Omnova Solutions reduces net debt by $11.5 million in fourth quarter, improves leverage ratio

By Jennifer Lanning Drey

Portland, Ore., Jan. 19 - Omnova Solutions Inc. generated strong cash flow from operations in the fourth quarter, allowing the company to reduce net debt by $11.5 million during the period, Kevin McMullen, chief executive officer of Omnova, reported Tuesday during the company's fourth-quarter and year-end earnings conference call.

The company's net debt has been trimmed by nearly $68 million in the last 12 months, reducing its leverage ratio to 2.0 times at year-end, McMullen said.

The leverage ratio was 2.3 times at the end of the third quarter, and the company's debt covenant allows a maximum leverage ratio of 5.5 times.

"This flexibility has enabled us to make targeted investments in new products, process improvements, globalization and productivity initiatives, even as many of our competitors have been unable or unwilling to invest in their businesses," he said.

Omnova had net debt of $111.2 million at Nov. 30, nearly all of which was comprised of $142.3 million outstanding on its term loan credit facility.

The company also has an asset-based revolving credit facility that was undrawn at the end of the fourth quarter. Available borrowing capacity under the facility was $62.1 million, McMullen said.

Omnova had a year-end cash balance of $41.5 million.

Q4 sales down 14%

Omnova's fourth-quarter net sales decreased by 14% to $188.8 million, as compared to $219.6 million in the fourth quarter of 2008. Full-year net sales decreased to $696.4 million, a 20% reduction from net sales of $869.4 million in 2008.

The company said negative factors affecting the full-year net sales reduction were sale price declines, lower volumes and foreign currency translation effects.

Although volume was down in 2009 due to the recession, Omnova is encouraged by recent volume trends, which indicate that most of its end-use markets have bottomed, McMullen said. As a result, the company expects stronger volumes in 2010.

At the same time, the company also expects raw material costs to increase as the economy improves, he said. Accordingly, Omnova will continue to operate the leaner, more flexible cost structure it created in 2009.

"We believe that the actions we have taken to lean out our cost structure, to drive productivity and margin improvements and to make strategic investments in our business position us well as our markets rebound," he said.

Omnova is a Fairlawn, Ohio, provider of emulsion polymers and specialty chemicals.

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