Synthomer plc (SYNT) Earnings Call Transcript

Good morning, and welcome to our first half 2025 results presentation. As usual, I'm joined by Lilly Leo, our CFO; and Faisel Taba, our Head of Investor Relations. Lily and I will present our review of Synthomer's strategic, operational and financial performance in the period. And together, we look forward to answering your questions at the end. In terms of the agenda, I will start by providing an overview of our performance and the continued progress we are making despite clearly subdued end markets. Lilly will then walk through the numbers in more detail before I come back to present the key developments in our 3 divisions and the execution of our strategy and how we are continuing to position Synthomer to deliver our medium-term ambitions. I start with trading. In the first half of 2025, we were able to deliver gross margin, EBITDA and relative margin progress, mainly through continued strategic delivery and cost reduction measures, which we are becoming quite good at. We view this as a robust performance overall given the weak market environment the industry experienced, particularly in the second quarter of the year. The gross margin improvement by more than 400 basis points over 3 years and more than 100 basis points in the first half of this year shows our pricing power and operating leverage, which are very important now and even more going forward in a better demand environment. Both revenue and volume broadly track 2024 in Q1, but demand conditions became considerably more volatile in the second quarter following the announcement of new U.S. tariffs. Many customers have adopted a wait-and-see attitude in the face of the sometimes day-by-day changes in the tariff situation, and this has affected activity levels in the short term, even as most of the longer-term trends in our end markets remain reasonably stable. Our net debt was higher than at the start of the year, broadly in line with our expectations. This mainly relates to the seasonal net working capital profile, which is why we are confident that free cash flow will be positive in the second half. In terms of the outlook, we are assuming that demand remains subdued as a result of the trade tensions and geopolitical situation for the remainder of the year. We have, therefore, stepped up our strategic and operational efforts to transform the business, including a new GBP 20 million to GBP 25 million cost reduction program, which includes removing a further 250 positions across the group. This will help to mitigate these headwinds and enable us to deliver some earnings progress and broadly neutral free cash flow for the year as a whole. We also continue to change the portfolio in line with our strategy of making Synthomer a more resilient and more specialty-focused chemicals business. In May, we completed the divestment of William Blythe, our noncore inorganic chemicals business. And together with the site closure in China, we have now reached a milestone of less than 30 manufacturing sites, down from 43 when we began this process in late 2022. We are not done with portfolio simplification. We have 2 formal noncore divestment processes currently underway, and we are giving consideration to broadening our divestment program to accelerate the group's deleveraging and focus the portfolio further on end markets where we see profitable growth. We also continue with our efforts to allocate capital and other resources in a smart way. You will recall that last year, we began a technology partnership in the U.S. to leverage our intellectual property and expertise in medical glove ingredients. And in the first half, we added additional services for our U.S. partner, which contributed positively to earnings. Our sustained focus on targeted innovation, including into more sustainable products for our customers resulted in good successes in the period and added exciting opportunities ahead. I'll come back to talk further about some of these developments in a moment, but let me first hand over to Lily to run through the numbers in detail.

