TIDMLWB
RNS Number : 4067D
Low & Bonar PLC
31 January 2018
Low & Bonar PLC
("Low & Bonar" or "the Group")
Unaudited Results for the Year ended 30 November 2017
Optimising the business and focus on cash
Low & Bonar PLC ("Low & Bonar" or "the Group"), the
international performance materials group, today announces its
unaudited results for the year ended 30 November 2017.
The Group consists of four Global Business Units: Building &
Industrial ("B&I"), Interiors & Transportation ("I&T"),
Civil Engineering ("CE") and Coated Technical Textiles ("CTT").
2017 2016 Actual Constant
Key Performance Metrics(1) currency(2)
:
Revenue GBP446.5m GBP400.0m 11.6% 4.5%
Underlying operating profit GBP35.5m GBP34.7m 2.3% (4.6%)
Underlying operating margin
(3) 8.0% 8.7%
Underlying profit before
tax GBP30.7m GBP29.2m 5.1% (2.2%)
Basic underlying EPS 6.42p 6.01p 6.8% (0.8%)
Net debt(4) GBP138.4m GBP111.0m
Dividend per share 3.05p 3.00p
Return on capital employed(5) 11.1% 11.1%
(1) Figures in this table are presented on an underlying basis,
and exclude all non-underlying items (which are outlined in Note
6).
(2) Constant currency is calculated by retranslating comparative
period results at current period exchange rates.
(3) Underlying operating profit as a percentage of revenue
(return on sales).
(4) Interest bearing loans and borrowings, net of cash and cash
equivalents.
(5) Underlying operating profit as a percentage of net assets
plus net debt.
Statutory Metrics:
Operating (loss)/profit GBP(14.9)m GBP31.4m
(Loss)/profit before tax GBP(19.7)m GBP25.9m
Basic EPS (5.56)p 5.20p
-- Strong sales growth despite a generally difficult market backdrop
-- Underlying profit growth in B&I and I&T offset by disappointing performance in CE and lower than anticipated
performance in CTT
-- GBP31.6m asset and goodwill impairments in Civil Engineering
-- Cost reduction and performance improvement plan being implemented to optimise the business
-- Completion of GBP26m investment in Colback manufacturing site in Changzhou, China in 2018, reflects growth
opportunity in I&T and B&I
-- Net debt of GBP138.4m with a clear plan to reduce by at least GBP15m during 2018
-- Philip de Klerk announced today as Chief Executive Officer with effect from 1 March 2018 (see separate
announcement)
-- Peter Bertram appointed non-executive director with effect from 1 February 2018 (see separate announcement)
Martin Flower, Chairman, said:
"The group achieved strong sales growth in 2017 despite a
generally difficult market backdrop. The profit performance across
our four global business units was mixed, with profit growth in
B&I and I&T offset by a significant reduction in
profitability in Civil Engineering and a lower than anticipated
performance in CTT.
We develop and apply some of the world's most advanced fabric
technologies and we do so whilst keeping close to our customers and
anticipating their requirements. This makes us well positioned to
realise opportunities for profitable growth. 2018 presents both
challenges and opportunities for Low & Bonar, as we work to
determine the future strategy of the Civil Engineering business,
deliver performance improvement at CTT, whilst continuing to
support the growth strategies of our strong B&I and I&T
businesses. We are confident of making further progress this year
across all these areas."
30 January 2018
For further information, please contact:
Low & Bonar PLC 020 7535 3180
Trudy Schoolenberg, Interim
Group Chief Executive
Philip de Klerk, Group Chief
Financial Officer
Instinctif Partners 020 7457 2020
Matthew Smallwood
Helen Tarbet
Rosie Driscoll
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation EU no. 596/2014 ("MAR"). Upon the
publication of this announcement via a Regulatory Information
Service ("RIS"), this inside information is now considered to be in
the public domain.
CHAIRMAN'S STATEMENT
The group achieved strong sales growth in 2017 despite a
generally difficult market backdrop. The underlying profit
performance across our four global business units was mixed, with
growth in B&I and I&T offset by a significant reduction in
profitability in CE and a lower than anticipated performance in
CTT.
