A fairly straightforward agenda today. I will start with some highlights before handing across to Lily to go through the financial performance in detail. I will then come back to touch on a few key areas of our business and our strategy before we are closing with a summary and the outlook for the second half of the year. The business has made solid progress during the first half of this year. We achieved double-digit EBITDA growth in both Functional Solutions and Industrial Specialties, with acrylic monomers also growing against a strong prior year period. Our new Adhesive Technologies division has started well, with performance very much in line with the investment case, contributing GBP 18.3 million of EBITDA to the half-year results since the start of April.
As anticipated, Performance Materials was significantly weaker, whereas as an exceptional prior year performance due to high demand of NBR as a result of the COVID pandemic. Our SBR business performed well, with higher asset utilization and streamlined network and a lower cost base, which enabled us to increase profitability. While first half EBITDA declined versus an exceptional and unsustainable COVID-driven 2021, the group's overall performance was comfortably ahead of pre-pandemic levels, 79% or GBP 73 million higher than in 2019. That comparison underpins my confidence in the business and supports my belief that we have a strong platform for future profitable growth. There are plenty of exciting opportunities given our critical mass, leading positions, and much stronger footprint in the U.S.
This firmly reflects the steps that have been taken in recent years to strengthen Synthomer, the acquisitions that we have done, the investment in new capacity, and the actions taken to make our global operations more efficient. Furthermore, the depth of our portfolio, combined with increased geographic diversity, means that this growth platform is also resilient, and that will serve us well in the future. Free cash flow was lower, primarily following investment in working capital, which Lily will cover on later this morning. Inevitably, due to the decline in EBITDA and the adhesives acquisition, our leverage increased to 2.3x . We are focused on returning this to within our targeted range of 1x-2x , but this might take a bit of time. Even so, we are known as good cash generators.
We are well advanced with the integration of our adhesives business and ahead of plan. We continue to be very encouraged about the prospects for this division and the exposure that it has to attractive high-growth end markets. Our business model has enabled us to successfully navigate significant raw material, energy, and logistics cost inflation. We have done this through strong pricing power, protecting our unit margins as a result. These results also reflect the benefits of our geographic diversity. More than 25% of our revenues now come from the U.S., where we serve a first-class client base in attractive end markets. We have also made further progress against our Vision 2030 roadmap. Our ambition is to be a more sustainable company with targets that are aligned to the UN Sustainable Development Goals.
Our emission targets will receive approval from the Science Based Targets initiative, and we have recently introduced internal carbon pricing across the group. I am pleased that the changes we have made to our executive committee and board have improved diversity, and we will replicate our efforts right here across the organization. Finally, the board has approved a dividend of GBP 0.04 per share in line with our policy. An encouraging first half that has produced solid performance overall. Let me stop here and hand over to Lily for the financial performance in more detail.
Thank you, Michael. Good morning, all. It's great to be here finally, and very much looking forward to meeting all of you in person in the weeks and months to come and getting to know you better. Having only been in the role for about a month, I was struck by two things I'd like to share today. Firstly, the extent to which Synthomer has transitioned in recent years to become a bigger scale and more differentiated chemical business. The company has been very focused in terms of capital deployment, both organically and inorganically, to drive significant value to shareholders. Secondly, where there has been a material correction in the Performance Elastomers business and the challenging macro environment, the group has still been able to deliver a solid first half result. Now with that, turning to the slides.
The group revenue was up by about 8.6% on constant currency. As you can see here, the adhesives acquisition added about 10.7% to the group. For the legacy Synthomer, volume was down by about 12.4%, and pricing and mix up by 10%. 10.3% to be precise. Year-on-year, we saw a 46.4% decline on EBITDA from GBP 323 million in 2021 to £173 million. As Michael mentioned, this follows an unprecedented result in our PE business last year. When demand for NBR was at all-time high, driven by the COVID pandemic. This market correction reduced EBITDA by about GBP 182 million, which I'll come back to in a moment.
However, all other divisions performed well against strong comparative periods, resulting in a good EBITDA performance that was still meaningfully ahead of both 2020 and 2019. You can see we illustrated 2020 on the chart. We have successfully continued to pass on the impact of higher raw material costs to our customers, while also managing a degree of turbulence in our own supply chain. Both have an impact on our working capital, and I will cover a little bit later. We saw a relatively minor impact from Forex in the first half, but as the U.S. portion of our business increases following the acquisition of Adhesive business, we will see U.S. dollar having a bigger impact when it comes to translation. Underlying earnings per share declined to 19.19p. Now, let me give a bit more color division by division.
EBITDA in Performance Elastomers declined by 81% to GBP 42 million. The reduction of the EBITDA from 2021 was two-thirds from margin and 1/3 from volume. The significant reduction highlights the extent to which the picture has changed from the highs of last year. As we have said previously, Synthomer has been able to redeploy the 2021 profit to strengthen our growth platform, notably through the acquisition of the Adhesive business. NBR volume continued to be lower than where we expect them to be in normal market conditions. Evidence that global inventory levels remain high, while unit margins are broadly in line with the historical average level. Our SBR business performed well, with volume were lower due to the closure of a site in Finland and the production line at our Marl facility in Germany.
