Synthomer plc ($SYNT)

Good morning, and welcome to our 2025 full year results presentation. As usual, I'm here with Lily Liu, our CFO; and Faisal Tabbah, Head of Investor Relations. And together, we look forward to answering your questions at the end. In terms of the agenda, I will provide an overview of our performance and the further strategic progress we made in 2025 despite an extended period of challenging market conditions. Lily will then walk through the 2025 numbers in more detail and update you on the balance sheet developments before I come back to present the actions we have been taking to deliver our strategy of focusing on differentiated specialty products for attractive end markets. Then at the end, we will discuss what we have seen in terms of trading since the start of 2026 and what we expect for the remainder of the year and beyond. I have 5 points, starting with our performance in 2025 against the backdrop of a further year of lower end market demand and the additional challenge presented by the global tariff changes introduced during the second quarter, we delivered gross and EBITDA margin improvement and an overall trading performance fully in line with our January 29 winter trading statement. In the face of volatile market conditions, we continue to rigorously prioritize what is within our control, delivering robust cash, earnings and margin performance while continuing to focus, simplify and strengthen the business in accordance with our strategy. Divisionally, we delivered a strong performance in our AS business, which continued to regain share and enhance margins through successful delivery of its reliability and performance improvement program and increasingly important new growth initiatives. In both CCS and HPPM, activity levels were generally lower, which resulted in negative operational leverage. However, we were able to partially offset the effect of this through additional self-help cost savings. At the same time, we continue to focus on managing our financial position. The group delivered positive free cash flow for the year with a cash inflow in the second half as expected. And we were able to bring down our net debt year-on-year, reflecting our rigorous focus on profit and cash management. Point 2, very important for all our stakeholders and our company. We have refinanced our bank facilities, extending the maturities from mid-2027 to Q1 2029. Together with the reset of our covenants over the whole period, this gives us stability and the runway into 2029. We can now fully focus on our business, our customers and execute our plans. Point 3, we have had an encouraging start to 2026 trading. Q1 2026 trading was in line with our expectations and showed progress against Q1 2025 with clearly improving momentum through the quarter. And Q2 now started on a highly promising note. We expect a robust improvement in volumes and margins in the second quarter and potentially longer depending on developments. As I will come back to, we are not changing our overall view for 2026 for now, but the risks are to the upside as we sit here today. Point 4, this improving trading momentum has 2 drivers. The foundation is enduring progress from our strategy. Product and business rationalization have further simplified our structure and focused our innovation, manufacturing excellence and expert service on the most attractive products for our customers and our bottom line, supported by our disciplined approach to capital allocation. We have focused the business on end markets and customers where we believe the volume challenges of recent years were more cyclical than structural, and they are beginning to improve. We have invested carefully in key growth products like our APO line and in our innovation strategy. We have also created a number of commercial partnerships that leverage our capabilities without requiring capital investment. And our commercial strategy is now highly targeted on regions with the greatest opportunities for our business. Many of our key attributes and the strategic efforts we have made over the past 3.5 years mean we are well positioned to deal with the profound disruption in the value chain since the start of the Iran conflict. And while the longer-term effects remain uncertain, the current volatility in the chemical sector has only served to reinforce the importance and benefits of our business model. Improving operating leverage from efficiency, cost reductions and capital discipline, our streamlined in-region for-region manufacturing strategy, global procurement excellence and above all, our increasing focus on specialty businesses where we have comprehensive relationships true differentiation and hence, pricing power. It is these factors which we have focused on for the last 3 difficult years, which are allowing us to capitalize on the trading momentum that we are seeing now. And my fifth point, we will stick to our strategy and maintain our discipline to ensure that we deliver the substantial further value creation available. We will continue the divestment program. William Blythe was divested in the first half of last year, our third divestment since 2022. And our half year results, we announced we are broadening our divestment program in order to accelerate deleveraging and focus our portfolio further. We currently have our formal -- 4 formal divestment processes underway, and we will always keep the wider business portfolio under review for further opportunities. We continue to extensively review our operating and capital expenditures to identify additional savings opportunities and improve our efficiency. Overall, we achieved GBP 30 million of operating cost savings during the year through our various self-help plans, and we now expect to deliver a further GBP 20 million to GBP 25 million in incremental gross benefits in 2026. And we will maintain our ambition to make the business more specialty focused, the key driver of the fact that our group gross margin has increased by a massive 500 basis points over the last 4 years to over 40% in the last quarter, demonstrating the substantial improvement in our operating leverage to increasing volumes. Gross margin will remain a focus in 2026 as it positions us very well for further volume recovery in our core markets. I'll come back in a moment to talk further about some of the actions we are taking in the current year, but let me now hand over to Lily to run through the numbers in more detail.

