acquisition of PAC (Dispersions).
Approved capacity and capability
expansions at SBR plants in Marl (Germany)
and Oulu (Finland) and powder coatings in
Sant’Albano (Italy).
Use of Project Excellence methodology
in capacity expansion projects in Malaysia
and Germany results in projects being on
time and on budget.
We completed the acquisition of Speciality
Additives with one new plant, and
introduced new products.
Agreed to acquire BASF’s Pischelsdorf site in
Austria, which completed on 31 January 2018.
Delivered PAC (Dispersions) synergies run
rate savings of $12m by end of 2018 likely
further $2m of run rate savings beyond 2019.
20%
Revenue from new
products less than
five years old.
Market penetration of SyNovus®
Secure site for Asian Innovation centre
• Protection of IP
• Competition
• Market cyclicality
£176.2m
3.46
Underlying EBITDA
Energy consumption
Continued use of our Manufacturing
(GJ/tonne)
Excellence Process to drive improved
• Compliance
performance.
• Financial market volatility
• Accidents or environmental incident
• Failure of Plant or systems
Completion of our energy reduction projects
• Raw material price volatility
£130.0m
0.13
Underlying PBT
Recordable
Global roll-out of CRM.
accident frequency
Introduce Commercial Excellence
rate
£176.2m
£130.0m
Underlying EBITDA
Underlying PBT
30.7p
Underlying EPS
1,443.8
Volume (Wet ktes)
£176.2m
£130.0m
Underlying EBITDA
Underlying PBT
30.7p
Underlying EPS
1,443.8
Volume (Wet ktes)
Use at value gap methodology to identify
• Competition
and unlock ‘hidden capacity’ in our assets.
• Raw material price volatility
• Failure of Plant or systems
Use of Project Excellence methodology to
deliver our capacity improvement projects.
• Failure of projects
• Market cyclicality
£176.2m
£130.0m
Underlying EBITDA
Underlying PBT
30.7p
Underlying EPS
Read more on pages 24 – 25
We are highly active in identifying,
targeting and reviewing opportunities,
both in relation to bolt on acquisitions
and transformational step change
transactions in adjacent chemistries.
Drive integration and synergies from
BASF Pischelsdorf
• Availability of suitable opportunities
• Failure of acquisition
to deliver benefits
• Financial market volatility
Read more on pages 32 – 37
Strategic priority
Description
2017 achievements
Key performance indicators
2018 priorities
Risk
1 Research and
development
and technical
expertise to
exploit new
markets
2 Driving efficiency
and excellence
through
operations
We anticipate market trends and
customer requirements to deliver
improved products with improved
margin and product differentiation.
Sales of new products launched in the
last five years was at 20.0% of total
revenue for the second consecutive year.
Launch of patented SyNovus®, next
generation Nitrile latex product.
Concept to commercialisation process
accelerated to meet market demand.
Board approval to evaluate a new
state-of-the-art Innovation centre in Asia.
We operate continuous improvement
Utilised value gap analysis to embed
across our operations to improve
operational excellence tools and drive
production efficiency, sales effectiveness
improved performance.
and functional excellence. We seek
to identify good practice in all areas of
our business and ensure that relevant
learnings are disseminated throughout
the business.
Begun the roll out of our Customer
Relationship Management system across
business to trace new product leads,
capitalise on customers’ needs and enhance
cross selling opportunities.
Delivery of strategic procurement initiative
to provide resilience to security of supply
and leverage our procurement of key
raw materials.
3 Capacity
utilisation
Our aim is to drive profitability through
Debottlenecked our site in Marl (Germany)
maximum utilisation of our assets.
to increase production of Foam.
This involves identifying the root
causes of production bottlenecks
and finding innovative solutions.
Disposal of Leuna (Germany) site and
announcement of rationalisation of Ribécourt
(France) site as part of the development of the
manufacturing network following the
acquisition of PAC (Dispersions).
4 Investment
in capacity
We seek to add capacity, particularly
Approved capacity and capability
in growth markets.
expansions at SBR plants in Marl (Germany)
and Oulu (Finland) and powder coatings in
Sant’Albano (Italy).
Use of Project Excellence methodology
in capacity expansion projects in Malaysia
and Germany results in projects being on
time and on budget.
20%
Revenue from new
products less than
five years old.
Market penetration of SyNovus®
Secure site for Asian Innovation centre
• Protection of IP
• Competition
• Market cyclicality
£176.2m
Underlying EBITDA
3.46
Energy consumption
(GJ/tonne)
£130.0m
0.13
Underlying PBT
Recordable
accident frequency
rate
Completion of our energy reduction projects
Continued use of our Manufacturing
Excellence Process to drive improved
performance.
Global roll-out of CRM.
Introduce Commercial Excellence
• Raw material price volatility
• Accidents or environmental incident
• Failure of Plant or systems
• Compliance
• Financial market volatility
£176.2m
£130.0m
Underlying EBITDA
Underlying PBT
30.7p
Underlying EPS
1,443.8
Volume (Wet ktes)
£176.2m
£130.0m
Underlying EBITDA
Underlying PBT
30.7p
Underlying EPS
1,443.8
Volume (Wet ktes)
Use at value gap methodology to identify
and unlock ‘hidden capacity’ in our assets.
• Competition
• Raw material price volatility
• Failure of Plant or systems
Use of Project Excellence methodology to
deliver our capacity improvement projects.
• Failure of projects
• Market cyclicality
5 Business
growth through
acquisitions
We actively seek opportunistic bolt-
We completed the acquisition of Speciality
on acquisitions in similar chemistries
Additives with one new plant, and
or transformational step change
introduced new products.
transactions not limited by geography
or chemistry.
Agreed to acquire BASF’s Pischelsdorf site in
Austria, which completed on 31 January 2018.
Delivered PAC (Dispersions) synergies run
rate savings of $12m by end of 2018 likely
further $2m of run rate savings beyond 2019.
£176.2m
£130.0m
Underlying EBITDA
Underlying PBT
30.7p
Underlying EPS
Read more on pages 24 – 25
We are highly active in identifying,
targeting and reviewing opportunities,
both in relation to bolt on acquisitions
and transformational step change
transactions in adjacent chemistries.
Drive integration and synergies from
BASF Pischelsdorf
• Availability of suitable opportunities
• Failure of acquisition
to deliver benefits
• Financial market volatility
Read more on pages 32 – 37
Synthomer plc Annual Report 2017
19
Strategic report
+ Accelerator free
+ Chemical resistance
+ Durability
+ Tensile strength
+ Lower operating costs
+ Reduced maturation
– improving customer
throughput
+ Colour and odour
improvement
Strategy in action
Responding to
market needs
Synthomer launches SyNovus®
Continuing our leadership in synthetic
Nitrile latex in 2017 we launched our
latest patented innovation, SyNovus®.
Designed as a low energy Nitrile with
reduced maturation needed, SyNovus®
offers superior tensile strength and higher
levels of durability and chemical resistance.
A significant improvement in colour and
odour improvement makes SyNovus® a
superior product of choice for the glove
industry.
It is the answer to the industry’s needs –
lower operating costs and improved
efficiency, and is accelerator free which is
attractive to glove producers and which helps
reduce the risk of allergic reactions for end
users. This presents the glove industry with
the opportunity to develop new market
opportunities whilst improving the
sustainability of manufacturing processes.
SyNovus® is the latest innovation
and industry benchmark for disposable
glove manufacturing. It is a leading
solution that makes manufacturing
smarter, transforming chemistry into
business value and safer healthcare for all.
Concept to
commercialisation
18
months
20
Synthomer plc Annual Report 2017
Investment –
largest ever capital
investment in Synthomer
£45m
Investment in
organic growth
+ Largest Nitrile latex
Emulsion plant
in Synthomer
+ Located in the heart of
Glove Dipping Industry
+ New “Big Reactor”
Technology
+ Supported by a robust
supply chain & long
term market dynamics
Pasir Gudang Nitrile latex
1. 2009 Initial Capacity
100ktes pa
2. 2013 Phase 1 Expansion
+ 30ktes pa
3. 2015-16 Phase 2 Process Improvement
+ 47ktes pa
4. 2018 Phase 3 New Capacity
+ 90ktes pa
5. Future Phase 4 New Capacity
+ 60ktes pa
“ This project represents a significant
commitment to the glove dipping
market where market demand
exceeded 1 million tonnes for the
first time in 2017. With the global
gloves market growing at circa. 8%
per annum, this investment will allow
us to maintain and grow our market
share. Plans are already well
advanced on Phase 4.”
Jason Davies, SBU Director,
Health & Protection
“ Work on the Phase 3 expansion
began in 2016 and has progressed
safely, on time and on budget
through 2017. Our dedicated team
has so far completed more than
1 million safe hours of work. All of
the major construction is complete
with system handover and
commissioning starting in Q1 2018
and commercial production
anticipated to begin before the end
of 2018. As part of this project,
ground works and infrastructure
have been completed to allow a fast
execution of the Phase 4 expansion.”
Derick Whyte,
Executive Vice President, Asia
Synthomer plc Annual Report 2017
21
Strategic report “ The acquisition of BASF
Pischelsdorf underscores
our long term commitment
to our customers in the paper
industry, whilst providing
us with an additional site to
strengthen our network and
giving us stronger access
to growing packaging
end-markets in Europe.”
Bettina Peck, SBU Director,
Paper, Carpet and Foam
+ Strengthens
market
leadership
Strategy in action continued
Business growth
through acquisition
BASF Pischelsdorf Austria:
Acquired January 2018
• No of sites: 1
• No of employees: 42
The Business produces Styrene Butadiene
Rubber (“SBR”) used in the paper industry,
notably in packaging end-markets and will
enhance Synthomer’s SBR business and
production network for paper/packaging
applications as well as increase the Group’s
access to attractive new opportunities
across Europe.
+ Expands
manufacturing
network
“ This bolt-on acquisition by our
ENA business meets all of the
criteria that we apply to M&A
opportunities and is a welcome
addition to the Group. Our
integration team have been
working with the newly acquired
business from the date of
acquisition to ensure that the
process goes to plan and delivers
to all stakeholders safely and
quickly. Synthomer is the clear
leader in the European market.”
Calum MacLean, CEO
22
Synthomer plc Annual Report 2017
Successfully completed
business integrations
PAC (Dispersions)
Acquired June 2016
• Markets: Dispersions, additives,
powder coatings and speciality
monomers,
• Synergies: $12m annualised from
end 2018, including further $2m
annualised in 2019
Key actions undertaken:
• Disposal of Leuna (Germany) site
• Restructuring of Ribécourt (France) site
“ We have substantially completed the
integration of PAC (Dispersions) by
initiating the final two major actions
in 2017 and are on target to achieve
and exceed our synergy goals .”
Christoph Breucker,
Vice President Europe
Speciality Additives
Acquired March 2017
• Markets: Niche performance
additives for the decorative and
industrial coatings industries
• Synergies: cross selling opportunities
into existing customer scope
Key actions undertaken:
• Deployment of Synthomer ERP
• Sales and customer services
successfully transferred from Perstorp
• Planning for site expansion
“ Speciality Additives was fully integrated
into Synthomer in 2017 which is a
testament to the employees there and
within the wider Synthomer business.
This speciality additives business,
which is highly complementary to our
existing markets and customers, has
strong market leadership positions (#1
or #2) and serves a highly attractive,
blue-chip customer base.”
Neil Whitley, Vice President Specialities,
M&A and HR
R&D location
1
Sites
7
Employees
760
Employees
40
Synthomer plc Annual Report 2017
23
Strategic report Key performance indicators
Measuring our progress
Volume
(Wet ktes)
Underlying
EBITDA
(£m)
Underlying
profit
before tax
(£m)
Underlying
earnings
per share
(pence)
Revenue from
new products
(%)
Recordable
accident
frequency
rate
Energy
consumption
per tonne
(GJ/Tonne)
17
16
15
14
13
17
16
15
14
13
17
16
15
14
13
17
16
15
14
13
17
16
15
14
17
16
15
14
13
17
16
15
14
13
Comment
• Underlying growth as well as the acquisition of PAC (Dispersions) and Speciality
Additives, partly offset by the disposal of our South African business in 2016.
Comment
• Record year for Underlying EBITDA benefitting from the acquisitions,
performance improvements and foreign currency translation gains.
•
Innovation, capacity expansion and cost control critical to continuing improvement.
• Sustainable growth underpinned by organic and inorganic acquisitions more
than compensating for expected softening in Nitrile margins.
Comment
• Record year for Underlying profit before tax benefitting from the acquisitions,
performance improvements and foreign currency translation gains.
•
Innovation, capacity expansion and cost control critical to
continuing improvement.
• Sustainable growth underpinned by organic and inorganic acquisitions more than
compensating for expected softening in Nitrile margins.
1,443.8
Strategic focus
1,324.9
1,251
1,191
1,182
43
5
KPI definition
Volume of our products sold in thousands
of tonnes (wet ktes). The volume is based
on wet volumes – i.e. the volumes including
water content.
176.2
Strategic focus
160.1
1
32
KPI definition
Underlying operating profit before
depreciation, amortisation and
Special Items.
54
130.0
122.2
Strategic focus
1
32
KPI definition
Underlying profit before tax comprising IFRS
profit before tax excluding Special Items.
54
30.7
28.3
Strategic focus
43
5
KPI definition
Basic Underlying earnings per share
before Special Items.
Comment
• 8.5% growth in Underlying EPS in the year benefiting from the acquisitions,
performance improvements and foreign currency translation gains.
125.0
118.0
124.0
95.3
86.0
90.1
21.5
19.5
20.7
0.13
0.30
20
20
Strategic focus
1
KPI definition
Percentage of revenue in the year that can
be attributed to new products launched in
the last five years.
18
16
Strategic focus
2
KPI definition
Recordable injury rate for accidents involving
more than first aid treatment, expressed as
accidents per 100,000 hours worked by
employees and all contractors.
0.70
3.46
3.37
Strategic focus
2
KPI definition
Energy (GJ) (including gas, electricity, steam
and fuel oil) used at each of our plants
divided by the number of tonnes of product
made. The energy excludes transport of
goods to and from site and the movement of
the associated vehicles on site, but internal
transport on site is included.
0.55
0.51
2.62
2.63
2.56
• Continued success in our strategy to innovate and create products to meet market and
• Achieved our target of 20.0% for the second consecutive time since the KPI
Comment
customer needs.
was introduced.
Comment
• 56% reduction in the recordable accident rate in 2017 continuing an improving trend.
• SHE Principles and 10 Golden Rules embedded across the business.
• Process Hazard Assessment exercise completed on high potential risk sites and processes.
Comment
• 10% reduction in VOC emissions.
• Energy use has increased 2.5% primarily due to the nature of the production facilities
acquired as a part of the acquisitions.
• 2018 will have renewed focus on energy savings at our top five sites by
energy consumption.
24
Synthomer plc Annual Report 2017
Volume
(Wet ktes)
Underlying
EBITDA
(£m)
Underlying
profit
before tax
(£m)
Underlying
earnings
per share
(pence)
Revenue from
new products
(%)
Recordable
accident
frequency
rate
Energy
consumption
per tonne
(GJ/Tonne)
17
16
15
14
13
17
16
15
14
13
17
16
15
14
13
17
16
15
14
13
17
16
15
14
17
16
15
14
13
17
16
15
14
13
125.0
118.0
124.0
95.3
86.0
90.1
21.5
19.5
20.7
5
1
2
2
20
20
18
16
0.70
3.46
3.37
0.55
0.51
2.62
2.63
2.56
1,443.8
1,324.9
1,251
1,191
1,182
176.2
160.1
Strategic focus
KPI definition
Volume of our products sold in thousands
of tonnes (wet ktes). The volume is based
on wet volumes – i.e. the volumes including
water content.
Strategic focus
KPI definition
Underlying operating profit before
depreciation, amortisation and
Special Items.
Strategic focus
KPI definition
130.0
122.2
Underlying profit before tax comprising IFRS
profit before tax excluding Special Items.
43
5
1
32
54
1
32
54
Comment
• Underlying growth as well as the acquisition of PAC (Dispersions) and Speciality
Additives, partly offset by the disposal of our South African business in 2016.
Comment
• Record year for Underlying EBITDA benefitting from the acquisitions,
performance improvements and foreign currency translation gains.
Innovation, capacity expansion and cost control critical to continuing improvement.
•
• Sustainable growth underpinned by organic and inorganic acquisitions more
than compensating for expected softening in Nitrile margins.
Comment
• Record year for Underlying profit before tax benefitting from the acquisitions,
•
performance improvements and foreign currency translation gains.
Innovation, capacity expansion and cost control critical to
continuing improvement.
• Sustainable growth underpinned by organic and inorganic acquisitions more than
compensating for expected softening in Nitrile margins.
Link to strategy
1 Research and Development
and technical expertise to
exploit new markets
2 Driving efficiency and
excellence through operations
3 Capacity utilisation
4 Investment in capacity
5 Business growth
through acquisition
Read more on pages 18-19
Strategic focus
KPI definition
30.7
28.3
43
Basic Underlying earnings per share
before Special Items.
Comment
• 8.5% growth in Underlying EPS in the year benefiting from the acquisitions,
performance improvements and foreign currency translation gains.
Strategic focus
KPI definition
Percentage of revenue in the year that can
be attributed to new products launched in
the last five years.
0.13
0.30
Strategic focus
KPI definition
Recordable injury rate for accidents involving
more than first aid treatment, expressed as
accidents per 100,000 hours worked by
employees and all contractors.
Comment
• Continued success in our strategy to innovate and create products to meet market and
customer needs.
• Achieved our target of 20.0% for the second consecutive time since the KPI
was introduced.
Comment
• 56% reduction in the recordable accident rate in 2017 continuing an improving trend.
• SHE Principles and 10 Golden Rules embedded across the business.
• Process Hazard Assessment exercise completed on high potential risk sites and processes.
Strategic focus
KPI definition
Energy (GJ) (including gas, electricity, steam
and fuel oil) used at each of our plants
divided by the number of tonnes of product
made. The energy excludes transport of
goods to and from site and the movement of
the associated vehicles on site, but internal
transport on site is included.
Comment
• 10% reduction in VOC emissions.
• Energy use has increased 2.5% primarily due to the nature of the production facilities
acquired as a part of the acquisitions.
• 2018 will have renewed focus on energy savings at our top five sites by
energy consumption.
Synthomer plc Annual Report 2017
25
Strategic report
Segmental review: Europe and North America (ENA)
Europe and North America (ENA)
Highlights
+ Volume and margin growth in both Europe and
North America
+ Leading market position in aqueous polymers
in Europe
+ PAC (Dispersions) and Speciality Additives
acquisitions successfully integrated and
contributing to performance.
+ Acquisition of BASF Pischelsdorf completed
on 31 January 2018
Revenue % of Group
Underlying operating
profit % of Group
77%
77%
Good underlying
organic growth
and successful
integration of
acquisitions
26 Synthomer plc Annual Report 2017
ENA revenue increased from £746.1m to £1,134.9m, an increase
of 52.1%. The rise in revenue mainly reflects incremental volumes
associated with the PAC (Dispersions) and Speciality Additives
acquisitions, the positive impact of weaker Sterling, and the higher
average raw material prices year on year.
Underlying operating profit at £117.1m was 25.5% higher
(2016: £93.3m), and IFRS operating profit at £77.5m was
2.8% higher (2016: £75.4m).
The significant improvement in ENA’s Underlying operating
profit was due to good underlying growth of the existing business
(£16.0m) including the full year benefit of PAC (Dispersions), the
acquisition of Speciality Additives (£3.7m) and the favourable currency
translation associated with the depreciation in Sterling (£4.1m).
The segment achieved an improved overall margin, driven by
higher unit margins in our SBR and Specialities businesses.
Volumes were 1,067.7ktes (+14.0%) with volume increases in most
markets compensating for a further reduction in paper volumes.
SBR volumes and unit margins in our Carpet and Foam markets
increased in 2017. Paper volumes were slightly lower in line with
the market but margins have been maintained, despite the volatility
in raw material prices during the year. SBR benefitted from capital
investment to debottleneck our facility in Marl (Germany) which
delivered additional capacity and allowed us to take advantage
of growing opportunities in the attractive Asian Foam market.
Our Dispersions business increased volumes but, consistent with
other market participants, saw a marginal unit margin decline as
a result of rising raw material prices. Unlike the SBR business, the
contracting model in this market is to negotiate prices mainly on a
monthly basis. The integration of the PAC (Dispersions) business,
including the consolidation and reallocation of production, allows
this business better control over its cost base and improved
flexibility to serve customers through our strategically located
manufacturing network.
Underlying performance
Volumes (ktes)
Revenue (£m)
EBITDA (£m)
Operating profit – Underlying performance (£m)
Operating profit – IFRS (£m)
2017
1,067.7
1,134.9
140.9
117.1
77.5
2016
936.7
746.1
111.2
93.3
75.4
Increase/(decrease)
% reported
% constant currency
14.0
52.1
26.7
25.5
2.8
47.6
22.5
21.1
Constant currency revenue and profit: these reflect current year results for existing business translated at the prior year’s average exchange
rates, and include the impact of acquisitions.
Synthomer plc Annual Report 2017
27
Strategic report Segmental review: Europe and North America (ENA) continued
The integration of the PAC (Dispersions) business, acquired in 2016
has been substantially completed with a number of actions taken
this year:
Priorities for 2018
• Our small manufacturing site in Leuna (Germany) was disposed
of on 1 January 2018. This small site lacked the operational scale
required for our manufacturing network and, while the site will
continue to manufacture products for Synthomer for a short
period, its production will be moved to other facilities in our
network in due course; and
• During December 2017, we commenced a restructuring
programme at our manufacturing site in Ribécourt (France) to
right size and simplify the site operations commensurate with
its core activities of dispersion and spray drying redispersible
powders. The site simplification will enhance its operational
efficiency by reducing the product portfolio as well as reducing
the fixed cost base. This restructuring programme is expected
to complete in 2019.
These actions will complete the integration of the PAC (Dispersions)
acquisition and will allow us to deliver, as previously announced,
the run rate synergies savings of $12m by the end of 2018, with a
further incremental $2m of run rate savings to be delivered in 2019.
Our niche businesses in Specialities showed strong underlying
volume and margin growth along with the contribution made by the
acquisition of Speciality Additives. Speciality Additives, a niche
performance speciality additives business serving the decorative
and industrial coatings industries, has strong market leadership
positions (#1 or #2) and serves a highly attractive, blue-chip
customer base. The business operates from a well located, single
site in Ghent, Belgium where there is potential for growth in capacity
to meet future demand. The business is highly complementary to
Synthomer’s existing markets and customers and the Group is
focused on expanding its market position through developing closer
relationships with customers and driving operational performance.
On 31 January 2018 we completed the acquisition of the SBR
business and assets of BASF Pischelsdorf (Austria) for an enterprise
value of €30 million. The business produces SBR used in the paper
industry, notably in packaging end-markets. The acquisition enhances
Synthomer’s SBR business and production network for paper and
packaging applications as well as increasing the Group’s access to
attractive new opportunities across Europe, underscoring our
long-term commitment to our valued customers in the paper industry.
Looking ahead to 2018, ENA management is focused
on driving growth and the future profitability of the
business. In delivering this growth strategy the key
priorities for 2018 are:
+ Organic growth at least in line with GDP
+ Continued delivery of acquisition synergies
+ Integration of the BASF Pischelsdorf acquisition
into our existing plant network
+ Commissioning our capacity and
capability expansions
The acquisition of the Pischelsdorf site firmly cements Synthomer
as market leader in European aqueous polymers, a significant
milestone in the development of our ENA business.
Our organic growth strategy is as important to our ENA business as
our inorganic M&A growth strategy. We have committed significant
capital resources this year to meet the growing demand for our
products across Europe and America, through targeted growth
capex at our principal sites. These investments included:
• £17m in Worms (Germany) to build made-to-order speciality
acrylic lines which is on time for commissioning in early 2019;
• £12m investment in Roebuck (USA) on a new acrylic reactor
line scheduled to be ready in early 2019;
• £3m to expand capacity at our powder coatings business in
Sant’Albano (Italy) which will come online in Q4 2018; and
• £2m in our SBR facility in Oulu (Finland) scheduled to come
online in Q3 2018 to expand our capabilities to supply the
growing packaging and speciality paper markets.
28
Synthomer plc Annual Report 2017
Segmental review: Asia and Rest of the World (ARW)
Asia and Rest of the World (ARW)
In line with
expectations,
Nitrile latex
margins stable
Highlights
+ Resilient volumes in Nitrile latex in a
challenging market
+ Nitrile latex unit margins in line with Q4 2016
+ Continued expansion of our sales portfolio
in China
+ Successful launch of SyNovus®, patented
next generation Nitrile latex technology
Revenue % of Group
Underlying operating
profit % of Group
23%
23%
Synthomer plc Annual Report 2017
29
Strategic report
Segmental review: Asia and Rest of the World (ARW) continued
The performance of our ARW business in 2017 was in line with
expectations, with the lower profitability principally driven by the
well trailed softer Nitrile latex margins, the disposal of our South
African business in August 2016, and the ongoing investment
at our PAC Chonburi (Thailand) site to integrate it into the Asia
dispersion network system.
Underlying operating profit at £35.1m was 27.9% below the prior
year (£48.7m), and the IFRS operating profit at £31.2m was 61.6%
below the prior year (£81.3m). The 2016 IFRS operating profit
included the profit on the Malaysian land sale of £33.2m and
the profit on the sale of the South African business of £4.7m.
The Nitrile latex margins, whilst lower overall than 2016, have
been reasonably resilient and appear to have settled at a lower
level in 2017, broadly consistent with the margins seen in Q4 2016.
Reassuringly, the Nitrile latex margins achieved have improved
over earlier years when new capacity was brought on line and now
reflect the level of substantial investment made in our customer
focussed research and development, capacity expansion, service
and quality. We are committed to this market and to our important
customer relationships, and our investment in both increased
capacity and the patented SyNovus® product are testaments
to this.
Our 2017 Nitrile latex volumes were broadly flat relative to 2016 with
our existing capacity sold out, except for modest volumes foregone
in short shutdown periods to integrate the incremental capacity to
be brought on line later in 2018.
Volumes in the Dispersions business were also broadly in line
with the prior year despite the disposal in 2016 of our South African
business but, like others, margins were impacted by the rise in
raw material prices. The start-up production facility in Chonburi
(Thailand), which joined the Group as part of the PAC (Dispersions)
acquisition in 2016, continued to require operational support to
bring it into line with Synthomer standards and had a negative
contribution of £2.3m in the year. A new management team has
been now put in place to take the site forward.
Research and development is a critical part of our Nitrile latex
and Dispersions businesses, and we are currently evaluating the
opportunity to invest in a new state-of-the-art Innovation Centre in
the region by 2020 and in continuing developmental research in our
core markets.
University level sponsorship has been a core part of building
Synthomer’s technology and innovation capability. This year our
PhD sponsored student at Manchester University successfully
completed his studies and joined our R&D Team in Kluang, and in
Asia the Group continued its collaboration with Universiti Teknologi
Malaysia (UTM), where a Masters Level student has been sponsored
to work on a Synthomer defined emulsion polymerisation project.
On completion of her degree in Q1 2018, she will also join the R&D
team in Kluang. For the second year running, Synthomer sponsored
an award for Best PhD thesis in Polymer Science at the Institut
Kimia Malaysia (IKM, Malaysian Chemistry Society).
Underlying performance
Volumes (ktes)
Revenue (£m)
EBITDA (£m)
Operating profit – Underlying performance (£m)
Operating profit – IFRS (£m)
2017
376.1
345.3
48.2
35.1
31.2
2016
388.2
299.6
60.4
48.7
81.3
Increase/(decrease)
% reported
% constant currency
(3.1)
15.3
(20.2)
(27.9)
(61.6)
14.8
(20.4)
(28.1)
Constant currency revenue and profit: these reflect current year results for existing business translated at the prior year’s average exchange
rates, and include the impact of acquisitions.
30
Synthomer plc Annual Report 2017
The Nitrile latex market reached the milestone of one million
tonnes per annum of demand during 2017 and continues to grow
at between 8% to 10% per annum. In September 2017, Synthomer’s
Innovation Group responded to the demand of end users and glove
manufacturers by launching SyNovus®, a ground breaking patented
new product. SyNovus® is designed to have significantly reduced
maturation time, superior tensile strength properties, higher levels
of durability and improved chemical resistance with unprecedented
colour and odour improvements. This new product was warmly
received by industry leaders at a dedicated launch event in Kuala
Lumpur. The Innovation Group also launched a new higher
performing XSBR latex application for the Carpet market during
the year.
Our 90ktes capacity expansion of our Nitrile latex facility in Pasir
Gudang (Malaysia), the largest capital investment undertaken
by the Group at £45m, is progressing safely, on time and on
budget. We have now completed all the major construction work
with commissioning later in 2018 when our installed capacity will
increase by approximately 40%. As the current expansion moves
into the commissioning phase we have started the evaluation
process for the timing of the next stage of the Pasir Gudang
expansion, the introduction of a further 60ktes of capacity,
recognising the infrastructure and civil engineering for this further
expansion has been undertaken in the earlier stage of the project.
The continued growth in demand for Nitrile latex remains significant
and we are well placed to capitalise on this growth with our existing
capacity, our incremental next stage 60ktes capacity expansion,
and our exciting new patented SyNovus® product.
Priorities for 2018
Turning to 2018 activities, the business is well
placed to secure future growth in profitability and
management is keenly focused on the principal
activities that will allow this potential to be unlocked.
The priorities for 2018 are:
+ Successful completion of capital investment
programme in Pasir Gudang
+ Continue to manage Nitrile latex margins in an
evolving and competitive market
+ Improve operational efficiency of Chonburi to
Synthomer standards
+ Market penetration of SyNovus®
+ Finalise planning for the next phase of Nitrile latex
capacity expansion
Synthomer plc Annual Report 2017
31
Strategic report Risk management
Managing risk
Successful risk management is fundamental to achieving Synthomer’s strategy by facilitating good decision making, embracing
opportunities and protecting our sites, systems, staff and other stakeholders.
Risk
oversight
Synthomer plc Board
The Board is responsible for creating
the framework for the Group’s risk
management to operate effectively
including setting the risk appetite and
risk tolerances.
Audit Committee
The Audit Committee is responsible
for overseeing the management of
the principal risks, controls and the
assurance processes.
Executive management
Executive management are
responsible for the management of
our strategic, operational, compliance
and financial risks using the Risk
Management framework. This includes
ensuring there are effective mitigating
actions and controls in place.
Identification and assessment of risk
We have a structured risk management framework operated
at regional and Group level. The Business Risk Assessment
Methodology defines a standard set of risk categories with
generic risk descriptions to assist management in identifying areas
of risk. There is also a simple scoring methodology to quantify risk.
We rank risks, taking into account the mitigating controls in place,
by combining their economic, operational or reputational impact
and the likelihood that they may occur.
We use a barrier based “bow tie” method to help management
define and assess the most critical risk events. The method brings
structure to the identification of hazards or risk events, potential
causes of those hazards and the consequences of the hazard
occurring. The bow tie method also identifies barriers or controls
in place or needing to be developed to mitigate the likelihood of
the threats occurring or impact of the effects of the risk event.
Risk output
Executive management and Group Functions conduct a
comprehensive independent assessment of the principal risks at
Group level and record them in a risk register. The Board reviews
and approves the Group risk register.
Each region undertakes a formal risk assessment and prepares
a register using the Business Risk Assessment Methodology.
Risk management review and assurance
Group Risk Function
The Group Risk Function, an integral part of our Group Operations
Function, challenges the assumptions, risks identified, prioritisation
and mitigating actions in place or proposed.
Bow tie methodology
A barrier based bow tie methodology is used to clearly show the relationship between the potential causes (threats), consequences
and controls (barriers) associated with undesired hazardous events.
Hazard
Threat 1
Proactive barrier
Proactive barrier
Recovery barrier
Recovery barrier
Consequence
Threat 2
Proactive barrier
Proactive barrier
Recovery barrier
Recovery barrier
Consequence
Top event
Escalation
factor
Escalation
factor barrier
Escalation
factor barrier
Escalation
factor
32
Synthomer plc Annual Report 2017
Assessment of principal risks
Our key risks and assessment of their likelihood and potential
impact are illustrated in the probability / impact matrix opposite:
Strategic
1 Volatility in the chemicals and polymers market
2 Competition and failure to innovate
3
4 Manufacturing capacity expansion
5 Acquisition strategy
Intellectual property
Operational
6 Safety, health and environment (SHE)
7 Volatility in raw material prices
8 Loss or failure of a manufacturing site
9 Security of systems and sites
Compliance
10 Product quality
11 SHE regulation
12 Ethics
Financial
13 Financial Market Volatility
d
o
o
h
i
l
e
k
L
i
l
e
b
a
b
o
r
P
l
i
e
b
s
s
o
P
6
11
13
2
1
10
7
3
9
4
8
5
12
l
e
b
a
b
o
r
p
s
s
e
L
Low
Medium
High
Impact – Reputational/Financial
Assurance providers
Synthomer operates a “three lines of defence” model. A number
of different internal assurance providers (for example, Group SHE,
ISO audits and Internal Audit) review the effectiveness of the
mitigating actions and controls. External assurance is provided
by our Statutory Auditors and also by an external specialist in
ISO standards.
• Operational risks which, if not successfully managed, would
threaten our viability. These relate to our ability to operate a
sustainable and safe business.
• Compliance risks where a breach of regulations or laws could
lead to fines from Regulators and reputational risk that may be
disproportionate to the size of the event leading to a breach.
• Financial risks relating to the funding and fiscal security of
the Group.
Our key risks
Risks affect us in many ways. We identify the likelihood and potential
impact of risks through our formal twice yearly risk assessment
submissions and also more regularly through empowering
management to consider and react to risks. These reviews, together
with our three line defence model, enable us to establish effective
controls to mitigate their effects.
The table on pages 34 to 37 shows more detail on the key risks
identified in 2017. Our Board and management consider that these
pose the greatest threats to our business and they score highest on
our risk table. They fall into categories that relate closely to our
business model. Not all risks facing Synthomer are listed and the
risks are not listed in any order of priority.
We categorise our risks taking into account the effectiveness
of mitigating actions and controls, in the following areas:
• Strategic risks that could prevent us from achieving our
strategic objectives.
The nature of risk changes over time with new risks emerging and
the impact of others changing. Our risk management and assurance
programme can only provide reasonable, not absolute, assurance
that key risks are managed to an acceptable level.
The three lines of defence
Board/audit committee
Senior management
1st line of defence
2nd line of defence
3rd line of defence
Policies
Procedures
Risk Management
Internal Audit
Financial Control
Management Controls
Group SHE
Regulatory Affairs
Legal Department
Quality
Functions that own
and manage risks
Functions that oversee risks
Functions that provide
independent assurance
External
Auditor
Regulators
(E.g. HSE. EA. ICO,
CMA, FCA)
Investors and rating
agencies
Synthomer plc Annual Report 2017
33
Strategic report
Principal risks and uncertainties
The Group’s strategic objectives can only be achieved if certain risks are taken and managed effectively.
We have listed below the key risks that affect our business, although there are other lower level risks that occur
and impact the Group’s performance which are also actively managed through our risk management framework.
Strategic Risks
Risk
Response
2018 Plans
Volatility in the chemicals and polymers market
The global chemicals and polymers
markets are inherently volatile affecting
volumes and margins and may adversely
affect the results of the Group.
1
4
V
The Group maintains a balanced portfolio of
products serving a wide range of end markets
around the globe. Segment performance at
business unit level is closely monitored and
corrective actions are taken as necessary.
Our acquisition strategy continues to
target expansion in new geographic
regions and also adjacent speciality
chemicals businesses to help us
diversify the risk further.
Competition and failure to innovate
Our markets are highly competitive and
the Group could lose market share to
other producers of speciality chemicals or
to other products that can be substituted
for the products of the Group.
The Group continues to invest in enhancing
existing products and developing new
products through our R&D programme and
also our acquisition strategy includes
technologies that are new to the Group.
1
3
V
Intellectual property
The value of the Group is dependent
on our ability to identify and secure our
own intellectual property and ensure we
do not breach third parties intellectual
property rights which could lead to
reputational damage.
1
Manufacturing capacity
Enhancements to our plants to
increase manufacturing capacity
to take advantage of growth markets
are dependent on project management.
Poor execution of our various projects
could impact on our ability to deliver the
capacity enhancements.
4
V
Our technical services teams work with our
customers to understand and anticipate their
future needs and to help them drive efficiencies
in their own manufacturing process.
All sites operate quality management systems
including assurance processes to ensure the
quality of products meets agreed standards.
The Group has a dedicated team
for management of IP and protects
its intellectual property through an
active patent programme and monitoring
for infringements.
We have a robust capital appraisal process
in place to assess proposed projects to
ensure they deliver value which includes
regular reporting to the Board. Project
Excellence methodology is in place for all
significant CAPEX projects and is subject
to Internal Audit review. The outcome of
completed projects with costs in excess
of £1m are reviewed by the Audit Committee.
New product development continues
to diversify the Group’s risk.
We have strengthened our business
development teams and expect further
projects and new product releases to
bring competitive advantage. Our global
Customer Relationship Management
system (CRM) will enable our sales teams
to better identify and secure opportunities.
Our integrated business planning process
will enable further efficiencies in
manufacturing processes and costs.
Where appropriate we patent all
intellectual property in products,
processes and technologies.
We will continue to improve our IT
Governance to secure IP held within
our plant and ERP systems to protect
it from theft or unauthorised use.
We have announced three significant
capacity enhancements that will
deliver volume in late 2018/early 2019.
Our Project Excellence methodology is
being rolled out across all of our projects
in 2018.
Return on Invested Capital (ROIC) for
our significant capital projects is being
introduced to the Long Term Incentive
Plan (LTIP) performance measures in 2018.
34
Synthomer plc Annual Report 2017
Link to strategy
1 Research and development and technical
expertise to exploit new markets
2 Driving efficiency and excellence
through operations
3 Capacity utilisation
4
Investment in capacity
5 Business growth through acquisition
Change in risk
No change
Increase
Decrease
Read more on pages 18-19
V Sensitivity for risk made in assessing viability
Risk
Response
2018 Plans
Acquisition strategy
The Group’s strategic plan involves
significant M&A activity to grow our
business. There is a risk that we identify
the wrong targets, pay too high a price,
fail to integrate acquired assets and
drive planned synergies, or encounter
performance, funding and cashflow
issues and potentially unknown liabilities.
5
Operational Risks
Risk
Safety, health and environment (SHE)
The chemical industry is inherently
dangerous involving the safe transport,
storage and manufacture of hazardous
chemicals. Failure to manage the impact
on our staff, manufacturing sites and the
environment of these risks could lead to
regulatory fines, reputational damage and
lost production.
2
Volatility in raw material prices
Executive management has extensive
experience of successful M&A transactions
including integration of the acquired business.
M&A activity will continue to be closely
scrutinised and challenged by the Board.
External advice is used to help identify
targets, prepare bids and incisive due
diligence.
Detailed integration plans are prepared
as part of the due diligence exercise.
We will increase the efficiency of our
existing processes and continue to invest
in our ERP systems to enable smoother
integration of acquired businesses.
Ongoing review of acquisition process
and implementation of lessons learned
to future transactions.
Response
2018 Plans
Synthomer operates a central safety audit
function dedicated to SHE issues and it
provides advice to, and monitors, our sites
to enable continuous improvement across
all major SHE areas. Increasingly the focus
is on process safety risk to mitigate the risk
of major incidents.
Maintenance programmes are undertaken
to mitigate the risks.
Our Group SHE audits will continue to
focus on higher risk areas including
process safety. We will make further
progress on our long term ambition
to implement a proactive approach to
maintenance as a preventable measure.
We will focus specifically on completing
the actions from our Process Hazard
Assessments.