As part of the network optimization program, margins increased as a result of better utilizations, mix, and improved market conditions. Functional Solutions delivered a strong performance, with revenue and EBITDA higher against strong comparator. That was despite the increasing inflationary pressure and a little bit of softening in demand in the second quarter, in particular, in Europe's DIY segment. Volume declined by modest 3%, reflecting the impact of lockdowns in Asia and the steps we took to exit some tolling volumes in coatings as we improved the mix of the business. However, revenue were up 22%, with EBITDA growing by 15% to GBP 81 million, driven by good growth in construction, fiber bonding, and energy solutions.
The business benefits from revenue synergies coming from the OMNOVA acquisition as we operate a more global business, better equipped to serve our global customers, and in particular, we're able to meet the new product requirements from larger and better-resourced innovation network. We successfully passed on another steep rise of raw material costs across all markets and regions. This, together with the impact from exiting the toll volume I mentioned a minute ago, you can see that price mix benefit was close to 25%. Sustainability continued to be a significant trend driving growth in this part of the business. More than half of the new products that we have launched over the last 12 months have had at least one sustainability benefit. A trend that continued to drive growth in this business and also indeed for the rest of the group.
Adhesive Technologies has been part of the group since the beginning of April. The division has a good start, contributing GBP 131 million of revenue and GBP 18 million of EBITDA, with solid performance across all its end markets. Michael will talk more on integration, but we have hit the ground running by introducing new controls, cost control measures, which underpin our synergy expectations. The overall performance has been in line with what we anticipated at the time of transaction, both volume and profit. We're also seeing the benefit of a more specialty-weighted portfolio, with strong unit margins accretive to group's overall margin performance. Our ongoing focus on pricing and margin management, as well as the highly specialized nature of products within the Industrial Specialties, helped to drive continued growth in this part of the business.
While volume was 4% lower, revenues were up 22.5% on constant currency, with EBITDA increasing 15.5% to GBP 29 million. Again, we have managed to power through inflation with our ability to put price increases, a testament to the niche and high value market positions that we occupy and our exposure to attractive end markets. Finally, we have continued to enjoy high demand in our acrylic monomers business, which was up against record 2021. We benefited from tight market supply, continuing with strong demand, helped to maintain our strong margin. EBITDA increased by 1% to GBP 13.3 million. We still expect conditions to normalize in the second half of this year as supply and demand become more balanced. Now moving on to cash flow.
The group has taken full advantage of strong cash flow and profitability in recent years to make important acquisitions that we will benefit from in the years to come. The first half of EBITDA was GBP 173 million after investing in working capital and CapEx total around GBP 160 million and paying interest, tax, and pension. The free cash outflow was GBP 62 million. I recognize there was a relatively big working capital investment in the first half of 2022. This was done in the context of rising raw material costs and mitigating supply chain disruption to serve our customers. For our legacy Synthomer business, this meant that our LTM average working capital to revenue ratio moved up to circa 11.7% from a historical average about 10%.
For reference, the same ratio for December 2021 was lower than 10%. Our newly acquired Adhesive business has a significantly higher working capital ratio comparing to the legacy Synthomer. While our working capital should benefit when raw material price reduces and when supply chains normalize, we have initiated additional working capital optimization program to cover both the legacy business and also the newly acquired Adhesive Technologies. Now, CapEx for the first half was GBP 33 million, broadly in line with last year. We invested in debottlenecking projects across the U.S., completing the transformation work at Sokolov, introduced Job 6 capacity, and continued to invest in systems to drive efficiency. Cash interest was in line with prior year.
Cash tax, I want to highlight here, was significantly higher than 2021 same period, mainly due to a one-off settlement on historical tax issue, around GBP 50 million, and payment on account in Malaysia following high profits in 2021. The latter should unwind in due course. Now balance sheet. While our net debt and leverage ratio has risen quite significantly due to the increased debt level to support the AT acquisition and the working capital investment I just talked about, we have a clear commitment to reduce the leverage to 1-2, so target range in the medium term. The board has approved 40p dividend in line with our policy. Now this same policy provided shareholders with a record dividend as the business benefited from an exceptionally strong 2021.
Now, before I pass it back to Michael, let me just reiterate some of the key points. The group's strong financial performance in recent years have been used to transform Synthomer into the business that it is today, with enhanced scale and portfolio diversity. We remain focused on deploying capital to support organic growth with continued inorganic growth in due course. Following a period of investment in working capital, we'll now look to optimize this going forward. Thank you very much, and let me pass it back to Michael.
Thank you very much, Lily. Some further comments from me before we take your questions. You are all aware that Synthomer has evolved significantly over the last couple of years. In H1 2022, we have increased our EBITDA by GBP 73 million or 79% compared to H1 2019. Clearly, that reflects the acquisitions we have done, but a 1/3 of that is organic growth. Today, we are very different looking business with a strong and resilient platform for continued profitable growth. We have leading positions in a number of attractive high growth markets, the benefits of which you can see from the results that we are reporting on today. The ones that I would highlight are coatings and construction, sorry, with about 40% of the total market exposure. 20% is coatings, 10% construction, 10% fiber bonding.