Many thanks, Michael, and good morning all. As Michael already mentioned, 2025 was a challenging year for the industry and for Synthomer. Against that backdrop, we performed well in delivering strategic steps and further enhancing our margins by self-help actions. In this section, I'll focus on our actual '25 results, including the cash flow and also provide an update on our refinancing project. Starting with the financial summary. My first remark before any line details is that despite the revenue reduction of nearly GBP 200 million year-on-year due to market conditions our EBITDA dropped by GBP 6.5 million. Thanks to our focused efforts and delivery on self-help actions. Group revenue for continuing business was 9.9% lower on constant currency at GBP 1.74 billion. Volume was down 7.2% from lower end-market demand following tariff changes and the ongoing competition from Asian companies in base chemical areas, a situation that since the Iran war has changed significantly, as Michael alluded to already. Our EBITDA reduced by 4.5% on constant currency to GBP 137 million, which resulted into an EBITDA margin expansion of 40 bps versus 2024 to 7.8%. This was supported by GBP 30 million of cost efficiency programs and reliability improvements as well as lower bonus accrual comparing to 2024. Continuing business underlying operating profit was GBP 37.6 million for the year, a reduction of 21%. Underlying finance costs increased by 6.5% with the higher coupon from new bond partially offset by lower base rates. I'll come to refinancing and expected interest cost in a minute. We continue to guide underlying group effective tax rate around 25%. For 2025, our ETR is significantly outside of this normal range due to a onetime adjustment on deferred tax assets in the U.S. and U.K. as well as geographical mix of profits and loss. Discontinued operations, being William Blythe business, contributed EBITDA of GBP 3.6 million up to its divestment in May 2025. The total group continued and discontinued had underlying loss per share of 37.2p versus 2.5p loss from 2024. About half of the EPS deterioration was due to the aforementioned derecognition of U.S. and U.K. tax losses, which the company can access to in the future. Special items comprised mostly intangible amortization, impairment charge and restructuring and site closure costs in the period. As always, we have included a schedule for special items in the appendix. Our net debt of GBP 575 million was GBP 22 million lower than financial year 2024 and GBP 63 million lower than at the half year of 2025, thanks to good cash management and our leverage was 4.7x, well within the covenant. Now turning to each of the divisions. In CCS revenue was GBP 699 million, down 11.6% in constant currency from 2024. Volume was down 6.8%, reflecting tariff induced demand uncertainty and comparing to a relatively strong prior period, which included a reasonable coating season. But the biggest driver was lower oil and gas drilling activity, which resulted to smaller orders from our oilfield service customers in the high-margin energy solutions segment. We have seen some improvement in construction business in Europe, which was particularly challenged in 2024, but this was not enough to offset the muted activities elsewhere, particularly in the U.S. The energy solutions slowdown was also reflected in the price/mix reduction of 4.8% for the period. As a result, EBITDA reduced to GBP 64 million or down 25% in constant currency with an EBITDA margin of 9.2%. This reflects the negative operating leverage and the mix effect of a strong prior year energy solutions result. In response, we have taken decisive steps on cost reduction. CCS bears a substantial share of group overall cost base. The total savings delivered in the year was GBP 13 million with further benefit expected in 2026. The turnaround of our Adhesive Solutions division continued with pace. The EBITDA increased by 39.5% in constant currency versus 2024, raising EBITDA margin by 350 bps to 11.6%. A reminder that in 2023, the margin of this business was around 5%. So in 2 years, we more than doubled the EBITDA and EBITDA margin. Revenue was 1.5% lower in constant currency, in line with 1.2% volume reduction. This was partly driven by the shutdown and site reliability issue in a third-party managed site that we have talked about previously, although this is now improving. Our overall improved reliability and cost competitiveness have enabled AS to regain resilience in the period of market volatility with business delivering around GBP 11 million operational efficiency and cost savings in 2025, again more to come in 2026. Finally, Health & Protection and Performance Material division. Revenue was down 16.5% in constant currency reflecting a 10.4% volume reduction [ and first of all ] lower raw material price. Within Health & Protection NBR volume fell by 17.3%. Beginning of the year, we saw muted customer demand reflecting some prebuying in 2024 in the supply chain prior to the change of U.S. PPE tariffs in January 2025. Volume began to improve in Q4 2025. Margin per tonne in H&P benefited from mix effect as demand for our higher-margin reusable products was more robust than disposables in the year, but this continued to be lower than the pre-COVID levels. The Iran war has a positive effect on the margin. We received further income from U.S. technology partner, where we support their efforts in building a new U.S. NBR plant, including for a new package built and delivered in the period. The Performance Materials side of the division reflects volatile market conditions for these businesses, especially the monomers business. Process optimization and cost efficiency initiatives has driven performance improvements. We continue to focus on our efforts on enhancing capacity utilization and efficiency within the division. EBITDA was GBP 24 million with a margin of 5.2%. In the year, we disposed William Blythe and ended operations at our Ningbo site in China with further divestment program progressing as Michael already mentioned. Now to cash flow. We delivered positive free cash flow as targeted in 2025 even after adjusting for the onetime KLK receivables purchasing. Closing net debt of GBP 575 million, reduction of GBP 22 million from 2024. Now our expectation for 2026 at this stage is also broadly neutral free cash flow once the GBP 50 million receivable purchasing unwind is accounted for. Now in reality, this was already completed by early March. Our net working capital, excluding receivable financing was broadly flat in 2025, and we had an inflow of GBP 77 million from higher utilization of receivable financing facility and GBP 50 million receivable purchasing agreement. We expect the euro seasonal working capital outflow in H1 2026, which is likely to be slightly higher than before given the Iran conflict effect on raw material costs, but also the euro seasonal inflow in H2 2026, supported by further structural inventory reduction programs. CapEx remains disciplined with full year spend of GBP 86 million, in line with prior year and our CapEx to depreciation ratio remains below 1x. In 2026, we have further focus on our capital spending program and expect to spend around GBP 50 million less than prior year, a figure that still includes a few carefully selected growth projects. Full year cash tax was neutral and benefit from prior year refunds in H1 2025. And pension costs in excess of P&L are significantly lower than last year as guided. Now the deferred U.K. deficit reduction payment was made in 2024. Regarding our core debt facilities, the remaining EUR 150 million amount of 2025 bond was repaid in July 2025. We refinanced our RCF and UKEF facilities, extended the maturity of both facilities to the end of February 2029. Security and guarantee package is provided by certain group companies. Coming to covenant and liquidity with the refinance, we gained further covenant support in line with macro uncertainty and we agreed to provide quarterly covenant testing on leverage and the minimum liquidity covenant. Our liquidity remains healthy for the group. I'm expecting the P&L interest cost to be around GBP 70 million in 2026, reflecting the refinancing deal. Cash interest costs lower by mid-single digit millions. Net debt to EBITDA was 4.7x at the year-end on the covenant definition basis, which mainly adjust for IFRS 16 and is therefore about 0.4 to 0.5x higher than using the headline net debt to EBITDA figures. Now let me reiterate that our key priority is to reduce our leverage towards 1 to 2x medium-term target level through a combination of increased EBITDA, continued cash generation focus, supplemented with proceeds from divestment. The Board has confirmed that dividend will remain suspended until our leverage is below 2.5x. Now in summary, in 2025, we made strategic operational and financial progress against the backdrop of challenging and uncertain macro environment. We continue focus on our self-help actions capitalized on the current market condition since the Iran war and balancing this with selective investment guided by our strategy. Let me stop here and hand back to Michael to update you on strategic initiatives and outlook. After Michael's remark, we'll come back to take questions.