Many thanks, Michael, and good morning all. I'm pleased to take you through our H1 '25 results, which show EBITDA and margin progress over the prior period despite the backdrop of increased demand uncertainty created by tariff policy changes. As usual, I'll start with the financial summary. Group revenue for continuing businesses was 8.8% lower on a constant currency basis at just over GBP 925 million. This was largely driven by lower volume, especially in Q2 after the tariff announcement as well as reflecting pass-through of lower raw material prices and a robust prior year period for Energy Solutions and Coatings businesses. Despite this, we delivered EBITDA and EBITDA margin growth overall with encouraging progress in our DSIP Solutions and HPPM divisions, partially offset by lower performance of Energy Solutions within CCS. The gross margin for our businesses improved by 110 bps versus prior year. Supported by GBP 17 million from cost efficiency programs and reliability improvements as well as a lower bonus accrual comparing to 2024, we were able to deliver group continuing EBITDA of GBP 78 million, a 5.4% increase on a constant currency basis. EBITDA margin continues to improve versus prior period, now standing at 8.4% -- continuing business underlying profit was GBP 28.3 million for the half, in line with H1 '24, with slightly higher depreciation in the period, reflecting the capital expenditure profile. Underlying finance costs increased by 4%, higher coupon from new bonds, partially offset by lower base rates. We continue to expect net financing costs of around GBP 60 million to GBP 65 million for the year. Cash interest cost continues to be lower than P&L charge by around GBP 5 million. We continue to guide the underlying group effective tax rate around 25%. For 2025, our ETR is expected to be significant outside of the normal range due to geographical mix of profit and loss and adjustment on deferred tax assets in the U.S. and U.K. Discontinued operations being the William Blythe business contributed an EBITDA of GBP 3.6 million up to its divestment in May 2025. The total group continued and discontinued had underlying earnings per share of 3.6p loss for the half, down from 1.3p in H1 2024. Special items are coming down for continuing operations and comprise mostly intangible amortization and restructuring and site closure costs in the period. As always, we have included schedule for special items in the appendix. As usual, our net debt at the end of June was higher than at the December year-end, reflecting seasonal working capital movements, which I will take you through in more detail in a moment. And our leverage of 4.8x was slightly higher than at year-end, but within the covenant. Turning to each of the divisions. In CCS, revenue was GBP 372 million, down 12.2% in constant currency from H1 2024. Volume was down 6.5%, in part reflecting a strong prior period, including a good coating season and tariff-induced demand uncertainty. But the biggest driver was lower oil and gas drilling activity, which resulted in smaller orders from our oilfield services customers in the high-margin Energy Solutions segment. We have seen some improvement in our construction business in Europe, which has 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 mix reduction of 5.7%. As a result, EBITDA reduced to GBP 35 million or down 34% in constant currency. In response, we have taken decisive steps, introducing the cost reduction program in the period that Michael mentioned. CCS bears a substantial share of group's overall cost base. And so while this is already bearing some fruit, we anticipate acceleration of the savings in H2 '25, driving more balanced performance between the halves for 2025. Now we're very pleased with the further progress achieved in improving the DSIP Solutions division. which increased EBITDA by 64.8% in constant currency versus H1 '24, raising EBITDA margin to almost 12%. Revenue was 1.4% lower in constant currency, in line with 1.8% volume reduction. This was partially driven by required operational shutdowns and delays to a capital investment project on our specialty line. The site and the contract work are managed by third party. The project came on stream in July, and so we expect it to make positive contribution in H2 2025. Our improved reliability and cost competitiveness has enabled AIS to remain resilient in a period of market volatility. with the business continuing to report operational efficiencies and cost savings expected through 2025 and beyond. Now finally, Health & Protection and Performance Materials division. Revenue was down 12.4% in constant currency, reflecting a 10.2% volume