Volatility in the prices of our key raw
materials can affect the profitability of the
Group and its working capital position.
The Group actively manages margins and is
focused on recovering input cost increases
from customers.
2
3
Loss or failure of a manufacturing site
A site might be unable to operate, whether
temporarily or longer term, due to a risk
event, including natural disaster, safety
incident, failure of a key supplier or the
supply chain, sabotage and cyber-attack,
and would have an adverse impact on
operations and business unit profitability.
2
3
V
Crisis management procedures are in place
for all sites to respond to risk events which
are reviewed and tested regularly.
Sourcing strategies are in place Group-wide
to access multiple sources for key raw
materials and the Group works closely
with key suppliers to ensure availability.
Single sourced materials are identified
and inventory retained, where appropriate,
to mitigate risk of supply chain failure.
Strategic raw material sourcing teams
will continue to broaden and strengthen
supplier relationships and secure
contracts to enhance optionality in
volatile raw materials markets.
Incremental offsite storage facilities will
be secured to both enhance security of
supply and provide greater flexibility in
sourcing key raw materials.
We will continue to improve existing plans
and develop overall business continuity
plans including crisis management
response, disaster recovery for key
systems and data as well as longer
term recovery of operations.
Synthomer plc Annual Report 2017
35
Strategic report
Principal risks and uncertainties continued
Operational Risks continued
Risk
Response
2018 Plans
Security of systems and sites
We are reliant on various systems to run our
business. As the frequency, sophistication
and effect of cyber-attacks continues to
grow across the world, all of our systems,
including our industrial control systems,
Enterprise Resource Planning (ERP), and
communications could be targeted. We could
lose intellectual property and customer data
which might undermine our competitive
position or a cyber attack could leave one of
our plants out of action or used for sabotage.
1
2
3
Compliance Risks
Risk
Product quality
Product quality and reliability is a key
element of our competitive position.
The Group may lose customers and
potentially be liable for damages for
any quality issues.
2
Network intrusion detection and prevention
has been strengthened with all computers
now protected with a consistent anti-
virus product.
Vulnerability assessments and penetration
testing is performed to identify risks in our
networks and mitigating actions required
to meet the evolving threats.
Further security processes and
procedures targeted at these areas are
being implemented in 2018 including
industrial control systems isolation and
secure third party remote access.
We will increase our IT resilience
through refreshed testing of
our disaster recovery arrangements.
Physical security standards will be
developed in consultation with our
SHE teams and Chief Security Officer.
Response
2018 Plans
Technically qualified personnel and control
systems are in place around the Group to
ensure products meet agreed standards.
The Group will continue to invest in
quality control systems and quality
assurance testing.
Synthomer has a Group-wide product
liability insurance policy.
The Group has a number of leading and
lagging performance indicators which are
reviewed monthly.
SHE regulation
Failure to comply with extensive and
constantly evolving environmental, health
and safety laws and regulations could lead
to significant fines, reputational damage
and loss of operating licences.
Detailed safety, health and environmental
processes are documented in operating
guidance which is updated and
communicated to staff on a regular basis.
2
Ethics
Our Regulatory Affairs department will
ensure we comply with the REACH
regulations throughout the European
Union and monitor changes in legal
requirements in other jurisdictions to
ensure we remain compliant.
The Group could suffer substantial
penalties, damage to reputation and
other sanctions for any failure to control,
for example, anti-competitive behaviour,
bribery and corruption, or breaches of
trade sanctions. New enhanced rules for
data privacy in the European Union with
greater potential penalties could impact
the Group.
All our key employees affirm their
understanding of the code of business
conduct, covering corruption and anti-
competitive business practices. Malpractice
reporting and whistleblowing protection are
similarly covered in the Group policy on
protecting our reputation. Group Legal and
local management provide regular training
to targeted groups of employees.
We plan to enhance the existing e-learning
modules with an improved monitoring
process, refresher training, and roll out
of additional compliance areas. We will
implement a new sanctions screening
product to reduce the risk of non-compliance.
We are working to ensure our data privacy
framework including reporting of breaches
meet the new legal requirements.
2
36
Synthomer plc Annual Report 2017
Link to strategy
1 Research and development and technical
expertise to exploit new markets
2 Driving efficiency and excellence
through operations
Financial Risks
Risk
Financial market volatility
A significant proportion of the Group’s
turnover and assets are in currencies
other than UK sterling and fluctuations in
currency exchange rates may significantly
impact the results of the Group.
The Group’s balance sheet and cash
flow, and also credit market conditions
and credit ratings, may restrict the ability
of the Group to obtain credit facilities or
to refinance its existing debt facilities in
the longer term.
The Group has funding risks relating
to defined benefit pension scheme
obligations, the value of which are highly
dependent on volatile financial markets.
2
5
V
3 Capacity utilisation
4
Investment in capacity
5 Business growth through acquisition
Read more on pages 18-19
Change in risk
No change
Increase
Decrease
V Sensitivity for risk made in assessing viability
Response
2018 Plans
The Group has a policy of hedging all
significant foreign exchange transactional
exposure at operating company level. The
Group borrows a proportion of its funding
in overseas currencies to hedge the net
assets held in those currencies.
The Group closely monitors its operating
cash flow and capital expenditure on a
monthly basis and regularly reviews
covenant compliance.
The UK scheme was closed to future
accrual in 2009 and additional contributions
and careful asset management should
reduce the deficit over the longer term.
Overseas schemes are reviewed annually
by actuaries to ensure appropriate
contributions are made and liabilities are
recognised appropriately.
We will continue to hedge currency risks.
We will continue to monitor our covenants
as we pursue our M&A strategy and ensure
we pay the right price for acquisitions.
Pension deficits are expected to reduce
over the longer term as the Group pays
the additional contributions agreed with
the Trustees in 2016. The timescale will
be affected by movements in the financial
markets and the discount rate.
A Group-wide review of pension and
other long term employee liabilities will
be undertaken in 2018.
Viability statement
In accordance with the provision of section C.2.2 of the 2016
revision of the UK Corporate Governance Code, the Directors
have assessed the viability of the Group over a five-year period
to December 2022, being the period covered by the Group’s
approved strategic plan. This plan, which is updated annually,
includes analyses of product and profit performance, cash
flow, investment programmes and returns to shareholders.
The Directors consider five years to be an appropriate time
horizon for the strategic plan, being the period over which the
Group actively focuses on its long term product development
and capital expenditure investments. A period above five
years is considered by the Directors to be too long, given
the uncertainties that exist beyond this time frame.
In making their assessment, the Directors have considered the
Group’s current strong financial position, including the existing
committed bank facilities, which have been assumed to be
refinanced at maturity in July 2019.
Furthermore, a sensitivity analysis has been undertaken,
focusing on the impact of the principal risks (detailed on pages 34
to 37) over the five year period. The risks have been assessed
for their potential impact on the Group’s business model, future
trading and funding structure. The sensitivity analysis has
considered a number of severe but plausible
scenarios, linked to the risks considered to have the most
significant financial impact. In all cases, the impact was
considered on both liquidity and borrowing covenants.
The scenarios included trading volatility, increased competition,
delays in capacity improvement, failure of new products and
the temporary loss of a major manufacturing site. They also
included significant foreign currency exchange rate or interest
rate movements risks, which are deemed to be outside the
control of the Group. A combined sensitivity was also performed,
aggregating all of the scenarios considered. The results took
into account the availability and likely degree of effectiveness
of mitigating actions available.
While this sensitivity analysis did not consider all of the risks that
the Group may face, the Directors consider that it is reasonable
in the circumstances of the inherent uncertainty involved.
Based on the results of this analysis, the Directors have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the five
year period.
Synthomer plc Annual Report 2017
37
Strategic report
Chief Financial Officer’s review
A solid and sustainable
performance, built on a strong
and flexible balance sheet
Stephen Bennett
Chief Financial Officer
Strategic highlights
+ Solid and sustainable profits growth driven by
acquisitions, unit margins and fx
+ Consistently strong operating cash flows
+ Record investment in growth capex
+ Strong and flexible balance sheet, allowing us to
invest in organic and inorganic growth
Overview
2017 has been another progressive year for the Group with solid
growth and the successful integrations of PAC (Dispersions)
acquired in 2016 and Speciality Additives acquired in 2017.
The key drivers behind the improvement in overall performance were:
• ENA saw good Underlying profit growth as volumes and unit
margins increased.
• ARW performed in line with expectations, with stable Nitrile latex
margins relative to the final quarter of 2016.
• Speciality Additives, a £66.1m bolt-on acquisition, completed
and was integrated into the Group.
• The integration of PAC (Dispersions) was substantially completed
and on target to deliver the $12m run rate synergies by end of
2018 with a further incremental $2m run rate synergies to be
delivered by the end of 2019. The disposal of our Leuna
(Germany) site and the announcement of the restructuring of
our Ribécourt (France) site were the last significant steps in the
integration.
• The continuing weakness of Sterling has resulted in a positive
impact on the Group’s reported results, albeit this mainly related
to H1.
Alternative performance measures
The Group has consistently used two significant Alternative
Performance Measures (‘APMs’) since its adoption of International
Financial Reporting Standards (‘IFRS’) in 2005:
• Underlying performance, which excludes Special Items from
IFRS profit measures
• EBITDA, which excludes Special Items, amortisation and
depreciation from IFRS operating profit
The Board’s view is that Underlying performance provides additional clarity for the Group’s investors and so it is the primary focus of the
Group’s narrative reporting. Further information and the reconciliation to the IFRS measures are included in notes 2, 5 and 6.
Income statement
Operating profit
The table below bridges the 2016 and 2017 IFRS operating profit, showing the improvement in the existing businesses, the impact of the
2017 acquisition of Speciality Additives, the impact of the weakness of Sterling on translation, and the effect of the Special Items.
Europe &
North America
£m
75.4
17.9
93.3
16.0
109.3
3.7
–
4.1
Asia & Rest
of World
£m
81.3
(32.6)
48.7
Unallocated
corporate
expenses
£m
(12.0)
0.2
(11.8)
17.1%
(12.5)
(25.7)%
(1.4)
(11.9)%
36.2
–
(1.2)
0.1
35.1
(3.9)
31.2
(13.2)
–
–
–
(27.9)%
(13.2)
(11.9)%
(0.1)
(61.6)%
(13.3)
(10.8)%
117.1
25.5%
(39.6)
77.5
2.8%
Total
£m
144.7
(14.5)
130.2
2.1
132.3
3.7
(1.2)
4.2
139.0
(43.6)
95.4
1.6%
6.8%
(34.1)%
2016 – IFRS
Add/(deduct): 2016 – Special Items
2016 – Underlying performance
2017 – Underlying business changes
2017 – Underlying existing business
at 2016 exchange rates
2017 – Acquisition of Speciality Additives
2017 – Disposal of South Africa
2017 – Impact of 2017 exchange rates
2017 – Underlying performance
at 2017 exchange rates
Deduct: 2017 – Special Items
2017 – IFRS
The following should be noted:
• The underlying improvement in the ENA existing business of £16.0m (17.1%) reflects the full year impact of the acquisition of PAC
(Dispersions) as well as improvements in margins in most markets.
• ARW Nitrile latex volumes were in line with the prior year and margins were robust and broadly in line with Q4 2016. Further operational
investment in the PAC Chonburi (Thailand) site has been made in 2017, impacting Underlying operating profit.
• Underlying unallocated corporate costs increased by £1.4m reflecting the increase in the cost of share-based payments due to the rise in
share price during 2017 and the crystallisation of the outcome of strategic targets, and further strengthening of the management team in
the London Head Office.
• The continuing weakness of Sterling during the year resulted in an increase in the Group’s reported profit in Sterling. For the European
businesses, the rate used for translating profit moved from £1:€1.2180 in 2016 to £1:€1.1430 in 2017, with a resulting uplift in the 2017
ENA profit of £4.1m.
Special Items
Restructuring and site closure
Profit on sale of business
Profit on sale of land
Gain on foreign exchange contracts relating to acquisition
Acquisition costs
Amortisation of acquired intangibles
2017
£m
(11.6)
–
1.3
–
(2.3)
(31.0)
(43.6)
2016
£m
(5.2)
4.7
33.2
13.1
(4.3)
(27.0)
14.5
The following items of income and expense have been reported as Special Items, in line with the comments above:
• The restructuring and site closure costs included £9.0m in relation to the post-acquisition integration of the PAC (Dispersions) business
with the majority being attributable to the rationalisation of the Ribécourt (France) site. A further £1.6m related to the cost of an onerous
lease on a site closed during 2017, while £0.8m comprised costs for the post-acquisition integration of Speciality Additives.
• The profit on sale of business relates to the disposal of our South African business in 2016.
• The profit on sale of land in 2017 related to a disposal of land in Hapton, UK. The profit on sale of land in 2016 related to the disposal of
tranches of Malaysian land.
• The gain of £13.1m in 2016 resulted from foreign exchange contracts taken out as a hedge against the US dollar purchase consideration
of the PAC (Dispersions) acquisition.
• Acquisition costs were incurred in relation to Speciality Additives (2016: PAC (Dispersions)) and for other potential acquisitions which will
not occur or had not occurred before the balance sheet date.
• The amortisation of intangibles increased during 2017 due to a full year of amortisation for the 2016 PAC (Dispersions) acquisition, the
intangibles acquired with Speciality Additives and due to foreign currency exchange rate movements.
Synthomer plc Annual Report 2017
39
Strategic report Chief Financial Officer’s review continued
Finance costs & profit before taxation
Operating profit (including share of JV’s)
Finance Costs
Profit/(loss) before taxation
Increase/(decrease) in profit/loss before tax %
2017
Special
Items
£m
(43.6)
–
(43.6)
Underlying
performance
£m
139.0
(9.0)
130.0
6.4
Underlying
performance
£m
130.2
(8.0)
122.2
IFRS
£m
95.4
(9.0)
86.4
(36.8)
2016
Special
Items
£m
14.5
–
14.5
IFRS
£m
144.7
(8.0)
136.7
Finance costs are higher than 2016, principally reflecting the full year impact of the increase in borrowings to fund the PAC (Dispersions)
acquisition, and the further increase in borrowings to fund the acquisition of Speciality Additives.
Taxation
Taxation (charge)/credit £m
Effective tax rate %
Underlying
performance
(24.7)
19.0
2017
Special
Items
13.1
30.4
IFRS
(11.6)
13.4
Underlying
performance
(24.5)
20.0
2016
Special
Items
9.1
(62.8)
IFRS
(15.4)
11.3
The IFRS effective tax rate is impacted by the tax credit on the Special Items. It is therefore helpful to consider the underlying and Special
Items separately:
• The effective tax rate on Underlying performance has reduced slightly in the year due to prior year adjustments and changes in overseas
tax rates.
• The effective tax rate for Special Items is principally driven by the deferred tax credit on the amortisation of acquired intangibles.
Non-controlling interests
Non-controlling interests
Underlying
performance
£m
0.8
2017
Special
Items
£m
–
IFRS
£m
0.8
Underlying
performance
£m
1.5
2016
Special
Items
£m
9.4
IFRS
£m
10.9
The Group continues to have a 70% holding in Revertex (Malaysia) Sdn Bhd and its subsidiaries. This company and its subsidiaries is now a
relatively minor part of the Group and hence the non-controlling interests impact on the Underlying performance is not significant.
The Special Item in 2016 reflects the non-controlling interests share (30%) in the land sale referred to in the Special Items section above. The
land was owned by Kind Action Sdn Bhd, a 100% subsidiary of Revertex (Malaysia) Sdn Bhd.
40
Synthomer plc Annual Report 2017
Earnings per share
Earnings per share (pence)
Growth %
Underlying
performance
30.7
8.5
2017
Special
items
(8.9)
–
Underlying
performance
28.3
IFRS
21.8
(32.9)
2016
Special
items
4.2
IFRS
32.5
The Group’s issued share capital has not changed for a number of years and therefore the average number of shares in issue remains
similar to last year at 340 million. The changes in Underlying and IFRS earnings per share shown in the table is therefore driven
predominantly by the same factors that influence the change in profit before taxation and taxation described above.
Cash performance
The consolidated cash flow statement shows a modest increase in cash generated from operations, from £157.0m in 2016 to £162.6m in 2017.
After other operating, investing and financing cash flows, cash, cash equivalents and bank overdrafts increased by £10.7m (2016: £43.9m).
The Group’s primary focus is on managing net borrowings rather than on cash. The following summarises the movement in net borrowings
and is in the format used by management:
Underlying operating profit (before joint ventures)
Movement in working capital
Depreciation and amortisation (underlying)
Purchase of property, plant and equipment
Business cash flow
Interest paid (net)
Tax paid
IAS 19 Interest charge
Pension funding in excess of IAS 19 charge
Share based payments variance to IFRS2 charge
Non-controlling interest and joint venture dividends
Underlying operating cash flow
Cash impact of restructuring
Sale of property, plant and equipment
Purchase of business
Sale of business
Dividends paid
Foreign exchange and other movements
Movement in net borrowings
2017
£m
2016
£m
138.0
128.2
9.5
37.2
(60.3)
124.4
(4.8)
(26.1)
(4.3)
(12.5)
(0.3)
1.5
77.9
(6.0)
2.2
10.2
29.9
(45.6)
122.7
(3.3)
(17.1)
(4.5)
(12.4)
1.6
(1.1)
85.9
(5.5)
34.4
(66.2)
(156.7)
7.6
(39.1)
(6.6)
(30.2)
12.8
(30.3)
(13.5)
(72.9)
Synthomer plc Annual Report 2017
41
Strategic report Chief Financial Officer’s review continued
Due to the continued strong cash performance of the Group, the Business cash flow at £124.4m (2016: £122.7m) has remained stable,
despite a £14.7m increase in expenditure on property, plant and equipment. Further commentary on the other significant cash flows is
provided below.
• Working capital control remained a key focus of Group management, demonstrated by achieving a cash inflow in a year of organic
growth and rising raw material prices.
• The increase in capital expenditure, which is largely being invested in our plants, reflects the cash spend on the previously announced
Nitrile latex capacity increase in Pasir Gudang (Malaysia) (£15m), and the made-to-order speciality acrylic lines in Worms (Germany) of
£8m.
• The rise in cash tax payments of £9m primarily reflects payments in respect of acquisitions in 2016 and 2017 of £4m and higher
payments on account, principally in Italy and Germany of £6m.
• The amount shown as pension funding in excess of IAS19 charge mainly reflects the UK defined benefit deficit recovery funding of
£14.7m (2016: £14.5m).
• The outflow for purchase of business of £66.2m primarily relates to the acquisition of Speciality Additives. The prior year outflow of
£156.7m mainly relates to the purchase of PAC (Dispersions).
• The business sale proceeds of £7.6m is the amount received ahead of the year end on the disposal of Synthomer Leuna GmbH, as
disclosed in note 37. The prior year proceeds of £12.8m related to the net cash consideration received on the disposal of our South
African business.
• Substantial amounts of the Group’s borrowings have been maintained in Euros and US dollars as a natural hedge against the net asset
base in these two currencies. With the devaluation of Sterling referred to above, the translation at the year end rates has resulted in an
exchange loss and therefore a higher borrowings amount (offset by a corresponding increase in the net asset base in these currencies).
Financing and liquidity
The Group retains the use of a committed revolving credit facility of £370m, sourced from five banks. This facility provided the necessary
funds to complete the acquisition of Speciality Additives, while maintaining substantial headroom. An additional committed short term bank
loan facility of €55m (£48.9m) was entered into in November 2017, to provide extra liquidity in anticipation of the BASF Pischelsdorf SBR
business acquisition on 31 January 2018, for an enterprise value of €30m.
Committed facilities
Drawn at 31 December
Headroom
2017
£m
418.9
246.7
172.2
2016
£m
370.0
203.9
166.1
In addition to the facility headroom identified above, the Group had cash and cash equivalents at 31 December 2017 of £89.6m (2016:
£117.4m) offset by overdrafts of £24.2m (2016: £65.4m).
The principal financial covenant in the revolving credit facility remains that net borrowings must be less than 3.0 times EBITDA at 31
December 2017.
Net borrowings
EBITDA
Net borrowings/EBITDA
2017
£m
180.5
176.2
1.0
2016
£m
150.3
160.1
0.9
The significant facility and covenant headroom demonstrates the continued financial strength of the Group, which is well positioned to fund
future organic growth and take advantage of further bolt-on acquisitions.
42
Synthomer plc Annual Report 2017
Pensions
UK
Overseas
Charge to
income statement
Post retirement
benefit obligations
2017
£m
5.1
7.2
12.3
2016
£m
4.6
6.9
11.5
2017
£m
78.3
78.9
157.2
2016
£m
112.5
74.2
186.7
The table sets out the total pension charge included in the income statement and the total defined benefit obligation included in the
balance sheet.
The following should be noted:
• The overseas pension cost has increased due to the PAC (Dispersions) and Speciality Additives acquisitions. The UK pension cost
has increased, mainly due to an increase in net interest expense in the defined benefit scheme.
• The reduction in UK defined benefit pension liabilities of £34.2m primarily relates to an improvement in mortality actuarial assumptions
(£18.5m), pension scheme deficit recovery payment of £14.7m, offset by a reduction in the discount rate from 2.7% to 2.5% (£11.4m).
Acquisition and disposal accounting
The accounting for the acquisition of Speciality Additives and the disposal of Synthomer Leuna GmbH are shown in the notes 31 and 37 respectively.
For the acquisition, the assets and liabilities have been included at fair value with the balance of consideration shown as goodwill. KPMG
LLP were engaged to advise on the fair value of the Property, Plant and Equipment (PPE). Overall their conclusion was that the total fair
value of the PPE should be increased by £4.8m. KPMG LLP also performed a valuation of the intangibles, which mainly comprised
customer relationships. Accordingly, on acquisition the Group recognised goodwill and acquired intangibles of £24.1m and £41.4m
respectively and the valuation is now final. These intangibles are being amortised over periods of 5 to 14 years.
Post balance sheet events
On 1 January 2018, the Group sold Synthomer Leuna GmbH, comprising the assets of a plant in Germany for a profit of £1.5m.
On 31 January 2018, the Group completed the purchase of the BASF Pischelsdorf SBR business and assets, for €29.3m. The purchase
consideration was funded from the Group’s existing financial resources.
Stephen Bennett
Chief Financial Officer
1 March 2018
Synthomer plc Annual Report 2017
43
Strategic report Sustainability
Sustainability at the
heart of our business
Sustainability Highlights
+ Best ever recordable injury rate, reduced by 56%
compared to 2016
+ 10% reduction in VOC emissions
+ Relaunch of Company website, strengthening
employee brand
+ Successful launch of mentoring programme
The Group’s international operations fulfil their responsibility to record,
monitor and make publicly available the potential impact of its activities.
In pursuing its corporate strategy, Synthomer’s aim is to adopt business
practices that are economically, socially and environmentally sustainable,
and to promote these to its stakeholders in order to strengthen
relationships, share knowledge and encourage best practice.
The Group’s risk management processes include consideration of
the potential impact of corporate responsibility issues on Synthomer’s
performance. The Group’s investment decisions take into account
appropriate evaluations of the potential consequences for its
employees, customers and suppliers and the environment.
Introduction
Synthomer recognises the significance and importance of being
a responsible Company. We take responsibility for the complete
life cycle of our products and for the impact our operations have
on people and the environment.
Synthomer considers the issues that are material to its business
and seeks to respond to them in a manner appropriate to the
interests of all its stakeholders.
Our commitment to science
and education
This year, Synthomer supported SCI’s inaugural Bright SCIdea
Challenge – a competition for teams of university students to turn
an idea for a scientific innovation into a business pitch. The aim
of the competition is to help ambitious young scientists develop
their entrepreneurial skills – the essential tools required to
translate a scientific idea into a commercially viable business
with real-world benefits.
We are committed to approaching our business in an ethical and
environmentally sound manner and have been committed to the
International Council of Chemical Associations’ (ICCA) Responsible
Care project since the early 1990s.
Our work in this area has been highlighted through the Group’s
inclusion in the FTSE4Good Index since 2004. The FTSE4Good
Index is operated by FTSE and highlights the performance of stock
market listed companies against a range of environmental, social
and governance criteria. To be eligible for inclusion in the index
companies must demonstrate a high level of commitment in
areas such as climate change, environmental management
and human rights.
SCI is a multidisciplinary membership organisation where science
meets business on independent, impartial ground. Established in
1881 as the Society of Chemical Industry, it supports the translation
of science-based innovation into industry for the benefit of society.
SCI work through a global network of industrialists and academics
in sectors as diverse as food and agriculture, pharmaceuticals
and energy.
“Synthomer was excited to take the sponsorship role for the SCIdea
initiative. This was a great opportunity for Synthomer to help early
career scientists gain exposure and develop some core competencies
that will help shape them as future leaders of the chemical industry”.
Robin Harrison, Global Innovation Director
To ensure the safe management and use of its products, Synthomer
is committed to sharing relevant health and safety information
throughout the value chain. To achieve this, we work closely with
our suppliers and customers to fully understand the environmental
impact of our raw materials, processes and products on the overall
product life cycle. We identify potential improvement areas and
focus efforts on delivering those improvements. Growing sustainably
is a challenge, but it is one that we are committed to taking on.
44
Synthomer plc Annual Report 2017
Our approach
Our people
We have made good progress in all five pillars
of our growth and productivity framework to
create an open and positive work environment
for our people.
Read more on pages 46 to 49
Employees
2,879
Safety, health and
the environment
We have continued to focus on
reducing accident rates in the past
year. Total recordable accident rate
fell 56%. We are committed to
achieving a zero accident rate.
Read more on pages 50 to 55
Employees
working in R&D
186
Recordable
accident rate
per 100,000 hours
0.13
Reportable PSEs
per 100,000 hours
0.19
Synthomer plc Annual Report 2017
45
Strategic report Sustainability
Sustainability continued
Our people
Employees in the
emerging markets
24%
Total Group markets
17
Growth and productivity framework
Drive Growth
and Productivity
n
o
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t
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Promoting
a Positive
Environment
Proactive,
Business
integrated
HR Team
Responsive
HR Policies,
Systems and
processes
Board
Senior management
Employees
Male
7
36
Female
1
4
Total
8
40
2,265
566
2,831
46
Synthomer plc Annual Report 2017
Attraction & Retention
In 2017 we relaunched our Company website with a particular focus
on strengthening our employee brand. The new website makes it
easier for prospective employees to better understand the benefits
of joining Synthomer and to access employment opportunities.
We are proud to support a range of initiatives to promote STEM
(Science Technology Engineering Maths) careers, working in
partnership with industry partners such as the Royal Society of
Chemistry (RSC), the Society of Chemical Industry (SCI) and the
Chemical Industries Association. Our people attended Chemistry at
Work 2017, a careers event organised by the RSC, to promote our
business as well as providing Year 10 school students with valuable
career advice. Members of the team also visit universities and
schools in all of the countries in which we operate as part of
promoting STEM and attracting the best people to Synthomer.
Our commitment to employee
health & wellness
The employee health & wellness programme is divided into three
phases with the phases one and two delivered over 12 months:
Phase one: health and fitness screening and analytics.
Phase two: focuses on reviewing results, goal setting, targeted
education and development of a personal plan to improve
resilience and performance.
Phase three: provision of the support required to deliver long term
behavioural change and subsequent re-evaluation.
“The CorPerformance programme caused me to reflect on personal
behaviour and potential consequences. It was a real wakeup call
helping me to sustainably shift the balance towards a more active
and healthier lifestyle. In the programme cohort that I was part of,
not only have individual suit sizes changed drastically but also the
spirit in the team, who share the passion for sensible eating and
drinking – important in our jobs – and sports. Over a year into the
programme and I’m still sometimes to be found running through
Hyde Park at 6.00am with an international and cross functional
group of colleagues – this is perhaps the most obvious sign –
apart from weight and blood pressure – of how fundamentally
this programme has changed me as a leader in Synthomer.”
Lars Wallstein, SBU Director Functional Solutions
We offer an executive programme to our senior leaders in
partnership with CorPerformance, a company dedicated to
driving performance, improving personal resilience, enabling
lasting behavioural change, while actively reducing the long term
risk of disease in individuals as well as organisations. In 2015
a cohort of fifteen of our senior leaders attended the programme
and based on the significant success of this first intervention
the programme was extended to a further cohort of 30 leaders
in 2017 and will continue in 2018.
Reward & Recognition
In 2017 we worked on improving the communication around our
Global Bonus Scheme. We are proud to offer a bonus scheme that
extends to all levels in our organisation, not just to senior leaders,
and having listened carefully to employee feedback have improved
our communication so that every employee understands how they
contribute to the sustained success of our business.
Given our global focus on delivering and sustaining world class
levels of Safety, Health and Environment (SHE) all employees
have some elements of their bonus based on safety performance
measures which pay out, if targets are met, irrespective of Group
financial performance.
Organisational Effectiveness
Building on our focus on Succession Planning in 2016 we have
extended our proactive and structured approach to this area
further down the organisation to key positions and levels below
the senior leadership team. Talent and succession plans continue
to be regularly reviewed by leadership teams, by our Executive
team and the Board.
Our commitment to recognising
our people
Our businesses around the world reward and recognise our
people in many different ways. Our Four ‘I’ programme was
launched in Asia three years ago and it recognises and rewards
employees who can demonstrate Ideas, Innovation, Improvement
and Implementation at work. Anyone, irrespective of their level in
the organisation, who shows they can translate ideas into practical
action will get a chance to present to senior management. The top
performers are then duly recognised and rewarded during the
annual dinner held in Malaysia.
“Our regional leadership team are very active in supporting not
just our Four “I” programme but all our recognitions schemes
and are passionate about recognising people who uphold and
practise the Group’s core values”.
Learning & Development
Our belief is that continuous learning benefits everyone in
our organisation and drives the performance of our business.
In 2017, Synthomer employees around the globe participated
in many thousands of hours of focused learning activities.
In 2017, we launched a European Mentoring Programme pairing
12 of our early career professionals with members of our European
Senior Management Team. This scheme is one example of how
our leaders take an active role in developing future leaders and
how we are investing in learning and development.
We have launched a similar scheme in Asia and will further extend
mentoring schemes in 2018.
Our “Fit for Leadership” programme for Shift Leaders and Middle
Managers was launched this year in Operations. The programme
is designed to support the Synthomer leadership culture and
build engagement and performance in our production sites. The
programme focuses on empowerment and building self-reliance.
The initial training of more the 60 employees took place in Germany
and will be rolled out to other countries in 2018.
Our commitment to developing
leaders of the future
"The Synthomer European Mentoring Programme gives young
professionals the opportunity to interact with the senior team
and understand how the business operates in a supportive
environment. At the same time it gives that same senior team
the opportunity to get new perspectives by connecting with
bright, young professionals – frequently from different cultures
and functions. The combination of group and one-on-one
interactions provides a good mix of both formal and informal
networking. In this way it helps to develop the leaders of
tomorrow while enhancing the leadership of the business today.”
Andy Axford, European Operations Director/Mentor
"The Synthomer Mentoring Programme is a big opportunity for
a young professional. It gives the possibility to meet and work
with the company’s senior leaders. Synthomer has given me
this opportunity – and to others – at an early stage of my career.
It gives mentees an interesting challenge: dealing with senior
managers, having one-to-one meetings, and working with peers
from different countries and backgrounds, developing our skills,
sharing experiences that deepen our knowledge of and our
involvement in the Company."
Dato’ Norashikin Ismail, HR Director Asia
Clara Colombo, Finance Manager/Mentee
Synthomer plc Annual Report 2017
47
Strategic report Sustainability continued
Our commitment to
leadership development
Sherace studied an MSc in Advanced Chemical Engineering
at the University of Birmingham (2017), and a BEng in Chemical
Engineering at the University of Hull (2016). She joined Synthomer
in 2017.
“I applied for the Synthomer Graduate Programme because
of the emphasis on development. As a graduate I was looking
for a company whose ethos matched my own career goals, and
Synthomer presented themselves very well as a growing company
who wanted to invest in future leaders. Moreover, I had previously
undertaken a placement in a Speciality Chemicals company, and
specifically wanted to join a Speciality Chemicals company in a
graduate role. So for both those reasons, Synthomer ticked my
boxes and the opportunity to travel didn’t hurt either!
Since I joined in September, I’ve been working with the
production department at the Harlow plant. As promised,
I’ve had the opportunity to take on a diverse portfolio of projects.
I’ve worked as the Commissioning Engineer on some of the key
site 2017 projects. I’ve even spent a month on shift with the
site operators. Currently, I’m working as the Project Manager
of some key debottleneck projects that yield significant payback
to the business.
I love the diversity of my job, and the constant emphasis on
leadership and competency development. That diversity helps me
as I’m working towards becoming a Chartered Engineer with the
IChemE. To qualify, you need to have an extensive experience in
different engineering capacities. Before I even joined Synthomer
in September, the company sent me on a commissioning course
to ensure that I could jump straight into my role after University;
and since then, the push for development hasn’t stopped.”
Sherace Francis, Graduate Engineer
48
Synthomer plc Annual Report 2017
Leadership Development
In 2017 we continued to invest in the recruitment & development
of graduates and early career professionals with schemes and
structured programmes launched in Europe, Asia and within our
Engineering function.
We received over 1,400 applications for our Asian Graduate
Programme where we aim to develop and create high calibre
graduates by exposing them to different environments within
the Group and giving them international assignments. As well as
getting exposure to our engineering and commercial operations,
the candidates are assessed quarterly through presentations to
senior management.
We seek individuals who are action-oriented, resourceful, and have
the courage to challenge the norms. The competencies we look
for include all-round ability, ambiguity management, the ability to
collaborate with others together with good interpersonal skills.
We look to be a valued part of communities in which we operate
and, as such, we encourage our employees to engage with their
communities. We actively promote STEM in schools and other
educational institutes and in 2017 our employees attended and
presented at a number of events in the UK, Europe and Asia where
positive feedback was received from both our employees and the
participants. Our employees are involved in charitable fundraising
for good causes in their local communities and one of the ways
we have to encourage this, for example, is by having a policy in
the UK to match donations raised by employees.
Corporate Responsibility policies
Our global Code of Conduct is governed by a wide range of
policies which we adopt to ensure our daily business is conducted
in a professional and responsible manner. These policies play a key
role in maintaining our reputation with our internal and external
stakeholders. They also set out the standards to which we hold
ourselves, our employees and our business partners.
Diversity and human rights
Our Equal opportunities, diversity and human rights policy includes
our responsibility to follow all applicable laws and regulations as
well as a complete prohibition of forced, compulsory and child
labour. Details of this policy, along with our Modern Slavery Act
Statement are available on our website: www.synthomer.com.
Diversity is one of Synthomer’s core values. We are a diverse
organisation who employ significant numbers of employees
in Europe, Asia and North America. Whilst our Group Head
Office is based in the UK the majority of employees are based
elsewhere around the globe. Major Synthomer locations tend to
be characterised by a diverse range of nationalities and in the UK,
where we have around 500 employees, we have people from
over 20 different countries.
Whilst Synthomer operates in a typically male dominated industry
20% of our employees are female. The rate at which talented
women are joining our business is increasing and in 2017 41%
of employees who joined Synthomer in the UK were female
as were over 30% of our graduate recruits in Europe and Asia.
In many of our scientific roles we have achieved a gender balance.
Synthomer will comply with UK Gender Pay Gap legislation and has
a Diversity & Inclusion action plan.
Corruption and anti-competitive behaviour
Synthomer is committed to complying with the laws and regulations
of all the countries in which it operates (including those covering
corruption and anti-competitive behaviour). This applies whether
Synthomer is acting directly in a country through employees,
or indirectly through agents, distributors or other intermediaries.
Synthomer requires any individual or entity acting on its behalf,
whether as a consultant, representative, agent or distributor to
know, understand and abide by the laws and regulations applicable
in the country or countries in which they act for Synthomer.
Details of this policy are included in the Synthomer Code of
Conduct which is available on our website: www.synthomer.com
Application of policies
Our values are visible in all corporate communications and are
prominently displayed at all Synthomer sites. Around the globe
we have multiple ways in which we communicate our values in
an engaging way and bring our values to life including induction
processes, training interventions, communications and awards
and recognition campaigns.
All employees are required to complete online training in relation
to our corporate responsibility policies and this certification is
renewed annually.
Before a vendor is on-boarded and approved for purchase
and use, Synthomer employs multiple assessment processes.
A periodic review of key suppliers is carried out to assess
performance of the supplier against criteria covering technical
support, commercial performance, reputation including REACH
and local regulatory compliance. We also carry out periodic supply
chain risk reviews and continually build and improve the raw
materials and vendor on-boarding processes and procedures.
In 2016 we ran an initial awareness training and risk assessment
session with our procurement teams from around the globe
to assess the risk of modern slavery in our supply chains
where we concluded that our business is not facing a high
risk of these forms of exploitation. During 2017 we reviewed
the effectiveness of our policies and supplier due diligence
processes to reduce further the potential for modern slavery
within our supply chain.
In 2018 we will provide further awareness training from the lessons
learned over the course of the last two years and re evaluate our
risk assessment. Our procedures will be updated as a result of the
outcome of this work.
Synthomer plc Annual Report 2017
49
Strategic report Sustainability continued
Safety, Health and the Environment (SHE)
Our approach
Our primary focus as an employer is to ensure that our employees
work safely in a safe and secure environment. Synthomer has
policies and procedures in place, which are constantly being
improved, to enable this to happen.
Synthomer is also committed to continually reviewing its activities
and identifying how we can positively benefit our employees, the
communities in which we operate, and in ensuring that alongside
financial performance we identify and manage broader material
sustainability issues.
In line with our SHE Policy, the Board, Chief Executive and Executive
Committee are fully committed to improving SHE performance and
engaging and involving employees at all levels in all locations in
our SHE programmes. Effective SHE Leadership to deliver SHE
performance is a primary duty and expectation of management
at all levels in the Group, aligned to our three long term goals:
1. To have no accidents or incidents;
2. To have no adverse impact on the health of those who work in,
or live near our operations, nor on the health of those who use
our products; and
3. To minimise any environmental burden created by our activities.
Key practices and programmes
SHE management practices and systems are embedded
throughout the Group with the aim of continuously improving
SHE performance.
Key measures, SHE performance indicators and SHE audit results
are reported to the Board, the Executive Committee and to the
regional management meetings on a monthly basis.
Embedding of the SHE Principles and 10 Golden Rules launched
in 2016 was a priority for 2017, with a focus on systems linked to
permit to work and management of change, as well as refreshing
of guidance on “line of fire”, circulated in local languages across all
operating locations and supported by a short guidance video being
incorporated into site inductions.
Key SHE programmes
2017 SHE key actions
2018 SHE key focus
Group’s Safety, Health and
Environment Management
System (SHEMS) standards
and policies
Group SHE audits
The Group Accident and
Incident Management System
(AIMS)
SHE training, communication
and support
Process Hazard Assessment
(PHA)
Identification and sharing of best practice;
refreshing of Group SHE procedures linked
to key areas of management of change and
permit to work.
Completion of 3 year audit cycle on heritage
Synthomer sites. Group SHE assurance
checks on sites’ internal audit process as
part of site visits.
Trend analysis undertaken to identify common
themes as regards incidents and system failings –
loss of containment issues identified and as a result
new KPIs introduced. Actions led to 20% reduction
in monthly reported losses by year end. Incident
root causes identified for further focus included
poor risk assessment, human factors and asset
integrity issues.
Continued roll-out of first line manager
competence assurance programme.
Ongoing process safety training across
the Group.
Global SHE Managers’ and Site Managers’
Workshops – focus on sharing learning and
SHE leadership.
PHA revalidation process facilitated by Group
SHE team on several sites to assure the
Executive Committee that major accident
hazards are being appropriately managed
and controlled.
Refreshing of further Group SHE procedures;
completion of revised permit to work guidance;
development of self-assessment questionnaires
to assist internal audit process.