Thank you very much Lily. I would like to begin this section by reiterating the key elements of the strategy, which has and will continue to guide how we are transforming the business. All size [indiscernible] execute the action for us. The period since we launched this strategy late 2022 has not been the easiest environment to demonstrate progress. But our actions are showing a positive effect on the quality of our portfolio. I mentioned our significant and continuous gross margin improvement and together with all the work we have done on the operating and overhead costs, we have increased the operational leverage in the business substantially, resulting in a drop-through rate from revenue down to EBITDA of 30% or more. As market conditions change, we will stick to the core tenets of these plans, which have served us well. This slide will also be familiar illustrating the direction of our strategic evolution in creating a more specialty, more geographically balanced and a more streamlined Synthomer. Now let me briefly take you through each of the 3 divisions to highlight the key actions we took in support of our strategy. CCS is our most specialty weighted division. And as Lily has described, it experienced a challenging demand environment in 2025, mainly in energy solutions and construction. We continue to further align the activities of the division with its strategic and markets -- end-markets during the year. That meant continuing to improve the geographical balance of CCS with strategic key account management for our top global customers and targeted marketing to new customers in North America, the Middle East and Asia, including China. It meant strengthening the division's position in high-growth subsegments, including adapting our product portfolios for market areas where we see growth opportunities, such as battery technology and solutions that support data center construction. In line with our focus on value selling and optimizing our product mix, we launched a new CRM system, which I believe to be best-in-class and introduced new pricing strategies. As part of our ongoing portfolio improvements, our innovation process becoming more end market focused to enable us to get products to market quicker. We made selective investments in our manufacturing capability in the U.S. to increase its flexibility and enable the localization of products previously only made and imported from Europe. And we enhanced our coatings capacity in the Middle East to support long-term growth opportunities in the region. In response to market conditions, CCS stepped up a range of efficiency measures during the year. This included a cost reduction program to mitigate the slowdown in end market demand. We accelerated and reprioritized a number of asset optimization projects and other cost and capacity management activities during the year, including temporarily idling excess capacity, reducing shift patterns and undertaking a broader review of operating costs, including headcount. The division is also implementing a number of inventory management measures to enhance cash flow. We expect our 2026 performance to benefit from these projects in addition to the significant market-driven volume and margin opportunities we witnessed since February 2026. Turning now to Adhesive Solutions. The division has continued to build on the dedicated performance improvement program launched in 2023, which has transformed the adhesive resin business acquired by Synthomer in 2022. The program has enabled improvements in reliability for customers and achieved GBP 35 million in cumulative benefits to date by reducing costs and improving end-to-end operations from supplier network improvement to production site efficiency and delivery logistics. The program continues to find further opportunities expanded again to target a total of at least GBP 40 million in cumulative benefits by the end of 2026. As Lily has already touched upon, the success of the program is now clearly evident in the division's EBITDA margins, which have more than doubled to 11.6% last year versus 5.4% on launch in 2023. Our reliability efforts are now primarily focused on the Longview, Texas facility shared with Eastman. Following the upgrade to increase the specialty APO capacity, this represents a key growth opportunity for 2026 and the years ahead. We will also continue to pursue further opportunities to reduce working capital intensity and optimize our supplier network for key raw materials. At the same time, we continue to regain market share through greater reliability, competitiveness and strong customer centricity. We are increasingly leveraging our global production network and multiyear relationships with blue-chip customers to grow our specialty exposure, which accounts now for 60% of divisional revenue. In the first half, we announced a novel whole-value-chain partnership and supply agreement with Henkel. The year also saw the successful launch of CLIMA branded products, which deliver at least a 20% cradle-to-gate reduction in certified product carbon footprint. In the more volatile and competitive European base chemical product areas, we remain focused on enhancing cost competitiveness and reliability and leveraging partnerships and volumes. Finally, turning to HPPM. Much of HPPM division has base chemicals characteristics. So our differentiated steering approach focuses on improving cost efficiency across the value chains while enhancing our overall value proposition to customers through selective investment in process and product innovation. Our Health & Protection business continues to focus on opportunities to leverage our position as a global market leader in NBR manufacturing with significant technology and manufacturing expertise. We also continue to support our U.S. partner with further technology licensing and manufacturing expertise as it developed onshore U.S. capacity for nitrile latex and glove manufacture. We are exploring other potential partnership opportunities for this business globally that require little or no capital investment. In 2025, we established a partnership with Neste and PCS to manufacture bio-based nitrile latex for the glove industry. We also continue to develop new products that aid reusability, weight reduction and high performance for customers in this market. In Performance Materials, we signed a partnership with Lummus Technology to license Synthomer's proprietary acrylic acid esters technology, which will now reach a broader market through the Lummus platform. We also undertook further product rationalization and consolidated an old manufacturing site in China during the year. And in advancing the strategic transformation of the portfolio, we completed the divestment of William Blythe, a noncore inorganic chemistry business. This transaction further reduces the complexity of our site portfolio and enables a greater focus of capital, time and other resources. During the year, we broadened the scope of our noncore divestment portfolio to accelerate the group's deleveraging and simplify the business portfolio further. Turning now to 2026 trading and outlook. Overall trading in the first quarter of 2026 was in line with our expectations and ahead of prior year with much improved CCS and stable AS performances offsetting a slower start in parts of the HPPM division. Encouragingly, all businesses had improving momentum through the quarter. But since the start of the Iran conflict, we have experienced substantial changes in our operating and commercial environment, both up and downstream. As I mentioned at the start, our focus over the last years on improving on speed and agility, a streamlined in-region, for-region manufacturing footprint and stronger procurement capabilities mean we are well positioned to significantly capitalize on the market opportunities available. We are passing through the significant increases in raw material costs and to a lesser degree in energy in substantial pricing adjustments, while volumes in many areas are increasing due to disruption to the global manufacturing and distribution networks of competitors, particularly those based in Asia. With little backward integration, we have always had to be agile in our sourcing strategies and our global procurement and supply chains have now reached a level which I call market-leading. As a result, we are expecting robustly positive period-on-period volume and margin development in the second quarter of the year and potentially thereafter based on our latest trading data. Clearly, the geopolitical and market context remains highly volatile and the potential impact of prolonged disruption on end market demand is uncertain. We are therefore making no changes to our 2026 outlook at this stage. Overall, we expect to make year-on-year progress driven primarily by our self-help actions. Specifically, we anticipate that full year contributions from our cost reduction programs and product investments made in AS and CCS during 2025, ongoing margin progress in our specialty businesses, Health & Protection volume and margin improvements will partially offset by wage inflation and normalization of bonus accrual in the year. At the same time, the longer the trading conditions experienced in Q2 persist, the greater the upside risks to our expectations. So in summary, we continue to stick to our strategy to transform this business to our specialty. Now more than ever, this is the right strategy for our portfolio. Through the last 4 years of subdued sector demand, coupled with the additional debt from the Eastman Adhesives acquisition, our balance sheet has been one of our biggest challenges. Alongside making the portfolio more focused and resilient, our broadened divestment program will help to reduce our leverage. Meanwhile, we continue to work positively with our finance providers to ensure the runway to deliver our plans. Most importantly, we have begun to see some evidence that underlying specialty end market demand is improving. Our increased operating leverage to volumes in these markets is in the end, the key driver of our earnings ambitions and hence, the value creation opportunity in this company. In the broader context, as negative as the Iran conflict is for this world in general, it does represent a positive catalyst for us with our increased margins, reduced cost base, regional production footprint and best-in-class procurement. It will take 6 to 12 months after a potential end to the conflict until global supply chains are back to normal, and it is interesting to see that many customers are reevaluating their global networks, especially their Asian supply exposure. Anyway, we continue to be bold and fast, execute our strategy, capture the opportunity and mitigate all the related challenges. In summary, we have made a progress by sticking to our strategy, and we will remain focused on delivering it with the same focus and operational discipline going forward because there is scope for substantial value creation. Now just before we take your questions, you will have seen we have made another announcement this morning. Lily has accepted the role of CFO at Umicore in Brussels, Belgium. We have been fortunate in being able to bring on board Iain Torrens, most recently interim CFO and then CEO of Wood Group as her interim replacement while we take the time to identify Lily's permanent successor. I have very much enjoyed working with Lily since she joined Synthomer in summer 2022. She has made a significant contribution, particularly in helping to steer the business through a very challenging period for the chemical sector. I thank Lily for all the hard and successful work, her professionalism and her friendship to me and the team. On behalf of the Board, Executive Committee and all of Synthomer, I wish Lily every success in her new role. I also look forward to working with Iain, who is a seasoned CFO with strong capital market experience, which will be very relevant what remains a critical period for Synthomer.