Whilst CTT's performance was not in line with our expectations,
it is fundamentally a very strong business with a leading market
position. A new management team is in place at CTT and is focused
on resolving production issues and optimising margins against a
background of generally healthy demand.
CE has faced serious challenges in 2017. Market conditions have
undoubtedly been a major factor with raw material price increases,
fierce competition in some sectors and expected project based
demand not materialising. Poor forecasting and strategy execution
have also compounded the issues.
CE is a complex business of distinct parts, each with very
different commercial and operational characteristics. As announced
in October 2017, the Board has been undertaking a comprehensive
review of the CE business, in order to determine whether all parts
can achieve a sustained level of satisfactory performance in
future.
The first phase of the review has been completed, with the
conclusions being to:
- close the loss-making weaving plant in Ivanka, Slovakia and transfer some looms to China;
- combine the profitable Enkamat business (erosion control and
drainage applications) with our B&I business; and
- address the internal execution issues surrounding our
needle-punched nonwoven and our construction fibres businesses.
We will announce our conclusions by July 2018 by when we will
have assessed whether the "self-help" actions in relation to
resolving the sales, cost and production issues in needle-punched
nonwoven and construction fibres can improve these two businesses
sufficiently to create long term value for the Group.
I am pleased to report good progress with our investments for
growth. The expansion of our GBP26m Colback manufacturing site in
Changzhou, China will be completed shortly and this will support
further profitable growth in both our I&T and B&I
businesses.
We have also continued to divest businesses with no strategic
fit. We disposed of the agro-textiles business in Lokeren, Belgium
in October 2017 and have recently signed an agreement with our
partner in Saudi Arabia to withdraw from the Bonar Natpet joint
venture during the course of this year.
Lower than forecast sales, especially in CE, have resulted in
higher than planned inventories and consequently higher than
anticipated debt. There is now a very clear focus on cash
generation, and we have a defined plan to reduce net debt during
2018 by at least GBP15m, in constant currency terms. This will
principally be through improved working capital discipline and a
lower capital expenditure requirement.
More broadly, we have a plan in place to remove cost and improve
agility in the group by optimising the operating structure which,
over time, has become too complex.
Dividend
To reflect the confidence in our strategy, the Board is
proposing to maintain the prior year final dividend of 2.00 pence,
increasing the total dividend for 2017 to 3.05 pence per share
(2016: 3.00 pence). Subject to shareholders' approval at the Annual
General Meeting on 13 April 2018, the final dividend will be paid
on 19 April 2018 to members registered as of 23 March 2018.
People
It is with the greatest regret I must report that one of our
employees met with a fatal accident this year. Our thoughts are
with the family and friends he leaves behind. This distressing
occurrence has, needless to say, further sharpened the focus of the
Board and the Executive Management team on health and safety.
After the year end, on 20 December 2017, we announced that Brett
Simpson had resigned and that Trudy Schoolenberg, a Non-Executive
Director since 2013, had replaced him immediately as Interim Group
Chief Executive. We are now very pleased to announce that Philip de
Klerk will be appointed Group Chief Executive with effect from 1
March 2018. We are greatly indebted to Trudy for stepping into the
breach in December and also for agreeing to lead the restructuring
of the global supply chain to ensure it meets the needs of our
future organisational structure. She will revert to being a
Non-Executive Director at the end of April 2018.
Philip joined Low & Bonar as Group Chief Financial Officer
in October 2017 and he brings to his new role a depth and breadth
of senior executive experience with international companies
including Unilever, SAB Miller, Ineos and Flybe. The Board has set
out very clear areas of immediate focus for the Group and is
confident that Philip is ideally qualified to execute this agenda
effectively and also to lead Low & Bonar on its next stage of
profitable growth. A search for a successor to Philip de Klerk as
Group Chief Financial Officer is underway and further announcements
will be made in due course.
We are also pleased to announce the appointment of Peter Bertram
as a Non-Executive Director with effect from 1 February 2018. Peter
Bertram is a highly experienced senior professional who has served
and advised many public and private companies. He has held both CEO
and CFO roles during his executive career and was previously Senior
Independent Director and Chairman of the Audit Committee at
Microgen plc and Non-Executive Chairman of Phoenix IT Group plc.