New cycle of auditing with continued process safety
focus; move to risk based frequency of auditing.
Effective use of lessons learnt and site review of
high potential incidents to help prioritise where to
focus resource to improve performance.
Development of modular in-house process safety
training tailored to our technologies and processes.
Increased level of support vs. audit to achieve
targeted improvements in performance based
on findings from last audit cycle.
Working with sites to develop a programme of
standardised SHE routines to back-up all other
major SHE initiatives.
Continuation of PHA revalidation process across
lower risk profile sites.
KPI tracking of significant actions from 2017 PHAs
as high priority SHE Improvement Plan items.
The Group publishes an annual Corporate Social Responsibility (CSR) report which is available on line. It discusses a wider range of safety,
health and environmental measures of our performance as well as other CSR measures and activities. Please go to www.synthomer.com
to find a copy of the most recent report.
During Q4 work began looking at aligning sustainability reporting to the new Global Reporting Initiative (GRI) Standards. This activity will be
covered in more detail in the 2017 CSR Report to be published in Q2 of 2018, with the Group objective to align reporting at a “core” level to
the Standards in our 2018 Company Reports.
50
Synthomer plc Annual Report 2017
Safety, health and accident performance
Occupational Safety
The Group’s main lagging indicator of SHE injury performance
is the recordable injury rate for accidents involving more than
first aid treatment. During 2017 we saw a significant improvement
with the number of recordable injuries halving from 18 down to 9,
with a frequency rate of 0.13 per 100,000 hours worked, a 56%
improvement on 2016.
The Group’s reportable lost time accident rate improved in 2017
to give Synthomer its best ever performance, with six over-three-day
lost time accidents during the year down from 11 the previous year,
at frequency rate of 0.09 per 100,000 hours worked.
Our target ultimately is to have no accidents or injuries and whilst
2017 performance is encouraging we will continue to reinforce our
SHE Principles and 10 Golden Rules work to achieve a sustained
performance and interdependent safety culture. This is being
supported by work such as the Line of Fire cards and video
roll-out noted earlier.
There were no reported cases of disease attributed to occupational
factors during the year.
Process Safety
Ensuring the safety of our operations is of paramount importance
to the Group. Alongside our auditing and site support activities,
from 2015 onwards, we have recorded, rated and tracked
process safety events (PSE) using a 4 tier scoring system where
tier 1 and 2 incidents (tier 1 being more severe) meet the definition
for a “Reportable PSE” from the International Council of Chemical
Association’s (ICCA). A Reportable PSE incident rate is now
calculated that will allow for future benchmarking of performance
against our peers.
Performance in this area during 2017 remained broadly flat against
a wider definition of what we classed as a process safety event.
There were 13 Reportable PSEs (equivalent to a rate of 0.19 per
100,000 hours, a 13% increase on 2016). Thankfully none of the
reported incidents resulted in serious injury. More information will
be provided in our CSR Report.
The increase was partly linked to the wider definition and seven
of the events occurred at sites acquired in 2016 and 2017. Those
sites were adopting our more stringent standards and there is an
increased focus on support for all acquired sites to ensure that
their process safety management controls and layers of protection
are robust.
New indicators were developed to track
and analyse progress, with specific focus
on live monitoring of permit controlled
work and control of high hazard activities.
By the end of 2017 most of the indicators
showed improving trends – however
it was clear that there were still some
fundamental failings being identified.
Activities linked to PTW and MOC will
continue to be prioritised during 2018
with the focus on embedding and
sustaining improved performance.
Permit to Work (PTW) and
Management of Change (MOC)
system improvements
A PTW and MOC improvement
programme was implemented during
2017 with the aim of ensuring that all
sites’ PTW and MOC systems met Group
standard expectations as a minimum.
To support the work, self-assessment
questionnaires (SAQ) aligned with each part
of the Group Standards, periodic monitoring
check-lists, guidance documents or pocket
cards were developed to support the sites
in this journey and to establish a common
ground. Site management teams were
directly involved in the process with on-site
support from the Group SHE team in
reviewing the SAQs and site performance.
High hazard activities in particular were
targeted and 4-eyes validation of all such
work is now required. Revised training
packs were also developed for permit
issuers that are being rolled out early
in 2018.
Synthomer plc Annual Report 2017
51
Strategic report Sustainability continued
Delivery of the programmes of work started in 2017 on PHA
revalidation and further strengthening of management of change
and permit to work systems will continue in 2018 with the goal
of delivering significant improvement in this area.
Environmental performance
For 15 years we have been able to report ongoing reductions in
each of our main environmental targets: global warming burden;
energy and water consumption per tonne of production; and waste
disposal from our sites.
Following the acquisition of 7 sites in 2016 from Hexion and
the acquisition of a Belgian site from Perstorp, the Group’s
baseline for target setting and approach to delivering Group
level improvements is being revised to reflect the fact the Group
has a far different energy and emissions profile to its previous
core polymer technology focused structure.
Energy
Based on the sites which formed part of the Group during the year
the total net specific energy consumption (SEC, i.e. energy use per
tonne of production – with electricity converted to primary energy)
rose 2.5%. Most of the increase relates to a rise of 3.5% GJ per
tonne at our plant in the Czech Republic that produces monomers
and accounts for 25% of the Group total energy consumption.
The new Belgian speciality additives site operates more energy
intensive processes compared to our latex and dispersion
processes so also contributed to this increase.
Absolute energy consumption (based on primary rather than
metered electricity) was up 1.6% whilst Group production output
dropped 0.9%. Most of the net increase in GJ used related to the
Belgian site (excluding this the increase was 0.2%).
Going forward the focus will be on Tier 1 operations (the 5-6
that contribute around 75% of the Group total) and some Tier 2
sites (the next 15-20%) implementing projects and efficiency
improvement initiatives to meet Group targets. This will include 2%
year on year reductions in specific energy consumption from 2018
to 2020 as an initial step against a revised 2017 baseline.
Lower output at some sites combined with switching to some
product technologies that are more energy intensive (e.g. more
steam stripping on some latex products) offset some significant
improvements on sites where the full benefits of a number of energy
projects were realised during 2017. This included installation of
steam generators to replace old boilers at a plant in the UK during
Q4 2016 that led to a more than 10% improvement in performance.
ข้อควรปฏิบัติ และข้อห้าม
ควรปฏิบัติงานตามระเบียบปฏิบัติงาน
อย่าเดินภายใต้มีการระงับการขนถ่าย
SHE Principles
่งอาจ
่องมือ/
่องจักรที
่องจักรที
่องมือ/เครื
่ใช้พลังงาน
อย่าเอามือยื
่ไม่มีอุปกรณ์
่นเข้าไปในจุดที
่ภายใต้แรงดัน ซึ
อย่าเคลื
เครื
่องจักรต่างๆ หรือ
่ไม่สามารถมองเห็นได้
่อนย้ายอุปกรณ์ป้องกันจากเครื
อย่าทำางานกับเครื
ป้องกัน
่องมือ/เครื
อย่าสัมผัสเครื
ผลิตภัณฑ์ที
่มีการเคลื
เป็นสาเหตุให้เกิดการบาดเจ็บได้
่อนที
ควรใช้เครื
่องมือที
่เหมาะสม และให้มั
่นใจว่า
เครื
่องมือเหล่านั
้นอยู
่ในสภาพสมบูรณ์
ควรคำานึงถึงตำาแหน่งของร่างกาย
ควรคิดในทางกลับกัน/ตรงกันข้าม
ควรหยุดการทำางาน หากมีการรบกวน
ควรหยุดการทำางาน และคิดทบทวน หากงาน
มีการเปลี
่ยนแปลง หรือประสบกับปัญหา
ควรมองที
่บุคคลอื
่นๆ: เรียนรู
้จากพวกเขา และ
ช่วยเหลือพวกเขา
ควรพิจารณาท่อขนส่งทั
้งหมดถึงศักยภาพใน
การบรรจุของเหลวอันตรายภายใต้แรงดัน -
การสวมใส่อุปกรณ์ป้องกันอันตรายส่วนบุคคล
ควรใช้เครื
่องมือกลเบื
้องต้น หรือร้องขอความ
ช่วยเหลือในกรณีที
่ยกของหนักด้วยแรงคน
ควรมีอุปกรณ์ป้องกันในจุดที
่ความคม พื
้นผิว
ร้อน และจุดหนีบ
ควรมีการกำาหนดเส้นทางอพยพ
Do use the right tools and ensure
they are in good condition
Do think about body position
Do think about your other hand
Do stop work if there are distractions
Do stop work and re-think if the job
changes or you hit problems
Do look at other people: learn from
them and help them
Do consider all pipeline break-in’s as
having potential to contain hazardous
liquids under pressure – use specific PPE
Do use mechanical aids or ask for help
with heavy loads
Do guard against sharps, hot surfaces,
and pinch points
Do plan a route of escape
อย่าวางใจว่า อุปกรณ์ป้องกันต่างๆ จะช่วยป้องกัน
คุณจากการชน/กระแทกได้
่ห่างจากสิ
อยู
อันตราย
่งที
่เป็น
หยุดแล้วคิด
เรามีเวลาเสมอที
ทำางานอย่างปลอดภัย
่จะ
THA
Do
Don’t
Do follow the procedures
Don’t walk under suspended loads
Don’t remove guards from energized
equipment
Don’t interfere with unguarded equipment
Don’t touch any equipment or product
moving with enough force to cause injury
Don’t put your hands where you cannot
see them
Don’t rely on protective equipment to
protect you from impact
Stay out of the
Line of Fire
Stop and Think
ENG
We always have time
to work safely
52
Synthomer plc Annual Report 2017
Look After Yourself
Look After Each Other
Effective Last Line of Defence
Stop and Think
Safe Workplace
Safe Vehicle, Safe Driver
Safe Processes and Operations
Safe Systems of Work
No Change Without Assessment
Learning From Our Mistakes
We always have time
to work safely
G
N
E
There is a pipeline of energy saving related projects now being
progressed on the Tier 1 sites that are designed to help return
to an improvement in performance in the coming years.
Water use
Total water consumption per tonne of production decreased 4.5%
in 2017, with most of the improvement due to a reduction in “once
through” cooling requirements on two German sites and reduced
losses due to a replacement reactor in the Middle East.
Excluding river water (used for “once through” cooling and then returned
to the river on a number of sites), water usage per tonne improved by
2.4%, reflecting improved operating processes and investment on some
sites. Variance is expected year to year since the majority of our products
are water based dispersions with some changes down to product mix
and volumes. As with energy, opportunities to improve water efficiency
will be built in to sites’ manufacturing strategies and environmental
targets on a prioritised basis.
Waste disposal
Overall there was a 24% increase in total waste generated by the
group, 26% on a waste per tonne production basis. Most of this is
related to a specific waste stream on the new site in Belgium, which
will increase the baseline going forward. Excluding this there was
4% increase per tonne. 600t of this relates to a one-off relocation of
cinder waste from our plant in the Czech Republic to offsite landfill.
Looking ahead, with several major capital investment projects
underway, one-off construction waste figures are expected to
influence 2018 performance.
There was a 34% drop in the amount of hazardous waste sent
to landfill on a per tonne basis. This was mainly due to 800t of
hazardous waste being processed with other waste streams at an
intermediate facility to produce non-hazardous waste. Ongoing
projects to improve product quality and reduce process waste
should lead to a reduction in overall waste going forward.
Figure 1 All Recordable Accident
Frequency Rates
(Accidents per 100,000 hours)
Figure 2 Total Net Primary Energy Use
(Giga Joules per production tonne)
Figure 3 Total Water Consumption
(m3 per production tonne)
Recordable Case Rate
Actual
Old Target – base 2005
Actual
Old Target – base 2005
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
6.00
5.00
4.00
3.00
2.00
1.00
0.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
11
12
13
14
15
16
17
07 08
09 10
11
12 13 14 15
16
17
07 08
09 10
11
12 13 14 15
16
17
Figure 4 Hazardous Waste Disposal to Land
(Tonnes waste per production tonne)
Figure 5 Global Warming Burden
(Tonnes CO2 equivalent released per production
tonne) (Including CO2 from energy generation/use)
Figure 6 Recordable Process
Safety Event Rate
Actual
Old Target – base 2005
Actual
Old Target – base 2005
Recordable PSE Rate
0.006
0.005
0.004
0.003
0.002
0.001
0.000
07 08
09
10 11 12 13
14 15
16 17
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
s
r
u
o
h
0
0
0
,
0
0
1
r
e
p
s
t
n
e
d
c
n
i
I
0.30
0.25
0.20
0.15
0.10
0.50
0.00
07 08
09
10 11 12 13
14 15
16 17
2015
2016
2017
Rate = per 100,000 hours worked
Synthomer plc Annual Report 2017
53
Strategic report
Sustainability continued
Greenhouse gas emissions
The Group reports environmental KPIs in the format recommended
by the Department of Environment, Food and Rural Affairs (DEFRA),
with Annual Reports containing data for each year since 2005 on
a three year rolling basis.
Reporting parameters
The 2017 financial year reporting includes all manufacturing
operations, all office locations co-located with manufacturing
and those listed as contact locations in the Annual Report or
on the Company’s website. It does not include some very small
locations such as home offices. These locations will have no
material effect on the Group’s overall GHG emissions, being
estimated at considerably less than 0.1% of the Group total.
All known emissions from manufacturing process have been
included. Specifically this covers direct energy usage and the
indirect energy costs of heating, cooling and other site services
where these are provided by a third party. They include estimates
for the effects of the release of volatile organic compounds (VOCs)
and refrigerant gases. The only known emissions which have not
been included are direct emissions of CO2 from on-site waste
treatment facilities that have not currently been quantified, but
which are not believed to have significant material impact on
the overall figures reported.
The Group has no known uses or releases of perfluorocarbons
or sulphur hexafluoride. All releases of nitrous oxide or methane
are associated with energy production and are not separately
quantified. The Group continues to report scope 1 & 2 emissions.
No estimate has been made of scope 3 emissions. The Group
continues to use emissions per production tonne as its intensity
ratio. The data sources for emissions factors (CO2e) are those
from DEFRA (dataset for 2016 reporting published in June 2017)
and the IEA (International Energy Authority).
Calculation methods
All direct energy production from fossil fuels has been aggregated
on a Group-wide basis and converted to CO2e by using the
appropriate DEFRA emissions factors. No allowance has been
made for possible country to country variation in calorific value
or CO2 emission factors for primary fuels.
Electricity has been converted to CO2e on a country by country
basis. For 2015, factors provided by DEFRA for all operating
countries were used. For 2016 and 2017, factors from DEFRA
were used for UK grid electricity and for overseas grid electricity the
factors used are those from the relevant IEA “World CO2 Emissions
from Fuel Combustion” databases.
In accordance with UK Government guidance, factors used for 2017
reporting are based on 2015 validated data.
Several sites within the Group purchase certified “green” electricity.
Electricity for these locations has been given a CO2e emissions
factor of 0.00 in calculating energy related emissions totals. These
sites were Oss (Netherlands), Marl (Germany) and all sites
in the UK.
54
Synthomer plc Annual Report 2017
Synthomer’s site in Stallingborough, UK takes most of its electricity
from an exclusive contract with an adjacent waste incinerator
operated by Newlincs. This electricity is certified as “Green” by the
UK government. As a mixture of waste is deemed both renewable
and non-renewable, it does not have a zero emission factor. For
2017 the applied emission factor for electricity from Newlincs is
based around that determined for the site’s Climate Change
Agreement (CCA) reporting of around 0.50 kg CO2e per kWh. Work
is ongoing to validate the factors applied. The site is also provided
with indirect heating in the form of hot water from Newlincs.
VOCs have been aggregated on a Group basis and converted to
CO2e using a factor of 11. This figure has been used by UK CIA
member companies since 2005 and is at the upper end of the range
for VOCs. Information on the release of refrigerant gases has been
collected for the past 5 years. Releases of each individual gas have
been aggregated each year to give a Group release total and then
converted to CO2e using the equivalence factors given by DEFRA
for each gas. The emissions factors applicable to refrigerant release
in 2017 are as per those in 2016 as no changes were reported by
DEFRA–Global Warming Potential (GWP) factors from the IPCC 4th
assessment report.
Performance in 2017
An increase in energy consumption and associated emissions from
the plant in the Czech Republic that uses brown coal and accounts
for 31% of Group emissions meant that overall emissions also rose
in 2017 compared to 2016.
However, a reduction in reported VOC emissions, implementation of
energy related projects and the purchase of “green” grid electricity
for all UK sites meant the overall emissions increase at Group level
was 1.1% tonnes CO2 equivalent/tonne production against the 2.5%
increase in GJ/tonne energy used.
Changes in the emissions factors in different countries have
a significant impact over which the company has no control. For
2017 reporting the emissions factors for the Czech Republic, Italy
and Malaysia (countries whose sites all contribute >2% of overall
emissions) all increased by more than 3%. Some benefit was gained
in Germany where there was a 5% reduction in the factor applied.
Refrigerant losses in the larger Group were up 5% compared
to 2016, mostly linked to equipment failures on one site where
replacement equipment has now been purchased. However, owing
to the refrigerants involved having less global warming potential,
the CO2 equivalent tonnage loss was 24% lower than 2016.
VOC emissions reduced by 10% in 2017 due mainly to better
operation of the cryogenic VOC system in Harlow.
Environment KPIs
This table presents environmental KPIs for 2015–17, with a coverage and format in line with DEFRA’s 2013 guidance, to comply with the
reporting required under the Companies Act 2006 (Strategic Report and Report of the Directors’ Report ) Regulations 2013.
Energy consumption1
GJ
Gas
Light oil
Heavy oil
Steam (metered)
Electricity (primary basis)
GJ/tonne production
Emissions to Air2
Carbon Dioxide (CO2) equiv. from Energy tonnes3
Tonnes CO2 equivalent/tonne production
Sulphur Dioxide (SO2) (tonnes)
Kilos SO2/tonne production
Nitrous Oxides (NOx) tonnes4
Kilos NOx/tonne production
Volatile Organic Compounds (VOC) tonnes
Kilos VOC/tonne production
Refrigerant Releases (HCFC and others) Kgs
Tonnes CO2 equivalent
Kilos Refrigerant/tonne production
Total Carbon Dioxide (CO2) equiv. tonnes5
Tonnes CO2 equivalent/tonne production
2017
2016
2015
% change
2015 – 176
% change
2016 – 176
5,411,367 5,328,447 3,458,905
56.4%
1.6%
1,455,681 1,375,411
701,901
24,990
4,651
24,933
26,930
4,452
0
756,890
792,785
746,797
2,586,196 2,600,153 1,969,619
3.459
3.374
2.618
32.1%
2.5%
301,353
299,123
199,011
0.193
158.3
0.1012
121.33
0.0775
164
0.105
1,773
4,485
0.189
140.6
0.0890
112.54
0.0713
184
0.117
1,681
5,930
0.151
22.8
0.0172
24.61
0.0186
222
0.168
1,958
5,383
51.4%
27.9%
595.0%
486.8%
392.9%
316.2%
-26.1%
-37.6%
-9.5%
0.0011
0.0011
0.0015
-23.6%
307,645
307,081
206,840
0.197
0.194
0.157
48.7%
25.6%
0.7%
1.7%
12.6%
13.7%
7.8%
8.8%
-10.9%
-10.1%
5.4%
6.4%
0.2%
1.1%
Notes
1. Data relates to site usage of all fuels, excluding transport of goods to and from site and the movement of these vehicles on site. Internal transport on site is included.
2. Emissions to air have been calculated from the usage of all fuels, excluding transport fuel. They therefore include both direct emissions and indirect emissions related
to bought-in electricity, steam, compressed air, cooling water etc., with the exception of transmission and distribution losses for electricity (these losses are in
Scope 3, this report is for Scope 1 & 2).
3. CO2 equivalent emissions include contributions from CH4 and N2O associated with combustion.
4. NOx emissions are predominantly those from combustion processes. The CO2 equivalent Global Warming Potential contribution from these releases is already
included in the CO2 from energy figure above.
5. The total CO2e figure is the total of the CO2 equivalent from energy + the VOC contribution (assuming an average factor of 11 kg CO2e per kg VOC) + the
refrigerant contribution.
6. Percentage changes are calculated from the base data and may differ slightly from changes calculated from the data in the tables because of rounding.
By order of the Board.
R Atkinson
Company Secretary
1 March 2018
Synthomer plc Annual Report 2017
55
Strategic report Letter from the Chairman
Board well prepared for
forthcoming governance changes
Neil Johnson
Chairman
Dear Shareholder
I am pleased to report on our corporate governance compliance for
2017 and give an update on the Board’s ongoing programme to
improve its effectiveness.
We were once again in full compliance with the applicable UK
Corporate Governance Code (being the April 2016 version effective
for the Company from 1 January 2017) throughout the year.
The Board composition remained unchanged until the end of the
year and therefore we maintained a balanced position between
independent and non-independent directors throughout that period.
Our 2017 AGM resolutions received overwhelming support and it
was particularly pleasing to achieve greater than 99% in favour of
the new remuneration policy which has subsequently been fully
implemented by the Remuneration Committee. The Board
supported the work of the Audit Committee during the year in
the development of its remit in connection with the oversight of
risk management processes and review of tax matters.
In accordance with the commitment given in my 2016 letter, an
externally facilitated evaluation of the Board and its Committees was
carried out in 2017. The online surveys were completed by non-Board
members who are regular attendees at Board and Audit Committee
meetings as well as the Directors themselves, in order to gain a broad
range of opinions on Board and Committees performance. The
feedback report recognised the Board’s progress in promoting a
culture of openness and mutual respect, developing good boardroom
dynamics and increasing exposure to wider management. Areas
identified for focus in 2018 include development of the Board’s
oversight of employee management and provision of tailored training
and workshops on aspects of the Group’s business and operations.
In addition, an updated code of business conduct will be launched in
2018 in order to promote the setting of the correct tone in which the
Group’s business and its employees are required to operate.
Other governance activity carried out by the Board and its
Committees in 2017 included the review and approval of the Group’s
Modern Slavery Act Statement and tax strategy. Reports were also
received on gender pay gap data and the proposed reporting for
external publication will be approved by the end of March 2018.
Jinya Chen retired as an independent non-executive director on
31 December 2017 after 5 years’ service on the Board. The
Nomination Committee has initiated a search for a replacement
independent non-executive director in order to bring the Board
composition back into balance.
As we enter 2018, I believe the Board is well positioned to adapt to
the changes in the corporate governance landscape envisaged by
the new Code proposals and board guidance, currently under
consultation and likely to be effective from 1 January 2019.
I do hope you find the information contained in the following pages
of this report helpful and informative.
Neil Johnson
Chairman
1 March 2018
Governance snapshot
Board membership and balance
Board composition
1
3
2
1 British
2 Dutch
3 Malaysian
Board tenure
3
1
2
1 1-5 years
2 5-10 years
3 >10 years
6
1
1
4
2
2
Compliance with the UK Corporate Governance Code
The Board considers that it has complied throughout the financial
year ended 31 December 2017 with the provisions set out in
the April 2016 UK Corporate Governance Code (“the Code”).*
Application of the Code
The main principles of the Code were applied as follows:
Leadership and effectiveness
Operation of the board
The activities of the Company are controlled by the Board which,
during 2017, comprised two executive directors and seven non-
executive directors. The roles of Chairman and Chief Executive Officer
are clearly divided between Neil Johnson who heads the Board in his
capacity as non-executive Chairman and Calum MacLean who has
responsibility for the running of the Company’s business as Chief
Executive Officer. The non-executive directors all have wide business
and boardroom experience gained in a broad range of business
sectors, details of which are given on pages 58 and 59.
The Board has reserved to itself a schedule of matters which
includes setting long-term objectives for the Group and the
strategies to be employed in achieving them. The Board has
delegated to the Chief Executive Officer responsibility for the
development and preparation of the business plan and the annual
budget for recommendation to the Board. As the senior executive
director, the Chief Executive Officer is responsible for all aspects of
day-to-day operational control of the Group and execution of the
Group strategy. The Chief Executive Officer has established and
chairs an Executive Committee (whose other members are the Chief
Financial Officer, the Chief Counsel and Company Secretary, and
the operational vice presidents for the Group) to assist him in the
performance of his duties and which meets once a month. The
Chairman has available to him the minutes of the Executive
Committee and all directors receive a monthly management report
comprising business, financial and safety, health and environmental
reviews from the Chief Financial Officer.
The Board has established Audit, Nomination, Remuneration and
Disclosure Committees which are discussed on page 63.
Note
* A full version of the Code can be found on the Financial Reporting Council’s
(‘FRC’) website www.frc.org.uk.
Synthomer plc Annual Report 2017
57
Governance Board of Directors
1
3
2
4
1. N A Johnson (68)
Chairman
Nationality: British
Position and date of appointment: Chairman of
the Board and the Nomination and Disclosure
Committees. Neil joined the Board in 2011 and
was appointed Chairman in May 2012.
Key appointments: Neil is Chairman of Motability
Operations Group plc, Centaur Media plc and
Electra Private Equity plc and the senior
independent non-executive director of the
Business Growth Fund.
Skills and experience: Neil held senior executive
positions at British Aerospace and in the UK
motor manufacturing industry before becoming
Chief Executive of RAC Holdings from 1995-1999.
Neil has considerable experience as an
independent non-executive director and public
company chairman gained in multiple sectors
and geographies.
2. C G MacLean (54)
Chief Executive Officer
Nationality: British
Position and date of appointment: Chief Executive
Officer since January 2015; member of the
Disclosure Committee.
Key appointments: Calum was appointed as a
non-executive director of Saudi Basic Industries
(SABIC) headquartered in Riyadh in October 2017.
Skills and experience: Calum was previously a senior
board executive of INEOS and was a founder member
of the business in 1998. At INEOS he was most
recently executive chairman of INEOS Olefins and
Polymers Europe and chairman of Styrolution, INEOS’s
joint venture with BASF, and Petroineos Refining,
INEOS’s joint venture with PetroChina. Calum had
been Chief Executive of a number of its principal
business units and actively involved in merger and
acquisitions, strategy and implementation. Prior to
INEOS, he spent six years at Inspec (International
Speciality Chemicals), a publicly listed company on the
London Stock Exchange that was originally formed
through a management buyout of BP Chemicals.
3. S G Bennett (53)
Chief Financial Officer
Nationality: British
Position and date of appointment: Chief
Financial Officer since May 2015; member of
the Disclosure Committee.
Key appointments: No external appointments.
Skills and experience: Stephen was previously at
INEOS where he had been chief financial officer at
Petroineos Refining since 2006. In addition to this
role, Stephen had acted as chief financial officer of
INEOS Upstream Limited, a start-up oil and gas
exploration business, and of INEOS Olefins and
Polymers South and INEOS Phenol. He joined
Coopers & Lybrand in 1986 and is a qualified
chartered accountant. He was at Full Circle
Industries plc as company secretary
and group controller before moving to
PricewaterhouseCoopers LLP (PwC) in 1997
as a director in transaction services. At PwC, he
specialised in public and private equity transactions
across a variety of sectors including chemicals.
4. Dato Lee Hau Hian (64)
Non-executive director
Nationality: Malaysian
Position and date of appointment:
Non-executive director since 2002; first joined
the board in 1993 and stood down in 2000 to
become an alternate director.
Key appointments: Hau Hian is a Director of
Kuala Lumpur Kepong Bhd and is the president
of the Perak Chinese Maternity Association. He
also serves as a Director of Yayasan De La Salle.
Skills and experience: Hau Hian is the Managing
Director of Batu Kawan Bhd, a listed Malaysian
investments holding company, with interests in
plantations and chemicals manufacturing.
58
Synthomer plc Annual Report 2017
7
9
5
6
8
5. Dr J J C Jansz (61)
Non-executive director
Nationality: Dutch
Position and date of appointment: Independent
non-executive director since April 2012; member
of the Audit and Remuneration Committees.
Key appointments: Just is founder and managing
director of Expertise Beyond Borders BV, an
independent business and technology management
consultancy, providing services globally to chemical
and polymer companies. He is a senior advisor at
Natrium Capital (UK) and Siluria Technologies (US).
Skills and experience: Just has over 30 years
chemical industry experience at Shell, Basell and
LyondellBasell. Until July 2010 Just was President,
Technology Business, and a member of the
management team of LyondellBasell, overseeing
process technology licensing, polyolefin catalysts
and new ventures. Just has previous experience as
a non-executive director in the US and as an advisor
in Saudi Arabia.
7. B W D Connolly (61)
Senior Independent Director
Nationality: British
Position and date of appointment: Independent
non-executive director since January 2014;
Chairman of the Remuneration Committee;
member of the Audit, Disclosure and Nomination
Committees. Senior Independent Director since
April 2015.
Key appointments: Brendan is a non-executive
director of Victrex PLC and two private equity
backed companies, one of which he chairs.
Skills and experience: Until June 2013 Brendan
was a senior executive at Intertek Group plc and
had previously been chief executive officer of
Moody International (which was acquired by Intertek
in 2011). Prior to Moody, he was managing director
of Atos Origin UK, and spent more than 25 years of
his career with Schlumberger in senior international
roles over three continents. Brendan has previous
experience as chairman of the remuneration
committee of a UK listed company.
6. The Hon. A G Catto (65)
Non-executive director
Nationality: British
Position and date of appointment:
Non-executive director since 1981.
Key appointments: Alex is managing director of
CairnSea Investments Limited, a private investment
company, and a non-executive director of several
early stage companies that have been backed by
CairnSea. His current other directorships include
Neptune Investment Management Limited.
Skills and experience: Prior to the establishment
of CairnSea Alex was a director of Morgan Grenfell
& Co and then Lazard Brothers & Co Ltd.
8. C A Johnstone (57)
Non-executive director
Nationality: British
Position and date of appointment: Independent
non-executive director since March 2015; Chair of
the Audit Committee; member of the Nomination
and Remuneration Committees.
Key appointments: Caroline is non-executive
director and Chair of the Audit Committee of
Shepherd Building Group Limited and is a member
of the governing council of the University of Leeds.
She also provides extensive consulting services
to a range of global chemical and industrial
organisations. Until January 2018 Caroline was
deputy chair, non-executive director and Chair of the
Audit Committee of Leeds Teaching Hospitals Trust.
Skills and experience: Caroline is a chartered
accountant and member of the Institute of Chartered
Accountants of Scotland. She was a partner in
PricewaterhouseCoopers (PwC) until 2009, having
worked extensively with large global organisations
on turnaround, culture change, delivering value
from mergers and acquisitions and cost optimisation
programmes. She sat on the board of the Assurance
practice of PwC in the UK.
9. R Atkinson (54)
Chief Counsel & Company Secretary
Nationality: British
Position and date of appointment: Company
Secretary since 1998; Group Chief Counsel.
Key appointments: No external appointments.
Skills and experience: Richard qualified as a
solicitor in 1988 practising as a corporate lawyer
before moving into industry.
Synthomer plc Annual Report 2017
59
Governance Corporate governance
Division of Responsibilities
Chairman
• primarily responsible for the working and effectiveness of the Board
•
facilitating an effective contribution from the non-executive directors and a constructive relationship with the
executive directors
• ensuring the balance of membership of the Board is appropriate
• ensuring that the Board is in full control of the Company’s affairs and has an effective dialogue with
its shareholders
leading on all aspects of corporate governance
•
Chief Executive
Officer
Senior Independent
Director
Non-executive
Directors
Board reserved
matters
• senior executive responsible for operational management of the Group
• development, preparation and implementation of the Group’s strategy as approved by the Board
• communication of the Group’s culture and values
• communicating the Group’s financial performance to investors in conjunction with the Chief Financial Officer
• keeping the Board fully informed of all material issues
•
•
•
•
•
•
to be available to shareholders when concerns have not been resolved through normal channels
to lead the annual appraisal of the Chairman
to develop a balanced understanding of the issues and concerns of major shareholders
to provide a sounding board for the Chairman
to bring an independent and objective judgement to bear on issues of strategy, performance and resources of
the Group
to challenge constructively and scrutinise management performance
• setting of long term objectives and strategies to be employed in achieving them including the approval of
annual budgets
• policy setting for safety, health and environmental matters, business conduct, diversity and human rights,
recruitment and employment, risk management and treasury
• material decisions on capital raising, financial commitments, capital expenditure, acquisitions and disposals
and the prosecution, defence and settlement of litigation
• approval of information contained in communications to shareholders
•
the review and monitoring of performance
Board structure
Board
Audit Committee
Disclosure Committee
Remuneration Committee
Nomination Committee
provides advice and services to the Board and its Committees
supports the Chairman in all governance matters
Company Secretary
CEO
Executive
Committee
Chief Financial
Officer
Company Secretary
& Chief Counsel
Executive Vice
President – Asia
Vice President –
Europe
Vice President –
Americas and
Middle East, Investor
Relations and
Communications
Vice President –
Specialities,
Business
Development &
Global HR Director
Vice President –
Operations
60
Synthomer plc Annual Report 2017
During 2017 the Board held seven meetings with a full day
dedicated to an annual strategy development review. The
directors receive in advance full information on all matters to
be discussed at Board meetings as well as a detailed review of
performance. The non-executive directors met once without
the Chairman to appraise his performance. The Board met once
without the executive directors to appraise their performance.
In addition, arrangements are made each year for the Board
to visit up to two of the Group’s operational sites and meet
local management. Ad hoc site visits are facilitated for individual
non-executive directors on request. During 2017 the Board
held one of its meetings in Belgium and in conjunction with
that Board meeting visited the Company’s newly acquired plant
near Ghent where presentations were given by local senior
management and a plant tour took place.
Board activity in 2017
Safety,
health and
environment
Innovation
Investing in
organic growth
Internal control
and risk
management
Growth through
acquisition
Governance
and stakeholder
relations
Financial
performance
Leadership
and people
Board activity in 2017 – Supporting our strategy
Safety, Health and Environment (SHE)
SHE performance and initiatives are reviewed at every meeting
supported by a written report and presentation by the Vice
President for Operations.
Investing in Organic Growth
Material capital expenditure projects are subject to Board review and
approval. During the year investment in capacity expansion projects
were approved at sites in Finland, Italy and the USA. Progress on
the major capacity expansion projects approved in 2016 at sites in
Malaysia and Germany were monitored throughout the year.
Growth Through Acquisition
The acquisition of Speciality Additives and of BASF Pischelsdorf were
subject to detailed review and approval. The post completion progress
on integration and synergy achievement of the PAC (Dispersions)
acquisition which completed in June 2016 was monitored throughout
the year. Several acquisition opportunities were reviewed and the ‘deal
log’ was considered at each meeting.
Financial Performance
Financial and operational performance and strategic initiatives are
reviewed at every meeting supported by reports and presentations
from the executive directors and vice presidents. Detailed reviews
of specific business areas were provided by the responsible vice
president or functional head in conjunction with budget and
strategy discussions and capital expenditure project reviews.
Leadership and People
Succession planning processes and progress were reviewed
with support from the Global HR Director.
Governance and Stakeholder Relations
Routine reports on governance and investor relations matters
were given at each meeting and developments in Corporate Social
Responsibility and non-financial reporting were reviewed periodically.
The new remuneration policy was implemented following shareholder
approval at the 2017 AGM. An externally facilitated evaluation of the
Board and its Committees was carried out.
Internal Control and Risk Management
As well as receiving regular reports from the Audit Committee on
the Company’s internal control and risk management processes
particular attention was paid to cyber and information systems security.
Innovation
As a core pillar of business growth the global Innovation function
and its resources together with the product development pipeline
was reviewed at the annual strategy development day.
Site Visits
The Board visited the Speciality Additives plant near Ghent Belgium
acquired in March 2017. Visits were made by individual non-
executive directors to the Group’s plants in Sokolov (Czech
Republic) and Langelsheim (Germany).
Synthomer plc Annual Report 2017
61
Governance Corporate governance continued
Board membership and balance
The Chairman, Chief Executive Officer, Chief Financial Officer and
Senior Independent Director together with Chairs and members of
the Audit, Nomination, Remuneration and Disclosure Committees
are identified on pages 58 and 59. The Board considers that Caroline
Johnstone, Just Jansz and Brendan Connolly are independent in
accordance with the provisions of the Code. The Board considered
that Jinya Chen was independent until the date of his retirement on
31 December 2017. The Board composition remained unchanged
until 31 December 2017 and therefore maintained a balanced
position between independent and non independent directors
throughout 2017. As there has been an imbalance between the
number of independent and non-independent directors since
1 January 2018 the Nomination Committee has initiated a search
for a replacement independent non-executive director in order to
bring the Board composition back into balance.
Non-executive directors are appointed for one-year terms.
All directors submit themselves for annual election at each
Annual General Meeting.
Number of
meetings held
Number of
meetings
attended
Stephen Bennett
Alex Catto
Jinya Chen
Brendan Connolly
Just Jansz
Neil Johnson
Caroline
Johnstone
Lee Hau Hian
Calum MacLean
Board
Audit Remuneration Nomination
Disclosure
Committees
7
4
3
1
9
7/7
7/7
7/7
6/7
6/7
7/7
7/7
7/7
7/7
N/A
N/A
N/A
4/4
4/4
N/A
4/4
N/A
N/A
N/A
N/A
N/A
3/3
3/3
N/A
3/3
N/A
N/A
N/A
N/A
N/A
1/1
N/A
1/1
1/1
N/A
N/A
9/9
N/A
N/A
8/9
N/A
9/9
N/A
N/A
8/9
A balanced Board during 2017
Chairman
Independent
non-executive directors
Executive and
non-independent
non-executive directors
Caroline Johnstone
Just Jansz
Jinya Chen (retired
31/12/2017)
Brendan Connolly
Calum MacLean
Stephen Bennett
Alex Catto
Lee Hau Hian
The adjacent table shows the number of meetings of the Board,
Audit, Remuneration, Nomination and Disclosure Committees
held during the year and the number of meetings attended by
each director. Where a director is unable to attend a Board or
Committee meeting his or her views on agenda items are
canvassed in advance of the meeting and incorporated into
the discussions. The non-executive directors disclose to the
Board their other significant commitments.
Induction and training
Induction arrangements are in place in order to ensure new
directors receive a full formal and tailored induction on appointment.
The Chairman reviews and agrees the training and development
needs of the directors and the skills and knowledge of the Board
as a whole are updated by briefings provided by the Company’s
internal resources and materials, workshops and seminars offered
by external advisers. During 2017 briefings were delivered to the
Board on developments in corporate governance reporting
and governance and best practice in remuneration. The Audit
Committee was provided with updates and workshop training
provided by PwC LLP. As no directors were appointed during
the year no induction training was required to be given.
Performance evaluation
In 2017, Lintstock were engaged to undertake an evaluation of
the performance of the Board of Directors. Lintstock is an advisory
firm that specialises in Board performance reviews and has no
other connection with the Company.
The first stage of the review involved Lintstock engaging with
the Chairman, the Chairs of the Audit and Remuneration Committees
and Company Secretary to set the context for the evaluation, and to
tailor survey content to the specific circumstances of the Company.
All Board members were then requested to complete online surveys
addressing the performance of the Board, its Committees, and the
Chairman. Non-Board members of the Executive Committee, as
regular attendees at Board meetings, were also invited to complete
the online survey relating to the Board. Members of the Group
Finance Department who attended Audit Committee meetings during
the course of 2017 were invited to complete the online survey relating
to that Committee. The surveys were distributed following the Board
and Annual Strategy review meetings held in November 2017. The
anonymity of the respondents was ensured throughout the process
in order to promote an open and frank exchange of views.
62
Synthomer plc Annual Report 2017
Lintstock subsequently produced a report addressing the following
areas of Board performance:
• The appropriateness of the Board’s composition was assessed,
and respondents were asked to identify any changes that ought
to be made to the profile of the Board.