Thank you, Michael. Very kind of you saying that. It has been a real pleasure for me to work with you and the rest of the team. Together, we delivered a lot in the last 3 or 4 years. I have no doubt the stronger Synthomer will be able to capitalize on the huge opportunity in front of it. Now with that, Michael, Faisal and myself are here happy to take your questions.

[Operator Instructions] We'll take our first question from Sebastian Bray from Berenberg.

I have 2, please. The first is on the situation in nitrile latex because it looks like shortages at Asian peers are going to lead to a situation of fly-up margins. Can you talk about why EBITDA in this business couldn't double or travel temporarily based upon this? And my second question -- sorry to go back there, I think there was an interruption from incoming calls, sorry about that. So the first question is, given the shortages at Asian peers for nitrile and the fact that spot prices have shot up, why couldn't EBITDA in that area double or triple this year? And would it potentially be a good opportunity to exit the business at a stage of fly-up margins where the valuation is likely to do better? My second question is on April trading. There have been mixed messages from sector peers about whether this has improved or stepped -- has continued to improve or stepped down on the volume sense. Can you give any commentary around this? And if I might squeeze a third one in. The inflow from receivables factoring in '25 and its effect on net debt, am I right in saying that the GBP 75 million to GBP 80 million is effectively added back to the net debt on a covenant basis for '26 because it's been repaid?

Thank you very much, Sebastian. I think I take the first 2, Lily take the third one.

Yes.