Peter Bertram is currently Non-Executive Chairman of Zinc Media
Group plc, Hobs Group Limited and Esteem Holdings Limited. He is
also a member of the Advisory Committee of Sterling Strategic Value
Fund, a shareholder in Low & Bonar.
I would also like to take this opportunity to recognise the
commitment, skill and expertise of all our people and to thank them
for all their hard work.
We develop and apply some of the world's most advanced fabric
technologies and we do so whilst keeping close to our customers and
anticipating their requirements. This makes us well positioned to
realise opportunities for profitable growth. 2018 presents both
challenges and opportunities for Low & Bonar, as we work to
determine the future strategy of the Civil Engineering business,
deliver performance improvement at CTT, and continue to support the
growth strategies of our strong B&I and I&T businesses.
Trading conditions since the year end have been consistent with
those experienced in the last quarter of 2017. Whilst we remain
mindful of any further raw material cost and currency translation
headwinds, we are confident of making further progress this year
across our strategic focus areas.
Martin Flower
Chairman
30 January 2018
BUSINESS REVIEW
Low & Bonar PLC is an international business to business
performance materials group. The Group designs and manufactures
components which add value to, and improve the performance of,
customers' products by engineering a wide range of polymers using
proprietary technologies to create yarns, fibres, industrial and
coated fabrics and composite materials.
In the year ended 30 November 2017, we made further progress in
the execution of our strategy and achieved strong revenue growth of
11.6% to GBP446.5m, 4.5% in constant currency. Three of our four
business units contributed, with the exception being CTT where our
manufacturing capacity is almost fully utilised.
Underlying profit before tax from continuing operations
increased by 5.1% to GBP30.7m (2016: GBP29.2m), although this
represented a reduction of 2.2% at constant currency. On a
statutory basis the Group reported a loss before tax of GBP19.7m
compared to a profit of GBP25.9m in 2016, mainly driven by
impairment charges related to the CE business (GBP31.6m) and a loss
on disposal of the agro-textile business (GBP12.7m).
Our B&I business unit benefitted from its market segment
focus with underlying operating profit rising 6.0% in constant
currency. I&T performed solidly, with strong sales growth in
China, and underlying operating profits rose 5.5% in constant
currency. CTT entered the year with the need to regain customer
confidence after resolving the production constraints in 2016.
Disappointingly, production consistency issues, which led to higher
than expected customer discounts, and a weak fourth quarter meant
that performance fell below expectations with underlying operating
profit only increasing by 1.1% in constant currency.
Conditions in Civil Engineering deteriorated during the year
resulting in only GBP0.1m of underlying operating profit compared
to GBP4.4m in 2016, in constant currency. In Eastern Europe, the
reinforcement market was oversupplied with new imports. Weather
conditions and project funding constraints in North America and
Europe delayed potential projects. Execution issues and increased
raw material prices further compounded the issues.
As a result, group underlying operating margin reduced from 8.7%
last year to 8.0%, reflecting double digit returns in B&I and
I&T, CTT flat at 6.7% and a negligible return at CE.
Operational
Health and safety is paramount to us at Low & Bonar. We have
long-term programmes in place to ensure that safety considerations
override all others. Our Lost Time Incidence (LTI) on a one day
lost time basis is currently 0.7%. We will continue, as a high
priority, to invest in HSE programmes, to help us achieve our
objective of no illness or injury resulting from our business
activities.
We will continue to focus on operational excellence, developing
our people and focusing our business. We believe that there is
scope to reduce cost, improve cash generation, increase commercial
effectiveness and create greater agility across the organisation,
to better align it with the needs of the different business units.
Implementing these actions will enable us to improve sales and
reduce costs, with the result that our margin should improve in
line with the overall Group target of 10% return on sales. We
anticipate a non-underlying restructuring cost of cGBP4m in 2018 in
respect of these actions, which once implemented will generate an
annualised saving of cGBP3m.
Working capital has increased in certain areas of the business
where fierce competition and operational execution has led to lower
off take, notably CE. We have measures in place to reduce the
levels of inventory in the business, whilst not impacting our
growth in B&I and I&T.