Adhesives with 30% of market exposure, and health and protection. Our NBR business has been a major tailwind over the last two years and delivered outstanding profits that we have been able to reinvest into the business. This pandemic-driven activity has now been followed by lower volume demand since the back end of last year. NBR now represents less than 15% of the group's profitability. In 2021, it was approximately 60%. This shows the extent to which the picture has changed, but it also strongly proves the exciting opportunities that we see across the rest of the business, representing now more than 85% of the H1 2022 EBITDA. Our increased geographic diversity is an important attribute, especially our exposure to the U.S. market, where we see significant opportunities for growth.
Our portfolio also has an increasing proportion of specialty products within it, demonstrated by our ability to increase prices and enhance our margins in a high inflationary environment. We believe that there are growing opportunities to refine the portfolio going forward, to which I will come on to. We have already mentioned that adhesives business we acquired from Eastman in April has had an encouraging first three months under Synthomer ownership. The financial performance has been completely in line with our investment case at the time of the deal. Most significantly, it has given increased exposure to attractive end markets and a portfolio with innovative products that are more specialty in nature. We have parachuted in our own team, as you would expect, to oversee the integration process, and I'm pleased that this has delivered immediate results.
In particular, we have implemented some organizational changes to streamline the organization, simplify decision-making, and reduce complexity. We have also successfully introduced higher prices to reflect the deserved specialty aspect of this adhesives portfolio. Now that we have our hands on the business, we are firmly on track to over-deliver the $23 million of synergies identified at the time of the deal. That will come from obvious areas such as headcount reduction and third organizational rationalization, but we also see opportunities for significant revenue synergies that can be achieved as a result of the strong innovation culture and exposure to attractive end markets already served by the Synthomer FS and IS divisions. We will do a deeper dive into this business at our investor event in the middle of October.
I want to come back to NBR because I recognize that this was a focal point for many of you during the upswing, so we also have to deal with it now during the downturn. At the start of the year, we said that our expectation was for this part of the business to normalize, returning to growth in the second half. While margins have now stabilized roughly at the long-term average, volumes remain subdued, indicating that global glove inventory levels remain at elevated levels. Demand isn't where we would like it to be, and our forward visibility is limited. While this is frustrating, there are a few important points to make. The first is that we are entirely confident that this market will return to growth in due course, growing between 8%-10% per annum.
Hygiene and food safety are megatrends that will support increased demand for gloves, both in developed and developing markets. Secondly, Synthomer is a market leader with critical mass, sufficient capacity and market-leading innovation to ensure that we can drive attractive returns when the demand environment does normalize. Finally, such is our confidence in the market that we will support future growth through ongoing incremental investment. Early in the year, we commissioned Job 6 with 60,000 tons additional capacity. This will put us in a strong position when the market does recover. In the meantime, we will pause investment in this part of the business, but continue to look for further opportunities to drive growth in the future, strictly in line with the capital allocation foreseen for this business.
The evolving macro environment is clearly at the forefront of people's minds, so I wanted to briefly touch on why we believe that Synthomer will remain relatively resilient when economic conditions become more challenging, for which we are well prepared. At the group level, alongside our broad geographic footprint, we are exposed to more resilient end markets such as healthcare, packaging, hygiene, energy, and adhesives. In the event that energy supply becomes more constrained, our sites generally operate on a low energy intensity, and the scale of our network gives us optionality in terms of where we increase or decrease production. On a divisional basis, Functional Solutions caters for resilient industrial end markets. It has significant exposure to the U.S. and the blue-chip client base.
Performance Elastomers is evidently experiencing more challenging conditions at the moment, but NBR demand is relatively immune to the macro, so growth will return as inventory levels reduce. In SBR, we have taken a lot of cost out of the business, reduced our exposure to the paper industry, and are seeing much higher levels of utilization. Adhesives is also exposed more to the U.S., with attractive positions in food packaging and consumer hygiene that will make it less exposed to any change in the macro. Industrial Specialities is predominantly niche with good geographic and end market diversification. Innovation continues to be at the heart of what we do and is perhaps an underappreciated aspect of our strategy. You can see from the chart on the right-hand side of this page how our performance has increased from 2014.
In 2021, 24% of our revenues were from products patented or launched in the last five years. I won't go through each of the concrete examples on the left, but they demonstrate how we are working in close partnership with major customers to create sustainable high-performance solutions. At our capital market event in October, we will also update you on our evolved strategy as well as a deep dive into our adhesives business. We have done a lot of detailed work to evaluate the strengths and opportunities of our portfolio. We have closely analyzed where we want to focus and grow our market positions going forward in order to become a specialty solutions platform for the coatings and construction, adhesives, and health and protection market segments. We will focus more on meaningful organic growth over the coming years within these selected end markets.
There will be end market orientation in everything that we do. We are also introducing more rigorous portfolio management, ensuring that we are where we really want to be and investing behind that to drive growth and create leading positions. We are establishing a Synthomer Excellence program and culture that ensures end-to-end operational and commercial best practices. We will apply a differentiated steering model for businesses of different nature, with a particular focus on growing the specialty part where we have made good progress in recent years. The base part of our business is very valuable, but needs a differentiated approach in terms of how we allocate capital and talent. Financial and operational KPIs support this differentiation. Where we see opportunities to streamline or simplify both our organizational structure and our footprint, we will do that. Diversity and inclusion are an important part of our efforts.