I think your assumptions on NBR could be actually quite right. We have enough raw materials. Other people are struggling. We know this. Like you mentioned, we do not have any shortages on NBR production. We had at the very beginning, but then we are covered. So I would say it's a very positive situation we are having right now. Could margins double or triple? Why not? Let's see. It's definitely looking very good right now after this business was breakeven or slightly positive. So I think we are for now in a very good position. It also clearly shows that we do have a leading position, and we have critical mass. So I think the whole Malaysian chain, as we will call it, our customers and ourselves is in a much, much better position than before. I even think this is going to last longer because I think a lot of the end-market consumers, they will think about such events. And probably they will -- I mentioned a little bit in my speech, they will probably think about a more balanced approach of their supply situation. So I think this is even a lasting benefit. But indeed, Sebastian, it looks very good. What do we do with the business in the future? I think this we are always evaluating. It is a base chemicals business, as we always mentioned, it sits in HPPM division. So I think, yes, I don't want to go further, but as always, when the business improves the performance, it is more interesting for potentially better [ onus ]. Your second question on April, and I'm here, I don't know, maybe more optimistic than what you have said about the sector, but we do indeed see very strong margins and volumes pretty much across the whole portfolio, meaning on the specialty side, but also on the base side is predominantly against, of course, Asian suppliers. But in this world, you have so many interlinked supply chains. So even in high-end specialty chemicals delivered in Europe or in the U.S., you might have an intermediate from Asia in there. And so far, as I mentioned, I think really we have a really world-class procurement, which works extremely aligned with the 3 divisions. I think we can capitalize on this quite nicely. So I think the problem is that we don't have visibility enough in H2 because we don't know how this conflict ends, how the world shapes out. But if you ask specifically about April, it does look very good in terms of margins and in terms of volumes and in terms of all 3 divisions.

Very good. I take over on the third question, Sebastian. Yes, the question about receivables financing. Look, the -- what we said is we expect cash flow -- free cash flow neutral for this year after adjusting for the GBP 50 million onetime KLK receivables purchasing that was done in December 2025. So that's what we said.

So when I look at the free cash flow statement for '26, there is effectively a GBP 50 million outflow for repayment of receivables financing. Is that right?

That's correct. I mean everything being equal, that would be correct.

KLK, we kind of neutralize back to neutral free cash flow and we neutralized the GBP 50 million KLK.

So just to clarify, the free cash flow leaving aside the KLK -- so imagine KLK was not happening and the receivables were not being repaid, the free cash flow would be 0 breakeven.

Yes.

Okay. Understood. That's helpful. And Lily, all the best for your time at Umicore, I look forward to seeing you there as well.

Thank you so much, Sebastian.

As you know, Sebastian, last year, we also said neutral and at the end, it was much better. So I think there are always opportunities. Thank you, Sebastian. You stick with me and Synthomer.

We are now taking our next question from Harry Philips from Peel Hunt.

Three from myself, please. Just on the cost savings in the current, I'm assuming that the sort of comments around Texas are a part of it. But is there a sort of easy breakdown of how the cost savings will appear across the 3 businesses? The second question is just on sort of raw material put-throughs and what that does to the revenue line. And I'm guessing if you want to put through, just dilute margins in the short term, just reflecting that sort of simple math. And then lastly, probably one you won't want to answer, but I'll ask nonetheless, is just in terms of divestments, horrible sort of timetable you might have in your thinking around that. I appreciate, obviously, you can't entirely control it. But given we've got this additional visibility around the refi into '29 and the sort of market conditions that are currently prevailing, it sort of seems that activity in that process might quicken up further still.

Yes. Shall I -- do you do the cost?

Yes, I'll take the first, maybe partly second.

Okay.

And you talk about the last. So Harry, cost savings, it's coming from 3 divisions and also central functions. Michael mentioned procurement is part of -- that's also part of -- key part of the cost saving and self-help actions. We always say CCS bears more of the cost base in the group. So we expect more from CCS, but the other 2 divisions are also contributing significantly together with the functions. On the raw material price impact on revenue and margin, mathematically, you would say if we simply just pass on the raw material price increase, added to revenue, of course, that would dilute the gross margin. However, we are having good commercial teams. We have long-term customer relationships. On the up, we're passing on, but we're probably passing on proportion to the value creation in the situation. So I'm expecting us to be able to mitigate that. And the opposite side, when material price come down, we manage to hold on to the margin. Michael?

Yes. On the revenue side, clearly, raw materials are massively up, sometimes 2x, 3x up. So obviously, our revenues go up. And as Lily pointed out or we all pointed out before, I think there is room for margin improvement in such a situation on the way up, as you can see it right now, and maybe there's even the bigger opportunity on the way down when the raw materials are going down. We see a certain stabilization of raw materials. They went steeply up after end of February. We see now a certain stabilization. And let's see how this whole develops over the time. But right now, it's reasonably -- I think if you are bold and fast at the beginning, it's a reasonably comfortable position to be in right now. Your third question on the divestments. We announced a broadened program in August of last year. And I think if you look into the whole market situation, everybody, it takes 12 to 18 months until you have a divestment done. It's just the market conditions right now, maybe to change a bit because I think the chemical sector generally is increasing over the last 3, 4 months. We have 4 processes running. I think one of them, we can hopefully conclude rather sooner than later. We have 2 processes, I would say, in the next few months. And we have one process that will go into H2. Again, as always, it needs two to tango. We are not making bad deals in our company. I always say there are 2 things of relevance to make a deal. One is the valuation, the money you get. And the other one is the [ SPA ], the terms and conditions that do not bring you in a critical situation 2 or 3 years down the road. I think that's the schedule. There are active projects, and you will hear for us, hopefully, in the near future.

We now move to our next question from Stephanie Vincent from Bank of America.