contraction and pass-through of lower raw material price. Within Health and Protection, NBR volumes fell by 16%, reflecting some prebuying in the supply chain prior to Biden administration's changes to U.S. PPE tariff went into effect in January 2025, which muted customers' demand in H1 '25. Our customers expect this to moderate in H2 '25. Margin per ton in H&P benefited from mix effects as demand for our higher-margin reusable products was more robust than for disposables in the period, but this continued to be substantially lower than the pre-pandemic levels. Our [indiscernible] plant utilization is currently around 65% to 70% with the industry as a whole at lower levels. We received further income from our 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 the volatile market conditions for these businesses and 2 manufacturing shutdowns in the period. Process optimization and cost efficiency initiatives have driven performance improvement and margin progress. We continue to focus our efforts on enhancing capacity utilization and efficiency within the division, resulting in 180 bps EBITDA margin improvement versus H1 2024, increasing EBITDA by 21.5% in constant currency to nearly GBP 17 million. As Michael mentioned, we have also disposed of William Blythe business this year and ended operations at our Ningbo site in China with further divestment programs ongoing. As I've mentioned, our half year net debt was GBP 638 million, higher than the year-end position of GBP 597 million as we expected. This increase reflects our typical seasonal working capital investment, bonus payout, CapEx phasing and translation of foreign currency debt, partly offset by the proceeds from William Blythe divestment and increased receivable factoring. We reported working capital outflow in the first half as is typical for us with higher activity levels in June versus December reflected in the working capital balances. Our continued focus on inventory efficiency, coupled with seasonal unwind, we are expecting good working capital inflow in the second half. We demonstrated exactly the same pattern last year between the 2 halves. CapEx remains disciplined with forecast full year spend now expected to be just below prior year. Increased spend versus H1 '24 is driven by project timing. Other than health, safety and sustenance spend, we selectively invested in some strategically important areas such as our new specialty APO line in AS, Middle East capacity for CCS, technology improvements and lower carbon solutions for our customers. Cash tax benefited from refund in H1 '25, which we expect to unwind to a neutral position by year-end. And pension costs in excess P&L are significantly lower than last year as guided. Taken together with further self-help actions, we expect a positive second half free cash flow and the Board let free cash flow neutral position over 2025 as a whole. Regarding our core debt facilities, the remaining step of the 2025 bond was repaid in early July. Our RCF expires in July 2027 and UCA facility has maturity to October 2027. As always, we keep our financing needs under review in case of opportunities ahead of that. Net debt to EBITDA was 4.8x at the half year on covenant definition basis. which mainly adjusts for IFRS 16 and is therefore, about 0.4x to 0.5x higher than using headline net debt and EBITDA figures. Leverage was slightly higher than the 2024 year-end due to the aforementioned factors, but well within our covenants. In the period, we extended the time of additional headroom under the covenants through 2026 in the event that expected recovery in demand is more drawn out. Prior to the GBP 129 million bond repayment in early July, our committed liquidity facilities totaled more than GBP 400 million with additional support from the unused portion in our factoring program. Let me reiterate our capital allocation priorities. While we intend to continue to invest very selectively in organic growth opportunities aligned to our specialty strategy, our key priority is to reduce our leverage towards our 1x to 2x medium-term target level through a combination of increased EBITDA, continued cash generation focus, supplemented with proceeds from divestments. The Board has confirmed that dividends would remain suspended at least until our leverage is below 3x. In summary, I'm pleased with the strategic, operational and financial progress we have made in the period through difficult market conditions. We continue to focus on our self-help actions, balancing this with selective investment guided by our strategy. Let me stop here and hand back to Michael to update you on our strategic initiatives and outlook.