• The Board’s understanding of the views of key stakeholders and
the markets in which the Company operates was considered,
and the Board’s oversight of relevant technological
developments, and the culture and behaviours throughout the
Company, was reviewed.
• The relationships between Board members and management,
and the atmosphere in and management of meetings, were
assessed, as was the quality of the Board packs and
management presentations.
• The effectiveness of the Board in reviewing the Group's
current performance, and influencing future performance,
was considered, and respondents were asked to identify
areas upon which they feel the Board should spend more or
less time focusing over the coming year.
• The Board’s oversight of strategy and progress against each of
the Company’s strategic priorities was considered, as was the
flow of information to the Board around potential acquisition
opportunities, and the integration of acquired businesses.
Respondents’ views as to the top strategic issues facing the
Company were also identified.
• The Board’s focus on risk was assessed, as was the adequacy
of succession plans for members of top management.
Respondents were asked to consider the top Human
Resources priorities facing the Group over the coming years.
The performance of the Audit, Nomination and Remuneration
Committees of the Board was also reviewed in separate reports. The
report on the performance of the Chairman was provided to the Senior
Independent Director who discussed it with the Chairman and the
report on individual Board members was provided to the Chairman.
The Lintstock reports on the Board and its Committees were
distributed to Board members in early January 2018 and were
discussed and considered in detail at the Board meeting held
later that month. A representative of Lintstock attended that Board
meeting in order to assist with the Board’s consideration of the
reports. The findings of the evaluation are reviewed in the letter
from the Chairman on page 56.
Board Committees
The Board has formally established Audit, Nomination,
Remuneration and Disclosure Committees, each with their own
terms of reference which set out their respective roles and the
authority delegated to them by the Board. Copies of the terms of
reference are available upon request from the Company Secretary
and can also be downloaded from the Company’s website. All
non-executive directors have a standing invitation to attend
Committee meetings unless they are notified otherwise.
The Audit, Nomination and Remuneration Committee reports
are set out at the end of this Corporate Governance report.
Relations with shareholders
Dialogue with institutional investors is conducted on a regular basis by
the Chief Executive Officer and the Chief Financial Officer and meetings
take place following the announcement of half and full year results and
at other times according to circumstances. In addition to half and full
year reporting, the Board has decided to continue with the practice
of providing interim management statements notwithstanding that it is
no longer a regulatory requirement to do so.
The Board has adopted a set of shareholder communication
principles in order to ensure that Board members develop an
understanding of the views of the Group’s major shareholders.
These principles require the Chairman to be present with the
Chief Executive Officer and the Chief Financial Officer at sufficient
shareholder presentations and meetings that he fully understands
the issues and concerns of major shareholders. Alternatively, the
Chairman is also available for meetings with major shareholders at
their request.
The Chief Executive Officer reports on shareholder relations at
each Board meeting. Communications with shareholders relating
to corporate governance matters are conducted by the Chairman
with the assistance of the Chairs of the Audit and Remuneration
Committees. Reports on all meetings between non-executive
directors and institutional shareholders and their representative
bodies are given to the Board at the first opportunity following
such meetings, as is all correspondence with them.
The Senior Independent Director is available to shareholders if they
have concerns and where contact through the normal channels of
the Chairman or the Chief Executive Officer has failed to resolve or
for which such contact is inappropriate.
The Board seeks to encourage participation of all shareholders,
and in particular private investors, at the Company’s Annual General
Meeting and endeavours to ensure all Board members are in
attendance. In particular, the Chairs of the Audit, Nomination and
Remuneration Committees are available to answer questions.
The Company makes use of its website www.synthomer.com to
communicate with its shareholders and also publishes half and full
year results, Company announcements, share price and corporate
governance and other investor information there.
Information on the Company’s major shareholdings and share
capital is included in the Report of the Directors on pages 85 to 87.
Accountability
An explanation of the directors’ responsibilities for preparing the
financial statements, their report that the business is a going
concern, a viability statement, a responsibility statement and their
statement as to disclosure of information to the auditor are set out
on pages 86 to 88 respectively. Statements by the auditor about its
reporting responsibilities are set out on pages 89 to 94.
A report on the approach to internal control is set out below.
The directors endeavour to make the Annual Report and financial
statements as informative and understandable as possible.
Synthomer plc Annual Report 2017
63
Governance Corporate governance continued
Risk management and internal control
The Board of Directors has ultimate responsibility for the Group’s
systems of risk management and internal control and for reviewing
their effectiveness and sets appropriate policies to ensure that the
Code requirements are met. The systems of risk management and
internal control deployed within the Group are designed to reduce
the risks of failure to meet business objectives, but these risks
cannot be eliminated. The risk management and internal control
systems adopted can therefore only provide reasonable, not
absolute, assurance about meeting such business objectives or
against material misstatement or loss. The Group risk management
framework is set out on pages 32 to 37. Risks associated with
safety, health and the environment are, by the nature of the Group’s
business, always of the utmost concern and the Sustainability
report on pages 44 to 55 reviews the Group’s performance in this
regard in 2017. The Board confirms that a robust assessment of
the principal risks facing the Group has been carried out and that it
has monitored and reviewed the effectiveness of the Group’s risk
management and internal control systems in 2017.
The Group’s internal controls over the financial reporting and
consolidation processes are designed under the supervision of the
Chief Financial Officer to provide reasonable assurance regarding
the reliability of financial reporting and the preparation and fair
presentation of the Group’s published financial statements for
external reporting purposes in accordance with IFRS.
The processes which are used by the Board either directly or,
where appropriate, through the Audit Committee to review the
effectiveness of the internal control and risk management systems
in relation to the financial reporting process and the process for
preparing consolidated accounts include the following:
• a review of the external and internal audit work plans;
• consideration of reports from management and external parties,
including the internal and external auditors, on the system of
internal financial control and any material control weaknesses;
• discussion with management of the actions taken on any
possible problem areas for the business that are identified.
In addition, the Board:
•
•
receives copies of the minutes from all Audit Committee meetings;
receives regular written and oral reports from management
on all aspects of production, operations, financial and risk
management matters.
Environmental matters
The maintenance of high standards of environmental (together with
health and safety) protection is central to the Group’s business.
A separate statement on safety, health and environmental (SHE)
matters has been a feature of the Annual Report for a number
of years. The Sustainability report on pages 44 to 55 includes
a report on the initiatives the Group has adopted regarding
sustainable development.
Social, community and human rights matters
The Board takes account of social and ethical matters as part of
its review of internal control which, by virtue of its approach to risk
identification, covers areas which encompass social and ethical matters.
The Board is conscious of its responsibility to the communities
in which the Group’s businesses operate and encourages
local engagement by management which includes supporting
environmental, health and education initiatives.
The Board is also aware of the reputational and legal risks
associated with social and ethical issues and has a Group-wide
code of business conduct on corruption and anti-competitive
activities, which is available on the Company’s website and upon
request from the Company Secretary. The purpose of this code is
to ensure that the Group’s employees have a clear understanding
of the principles that are important in these areas when conducting
the Group’s business. The application of the code is explained to
senior management at regular intervals and they are charged with
its communication throughout their businesses supported by
internal and external training. A compliance procedure involving
annual certification by senior management and a procedure for
maintaining a register of, and where appropriate gaining prior
approval for, gifts, entertainment and corporate hospitality operates
throughout the Group. A report is made to the Audit Committee
annually on the code and the Company’s whistleblowing procedure.
The Group’s operating activities are highly regulated in all territories
and largely carried out in countries that have established legislation
on human rights issues. As such, information on human rights issues
is not considered to be necessary for an understanding of the
development, performance or position of the Group’s business.
The Group has nonetheless adopted a policy on equal opportunities,
diversity and human rights which is available at www.synthomer.com.
The Company is a member of the FTSE4Good Index.
Further details of the Group's social and community activities can
be found on pages 48 and 49.
64
Synthomer plc Annual Report 2017
Audit Committee
Audit Committee
Membership since 1 January 2017
Caroline Johnstone
Just Jansz
Brendan Connolly
Other attendees:
Chief Executive Officer
Chief Financial Officer
Position
Chair
Appointment
Date
April 2015
Independent
non-executive director May 2012
Senior independent
non-executive director March 2014
Number of
meetings
attended
4/4
4/4
4/4
Company Secretary
Group Operational Review Manager
Director of Group Finance
External Auditors
Dear Shareholder
In another year of progress for Synthomer, the Audit
Committee has continued to develop its programme of
work in 2017. Alongside our formal meetings, members of
the committee visited our new facility in Ghent with the rest
of the Board and we also separately visited the Langelsheim
plant to meet with managers and staff there and hear about
the plant’s approach to risk management.
Our core remit is assessing the integrity of the Group financial
reporting, internal controls and risk management systems
and overseeing the work of the external and internal audit
functions. The Committee has also continued to focus
on our oversight of the Group’s internal control and risk
management processes and the development of our finance,
internal audit and other functions which are important in an
organisation with a growth strategy. The terms of reference
of the committee have been expanded to include the review
of taxation matters to support the Board in monitoring the
Company’s approach to transfer pricing and the Base Erosion
and Profit Shifting legislation.
During 2017, as part of the Committee’s oversight of the
risk management processes, senior management from
Procurement, IT and R&D met with us to present how
they embed the Group’s risk management approach and
mitigating controls across all aspects of their function.
We asked for regular updates to the Board on particular
aspects from the developing procurement function and the
review of our business information processes and systems.
The recently appointed Group Head of Tax presented the
Group’s proposed tax strategy to the Committee, which,
after discussion, we approved ahead of publication on the
Company’s website. We revisited the Group’s risk appetite
statement during the year resulting in a formal discussion at
the Board’s strategy day in November 2017. This will continue
to form part of the Committee and Board discussions in 2018.
The Committee has been pleased to support the Chief
Financial Officer as he has continued to strengthen finance,
IT and tax teams across the group with a small number of
senior appointments during the year bringing additional and
relevant talent and experience into the organisation.
The Group’s 2016 Annual Report was included in the Financial
Reporting Council’s thematic review of Alternative Performance
Measures (“APMs”). Executive management and the
Committee reviewed all aspects of how we report APMs,
discussed our approach with the external auditor and, where
appropriate, made some changes to enhance our presentation
of our reported performance measures. The FRC’s review
concluded that there were no issues to raise regarding the
Group’s approach to Alternative Performance Measures.*
In 2018, alongside our core remit, the Committee will continue
to focus on the Group’s internal control and risk management
processes as well as reviewing recent acquisitions and
capital investments. We will also oversee the development
of underlying business information systems – and to look at
risk assurance mapping.
We set out further details of our work in the following pages.
I am happy to answer any questions the shareholders may
have at any time and look forward to meeting those who
attend the AGM.
Caroline Johnstone
Audit Committee Chairman
1 March 2018
*
The FRC's review only covered the specific disclosures relating to
this thematic review and provides no assurance that the report and
accounts for the year are correct in all material respects; the FRC's role
is not to verify the information provided but to consider compliance
with reporting requirements
Committee membership and meetings
The Committee is made up of Caroline Johnstone (chair), Brendan
Connolly and Just Jansz – their experience is set out on page 59.
Mrs Johnstone is considered by the Board to have ‘recent and
relevant financial experience’ for the purposes of Provision C.3.1
of the Code as a Chartered Accountant, her roles chairing other
Audit Committees and her previous position as a partner at PwC.
Together, the Committee members have a wide range of financial,
operational and commercial experience across the chemicals and
engineering sectors.
Both the Chief Executive and Chief Financial Officer attend our
Committee meetings as well as other senior members of the finance
team and the Group Operational Review Manager (who leads the
Internal Audit function). PwC, led by audit partner Matthew Mullins, also
attend our meetings. Other senior managers have regularly attended
Committee meetings in 2017, at our request. Other members of the
Board have a standing invitation to attend meetings unless notified
otherwise and we regularly have the full board in attendance.
Synthomer plc Annual Report 2017
65
Governance Audit Committee continued
The Committee meets on a regular basis with PwC and with the Group
Operational Review Manager without management present. The
Committee also had a private meeting to discuss forthcoming agendas.
• Monitoring the integrity of the Group’s financial reporting, financial
reporting procedures and the quality of the external audit.
• Reviewing and challenging significant financial estimates
In addition, outside of the formal meetings, Caroline Johnstone had
regular dialogue with the Chief Executive, the Chief Financial Officer,
other senior members of the head office finance team and PwC
to develop the Committee's programme of work as well as review
progress in addressing actions agreed by the Committee.
As set out in the Chair’s introductory comments, members of
the Committee visited both the Ghent and Langelsheim sites
during the year as part of an ongoing programme of engagement
with the business.
The role and responsibilities of the Audit Committee
The Committee has established a detailed remit focused on
the integrity of our financial reporting, internal controls and
risk management systems:
and judgements.
• Supporting the Board in considering whether the annual
report, taken as a whole, is fair, balanced and understandable.
• Reviewing the adequacy and effectiveness of the Group’s
internal controls and risk management systems, including the
Group’s internal audit function and the Group’s whistle blowing
and fraud detection arrangements.
• Reviewing and monitoring the independence, objectivity and
the effectiveness of PwC, approving their remuneration and
any non-audit services.
• Reviewing and monitoring the implementation of the Group’s
tax strategy.
The full terms of reference, which were updated during the year,
are included on the Company’s website.
Activities during the year
The Committee met formally four times during 2017 and carried out the following principal activities:
Mar
Apr
Aug
Nov
Financial Reporting
Full year results, announcement and Annual Report
Half year results and announcement
Significant accounting judgements
Going concern statement
Viability statement
Fair, balanced and understandable statement
Update on new accounting standards
Internal Controls and Risk Management
Update and specific areas of risk review*
Formal assessment of internal controls and risk assessment processes
External audit
Assessment of external auditor’s independence, objectivity and effectiveness
Reappointment of external auditor
Management representation letter
Non-audit fees
Non-audit fees policy
External audit plan
Internal Audit
Reviewing IA reports, progress against plan and implementation of actions
Assessment of internal audit effectiveness
Internal audit plan
Other
Tax Strategy
Review of compliance with group IT standards
Report on whistleblowing and fraud prevention policies
Committee training, including developments in forthcoming accounting standards
Review and update on the funding arrangements of the Group's UK pension scheme
Consideration of compliance policies including Gifts and hospitality, sanctioned countries,
code of business conduct and General Data Protection Regulation
Review of transfer pricing arrangements across the Group
Audit Committee terms of reference update
* Specific areas of risk management review during the year included Working Capital, Capital Expenditure reviews, R&D, IT and Procurement – other areas such as
Project Excellence were presented at full Board meetings.
66
Synthomer plc Annual Report 2017
The Committee discussed the ‘fair, balanced and understandable’
statement at its meeting in February 2018 in the light of the above
and, having done so, recommended that the Board provide it in the
form set out on page 88.
Going concern
The principal aspects of the review process conducted by the
Committee and management to support the Board’s statement were:
• Reviewing the Group’s available sources of funding and, in
particular, testing the covenants and assessing the available
headroom using a range of assumptions.
• Reviewing the short, medium and long-term cash flow forecasts
in various material downside scenarios.
• Assessing the level of available facilities, which are considered
necessary to support the Group’s ability to trade and deliver
future growth.
• Assessing the Group’s current and forecast activities, including any
long-term contracts and order books, and those factors considered
likely to affect its future performance and financial position.
The Committee discussed the going concern statement at its
meeting in February 2018 and, having done so, recommended
that the Board provide it in the form set out on page 87.
Viability statement
The Board has chosen to consider the prospects of the Group over
a five year period ending 31 December 2022, consistent with the
five year Strategic Plan of the Group, as they consider it to be a
period over which the Group actively focuses on its long term
product development and capital expenditure investments.
The Committee’s robust assessment of the principal risks facing
the Group included a review of the potential impact of severe but
plausible scenarios that could threaten the viability of the Group
and the potential mitigations that management believes would be
available. These scenarios included trading volatility, increased
competition, delays in capacity improvement, failure of new
products and the temporary loss of a manufacturing site. They
also included significant foreign currency exchange rate and interest
rate movements, which are deemed to be outside the control of
the Group. The Committee discussed the viability statement at its
meeting in February 2018 and, having done so, recommended that
the Board provide it in the form set out on page 37.
Addressing our remit
Systems of risk management
and internal controls effectiveness
Each year, the Board is required to conduct a review of the
effectiveness of the Group’s systems of risk management and
internal control. The Board’s statement about this review is set
out on page 64. At its meeting in February 2018, the Committee
reviewed management’s assessment of the key elements of these
systems and confirmed their overall effectiveness. In forming its
conclusion, the Committee reflected on matters such as:
• The internal audit programme completed during 2017 and
the progress in implementing actions arising therefrom.
• The risk management processes rolled out across the Group
in 2016 and 2017 and implemented in new acquisitions as
soon as practical.
• Our own programme of risk reviews and discussions with
senior managers across the Group throughout the year.
• Assurance (Committee papers, Board and Committee
presentations and discussions) that management continued
to review the Group’s key financial controls to ensure that they
supported the Group’s continued growth.
• The key controls questionnaire developed in 2017, which is
completed and signed by each operating unit across the Group
on a quarterly basis.
• Half yearly representations from financial and commercial
management in the business to the Chief Financial Officer.
Whistle-blowing
At each Committee meeting during the year, the Committee was
provided details of the issues reported during the period and how
management had investigated them, together with any update on
ongoing investigations. No material issues were reported during
the year.
2017 Annual report and accounts
Fair, balanced and understandable
The work undertaken by management and the Committee to
support the Board’s statement included:
• establishing a working group of key individuals, who are
appropriately qualified, within the Group to oversee the drafting
of the Annual Report;
the CEO and CFO confirming that, in their opinion, the drafting
of the Annual Report was ‘fair, balanced and understandable’;
• where appropriate, requesting that certain key contributors to
•
sections of the Annual Report (for example, Vice Presidents and
Finance Directors of business units) sign a declaration confirming
the accuracy of the information provided;
• arranging for Deloitte LLP, the Company’s remuneration consultants,
•
to review the Directors’ Remuneration Report;
requesting that an audit trail was completed by the Director of
Group Finance for material data underpinning non financial
information in the Annual Report;
• circulating drafts of the Annual Report to PwC, the Committee
and the Board for review; and
• discussing material disclosure items at a meeting of the
Committee held in February 2018.
Synthomer plc Annual Report 2017
67
Governance Audit Committee continued
External audit
At its meetings in November 2017 and February 2018, the
Committee discussed the 2017 audit process:
November 2017
• PwC’s audit plan
• PwC’s audit risk assessment
Outcome/action taken
by the Committee
• Challenged and agreed by
the Committee
• Discussed with PwC (including
the approach to identified risks)
• Materiality level for the audit
• Agreed with PwC
(at a similar level to 2016)
• PwC’s resources
• Reviewed and discussed with PwC
assumptions. The Group uses appropriately qualified external
actuarial advisers to help establish the actuarial assumptions
used in the valuation of the Group’s pension assets and liabilities.
During their audit, the external auditor evaluated the assumptions
and methodologies used by the Group’s actuarial advisers and
management and assessed whether the assumptions made
were appropriate and not materially different from external
benchmarks for similar types of schemes. The external auditors
reported to us that they were satisfied with the assumptions
used and with the way that the schemes had been accounted
for. The Committee reviewed the assumptions and methodology
used by the management and concurred with their conclusions.
• Audit fee and terms of engagement
• Reviewed, challenged and
approved by the Committee
• Purchase of business:
February 2018
• Confirmation of PwC’s audit plan
• PwC confirmed no material
changes made to agreed plan
• Audit findings, significant issues
and other accounting judgements
• Discussed with PwC
and management
• Management representation letter
• Reviewed and approved
• PwC’s independence and objectivity
•
and quality control procedures
by the Committee
Independence and objectivity
confirmed; quality control
procedures reviewed
The chair of the Committee was in discussion regularly with PwC’s
lead audit partner to discuss the progress of the audit. Ahead of
and following the conclusion of the February 2018 meeting, the
Committee met PwC without management being present: no
significant issues, other than those discussed at the Committee
meeting, were raised.
Financial reporting and significant judgements
As part of their monitoring of the integrity of the financial statements,
the Committee assesses whether suitable accounting policies have
been adopted and considers particular areas where management
has had to exercise judgement or make estimates. The main areas
which we reviewed in the year ended 31 December 2017, together
with a summary of our work, are set out below:
• Provisions for uncertain taxation positions:
Significant judgement is exercised by management, with advice
from appropriate tax advisors, to arrive at the amounts provided
for tax given that the final tax outcome of several transactions is
uncertain and may not be known for several years. As part of
their audit, the external auditor reviewed the judgements that had
been made, using tax specialists as appropriate, and provided
the Committee with an assessment of the appropriateness of
management judgements. The Group Head of Tax presented to
the Committee on the rationale and judgement on each of the
provisions held by the Group and the Committee considered
whether these provisions were appropriate and in line with the
Group tax strategy and took the external auditor’s conclusions
into consideration. The Committee concurred with
management’s views and in addition reviewed the adequacy
of the tax disclosures in the financial statements.
The accounting for the acquisition of the Speciality Additives
business is shown in the note 31 to the accounts. For the
acquisition, the assets and liabilities have been included at fair
value with the balance of consideration shown as goodwill.
KPMG LLP were engaged to advise on the fair value of the
Property, Plant and Equipment (PPE). Overall their conclusion
was that the total fair value of the PPE was higher than the
carrying value mainly in relation to Land and Buildings. KPMG
LLP also performed a valuation of the intangibles, of which the
only one of significant value was the customer relationships. The
external auditors reviewed the work undertaken by KPMG LLP.
The Committee reviewed the methodology used by KPMG LLP
along with their conclusions and discussed them with the
external auditor. The Committee concurred with management’s
view on the fair value of the acquired business.
Internal audit
The Group Operational Review Manager (who leads the Internal
Audit function) was appointed in 2016. We now have a dedicated
and focused in-house internal audit function, which draws on
specialist resources as required. At each meeting, the Committee
reviewed progress against the internal audit annual plan and
explored areas identified for action.
To assess the effectiveness of Internal Audit, the Committee
reflected on:
Internal Audit reports during the year.
•
• Feedback from operational and finance functions on the quality
of the Internal Audit reports and activities.
• Compliance with appropriate Internal Audit
professional standards.
Implementation of Internal Audit recommendations.
•
There was positive feedback regarding the constructive and
challenging approach of Internal Audit as well as the development
of new internal audit reporting, with clear summaries and
recommendations. In the coming year, the function will focus
on agreeing the scope of each audit and continuing to ensure
implementation of recommendations on a timely basis. On the
basis of our review, the Committee concluded that the function
was operating effectively although we continue to review the
resources required for the developing Group.
• Defined benefit pension accounting:
The Group operates a number of defined benefit schemes which
have significant liabilities as outlined in note 26 to the Group
financial statements. Although the UK schemes are closed to
future accrual, they are sensitive to changes in actuarial
The internal audit plan for 2018 was reviewed at our meeting in
November 2017 and includes auditing areas which account for more
than 75% of operating profit as well as certain key central functions
such as the financial consolidation process. Specialists will be
included in a number of audits such as IT security.
68
Synthomer plc Annual Report 2017
External audit
Auditor objectivity and independence and
non-audit services provided by the auditor
With effect from 1 January 2017, the Committee adopted a new
policy on the provision of non–audit services by the external auditor.
We have defined the very limited non audit services which can
be provided by the external auditors. Services can only be provided
if approved by the Committee and subject to a cap of 70% of the
average of audit fees for the preceding three years – with discretion
to exceed this until January 2020. The policy is in compliance with
the FRC Ethical Standard for Auditors issued in August 2016 and a
full copy of the policy on the provision of non-audit services by the
external auditor is available on the Company website.
Details of audit and non-audit fees paid to the auditor in 2017 are set
out in note 8 on page 111. Non-audit fees principally relate to the
interim review at the half year and providing factual understanding
about work performed for the Group prior to 1 January 2017 in relation
to an overseas tax investigation. The Committee concluded that
PwC’s independence and objectivity was not compromised by it
providing these services and that, as a result of its knowledge of the
Group and its financial statements, it was in the Group’s interests to
engage PwC to do so.
As part of the 2017 audit, PwC confirmed that it was independent
within the meaning of applicable regulatory and professional
requirements. Taking this into account and having considered the
steps taken by PwC to preserve its independence, the Committee
concluded that PwC continues to demonstrate appropriate
independence and objectivity.
Effectiveness of the external audit
During the year the Committee evaluated the performance and
effectiveness of the external auditors. Feedback was obtained from
people across the business who were involved with the external
audit and the Committee reflected on the effectiveness of the
external audit partner and team members, both in Committee
meetings and in discussions with the chair. A review of performance
against an evaluation checklist was also conducted by the Audit
Committee Chair and the Chief Financial Officer. The Committee
assessed the robustness of the audit, the quality of delivery of the
audit against the agreed plan and the competence with which the
auditors handled key accounting estimates and judgements. Having
considered all of these factors the Committee concluded that the
external auditors were effective.
Re-appointment of the auditor
PwC was re-appointed external auditor in 2016, following a full
retender process, having been the Group’s auditors since 2012.
Having assessed the effectiveness of the external audit referred to
above and the independence of PwC, the Committee recommends
the re-appointment of PwC at the 2018 Annual General Meeting.
Committee performance evaluation and future focus
We addressed the areas of development for 2017 as planned and
reviewed the risk appetite as part of a wider programme of risk
reviews. In 2017, we decided to undertake an evaluation of the
Committee’s performance using an external questionnaire process.
The feedback was positive about our progress in overseeing and
challenging the systems of risk management and supportive of
continuing to develop this in 2018.
Nomination Committee
Nomination Committee membership
Since 1 January 2017
Neil Johnson
Brendan Connolly
Caroline Johnstone
Position
Chair
Appointment
Date
May 2012
Senior independent
non-executive director March 2014
Independent
non-executive director
April 2015
Number of
meetings
attended
1/1
1/1
1/1
Role
The Committee’s remit includes responsibility for:
•
the regular review of the structure, size and composition
(including the skills, knowledge, experience and diversity)
of the Board and the making of recommendations with
regard to any changes;
leading the process for Board appointments and
nominating candidates for non-executive positions; and
• considering succession planning for directors and senior
•
executives and reviewing the succession plans put forward
for ensuring the executive leadership needs of the Company
are met.
Activities in 2017
The Nomination Committee held one formal meeting during 2017.
The Committee reviewed senior management succession
planning within the Group during the course of the year.
Following Mr Jinya Chen’s retirement from the Board at the
end of 2017 the Committee has initiated a search for a
replacement independent non-executive director. There were
no appointments to the Board during the year and accordingly
the Committee was not involved in any recruitment activity and
did not appoint or work with any advisers.
Diversity
The Board adopted its current policy on diversity in 2014 in
recognition of the importance of diversity in strengthening decision
making and competitiveness. This policy seeks to ensure that
diversity in its broadest sense is taken into account in the process of
making appointments on merit against objective selection criteria.
Gender and ethnicity are acknowledged as significant elements
of diversity and the Committee is mindful of the recommendations
of the Hampton-Alexander, Parker and McGregor-Smith Reviews
but has not recommended to the Board the setting of quotas for
female or other representation at this time.
As there were no changes to the composition of the Board during
2017, the Committee did not actively seek to implement the
diversity policy and accordingly has not reported on its results.
A copy of the diversity policy is available at www.synthomer.com.
Further details on the Company’s approach to, and reporting on,
diversity are contained within the Strategic report.
Neil Johnson
Chairman
1 March 2018
Synthomer plc Annual Report 2017
69
Governance Directors’ Remuneration report
Remuneration Committee
Remuneration Committee membership
Since 1 January 2017
Brendan Connolly
Just Jansz
Caroline Johnstone
Other attendees:
Chief Executive Officer
VP Global HR
Position
Chair
Appointment
Date
Number of
meetings
attended
March 2014
3/3
Independent
non-executive director May 2012
Independent
non-executive director
April 2015
3/3
3/3
Company Secretary
Deloitte LLP
Dear Shareholder
I would like to take this opportunity to thank our shareholders for
their support for our new remuneration policy at the 2017 AGM
where we were pleased to receive greater than 99% support.
I also take this opportunity to thank the Committee and
Board members, our advisors and the wider remuneration
community for their input, discussion and debate.
Our Policy
The Policy was approved at the 2017 AGM and implemented
across all elements of remuneration in the year. The Policy,
details of which are summarised in the subsequent pages of
this report, will remain in force until the 2020 AGM unless new
regulation or guidance requires us to review or change the
policy at an earlier date.
Remuneration outcomes in 2017
• Base salaries: In 2018 both the Chief Executive Officer
and Chief Financial Officer remain on 2016 salary levels
as per the policy. This will be the second year that no
increase has been given, and at the end of 2018 they
will have been on the same salary for three years. The
Committee has the option to increase salaries for 2019
as per the policy.
• Bonus plan: The 3 parts of the bonus plan were met in full.
- Financial – 80%: The +10% above budget Adjusted
Underlying PBT target was exceeded with Adjusted
Underlying PBT of £121.5m being delivered (with
adjustments relating to M&A activity in the year and
the impact of currency). The Board challenged
management to offset the softening Asian Nitrile latex
market during the budget process and in 2017 they
have managed to fill the gap through a number of
market focused initiatives. Overall performance
was above budget expectations. More detail on
performance is available in the Chief Executive Officer
and Chairman reports, the segmental reviews and
the Chief Financial Officer's review.
- Safety, Health and Environmental (SHE) – 10%: The
two targets were exceeded, which represents an
excellent outcome in the journey towards ‘best in class’
performance. The Recordable Injury Rate (RIR) target
of 0.25 or less and the Process Safety Event rate
(PSER) of 0.2 or less were set to challenge the
organisation through the integration of the PAC
(Dispersions) acquisition whilst keeping the legacy
organisation on an improvement path. The results of
0.13 (RIR) and 0.19 (PSER) demonstrate the efforts
made during the year.
- Personal strategic goals – 10%: Both the Chief Executive
Officer and Chief Financial Officer are deemed to have
fully achieved their personal strategic goals. For both the
Chief Executive Officer and Chief Financial Officer, the
improvement and development of the risk management
process was a focus. This has improved substantially
with more frequent risk reviews, a wider risk process
and more Board involvement. Furthermore, for the
Chief Executive Officer, the other goals of improved
information flow to investors, which was based on
feedback has been positively received and, ensuring
major capital projects are delivered to plan were
considered to have been fully met during the year. It is
too early to determine if the promised returns from these
projects will be delivered and for that reason we will be
adding this objective into the 2018 LTIP as part of the
strategic measures. For the Chief Financial Officer , the
pension review was timely, strategic and well received,
and the Chief Financial Officer's involvement in the full
M&A process was evident and impactful.
70
Synthomer plc Annual Report 2017
• LTIP: EPS and TSR performance resulted in maximum
(80%) vesting of that part of the 2011 performance share
plan awards made in 2015 relating to these performance
conditions. The three part strategic measures condition
was partially met (see details on page 80 of the following
report) resulting in 96.3% of the 2015 award vesting in
aggregate. As a result of the 2017 outcomes, together with
the vesting in May 2018 of the “buyout” award of 100,000
shares granted to the Chief Financial Officer in 2015, the
Chief Executive Officer will exceed and Chief Financial
Officer will substantially meet the shareholding guidelines
requirements to hold shares equal in value to at least
200% and 150% of salary respectively (based on the
share price at the end of 2017) during the course of 2018.
• Chairman’s fee: We reviewed the Chairman’s fees at the
end of 2017 and concluded that no increase was required
at this time.
Committee evaluation
An evaluation of the performance of the Committee was
undertaken in 2017 by Lintstock and formed part of the wider
evaluation of the performance of the Board of Directors.
Further details of this process are given in the Governance
section on page 56.
Other activities in the year
The Committee reviewed gender pay gap data and will
approve the proposed reporting for external publication in
the first quarter of 2018. CEO/average employee pay ratio
data was discussed and reviewed and will form part of our
reporting remit from 2019 onwards.
The Committee’s Terms of Reference were reviewed
and the annual schedule of business will be adjusted to
accommodate consideration of forthcoming changes to
the governance and legislative remuneration landscape.
Alignment to Group strategy
We continue to strengthen the link and alignment between
the remuneration structure and the Group strategy of
innovation, excellence and growth.
Innovation; through R&D and process engineering delivering
new and improved products in the medium and long term, to
successfully compete in the speciality chemical sector which
is reflected in the LTIP where the management and all the
LTIP participants are challenged to deliver a percentage of
revenue from new products over a five year period.
Excellence; safety, health and environmental performance
are critical for risk management and being able to deliver
a safe and environmentally controlled workplace, avoiding
potential physical and reputational damage. Measures for
both personal and process safety are captured in the bonus
plans of the CEO and CFO and the wider organisation.
Excellence also includes operational processes, efficiency,
cost management, utilisation, product quality and an array of
other measures which are all captured through objectives for
the key operational executives and those directly involved in
managing the plants.
Growth; organic year on year growth, M&A and internal
capital investment remain important strategic initiatives
to drive financial growth, increased capacity and a wider
specialty product base to achieve increased market share.
The bonus plan and the LTIP through PBT, EPS, TSR and
specific expansion objectives are aligned and weighted
heavily towards driving a healthy growth.
Remuneration Report
The Directors Remuneration report will not require a binding
vote for the policy at the 2018 Annual General Meeting,
however the Annual Report on Remuneration, will, as in
previous years, be subject to an advisory vote.
Brendan Connolly
Chairman
1 March 2018
Synthomer plc Annual Report 2017
71
Governance Directors’ Remuneration report continued
At a glance
2017 outcomes:
• Base salaries in 2018 unchanged for Chief Executive Officer and Chief Financial Officer (frozen at 2016 levels).
• Annual bonus targets fully met.
• 2015 LTIP award vested at 96.3% – Total Shareholder Return and EPS measures exceeded; strategic measures partially met.
Directors’ Remuneration – Policy principles
The key principles for executive directors’ remuneration at Synthomer are as follows:
• Sufficient to attract and retain executive directors of the ability and expertise necessary to achieve the strategic goals of the Company.
•
• Align executive director reward with the experience of shareholders.
Incentivise executive directors by rewarding performance and driving the right behaviours.
In setting executive directors’ remuneration, the Committee takes account of pay and conditions throughout the Company. The Committee
also considers corporate governance requirements and best practice in terms of remuneration structures and the process of setting
executive remuneration.
The Committee reviews performance targets regularly to ensure that they do not encourage or motivate inappropriate risk taking.
Furthermore, the Committee, when necessary, will take into account any environmental, social and governance (ESG) events and the
Audit Committee’s reviews of the effectiveness of internal controls and risk management when assessing performance.
The following diagram provides an overview of the key elements of reward for executive directors and the performance measures used.
Key elements of reward
Base
salary
Pension
& benefits
Annual
bonus
Performance
Share Plan
At least 70%
Profit before tax
At least 80%
Based on financial measures
Up to 30%
Strategic and operational measures,
including personal objectives
2018 awards:
80% Profit before tax
10% Health & Safety
10% Individual strategic
and operational goals
Up to 20%
Strategic measures
2018 awards:
40% Relative TSR
40% EPS growth
20% Strategic measures
Directors’ Remuneration – Policy Summary
Set out in the table below is a summary of our Directors’ Remuneration Policy (“the Policy”) as it applies to executive directors.
The Policy was put forward, and received shareholder approval, at the Company’s 2017 AGM in accordance with section 439A
of the Companies Act 2006. The Policy has been effective from 27 April 2017 and is available in full at www.synthomer.com.
72
Synthomer plc Annual Report 2017
Future Policy Table
Element
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
None, although individual and
Company performance are
factors taken into account when
considering salary increases.
None
There is no overall maximum
for salary opportunity or
increases. Salary increases
will normally be in-line with the
increases awarded to other
employees within the Group.
Larger increases may
be made under certain
circumstances, including,
but not limited to:
• an increase in the scope
and/or responsibility of
the individual’s role;
the development of the
individual within the role;
• alignment to market levels;
•
and
• corporate events such as a
significant acquisition or
Group restructuring which
impacts the scope of
the role.
For 2018, executive director
salaries remain at the 2016 level:
• C G MacLean: £535,500
• S G Bennett: £334,560
and will be frozen at this level
until at least the end of 2018.
There is no overall maximum
for benefits, as the cost of
insurance benefits may vary
from year-to-year depending
on the individual circumstances
and the level of any relocation
benefits, allowances and
expenses will depend on the
specific circumstances.
Base salary
Supports the
recruitment and retention
of executive directors.
Salary levels are generally
reviewed annually by the
Committee.
Reflects the individual’s
skills, experience,
performance and role
within the Company.
When reviewing salary
levels the Committee
takes into account:
•
•
the individual’s skills,
experience and
performance;
the size and scope of the
individual’s responsibilities;
• pay and conditions
elsewhere in the Group;
• pay at companies of
similar size; and
the complexity and
international scope of
the Group.
•
Benefits
Provided to support the
retention and recruitment
of executive directors.
Benefits to executive directors
may include private health
insurance, life insurance and
a fully expensed car or car
allowance. From time to time
the Committee may review
the benefits provided. The
Committee may remove
benefits that executive
directors receive or introduce
other benefits if it considers
it is appropriate to do so.
Any other benefits will be
proportionate with the
current benefits provided.
Where executive directors
are required to relocate or
complete an international
assignment, the Committee
may offer additional benefits
or vary benefits according
to local practice.
Executive directors may
participate in any all-employee
share schemes or other benefit
arrangements on the same
basis as other employees.
Synthomer plc Annual Report 2017
73
Governance Directors’ Remuneration report continued
Element
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Annual bonus Incentivises the delivery
of financial, strategic and
operational objectives
selected to support
our business strategy
within the year.
The maximum opportunity
is up to 125% of salary.
Opportunities for current
executive directors are:
• C G MacLean: 125%
of salary
• S G Bennett: 115%
of salary
At least 70% of awards are
subject to underlying profit
before tax (or other relevant
financial measure) targets.
Up to 30% of awards are
subject to strategic and
operational measures,
including personal objectives.
For 2018 awards, performance
measures will be 80%
Underlying profit before tax,
10% health and safety
objectives, 10% personal
strategic and operational
objectives.
The award for threshold
performance is normally
0% of maximum.
Performance targets will be
determined by the Committee
at the beginning of the annual
performance period.
The Committee will assess
performance against these
targets following the end of
the performance period.
The Committee may adjust
awards upward or downward
to reflect the overall
performance of the
Company or the individual.
The Committee may reduce
or defer the level of payment
of an award to take into
account exceptional
business circumstances.
A proportion of any bonus
earned is deferred for two
years. For current executive
directors this is 20% and 13%
of any bonus for C G MacLean
and S G Bennett respectively.
The Committee may claw
back awards up to three years
after payment if the Group’s
accounts have been materially
misstated, there has been an
error in the calculation of any
performance conditions which
results in over payment or if
there are circumstances giving
rise to material reputational
damage to the Group.
74
Synthomer plc Annual Report 2017
Element
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
2011
Performance
Share Plan
Approved by
shareholders
at the 2011
EGM
Incentivises executive
directors to deliver
sustained performance
and sustainable returns
for shareholders over
the longer term.
The vesting of awards is
conditional on the Company’s
performance against
long-term targets over
performance period of
at least three years.
Under the plan rules approved
by shareholders, the value
of shares awarded to an
individual in respect of any
one year may not normally
exceed 150% of salary.
The Committee may reduce
or defer the level of vesting of
an award where an event has
occurred, such as a material
health or safety incident.
The Committee may claw
back awards up to three years
after vesting if the Group’s
accounts have been materially
misstated, there has been an
error in the calculation of any
performance conditions which
results in overpayment or (for
awards from 2017 onwards) if
there are circumstances giving
rise to material reputational
damage to the Group.
Vested awards relating to
grants made from 2017
onwards are subject to a
holding period post vesting
of an additional two years.