I just had a couple of questions on the new revolver as well as the U.K Export Finance facility. Just want to know, I guess who the new issuer is. You did say it was the subsidiary of Synthomer, so like the issuer of the bond. So just wanted to know what the changes were there? And also if you are willing to disclose -- if you are able to disclose it what your view is on the new guarantor coverage under the 2029 note that remain in place. And then my next question is just a little bit of housekeeping on the cash flow. I know that you gave a good overview but just want to know just your boarder view on the cash taxes in 2025?

So we have --

I'll start with UKEF. I think UKEF is a --

No, you're good. Yes.

-- it really was extremely helpful in this complex refinancing project that we went through over the last few months. And yes, I just think it's a very -- we had a very good cooperation there, a lot of support from UKEF. I think that it's an excellent institution to promote the purpose of UKEF, which is really manufacturing and exporting from the U.K. We are very grateful to UKEF.

Indeed. And also, I would comment on the rest of the lenders in the lending group. We have had good constructive discussions with them in the last weeks and months. We have put a very detailed and good disclosure in the [ RNS ] already. And I think Faisal is in the finance section, isn't it there. So we put in the structure, the covenant, et cetera, et cetera, et cetera, and the changes there. So it is a subsidiary within Synthomer plc this time around that was taking the new financing package. And I suspect cash tax for this year won't be neutral or won't be positive, but we are expecting probably high single-digit cash tax outflow this year.

Okay. And also just in -- if I can throw in another question just about some of the news articles that we've seen in the U.K. press, et cetera. I know you've gotten the UKEF facilities. But just any sort of additional support that you could see from European government directly or indirectly to your business, things like antidumping that have had an impact or could have an impact this year or next year?

Yes. That's a good question. We are -- as you know, the European Union, in particular, is not always as fast as you would like them to be. But we are part of several of those, I almost call it, projects. And within the next few months, we should get some news. I think the European Commission in the meantime realize that something has to be done. And I don't want to be as blunt as Jim Ratcliffe, but it is a big problem. The energy, the regulation, the disadvantages what we have against Asian, in particular, Chinese suppliers is substantial. And I see movement in Brussels. I see movement. So we are actively -- sometimes we are front runners -- sometimes we are joining a team, but I do expect positive news in several of our businesses within the next few months coming from Brussels. And this would, of course, sometimes totally change the economics of business. But as always, we try to live without those things. We take them if they happen, but we always position our business that we don't need it. But it would fundamentally change some of our businesses. Of course, the most challenged ones could be, yes, severe positive impact if this goes through in the next 3, 4, 5 months.

We'll take our next question from Kevin Fogarty from Deutsche Bank.

Just 2, if I could. One, I guess, is on the trading side. I guess, are you seeing anything -- I appreciate it's difficult, visibility is low. But I guess given the momentum you've seen, are you sort of seeing anything to make you feel that there's the sort of competitive advantage, you offer or rather than just a kind of short-term pull forward that you might be experiencing? I know some companies have talked about the latter. So just anything you might be seeing to sort of give you confidence that there's some sustainability around this and perhaps it is playing to that kind of structural advantage you offer? And I guess sort of secondly, just if we sort of come back to your free cash flow guidance, obviously, kind of the implication is it sort of positive before the factor repurchasing. And if we sort of think about the bridge to kind of unchanged expectations for this year, now the kind of higher interest costs, albeit I appreciate the sort of cash interest costs will be lower than P&L. CapEx will be a bit lower than 2025, but nevertheless, sort of still remaining substantial. And there's risks, I guess, in terms of working capital in a high raw material price environment. Are there any sort of factors we should be thinking about to kind of support that kind of free cash flow outlook that we haven't sort of thought about? I appreciate there's going to be kind of restructuring costs, et cetera, perhaps this year, but anything you would sort of focus our attention on to fill in the gaps?

Thank you, Kevin. Lily will take the second question, but I start with the top of every cash flow is EBITDA. And I think here, we have a good potential, and that's what it all starts. Lily will comment further about net working capital and CapEx. On your trading question, I really do believe that we have a competitive advantage in the current situation. We work now for 3.5 years on reducing cost on increasing margin. I mentioned this 500 bps up over the last 4 years is very substantial. We have our regional footprint, which not all competitors have. So we can really produce 90% plus in the region for the region. And as I have mentioned, we have now a world-class procurement aligned with the divisions. I think these 4 factors, in addition that I believe we reacted really on the opportunity on 28th of February, we acted bold and fast. And I believe this gives us our strategic positioning, as I mentioned, footprint, businesses we are in, end-markets we are serving, competitors we are having, I think we do have a competitive advantage even against some European or American peers, definitely against Asian peers who simply struggle to procure feedstock. It's particularly problematic, as I would see it in Taiwan, in Japan and in Korea, which are big, big intermediates and raw material suppliers or end-products, but it's also in China. I was a little bit surprised that China is struggling as much as it is struggling. But it probably has to do that China is lacking certain intermediates. And that's why we have several competitors in China under force majeure, and that is obviously for us a pretty interesting situation.

Yes, Kevin, on your second question -- sorry, have you finished?

Yes. No, that's great. Yes.

All right. On your second question about free cash flow. Look, 2 things on the focus side, I would draw your attention to, one of which we talk about, which is CapEx. We're expecting 2026 CapEx to be around GBP 50 million lower than what we have spent in 2025. And second factor I also alluded to is inventory reduction, right? And that structural reduction we have done in the past, and we continue to look at it now. Offsetting that is raw material price movement or raw steel price going up at the moment. But we also said we expect EBITDA to grow from 2025 level. And Michael also mentioned from an outlook perspective, we probably see upside risk on EBITDA this year versus what we said before. So those factors together, coming back to my previous point, adjusting out for the unwind of KLK's receivable purchasing, we're expecting broadly free cash flow neutral. But you have to add it back that amount when it comes to net debt forecast for the end of 2026.