Thank you, Lily. I would like to begin this section as usual, by reiterating the key elements of the strategy, which continue to guide how we are transforming the business. All 5 pillars and 3 enablers provide executable actions for us also in the current trading environment. The period since we launched the strategy in October 2022 has not been the easiest environment to demonstrate progress but our actions are showing a positive effect on the quality of the 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 previously outlined, our ambition is to make Synthomer a more specialty weighted, more geographically balanced and more streamlined business. And whilst this will always remain work in progress, the quality of our business is improving. While individual periods can be heavily affected by mix effects, we are moving towards the specialty objectives while broadening out the geographic exposure. One point I would like to draw out is the progress we have made in the last 3 years to reduce our site footprint through noncore divestments and rationalization and how we continue to challenge ourselves here. Following the divestment of William Blythe and another site rationalization, we have now reached the milestone set out in 2022 of having less than 30 sites globally. And we are today setting a new objective of further streamlining our footprint to less than 25 sites. This allows for a more meaningful capital allocation, reduces CapEx intensity and eliminates cost. While we will continue our overall production strategy of producing in region for region to be close to our customers, we believe there are further opportunities to make Synthomer a simpler, more efficient organization with less complexity also in terms of overhead and fixed cost. In addition, it allows the growth capital to be deployed to our best assets and opportunities. Having sold laminates and films in 2023, compounds in 2024 and William Blythe earlier this year, we have a number of other noncore divestment processes underway, fully in line with our Specialty Solutions strategy launched in October 2022. At the same time, we are giving consideration to broadening our divestment program to accelerate deleveraging. Now let me run through each of our divisions, touching on the key actions or developments we took in the first half to advance the strategy. CCS is our most specialty weighted division, and it faced a very mixed demand environment across its end markets in the period, as Lilly has described, with some encouraging signs in construction and consumer materials more than offset by the Energy Solutions market situation and the U.S. slowdown. In response, we stepped up our efficiency measures in the first half and CCS actions are an important part of the new GBP 20 million to GBP 25 million cost reduction program we have initiated. This focuses on capacity management, including temporarily idling excess capacity and reducing shift patterns and includes a broader review of operating costs, including headcount and implementing a number of inventory management measures to enhance cash flow. Alongside these near-term actions, we have continued to further align CCS with its strategic end markets, and we are targeting specific growth segments during this generally subdued demand environment, such as data centers and energy transition-related opportunities. We successfully continue with our strategic key account management for top global customers and are using targeted marketing to further develop relationships with additional regional clients in North America and Asia. Alongside our growing focus on value selling and optimizing our product mix, we changed the group CRM system in the period to what I believe is now best-in-class, and this will boost our targeted and data-driven customer approach in all 3 divisions. Our innovation process becoming more end market focused to enable us to get products to market quicker. We launched a number of new construction products in the first half and our bio-based emulsion polymer coatings are progressing to market for launch in the second half. We are making selective investments in our manufacturing capability in the U.S. to enable the localization of products previously only made and imported from Europe. And we enhanced our coatings capacity in the Middle East to support further growth in the region. The recent reduction in global oil and gas drilling activity levels has resulted in a tough period for CCS earnings in H1, but I'm convinced that the business continues to offer significant opportunities. Turning to Adhesive Solutions. The division delivered consistent and significant progress in earnings driven by further solid work on its reliability and performance improvement plan. This is supported by the division's total customer focus and end markets that are overall more consumer-led and hence, more resilient than other parts of the group. The principal focus of the plan put in place by the incoming divisional management team in 2023 has been on increasing the operational reliability and cost efficiency of the adhesive resin business acquired in 2021 and integrated in 2022. At the start, we had issues in most of the 6 acquired sites, but this has steadily been improved. And today, there is only one third-party hosted site in the U.S. left where I would say we have further work to do. An important site in Europe delivers now record output levels. The plan realized a further GBP 5 million of benefits in the first half and has achieved a total of GBP 30 million in benefits to date. We remain on track to exceed the current GBP 35 million target by the end of 2026. The optimization of our supplier network for key raw materials, including planning, procurement and logistics enhancements has been a main focus, and we continue to seek opportunities to reduce working capital intensity. Our improved reliability and cost competitiveness means we are regaining market share, and we are building on this progress by targeting new business. Our key investment project to increase the specialty APO capacity at our Texas facility commenced several weeks behind schedule due to third-party contractor issues, but has been on stream and working well since mid-July and is now contributing to divisional earnings in the second half. The division also made progress with a number of strategic growth initiatives designed to build on our leading positions in a range of specialty adhesive applications, leveraging our multiyear relationships with many high-quality customers and global production network. For example, in April, we announced a novel whole value chain partnership with Henkel, focused on enabling carbon emission reductions in its hot melt adhesive product portfolio. This partnership follows Synthomer's recent launch of CLIMA-branded products. Products with this designation deliver at least a 20% reduction