Annual awards to current
executive directors are:
• C G MacLean: 150%
of salary
• S G Bennett: 120%
of salary
Under the plan rules approved
by shareholders there is the
ability to make additional
awards in exceptional
circumstances.
Additional awards may be
made in the case of a
transformative Company
event. Any such awards would
be subject to additional
shareholding guidelines
or holding periods to be
determined by the Committee.
Any additional award would
be subject to the overall
plan limit of 300% of salary.
Pension
Provide a competitive
level of retirement
benefits to support both
retention and recruitment
of executive directors.
Executive directors are eligible
to participate in the Group
personal pension plan.
Maximum of 25% of
base salary.
Executive directors may
receive payments as a cash
allowance which they may use
either in conjunction with that
plan and/or to enable them to
make their own arrangements.
Allowances for current
executive directors are:
• C G MacLean:
25% of salary
• S G Bennett:
20% of salary
• At least 80% based on
financial measures. This
may include TSR, EPS,
Return on Invested Capital
(ROIC) or any other measure
considered appropriate by
the Committee. Any change
to the financial measures
used would be subject
to prior shareholder
consultation.
• Up to 20% based on
performance measures
linked to the delivery of
the business strategy.
• No single measure will
constitute more than
50% of an annual award
For 2018 awards, performance
measures will be 40% Relative
TSR. 40% EPS and 20%
strategic measures,
including ROIC.
A maximum of 25% of
each element will vest for
threshold performance.
The Committee may amend the
final vesting level under the TSR
element if it does not consider it
to be reflective of the underlying
performance of the Group.
Any additional awards made
in exceptional circumstances
will be subject to performance
conditions and vesting
schedules as determined by the
Committee at the time of award.
None
Shareholding
guidelines
The Company operates shareholding guidelines for executive directors to strengthen the alignment between the interests
of the executive directors and the shareholders. The Chief Executive Officer and the Chief Financial Officer are required to
build interests in shares of at least 200% and 150% of salary respectively.
All vested awards under the 2011 Performance Share Plan (net of tax if applicable) must be retained by executive directors
until this requirement is met. If the requirement is not met within three years of appointment the executive directors would
be required to defer 50% of any bonus to buy shares until the guidelines are met.
Synthomer plc Annual Report 2017
75
Governance Directors’ Remuneration report continued
Provisions to withhold or recover sums paid under incentives are as detailed in the table above. No other elements of remuneration are
subject to recovery provisions.
Illustrations of Application of Remuneration Policy
The following charts illustrate the different elements of the executive directors’ remuneration under three different performance scenarios:
‘Minimum, ‘Target’ and ‘Maximum’. The assumptions used are provided below the charts. The illustrations are based on annual bonus
awards for 2018 and Performance Share Plan awards to be made in 2018.
C G Maclean
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
£2.16m
37%
S G Bennett
1,500,000
1,200,000
900,000
31%
600,000
£0.42m
£1.21m
33%
32%
£0.75m
13%
31%
£1.29m
16%
31%
£0.68m
100%
53%
32%
Minimum
Target
Maximum
300,000
0
100%
56%
35%
Minimum
Target
Maximum
Fixed Pay Annual Bonus Performance Share Plan
Fixed Pay Annual Bonus Performance Share Plan
Fixed
Component
Base salary
Pension
Benefits
Minimum
Target
Maximum
Base salary for 2018
Value of cash supplement for 2018
Taxable value of annual benefits provided in 2017
Variable
Annual bonus
0% of maximum
60% of maximum
2011 Performance Share
Plan1
0% vesting
25% vesting
C G MacLean 125% of salary
S G Bennett 115% of salary
C G MacLean 150% of salary
S G Bennett 120% of salary
Note:
1. The value for the Performance Share Plan is based on the face value of annual PSP awards under the Policy and base salaries for 2018. The calculation excludes
share price growth or dividends during the performance period.
76
Synthomer plc Annual Report 2017
Annual Report on Remuneration for the year ended 31 December 2017
Operation of the executive director Remuneration Policy for 2018
The current Policy has been in force since 27 April 2017. The specific remuneration arrangements for 2018 are described below
Base salary
There were no salary increases awarded for 2018. This will be the second year that no increase has been given and
accordingly salaries remain at 2016 levels as follows:
• C G MacLean: £535,500.
• S G Bennett: £334,560.
Pension and
benefits
No changes. Executives receive a cash allowance in lieu of pension contributions, a fully expensed car or car
allowance and private health insurance.
2018 cash allowances in lieu of pension contributions:
• C G MacLean: 25% of salary
• S G Bennett: 20% of salary
Annual bonus
For 2018, performance under the annual bonus will be measured on the following basis:
• 80% subject to performance against Underlying profit before tax targets.
• 10% subject to performance measures against key health and safety targets.
• 10% subject to performance against individual strategic and operational goals.
• Targets and objectives for 2018 are, by their financial and commercial nature, considered by the Board to
be unsuitable for disclosure in advance. However, the Committee will provide information on targets and
objectives retrospectively.
2018 maximum award opportunity:
• C G MacLean: 125% of salary
• S G Bennett: 115% of salary
Performance
share plan
For awards made in 2018, performance will be measured on the same basis as for awards made in 2017 other than
in relation to the business strategy target as follows:
• 40% based on relative TSR performance versus FTSE 250 (excluding investment trusts and financial services companies):
• 40% based on underlying EPS growth:
- 25% of this element will vest for median performance.
- 100% vesting for upper quartile performance.
- Vesting on a straight-line basis between these points.
- 25% of this element will vest for EPS growth of 4.5% per annum.
- 100% vesting for EPS growth of 10% per annum.
- Vesting on a straight-line basis between these points.
- This target range was set following consideration of the long-term strategy and the outlook for the markets in
which we operate.
• 20% based on performance against three equally weighted measures directly linked to the delivery of the
business strategy:
- Proportion of sales volumes (excluding monomers and speciality additive products) from new products together
with products covered by patents and patent applications derived from new products launched in the five years
to the end of the performance period – incentivising greater innovation through new product development.
- Cumulative Underlying profit before tax growth in respect of acquisitions in line with the strategic plan as
- ROIC generated from the most significant growth projects being commissioned in 2018 measured in the third
- For each of these measures, 25% will vest for threshold performance.
- The targets for these measures, and the level of performance achieved, will be disclosed following the end of
year of the performance period – incentivising the delivery of profitable organic growth.
approved by the Board – incentivising the delivery of profitable growth.
the performance period.
2018 maximum award opportunity:
• C G MacLean: 150% of salary
• S G Bennett: 120% of salary
Shareholding
guidelines
The Chief Executive Officer and the Chief Financial Officer are required to build interests in shares of at least 200%
and 150% of salary respectively. The Committee will keep the level under review.
Synthomer plc Annual Report 2017
77
Governance Directors’ Remuneration report continued
The following information is audited:
Single figure of remuneration for executive directors
Executive directors
C G MacLean
S G Bennett
Year
2017
2016
2017
2016
Base
salary
£
Benefits1
£
Annual
bonus
£
Long-term
incentives2
£
Pension
£
Total
£
535,500
535,500
334,560
334,560
13,200
669,375
13,200
535,500
22,397
384,744
21,125
334,560
1,163,614
133,875 2,515,564
–
133,875 1,218,075
343,887
66,912 1,152,500
–
66,912
757,157
Notes
1. This is the total taxable value of benefits received by each executive director during the year. The table below provides details of the main component of the relevant
benefits paid to executive directors.
2. For 2017 the values relate to awards granted under the 2011 PSP and made in 2015 and which vested in February 2018 for CG MacLean and will vest in May 2018 for
SG Bennett. Further information about the level of vesting is provided in this report.
C G MacLean
S G Bennett
Car
expenses/benefit
£
13,200
21,258
Others
£
–
1,139
Total
£
13,200
22,397
Additional information for single figure remuneration
Base salary
The base salary levels for 2018 have been frozen at those effective 1 January 2016 and are set out below.
Executive directors
C G MacLean
S G Bennett
2017 base salary
2018 base salary
% change
£535,500
£334,560
£535,500
£334,560
0%
0%
Annual bonus
2017 award
For 2017 the Company operated a cash bonus plan for the executive directors related to the achievement of Underlying profit before tax
targets, health and safety targets and individual strategic and operational goals.
The achievement of the Underlying profit before tax target represented up to 80% of the maximum bonus opportunity achievable of 125%
and 115% of annual basic salary for CG MacLean and SG Bennett respectively.
The health and safety targets were given a 10% weighting of the maximum achievable with the balance of 10% relating to individual strategic
and operational goals.
Overall bonuses for the year ended 31 December 2017.
Executive directors
C G MacLean
S G Bennett
Maximum bonus as a
% of salary
Total bonus as a
% of maximum
125
115
100
100
Total bonus
£
669,375
384,744
78
Synthomer plc Annual Report 2017
Further information of the three elements of the bonus are as follows:
1. Underlying profit before tax (80%)
The Underlying profit before tax targets set and achievement are set out below:
Level of award (% of element)
Underlying profit before tax1
Threshold
0%
£103.55m
Target
60%
£109.00m
Maximum
100%
£119.90m
Achieved2
100%
£121.10m
Notes
1. Targets are set by reference to the Board approved internal budget for the Group and measured on a constant currency basis.
2. For the purposes of calculating Achieved Underlying profit before tax the contribution from the acquisition of Speciality Additives was deducted from 2017 Underlying
profit before tax.
2. Health & Safety (10%)
Targets with an aggregate weighting of 10% related to improvements in personal and process safety.
Target
Level of award
Rate achieved
Award outcome
Personal Safety
(measured as injury rate)
Process Safety
(measured as process
safety event rate)
0.25 or less
0.20 or less
0% for a rate
greater than 0.25
5% for a rate
less than 0.25
0% for a rate
greater than 0.20
5% for a rate
less than 0.20
0.13
5%
0.19
5%
As a result of out-performance against both measures the maximum award of 10% was achieved. Further details of the definition and
measurement of the recordable injury rate and the process safety incident rate are given on page 51.
3. Individual strategic and operational goals (10%)
Individual goals and achievements against them considered by the Remuneration Committee with an aggregate weighting of 10% included:
Chief Executive Officer
Chief Financial Officer
Development of risk management processes and controls.
Delivery of major capital projects and achievement
of returns.
Upgrade investor communications approach.
Development of risk management processes and controls.
Performance relating to merger and acquisition activity.
Undertake pensions review and define any new strategy
or changes required.
Target
Level of award
Up to 10%
Up to 10%
Performance
against targets
More frequent and wider risk reviews delivered; wider
risk process implemented with more Board involvement.
Major capital projects delivered to plan.
Improved information flow to investors.
More frequent and wider risk reviews delivered; wider
risk process implemented with more Board involvement.
Full and impactful involvement in merger and
acquisition activity.
Pensions review delivered.
Award outcome
10%
10%
The maximum opportunity was awarded.
Synthomer plc Annual Report 2017
79
Governance Directors’ Remuneration report continued
2011 Performance Share Plan
2015 award included in single figure of remuneration for 2017.
The awards made on 27 February 2015 for CG MacLean and for SG Bennett under the 2011 PSP were subject to relative shareholder
return performance condition, an absolute earnings per share performance condition and a strategic measures condition as follows:
Relative total shareholder return condition
EPS condition
Company relative TSR performance against
the FTSE 250 Index (excluding investment
trusts and financial services companies) over
3 year period ended 31 December 2017
EPS for the 2017
financial year
Percentage of award that vests
Performance achieved
Upper quartile
25.95 pence or more
40%
Between median and upper quartile
Between 22.25 pence
and 25.95 pence
On a straight-line basis
between 10% and 40%
Median
Below median
22.25 pence
Less than 22.25 pence
10%
0%
EPS of 30.7 pence gives full
vesting for that condition.
TSR performance at the
16th percentile gives full
vesting for that condition
A further 20% of the award was subject to three strategic measures which comprised three equally weighted strategic measures:
• Percentage of Group sales (by volume) in the 2017 financial year derived from new products launched in the five years ended
31 December 2017.
New product percentage
Percentage of award that vests
Percentage achieved
< 13.2%
13.2% – – 20%
> 20%
0%
1.66% – 6.66%
6.66%
20% gives vesting of 6.66% of award
• Cumulative EBITDA for Europe and North America for the three years ended 31 December 2017.
Cumulative Europe and North America EBITDA
Percentage of award that vests
Percentage achieved
< €374.1m
€374.1m – €396.7m
> €396.7m
0%
1.66% – 6.66%
6.66%
€414.7million gives vesting of 6.66% of award
• Growth in Asia and Rest of World EBIT by the 2017 financial year
2017 Asia and Rest of World EBIT
Percentage of award that vests
Percentage achieved
< £32.5m
£32.5m – £42.3m
> £42.3m
0%
1.66% – 6.66%
6.66%
In aggregate 96.3% of the 2015 award vested.
£35.1million gives vesting of 3% of award
The 2015 award vested for CG MacLean in February 2018 and will vest for SG Bennett in May 2018 as follows:
C G MacLean
S G Bennett
No of shares in original award'
No of shares that lapse
No of shares that vest
231,726
68,483
8,574
2,534
223,152
65,949
Notes
1. Award reduced on a time apportioned basis for SG Bennett calculated from commencement of employment on 1 May 2015.
80
Synthomer plc Annual Report 2017
2017 award
The awards made on 4 May 2017 to C G MacLean and S G Bennett were as follows:
Executive Directors
C G MacLean
S G Bennett
Scheme
Basis of award
Number of shares
Face value
Percentage
vesting at
threshold
performance
Performance
period
end date
2011 PSP – nil-cost options 150% of salary
2011 PSP – nil-cost options 120% of salary
161,644
80,791
£803,250
£401,472
25%
25%
31/12/2019
31/12/2019
The face value of the awards was calculated using a share price of 496.925 pence per share, the average share price on the four dealing
days prior to the date of grant.
The awards made on 4 May 2017 under the PSP are subject to the following performance conditions:
Relative total shareholder return condition
EPS condition
Company relative TSR performance against the FTSE 250
Index (excluding investment trusts and financial services
companies) over three year period ending 31 December 2019
EPS for the 2019 financial year
Percentage of award that will vest
Upper quartile
37.7 pence or more
40%
Between median and upper quartile
Between 32.3 pence and 37.7 pence
On a straight-line basis between
10% and 40%
Median
Below median
32.3 pence
Less than 32.3 pence
10%
0%
A further 20% of the award is subject to strategic measures as referred to on page 75, the targets for which will be disclosed following the
end of the performance period.
Pension entitlements
Both executive directors receive a cash allowance in lieu of pension contributions. No additional benefit is receivable in the event of a
director retiring early.
C G MacLean
S G Bennett
Single figure of remuneration for non-executive directors
Non-executive directors
N A Johnson
The Hon. A G Catto
J Chen
B W D Connolly1
Dr J Jansz
C A Johnstone
Dato’ Lee Hau Hian
Cash allowance (% salary)
25
20
Base fee
170,000
160,000
40,000
40,000
40,000
40,000
45,000
45,000
40,000
40,000
40,000
40,000
40,000
40,000
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Committee
membership
fee
Committee
chair fee
–
–
–
–
–
–
10,000
5,000
10,000
5,000
10,000
5,000
–
–
–
–
–
–
–
–
5,000
5,000
–
–
5,000
5,000
–
–
Total
170,000
160,000
40,000
40,000
40,000
40,000
60,000
55,000
50,000
45,000
55,000
50,000
40,000
40,000
Notes
1. Base fee includes an amount of £5,000 per annum for role as Senior Independent Director.
The fees of the non-executive directors and the Chairman were reviewed in 2017 and as a result no increase will be made in 2018.
Synthomer plc Annual Report 2017
81
Governance Directors’ Remuneration report continued
Directors’ shareholding and share interests (number of shares/options)
Vested
unexercised
performance
related options
31 December
2017
–
–
Total
unfettered
interests in
shares and
vested options
31 December
2017
223,217
–
Unvested
performance
related options
31 December
20171
575,786
240,447
Share
options
exercised
during
2017
–
–
Share
ownership
requirements
(% of salary)
200%
150%
Interests
in shares at
31 December
2017
(% of salary)2
205%
0%
Directors
C G MacLean
S G Bennett
The Hon. A G Catto
B W D Connolly
Dato’ Lee Hau Hian
Dr J J C Jansz
N A Johnson
C A Johnstone
J Chen
Interests in
Company
shares
31 December
2017
223,217
–
1,492,392
6,697,500*
2,200
44,763
10,000
100,000
–
–
Notes
* Non-beneficial interest.
1. Unvested performance related options comprise the awards made under the 2011 PSP in 2015, 2016 and 2017. Details of the performance conditions attaching to the
2017 awards are set out on page 81. As disclosed in the 2015 Annual Report, in addition to his performance related award S G Bennett was granted a ‘buyout’ award
of 100,000 shares in 2015 which will vest subject to continued employment until 1 May 2018.
2. Until this requirement is met no sales of shares that vest under long-term incentive plans are permitted other than to satisfy tax liabilities that arise on the exercise of
share awards under such plans. The Committee considers that unfettered unexercised vested nil-cost awards are economically equivalent to shares and as such
that they should count (on a net of tax basis) toward compliance with the share ownership guidelines. As a result of the 2017 remuneration outcomes together with
the vesting of his 'buyout' award S G Bennett will substantially meet his share ownership requirement during 2018 based on the share price at the end of 2017.
The performance conditions attaching to the PSP awards granted in 2016 are as follows:
Relative total shareholder return condition
EPS condition
Company relative TSR performance against the FTSE 250
Index (excluding investment trusts and financial services
companies) over three year period ending 31 December 2018
EPS for the 2018 financial year
Percentage of award that vests
Upper quartile
28.6 pence or more
40%
Between median and upper quartile
Between 24.5 pence and 28.6 pence
On a straight-line basis between 10%
and 40%
Median
Below median
24.5 pence
Less than 24.5 pence
10%
0%
A further 20% of the award is subject to strategic measures as referred to on page 75, the targets for which will be disclosed following the
end of the performance period.
Payments to past directors
No payments were made to past directors.
Payments for loss of office
No payments for loss office were made during the year.
82
Synthomer plc Annual Report 2017
The following information is unaudited:
Performance graph and table
The graph and the table below allow comparison of the total shareholder return of the Company and the Chief Executive Officer
remuneration outcomes over the last nine years.
1,400
1,200
1,000
800
600
400
200
0
08
09
10
11
12
13
14
15
16
Synthomer plc FTSE 250 (excluding investment and financial services companies)
The graph above compares the total shareholder return performance of the Company with that of the FTSE 250 (excluding investment and
financial services companies) which is considered to be the most appropriate index against which to make a comparison.
CEO total single figure
of remuneration (£000)
Bonus (% of maximum awarded)
LTIP (% of maximum vesting)
2009
2010
2011
2012
2013
2014
2015
2016
2017
786
100
0
1,484
3,934
1,487
100
100
100
100
27
100
923
0
50
967
57.3
0
1,246
1,218
2,516
96.7
n/a
100
n/a
100
96.3
The Chief Executive Officer total single figure of remuneration includes salary, benefits and pension contributions paid in the year together
with bonuses and long-term incentive awards which vested based on performance in the year.
Percentage change in remuneration of director undertaking the role of chief executive compared with UK Group employees
The table below sets out the increase in total remuneration of the Chief Executive Officer and that of the employees of the Group’s main UK
trading subsidiary. Total employee pay is based on the total salary, benefits and bonuses for employees of that company comprising some
349 employees. The directors consider that this employee population is the most relevant for comparison purposes taking into account
geographical location and remuneration structure.
Salary
% increase
Taxable benefits
% increase
Annual bonus
% increase
C G MacLean
Total employee pay, benefits and bonuses
0
4.6
0
(0.4)
25
12.2
Relative importance of spend on pay
The table below shows the relative importance of the Group’s all employee remuneration expense compared with returns to shareholders by
way of dividends.
Dividends
Total employee remuneration
39.1
116.3
30.3
93.5
2017
£m
2016
£m
% change
29.0
24.4
Dividends are the dividends paid in the year. Total employment remuneration is the consolidated salary cost for all Group employees.
Emoluments*
The total amounts for directors’ remuneration and other benefits were:
Emoluments
Note
* Emoluments are recognised on a pro-rata basis for the period they were Directors.
2017
£000
2016
£000
2,415
2,204
Synthomer plc Annual Report 2017
83
Governance Directors’ Remuneration report continued
External appointments
Executive directors are permitted to accept external appointments with the prior approval of the Board provided that there is no adverse
impact to their role and duties to the Company. Any fees arising from such appointments may be retained by the executive directors where
the appointment is unrelated to the Group’s business. SG Bennett does not currently hold any external appointments. CG MacLean was
appointed as a non-executive director of Saudi Basic Industries (SABIC) headquartered in Riyadh in October 2017 and receives a fee of
US$157,500 per annum.
Remuneration Committee
Remuneration Committee membership since 1 January 2017:
Brendan Connolly
Just Jansz
Caroline Johnstone
Attendance at Committee meetings is set out on page 70.
Chairman
Key duties of the Committee
The Committee is responsible for determining, in agreement with the Board, the Company’s policy on executive remuneration and the
specific remuneration for the Chairman and each of the executive directors, including pension rights, within the terms of the agreed policy.
The Committee is also responsible for reviewing the remuneration of senior executives throughout the Group.
Advisers
The Chief Executive Officer, Company Secretary and the Vice President – Global HR are invited to attend Committee meetings to contribute to
the Committee in its deliberations. However, no individual is involved in discussions, or is part of any decisions, relating to their own remuneration.
The Committee received independent advice from Deloitte LLP (Deloitte) who were appointed as the Committee’s independent
remuneration advisers in April 2013.
During the year, Deloitte provided advice on governance and market trends and other remuneration matters that materially assisted the
Committee. The fees paid to Deloitte in respect of this work were charged on a time and expenses basis and totalled £17,400 for advice
in 2017. Deloitte also provided tax services to part of the Group in the year. The Committee was satisfied that this did not compromise the
independence of the advice received.
Deloitte is a founding member of the Remuneration Consultants Group, and adheres to its code of conduct. Deloitte was appointed directly
by the Committee, and the Committee is satisfied that the advice received was objective and independent.
Statement of voting at general meeting
The table below sets out the results of the votes on the Directors’ remuneration report and remuneration policy at the 2017 AGM.
Member
2016 Annual Report on Remuneration
2017 Directors’ Remuneration Policy
Votes for
Votes against
Votes withheld
Number
% of vote
Number
% of vote
266,705,753
265,001,288
>99
>99
1,907,930
1,980,697
<1
<1
Number
14,926
1,657,331
By order of the Board
R Atkinson
Company Secretary
1 March 2018
84
Synthomer plc Annual Report 2017
Report of the Directors
The Directors submit their Annual Report and the audited consolidated financial statements for the year ended 31 December 2017. The
Report of the Directors comprises pages 85 to 87 and the following sections of the Annual Report which are incorporated by reference:
Item
Statement of Directors’ responsibilities
Financial instruments and financial risk management
Present membership of the Board
Corporate Governance Report
Strategic Report (including principal activities and principal risks and
uncertainties and Viability Statement)
Directors’ Remuneration Report
Share capital
Sustainability Report
Location in Annual Report
Page 88
Financial Statements – note 23
Pages 58 to 59
Pages 60 to 64
Pages 1 to 55
Pages 70 to 84
Financial Statements – note 28
Pages 44 to 55
Results and dividends
The profit attributable to shareholders for the year was £74.0m. The interim dividend of 3.7 pence per share was paid on 6 November 2017.
The Directors recommend a final ordinary dividend of 8.5 pence per share payable on 6 July 2018 to those shareholders registered at the
close of business on 8 June 2018. A dividend reinvestment plan is available to shareholders and this alternative will continue to be offered
until further notice.
Acquisitions and Disposals
On 5 March 2017 the Group completed the acquisition of Perstorp Oxo Belgium AB. On 1 January 2018, the Group sold Synthomer
Leuna GmbH. On 31 January 2018 the Group completed the purchase of the BASF Pischelsdorf SBR business and assets.
Further details of these transactions are contained in notes 31 and 37 respectively to the consolidated financial statements.
Directors
All the Directors will retire and will be seeking election or re-election at the forthcoming Annual General Meeting.
None of the Directors seeking re-election has a service contract other than Mr MacLean and Mr Bennett who each have a service contract
which contains a twelve month notice period.
Director indemnity provisions
Under the Company’s Articles of Association, the Directors of the Company have the benefit of a qualifying third-party indemnity provision
which provides that they shall be indemnified by the Company against certain liabilities as permitted by Sections 232 and 234 of the
Companies Act 2006 and against costs incurred by them in relation to any liability for which they are indemnified. The Company has
purchased and maintains insurance against directors’ and officers’ liabilities in relation to the Company.
Share capital and control
During 2017 no shares were issued or repurchased. A total of 87,282 shares were purchased on the open market on behalf of the
shareholders who elected to participate in the dividend reinvestment plan.
The rights and obligations attaching to the Company’s ordinary shares, being the only class of issued share capital, as well as the powers of
the Company’s directors, are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House or
can be downloaded from the Company’s website. There are no restrictions on the voting rights attaching to the Company’s ordinary shares
or on the transfer of securities in the Company. No person holds securities in the Company carrying special rights with regard to the control
of the Company. The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer
of securities or on voting rights. Unless expressly specified to the contrary in the Articles of Association of the Company, the Company’s
Articles of Association may be amended by special resolution of the Company’s shareholders.
Other than in relation to its borrowings which, unless certain conditions are satisfied, become repayable on a takeover, the Company is
not party to any significant agreements that would take effect, alter or terminate upon a change of control following a takeover bid. The
Company does not have agreements with any director or employee that would provide compensation for loss of office or employment
resulting from a takeover.
All of the Company’s share schemes contain provisions relating to a change of control. Outstanding options and awards would normally
vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at that time.
Synthomer plc Annual Report 2017
85
Governance Report of the Directors continued
Major shareholdings
Other than the shareholdings disclosed as Directors’ interests in the Directors’ remuneration report as at 16 February 2018, the Company
had been notified under Section 5 of the Disclosure and Transparency Rules of the UK Listing Authority of the following significant holdings
of voting rights in its ordinary shares:
Ordinary shares (number)
Percentage of ordinary shares in issue
Kuala Lumpur Kepong Berhad Group
Standard Life Aberdeen plc
Old Mutual plc
FIL Limited
Kames Capital Plc
66,879,401
24,987,649
23,713,569
19,820,888
11,769,450
19.68
7.35
6.97
5.83
3.46
Nature of holding
Direct interest
Indirect interest
Indirect interest
Direct interest
Direct and indirect interest
Employment policies and Employment involvement
The Group gives every consideration to applications for employment from disabled persons. Employees who become disabled are
given every opportunity to continue employment under normal terms and conditions with appropriate training, career development and
promotion wherever possible. The Group seeks to achieve equal opportunities in employment through recruitment and training policies.
The Group encourages employee involvement in its affairs and makes use of an intranet system to promote such involvement and to aid
communication with employees. Regional management conferences are held annually to bring senior management together to share
ideas and develop policy, values and behaviours. Dialogue takes place regularly with employees to make them aware of the financial and
economic factors affecting the performance of the Group. Performance related bonus schemes are in operation throughout the Group.
Authority to purchase own shares
The Company has a general authority, which expires at the conclusion of the 2018 Annual General Meeting, to make market purchases
of not more than 33,988,076 of the Company’s ordinary shares in accordance with the terms of the special resolution passed at the 2017
Annual General Meeting. A resolution will be tabled at the 2018 Annual General Meeting to renew this authority.
Political donations
No political donations were made in the year.
UK pension funds
The Trustees have reviewed the independent investment management of the assets of the Company pension schemes in the UK and
assured themselves of the security and controls in place. In particular, it is the Trustees’ policy not to invest in Synthomer plc shares nor
lend money to the Company.
Subsidiaries
All the Group’s subsidiaries, joint ventures and related undertakings are listed on page 147 to 149.
Statement as to disclosure of information to auditor
Each Director of the Company confirms that, so far as he or she is aware, there is no relevant audit information of which the Company’s
auditor is unaware and that he or she has taken all the steps that he or she ought to have taken as a Director in order to make himself or
herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. For these purposes,
relevant audit information means information needed by the Company’s auditor in connection with preparing their reports on pages 89 to 94.
This confirmation is given and should be interpreted in accordance with Section 418 of the Companies Act 2006.
86
Synthomer plc Annual Report 2017
Going concern
The directors have acknowledged the latest guidance on going concern and in reaching their conclusions have taken into account factors which
include the amendment and restatement in March 2016 of the Group’s main credit facility put in place in July 2014 and which involved the putting
in place of an extended commitment of £370 million under the multicurrency revolving facilities agreement until July 2019. After making enquiries
and taking account of reasonably possible changes in trading performance, the directors are satisfied that, at the time of approving the financial
statements, it is appropriate to adopt the going concern basis in preparing the financial statements of both the Group and the Company.
Cautionary statement
The purpose of this report is to provide information to the members of the Company. It contains certain forward-looking statements with
respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since
future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking
statements reflect knowledge and information available at the date of preparation of this report and the Company undertakes no obligation
to update these forward-looking statements. Nothing in this report should be construed as a profit forecast.
Independent auditors
A resolution to appoint PricewaterhouseCoopers LLP as the Company’s auditor will be proposed at the Annual General Meeting.
Annual General Meeting
The Annual General Meeting will be held at the offices of Canaccord Genuity Limited, 88 Wood Street, London EC2V 7QR on 26 April 2018
at 10.00am.
By order of the Board
R Atkinson
Company Secretary
1 March 2018
Synthomer plc Annual Report 2017
87
Governance Statement of Directors’ responsibilities
Financial statements, including adoption of going concern basis
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
Fair, balanced and understandable assessment
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
group and company’s performance, business model and strategy.
Responsibility statement
Each of the directors, whose names and functions are listed in the
Report of the Directors, confirm that, to the best of their knowledge:
•
•
•
the company financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law), give a true and fair view of the assets, liabilities,
financial position and profit of the company;
the group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit of the group as a whole; and
the Report of the Directors includes a fair review of the
development and performance of the business and the position
of the group and company as a whole, together with a
description of the principal risks and uncertainties that it faces.
By order of the Board
C G MacLean
Chief Executive Officer
S G Bennett
Chief Financial Officer
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared
the group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). Under company law the directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the group
and company and of the profit or loss of the group and company for
that period. In preparing the financial statements, the directors are
required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements and
United Kingdom Accounting Standards, comprising FRS 101,
have been followed for the company financial statements,
subject to any material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and
company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
company's transactions and disclose with reasonable accuracy
at any time the financial position of the group and company and
enable them to ensure that the financial statements and the
Directors’ Remuneration Report comply with the Companies
Act 2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets of
the group and company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of
the company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
88
Synthomer plc Annual Report 2017
Group financial statements
Independent auditors’ report
to the members of Synthomer plc
Report on the audit of financial statements
Opinion
In our opinion:
• Synthomer plc’s group financial statements and company financial statements (the “financial statements”) give a true and fair view of the
state of the group’s and of the company’s affairs as at 31 December 2017 and of the group’s profit and cash flows for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group
financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report, which comprise: the consolidated balance sheet and
statement of financial position – Synthomer plc as at 31 December 2017; the consolidated income statement and consolidated statement
of comprehensive income, the consolidated cash flow statement, and the consolidated and company statements of changes in equity for
the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to
the group or the company.
Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the group or the company in the
period from 1 January 2017 to 31 December 2017.
Our audit approach
Overview
Materiality
Audit
scoping
Areas of
focus
• Overall group materiality: £6.5 million (2016: £6.1 million), based on 5% of underlying profit before taxation
• Overall company materiality: £5.0 million (2016: £5.0 million), based on 2% of total assets
• Audit procedures provide coverage of 88% of revenue, 89% of operating profit and 87% of
underlying operating profit
• Audit scope covers eight countries, performing procedures over 13 entities
• Financially significant components in the UK, Germany and Malaysia
• Valuation of Defined Benefit Pension Schemes
• Provisions for Uncertain Tax Positions
• Accounting for the acquisition of Oxo Belgium
Synthomer plc Annual Report 2017
89
Group financial statements Independent auditors’ report continued
to the members of Synthomer plc
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events that are inherently uncertain.
We gained an understanding of the legal and regulatory framework applicable to the group and the industry in which it operates, and
considered the risk of acts by the group which were contrary to applicable laws and regulations, including fraud. We designed audit
procedures at group and significant component level to respond to the risk, recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a
material misstatement in the group and company financial statements, including, but not limited to, the Companies Act 2006, the Listing
Rules, Pensions legislation, UK tax legislation, UK environmental regulations and the EU registration, evaluation, authorisation and restriction
of chemicals regulations and equivalent local laws and regulations applicable to significant component teams. Our tests included, but were
not limited to, review of the financial statement disclosures to underlying supporting documentation, enquiries of management, review of
significant component auditors' work and review of internal audit reports in so far as they related to the financial statements. There are
inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from
the events and transactions reflected in the financial statements, the less likely we would become aware of it.
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of
management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors
that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Valuation of Defined Benefit Pension Schemes
As set out in Note 26 on page 128 the Group has significant
defined benefit pension schemes. These primarily represent the
Yule Catto Group retirement benefits scheme in the UK and an
unfunded scheme in Germany, which account for £78.3 million
and £68.5 million, respectively, of the net pension deficit of
£157.2 million recorded on the Group balance sheet at the year
end. We focused on the pension liabilities in particular, as the
amounts reflected in the financial statements for defined benefits
schemes are sensitive to relatively small changes in a few key
assumptions such as the inflation rate, mortality tables and most
notably, the discount rate applied. The Group uses third party
actuaries to calculate the amounts to reflect in the financial
statements in respect of these schemes and it is accordingly
important for us to assess the work they perform and their
competency to undertake the work in order to conclude on
the results of their work.
We obtained external actuarial reports of the UK and German schemes
which set out the calculations and assumptions underpinning the year
end pension scheme valuation. We read these reports and were
satisfied that the scope of their work was such that we could use this
work to provide evidence for the purpose of our audit. We assessed the
competency and objectivity of the external actuaries commissioned by
the Group to perform the year end calculations by considering their
technical expertise and independence from the Group. We identified
no concerns over their competency or objectivity. We used our own
specialist actuarial knowledge to evaluate all the key assumptions
used in each of the two schemes by comparing these assumptions
to our expectations for similar schemes as at the year end. We found
management’s assumptions to be within an acceptable range.
90
Synthomer plc Annual Report 2017
Group financial statements Accounting for the acquisition of Oxo Belgium
On 5 March 2017 the Group completed the acquisition of
Perstorp Oxo Belgium AB ("Oxo Belgium") for consideration
of £66.1m, as described in note 31.
We evaluated the process used by management to identify and value
the assets and liabilities acquired. We assessed the assets and
liabilities acquired and the fair value adjustments applied. The fair
value adjustments were considered appropriate.
IFRS 3 “Business Combinations” (“IFRS 3”) requires that all assets
and liabilities acquired in the business combination are recorded
at fair values on acquisition. Judgement is required in identifying
and valuing all the assets and liabilities acquired, in particular
intangible assets which are recognised on acquisition and
valuing the acquired property, plant and equipment.
We considered the Directors’ process for identifying the intangible
assets acquired, considering the rationale for the acquisition and the
nature of the Oxo Belgium business. Using our valuation specialists,
we assessed the valuation methodology used by the Directors in
valuing the identified assets. We evaluated the forecasts and data
used and the key assumptions made.
We were satisfied that the fair values of the intangible and tangible
assets were supportable, and that the assumptions used in valuing
the assets were within an acceptable range.
Intangible assets totalling £38.9m were identified relating to
customer relationships. The key judgements were in determining
an appropriate methodology to value these assets and appropriate
assumptions, including forecast revenue and profit, discount rate
and rates of obsolescence to determine their fair values.
Tangible assets relating to land, buildings and plant and
machinery have been valued at £8.9m. The key judgements were
in determining an appropriate methodology to value these assets,
assessing current market values for similar assets, replacement
costs and other valuation assumptions.
Provisions for Uncertain Tax Positions
The Group has a wide geographic footprint and is subject to a
range of tax laws in a number of different tax jurisdictions. In
determining the amount to record at the year-end for tax liabilities
there is an element of judgement as to what amounts will
ultimately be payable for assessed tax exposures. As set out in
Note 10 at 31 December 2017, the Group has recorded current
tax liabilities totalling £40.2 million. A significant element of this
tax liability relates to uncertain tax positions. We focused on this
area due to the size of the amounts involved and level of
judgement needed to determine the estimated provisions.
We used our tax specialists to assess the level of provisions held
against various tax exposures and to consider the appropriateness of
any provisions. In our assessment we had regard to the nature of the
individual exposures, including their origin, and any developments in
the year to assess the rationale for their continued validity at the
current year end. As part of this work we inspected correspondence
with tax authorities and the Group’s tax advisors. We challenged the
judgements made by assessing individual provisions against our
expectations of potential exposures, having regard to the facts of each
case. No significant issues arose from this work to suggest that the
judgements made and amounts recorded were inappropriate.
We determined that there were no key audit matters applicable to the company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which
they operate.
As set out on page 2, the Group reports its results as two segments: ‘Europe and North America’ and ‘Asia and the Rest of the World’. The
Group financial statements are a consolidation of reporting units, being holding companies, intermediate holding companies and operating
companies, across 17 countries. Three countries, being the UK, Germany and Malaysia, account for the majority for the Group’s results.
We accordingly focused our work on three of the reporting units in these countries, which were subject to audits of their complete financial
information. In addition, to increase our coverage of the Group’s revenues and underlying profit before tax we performed audit procedures at
an additional 10 reporting units located in the UK, Italy, Belgium, Germany, Malaysia, USA, Finland and the Czech Republic. These components
accounted for 88% of the Group’s revenue, 89% of the Group’s operating profit and 87% of the Group’s underlying operating profit.
Where work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those
reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the
Group financial statements as a whole. The key reporting units in the UK, Germany and Malaysia were visited by senior members of the
Group team during the audit.
Synthomer plc Annual Report 2017
91
Group financial statements Independent auditors’ report continued
to the members of Synthomer plc
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
Company financial statements
£6.5 million (2016: £6.1 million).
£5.0 million (2016: £5.0 million).
5% of underlying profit before tax.
2% of total assets.
We believe that underlying profit before tax,
being profit before tax adjusted for special
items, is the principal metric against which
the Group’s financial performance is
measured in the Chairman’s and CEO’s
statements within the financial statements.
We believe that total assets is the primary
measure used by the shareholders in
assessing the performance of the company,
and is a generally accepted benchmark. This
has been capped at a level below that of the
group materiality.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £450,000 and £5,000,000. Certain components were audited to a local statutory
materiality that was less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £325,000 (Group audit)
(2016: £300,000) and £325,000 (Company audit) (2016: £300,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the directors’ statement in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the
financial statements and the directors’ identification of any material
uncertainties to the group’s and the company’s ability to continue as
a going concern over a period of at least twelve months from the
date of approval of the financial statements.
We are required to report if the directors’ statement relating to Going
Concern in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw attention to. However,
because not all future events or conditions can be predicted, this
statement is not a guarantee as to the group’s and company’s ability
to continue as a going concern.
We have nothing to report.
92
Synthomer plc Annual Report 2017
Group financial statements Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures
to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of the
Directors for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did
not identify any material misstatements in the Strategic Report and Report of the Directors. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 67 of the Annual Report that they have carried out a robust assessment of the principal risks facing
the group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 37 of the Annual Report as to how they have assessed the prospects of the group, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the group and statement in relation to the longer-term viability of the group. Our review was substantially less in scope
than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the
statements are consistent with the knowledge and understanding of the group and company and their environment obtained in the course
of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 88, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the group’s and company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the group and company obtained in the
course of performing our audit.