Just to add to that, just the complete clarity on the receivables factoring point. It's almost best to think of the net debt at the year-end of GBP 575 million as being GBP 625 million as the starting point once you adjust for the receivables factoring and then build your sort of free cash flow assumptions from there.

I will just add one more point because it's important. Our covenant levels are reset as part of the refinance package throughout the tenure, and that is consistent with how we look at the business, both from a cash flow perspective and also business plan perspective. Clearly--

Sure. And I guess --

We mentioned.

Okay. So given the kind of refi and the covenants --

Yes.

Presumably kind of factoring is off the table now for 2026 or not?

We always say the receivable purchasing that we've done December 2025 with KLK, that's a onetime transaction.

To be clear, we do retain our GBP 200 million committed factoring facility going forward, and we do anticipate continuing to use that as required.

Sure, sure. But I guess sort of the kind of one-off nature that you did in 2025, that should be a kind of nonrepeat by nature.

Exactly. The GBP 50 million is a one-off. Yes.

We now take our next question from [ James Carty ] from Barclays.

I just wanted to understand a little bit better on the liquidity test, which you referenced in terms of the new covenants, which are governed by the RCF and U.K. facilities. Can you expand on what the liquidity tests are there?

So it's quite customary in the situation. It's a monthly liquidity test. So it's -- there's a minimum liquidity test that we test monthly throughout the refi period. And again, I go back to the point, we have been through this carefully with our very detailed cash flow forecast, and we see very healthy liquidity headroom throughout the period.

And the requirements are actually even more favorable than before. I think that's important to mention.

Yes.

And then just to make sure I've understood, on the sort of phasing for free cash flow for this year. So we should expect a sort of more pronounced free cash flow outflow in H1 on account of the movement in raw material prices, I guess. And did you say that you had already repaid the GBP 50 million temporary receivables facility already or that was expected to sort of materialize over the course of the year? I don't know if I caught that correctly.

Yes. We said that was unwind already early part of March this year. So that's second part of your question. And yes, we are expecting the normal sort of seasonality when it comes to working capital this year. So you would expect us to see -- you would expect to see free cash flow difference between H1 and H2 as we always do.

We also have opportunities on net working capital savings, especially on inventories in some areas, and that is offsetting partially the increased raw materials.

Our next question comes from Angelina Glazova from JPMorgan.

I think I just have one follow-up left at this point, which is on order books and current trends. So obviously, it's difficult to quantify the extent of the potential upside from the Middle East situation. But if you look between the segments of Synthomer, and we've already had a bit of a detailed discussion on nitrile latex. But if you look at Coatings and Construction Solutions and Adhesive Solutions, where would you say do you see more upside and more momentum in your order books, at least as of April so far?

Yes. I think, like I said, it's pretty broad-based. We touched a lot upon NBR. I think that's a particularly positive situation. We see it as well in CCS division. We see it in AS division where you have a lot of Asian competitors, especially in China on the hydrocarbon side. So there, we have clear advantages. And yes, it's definitely double-digit volume gains. As I mentioned, the margins up. So it's pretty broad-based through all the divisions. There are a few businesses that are much less affected positively, like maybe our acrylate monomers business or even there, there is a certain upside, but this will benefit less from the situation. But the major areas of our business, NBR, CCS division broadly, especially construction coatings looks very good right now. Construction better. I mentioned energy solutions, higher oil price, always higher drilling activity, good for us. I mentioned AS division. So generally, it's a pretty broad-based situation. But I also would like to mention, Angelina, it's not only the Iran situation. I really believe that the strategic points, and I mentioned the 4 elements of cost margin, regional footprint, procurement, what we have worked on over 3, 4 years, I think this is coming into -- coming very nicely into play. So it's not only a blip now of Iran and 3 months later, it goes back to normal, I would say, I really see this to a certain extent, sustainable. I call it sometimes is an operational benefit right now because we do have manufacturing, we do have feedstock others might have less. But I believe there's also this kind of psychological advantage that customers are rethinking how do they procure in 2027. And I can give you some life examples of large customers, the discussion with them about the 2027 contract is different than it was before. And before was eagerness to save every cent you can save and take everything from China and the tone of those discussions has significantly changed. So I believe that -- and nobody knows, but I believe that this could be a sustainable advantage for us. Of course, what goes against it at one point, if this conflict drags on and on, that we have a demand destruction via inflation. I think that's a bit of the balance that we can see. But I believe, really, as I said, operational advantage and kind of psychological advantage should give us a nice, I mentioned, 9 months operational and then a further maybe 12 months on the structure of how customers procure their input.

This is great. Thank you very much for the color. Really congratulations and best of luck in your new role.

Thank you.

Our next question comes from Sanjay Bhagwani from Citi.

Very comprehensive presentation and the details. I just have 2 questions left. My first one is on the disposals. I think you already alluded to there are 4 active processes right now. Are you able to help us with some sort of sizing of the magnitude of this -- the business being intended to dispose. So some sort of like scale, like sales, what sort of sales this business have or the EBITDA? That's my first question, and I'll just follow up with the next one after this.

Yes. I didn't understand at the beginning, you are from Citibank, right?

Yes, that's right.

Okay. On your divestment question, the magnitude, I think we sometimes talk about GBP 150 million to GBP 200 million again, depending -- there's a wide range of what happens. But this could be a range that we would be looking at. EBITDA levels are reasonably low. So you don't need to deduct too much because that's the reason why we are selling or trying to sell those businesses. There might be one business that has a little bit a different structure, which is a more profitable business, but a smaller business where we would get higher values. But 3 out of the 4 processes are traditionally low EBITDA businesses, reasonably big volumes. So you have to deal with the stranded costs. I think if you take some GBP 150 million to GBP 200 million for all together, it's probably not a bad first shot.