cradle to gate in the product carbon footprint by using renewable energy in the production process. Henkel and Synthomer have jointly developed a framework that links this renewable energy use directly and certifiably to specific adhesive products, enabling measurable reductions in carbon emissions. This partnership approach to sustainability improvements is supported by our investment in ISCC+ certification of our major manufacturing sites. In addition, AS has a number of other customer collaborations for sustainable fast-moving consumer goods packaging applications progressing, which we anticipate to begin to add sales in the second half. Finally, our new innovation center in Shanghai has improved our technical reach in China. Overall, I'm pleased with the continued momentum in the AS division, where we have more than doubled the EBITDA margin in 2 years to a very promising 11.9% in H1 2025. Coming to Health & Protection and Performance Materials. Recognizing that much of the division has base chemicals characteristics, our differentiated approach is to focus on improving cost efficiency whilst enhancing our overall value proposition through selective investments in process innovation and sustainability. In the period, our Health and Protection business had to be agile in responding to evolving market dynamics, working closely with customers as they reacted to recent changes in the global latex gloves market. These were mainly the result of the tariffs announced for Chinese imports in summer 2024 by the Biden administration, which came into effect in January 2025 and are set to increase in 2026. While we have not seen a meaningful uptick in volumes as yet for our Malaysian customers due to massive prebuying, these tariffs have made them more competitive in the critical U.S. market, and we anticipate this to benefit the Malaysian value chain over time. Meanwhile, in H1 2025, we received good single-digit U.S. dollar millions in income for our services from our open-ended technology partnership to support growth in the onshore U.S. glove market. In addition, we continue to explore a number of partnership opportunities to capture growth and value from this business with little or no capital investment. As I mentioned, we continue to strengthen our overall cost competitiveness and implemented further operating cost efficiencies to align with market developments. We also closed the manufacturing site in China, but maintained the business via a different business model. Within Performance Materials, Specialty Vinyl polymers out of Halo and the oxidants in China and our European paper activities delivered a robust performance in H1. In February, we were proud to announce that Synthomer, together with Neste of Finland and PCS in Singapore has established one of the first ISCC-certified value chains to manufacture bio-based nitrile latex for the glove industry. As mentioned, we successfully completed the divestment of William Blythe in May and further divestment processes are ongoing. Ensuring excellence across all aspects of our operations is Pillar 3 of our strategy. On procurement, you will recall that we launched the project last year to identify and capture material savings in this area. We realized GBP 5 million in benefits from this project in the first half and expect cumulative benefits of more than GBP 20 million to have come through by the end of next year. Our SYNNEX program, which focuses on building the group's capability to deliver end-to-end continuous improvement in processes and systems has continued to deliver the expected financial and operational benefits. We consistently invest in broadening our expertise across the group in this important area. SYNNEX led the implementation of the group-wide new CRM system, and we are proud of an increase in our Net Promoter Score by 13 points over the last 2 years, which will translate into greater organic growth over time. Turning to the innovation and sustainability agenda. We made further progress on a number of key initiatives, which underpin the group's future growth. I have touched on several of these already, including the Henkel collaboration, so I do not intend to spend long on this slide. However, to pull out a few key points. In the period, we added the number of sites with ISCC+ certification up to 11 from 8. This continues to move us on to the center of our value chains in supplying more bio-based and circular products to our customers. We are now beginning to use advanced data analytics to speed up polymer formulation innovation and our sustainability efforts continue to be recognized by key external ratings providers. Turning to current trading and outlook. Whilst our direct tariff exposure is limited as a result of our in-region, for-region manufacturing strategy and our efforts to pass on potential surcharges, the indirect consequences are adding uncertainty and volatility to our customers' demand patterns. Customers are cautious overall, resulting in smaller order sizes and a wait-and-see approach. However, at the same time, we are seeing customers reporting low inventories in many markets, and we also recognize that there are always growth opportunities in selected markets for us, as I mentioned a few of them when talking about the divisions. For 2025 as a whole, our outlook is for some earnings progress on a continuing group basis and for free cash flow to be broadly neutral. We are on track to deliver the self-help actions we had already built into our outlook since the start of the year. We are assuming that the subdued end market conditions we have seen in Q2 will persist for the remainder of the year, but that the effect of this will be mitigated by our existing and additional cost reduction programs as outlined before. These programs will logically provide additional run rate savings in 2026 as well. In summary, we are continuing to drive strategic and financial progress in a challenging environment. We have delivered significant gross margin improvement, demonstrated pricing power and showed the EBITDA growth we committed to. The building blocks of our earnings recovery remain intact, and there is evidence that longer-term relevant market dynamics for Synthomer are becoming more supportive, including a continued improvement in European infrastructure and construction spending, for example. In the meantime, we continue with our proven self-help programs built on strategic and operational portfolio changes, margin improvements and cost savings. We have a total focus on derisking and deleveraging the balance sheet through rigorous capital discipline and further cost and portfolio actions. We remain encouraged by our progress to date in difficult markets, and we believe that we are well positioned to deliver our medium-term targets and ambitions. I finish here and hand over to questions, which both Lilly and I are happy to take.