• The section of the Annual Report on page 68 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006. (CA06)
Synthomer plc Annual Report 2017
93
Group financial statements Independent auditors’ report continued
to the members of Synthomer plc
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities set out on page 88, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The
directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the directors on 12 July 2012 to audit the financial statements
for the year ended 31 December 2012 and subsequent financial periods. The period of total uninterrupted engagement is 6 years, covering
the years ended 31 December 2012 to 31 December 2017.
Matthew Mullins (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
1 March 2018
94
Synthomer plc Annual Report 2017
Group financial statements Consolidated income statement
for the year ended 31 December 2017
Continuing operations
Revenue
Company and subsidiaries before Special Items
Restructuring and site closure
Sale of business
Sale of land
Gains on foreign exchange contracts
relating to acquisition
Acquisition costs
Amortisation of acquired intangibles
Company and subsidiaries
Share of joint ventures
Operating profit/(loss)
Interest payable
Interest receivable
IAS 19 interest charge
Finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
Profit attributable to non-controlling interests
Profit/(loss) attributable to equity holders of the parent
Underlying
performance
£m
Note
2017
Special
items
£m
IFRS
£m
Underlying
performance
£m
2016
Special
items
£m
IFRS
£m
3
3
3
3
3
3
19
7
9
9
10
1,480.2
138.0
–
–
–
–
–
–
138.0
1.0
139.0
(5.7)
1.0
(4.7)
(4.3)
(9.0)
130.0
(24.7)
105.3
0.8
104.5
105.3
–
–
(11.6)
–
1.3
–
(2.3)
(31.0)
(43.6)
–
(43.6)
–
–
–
–
–
(43.6)
13.1
(30.5)
–
(30.5)
(30.5)
1,480.2
1,045.7
138.0
(11.6)
–
1.3
–
(2.3)
(31.0)
94.4
1.0
95.4
(5.7)
1.0
(4.7)
(4.3)
(9.0)
86.4
(11.6)
74.8
0.8
74.0
74.8
128.2
–
–
–
–
–
–
128.2
2.0
130.2
(4.2)
0.7
(3.5)
(4.5)
(8.0)
122.2
(24.5)
97.7
1.5
96.2
97.7
–
–
1,045.7
128.2
(5.2)
4.7
33.2
13.1
(4.3)
(27.0)
14.5
–
(5.2)
4.7
33.2
13.1
(4.3)
(27.0)
142.7
2.0
14.5
144.7
–
–
–
–
–
14.5
9.1
23.6
9.4
14.2
23.6
(4.2)
0.7
(3.5)
(4.5)
(8.0)
136.7
(15.4)
121.3
10.9
110.4
121.3
Earnings/(loss) per share
– Basic
– Diluted
13
13
30.7p
30.5p
(8.9)p
(8.9)p
21.8p
21.6p
28.3p
28.1p
4.2p
4.2p
32.5p
32.3p
Special Items
The Special Items are shown in more detail in note 3.
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Note
26
10
Profit for the year
Actuarial gains and losses
Tax relating to components of other comprehensive income
Total items that will not be reclassified to profit or loss
Exchange differences on translation of foreign operations
Exchange differences recycled on sale of business
Losses on a hedge of a net investment taken to equity
Total items that may be reclassified subsequently
to profit or loss
Other comprehensive income/(expense) for the year
Total comprehensive income for the year
2017
Equity
holders of
the parent
£m
Non-
controlling
interests
£m
74.0
23.6
2.3
25.9
9.2
–
(7.8)
1.4
27.3
101.3
0.8
–
–
–
–
–
–
–
–
Equity
holders of
the parent
£m
110.4
(49.1)
0.9
(48.2)
47.0
3.3
(6.4)
43.9
(4.3)
2016
Non-
controlling
interests
£m
10.9
–
–
–
1.2
–
–
1.2
1.2
Total
£m
74.8
23.6
2.3
25.9
9.2
–
(7.8)
1.4
27.3
Total
£m
121.3
(49.1)
0.9
(48.2)
48.2
3.3
(6.4)
45.1
(3.1)
0.8
102.1
106.1
12.1
118.2
Synthomer plc Annual Report 2017
95
Group financial statements
Consolidated statement of changes in equity
for the year ended 31 December 2017
Note
26
At 1 January 2017
Profit for the year
Actuarial gains
Exchange differences on
translation of foreign operations
Loss on a hedge of a net
investment taken to equity
Tax relating to components of
other comprehensive income
10
Total comprehensive
income for the year
Dividends paid to shareholders
12
Dividends paid to
non-controlling interests
Share-based payments
At 31 December 2017
Share
capital
£m
34.0
Share
premium
£m
230.5
Capital
redemption
reserve
£m
Hedging
and
translation
reserve
£m
0.9
(4.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.2
(7.8)
–
1.4
–
–
–
Retained
earnings
£m
65.2
74.0
23.6
–
–
Total
£m
326.2
74.0
23.6
9.2
(7.8)
2.3
2.3
99.9
(39.1)
–
(0.5)
101.3
(39.1)
–
(0.5)
34.0
230.5
0.9
(3.0)
125.5
387.9
Non-
controlling
interests
£m
18.0
0.8
–
–
–
–
0.8
–
(0.5)
–
18.3
Total
equity
£m
344.2
74.8
23.6
9.2
(7.8)
2.3
102.1
(39.1)
(0.5)
(0.5)
406.2
Total
equity
£m
258.5
121.3
(49.1)
Non-
controlling
interests
£m
9.1
10.9
–
Total
£m
249.4
110.4
(49.1)
Retained
earnings
£m
32.3
110.4
(49.1)
–
–
–
Share
capital
£m
34.0
Share
premium
£m
230.5
Capital
redemption
reserve
£m
Hedging
and
translation
reserve
£m
0.9
(48.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47.0
3.3
(6.4)
43.9
–
–
–
34.0
230.5
0.9
(4.4)
47.0
1.2
48.2
3.3
(6.4)
–
0.9
0.9
62.2
(30.3)
–
1.0
65.2
106.1
(30.3)
–
1.0
326.2
–
–
–
12.1
–
(3.2)
–
18.0
3.3
(6.4)
0.9
118.2
(30.3)
(3.2)
1.0
344.2
At 1 January 2016
Profit for the year
Actuarial losses
Exchange differences on
translation of foreign operations
Exchange differences recycled
on sale of business
Loss on a hedge of a net
investment taken to equity
26
Tax relating to components of
other comprehensive income
10
Total comprehensive
income for the year
Dividends paid to shareholders
12
Dividends paid to
non-controlling interests
Share-based payments
At 31 December 2016
96
Synthomer plc Annual Report 2017
Group financial statements Consolidated balance sheet
as at 31 December 2017
Non-current assets
Goodwill
Acquired intangible assets
Other intangible assets
Property, plant and equipment
Deferred tax assets
Investment in joint ventures
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Assets classified as held for sale
Total assets
Current liabilities
Borrowings
Trade and other payables
Current tax liability
Provisions for other liabilities and charges
Total current liabilities
Non-current liabilities
Borrowings
Trade and other payables
Deferred tax liability
Post retirement benefit obligations
Provisions for other liabilities and charges
Total non-current liabilities
Net assets
Equity
Called up share capital
Share premium
Capital redemption reserve
Hedging and translation reserve
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Note
2017
£m
2016
£m
15
16
17
18
11
19
20
21
22
329.1
66.2
1.9
322.1
23.3
7.5
750.1
125.1
229.1
89.6
443.8
301.4
54.2
0.2
293.3
19.4
9.0
677.5
104.3
195.7
117.4
417.4
24
6.8
0.7
1,200.7
1,095.6
22
25
10
27
22
25
11
26
27
28
(73.1)
(279.3)
(40.2)
(2.4)
(65.4)
(213.5)
(39.0)
(3.0)
(395.0)
(320.9)
(197.0)
(202.3)
(2.3)
(35.4)
(2.7)
(33.1)
(157.2)
(186.7)
(7.6)
(399.5)
406.2
(5.7)
(430.5)
344.2
34.0
230.5
0.9
(3.0)
125.5
387.9
18.3
406.2
34.0
230.5
0.9
(4.4)
65.2
326.2
18.0
344.2
The financial statements on pages 95 to 137 were approved by the Board of Directors and authorised for issue on 1 March 2018. They are
signed on its behalf by:
C G MacLean
Director
S G Bennett
Director
Synthomer plc Annual Report 2017
97
Group financial statements Consolidated cash flow statement
for the year ended 31 December 2017
Operating
Cash generated from operations
Interest received
Interest paid
Net interest paid
UK corporation tax paid
Overseas corporate tax paid
Total tax paid
Net cash inflow from operating activities
Investing
Dividends received from joint ventures
Purchase of property, plant and equipment
Sale of property, plant and equipment
Net capital expenditure
Purchase of business
Proceeds from sale of business
Net cash outflow from investing activities
Financing
Ordinary dividends paid
Dividends paid to non-controlling interests
Settlement of equity-settled share based payments
Repayment of borrowings
Proceeds of borrowings
Net cash (outflow)/inflow from financing activities
Increase in cash, cash equivalents and bank overdrafts during the year
Cash, cash equivalents and bank overdrafts at 1 January
Cash (outflows)/inflows
Cash and cash equivalents
Bank overdrafts
Exchange and other movements
Cash, cash equivalents and bank overdrafts at 31 December
2017
2016
Note
£m
£m
£m
£m
29
162.6
157.0
0.7
(4.0)
–
(17.1)
(45.6)
34.4
1.0
(5.8)
–
(26.1)
(60.3)
2.2
(4.8)
(26.1)
131.7
2.0
(58.1)
(64.1)
7.6
(112.6)
(39.1)
(0.5)
(3.1)
(102.0)
136.3
(8.4)
10.7
52.0
(28.5)
39.2
63.8
(19.9)
10.7
2.7
65.4
19
31
37
12
30
30
30
30
30
30
30
(3.3)
(17.1)
136.6
2.1
(11.2)
(165.8)
12.8
(162.1)
(30.3)
(3.2)
(0.4)
(82.7)
186.0
69.4
43.9
8.5
43.9
(0.4)
52.0
2016
£m
136.6
2.1
(11.2)
(153.0)
(25.5)
(30.3)
(3.2)
(0.4)
(13.5)
(72.9)
Reconciliation of net cash flow from operating activities to movement in net borrowings
Net cash inflow from operating activities
Add back: dividends received from joint ventures
Less: net capital expenditure
Less: net purchase of business
Ordinary dividends paid
Dividends paid to non-controlling interests
Settlement of equity-settled share based payments
Exchange and other movements
Increase in net borrowings
98
Synthomer plc Annual Report 2017
Note
19
12
30
30
2017
£m
131.7
2.0
(58.1)
(56.5)
19.1
(39.1)
(0.5)
(3.1)
(6.6)
(30.2)
Group financial statements Notes to the consolidated financial statements
31 December 2017
1 General information
Synthomer plc is a company incorporated and domiciled in the United Kingdom under the Companies Act. The address of the registered
office is given on the inside back cover. The Company is listed on the London Stock Exchange.
The consolidated financial statements are prepared in pounds sterling (functional currency of the parent company). Foreign operations are
included in accordance with the policies set out in note 2.
New and amended standards adopted by the Group
No new standards have been adopted by the Group for the first time for the financial year beginning 1 January 2017.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting period and
have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below:
IFRS 9 Financial Instruments
IFRS 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces new rules for
hedge accounting and a new impairment model for financial assets. This standard is mandatory for financial years commencing on or after
1 January 2018.
The Group has reviewed its financial assets and liabilities and expects there to be no material impact arising from the adoption of the new
standard on 1 January 2018.
As disclosed in note 23, the Group’s only financial assets are cash and cash equivalents and trade receivables, which will continue to be
held at amortised cost. There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect the
accounting for financial liabilities that are designated as fair value through profit or loss, and the Group does not have any such liabilities.
The Group has confirmed that its current hedging relationships will continue to qualify as hedges upon the adoption of IFRS 9.
The new impairment model requires the recognition of impairment provisions based on expected credit losses, rather than only incurred
credit losses as is the case under IAS 39. The Group does not expect any material movement in the loss allowance for trade receivables on
the adoption of IFRS 9.
IFRS 15 Revenue from Contracts with Customers
The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for goods and services
and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of
a good or service transfers to a customer. The standard also requires entities to apportion revenue earned from contracts to individual
performance obligations, based on a five-step model. This standard is mandatory for financial years commencing on or after 1 January 2018.
The Group has performed a detailed assessment at all major sites, and as a result has concluded that no material impact is expected
on the accounting of revenue in the Group. No material separate performance obligations are expected, and no material adjustment is
anticipated to the pattern of revenue recognition. Further work is being done to identify any potential increased disclosure requirements.
IFRS 16 Leases
IFRS 16 was issued in January 2016. For lessees, it will result in almost all leases being recognised on the balance sheet, as the distinction
between operating and finance leases is removed. Under the new standard, an asset (the right-to-use the leased item) and a financial
liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. This standard is mandatory for financial
years commencing on or after 1 January 2019. At this stage, the Group does not intend to adopt the standard before its effective date.
The standard will primarily affect the accounting for the Group’s operating leases, and the Group has undertaken a review to identify all
leases in each entity. As at the reporting date, the Group has non-cancellable operating lease commitments of £34.7m (see note 33).
However, the Group has not yet assessed what other adjustments are required, for example because of the change in definition of lease
term, and the treatment of extension and termination options.
Moreover, the standard offers various transitional arrangements which may have an impact on the adjustments required . As the various
options are still being considered to establish which is right for the Group, an estimate has not yet been made for the amount of right-to-use
assets and lease liabilities that will have to be recognised on adoption of the new standard, and how this may affect the Group’s income
statement and classification of cash flows going forward.
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or
future reporting periods and on foreseeable future transactions.
Synthomer plc Annual Report 2017
99
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
2 Significant accounting policies
Basis of accounting
These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU), IFRS Interpretations Committee and the Companies Act 2006 applicable to companies reporting under IFRS. The
financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments at fair value through the
Income Statement. As discussed in the Report of the Directors on page 87, the financial statements have been prepared on a going concern basis.
The principal accounting policies adopted are set out below and have been consistently applied to all the years presented, unless otherwise stated.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. Control is achieved where the Company is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective
date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used into line with those used by the Group.
The results of joint ventures are accounted for using equity accounting.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein.
Non-controlling interests consist of the amount of those interests at the date of the original business combination (see below) and the
non-controlling interest’s share of changes in equity since the date of combination.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable
assets and liabilities of a subsidiary, associate or joint venture at the date of acquisition. Goodwill is recognised as an asset and reviewed
for impairment at least annually at the cash generating unit level. Any impairment is recognised immediately in the consolidated income
statement and is not subsequently reversed.
Should the fair value of the identifiable assets exceed the cost of acquisition, a “Bargain purchase”, the excess is credited to the income
statement immediately on acquisition.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the
synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
On disposal of a subsidiary, associate or joint venture, the attributable amount of goodwill is included in the determination of the profit or
loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being
tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included
in determining any subsequent profit or loss on disposal.
100
Synthomer plc Annual Report 2017
Group financial statements Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is
measured at the aggregate of the fair values (at the date of completion) of assets given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3(2008) are
recognised at their fair value at the acquisition date, except that:
• deferred tax assets or liabilities are recognised and measured in accordance with IAS 12 Income Taxes;
• liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 19 Employee
Benefits; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and
Discontinued Operations are measured in accordance with that standard.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the
Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during
the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have affected the amounts as of that date.
The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and
circumstances that existed as of the acquisition date, and is subject to a maximum of one year.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held investment is
re-measured to fair value at the acquisition date; any gains or losses from such re-measurement are recognised in the income statement.
Acquired intangible assets
Intangible assets acquired through acquisition are measured at their fair value and are amortised on a straight-line basis over their estimated
useful lives, on the following bases:
Customer relationships
Technology
– between 5 and 14 years
– 10 years
Where necessary the fair value at acquisition and estimated useful lives for these intangible assets are based on independent
valuation reports.
Other intangible assets
Other intangible assets that are not acquired through a business combination are initially measured at cost and amortised on a straight-line
basis over their estimated useful lives of between 3 and 5 years.
An internally-generated intangible asset arising from the Group’s product development is recognised only if all of the following conditions
in IAS 38 are met:
• an asset is created that can be separately identified (such as software and new processes);
• it is technically feasible to complete the asset;
• management intends to complete the development;
• there is an ability to use or sell the asset once development has been completed;
• it is probable that the asset created will generate future economic benefits;
• adequate technical, financial and other resources to complete the development are available; and
• the development cost of the asset can be measured reliably.
No research or development costs met the criteria required for capitalisation under IAS 38 during the year. Where no internally-generated
intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
Synthomer plc Annual Report 2017
101
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
2 Significant accounting policies continued
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and any provision for impairment. Cost comprises original
purchase price and the costs attributable to bringing the asset to its working condition for its intended use, including, where appropriate,
capitalised finance costs. Except for freehold land, which is not depreciated, the cost of property, plant and equipment is depreciated on a
straight-line basis over its expected useful life as follows:
Freehold buildings
Leasehold land and buildings
Plant and equipment
– 50 years
– the lesser of 50 years and the period of the lease
– between 3 and 10 years
Assets in the course of construction are not depreciated until the assets are ready for their intended use.
Joint ventures
Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially
recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other
comprehensive income.
Impairment of property, plant and equipment and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its plant, property and equipment and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the income statement.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised immediately in the income statement.
Operating leases
Operating lease payments are expensed on a straight-line basis to the income statement over the term of the relevant lease. Any benefits
received as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated
using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and
costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow-moving or defective items where appropriate.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Loans and receivables
Trade receivables
Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective
interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement where there is
objective evidence that the asset is impaired.
All trade receivables that are factored by third parties are done so on a non-recourse basis. At the point of factoring, the Group forfeits the
right to future cash flows from these receivables and those amounts are derecognised. The cost of factoring receivables is recognised as
a finance cost in the period in which the receivable is factored.
102
Synthomer plc Annual Report 2017
Group financial statements Amortised costs
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the income statement using the effective
interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Trade payables
Trade payables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest
rate method.
Impairment of financial assets
At each balance sheet date, the Group reviews the carrying amounts of its financial assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any).
Finance costs
Finance costs of debt are recognised in the income statement over the term of such instruments at an effective interest rate on the carrying
amount. Finance costs that are directly attributable to the construction of property, plant and equipment are capitalised as part of the cost
of those assets in accordance with IAS 23.
Foreign currencies
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency are
recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities
that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and
liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value
was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts (see below for details of the
Group’s accounting policies in respect of such derivative financial instruments).
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet
date. Income and expense items are translated at the relevant average exchange rates for the period. Exchange differences arising, if any, are
classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in the income statement in
the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate. The Group has elected to treat goodwill and fair value adjustments arising on acquisitions before the date of
transition to IFRSs as sterling-denominated assets and liabilities.
Derivative financial instruments
The use of financial derivatives is governed by the Group’s policies approved by the Board of directors, which provide written principles
on the use of financial derivatives, as set out in note 23.
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk,
including foreign exchange forward contracts, interest rate swaps and foreign currency options.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each balance sheet date. A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a
negative fair value is recognised as a financial liability. The resulting gain or loss is recognised in the income statement immediately unless
the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the income statement
depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of highly probable forecast
transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.
Hedge accounting
The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of
foreign currency risk, as either cash flow hedges, or hedges of net investments in foreign operations.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item,
along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the
hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly
effective in offsetting changes in cash flows of the hedged item.
Synthomer plc Annual Report 2017
103
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
2 Significant accounting policies continued
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity.
The gain or loss relating to the ineffective portion is recognised immediately in the income statement.
Amounts deferred in equity are recycled in the income statement in the periods when the hedged item is recognised in profit or loss, in the same
line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a
non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial
measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and
is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to
occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument
relating to the effective portion of the hedge is recognised in equity in the foreign currency translation reserve. The gain or loss relating to the
ineffective portion is recognised immediately in the income statement, and is included in the ‘other gains and losses’ line.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks which become fully liquid within three months or less and
other short-term highly liquid investments with original maturities of three months or less.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance
sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests
in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the
taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
104
Synthomer plc Annual Report 2017
Group financial statements Retirement benefit costs
Current and past service costs in respect of the Group's defined benefit pension schemes are charged to the consolidated income
statement.
Payments to defined contribution retirement benefit schemes are charged to the income statement as they fall due.
Actuarial gains on the defined benefit schemes are recognised in full in each period in which they occur. They are recognised outside of the
consolidated income statement and are presented in the consolidated statement of comprehensive income.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation
at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually using the projected
unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have
terms to maturity approximating to the terms of the related pension obligation.
The UK defined benefit scheme is funded, with the assets of the scheme held separately from those of the Group, in separate trustee-
administered funds. For the German schemes, the assets are included within the assets of the respective companies, as permitted under
local laws. The assets of the other overseas schemes are held separately from those of the Group.
Provisions
Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring that has been
communicated to affected parties.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in
the normal course of business, net of discounts, VAT and other sales-related taxes.
Sales are recognised when products are delivered to the customer and there is no unfulfilled obligation that could affect the customer’s
acceptance of the products. Delivery occurs when the products have been shipped to the specified location, the risks of obsolescence
and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract,
the acceptance provisions have lapsed, or the group has objective evidence that all criteria for acceptance have been satisfied.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payments.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line
basis over the vesting period. The Group will on occasion, at its own discretion, settle the share-based payments in cash rather than equity.
Synthomer plc Annual Report 2017
105
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
2 Significant accounting policies continued
Definitions
Operating profit
Operating profit represents profit from continuing activities before financing costs and taxation.
EBITDA
EBITDA is calculated as operating profit before depreciation, amortisation and Special Items (as defined below).
Special Items
The following are disclosed separately as Special Items in order to provide a clearer indication of the Group’s underlying performance:
• Amortisation of acquired intangible assets;
• Impairment of non-current assets;
• Acquisition costs;
• Re-structuring and site closure costs;
• Fair value adjustment – mark to market adjustments in respect of cross currency and interest rate derivatives used for hedging purposes
where IAS 39 hedge accounting is not applied;
• Items of income and expense that are considered material, either by their size and/or nature; and
• Tax impact of above items.
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 the segment in the year.
Underlying performance
Underlying performance represents the statutory performance of the Group under IFRS, excluding Special Items.
Net cash/(borrowings)
Net cash/(borrowings) represents cash and cash equivalents less short and long term borrowings, as adjusted for the effect of related
derivative instruments, irrespective of whether they qualify for hedge accounting, non-recourse factoring arrangements and the inclusion
of financial assets.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations (see below), that the Group has made in the process
of applying the accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Recognition of deferred tax assets
The Group activities give rise to significant potential deferred tax assets, particularly in respect of the UK pension liability, tax losses and
accelerated capital allowances. Determination of whether these assets should be recognised requires a high degree of management
judgement and is dependent on management’s ability to project future earnings from activities that may apply loss positions carried forward
against future income taxes.
Valuation of goodwill and intangibles on acquisition
Acquired intangibles IFRS 3 (revised) “Business Combinations” requires that goodwill arising on the acquisition of subsidiaries is capitalised
and included in intangible assets. IFRS 3 (revised) also requires the identification of other intangible assets at acquisition. The assumptions
involved in valuing these intangible assets require the use of estimates and judgements, that may differ from the actual outcome. These
estimates and judgements cover future growth rates, expected inflation rates and the discount rate used. Changing the assumptions
selected by management could significantly affect the allocation of the purchase price paid between goodwill and other acquired intangibles.
Key sources of estimation uncertainty
The preparation of consolidated financial statements requires that management make estimates and assumptions that affect reported
amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the
judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis taking the current and expected future
market conditions into consideration.
Post retirement benefit obligations
Included in the actuaries’ calculation of the post retirement benefit obligations are a number of assumptions. Any changes in these
assumptions will impact the carrying value of the obligations. These are shown in detail in note 26.
106
Synthomer plc Annual Report 2017
Group financial statements
Current tax liability and deferred tax
The Group annually incurs significant amounts of income taxes payable to various jurisdictions around the world, and it also recognises
significant changes in deferred tax assets and deferred tax liabilities, all of which are based on management’s interpretations of applicable
laws, regulations and relevant court decisions. The quality of these estimates is highly dependent upon management’s ability to properly apply
what can be very complex sets of rules and to recognise changes in applicable rules.
3 Special Items
The Special Items are made up as follows:
Continuing operations
Restructuring and site closure
Profit on sale of business
Sale of land
Gain on foreign exchange contracts relating to acquisition
Acquisition costs
Amortisation of acquired intangibles
Operating (loss)/profit
(Loss)/profit before taxation from continuing operations
Taxation
(Loss)/profit for the year from continuing operations
Note
2017
£m
2016
£m
(11.6)
–
1.3
–
(2.3)
(31.0)
(43.6)
(43.6)
13.1
(30.5)
(5.2)
4.7
33.2
13.1
(4.3)
(27.0)
14.5
14.5
9.1
23.6
24
16
10
The restructuring and site closure costs included £9.0m in relation to the post-acquisition integration of the PAC (Dispersions) business,
with the majority being attributable to the rationalisation of the Ribécourt (France) site. A further £1.6m comprised the cost of an onerous
lease on a site closed during 2017, while £0.8m comprised costs for the post-acquisition integration of Speciality Additives.
The profit on sale of business relates to the disposal of our South African business in 2016.
The profit on sale of land in 2017 related to a disposal of land in Hapton, UK. The profit on sale of land in 2016 related to the disposal of
tranches of Malaysian land.
The gain of £13.1m in 2016 resulted from foreign exchange contracts taken out as a hedge against the US dollar purchase consideration of
the PAC (Dispersions) acquisition.
Acquisition costs were incurred in relation to Speciality Additives (2016: PAC (Dispersions)) and for other potential acquisitions which will not
occur, or have not occurred before the balance sheet date.
The amortisation of intangibles increased during 2017 due to a full year of amortisation for the 2016 PAC (Dispersions) acquisition, the
intangibles acquired with Speciality Additives and due to foreign currency exchange rate movements.
4 Segmental analysis
The Group’s Executive Committee, chaired by the Chief Executive Officer, examines the Group’s performance and has identified two
reportable segments of its business:
Europe and North America (ENA)
These markets are well developed and are typically growing in line with GDP.
Asia and Rest of the World (ARW)
These markets are characterised by growing at rates generally above GDP coupled with an increased penetration of more sophisticated
products into wider uses.
The Executive Committee primarily uses Underlying operating profit, being operating profit before Special Items, to assess the performance
of the operating segments. No information is provided to the Executive Committee at the segment level concerning interest income, interest
expenses, income taxes or other material non-cash items.
No single customer accounts for more than 10% of the Group’s revenues.
Synthomer plc Annual Report 2017
107
Group financial statements
Notes to the consolidated financial statements continued
31 December 2017
4 Segmental analysis continued
Analysis by activity – Revenue
Europe & North America
Asia & Rest of the World
Analysis by activity – Operating Profit
Europe & North America
Asia & Rest of the World
Reported segment operating profit
Unallocated corporate expenses
Operating profit
Analysis by activity
Subsidiaries
Europe & North America
Asia & Rest of the World
Unallocated assets and liabilities
Share of joint ventures
Goodwill
Acquired intangibles and related deferred tax
Current and deferred taxation
Post retirement benefit obligations
Net borrowings
Net assets
Subsidiaries
Europe & North America
Asia & Rest of the World
Unallocated assets and liabilities
Share of joint ventures
Goodwill
Acquired intangibles and related deferred tax
Current and deferred taxation
Post retirement benefit obligations
Net borrowings
Net assets
108
Synthomer plc Annual Report 2017
2017
£m
1,134.9
345.3
2016
£m
746.1
299.6
1,480.2
1,045.7
2016
Share of
joint
ventures
£m
–
2.0
2.0
–
2.0
Total
£m
75.4
81.3
156.7
(12.0)
144.7
2017
Share of
joint
ventures
£m
–
1.0
1.0
–
1.0
Subsidiaries
£m
77.5
30.2
107.7
(13.3)
94.4
Total
£m
77.5
31.2
108.7
(13.3)
95.4
Subsidiaries
£m
75.4
79.3
154.7
(12.0)
142.7
2017
Total
assets
£m
Total
liabilities
£m
Capital
expenditure
£m
Note
Depreciation
and
amortisation
£m
Amortisation
acquired
intangibles
£m
36.3
24.3
60.6
–
60.6
23.8
13.1
36.9
0.3
37.2
27.3
3.7
31.0
–
31.0
453.9
224.6
678.5
6.5
685.0
10.9
329.1
66.2
23.3
–
–
1,114.5
19
15
16
26
22
(205.2)
(71.8)
(277.0)
(14.6)
(291.6)
(3.4)
–
(16.3)
(59.3)
(157.2)
(180.5)
(708.3)
406.2
2016
Total
assets
£m
Total
liabilities
£m
Capital
expenditure
£m
Note
Depreciation
and
amortisation
£m
Amortisation
acquired
intangibles
£m
24.8
20.9
45.7
–
45.7
17.9
11.7
29.6
0.3
29.9
21.5
5.5
27.0
–
27.0
380.2
209.9
590.1
4.1
594.2
12.5
301.4
54.2
19.4
–
–
981.7
(143.7)
(67.4)
(211.1)
(13.8)
(224.9)
(3.5)
–
(12.8)
(59.3)
(186.7)
(150.3)
(637.5)
344.2
19
15
16
26
22
Group financial statements Analysis of total revenue by destination
UK
Germany
Other Western Europe
Western Europe
Eastern Europe
North America
Malaysia
Other Asia
Africa and Middle East
Rest of the World
2017
£m
69.4
225.1
483.8
778.3
102.8
94.9
195.3
228.8
58.2
21.9
2016
£m
54.8
158.4
320.4
533.6
63.8
57.4
168.8
155.6
51.9
14.6
1,480.2
1,045.7
Inter-segmental revenue
In addition to the amounts included above, inter-segmental revenue was earned as set out below. This revenue was eliminated on consolidation.
Europe & North America
Asia & Rest of the World
Total
Europe &
North
America
£m
–
0.8
0.8
2017
Asia &
Rest of
World
£m
16.2
–
16.2
Europe &
North
America
£m
–
0.6
0.6
Total
£m
16.2
0.8
17.0
2016
Asia &
Rest of
World
£m
12.3
–
12.3
Total
£m
12.3
0.6
12.9
5 Underlying segmental performance
The IFRS profit measures show the performance of the Group as a whole and as such includes all sources of income and expenses, including
both irregular 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, the 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.
The definition of Special Items is shown in note 2 and has been consistently applied. 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 the 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.
Synthomer plc Annual Report 2017
109
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
5 Underlying Segmental performance continued
Reconciliation of Underlying performance to IFRS
2017
2016
Europe
& North
America
£m
Asia &
Rest of
World
£m
Unallocated
corporate
expenses
£m
Note
Europe
& North
America
£m
Asia &
Rest of
World
£m
Unallocated
corporate
expenses
£m
Total
£m
Total
£m
Revenue
Underlying performance
and IFRS
Operating profit/(loss) – including
share of joint ventures
1,134.9
345.3
1,480.2
746.1
299.6
1,045.7
Underlying performance
117.1
35.1
(13.2)
139.0
93.3
48.7
(11.8)
130.2
Special Items
Restructuring & site
closure costs
Profit on sale of business
Sale of land
Gain on foreign
exchange contracts
relating to acquisition
Acquisition costs
Amortisation of
acquired intangibles
IFRS
Finance costs
Underlying performance
IFRS
Profit before taxation
Underlying performance
IFRS
Taxation
Underlying performance
Special Items
Sale of land
Profit on sale
of business
Restructuring and
site closure costs
Amortisation of
acquired intangibles
IFRS
Profit for the year
Underlying performance
IFRS
16
9
9
10
10
10
10
10
110
Synthomer plc Annual Report 2017
(11.3)
(0.2)
(0.1)
(11.6)
(4.7)
–
1.3
–
(2.3)
(27.3)
(39.6)
–
–
–
–
(3.7)
(3.9)
–
–
–
–
–
(0.1)
–
1.3
–
(2.3)
(31.0)
(43.6)
–
–
12.4
(4.1)
(21.5)
(17.9)
(0.3)
4.7
33.2
0.7
(0.2)
(5.5)
32.6
(0.2)
–
–
–
–
–
(0.2)
(5.2)
4.7
33.2
13.1
(4.3)
(27.0)
14.5
77.5
31.2
(13.3)
95.4
75.4
81.3
(12.0)
144.7
(9.0)
(9.0)
130.0
86.4
(24.7)
–
0.4
0.3
12.4
(11.6)
105.3
74.8
(8.0)
(8.0)
122.2
136.7
(24.5)
(1.1)
1.4
1.3
7.5
(15.4)
97.7
121.3
Group financial statements
2017
2016
Europe
& North
America
£m
Asia &
Rest of
World
£m
Unallocated
corporate
expenses
£m
Note
Profit attributable to
non-controlling interests
Underlying performance
Special Items – sale of land
IFRS
Profit attributable to equity
holders of the parent
Underlying performance
IFRS
Earnings per share (pence)
Underlying performance
Special Items
IFRS
13
Europe
& North
America
£m
Asia &
Rest of
World
£m
Unallocated
corporate
expenses
£m
Total
£m
0.8
–
0.8
104.5
74.0
30.7p
(8.9)p
21.8p
2017
2016
Europe
& North
America
£m
Asia &
Rest of
World
£m
Unallocated
corporate
expenses
£m
Note
Profit attributable to
non-controlling interests
Underlying performance
Special Items – sale of land
IFRS
Profit attributable to equity
holders of the parent
Underlying performance
IFRS
Earnings per share (pence)
Underlying performance
Special Items
IFRS
13
Europe
& North
America
£m
Asia &
Rest of
World
£m
Unallocated
corporate
expenses
£m
Total
£m
0.8
–
0.8
104.5
74.0
30.7p
(8.9)p
21.8p
Total
£m
1.5
9.4
10.9
96.2
110.4
28.3p
4.2p
32.5p
Total
£m
1.5
9.4
10.9
96.2
110.4
28.3p
4.2p
32.5p
Synthomer plc Annual Report 2017
111
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
6 EBITDA
The Group uses EBITDA as an alternative performance measure as it provides an indication of the level of cash being generated by the
business from its trading activities in the period by excluding the depreciation and amortisation charges and Special Items. This is also the
principal profit measure used for the financial covenants in the Group’s debt facilities.
The definition of EBITDA is shown in note 2.
Reconciliation of EBITDA to IFRS
2016
Asia &
Rest of
World
£m
60.4
(11.7)
48.7
32.6
81.3
Unallocated
corporate
expenses
£m
(11.5)
(0.3)
(11.8)
(0.2)
(12.0)
Total
£m
160.1
(29.9)
130.2
14.5
144.7
Note
2017
£m
2016
£m
1,480.2
1,045.7
(1,195.4)
284.8
(39.1)
(70.5)
1.0
176.2
(37.2)
139.0
(43.6)
95.4
2017
£m
31.0
0.8
36.4
4.2
3.1
18.3
19
Note
16
17
18
(793.1)
252.6
(32.1)
(62.4)
2.0
160.1
(29.9)
130.2
14.5
144.7
2016
£m
27.0
0.2
29.7
2.3
3.4
15.0
Europe
& North
America
£m
140.9
(23.8)
117.1
(39.6)
77.5
Note
4
5
5
5
2017
Asia &
Rest of
World
£m
Unallocated
corporate
expenses
£m
48.2
(13.1)
35.1
(3.9)
31.2
(12.9)
(0.3)
(13.2)
(0.1)
(13.3)
Total
£m
176.2
(37.2)
139.0
(43.6)
95.4
Europe
& North
America
£m
111.2
(17.9)
93.3
(17.9)
75.4
EBITDA
Depreciation and amortisation
Operating profit/(loss) –
Underlying performance
Special Items
Operating profit/(loss) – IFRS
7 Operating profit
Revenue
Cost of sales
Gross profit
Sales and marketing costs
Administrative expenses
Share of joint ventures
EBITDA
Depreciation and amortisation – Underlying performance
Operating profit – Underlying performance
Special Items
Operating profit – IFRS
Operating profit is stated after charging the following:
Amortisation: acquired intangibles
Amortisation: other intangibles
Depreciation
Hire of plant and equipment
Other lease rentals
Research and development expenditure
112
Synthomer plc Annual Report 2017
Group financial statements 8 Auditors’ remuneration
Fees payable to the Company’s auditor for:
audit of the Company’s annual financial statements and the consolidated annual financial statements
Fees payable to the Company’s auditor and their associates for other services to the Group:
audit of the Company’s subsidiaries’ annual financial statements
Total audit fees
Audit related assurance services
Tax compliance services
Other taxation advisory services
Other services
Total non-audit fees
2017
£’000
2016
£’000
139
661
800
33
–
24
–
57
167
574
741
34
19
128
97
278
Details of the Company’s policy on the use of auditor for non-audit services, the reasons why the auditor was used rather than another
supplier and how the auditor’s independence and objectivity was safeguarded are set out in the Audit Committee section of the Corporate
Governance Report on page 69. No services were provided pursuant to contingent fee arrangements.
9 Finance costs
Interest payable on bank loans and overdrafts
Less: interest receivable
Pensions – IAS 19 interest charge
Total finance costs
10 Taxation
Current tax
UK corporation tax
Overseas tax
Deferred tax
Origination and reversal of temporary differences
Special Items
Current tax:
Disposal of land
Purchase and sale of business
Restructuring and site closure costs
Deferred tax:
Restructuring and site closure costs
Amortisation of acquired intangibles
Total tax on profit before taxation
2017
£m
5.7
(1.0)
4.7
4.3
9.0
2016
£m
4.2
(0.7)
3.5
4.5
8.0
2017
£m
2016
£m
–
27.1
27.1
(2.4)
24.7
–
(0.4)
(0.3)
(1.0)
(11.4)
(13.1)
11.6
–
25.0
25.0
(0.5)
24.5
1.1
(1.4)
(1.3)
–
(7.5)
(9.1)
15.4
UK corporation tax is calculated at 19.25% (2016: 20.0%) of the estimated assessable profit for the year. Taxation for other jurisdictions
is calculated at the rates prevailing in the respective jurisdictions.
Synthomer plc Annual Report 2017
113
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
10 Taxation continued
Reconciliation of tax expense to profit before taxation
The differences between the total tax expense shown above and the amount calculated by applying the standard rate of UK corporation
tax to the profit before tax is as follows.
Profit before taxation
2017
£m
86.4
2016
£m
136.7
Tax on profit before taxation at standard UK corporation tax rate of 19.25% (2016: 20.0%)
16.6
27.3
Expenses not deductible for tax purposes
Tax incentives and items not subject to tax
Higher tax rates on overseas earnings
Other deferred tax asset not recognised less amounts now recognised
Adjustments to tax charge in respect of prior periods
Effect of change of rate on deferred tax
Tax charge for year
Tax credits to other comprehensive income
Deferred tax credit in respect of actuarial gains/losses
Current tax liabilities
Current tax liabilities
4.3
(8.7)
5.3
(1.5)
(0.1)
(4.3)
11.6
2017
£m
2.3
2017
£m
3.8
(20.3)
4.2
(0.4)
1.5
(0.7)
15.4
2016
£m
0.9
2016
£m
(40.2))(
(39.0)
The tax incentives and items not subject to tax mainly comprise profits from the Nitrile latex business in Malaysia which benefits from
pioneer status until 28 February 2020. The effective of change of rate on deferred tax is in relation to the reduction of tax rates in the USA
and Belgium.
11 Deferred taxation
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets to
the extent that it is probable that these assets will be recovered.
The movements in deferred tax assets and liabilities are shown below.