Strategic progress
This year's results demonstrate that our strategy was successful
for our speciality orientated businesses B&I and I&T. Here
we will continue to execute our strategy: invest in sustainable
growth and look for bolt on acquisitions that match our business
model and contribute to our Group targets.
Our strategy aimed to move CE away from more commoditised
segments to bespoke products has only been partly successful and in
2017 we recorded non-cash impairments of GBP31.6m in respect of CE.
The strategic outlook is complicated and we are reviewing this in
detail. The first stage of this review has been completed, and we
are implementing the actions to improve performance. The second
stage of the review will determine whether the needle-punched
nonwoven and construction fibres businesses are capable of meeting
our strategic Group targets, and be retained.
We will continue to review our capability in supporting our
business model, and at the same time will continue to execute our
strategy of operational excellence, commercial execution,
technology differentiation by continued innovation and investment
for sustainable growth in B&I and I&T.
Building & Industrial
The B&I Global Business Unit supplies a range of technical
textile solutions for niche applications in air and water
filtration, building and roofing.
2017 2016 Actual Constant
currency
((1))
Revenue GBP85.9m GBP73.4m +17.0% +9.6%
Underlying operating
profit GBP12.4m GBP10.9m +13.8% +6.0%
Underlying operating
margin 14.4% 14.9%
(1) Constant currency is calculated by retranslating comparative
period results at current period exchange rates.
B&I has achieved record sales growth in 2017, delivering
9.6% growth over 2016 at constant currency rates. All major market
sectors achieved good year-on-year progress and all geographic
regions delivered double-digit growth. We managed our portfolio
dynamically, with the acquisition of Walflor Industries in the USA,
the expansion of our production plant in Changzhou, China, the
integration of the Xeroflor Green Roof business in North America
and the disposal of the agro-textile business in Lokeren,
Belgium.
The green roof segment saw nearly 20% growth as we aligned
Xeroflor with the core building business. The acoustics business in
North America grew by 18% as multi-family housing construction
markets continued to expand, with this trend set to continue into
2018. The acquisition of the Walflor business further strengthens
our position in the growing North American market, by establishing
a presence on the West Coast. European roofing and building markets
reversed a multi-year low growth trend and expanded by nearly 12%,
although consolidation accelerated in 2017, increasing competitive
pressure. In response we are pursuing strategic initiatives to
drive value-adding functionality in new higher-end products and
initiating proactive cost reductions. Although the agro-textile
business grew in 2017, given the significant investment required to
take it to the next level of development, we sold this business in
October 2017 realising a loss after tax of GBP8.4m.
For 2018 our strategy will focus on new business development,
faster innovation and margin management. Our business is aligned
with key global and sustainability mega-trends and we see many
opportunities for existing products in technical fields, product
development and regional expansion.
Civil Engineering
The CE Global Business Unit supplies woven and nonwoven
geotextiles and construction fibres used in major infrastructure
projects, including road and rail building, land reclamation and
coastal defence.
2017 2016 Actual Constant
currency
((1))
Revenue GBP102.0m GBP90.8m +12.3% +4.9%
Underlying operating
profit GBP0.1m GBP4.2m -97.6% -97.7%
Underlying operating
margin 0.1% 4.6%
(1) Constant currency is calculated by retranslating comparative
period results at current period exchange rates.
CE sales grew 4.9% at constant currency. However an excess of
capacity in the market for more commoditised products meant we were
unable to pass on the sharp increase in the cost of raw materials.
Despite a good flow of early enquiries, these did not translate
into new business, and the anticipated benefits from investing in a
technical sales force did not materialise. Together these had an
adverse impact on product margins and mix and the business broke
even for the year (2016: GBP4.2m profit).
We nevertheless won a number of major infrastructure projects;
including products and services for motorways in Hungary and rigid
reinforcement for Istanbul airport. We also launched a range of
synthetic fibres offering better finishing quality and higher
performance. We upgraded our geo-synthetic range, so all of our
products are fulfilling the new CE requirements on durability, and
most of them are certified to last up to 100 years. In addition, we
opened our new concrete testing lab in Belgium earlier this year.
This will, in turn, further accelerate our product development and
support our construction fibres customers with product testing.