We have already made good inroads in this area, and we want to go further. Sustainability and innovation are key value drivers for the business, supported by regulation and customer priorities. Sustainability will be central to our ambitions to make our operations more climate friendly and ensure that we are also helping our customers to meet their objectives with an increased focus on Scope 3. In summary, today, Synthomer is well-positioned as a larger scale, differentiated chemicals business with a growing specialty portfolio. We had a solid first half with profit growth across all areas of the business, excluding NBR, which faced volume demand behind the long-term average. The Adhesives Technologies integration and performance is on track, and we expect further upside in synergies. We have made good progress to evolve our strategy, which we'll talk about more in October.
In terms of outlook, we are clearly alert to the evolving macroeconomic environment, but we expect our margins to remain robust in the second half with the group benefiting further from Adhesive Technologies together with increased cost and revenue synergies in Functional Solutions. Our enhanced scale, geographic balance, and end market exposure will also underpin our resilience and ensure further progress in the second half and into 2023. Let me stop here, and Lily and I would be very happy to take your questions.
If you'd like to ask a question today and you've joined us by the telephone, please press star followed by one on your telephone keypad now. If you've joined us by the webcast, you may submit your written question using the box below the webcast player. That's star one if you've joined us by the phone or the box below the webcast player if you've joined us online. We have a webcast question. You had previously suggested that Performance Elastomers EBITDA margin would normalize at 2H 2019 levels through this year. 1H 2022 EBITDA margin at 11% is below the 2H 2019 level of 14%. What do you expect for Performance Elastomers EBITDA margin in 2H 2022?
We take this question first, Charlie. It's okay. NBR margins, you have spotted rightly. That's the only business area we said we are everywhere well ahead of 2019 pre-pandemic. In NBR and not in SBR, so not in the whole PE division. In NBR, we are even behind the 2019 by GBP 11 million. You can see that the situation is really challenging right now. Our margins, as I have said, have stabilized at the long-term average, but the demand is just not there. I think the demand is clear. The glove consumption in this world is even stronger than last year. The production of gloves is not there. That means that it comes from destocking. Now this destocking will end at one point, but we do not have the visibility to tell you exactly when.
We said previously that it will return to growth in the second half of this year. Now, the second half of this year, there are another five months to go. I just wouldn't like to speculate when exactly it comes up. I mentioned three points why we believe in this business and why we are sure that it will come back, and it will come back in a very profitable fashion for our business. Maybe just one point of reference that you see that we are not alone in this situation. Our customer, and that is public knowledge because it's a publicly traded company. Our customer, Top Glove, they reported last year GBP 629 million of profit. This year, they reported GBP 9 million of profit.
You can see the swing is absolutely unprecedented, and I believe that the industry, because it has never been like this before, because there was no COVID before. I think we just have to go through this destocking. Another reference point may be the gloves. They have shelf lives of two to three years. Naturally, also this will come to an end. Let's not speculate when exactly that position, that point in time will be. As you can see, I believe it is on a very low point, and your reference to 2019 I think is a very good reference because it shows you we are really. You never know if it's the bottom of the bottom. I think we are pretty close to it. Charlie.
Yes. Maybe just two questions from me. First, just around inflation. Obviously, there's a lot of inflation out there. You've seen in raw materials in the first half, I guess, freight, logistics. Everything you've seen a fair amount of inflation. Just perhaps looking into the second half and into 2023, you know, is that inflation still on an upward trajectory? Do you think it's kind of peaked out and maybe even in areas maybe normalizing or coming off? Just understanding how you see that inflation through the second half into 2023 and whether, you know, you are putting through additional price increases.
Yeah
to address that. That's the first question.
Yeah. Let me answer in two parts. The part looking backwards. I think we have clearly been very successful in passing it on. I can say that in Functional Solutions division and in IS divisions, we have passed on GBP 10 million more than our cost increase was. I think good pricing power. Obviously, our customers like our products, and they have a value. I think that is going backwards. Now, going forward, if you look at raw materials, we see some of them peaking now. Vinyl Acetate Monomer was the first one. Now Styrene starts to peak. So we see it peaking, even going slightly down. I expect this to continue. The question is now, and that really depends on the macro, will it drop fast, or will it drop moderately?
Obviously, as a chemical company, we prefer it to drop moderately because this gives us some window of opportunity in the margins. Usually, that is what happens. I believe these unprecedented hikes in raw materials, they will not go on. I really see it peaking in several areas. Then you have the energy part. I think the logistics part, if you take all three parts, I believe the logistics part also had huge increases. I could also see this peaking going forward. We see supply chains becoming more normal. Lily alluded to the supply chain disruptions we had, that we had to add a bit of net working capital. I believe logistics could also be peaking. The big question, of course, is now the energy. The energy is something I think we all don't know exactly how this will play out, especially in Germany.