Accelerated
tax
depreciation
£m
Acquired
intangibles
£m
(18.8)
(1.0)
2.0
0.1
(17.7)
(12.8)
(14.0)
11.4
(0.9)
(16.3)
Other
£m
(1.5)
–
0.3
(0.2)
(1.4)
Total
£m
(33.1)
(15.0)
13.7
(1.0)
(35.4)
Deferred tax liabilities
2017
At 1 January
Purchase of business
Credited to income statement
Exchange adjustment
At 31 December
114
Synthomer plc Annual Report 2017
Group financial statements Deferred tax assets
2017
At 1 January
(Charged)/credited to income statement
Credited to statement of other comprehensive income
Exchange adjustment
At 31 December
Deferred tax asset not recognised
The amounts of deferred tax not recognised at the balance sheet dates are as follows:
Pension liability
Tax losses
Accelerated capital allowances
Other timing differences
12 Ordinary dividends
Interim dividend
Proposed final dividend
Pension
£m
Other
£m
16.9
(0.6)
2.3
0.3
18.9
2.5
1.7
–
0.2
4.4
2017
£m
7.0
14.6
2.9
–
24.5
2017
Pence
per share
3.7
8.5
12.2
2017
£m
12.6
28.9
41.5
2016
Pence
per share
3.5
7.8
11.3
Total
£m
19.4
1.1
2.3
0.5
23.3
2016
£m
16.0
7.0
3.3
1.2
27.5
2016
£m
11.9
26.5
38.4
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability
in these financial statements.
Dividends paid
Interim dividend
Prior year final dividend
13 Earnings per share
Number of Shares
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options
Weighted average number of ordinary shares for the purposes of diluted earnings per share
Earnings per Share
From Continuing operations
Earnings (Profit attributable to equity holders of the parent)
Basic earnings per share
Diluted earnings per share
2017
£m
12.6
26.5
39.1
2016
£m
11.9
18.4
30.3
2017
Number
000s
2016
Number
000s
339,881
339,854
2,258
2,335
342,139
342,189
2017
2016
£m
p
p
74.0
21.8
21.6
110.4
32.5
32.3
Synthomer plc Annual Report 2017
115
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
14 Employees
The average monthly number of employees during the year by segment was:
Europe & North America
Asia & Rest of the World
Holding companies
The aggregate remuneration of all Group employees comprised:
Wages and salaries
Social security costs
Pension costs
Share based payments
Directors’ emoluments are disclosed in the Remuneration Report on pages 70 to 84.
15 Goodwill
Cost
At 1 January
Exchange adjustments
Purchase of business
At 31 December
Accumulated impairment losses
At 1 January and at 31 December
Net book value
At 31 December
2017
Number
2016
Number
1,985
1,566
776
28
732
28
2,789
2,326
2017
£m
116.3
18.0
8.0
2.8
2016
£m
93.5
14.3
7.0
2.0
145.1
116.8
Note
2017
£m
2016
£m
411.3
2.8
24.9
439.0
332.3
25.1
53.9
411.3
31
109.9
109.9
329.1
301.4
The Group tests goodwill annually for impairment at the balance sheet date, or more frequently if there are indications that goodwill might
be impaired.
Goodwill acquired in a business combination is allocated, at acquisition, to the Cash Generating Units (“CGUs”) that are expected to benefit
from that business combination.
The allocation of the carrying value of goodwill is represented below.
Europe & North America
Asia & Rest of the World
Total
Net book
value at
1 January
2016
£m
196.8
25.6
222.4
Exchange
adjustments
£m
Purchase of
business
£m
Net book
value at
31 December
2016
£m
Exchange
adjustments
£m
Purchase of
business
£m
Net book
value at
31 December
2017
£m
21.2
3.9
25.1
50.3
3.6
53.9
268.3
33.1
301.4
2.5
0.3
2.8
24.9
–
24.9
295.7
33.4
329.1
The recoverable amounts for CGUs are determined from value in use calculations, based upon discounted cash flows. The key assumptions
for those discounted cash flow calculations are the discount rate, profitability and growth rate. The discount rate is based on the Group’s
weighted average cost of capital adjusted, where appropriate, for the risk premium attributable to the particular CGU’s activities and geography
of operation. Profitability and growth rates are based on past experience combined with management’s expectations for future business
performance, which is informed by a number of factors including economic growth, internal plans and competitor and customer activity.
116
Synthomer plc Annual Report 2017
Group financial statements Pre-tax discount rates of 11% (2016: 11%) and 12% (2016: 12%) have been used in the above calculations for Europe & North America and
Asia & Rest of the World respectively.
The profit used in the cash flows for the first five years is derived from management forecasts; for years six to ten a growth rate is applied.
Growth rates of 2% (2016: 2%) and 2% (2016: 5%) have been used for Europe & North America and Asia & Rest of the World respectively,
representing management’s best estimate of each CGU’s circumstances, and these do not exceed the long term growth rates for the
markets concerned. The profit for year ten is then assumed to apply without further growth into perpetuity.
The directors consider that there is no reasonably possible change in key assumptions that would lead to an impairment.
Of the net book value of goodwill at 31 December 2017, £70.5 million (2016: £70.5 million) is located in the UK.
16 Acquired intangible assets
Cost
At 1 January 2017
Exchange adjustments
Purchase of business
At 31 December 2017
Accumulated amortisation and impairment
At 1 January 2017
Exchange adjustments
Amortisation charge for the year
At 31 December 2017
Net book value
At 31 December 2017
Cost
At 1 January 2016
Exchange adjustments
Purchase of business
At 31 December 2016
Accumulated amortisation and impairment
At 1 January 2016
Exchange adjustments
Amortisation charge for the year
At 31 December 2016
Net book value
At 31 December 2016
Analysis of net book value by segment:
Europe & North America
Asia & Rest of the World
Customer
Relationships
£m
Note
Technology
£m
Supplier
Agreement
£m
31
204.1
7.2
38.9
250.2
151.2
5.7
30.3
187.2
3.0
0.1
–
3.1
1.7
0.1
0.3
2.1
–
0.1
2.5
2.6
–
–
0.4
0.4
Total
£m
207.1
7.4
41.4
255.9
152.9
5.8
31.0
189.7
63.0
1.0
2.2
66.2
Customer
Relationships
£m
Technology
£m
Supplier
Agreement
£m
156.7
25.4
22.0
204.1
107.2
17.3
26.7
151.2
2.6
0.4
–
3.0
1.2
0.2
0.3
1.7
52.9
1.3
–
–
–
–
–
–
–
–
–
2017
£m
62.2
4.0
66.2
Total
£m
159.3
25.8
22.0
207.1
108.4
17.5
27.0
152.9
54.2
2016
£m
46.5
7.7
54.2
Synthomer plc Annual Report 2017
117
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
17 Other intangible assets
Cost
At 1 January 2017
Exchange adjustments
Additions
Transfer to assets held for sale
Disposals
At 31 December 2017
Accumulated amortisation and impairment
At 1 January 2017
Exchange adjustments
Amortisation charge for the year
Transfer to assets held for sale
Disposals
At 31 December 2017
Net book value
At 31 December 2017
Cost
At 1 January 2016
Exchange adjustments
Additions
Disposals
At 31 December 2016
Accumulated amortisation and impairment
At 1 January 2016
Exchange adjustments
Amortisation charge for the year
Disposals
At 31 December 2016
Net book value
At 31 December 2016
£m
1.5
(0.2)
2.5
(0.1)
(0.1)
3.6
1.3
(0.2)
0.8
(0.1)
(0.1)
1.7
1.9
£m
1.9
0.1
–
(0.5)
1.5
1.6
–
0.2
(0.5)
1.3
0.2
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
As disclosed in note 2, there are various conditions required by IAS 38 for an internally generated intangible asset to be recognised. As no
development expenditure in the period met all the requirements, all development costs have been expensed.
118
Synthomer plc Annual Report 2017
Group financial statements 18 Property, plant and equipment
Cost
At 1 January 2017
Exchange adjustments
Additions
Purchase of business
Transfer to assets held for sale
Disposals
Reclassification
At 31 December 2017
Accumulated depreciation and impairment
At 1 January 2017
Exchange adjustments
Depreciation charge for the year
Transfer to assets held for sale
Assets written down
Disposals
Reclassification
At 31 December 2017
Net book value
At 31 December 2017
Cost
At 1 January 2016
Exchange adjustments
Additions
Purchase of business
Sale of business
Disposals
At 31 December 2016
Accumulated depreciation and impairment
At 1 January 2016
Exchange adjustments
Depreciation charge for the year
Sale of business
Assets written down
Disposals
At 31 December 2016
Net book value
At 31 December 2016
Land and buildings
Leaseholds
Freeholds
£m
Long
£m
Short
£m
Plant and
equipment
£m
Assets under
construction
£m
80.2
2.2
2.2
5.1
(4.3)
(0.7)
20.2
104.9
24.3
–
5.3
(1.0)
(0.4)
(0.7)
3.8
31.3
6.9
–
0.2
–
–
(0.2)
–
6.9
3.3
–
0.2
–
–
(0.1)
–
3.4
20.4
(0.1)
–
–
–
–
(19.1)
1.2
2.6
–
0.3
–
–
–
(2.6)
0.3
Total
£m
582.4
12.0
58.1
8.9
(9.7)
(5.6)
–
459.7
9.5
37.5
3.8
(5.4)
(4.7)
(1.1)
15.2
0.4
18.2
–
–
–
–
499.3
33.8
646.1
258.9
4.7
30.6
(2.0)
(1.0)
(1.0)
(1.2)
289.0
–
–
–
–
–
–
–
–
289.1
4.7
36.4
(3.0)
(1.4)
(1.8)
–
324.0
73.6
3.5
0.9
210.3
33.8
322.1
Land and buildings
Leaseholds
Freeholds
£m
37.3
5.9
1.9
37.1
(0.5)
(1.5)
80.2
19.9
2.4
3.3
(0.1)
(0.5)
(0.7)
24.3
Long
£m
6.8
0.1
–
–
–
–
Short
£m
18.0
2.4
–
–
–
–
6.9
20.4
3.1
–
0.2
–
–
–
2.2
0.4
–
–
–
–
3.3
2.6
Plant and
equipment
£m
Assets under
construction
£m
393.9
40.0
28.5
30.5
(4.1)
(29.1)
459.7
244.4
20.1
26.2
(2.7)
(0.4)
(28.7)
258.9
–
–
15.2
–
–
–
15.2
–
–
–
–
–
–
–
Total
£m
456.0
48.4
45.6
67.6
(4.6)
(30.6)
582.4
269.6
22.9
29.7
(2.8)
(0.9)
(29.4)
289.1
55.9
3.6
17.8
200.8
15.2
293.3
Synthomer plc Annual Report 2017
119
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
18 Property, plant and equipment continued
Freehold land which has not been depreciated.
Analysis of net book value by location:
UK
Germany
Malaysia
Other
Analysis of net book value by segment:
Europe & North America
Asia & Rest of the World
19 Investment in joint ventures
Details of the Group’s joint ventures are as follows:
Name of entity
Place of incorporation
Synthomer Middle
East
Saudi Arabia
2017
49%
Arkem (Pty) Ltd
South Africa
0%
2017
£m
17.4
2017
£m
39.3
67.5
123.5
91.8
322.1
2017
£m
192.3
129.8
322.1
2016
£m
15.4
2016
£m
35.8
65.2
110.2
82.1
293.3
2016
£m
175.7
117.6
293.3
% of ownership
2016
49%
Sold on
11 August 2016
Principal Activity
Segment
Manufacturer and
sale of acrylic and
vinyl resin emulsions
Distributor of
speciality chemicals
and allied products
Asia & Rest of
the World
Asia & Rest of
the World
Super Sky Ltd
United Kingdom
50%
50%
Non-trading
Unallocated
corporate expense
These joint ventures are accounted for using the equity method in these financial statements.
Summarised financial information in respect of the joint ventures is set out below. This information represents amounts in the joint ventures’
financial statements adjusted for differences in accounting policies between the Group and the joint venture (and not the Group’s share of
those amounts).
Summarised balance sheet (100%)
Non-current assets
Cash and cash equivalents
Other current assets
Total current assets
Other current liabilities
Total current liabilities
Net assets
120
Synthomer plc Annual Report 2017
Synthomer Middle East
Other
2017
£m
4.6
2.3
14.5
16.8
(7.0)
(7.0)
2016
£m
5.0
4.0
15.6
19.6
(7.1)
(7.1)
2017
£m
–
–
0.8
0.8
–
–
2016
£m
–
–
0.8
0.8
–
–
14.4
17.5
0.8
0.8
Group financial statements Group share:
Total assets
Total liabilities
Net assets (Group share)
Synthomer Middle East
Other
Total
2017
£m
10.5
(3.4)
7.1
2016
£m
12.1
(3.5)
8.6
2017
£m
0.4
–
0.4
2016
£m
0.4
–
0.4
2017
£m
10.9
(3.4)
7.5
2016
£m
12.5
(3.5)
9.0
Summarised statement of comprehensive income (100%)
Synthomer Middle East
Other
Revenue
Operating profit from continuing operations
Interest
Taxation
Amortisation of intangibles
Profit from continuing operations
Exchange differences on translation
Total comprehensive income
Dividends paid
Movement in retained earnings
Profit for the year (Group share)
Exchange differences on translation (Group share)
Dividends paid (Group share)
2017
£m
39.6
2016
£m
38.7
2.1
3.9
–
–
–
2.1
(1.1)
1.0
(4.1)
(3.1)
1.0
(0.5)
(2.0)
–
–
–
3.9
3.2
7.1
(3.9)
3.2
1.9
1.6
(1.9)
2017
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
The following table reconciles the summary information above to the carrying amount of the Group’s interest in the joint ventures:
Investment in joint venture
2017
2016
At 1 January
Profit from continuing operations
Exchange differences on translation
Disposal of business
Dividend paid
At 31 December
20 Inventories
Raw materials and consumables
Finished goods
Stock written off during the year
Synthomer
Middle East
£m
8.6
1.0
(0.5)
–
(2.0)
7.1
Other
£m
0.4
–
–
–
–
0.4
Total
£m
9.0
1.0
(0.5)
–
(2.0)
7.5
Synthomer
Middle East
£m
7.0
1.9
1.6
–
(1.9)
8.6
Other
£m
1.0
0.1
–
(0.5)
(0.2)
0.4
2017
£m
54.6
70.5
125.1
0.9
2016
£m
1.6
0.2
–
–
–
0.2
–
0.2
(0.4)
(0.2)
0.1
–
(0.2)
Total
£m
8.0
2.0
1.6
(0.5)
(2.1)
9.0
2016
£m
44.4
59.9
104.3
–
Cost of inventory recognised as an expense and included in cost of sales
1,031.9
665.2
There is no material difference between the consolidated balance sheet value of inventories and their net realisable value.
The nature of the chemical reaction necessary to produce finished goods from raw materials is such that ‘work in progress’ is not a material
part of the Group’s inventory at any given point of time.
Synthomer plc Annual Report 2017
121
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
21 Trade and other receivables
Trade receivables
Other receivables
Receivables excluding prepayments
Prepayments
2017
£m
196.8
28.8
225.6
3.5
229.1
2016
£m
176.4
17.4
193.8
1.9
195.7
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Credit risk
Amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based
on prior experience and their assessment of the current economic environment. The Group has no significant concentration of credit risk,
with exposure spread over a large number of customers.
Before accepting a new customer, the Group uses appropriate procedures to assess the potential customer’s credit quality in order to
set a credit limit.
Ageing of trade receivables
Not yet due
0 – 60 days overdue
61 – 120 days overdue
Over 120 days due
Less: provision for impairment
Provision for impairment of receivables
At 1 January
Exchange adjustments
Sale of business
Charge for the year
Amounts written off as uncollectible
At 31 December
The provision is against overdue trade receivables.
22 Cash and borrowings
Current borrowings
Bank overdrafts
Bank loans
Unsecured €55m loan expiring 21 November 2018
Non-current borrowings
Bank loans
Unsecured £370.0 million multi currency Revolving Credit Facility expiring 30 July 2019
Less: capitalised costs
122
Synthomer plc Annual Report 2017
2017
£m
167.2
28.6
0.4
2.2
198.4
(1.6)
196.8
2017
£m
4.1
0.1
–
0.1
(2.7)
1.6
2016
£m
147.5
28.2
2.5
2.3
180.5
(4.1)
176.4
2016
£m
4.5
0.4
(0.2)
0.4
(1.0)
4.1
2017
£m
2016
£m
24.2
65.4
48.9
73.1
–
65.4
197.8
(0.8)
197.0
203.9
(1.6)
202.3
Group financial statements Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents or government bond rates
appropriate to the country in which the borrowing is incurred.
The directors calculate the carrying value of the Group’s borrowings as follows:
Analysis of borrowings at carrying value by currency
Sterling
£m
US dollar
£m
Euro
£m
Other
£m
Total
£m
31 December 2017
Bank overdrafts
Bank loans
Capitalised costs
Cash and cash equivalents
Net borrowings
31 December 2016
Bank overdrafts
Bank loans
Capitalised costs
Cash and cash equivalents
Net borrowings
13.2
–
(0.8)
12.4
37.7
–
(1.6)
36.1
5.7
–
–
4.3
215.3
–
5.7
219.6
1.5
52.7
–
54.2
24.1
116.1
–
140.2
1.0
31.4
–
32.4
2.1
35.1
–
37.2
24.2
246.7
(0.8)
270.1
(89.6)
180.5
65.4
203.9
(1.6)
267.7
(117.4)
150.3
Cash and cash equivalents are deposited with financial institutions rated as investment grade.
Capital structure
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return
to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes
the cash and borrowings, and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.
23 Financial instruments
The Group operates procedures designed to reduce or eliminate financial risk and ensure that funds are available for current and future
needs. The policies are approved by the Board and the use of financial instruments is strictly controlled.
Financial assets
Trade and other receivables excluding prepayments
Cash and cash equivalents
Financial liabilities
Bank overdrafts
Bank loans (less capitalised costs)
Trade and other payables
2017
2016
Note
21
22
Loans and
receivables
£m
225.6
89.6
315.2
Fair value
through
Profit or
Loss
£m
–
–
–
Loans and
receivables
£m
193.8
117.4
311.2
Fair value
through
Profit or
Loss
£m
–
–
–
2017
2016
Derivative
instruments
in designated
hedge
accounting
£m
–
–
–
–
Derivative
instruments
in designated
hedge
accounting
£m
–
–
–
–
Amortised
cost
£m
65.4
202.3
216.2
483.9
Note
22
22
25
Amortised
cost
£m
24.2
245.9
281.6
551.7
Synthomer plc Annual Report 2017
123
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
23 Financial instruments continued
Set out below is a comparison by category of book values and fair values of the Group’s financial assets and liabilities.
Fair value of financial assets
Trade and other receivables excluding prepayments
Cash and cash equivalents
Fair value of financial liabilities
Bank overdrafts
Bank loans
Trade and other payables
Carrying values at
31 December
Fair values at
31 December
Note
2017
£m
2016
£m
2017
£m
2016
£m
21
22
22
22
25
225.6
89.6
315.2
24.2
245.9
281.6
551.7
193.8
117.4
311.2
65.4
202.3
216.2
483.9
225.6
89.6
315.2
24.2
245.9
281.6
551.7
193.8
117.4
311.2
65.4
202.3
216.2
483.9
Fair values have been obtained from the relevant institutions where appropriate. Where market values are not available, fair values of
financial assets and financial liabilities have been calculated by discounting expected future cash flow at prevailing interest rates and by
applying year end exchange rates. The carrying amount of short-term borrowings approximates to book value.
The fair value of the Group’s financial instruments are measured using inputs other than quoted prices that are directly or indirectly
observable, (Level 2 as defined by IFRS 13).
The main risks arising from the Group’s financial instruments are market risk and liquidity risk. The Board reviews and agrees policies for
managing each of these risks and they are summarised below, together with related disclosure required by IFRS.
Market risk
The Group’s main exposure to market risk is in the form of interest rate risk and foreign currency risk. The policies adopted to address these
risks are as follows:
Interest rate risk
The Group finances its operations through a mixture of retained profits and bank borrowings. The Group monitors interest rate trends
regularly, through discussion with its banks, and fixes interest rates when it is prudent to do so.
Foreign currency risk
When it is efficient to do so, the Group uses currency borrowings, forward contracts and currency swaps to hedge overseas net assets,
which are predominantly denominated in Euro, US dollar and Malaysian Ringgit. Profit translation exposures are not hedged.
The Group hedges currency transaction exposures at the point of confirmed order, using forward foreign exchange contracts. The Group’s
policy is, where practicable, to hedge all exposures on monetary assets and liabilities. Consequently, there are no material currency
exposures to disclose (2016: none).
124
Synthomer plc Annual Report 2017
Group financial statements The currency and interest rate exposure of the Group as at 31 December 2017 was:
Sterling
Euro
US dollar
Other
Cash and cash equivalents
Net borrowings
2017
2016
Floating rate
borrowings
£m
Fixed rate
borrowings
£m
Total
borrowings
£m
Floating rate
borrowings
£m
Fixed rate
borrowings
£m
Total
borrowings
£m
12.4
219.6
5.7
32.4
270.1
36.1
140.2
54.2
37.2
267.7
–
–
–
–
–
12.4
219.6
5.7
32.4
270.1
(89.6)
180.5
–
–
–
–
–
36.1
140.2
54.2
37.2
267.7
(117.4)
150.3
The effective interest rate for the year was 1.7% (2016: 2.1%)
Sensitivity analysis
The following table illustrates the effect on the income statement and items that are recognised directly in equity that would result from reasonably
possible movements in UK and US interest rates and in Euro, US dollar and Malaysian Ringgit to sterling exchange rates, before the effect of tax.
Interest rate sensitivity analysis
UK interest rate +/- 1.0%
Euro interest rate +/- 1.0%
US interest rate +/- 1.0%
Foreign currency sensitivity analysis
Malaysian Ringgit exchange rate -/+ 10%
Euro exchange rate -/+ 10%
US dollar exchange rate -/+ 10%
2017
2016
Income statement
Equity
Income statement
Equity
Underlying
-/+ £m
IFRS
-/+ £m
IFRS
-/+ £m
Underlying
-/+ £m
IFRS
-/+ £m
IFRS
-/+ £m
–
1.9
0.1
–
0.3
0.2
–
1.9
0.1
–
0.3
0.2
–
–
–
–
15.7
4.0
0.4
1.4
0.5
–
0.4
0.4
0.4
1.4
0.5
–
0.4
0.4
–
–
–
–
8.3
–
The interest rate sensitivity analysis has been determined based on the exposure to interest rates for both derivatives and non-derivative
instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at
the balance sheet date was outstanding for the whole year.
The foreign currency sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation
at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign
operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or borrower.
Liquidity risk
The objective of the Group is to meet financial commitments as and when they fall due. The Board closely monitors liquidity through
monthly management accounts.
Synthomer plc Annual Report 2017
125
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
23 Financial instruments continued
At the year end, Synthomer plc had the following principal committed facilities:
Unsecured £370.0 million multi currency
Revolving Credit Facility expiring 30 July 2019
Unsecured €55m loan expiring 21 November 2018
2017
2016
Facility
£m
Drawn at
31 December
£m
Headroom
£m
Facility
£m
Drawn at
31 December
£m
Headroom
£m
370.0
48.9
418.9
197.8
48.9
246.7
172.2
370.0
203.9
166.1
–
–
–
–
172.2
370.0
203.9
166.1
The following table details the remaining contractual maturity for non-derivative financial assets:
Non-interest bearing
Trade and other receivables excluding
prepayments
Variable interest rate instruments
Cash and cash equivalents
2017
2016
Amount due
Total
Amount due
Total
within
one year
£m
between
1 and
2 years
£m
between
2 and
5 years
£m
after
5 years
£m
within
one year
£m
£m
between
1 and
2 years
£m
between
2 and
5 years
£m
after
5 years
£m
£m
225.6
89.6
315.2
–
–
–
–
–
–
–
–
–
225.6
193.8
89.6
315.2
117.4
311.2
–
–
–
–
–
–
–
–
–
193.8
117.4
311.2
The following table details the remaining contractual maturity for non-derivative financial liabilities:
2017
2016
Amount due
Total
Amount due
Total
within
one year
£m
between
1 and
2 years
£m
between
2 and
5 years
£m
after
5 years
£m
within
one year
£m
£m
between
1 and
2 years
£m
between
2 and
5 years
£m
after
5 years
£m
Non-interest bearing
Trade and other payables
279.3
2.3
Variable interest rate instruments
Bank loans and overdrafts
73.1
352.4
197.0
199.3
24 Assets classified as held for sale
–
–
–
–
–
–
281.6
213.5
2.7
–
270.1
551.7
65.4
278.9
–
202.3
2.7
202.3
Disposal of Synthomer Leuna
Freehold land located in
Malaysia
UK
Freehold Land
Assets classified as held for sale
–
–
–
2017
£m
6.5
0.3
–
0.3
6.8
£m
216.2
267.7
483.9
2016
£m
–
0.3
0.4
0.7
0.7
The assets held for sale in relation to the disposal of Synthomer Leuna comprise the fixed assets and working capital of Synthomer Leuna
as at 31 December 2017. As disclosed in note 37, Synthomer Leuna was disposed on 1 January 2018.
Malaysia
The Group owns agricultural land in Malaysia, which is operated as a palm oil and natural rubber plantation. The land is owned by Kind
Action Sdn Bhd, which is a wholly owned subsidiary of Revertex Malaysia Sdn Bhd, which has a 30% non-controlling interest. The directors
decided in 2013 to dispose of this land, excluding the 300 acres immediately surrounding the manufacturing facilities, on the open market.
126
Synthomer plc Annual Report 2017
Group financial statements At 31 December 2017, the status of the disposal programme was as follows:
Sale completed
Contracts exchanged
To be sold
2017
2016
Acres
–
400
–
400
Consideration
£m
–
17.1
–
17.1
Acres
1,100
–
400
1,500
The consideration is shown before deduction of disposal costs, taxation and the non-controlling interest share.
For the sales completed in the year, the profit on sale was derived as follows:
No of acres sold
Gross consideration
Less disposal costs
Less cost of land
2017
–
£m
–
–
–
–
–
Consideration
£m
41.2
–
–
41.2
2016
900
£m
34.4
(0.6)
33.8
(0.6)
33.2
These disposals are subject to regulatory approval, which has been secured after the year end. The disposal is only recognised in the
accounts and the profit taken when this process has been completed and the consideration received, which is expected to take place in the
second half of 2018. No transactions were completed in 2017.
UK
15 acres of freehold land in Hapton, the site of a former plant, was sold on 27 January 2017 for a consideration of £1.8m and a profit on
disposal of £1.3m.
25 Trade and other payables
Amount due within one year
Trade payables
Other payables
Accruals
Amount due after one year
Trade payables
2017
£m
2016
£m
202.6
39.7
37.0
279.3
143.2
28.5
41.8
213.5
2.3
2.3
2.7
2.7
Other payables includes £7.6m in respect of the disposal of Synthomer Leuna (see note 37), where the consolidation was received from the
purchaser on 28 December 2017, in advance of the date of completion of 1 January 2018.
Average trade payable days in 2017 was 60 (2016: 71). This figure represents trade payable days for all trading operations within the Group,
calculated as a weighted average based on cost of sales.
The directors consider that the carrying amount of trade payables, other payables and accruals approximates to their fair value.
Synthomer plc Annual Report 2017
127
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
26 Post retirement benefit obligations
Charge/(credit) to income statement in respect of the Group’s pension schemes:
Defined benefit
Defined contribution
2017
Overseas
£m
2.5
4.7
7.2
UK
£m
3.4
1.7
5.1
Total
£m
5.9
6.4
12.3
2016
Overseas
£m
(0.8)
7.7
6.9
UK
£m
3.0
1.6
4.6
Total
£m
2.2
9.3
11.5
The 2016 overseas column includes two offsetting one-off items. Following a regulatory clarification by the authorities, employers in Germany
are now required to provide for post retirement disability benefits in funded plans rather than in unfunded arrangements. The Group has
complied with this by transferring this liability from its unfunded defined benefit plan to a multi-employer funded plan in which it participates.
The latter, although a defined benefit arrangement, is accounted for on a defined contribution basis as discussed below. Although this transfer
has no financial impact on the Group, IAS 19 results in a different accounting treatment for the transfer in the two plans.
• The transfer out of the unfunded plan is treated as a past service credit under defined benefit accounting and as such is included as
a reduction of £3.9m in the overseas defined benefit charge above.
• The transfer in to the funded plan increases the liabilities of this scheme by the same amount. As this scheme is accounted on a defined
contribution basis, this additional liability would not be reflected until additional contributions were made. However, an actuarial valuation
of this scheme has been performed in the year, which concluded that additional contributions were required to address underfunding.
As a result the overseas defined contribution amount above includes an additional charge of £3.6m.
Amounts recognised in the statement of comprehensive income
Actuarial gains and losses
2017
Overseas
£m
1.2
UK
£m
22.4
Total
£m
23.6
UK
£m
(47.2)
Amount included in the balance sheet arising from the Group’s defined benefit scheme obligations
Present value of defined benefit obligations
Fair value of scheme assets
Net liability arising from defined benefit obligations
2017
UK
£m
Overseas
£m
(410.8)
332.5
(78.3)
(89.7)
10.8
(78.9)
Total
£m
(500.5)
343.3
(157.2)
UK
£m
(428.4)
315.9
(112.5)
2016
Overseas
£m
(1.9)
2016
Overseas
£m
(83.2)
9.0
(74.2)
Total
£m
(49.1)
Total
£m
(511.6)
324.9
(186.7)
UK pension schemes
The Group’s UK defined benefit scheme was closed to future accrual in 2009. All pension benefits since that time are provided by way
of a defined contribution scheme.
The assets of the schemes are held separately from those of the companies concerned.
Defined benefit scheme
The UK defined benefit scheme is administered by a separate fund that is legally separated from the Company.
The trustees of the pension fund are required by law to act in the interest of the fund and of all relevant stakeholders in the scheme.
The trustees of the pension are responsible for the investment policy with regard to the assets of the fund.
A full actuarial valuation was carried out as at 6 April 2015 and updated to 31 December 2017 by a qualified actuary.
The Group is committed to a funding deficit recovery plan entered into following the 2015 valuation. This valuation indicated a shortfall,
when measured against the scheme’s technical provisions of £118.7m. This shortfall is expected to be eliminated in eight years following
the valuation date. As a result the Group is committed to paying contributions for the period 6 April 2015 to 5 April 2023, increasing from
£14.0m for the year commencing 6 April 2015 to £18.2m for the year commencing 6 April 2022.
128
Synthomer plc Annual Report 2017
Group financial statements The scheme is exposed to a number of risks, the most significant of which are detailed below:
Asset return risk
Interest rate risk
Longevity risk
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets
underperform this yield, this will increase the deficit. The scheme holds a significant proportion of equities which
are expected to outperform corporate bonds on the long term while providing volatility and risk in the short term.
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase
in the value of the plan’s bond holdings.
The majority of the plan’s obligations are to provide benefits for the life of the member, so increases in life
expectancy will result in an increase in the plan’s liabilities.
The risk relating to benefits to be paid to the dependants of scheme members (widow and orphan benefits) is re-insured by an external
insurance company.
The major assumptions used for the purposes of the actuarial valuations were as follows:
Rate of increase in pensions in payment
Rate of increase in pensions in deferment
Discount rate
Inflation assumption
2017
2.00%
2.00%
2.50%
3.10%
2016
2.10%
2.20%
2.70%
3.20%
Assumptions regarding future mortality are based on actuarial advice in accordance with published statistics. These assumptions translate
into an average life expectancy in years for a pensioner retiring at 65 as follows:
Retiring today:
Males
Females
Retiring in 20 years:
Males
Females
2017
years
87.2
89.1
88.7
90.6
2016
years
87.6
90.2
89.5
92.1
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate and mortality. The sensitivity
analysis below has been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period
assuming that all other assumptions are held constant:
Assumption
Discount rate
Rate of mortality
Change in assumption
Increase/decrease by 1%
Increase by 1 year
Impact on scheme liabilities
Decrease/increase by £63m
Increase by £18m
The above sensitivities are based on a change of assumption while holding all other assumptions constant. In practice, this is unlikely to occur,
and changes in some of the assumptions may have some correlation. When calculating the sensitivity of the defined benefit obligation to
significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit
method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the balance sheet.
Synthomer plc Annual Report 2017
129
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
26 Post retirement benefit obligations continued
The movements in the net liability arising from defined benefit obligation over the year is as follows:
At 1 January
Current service cost
Interest (expense)/income
Amounts recognised in income in respect
of defined benefit schemes
Remeasurement:
Return on plan assets excluding amounts
included in interest income
Gains/(losses) from changes in financial assumptions
Amounts recognised in the statement of
comprehensive income
Contributions:
Employers
Payments from plans
Benefit payments
At 31 December
Plan assets are comprised as follows:
Hedge funds
Equity instruments
Debt instruments
Property
Cash
Total fair value of assets
2017
2016
Present
value of
funded
defined
benefit
obligation
£m
Net liability
arising from
defined
benefit
obligation
£m
Fair value
of scheme
assets
£m
Present
value of
funded
defined
benefit
obligation
£m
Net liability
arising from
defined
benefit
obligation
£m
Fair value
of scheme
assets
£m
(428.4)
315.9
(112.5)
(356.5)
279.4
(77.1)
(0.5)
(11.3)
(11.8)
–
7.1
7.1
0.5
–
8.4
8.4
(0.5)
(2.9)
(0.3)
(13.3)
–
10.6
(3.4)
(13.6)
10.6
(0.3)
(2.7)
(3.0)
15.3
–
15.3
7.1
–
(73.9)
26.7
–
26.7
(73.9)
15.3
22.4
(73.9)
26.7
(47.2)
14.7
15.2
0.3
14.5
14.8
21.8
(410.8)
(21.8)
332.5
–
(78.3)
15.3
(428.4)
(15.3)
315.9
–
(112.5)
2017
£m
39.6
69.6
208.8
10.0
4.5
332.5
2016
£m
–
146.7
140.5
27.4
1.3
315.9
All investments in Equities, Bonds and Property are quoted.
The weighted average duration of the benefit obligation at the end of the reporting period is 16.5 years (2016: 16.5 years).
Contributions from the sponsoring companies are expected to be £15.5 million in 2018.
Overseas pension schemes
The Group operates a number of smaller overseas pension and post-retirement schemes. The assets of these schemes are held separately
from those of the Group, with the exception of the unfunded German schemes (net liability £72.1m, 2016: £69.6m) where in line with
common practice, the assets are held within the respective companies.
130
Synthomer plc Annual Report 2017
Group financial statements Defined benefit schemes
The aggregated pension disclosure below for the overseas defined benefit schemes has been compiled from a number of actuarial
valuations at 31 December 2017.
The largest of these schemes accounts for £68.5m (2016: £66.2m) of the deficit at 31 December 2016. The major assumption used in the
actuarial valuation of this scheme are:
Rate of increase in salaries
Rate of increase in pensions
Discount rate
Mortality assumptions:
The assumed life expectations on retirement at age 65 are:
Retiring today:
Males
Females
Retiring in 20 years:
Males
Females
2017
2016
3.00%
1.75%
1.90%
3.00%
1.75%
1.90%
2017
years
84.3
88.3
86.9
90.8
2016
years
84.1
88.2
86.8
90.7
The major assumptions used in the valuation of the other overseas schemes do not differ significantly from the above.
The movements in the net liability arising from defined benefit obligation over the year is as follows:
At 1 January
Current service cost
Past service credit
Interest (expense)/income
Amounts recognised in the income statement
in respect of defined benefit schemes
Remeasurement:
Return on plan assets excluding amounts included
in interest expense/(income)
Gains/(losses) from changes in financial assumptions
Amounts recognised in the statement
of comprehensive income
Contributions less payments from plans
Obligations of acquired entities
Exchange adjustments
At 31 December
Present
value of
funded
defined
benefit
obligation
£m
(83.2)
(1.1)
–
(1.6)
(2.7)
–
1.3
1.3
2.3
(4.2)
(3.2)
(89.7)
2017
2016
Net liability
arising from
defined
benefit
obligation
£m
Fair value
of scheme
assets
£m
Present
value of
funded
defined
benefit
obligation
£m
Net liability
arising from
defined
benefit
obligation
£m
Fair value
of scheme
assets
£m
9.0
–
–
0.2
0.2
–
(0.1)
(0.1)
(0.2)
1.5
0.4
10.8
(74.2)
(69.3)
7.2
(62.1)
(1.1)
–
(1.4)
(2.5)
–
1.2
1.2
2.1
(2.7)
(2.8)
(78.9)
(0.9)
3.5
(2.0)
0.6
–
(2.3)
(2.3)
1.9
(3.7)
(10.4)
(83.2)
–
–
0.2
0.2
0.4
–
0.4
–
–
1.2
9.0
(0.9)
3.5
(1.8)
0.8
0.4
(2.3)
(1.9)
1.9
(3.7)
(9.2)
(74.2)
Synthomer plc Annual Report 2017
131
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
26 Post retirement benefit obligations continued
Multi-employer schemes
In addition to the overseas defined benefit schemes included in the above, the Group participates in the Degussa Pensionskasse in Germany, which is
a multi-employer defined benefit pension scheme. Regular contributions are payable to the scheme by each participating employer for new benefits
accruing. The assets of all participating employers are pooled, and contributions are calculated based on aggregated demographic experience,
therefore sufficient information is not available to identify the Group’s share of the assets on a consistent and reliable basis and the Group accounts
for the scheme on a defined contribution basis. The Group expects to make regular contributions of £2.3m to the scheme in 2018.
To the extent that there is underfunding in the scheme, deficit contributions are payable. Based on the latest actuarial assessment each
participating employer’s share has been determined according to the value of its future benefit accrual and it has been determined that the
Group is liable for total deficit contributions of €4.6m in three installments payable in January 2017, 2018 and 2019. As a result an accrual of
£2.7m (2016: £3.6m) has been included at 31 December 2017 representing the present value of these contributions not yet paid.
27 Provisions for other liabilities and charges
At 1 January 2017
Charged/(credited) to the income statement
Utilised during the year
At 31 December 2017
Analysis of Provisions
Non-current
Current
Analysis of charge/(credit) to the income statement
Underlying performance
Special Items
Environmental
restoration
£m
Legal and
customer
claims
£m
1.5
–
(0.9)
0.6
3.1
–
(0.6)
2.5
Liability
arising on
a business
combination
£m
0.4
(0.1)
(0.1)
0.2
Restructuring
£m
3.7
4.1
(1.1)
6.7
Total
£m
8.7
4.0
(2.7)
10.0
31 December
2017
£m
31 December
2016
£m
7.6
2.4
10.0
2017
£m
–
4.0
4.0
5.7
3.0
8.7
2016
£m
(0.5)
0.8
0.3
Environmental restoration
A provision is recognised for the costs to be incurred in the restoration of land which is no longer being used as a manufacturing site.
Legal and customer claims
This amount represents a provision for certain legal and customer claims brought against the Group. In the directors’ opinion, after taking appropriate
legal advice, the outcome of these claims will not give rise to any significant loss beyond the amounts provided at 31 December 2017.
Restructuring
The "Synthomer 2015" restructuring exercise was commenced in 2014. In 2017 the Group provided for an onerous lease on the site in
Osset, and as part of the post PAC (Dispersions) acquisition restructuring programme, the Group has planned the demolition of buildings
at the site in Ribécourt, France. The cost of all these restructuring programmes is charged to the income statement when permitted by
the Group's accounting policy, within Special Items. The provision reflects the amount that has been charged but not yet spent.
Liability arising on a business combination
As part of the acquisition of PolymerLatex in 2011, the Group acquired a leasehold interest in an empty property. The provision reflects this
onerous contract.
The provisions are expected to be fully utilised over the next five years.
132
Synthomer plc Annual Report 2017
Group financial statements 28 Called up share capital
Issued and fully paid
339,880,769 (2016: 339,880,769) ordinary shares of 10 pence each
Ordinary shares carry no right to fixed income.
