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UPDATE 1-Chemical maker Synthomer cuts profit outlook on strong pound
July 11, 2014 / 9:00 AM / 3 years ago

UPDATE 1-Chemical maker Synthomer cuts profit outlook on strong pound

3 Min Read

(Adds analyst comments, details; share movement)

July 11 (Reuters) - Chemical maker Synthomer Plc warned on full-year operating profit due to a further strengthening of sterling and as its nitrile business in Asia continued to face margin pressure.

Synthomer shares fell as much as 6.5 percent on Friday morning, making the stock one of the top percentage losers on the FTSE-250 Midcap Index.

The company, which supplies speciality emulsion polymers used in construction, textiles, paper and latex gloves, said it expected full-year operating profit to be lower by about 5 million pounds ($8.5 million) from last year due to further strengthening of sterling.

Synthomer earlier expected a 4 million-pound hit to operating profit due to the currency impact.

Operating profit in Asia in the first half would be about 4 million pounds lower than a year earlier as strong competition and weak butadiene pricing continued to pressure margins, Synthomer said. Butadiene is used in the production of synthetic rubber.

The company had indicated in early May that its Asia business was performing below its expectations, but did not quantify the impact.

Asia contributed 28 percent to total sales in 2013.

"NBR (nitrile butadiene rubber) has twice caused a pronounced negative earnings impact (2012 and 2014), and despite the growth prospects of the business, this part of the group might be seen as a negative for earnings predictability," Barclays said in a note.

Barclays cut its price target on the stock to 284 pence from 300 pence.

Synthomer, formerly known as Yule Catto & Co, said it expected demand for nitrile latex to grow and margins to firm as the second half progresses. It also said it expected full-year pretax profit to be broadly in-line with a year earlier.

Analysts on average were expecting the company to report a pretax profit of 90.1 million pounds for the year ending December, according to Thomson Reuters I/B/E/S. The company reported a pretax profit of 90.1 million pounds in 2013.

"Clearly, further nibbling to consensus is unhelpful. But we continue to consider both divisions operate at depressed profitability, group cash flows and balance sheet are strong and we expect dividends to be reviewed at the August interims," Jefferies said in a note to clients.

Shares in Synthomer were down 2.33 percent at 213.4 pence at 0900 GMT on the London Stock Exchange. ($1 = 0.5877 British Pounds) (Reporting by Aastha Agnihotri in Bangalore; Editing by Gopakumar Warrier)

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