For us, the biggest exposure, clearly, is in Germany and in the Netherlands. Again, thanks to our network, we have production in Spain and Portugal, in Italy, in France, in the U.K. We are quite flexible to move things. I think that is a question where the inflation can go on or even get stronger. That is a scenario that we have in our books how to deal with this. I mentioned a few of the mitigation actions. What could help us in a way is, I mentioned it, the low energy intensity. We have about 6% of our variable costs are energy. It is something that is, in the big scheme of things, is manageable. I think that is the big question, Charlie, going forward.
I think if we separate the three areas, that's how I would see the picture.
Well, that's helpful. Just maybe one quick follow-up on that. In terms of the volume softness you saw, is any of that due to the amount you've had to put prices up? I mean, are customers now-
Yeah
pushing back a little bit against all that inflation, given it's getting very difficult for them to pass on to the consumer?
Yeah. I think the volumes that we have lost, except now NBR, which is a totally different business. I think I can say that 85%-90% is business that we wanted to lose. Lily alluded to some of the tolling businesses we didn't want to do. One of the reasons why our margins in all divisions, except NBR, are so strong is because we were in a position with the mix to choose a bit the business what we would like to get. I don't think that we lost business because we overdid the price increases. Obviously, that's the permanent game. You know, how much do you go? Because you also need customers in different times going forward.
If you look now down the road, I don't believe that, you know the customers, they will obviously say when raw materials are going down, then you cannot push it anymore, then you can hold on for longer. I think that's what's going to happen now in the next few weeks. Again, as I said, and that's why in our outlook, we really assume robust margins going forward. Now, what is forward? Our order books are usually 6-8 weeks. I think it is just not prudent to look further now into October, November, December. We leave this to the macro. We are not immune to this, and I think the macro will define how a lot of the demand will go. Within a lower volume demand driven by macro, I'm still quite positive on the margins.
That's really helpful. Maybe just a separate question on synergies. Can you just remind us kind of in total, obviously you've got a number of synergy programs coming from the various acquisitions you've done. Can you remind us synergy expectations for this year-
Yeah
for 2023 in total, and how much perhaps for this year have already been kind of delivered run rate?
I think the OMNOVA synergies, they are pretty much in maybe Timon's too. I think, let's say OMNOVA, that was a deal done in 2020, and I think we have proven that we really have captured them all, as you can see in the results. On Adhesive Technologies, we have for this in the P&L, $4.6 million. We are now on a run rate about $1 million per month. I believe for this year, the P&L impact will be accordingly, yes. It should be much higher. If you go into the next year, we have for the first two years, we have $60.5 million in the deal model.
If you take now the GBP 1 million run rate, I think also here it can be significantly higher, if you go into the, let's say, next 18 months. Then we have it in year three, but I think that's too much going forward. You see, we are on the assumption of probably about doubling the synergies this year and then going into next year.
Thank you very much.
Hello. Good morning. Sebastian Bray of Berenberg Bank. I would have two questions, please. My first is on CapEx. If NBR facility expansion is off the book for now, it's off the table, what is the CapEx to be expected for 2022 and 2023? I noticed that around GBP 33 million level was perhaps a touch lower than simply dividing full-year consensus expectations by two would imply. My second question is on acrylic monomers and what you see in that market. That business has been performing better than expected for some time. Have the prices started to normalize in June, July through the start of August, or are you expecting something pretty similar in Q3? Thank you.
Yeah. On your first question, CapEx, we started originally with a budget of about GBP 140 million CapEx for this year. If I would have to give you a forecast for this year, probably some GBP 85 million. The big delta, why we took it down, as you say, Sebastian, are the big investment projects we had into NBR. As I said in my speech, you know, this is not off the table because we are a leading player in this industry. I think for now, we have plenty of capacity available. We took deliberately the 60,000 tons in February, March, we took online. I think that is the main difference. We had one project in Italy, which we are doing, but that's a much smaller scale project to serve the more profitable European market.
I think you see there is quite a gap. Take GBP 85 million, and for next year, we are not clear yet, but this also depends on a little bit how our NBR projects will play out over time. Again, these projects, they are paused because we see opportunities in this business. This business is a very good cash-generating business for us, and we will support it going forward. Take the GBP 85 million for this year. Then sorry, your second question. I didn't.
Something to do with monomers.
Yeah, I forgot. The acrylic monomers, we saw now that was, you know, in NBR, we always hope for stronger for longer, which unfortunately didn't happen. In acrylic monomers, we really see it's still going on. Naturally, if you look at the chains in the chemical industry, usually when VAM is peaking, then the demand in this area will go down. I would not just extrapolate now and be absolutely sure that the second half will be as strong as it was in the first half. I believe you have a counter position then. You know, the moment when our acrylate monomer business might slow down a bit, our FS business will get cheaper feedstock because we have captive use even in our factory in Sokolov. What is the disadvantage for acrylate monomers is the advantage for Functional Solutions.
I would not just add now. At one point, we believe the dynamics are that it is coming to go slightly down. We will definitely in 2022 exceed all the expectations what we had if you take the full year.