2017
£m
2016
£m
34.0
34.0
Share options (see note 35)
The outstanding share options were all issued under the Executive share option scheme. These are discussed further in note 35 – Share
Based Payments.
As at 31 December 2017 the following options were outstanding:
Executive share options
Exercisable between 2016-2023
Exercisable between 2017-2024
Exercisable between 2018-2025
Exercisable between 2019-2026
Exercisable between 2020-2027
The total exercise price for all the above grants is £nil.
29 Reconciliation of operating profit to cash generated from operations
Operating profit – continuing operations
Less: share of profits of joint ventures
Adjustments for:
Depreciation
Amortisation
Amortisation – Special Items
Restructuring and site closure – Special Items
Share-based payments
Profit on sale of land – Special Items
Gain on foreign exchange contracts relating to acquisition
Acquisition costs – Special Items
Profit on sale of business – Special Items
Cash impact of restructuring and site closure
Cash impact of FX relating to purchase of business
Cash impact of acquisition costs
IAS 19 interest charge
Pension funding in excess of IAS 19 interest charge
Movement in working capital
Cash generated from operations
Reconciliation of movement in working capital
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Movement in working capital
Number
11,879
38,287
1,045,219
641,428
520,958
2,257,771
2017
£m
95.4
(1.0)
94.4
36.4
0.8
31.0
11.6
2.8
(1.3)
–
2.3
–
(6.0)
–
(2.1)
(4.3)
(12.5)
9.5
2016
£m
144.7
(2.0)
142.7
29.7
0.2
27.0
5.2
2.0
(33.2)
(13.1)
4.3
(4.7)
(5.5)
13.1
(4.0)
(4.5)
(12.4)
10.2
162.6
157.0
(13.3)
(24.0)
46.8
9.5
(13.3)
(13.5)
37.0
10.2
Synthomer plc Annual Report 2017
133
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
30 Analysis of changes in net borrowings
Current borrowing – Bank overdrafts
Current borrowings – Other
Non-current borrowings
Total borrowings
Cash and cash equivalents
Net borrowings
Repayment of borrowings
Proceeds of borrowings
1 January
2017
£m
Cash inflows/
(outflows)
£m
Exchange
and other
movements
£m
31 December
2017
£m
(65.4)
–
(202.3)
(267.7)
117.4
(150.3)
39.2
(48.5)
14.2
4.9
(28.5)
(23.6)
2.0
(0.4)
(8.9)
(7.3)
0.7
(6.6)
2017
£m
(102.0)
136.3
34.3
(24.2)
(48.9)
(197.0)
(270.1)
89.6
(180.5)
2016
£m
(82.7)
186.0
103.3
31 Purchase of business
The Group acquired 100% of the issued share capital of Perstorp Oxo Belgium AB, (a specialities chemical company) on 5 March 2017,
to complement the Group's existing markets and customers.
The Consideration paid in respect of this acquisition and the fair value of Net Assets acquired is summarised as follows:
Net assets acquired
Intangible assets
Property, plant and equipment
Deferred tax liabilities
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Post retirement benefit obligations
Fair value of net assets acquired
Goodwill arising on acquisition
Total consideration
Satisfied by
Cash consideration
Cash flow
Cash consideration
Net (cash)/overdraft acquired
Net cash outflow arising on acquisition
The goodwill arising on the acquisition of Perstorp Oxo Belgium represents the premium the Group paid to acquire a company which
complements the existing business and creates significant opportunities for cross-selling and other synergies.
Acquisition costs expensed in 12 months to 31 December 2017:
Other costs
134
Synthomer plc Annual Report 2017
£m
41.4
8.9
(15.0)
5.6
5.7
2.0
(3.9)
(2.7)
42.0
24.1
66.1
66.1
66.1
(2.0)
64.1
£m
0.5
0.5
Group financial statements In the period from acquisition to 31 December 2017 Perstorp Oxo Belgium contributed the following to the Group’s results:
Revenue of:
Operating profit of:
£m
26.7
3.7
If the acquisition of Perstorp Oxo Belgium had been completed on the first day of the financial year, the following would have been included
in the Group’s result:
Revenue of:
Operating profit of:
£m
31.9
4.6
During the year, the Group reassessed the fair value adjustments made in respect of the PAC (Dispersions) acquisition on 30 June 2016,
and made changes to certain accruals during the first half of the year. The impact on goodwill is an increase of £0.8m.
32 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not included
in this note. Transactions between the Company and its subsidiaries are disclosed in the Company’s financial statements where appropriate.
The UK defined benefit scheme is a related party, see note 26.
Key management compensation
Short-term employee benefits
Post retirement benefit obligations
Share-based payments
The key management figures given above include the directors and members of the Executive Committee.
33 Commitments
Capital expenditure authorised but not provided for in the financial statements
Contracted
Commitments under operating leases are as follows
Payments under operating leases which fall due:
Within 1 year
Between 2 and 5 years
After 5 years
2017
£m
5.3
0.4
2.0
7.7
2016
£m
4.9
0.4
1.0
6.3
2017
£m
2016
£m
23.7
16.7
2017
£m
2016
£m
5.1
10.7
18.9
34.7
3.1
10.5
15.4
29.0
Operating leases relate largely to property leases.
34 Contingent assets, contingent liabilities and guarantees
Other guarantees and contingent liabilities of the Group amount to £0.0m (2016: £0.0m).
The Company and its subsidiaries have, in the normal course of business, entered into guarantees and counter-indemnities in respect
of performance bonds, relating to the Group’s own contracts.
Synthomer plc Annual Report 2017
135
Group financial statements Notes to the consolidated financial statements continued
31 December 2017
35 Share-based payments
Executive share option schemes
The Group’s share option scheme is described in the Directors’ Remuneration Report on pages 70 to 84. In addition to the two executive
directors, it is available to other senior management. The movement in the options held under the scheme are defined as follows:
Outstanding at 1 January
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31 December
Exercisable at 31 December
Weighted
av. exercise
price (£)
2017
number
Options
2017
number
Weighted
av. exercise
price (£)
2016
number
Options
2016
number
2,334,899
– 2,615,192
520,958
(568,032)
(30,054)
2,257,771
50,166
–
–
–
641,428
(244,777)
(676,944)
– 2,334,899
–
17,796
–
–
–
–
–
–
For options outstanding as at 31 December 2017, the exercise price was £nil and the weighted average remaining contractual life was 4.73
years (2016: 5.0 years).
The Synthomer Employee Benefit Trust
The Company established a trust, formerly the Yule Catto Employee Benefit Trust, on 17 July 1996 to distribute shares to employees
enabling the obligations under the Yule Catto Longer-Term Performance Share Plan and the Yule Catto Longer-Term Deferred Bonus Plan
to be met. The Trust is managed by the RBC Trustees (Guernsey) Limited, an independent company located in Guernsey.
At 31 December 2017, the Trust held 249 (2016: 26,794) ordinary shares in the Company with a market value of £nil (2016: £0.1 million).
The dividends on these shares have been waived. All of the shares are under option. Costs are amortised over the life of the plans.
The weighted average share price at the date of exercise was £4.70 (2016: £3.56).
The weighted average fair value of the options at the measurement date granted during the year was £2.97 (2016: £1.84). The valuation
was based on the following inputs and assumptions:
Weighted average share price (£)
Option price (£)
Value of optionality
Vesting assumption
2017
5.03
–
nil
59%
2016
3.67
–
nil
50%
Given the option price is £nil, the only circumstance in which a vested option will not be exercised is if the current share price is £nil. There is
some value associated with the timing of when the exercise would be made but this is considered to be minimal and therefore this has not
been modelled.
The vesting assumption is the estimate at the measurement date of the percentage of the options that will ultimately vest and is based on
management’s assessment of the likelihood of achievement of the performance criteria.
36 Share price information
The middle market value of the listed ordinary shares at 31 December 2017 was 491.4 pence (31 December 2016: 382.6 pence). During the
year, the market price ranged between 372.0 pence and 509.5 pence. The latest ordinary share price is available on the Group’s website
www.synthomer.com.
136
Synthomer plc Annual Report 2017
Group financial statements 37 Post balance sheet events
Purchase of business
On 31 January 2018 the Group acquired the BASF Pischelsdorf SBR business for a total consideration of £25.7m.
Net assets acquired
Property, plant and equipment
Inventories
Trade and other payables
Post retirement benefit obligations
Provisional fair value of net assets acquired
Goodwill arising on acquisition
Total consideration
Satisfied by
Cash consideration
Book and
Provisional
Fair Value
£m
4.8
2.2
(0.6)
(0.7)
5.7
20.0
25.7
25.7
International Financial Reporting Standard 3 "Business Combinations" (revised 2008) requires the assets acquired to be initially recorded
at Fair Value at the date of acquisition. Any such Fair Value adjustments are provisional and will be finalised within twelve months of the
acquisition date. Any resulting changes in the fair values may have an impact on the depreciation from the date of acquisition and would
be recorded in the financial statements.
Due to the short period of time since acquisition, neither a preliminary assessment of intangible assets nor the Property Plant and Equipment
(PPE) valuation had been completed at the date of these financial statements. When the final valuation work is concluded, a substantial
increase is anticipated in PPE, intangible assets and associated deferred tax liabilities, along with a corresponding reduction in goodwill.
The acquisition of the BASF Pischelsdorf SBR business was completed on 31 January 2018. The acquired business has therefore not
contributed to the results of the Group for the year ended 31 December 2017. Sufficient information is not currently available to disclose
the contribution to the Group if the acquisition had been made on 1 January 2017.
Sale of business
On 1 January 2018, the Group disposed of 100% of the share capital of Synthomer Leuna GmbH for £7.6m. The net assets of Synthomer
Leuna GmbH of £6.5m were transferred to assets held for sale prior to disposal.
38 Audit exemptions
The following subsidiaries have taken advantage of the exemption from an audit for the year ended 31 December 2017 available under
s479A of the Companies Act 2006 as the Company has given a statutory guarantee of all of the outstanding liabilities of these subsidiaries
as at 31 December 2017:
Company
Dimex Limited
Ecatto Limited
Harlow Chemical Company Limited
S.A.(300) Limited
Super Sky Limited
Synthomer Overseas Limited
Temple Fields 514 Limited
Temple Fields 522 Limited
Temple Fields 523 Limited
Temple Fields 530 Limited
Polymerlatex Limited
Company Registration
01763129
00978441
00778831
00236227
02021871
06349474
04541637
05516912
05516913
00831113
03439041
Synthomer plc Annual Report 2017
137
Group financial statements
Statement of financial position – Synthomer plc
31 December 2017
Fixed assets
Property, plant and equipment
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Creditors – amounts falling due within one year
Borrowings
Other creditors
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Borrowings
Net assets
Equity
Called up share capital
Share premium account
Revaluation reserve
Capital redemption reserve
Retained earnings
Total shareholders funds
Analysis of net borrowings
Cash and cash equivalents
Borrowings due in less than one year
Borrowings due after more than one year
Net borrowings
Note
2017
£m
2016
£m
5
6
7
8
10
2.1
337.5
339.6
709.2
35.3
744.5
(63.7)
(215.2)
(278.9)
465.6
805.2
8
(157.8)
11
647.4
34.0
230.5
0.8
0.9
381.2
647.4
35.3
(63.7)
(157.8)
(186.2)
8
2.2
285.2
287.4
741.9
3.9
745.8
(39.3)
(171.1)
(210.4)
535.4
822.8
(158.5)
664.3
34.0
230.5
0.8
0.9
398.1
664.3
3.9
(39.3)
(158.5)
(193.9)
As disclosed in note 3, the Company's profit for the year was £22.7m (2016: £28.6m)
The notes on pages 140 to 149 are an integral part of these financial statements.
The financial statements of Synthomer plc (registered number 98381) on pages 138 to 149 were authorised for issue by the Board of
directors on 1 March 2018.
C G MacLean
Director
S G Bennett
Director
138
Synthomer plc Annual Report 2017
Company financial statements Company statement of changes in equity
for the year ended 31 December 2017
At 1 January 2017
Profit for the year
Total comprehensive income for the year
Dividends
Share based payments
Total transactions with owners,
recognised directly in equity
Balance as at 31 December 2017
Balance as at 1 January 2016
Profit for the year
Total comprehensive income for the year
Dividends
Share based payments
Total transactions with owners,
recognised directly in equity
Balance as at 31 December 2016
Called up
share
capital
£m
34.0
Share
premium
account
£m
230.5
Revaluation
reserve
£m
Capital
redemption
reserve
£m
0.8
0.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34.0
230.5
0.8
0.9
Retained
earnings
£m
398.1
22.7
22.7
(39.1)
(0.5)
(39.6)
381.2
Total equity
£m
664.3
22.7
22.7
(39.1)
(0.5)
(39.6)
647.4
34.0
230.5
0.8
0.9
398.8
665.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34.0
230.5
0.8
0.9
28.6
28.6
(30.3)
1.0
28.6
28.6
(30.3)
1.0
(29.3)
398.1
(29.3)
664.3
Synthomer plc Annual Report 2017
139
Company financial statements Notes to the Company financial statements
31 December 2017
1 Accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Basis of accounting
The financial statements of Synthomer plc have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure
Framework’ (FRS 101). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of land
and buildings and derivative financial assets and financial liabilities measured at fair value through the income statement, and in accordance
with the Companies Act 2006.
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Company’s accounting policies. The estimates and associated
assumptions are based on industry experience and various other factors that are believed to be reasonable under the circumstances.
The directors have reviewed the estimates and assumptions used in the preparation of the financial statements. The directors do not believe
that there is a significant risk which would lead to material adjustments to the carrying value of any assets and liabilities in the next financial
year due to changes on estimates or assumptions.
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in accordance
with FRS 101:
• IAS 7, ‘Statement of cashflows’;
• The requirements in IAS24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more members
of a group;
• IFRS 7, ‘Financial instruments: Disclosures’;
• Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value measurement
of assets and liabilities; and
• Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted-average exercise prices of share
options, and how the fair value of goods or services received was determined).
Going concern
The Company meets its day-to-day working capital requirements through its cash reserves and borrowings. After making enquiries and
taking account of reasonably possible changes in trading performance the Directors have concluded that the Company should be able
to operate within the level of its current cash reserves and borrowings and continue in operational existence for the foreseeable future.
The Company therefore continues to adopt the going concern basis in preparing its financial statements.
Foreign currencies
Items included in the financial statements of the Company are measured using the currency of the primary economic environment in
which the Company operates (‘the functional currency’). The financial statements are presented in ‘Pounds Sterling’ (£), which is also the
Company’s functional currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions
or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income
statement, except when deferred in other comprehensive income as qualifying cash flow hedges. All other foreign exchange gains and
losses are presented in the income statement within ‘Other operating income’.
Property, plant and equipment
Properties are shown at professional valuation from 1985. All other plant and equipment are stated at cost. Cost includes the original
purchase price of the asset plus the costs attributable to bringing the asset to its working condition for its intended use.
Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as
Revaluation reserve in shareholders’ funds. Decreases that offset previous increases of the same asset are charged in other comprehensive
income and debited against Revaluation reserve; all other decreases are charged to the income statement. Each year the difference
between depreciation based on the revalued carrying amount of the asset charged to the income statement, and depreciation based
on the asset’s original cost is transferred from ‘Revaluation reserve’ to ‘Retained earnings’.
140
Synthomer plc Annual Report 2017
Company financial statements Except for freehold land, which is not depreciated, the cost or valuation of property, plant and equipment is depreciated on a straight-line
basis over their expected useful lives as follows:
Freehold buildings – 50 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Investments in subsidiaries and joint ventures
Investments in subsidiaries and joint ventures are shown at cost less provision for impairment.
Intercompany
Intercompany balances are shown gross unless a right of set off exists. Balances are valued at fair value at inception and are repayable
on demand.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised.
Financial instruments
All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets
classified as at fair value through the income statement, which are initially measured at fair value. Financial assets and financial liabilities
(including derivative instruments) are recognised on the Company statement of financial position when the Company becomes a party to
the contractual provisions of the instrument.
Financial assets and liabilities are only offset in the balance sheet when, and only when, there exists a legally enforceable right to set off the
recognised amounts and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Financial assets are derecognised, when and only when, a) the contractual rights to the cash flows from the financial asset expire or are
settled, b) the Company transfers to another party substantially all of the risks and rewards of ownership of the financial asset, or c) the
Company, despite having retained some significant risks and rewards of ownership, has transferred control of the asset to another party
and the other party has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability
unilaterally and without needing to impose additional restrictions on the transfer.
Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or expires.
Trade and other receivables
Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective
interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement where there is
objective evidence that the asset is impaired.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis to the income statement
using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the
period in which they arise.
Trade and other payables
Trade and other payables are measured at initial recognition at fair value and are subsequently measured at amortisation cost using the
effective interest rate method.
Synthomer plc Annual Report 2017
141
Company financial statements Notes to the Company financial statements continued
31 December 2017
1 Accounting policies continued
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments
The Company enters into derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including
cross currency interest rate swaps and forward foreign exchange contracts. The Company does not hold or issue derivative financial
instruments for speculative purposes.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each statement of financial position date. A derivative with a positive fair value is recognised as a financial asset whereas a
derivative with a negative fair value is recognised as a financial liability. The resulting gain or loss is recognised in the income statement
immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the
income statement depends on the nature of the hedge relationship. The Company designates certain derivatives as fair value hedges.
The use of financial derivatives is governed by the Group’s policies approved by the Board of directors, which provide written principles
on the use of financial derivatives.
Fair value hedge accounting
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Company only applies fair value
hedge accounting for foreign currency exposure associated with the underlying hedged item. The gain or loss relating to the ineffective
portion is also recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash at banks and other short-term highly liquid investments with a maturity of three months or less.
Borrowings
Borrowings represents short-and long-term borrowings, as adjusted for the effect of related derivative instruments irrespective of whether
they qualify for hedge accounting.
Fees paid on the establishment of loan facilities are capitalised as pre-payment for liquidity service and amortised over the term of the facility.
Share capital
Ordinary shares are classified as equity.
Dividend distribution
Dividend distributions to the Company’s shareholders are recognised as a liability in the Company’s financial statements in the period in
which the dividends are approved by the Company’s shareholders.
Financial guarantees
The Company issues guarantees in respect of bank and other facilities of subsidiaries and joint ventures.
2 Auditors’ remuneration
The audit fee of Synthomer plc amounted to £10,000 (2016: £10,000).
3 Profit attributable to equity shareholders
Attributable to Synthomer Plc
2017
£m
22.7
2016
£m
28.6
As permitted by Section 408 of the Companies Act 2006 no profit and loss account is presented for Synthomer plc.
142
Synthomer plc Annual Report 2017
Company financial statements 4 Ordinary dividends
Interim dividend
Proposed final dividend
2017
Pence per
share
2016
Pence per
share
3.7
8.5
3.5
7.8
2017
£m
12.6
28.9
2016
£m
11.9
26.5
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability
in these financial statements.
5 Property, plant and equipment
Cost or valuation
At 1 January 2017
At 31 December 2017
At cost
At professional valuation in 1985
Accumulated Depreciation
At 1 January 2017
Charge for the year
At 31 December 2017
Net book value
At 31 December 2017
Cost or valuation
At 1 January 2016
Disposals
At 31 December 2016
At cost
At professional valuation in 1985
Accumulated Depreciation
At 1 January 2016
Eliminated on disposals
At 31 December 2016
Net book value
At 31 December 2016
Land and
buildings
Freeholds
£m
2.8
2.8
–
2.8
2.8
0.6
0.1
0.7
2.1
2.8
–
2.8
–
2.8
2.8
0.6
–
0.6
2.2
Properties included at valuation would have been stated on a historical cost basis at cost of £1.9m (2016: £1.9m) and depreciation of £0.6m
(2016: £0.5m).
Freehold land amounting to £1.8m (2016: £1.8m) has not been depreciated.
Synthomer plc Annual Report 2017
143
Company financial statements Notes to the Company financial statements continued
31 December 2017
6 Investments
Cost
At 1 January 2017
Additions
Hedge adjustment (see below)
At 31 December 2017
Provisions
At 1 January 2017
At 31 December 2017
Net book value
At 31 December 2017
Net book value
At 31 December 2016
Subsidiaries
£m
Joint
ventures
£m
Total
£m
284.9
44.5
7.8
337.2
0.5
285.4
–
–
44.5
7.8
0.5
337.7
–
–
0.2
0.2
0.2
0.2
337.2
0.3
337.5
284.9
0.3
285.2
Details of the Group's subsidiaries and joint ventures are given on page 147 to 149.
During the year the Company designated up to €232.5m (2016: €158.4m) of its borrowings as an FRS 101 fair value hedge against the
designated Euro portion of its investment in Synthomer Jersey Limited of up to €232.5m (2016: €158.4m). The movement in the Euro
borrowings is recorded in the profit and loss account along with the movement of the hedged investment.
Directors consider the value of investments to be supported by underlying assets.
7 Trade and other receivables
Amounts owed by group undertakings
Other receivables
Amounts owed by group undertakings are valued at fair value at inception.
2017
£m
708.6
0.6
709.2
2016
£m
741.8
0.1
741.9
144
Synthomer plc Annual Report 2017
Company financial statements 8 Borrowings
Current borrowings
Overdrafts
Bank loans
Committed unsecured €55m loan expiring 21 November 2018
Non-current borrowings
Bank loans
Committed unsecured £370.0 million multi currency Revolving Credit Facility expiring 30 July 2019
Less: capitalised costs
2017
£m
2016
£m
14.8
39.3
48.9
63.7
–
39.3
158.6
158.6
(0.8)
157.8
160.1
160.1
(1.6)
158.5
Bank loans are denominated in Euro and Czech koruna and bear interest based on LIBOR and EURIBOR.
At 31 December 2017, the Company had available £172.2m (2016: £166.1m) of undrawn committed borrowing facilities in respect of which
all conditions precedent had been met.
Analysis of borrowings at carrying value by currency
The directors calculate the carrying value of the Company’s borrowings as follows:
31 December 2017
Bank loans and overdrafts
Capitalised costs
Cash and cash equivalents
Net borrowings (IFRS and underlying performance)
31 December 2016
Bank loans and overdrafts
Capitalised costs
Cash and cash equivalents
Net borrowings (IFRS and underlying performance)
Sterling
£m
US dollar
£m
Euro
£m
Total
£m
9.5
(0.8)
8.7
5.3
–
5.3
207.5
–
207.5
20.3
(1.6)
18.7
53.6
125.5
–
–
53.6
125.5
222.3
(0.8)
221.5
(35.3)
186.2
199.4
(1.6)
197.8
(3.9)
193.9
Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
Synthomer plc Annual Report 2017
145
Company financial statements Company financial statements
Notes to the Company financial statements continued
31 December 2017
9 Financial instruments
The fair value of financial instruments has been disclosed in the Company’s statement of financial position as:
Fair value of financial assets
Trade and other receivables excluding prepayments
Cash and cash equivalents
Fair value of financial liabilities
Bank loans and overdrafts
Trade and other payables
2017
Fair value
through
Income
Statement
£m
–
–
–
Loans and
receivables
£m
708.6
35.3
743.9
Loans and
payables at
amortised
cost
£m
Fair value
through
Income
Statement
£m
221.5
215.2
436.7
–
–
–
2016
Fair value
through
Income
Statement
£m
–
–
–
Loans and
receivables
£m
741.9
3.9
745.8
Loans and
payables at
amortised
cost
£m
Fair value
through
Income
Statement
£m
197.8
171.1
368.9
–
–
–
Total
carrying
value
£m
708.6
35.3
743.9
Total
carrying
value
£m
221.5
215.2
436.7
Total
carrying
value
£m
741.9
3.9
745.8
Total
carrying
value
£m
197.8
171.1
368.9
A fuller description of financial instruments is included in note 23 of the consolidated financial statements on page 123.
10 Other creditors
Amount due within one year
Amounts owed to Group undertakings
Other creditors
Accruals and deferred income
2017
£m
2016
£m
213.0
169.3
0.8
1.4
0.7
1.1
215.2
171.1
Amounts owed to Group undertakings are valued at fair value at inception and are repayable on demand.
11 Called up share capital
Details of the Company’s share capital and outstanding share options are shown in note 28 of the consolidated financial statements on
page 133.
12 Related party transactions
The Company has elected to take the allowable exemption in terms of FRS 101 to not disclose transactions with wholly-owned subsidiaries.
13 Guarantees and other financial commitments
The Company has given guarantees amounting to £55.7m (2016: £31.4m) in respect of bank and other facilities of subsidiaries and joint
ventures.
14 Share-based payments
For details of share-based payments please refer to note 35 to the consolidated financial statements on page 136.
15 Employees
The Company had no employees during the year (2016: nil).
146
Synthomer plc Annual Report 2017
16 Subsidiaries and joint ventures
Company
Desa Baiduri Sdn Bhd
Dimex Limited
Ecatto Limited
Trading/
Non-Trading
Non–Trading
(Letting of
Properties)
Non–Trading
Non–Trading
Fine Chemicals Sdn Bhd
Non-Trading
Effective
Group
interest in
Equity
%
70
Place of
incorporation
Malaysia
United Kingdom
100
United Kingdom
1003
Malaysia
70
Registered Address
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Harlow Chemical Company Limited
Non–Trading
Temple Fields, Harlow, Essex, CM20 2BH
United Kingdom
Holliday Pigments Limited
Non–Trading
Kind Action (M) Sdn Bhd
PAC Chemical (Shanghai) Co Limited
(in the process of de-registration)
Trading
Trading
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Room 326, 3rd Floor, Building No.3,
No.500 Bingke Road,
Shanghai Free Trade Zone
Polymerlatex Ltd
Non–Trading
Central Road, Temple Fields,
Harlow, Essex, CM20 2BH
United Kingdom
Polymerlatex Sdn Bhd
Quality Polymer Sdn Bhd
Revertex (Malaysia) Sdn Bhd
Revertex Limited
Rexplas Sdn Bhd
S.A. (300) Limited
Shanghai Synthomer Chemicals
Co Limited (FICE)
Star Pharma Limited
Super Sky Limited
Trading
Trading
Trading
Non–Trading
Non-Trading
(Dormant)
Non-Trading
Trading
Non-Trading
Non-Trading
Synthomer (Thailand) Limited
Trading
1 1/2 Miles, Jalan Batu Pahat, 86000
Kluang, Johor Darul Takzim
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
China Technical Centre, Building 53-55,
Lane 1000 Zhangheng Road,
Zhangjiang High-tech Park, Pudong,
Shanghai 201203
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Synthomer Building, Temple Fields,
Harlow, Essex, CM20 2BH
3195/6 Vibulthani Tower 1
1st Floor, Rama IV Road,
Klongton Sub-District, Klongtoey District
Bangkok 10110
United Kingdom
1002
100
Malaysia
70
China
100
100
100
70
70
Malaysia
Malaysia
Malaysia
United Kingdom
1003
Malaysia
70
United Kingdom
1003
China
100
United Kingdom
100
United Kingdom
501,3
Thailand
100
Synthomer (UK) Limited
Trading
Synthomer 2016 Limited
Non-Trading
Temple Fields, Central Road,
Harlow, Essex, CM20 2BH
United Kingdom
100
Synthomer Building, Temple Fields,
Central Road, Harlow, Essex, CM20 2BH
United Kingdom
1003
Synthomer plc Annual Report 2017
147
Company financial statements Notes to the Company financial statements continued
31 December 2017
16 Subsidiaries and joint ventures continued
Company
Synthomer AS
Synthomer Asua SL
Synthomer Australia Pty Limited
Synthomer Austria GmbH
Synthomer Bangkok Limited
Synthomer BV
Synthomer Deutschland GmbH
Synthomer Finland Oy
Synthomer France SAS
Trading/
Non-Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Registered Address
Sokolov, Tovární 2093,
Postal Code 356 01
Place of
incorporation
Czech Republic
Camino Sangroniz, No 8 Sondika
48150 Vizcaya
C/o : Cosec Consulting Pty Ltd
58 Gipps Street, Collingwood, VIC 3066
Industriepark Pischelsdorf
3435 Zwentendorf an der Donau
3195/6 Vibulthani Tower 1
1st Floor, Rama IV Road, Klongton Sub-District,
Klongtoey District, Bangkok 10110
Spain
Australia
Austria
Thailand
Ijsselstraat 41, 5347 KG Oss
The Netherlands
Werrastrasse 10, D-45768 Marl
P.O.B 175 FI-90101 Oulu
704 rue Pierre et Marie Curie 60170
Ribécourt-Dreslincourt
Germany
Finland
France
Synthomer FZE
Trading Dubai, U.A.E, Dubai Airport Free Zone Authority
Dubai
Synthomer Holdings (CZE) s.r.o
Non-Trading
Synthomer Holdings (Thailand) Limited
Non–Trading
Synthomer Holdings Limited
Non-Trading
Synthomer Jersey Ltd
Synthomer LLC
Non-Trading
Trading
V Celnici 1031/4, Nové M sto,
11000, Prague 1
No. 99/329 Soi Suanluang,
Bangkho Sub-District,
Jomthong District, Bangkok
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
44 Esplanade, St Helier, JE4 9WG
1201 Peachtree Street NE, Atlanta,
Fulton, GA 30361
(CT Corporation)
Czech Republic
Thailand
United Kingdom
1003
Synthomer Middle East Company Limited
Trading
PO Box 7544, Dammam 31472
Saudi Arabia
Synthomer Overseas Limited
Non-Trading
Synthomer Participacoes Ltda
Trading
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Av. Casa Verde, 3100, sala 01,
bairro Casa Verde, CEP-02520-300,
São Paulo-SP
United Kingdom
Brazil
100
Synthomer S.r.l
Synthomer SA
Synthomer SAE
Synthomer Sdn Bhd
Synthomer Speciality Additives AB
Synthomer Specialty Resins S.r.l
Synthomer Trading Limited
Synthomer USA LLC
148
Synthomer plc Annual Report 2017
Trading
Via delle Industrie 9, – 24040 Filago (BG)
Non-Trading
1050 Brussels, Boondaalsesteenweg
6, B17
Trading
Trading
Trading
Trading
Trading
Trading
Industriel Zone 1-B, 10th of
Ramadam City, Sharkiya
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Durmakker 33, 9940 Evergem
Belgium
Via Morozzo 27, 12040 Sant’Albano
Stura, CN
Italy
45 Pall Mall, London, SW1Y 5JG United Kingdom
160 Greentree Dr. Suite 101
Dover, Delaware, 19904
(Registered agent address)
USA
Effective
Group
interest in
Equity
%
100
100
100
100
100
100
100
100
100
100
100
100
1003
100
491
1003
100
100
88
100
100
100
100
100
Jersey
USA
Italy
Belgium
Egypt
Malaysia
Company financial statements Company
Synthomer Vietnam Co Ltd
Trading/
Non-Trading
Trading
Temple Fields 510
Non-Trading
Temple Fields 512 Limited
Non-Trading
Temple Fields 514 Limited
Non-Trading
Temple Fields 515 Limited
Non-Trading
Temple Fields 522 Limited
Non-Trading
Temple Fields 523 Limited
Non-Trading
Temple Fields 530 Limited
Non-Trading
Temple Fields 534 Limited
Non-Trading
Temple Fields GmbH
Temple Fields GmbH & Co
Chemie oHG (formerly James
Robinson GmbH & Co Chemie oHG)
Temple Fields Verwaltungs GmbH (formerly
James Robinson Verwaltungs GmbH)
Terra Simfoni Sdn Bhd
UQUIFA Italia S.r.l
William Blythe Limited
Yule Catto BV
Yule Catto France SA
Yule Catto Holdings GmbH
Yule Catto Inc
Yule Catto International SA
Yule Catto Nederland BV
Yule Catto Overseas
Yule Catto Spain SL
Non-Trading
Non-Trading
Non-Trading
(Investment
Holding)
Non-Trading
Trading
Non-Trading
Non-Trading
Non-Trading
Non-Trading
Non-Trading
Non-Trading
Non-Trading
Non-Trading
Yule Catto Western Europe Limited
Non-Trading
Registered Address
No. 8 Road 6 (Lots No. 101, 109)
Sang Than I Industrial Park,
Di An District, Binh Duong Province
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Yule Catto Building, Temple Fields,
Harlow, Essex, CM20 2BH
Innerstetal 2, 38685 Langelsheim
Innerstetal 2, 38685 Langelsheim
Effective
Group
interest in
Equity
%
60
Place of
incorporation
Vietnam
United Kingdom
100
United Kingdom
United Kingdom
1003
1003
United Kingdom
100
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
Germany
Non-Trading
Innerstetal 2, 38685 Langelsheim
Germany
Bangunan Revertex, 1 1/2 Miles,
Jalan Batu Pahat, 86000 Kluang,
Johor Darul Takzim
Malaysia
Piazza Cavour 3, Milano
Italy
Synthomer Building, Temple Fields,
Harlow, Essex, CM20 2BH
United Kingdom
Ijsselstraat 41, 5347 KG Oss
The Netherlands
6 Place de la Madeline, 75008 Paris
Werrastrasse 10, 45768 Marl
1201 Peachtree Street NE, Atlanta, Fulton,
GA 30361
France
Germany
USA
6 Place de la Madeline, 75008 Paris
France
Ijsselstraat 41, 5347 KG Oss
The Netherlands
Temple Fields, Central Road,
Harlow, Essex, CM2O 2BH
United Kingdom
C/O Rambla de Catalunya no. 53, Atico,
08007 Barcelona
Yule Catto Building, Temple Fields,
Central Road,Harlow, Essex, CM2O 2BH
Spain
United Kingdom
1003
1003
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1003
100
100
Notes
1. Joint ventures.
2. Harlow Chemical Company Limited was incorporated in UK but is resident in the Netherlands.
3. Shares directly held by Synthomer plc.
Synthomer plc Annual Report 2017
149
Company financial statements 21.5p
19.5p
2014
(restated)f
£m
2013
(restated)f
£m
(112.1)
(133.6)
22.0
39.1
2014
(restated)f
£m
2013
(restated)f
£m
936.4
118.0
96.5
(10.5)
86.0
7.8p
2.5
936.4
118.0
65.1
(11.3)
53.8
7.8p
1.7
992.7
124.0
104.8
(14.7)
90.1
20.7p
6.0p
3.5
992.7
124.0
75.0
(115.9)
59.1
14.2p
6.0p
2.4
2015
£m
870.1
125.0
102.9
(7.6)
95.3
8.6p
2.5
(77.4)
22.8
2015
£m
870.1
125.0
80.3
(7.8)
72.5
8.6p
2.1
(80.1)
22.8
17.8p
13.3p
(114.1)
(138.5)
22.0
39.1
Five year financial summary
Underlying performancea
Revenue
EBITDAb
Operating profitc
Finance costs
Profit before taxation
Basic earnings per share
Dividends per share
Dividend cover
Net borrowingsd
Capital expendituree
IFRS – continuing operations
Revenue
EBITDAb
Operating profitc
Finance costs
Profit before taxation
Basic earnings per share
Dividends per share
Dividend cover
Net borrowingsd
Capital expendituree
Note
a As presented in the consolidated income statement on page 95.
b As defined in the accounting policies at note 2 and reconciled in note 6.
c As defined in note 2 to the consolidated financial statements.
d As defined in note 2 to the consolidated financial statements and reconciled in note 22.
e As shown with the consolidated cash flow statement.
f Restated for impact of IAS19 revised.
2017
£m
2016
£m
1,480.2
1,045.7
176.2
139.0
(9.0)
130.0
30.7p
12.2p
2.5
160.1
130.2
(8.0)
122.2
28.3p
11.3p
2.5
(180.5)
(150.3)
60.3
45.6
2017
£m
2016
£m
1,480.2
1,045.7
176.2
95.4
(9.0)
86.4
21.8p
12.2p
1.8
160.1
144.7
(8.0)
136.7
32.5p
11.3p
2.9
(180.5)
(150.3)
60.3
45.6
150
Synthomer plc Annual Report 2017
Other information Glossary of terms
AGM
AIMS
APMs
ARW
C&C
C&F
CGU
CH4
CIA
CO2
CO2e
Constant currency
CRM
CSR
DEFRA
EBITDA
EGM
ENA
EPS
ERP
ESG
FP
FRC
Annual General Meeting
Accident and Incident Management System
Alternative Performance Measures
Asia and Rest of the World
Construction and Coatings
Carpet and Foam
Cash Generating Units
Methane
Chemical Industries Association
Carbon Dioxide
Carbon Dioxide equivalent
Reflects current year results for existing business translated at the prior year’s average exchange rates,
and includes the impact of acquisitions.
Customer Relationship Management system
Corporate Social Responsibility
Department of Environment, Food and Rural Affairs
EBITDA is calculated as operating profit before depreciation, amortisation and Special Items
Extraordinary General Meeting
Europe and North America
Earnings Per Share
Enterprise Resource Planning
Environmental, Social and Governance
Functional Polymers
Financial Reporting Council
Free cash flow
Net cash flow from operating activities, after net interest paid and purchases and proceeds from sale
of non-current assets and investments
FRS
GHGs
GJ
GWP
H&P
HR
HSSBR
IAS
IFRS
ISA
KPIs
Ktes
LTA
LTIP
M&A
MOC
MYR
N2O
NBR
Financial Reporting Standard
Greenhouse Gases
Gigajoule
Global Warming Potential
Health and Protection
Human Resources
High Solids Styrene Butadiene Rubber
International Accounting Standard
International Financial Reporting Standards
International Standards of Auditing
Key Performance Indicators
Kilotonne or 1,000 tonnes (metric)
Lost Time Accident
Long Term Incentive Plan
Mergers and Acquisitions
Management of Change
Malaysian Ringgits
Nitrous Oxide
Nitrile Butadiene Rubber
Synthomer plc Annual Report 2017
151
Other information Glossary of terms continued
Net borrowings
Net debt
NOx
Net borrowings represent cash and cash equivalents together with short and long-term borrowings,
as adjusted for the effect of related derivative instruments irrespective of whether they qualify for
hedge accounting, non-recourse factoring arrangements, and the inclusion of financial assets
Borrowings and other financial liabilities less cash and cash equivalents
Nitrogen Oxide
Operating profit
Operating profit represents profit from continuing activities before finance costs and taxation
PBT
PPE
PSP
PTW
PVC
R&D
ROIC
SBR
SEC
SHE
SHEMS
The Code
TSR
UK GAAP
Profit Before Tax
Property, Plant and Equipment
Performance Share Plan
Permit to Work
Polyvinyl Chloride
Research and Development
Return on Invested Capital
Styrene Butadiene Rubber
Specific Energy Consumption
Safety, Health and Environment
Safety, Health and Environment Management System
The UK Corporate Governance Code
Total Shareholder Return
UK Generally Accepted Accounting Practice
Underlying performance
Underlying performance represents the statutory performance of the Group under IFRS, excluding
special items
VOCs
Volatile Organic Compounds
152
Synthomer plc Annual Report 2017
Other information Advisers
Registered office
Synthomer plc
Temple Fields
Harlow
Essex
CM20 2BH
Registered number 98381
Company secretary
Richard Atkinson
Bankers
Barclays Bank PLC
Commerzbank AG
HSBC Bank plc
RBS plc
Lloyds Bank plc
Joint stockbrokers
Barclays and Canaccord Genuity Limited
Registrars
Computershare Investor Services PLC
Lochside House
7 Lochside Avenue
Edinburgh Park
Edinburgh
EH12 9DJ
Independent auditors
PricewaterhouseCoopers LLP
Chartered accountants and statutory auditor
London, UK
Solicitors
Herbert Smith Freehills LLP
Squire Patton Boggs (UK) LLP
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p
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2
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1
7
Synthomer plc
45 Pall Mall
London
SW1Y 5JG
United Kingdom
www.synthomer.com