[Operator Instructions] Our first question is from Tom Relsworth from Morgan Stanley.

Two questions, if I may. The first one is about the kind of the economic conditions. I mean, you're not alone in your commentary around the wait-and-see attitude and the low inventories at customers, albeit one of your -- well, actually, Eastman in the U.S. has spoke about a new phase and the inability to understand where customer inventories are. So I'm wondering, if we take this to its conclusion -- like what happens in its conclusion? It seems like the system is running down on inventories, you're losing volumes as a result. What's the tipping point? Do things just continue to get worse until -- I just can't see where this evolves through the second half or at what point you expect there to be an inflection as a result of these inventories. So just your kind of insights there as to how this cycle plays out. My second question is around your strategic ambition with potential for further divestitures. How are you thinking about that in the context of legacy costs? I'm guessing that the targeted sales that you've completed to date and the ones that you have in mind are ones where there's low kind of integration with the group as a whole. But as you go deeper into that, will you be forced to have to address further cost cuts, which again may come with a cash out initially as well, mitigating some of the value realization that you're achieving by divestitures. So can you just kind of -- as you think about divestitures, can you unpack for us how you're thinking about those legacy costs? Maybe they're issue, maybe they're not?

Yes. Thank you. Your first question on the conditions, I think it's clear in the whole industry, there are difficult conditions basically since April 2022. What we see recently, it's much more volatile. Like in our case, we reported May was not a good month. June was a good month. If we look now into how July and August started, it's actually quite reasonable. So I think there's a lot of volatility, and that's driven by the uncertainty overall in this world. I think we shouldn't speculate on how this is going on. We reported relatively low inventory levels at customers, which means that at one point, they will have to restock. So overall, I don't expect things to get worse, but also I think for the second half of this year, I don't see any clear reasons why it should get much better. What we are doing, we continue with our self-help. I mentioned another GBP 20 million, GBP 25 million on cost reductions. I mentioned our internal portfolio management, which we have shown in several businesses that we can upgrade the margins. Our gross margin is going up. Our EBITDA margin is going up. So I think there's a lot of self-help to be done. I think it's clear that at one point, this overcapacity in the industry will balance out, but I think we just shouldn't speculate when this comes because it is already now a very prolonged situation, which we have since, as I said, since April 2022. On the divestments, we are pretty much sticking to our strategy, but we would like to create something potentially in addition. That's why we announced this additional review that really reduces our leverage and reduces our debt. So something that has impact. So we are continuing fully in line with our strategy with the 2 divestment processes we have announced. But we are just -- we just don't want to make a bad deal. And we made 3 deals, films and laminates, compounds and William Blythe. They are all 3 good deals. And we don't want to do something bad because we are not under pressure. We have enough liquidity. We just have to get the debt down over time and the leverage to get down. And that's why we are looking into additional opportunities, and we will see where they come from. There will be no cash costs attached to it. It will be a divestment, and it will be something that has a very substantial impact on our net debt and especially of our leverage. And that's why some of the deals we just don't want to make. The ones, honestly, we would have liked to have done the 2 divestments we announced previously already, but we couldn't do them because either the contract was not fine and you don't want to come back with a difficult SPA situation 2 years down the road. And the second one is just the valuation was not in line what we believe the business is worth it. And in addition, it wouldn't have a sufficiently positive impact on leverage.

Okay. Thank you very much.

Our next question is from Sebastian Bray from Berenberg.

Hello, good morning and thank you for taking my questions. I'll ask them one by one. When we look at the wider portfolio and what can be sold, I'm thinking, is it under consideration to put the whole company up for sale at this stage? And if not, could Nitrile latex be divested? It's relatively straightforward to carve out. It doesn't have the same type of dis-synergy effects that other parts of the portfolio would have. And I imagine there'd be interested buyers in Asia. That's my first question.

Yes, I can answer. I think the first one is a clear no. We are not looking into selling the whole company. I think that's not in the interest of anybody like this at this point in time. And your second question, NBR, definitely, it is a base business. It has a different -- it is in a different division. So I think we shouldn't go now into details on what we are looking at, but definitely NBR has features which are not in the 2 other divisions, CCS or AS divisions. I think we just look at all the opportunities, again, as I said, which reduce leverage and which represent the value each of our businesses have. So I -- definitely, NBR could be a candidate at one point in time, but let's see now how it goes.

That's helpful. And if I look at the cash flow profile of the group, if it turns out that weak demand persists into the first half of next year and the company really needs to go into defensive mode, how low could CapEx go? It's edged up slightly in H1. I appreciate the guidance for it to decline slightly year-on-year, but could it go all the way down to GBP 50 million, GBP 60 million, if it needs to be?

I mean, Sebastian, in a way, we are in quite defensive mode since a while. And that's the reason why actually we did increase our EBITDA from 7.3% to 8.4%, which I think is quite substantial. All the cost reductions we have, the gross margin improvements, I think there's a lot of decisive actions that we have taken in the past. Now if I look at the next...