And that's GBP 150 million to GBP 200 million of sales. Is that correct?

No. Proceeds. Proceeds.

Proceeds. Okay.

That's proceeds. It will be of sales like when we announced the strategy in 2022, we said that we have ready for divestment noncore about a little bit more than 1/3 of our business. And about a bit more than half of this is done and the other half in terms of revenue is still to come. But as I said, they are predominantly not very profitable businesses.

That's very helpful. And sorry to come back on the net debt and the cash flow guidance again. So I think Faisal already clarified that starting point here is GBP 625 million for the net debt. Now if I have to think of first half, I do understand that there is an upside risk to the EBITDA and H1 is tend to be seasonally higher EBITDA as well. And whereas working capital could be a negative headwind. CapEx are lower, as you alluded to it. So if you have to put it all together on the H1, let's say, if you have to think of this GBP 625 million as a reference point for the net debt, how do you see this evolving for H1 and then for the full year?

I would expect full year to be consistent or better than the adjusted year-end 2025 number. And I would expect normal seasonality to apply here that H1 net debt will be higher than year-end.

Higher than GBP 625 million. Is that correct?

Yes.

Probably worth also saying in relation to the seasonality of the net debt, a couple of points under the new transaction, the new refinancing. The next covenant test for us is the first quarterly test in September this year. We don't have a June testing date under the new arrangement. That's effectively been waived. And the quarterly testing has been very, very carefully sculpted to reflect the cash flow profile of the business, which has been analyzed in a huge amount of detail as part of this refinancing by the banks and by ourselves so that it's sculpted to match our expected cash flow profiles over the course of the year.

There are no more questions from the conference call. I'd like to hand back to the room for webcast questions. Please go ahead.

Thank you. So we -- quite a few webcast questions today, several of which we've answered in detail, but I'll try and wrap up a few others that are still slightly outstanding together a little bit. Assuming the war ends in the next few weeks, how long do you think the tight markets in Europe could last before Asian imports return? And could you comment on whether you see any demand areas where the environment has cyclically improved?

Yes. I think, like I said, I believe if the conflict ends from that moment, it could take 9 months until everything is kind of back to normal, whatever normal is. A lot of ships are on the totally wrong place in this world right now. The supply chains are truly disrupted. This is not just a little delay of matters. So I believe -- and it's interesting that Jim Fitterling from Dow, he's also kind of hinted that like 9 months. I think this is really not a bad assumption. So the advantage, as I called it, the operational advantage, I believe, is 9 months. This is not a matter of 1 or 2 months to come back. If I look at cyclical improvements now, leave alone the Iran situation. I think coatings after many years now or several years of no coating season, we do see a coating season right now. I do see the U.S. improving. I do see the NBR business improving except for the Iran situation. I do see construction improving. I think there are quite a few sectors which is -- again, there are 2 aspects. One is the market one, the cyclical that comes to an end and is favorable. So these are the markets I would mention. And on the other side is the Iran situation. So I think coatings, construction, NBR are probably good examples where the cyclicality would finally in our favor.

I think in addition, our energy solutions business, if you recall, that has been through a significant downturn, but we believe that's temporary. It will come back, and that's a higher-margin business for us.

Yes. And there is a close link between oil price and drilling. And yes, the more drilling, the better for us.

And then several questions along the same themes. The designation of the unrestricted subsidiaries under the bond effectively means that those move outside of the bond guarantee to some degree in favor of the RCF and UKEF, what businesses do those subsidiaries tie back to, to the extent we can say? And is there any way of sizing those?

Sure. Look, the [indiscernible] is wrap most of our -- currently most of U.S.A. operations, and that's carefully selected, give us the strategic optionality for the business, and that's part of the security package. It's all permitted in the indenture for 2029. If you want to look at the size of that operation, if you go back to our 2024 annual report, the segmental analysis on geography and indeed, our to be published annual report today, the numbers are quite similar. The revenue is around sort of 25%. I think I said around 40%.

Yes. And I think, if you take this a bit in a holistic view, I think this refinancing deal, which was a complex one, but we have concluded it now. I think at the end of the day, this is beneficial for all stakeholders because it gives us stability. It gives us runway into 2029 to focus on the divestments, to focus on the business, to focus on the customers. And at the end, that means that our trading is better. It means that our balance sheet gets better and at the end, that is good for everybody. What is important is also what Lily said that this whole transaction is fully in line with the permissions in the bond indenture. So yes, I think these are important statements.

Very good. One other query. Can you say anything about the -- any further progression on the margin on the extended bank facilities?

Yes. Look, the -- I think we have put in a number in the trading statement. I think we say about P&L cost this year around -- or interest cost this year around GBP 70 million. I also mentioned the cash interest cost around mid-single-digit millions lower. But it's a comprehensive deal, I would say.

I think it's a good deal for us. And if you look at cash interest, you probably take [ GBP 3 million, GBP 4 million ] more for this year and GBP 7 million, GBP 8 million more for next year.

Very good. And then I think the last question basically is, do you have any comments on how you intend to address the bonds in 2029 following today's transaction?

Yes. I would just go back to start with to reiterate what Michael just said, the deal we have completed today is a very good deal. It gives us the stability, the runway to execute our divestment and also transform the business into a higher-margin specialty businesses. It gives us liquidity, give us the relaxed covenant and much needed maturity, a much extended maturity. 2029 refi, look, we always do our refi 12, 18 months ahead of maturity. We'll do that again this time around. And with the transformed business with us being able to delever the balance sheet, we truly believe we'll be in a good position to do the refi when it comes.

Very good. I think we've covered the key areas on the webcast as well.

Thank you.

Thank you very much.

Thank you very much. Have a good day.

Good day.