Synthomer (SYNT) issued a profit warning in a third-quarter trading update, citing a challenging European styrene-butadiene rubber (SBR) latex market.
In August, Synthomer, a specialty chemicals company that makes polymers for a range of applications including textiles, paper and synthetic latex gloves, missed analyst forecasts for its first half revenues by around 8 per cent. The company blamed weak SBR demand and slow trading in its functional solutions segment, which contributed to a poor first quarter.
Synthomer’s assessment of the SBR market remains glum, while the company also pointed to a range of wider factors. “The growing weakness in the global economy has created a more challenging backdrop for the chemical industry,” the company said, pointing to “depressed European industrial activity combined with increased political and economic uncertainties”. Synthomer shares were knocked by as much as 12 per cent in morning trading.
SBR sits within Synthomer’s performance elastomers segment, which accounted for around 42 per cent of its half-year revenue. “Conditions have not improved during Q3 and the group's paper segment has also continued to remain particularly weak,” the company disclosed. It now expects SBR volumes to be approximately 10 per cent behind 2018, withunit margins also similarly lower than last year.
Synthomer expects its functional solutions and industrial specialities segments to now be in line with last year’s performance, with Nitrile Butadiene Latex (NBR) outperforming 2018. But if current market weakness continues through its final quarter, management anticipates underlying pre-tax profits to be around 10 per cent lower than 2018 and current consensus expectations of £135.3m.
Shareholder revolt
Synthomer also encountered trouble at its annual general meeting earlier this week. A significant minority of shareholders voted against the re-election of chairman Neil Johnson, who only received the backing of 64.72 per cent of shareholders. Ensuing dialogue between Synthomer and its shareholders revealed concerns over Mr Johnson’s ability to devote sufficient time to his position, given his role as chair of two other businesses, Qinetiq (QQ.) and Electra Private Equity (ELTA).
Shareholders were also unimpressed with the absence of a commitment and plan by the board to implement the outcome of a recent review that recommended 33 per cent representation of women on the board by the end of 2020.
In response to its shareholders, management said that it “strongly believes” that Mr Johnson was able to fulfil his commitments to Synthomer. It added that it had appointed women to fill its most recent two vacancies for independent non-executive directors, resulting in board female representation of 22.2 per cent since September 2018. Synthomer has now committed to adding another female independent non-executive director by the end of 2020.
Earlier this month, Peel Hunt cut its full-year 2019 earnings per share forecast from 35p to 30.5p.