I mean if you ask CapEx, what's the minimum level of CapEx the business can sustain on? I draw your attention to -- we reduced our footprint from 43 to just under 30, so 29 as of today. And we just announced a new target to get it down to 25 sites, and that substantially reduced the capital intensity of this business. And I think the very minimum, if we just spend money on safety and systems-related CapEx, we could see us running around to your number, about 50, 60 for the full year.

I think it's really the reduction in footprint that drives this. And CapEx can go down by potentially GBP 20 million, but also capital allocation is much easier. You see the progress we are making in AS. We invested in our APO capacity in the U.S., and that needs a little bit of CapEx, but we can do much more meaningful CapEx allocation. And again, with 29 sites instead of 43 sites, you have also much, much less cost. So I think here, there is -- besides the costs we mentioned, GBP 25 million, GBP 30 million, GBP 20 million, GBP 25 million plus the CapEx reduction, there is plenty of work to improve the cash flow and at the end, also the EBITDA.

That's helpful. And if I may focus a bit more on the half 2 outlook and trading. So it looks like the business had quite a decent Q1. Things got tougher in Q2, albeit it was helped by what I imagine, I think, Michael, you said low single digit, let's call it GBP 2 million to GBP 3 million partnerships licensing services in nitrile. Aside from cost savings, -- is there anything else that would be supportive and help to undo the usual seasonal pattern, potential for any licensing income in H2? Anything else to be aware of?

Yes. I think the licensing income has definitely a potential for the whole year of some probably USD 8 million to come in, which is 100% margin in a way. I think there are additional opportunities in APO, like I mentioned, we have now this expansion on lines in mid of July. That's one of the best product groups we have in our company. I think here, this we should capitalize on in H2. Then we have a lot of mix situations that we're upgrading the portfolio more specialty. We mentioned some coatings applications are coming online in the second half. So I think with the internal mix, we have quite a few possibilities. I mentioned the [ Halo ] business, which we are running now at 15% EBITDA, the SVP antioxidants, we run north of 25% EBITDA. So I think the mix, if we are able to push volumes of those profitable segments, I think there's a lot of additional opportunity in still continue to be low volume environment. The costs we have mentioned before, but I think there are a lot of additional internal portfolio management, I would call it, opportunities.

That's helpful. And last one, just on financing and interest costs. So from memory, there was some type of ratchet in the working capital financing costs and/or the rest of the portfolio when it came to net debt to EBITDA i.e., a more levered company would pay a higher interest rate. Is the interest charge for the foreseeable future, even if trading doesn't improve, likely to remain around GBP 60 million cash effective? Or could there be changes to that?

Sebastian, our guidance is around sort of the P&L charge of GBP 60 million to GBP 65 million this year. And we also said the cash charge would likely to be about GBP 5 million below. In terms of ratchet, ratchet only applies to currently in our RCF facility, and we're substantially undrawn the RCF facility as of today.

That s helpful. Thank you taking my questions.

Our next question is from Vanessa Jefferies from Jefferies...

Just first on AS, given the significant progress you've made there in the last 2 years. I was wondering what margins do you think that business should make in a normalized environment? And what's the operating leverage there?

Yes. I think we should come back to what we always when we -- at the time of the acquisition. I think this could be a GBP1 billion business at about 130 million EBITDA. So this could go to 12% to 15% EBITDA. I think we are on a nice trajectory there. There's lots of opportunities for additional investments. Reliability, as we have said, we had 6 sites at the time. We have now one site with problems, that's the hosted site in the U.S., but also if we get this then done, there are additional opportunities on reliability and cost and especially now also on growth, on market expansion, on pushing the profitable segments. I think there's plenty of headroom to bring this very close to a 15% business at GBP1 billion turnover.

And then just on what will be driving the recovery over the next couple of years seems to be the momentum in Europe. So I was wondering if you're rethinking that strategy to kind of pivot more to the U.S. at all and if you actually think that Europe is a more attractive place to be?