Thank you. Just to follow up with two smaller points. The Italian project you mentioned, is that 20 kilotons of incremental nitrile volumes in 2023 or 2024? When is it and how big is it? Secondly, just a general question on trading through July. How does this compare to what the business had already experienced in Q2? Thank you.
What we have seen in Filago is that we had a big project of more than GBP 30 million to invest. This project, we scaled it down because last time I was here, I told you, I think it's not the right time, not the right continent, and not the right factory to do it. We reworked this whole project, and we are now on a few single-digit thousand additional tons, which we do have the demand because it's mainly for the European business and supporting exports in the U.S., because it is much more efficient to do this out of Europe rather than to do it out of Malaysia. We are now in the area of EUR 7 million-EUR 8 million instead of EUR 30 million, and that's a project that we are going to do.
That's the difference there, because this 7-8 million for us, they make sense. On your second question on the July trading, we have said we saw over the last few months, we saw one pocket where the demand is softening and we see a certain moderation. That is the do-it-yourself business in Europe. Do-it-yourself business is about, sorry, 70% of our coatings business globally. Just that you get a bit of the scale. I mentioned before that our coatings business is 20% end market exposure of the whole Synthomer. You take the 20%, you take 10% in Europe, let's say half of it, and there, 70%. That's about the magnitude of the market exposure where we see a softening.
I think I read it in some of our customers, you know, AkzoNobel, PPG, Sherwin-Williams. I read once an article that the people are putting the broom away and go traveling. I think that is really the COVID, you know, peak that is going away. In all the other areas, especially in the U.S., we continue with good demand. We didn't see the moderation yet. Again, macro might influence this whole thing in the next few months. The only place where we clearly see a moderation, a softening in July as compared to March, April, May, is in the coatings business, in the do it yourself business in Europe.
Which has a very small impact I can add on the construction business, which I mentioned is 10% of our total exposure, and also this only in Europe. Another number, the do it yourself part of our construction business of the 10% is about 20%. You see the magnitude of the whole business is not huge yet. Again, I would really leave this to macro. We all don't know exactly what happens in November, December. There are more questions?
There are more questions on the web. Maybe the operator's gonna bring those in.
We have a trio of questions from the webcast. I thought Adhesive 2Q 2022 EBITDA run rate of GBP 73 million PA was less than GBP 75 million based on LTM June 2021 figures of $97 million EBITDA translated on 1H exchange rates. One would have thought earnings should be higher from 2021 figures due to no COVID impact. Can you talk about the earnings trend? Second question in that trio. How are you thinking about leverage at the end of the year? Finally, are you able to give any color on the potential scale of asset sales, either on sales or EBITDA level that's divested? Which divisions? Thank you.
I take the earnings trend from AT and maybe Lily look at the leverage. I cannot really answer you this question going backwards. We have a deal model that underlines our investment case, that underlines the $1 billion that we have paid. The deal model was clearly roughly in pounds is GBP 80 million in the first year. We are pretty much there. I believe that this business looking too much backwards. I think that is our model of the GBP 20 million with upside. Obviously next year we want to increase it. Coming, as I mentioned, the $23 million of synergies are coming in. I think that is the trend that you have to extrapolate. I'm just not in a position to comment on the Eastman times before.
I don't know, Timon, if you have to, but, yeah.
No, I do not.
We take the business now going forward, and that is exactly in line with, as I said, underlying performance in line with our deal model for which we paid a certain price, plus the synergies with upside compared to our model.
All right, I comment on the leverage question. Look, we recognize the leverage position was higher than before after the Adhesive Technologies acquisition. First half was 2.3x . Also mentioned the working capital investment because of higher material, higher raw material price and also supply chain, sort of as a disruption mitigator. We have already initiated the program, not just waiting for the material price to normalize and waiting for the supply chain to normalize. By the way, Michael alluded to it, we have already seen those sort of material price peaking. We should see the benefit into our working capital. You also asked questions about asset and realizing value from asset.
Michael alluded to it in his part of the presentation that we look at our portfolio, clearly timing and what we can't comment here. You could see us looking at it and potentially when that happens. Indeed, you know, this is going to be a strategy-driven M&A activities, and you can see the benefit on to the leverage. I would just reiterate our commitment to get back to the 1x-2x over the medium term. Michael, anything?
We have done also. Last time, I can only add, you know.
Yeah.
When we bought OMNOVA, we were also on 2.5 or even higher.
Yeah.
I think within 18-24 months, and that is our policy, we will return it back to the 1x-2x level. I believe that we are good cash generators. We do have the levers, the net working capital, the cost lever, the CapEx lever, which I have mentioned before. I alluded to portfolio management. That is something we should not speculate because we have no bad businesses in our company. There might be, you know, divestment is part of our strategy now going forward, which is maybe less part of the strategy looking backwards. I think there are plenty of levers, and I think we are just, yeah, we are on top of the situation and our commitment is 1x-2x, go back.
you know, we just paid $1 billion to acquire Eastman Adhesives. We spent GBP 100 million on dividends. These are major outflows, and obviously they go into the balance sheet. We are very comfortable that we have it under control.
Another question from the webcast. Can you please elaborate on the potential impact from the gas supply issue in Europe and on the group? Can you please advise for management's expected plan on the upcoming debt maturities in 2024? Thank you.
Gas supply in Europe is the question.
Yeah.
Can you just elaborate on the gas supply in Europe?
Yeah. I mentioned before, we have a few things to this aspect. We have, I mentioned the 6% energy cost, total energy cost we have. For us, we don't need the gas directly, but we need it mainly for steam. Now, the main country exposed is Germany, which is not in our hands because we are industrial parts owned by Röhm, by Albemarle, and by Evonik. In a way, it's a decision from these companies if there are some allocations politically coming later in the year. There we do have an exposure. Point number one. The second country where we do have an exposure is in the Netherlands. The Middelburg site, which we acquired through Eastman, is exposed to gas. Again, I gave you the magnitude of it. It is significant. We have to deal with it, but it is not totally game changing.
You can calculate what the 6% mean. These are the two countries where we are most exposed, and I don't want to speculate if there is rationalization, how much it will be, and when it will be. I think this we have to leave to the politics and the countries. Our opportunities to move production to other countries, like I mentioned, Italy, Spain, Portugal, the U.K., France, we do have plans to do this. You can never move everything because technology would allow you. But we can mitigate it quite significantly. A third point, we have a hedging policy since many years in this company, and we have hedged for this year more than 50%. 80% is hedged for this year.
Of the energy consumption for next year, we have 50% hedged. Even into 2024, we have 20% hedged. I think this whole hedging is also helping us somehow. Because obviously the hedge was done on a lower basis, so that's an advantage for us. The second thing is that we have a certain transparency, and we can plan what's going forward, so we will not be hit with immediate spikes. If there's no availability, I can only say what my colleagues mainly in Germany are also saying. If you have rationalization, it will cut down your production at one point. You can run it partially, but you will have a negative impact. I think this, we are just part exposed to it.
Again, we are on Evonik, on Albemarle, and on Röhm's side, so it is not, in a way, our decision where we get it or how much we would get.
The second part of the question is about refi of the 2024 maturity date. Look, I recognize the bond market is a little stretched at the moment, as you all appreciate, but I would emphasize the bank market is still quite liquid. We are fully aware of the 2024 maturity. It's about, you know, EUR 460 million of RCF and over $500 million of term debt, term loans. We're in the middle of reviewing the options, and we're in the middle of doing something there, and then we'll come back to report back to you. Look, this is part of the normal running business, and we look at it regularly.
Now we have a question in the room.
Hi, David Farrell from Jefferies. I did have two, but one of them was just stolen. So my question is on the NBR market. Clearly you're pulling back on your capacity additions. I just wondered whether you could give a bit of color in terms of the overall market, what your competitors are doing in terms of capacity.
Unfortunately, our competitors are doing exactly the same. They are moving projects out. They still keep the projects alive, but they move them out in time. These are the two direct competitors in Asia. They just move it on the timeline. What they also are doing, they are converting NBR capacity into SBR capacity because they seem to make more money on SBR. That is what we know. I think this market, and that's why I want to also, you know, insist that we did not lose market share. The whole market is just no production. There's not no production, but there is significantly reduced production of gloves and therefore NBR in the whole market. I made the example with Top Glove as our customer. Everybody is just you know, this was 90% down, we are 80% down.
I think these are the magnitudes the whole industry is dealing with. The only difference what you can see in market share is that the Chinese players, and there are 7-8 Chinese players. During the peak of COVID, when the volumes were extremely tight, the Chinese players, they started to export. They were previously only active in China for China, and they started to export to the U.S. They came from 8%-9% market share to a market share of about 20%. Now, that is something which obviously the established players lost against the Chinese. Now, if we look at export statistics, and they only export really to the U.S., it goes down each month, the exports from China to the U.S.
What we believe midterm, and that's why I believe that we do have a strong position there, that at the end, our production hub and the one of our customers in Malaysia has lots of long-term advantages compared to a Chinese one. The cost base in Malaysia is better in terms of energy, and the cost base in Malaysia is clearly better in terms of labor. Labor costs in Malaysia are much cheaper than China. You can only automate a glove factory by about 20%. You cannot go lower the way glove factories are designed. So the labor cost is a very significant part of the equation. That's why we believe that the Malaysian business, where we are part of it, has actually a very good future.
What we also see is that in China, the glove consumption is far, far lower than in the more developed world. The U.S. are number one, then comes Germany, some European countries. You have factors there of 50-80. The glove consumption in China will go up, but for us, there is nothing to lose because we have very little business there. The assumption is that the Chinese players will have a lot to do to serve their own home market in China. That's why I believe after all this whole disruptions are over, we will be in a very healthy position again. Again, you know, I would love to have many markets where we all believe, and we have shown in the past, if you don't have these disruptions, an 8%-10% growth market, I believe, is really attractive.
The fundamentals for me are clear that it will come back to when. I just cannot tell you when exactly.
Great. Thanks very much.
We've another couple of questions on the webcast. Maybe I'll just put one to you first from Jeff Hare at UBS. We talked in the past about investments in NBR for 200,000 tons, and Jeff asks, can we just update the situation on that regarding the 200,000 ton nitrile investment?