No. I think fundamentally, the U.S. and Asia is a more attractive pattern going forward for us because we already have almost 50% of sales in Europe. So I believe our fundamental assumption of the strategy 3 years back is still to grow overproportionally in the U.S. and in Asia. And I think the fundamentals for this are still absolutely intact. It's just now that in Europe, actually, we see better conditions than in the U.S., but I believe that is in the long term, we will continue our strategy to overproportionately invest in -- especially in the U.S., but also in Asia. So I think this will balance up over time. But in a way, we are not unhappy right now that Europe is maybe doing a bit better than the U.S. because we still have a major footprint in Europe. But having said that, we need still to adjust our footprint in Europe. Again, it comes to site rationalization. It comes to certain business rationalization, it comes to divestment programs. We are having, I think, to reduce our exposure or focus a bit more on the really profitable opportunities. I think this will go on. But at the end of the day, the final target, if you look at regions, in my view, the best setup is the famous good old 1/3, 1/3, 1/3 over Europe, Asia and the Americas.

Our next question is from Angelina Glazova from JPMorgan.

I have 3 questions, if I may, and I will also ask them one by one. So my first question is a bit of a follow-up on the previous one, only a bit broader. In terms of the midterm outlook for the business. So of course, we understand that the environment is challenging right now, but it would be good if you could remind us of what kind of midterm or mid-cycle potential you see for the company overall and maybe for divisions in addition to what you had commented on Adhesive Solutions just now. So what kind of potential you expect to see and what factors will need to come in place for this to play out?

I think, again, we don't want to speculate now exactly on month. I believe at one point, it will turn and it will turn substantially. Now our strategy foresees a 5% growth, which we by far had in the last year. Now this year in the first half compared to a strong first half of last year, we are slightly below. But I still believe as an assumption for our company in a semi-normalized environment this 5% growth is possible. I think we stick to our prediction that we can double our EBITDA levels. There's a lot of operating leverage. We see it now in the businesses where we are doing well, there's 30% plus operating leverage from sales dropping down to EBITDA. And then also, you have to see we don't even need so much. In our picture, if you have now instead of, let's say, GBP 145 million, GBP 150 million EBITDA, we have only GBP 170 million, which is basically self-help coming from the cost reductions. And then we have through divestments and through the EBITDA, we would have GBP 500 million on net debt. You have a totally different picture. So my point is that we are not totally -- we are not reliable 100% on the market recovery, which is uncertain, but many, many things are in our own hands. And that's why also in the first half, we did in a very weak environment, as you see from the whole market, we did do quite some progress. What is also interesting is when the market just recovers a little bit, which we have seen in the first half of last year, we had a very, very good performance. Also, our CCS division, which is because of Energy and partially Coatings had a difficult first half of this year. If you look at CCS last year, a little bit of a market recovery, a little bit of a good situation, especially in the first quarter, and we had 12.3% EBITDA. So you see it just doesn't take a lot in our case to really move the needle. And that's why I'm confident that we can make the progress already starting in the second half of this year, like we promised it in a very difficult environment because there are so many levers on the cost, on the mix, on the growth side as well for our business. So we just don't want to speculate when there is a broader market recovery. The broader market recovery, I think like many people say there is overcapacity in the market, the whole tariff situation, geopolitical situation, it's just very difficult to predict. But also we don't want to predict. We just do our thing. And I think there are plenty of levers to bring us into significantly different territory.

Understood. This is very clear. And then my next 2 questions are actually focusing a bit more on measures that are within your control with regards to managing the free cash flow. So firstly, on the newly announced cost savings for GBP 20 million to GBP 25 million. I understand that this is the cost impact. So could you maybe give us some color what kind of net impact after cost inflation we should expect to see from this program? And then also, what kind of maybe onetime cash outflow will be associated with the implementation of this program?

Yes. Your first point on the cost, I think you can take this pretty much as a net impact. That is calculated. We don't have -- that is kind of a net number, this GBP 20 million to GBP 25 million additional. There are headcount reductions in, as we have said, so this is about 2/3 of headcount is fixed cost. And there's a little bit of additional cost measures, which are not headcount related.

And the cost to achieve a onetime cost to achieve the saving, we estimate around GBP 8 million to GBP 11 million.

Understood. And then my last question is around receivables. So could you please remind us the current conditions for receivable financing facilities that you have? And what is the sort of the outstanding balance to what extent you will be able to use these instruments in the future, if that is necessary?

Yes. Look, the receivable -- the factoring program is GBP 200 million in its totality and current expiry date is January 2027, but it has been extended a few times in the past, and we intend to continue to utilize it. And currently, we're utilizing just under GBP120 million for the half year. It does require demand -- it does increase or decrease in together with demand situation. So yes, that's the current situation, Vanessa.