Yeah. We are still. It is an active project. As I mentioned, I used in my speech the word pause. I cannot tell you exactly when we release these projects again. If it is 200,000 tons, if it is 120,000 tons in Malaysia, if we do an effort in the U.S. where there is no investment. I think these are questions we still have to answer. We are not in a rush to do this because we believe for the foreseeable future we do have enough capacity. These projects, as we speak, we are working on them. Also the magnitude of the 200,000 is probably not a wrong number.
The place where we are evaluating is clearly an expansion in Malaysia, in our Pasir Gudang factory, because always you have a dilution of cost effects. The second chapter, which we also discussed early in the year, is in the U.S., potentially even with some help from a U.S. government. These are projects, they are still alive, but they clearly, they got deprioritized compared to several months ago because of the demand supply situation. Knowing that it takes some time to build those factories, to build this capacity, some people who are longer in the business than I am, they tell me, you know, it goes fast down, but it can also very fast come up.
We know this, but I think our capacity situation globally with the little addition in Villaricos, with the capacity we have, and we are really running not at capacity right now by far in Pasir Gudang. I think we have a lot of optionality going forward. We will reactivate or we will start these investments. Really, everything is prepared, but we will not start it right now.
Okay. There are two questions from Kevin Fogarty at Numis. The first is, we talked about the working capital reduction program. Can we quantify what this aims to deliver and over what timeframe?
Do you take?
Right. I'll take the question. Thank you, team. The two parts of it, one part is, as I mentioned, and Michael also mentioned, when raw material price comes down and also when supply chain is normalized, we should see the benefit. That part at the moment, we haven't been able to quantify. The effect of the additional effort of optimizing the supply chain, both in the legacy business as well as, you know, in the newly acquired Adhesive Technologies. You look at the legacy business, I mentioned in my speech that, at the half year, if you look back 12 months, we were about 11.7% of revenue, and this is sort of comparing to our long-term average around 10%. That's clearly the opportunity.
Adhesive Technologies, I said, is significantly higher comparing to the 10%. Again, that's the opportunity. So, I don't think we would be able to quantify it in exact detail today, but you can see the magnitude we're working towards.
If you calculate, you know, the 1.7% Lily is calculating from 11.7 down to 10, which is by the way, quite a leading ratio for specialty chemicals, 10% of net working capital. If we come back to there, I think that is very attractive and frees up a lot of cash. The second one, also Lily touched on it, we knew this before, but Adhesive Technologies, I don't know, Eastman had different, cash measures, but there's really a lot of potential. They are significantly higher than we are, and we will put our systems into place, our procedures into place, our processes into place, and there's a lot of potential to free up. I talk now not a little bit more.
This goes up to 50% more than what would be our standard of how we run net working capital. Interesting enough, it's on both. It's on inventory, and it's on accounts receivables. Being a U.S. business which has traditionally lower receivables profiles. I think there is a lot of potential, and you can calculate with this, I think, a few numbers. It will be substantial.
Okay. The second question from Kevin, and this is the final one that we've got come through on the stream so this morning, is on capital allocation. Kevin asks, could you provide some more insight into what this might mean for future investment plans? Given the current balance sheet position, what does this mean for bolt-on opportunities going forward?
I think capital allocation for me, number one, and you saw it also in this one strategy slide, the first pillar on the left side is organic growth. I think we can do better in terms of organic growth. Organic growth that needs capital allocation, that needs people, that needs certain CapEx projects. That needs especially a differentiated model, which I touched on and which we'll go deeper into October, because some businesses are more specialty in nature. They need more product innovation. Base businesses are more process innovation. They're more supply demand-driven. They run generally on lower cost base. So there are quite a few differentiators in the business. So I think within the organic growth, we have to make very clean decisions. Do we allocate how much of the capital? I mention it, we have foreseen ratios.
We will talk about how much we allocate to a specialty business, how much we allocate to a base business. Maybe in the past, we mixed this a little bit. We didn't differentiate it so clearly. I think that is part of the organic growth for me, number one, to generate value through organic growth. Pillar number two, portfolio management, which I mentioned before. Portfolio management for me is in and out. On the inside, and at the end of the day, we would love to grow our company further, and we will grow our company further. Bolt-on acquisitions are clearly part of the strategy. This can be technology acquisitions, this can be footprint acquisitions in interesting parts of the world. I mentioned U.S., probably number one. Asia has certain aspects, number two. Some emerging countries, number three.
I think we have very clear ideas for bolt-on acquisitions, paying into the area of more sustainability, more specialty, less cyclicality. That we do not have right now on the agenda something transformational, I think that is also relatively clear. For this, you just have to wait a little bit. I hope that after one year to two years, we are in a position to consider at least what happens, we will see.
Yeah.
I think that is not the agenda right now. For me, it is number one, organic growth. We mentioned our dividend. You saw it. We paid a huge dividend to our shareholders in early July. We confirm now exactly in line with our policy, the $0.04 to be paid out later this year. I would say really portfolio management, which should free up some capital, which we allocate to the places where we really want it to be.
Mm-hmm.
Okay. I think that concludes all the questions we have, unless there are any more in the room?