We are addressing our competitive position in the reinforcement
markets in Central and Eastern Europe. Our North American sales
were also disappointing this year, with no new or significant soil
consolidation projects and several reinforcement projects being
delayed. The devastating hurricanes also took their toll, with
related projects being delayed until 2018.
We expect the tough market conditions to continue into 2018. Our
focus is on improving our cost position and sales and customer
execution. We have initiatives underway to deliver this and are
reviewing our portfolio to ensure we provide products that offer
most value to our customers.
Coated Technical Textiles
The CTT Global Business Unit supplies a range of technical
coated fabrics providing aesthetics and design, performance and
protection in a number of different markets.
2017 2016 Actual Constant
currency
((1))
Revenue GBP138.3m GBP129.8m +6.5% -0.7%
Underlying operating
profit GBP9.3m GBP8.7m +6.9% +1.1%
Underlying operating
margin 6.7% 6.7%
(1) Constant currency is calculated by retranslating comparative
period results at current period exchange rates.
In 2017 we focused on consolidating and improving our CTT
portfolio. In practice, that meant a greater emphasis on higher
margin products; this has resulted in a sales portfolio weighted
more towards interior products than was previously the case.
The growth in interior products was primarily attributable to
new product developments. Technical innovations in the development
of partition walls for sport and event venues led to increasing
sales volumes. Three major sporting venues have benefitted from the
deployment of an innovative material that has waterproofing and
self-cleaning attributes. This material is attractive to stadium
owners as it saves on long-term maintenance and replacement costs
as well as extending the lifespan of the venue and increasing its
sustainability.
The completion of two prestigious football stadia - the
Volgograd Arena in Russia and the Mercedes-Benz Arena in Stuttgart
- showcased our capability to undertake architectural projects of
substantial size. Under new leadership, our strategy for this
business unit will be to optimise margins through focusing
available capacity on the highest value market segments, against a
review of plant utilisation.
Our priority this year was to improve customer service. This
approach helped the Tensile Architecture team win several new
technical projects. As well as ensuring that we meet our customers'
specialist requirements, we expanded the range and quantity of
stock that we carry, so we can now offer a much better delivery
service.
In 2017 we identified and addressed the specific production
difficulties we faced in 2016 and sought to rebuild trust in our
product quality among our customers. To do so, we invested in our
assets and in our people. While some improvements have been made,
we continued to experience problems with production consistency,
with higher waste and lower proportions of premium grade product
than we expected, especially in the latter part of the year.
Improving this is a key objective for 2018.
Looking to the future, we seek to extend our customer base with
a particular emphasis on the Americas.
Interiors & Transportation
The I&T business unit supplies technical fabrics used in
transportation, interior carpeting, resilient tiles and decorative
products.
2017 2016 Actual Constant
currency((1)()
Revenue GBP120.3m GBP106.0m +13.5% +7.1%
Underlying operating
profit GBP19.1m GBP17.1m +11.7% +5.5%
Underlying operating
margin 15.9% 16.1%
(1) Constant currency is calculated by retranslating comparative
period results at current period exchange rates.
Both sales volume and revenue showed growth in 2017 of around 7%
over 2016 at constant currency, in spite of the significant
increases in the price of raw materials and competitive pressure in
the market. Volume growth in I&T in China, including profitable
new revenue streams from wall coverings and decoration, was
particularly strong, and now represents over 20% of divisional
sales. The expansion of the Changzhou facility means we are well
placed to build on our success in this growing market.
In 2017 we were successful both in winning new customers in new
markets and expanding our business with existing clients. We have
introduced a range of new products to the market. We are
particularly proud of Colback Gold: an innovative primary backing
material that enables customers to develop products that qualify
for cradle-to-cradle Gold certification, a highly respected
accreditation that recognises sustainable manufacturing.
Collaborative partnership is at the heart of how we do business.
This year the I&T team launched in4nite - a project combining
ideas and creativity of product designers, graphic designers and
architects with Low & Bonar's Colback fabric. This initiative
demonstrates to the design community that Low & Bonar can work
with designers and architects to develop innovative solutions,
utilising our unique technology and expertise.
We continue to invest and improve our technology base. The
technology we use in our facility in China has delivered the most
consistent control of material performance ever seen and has helped
us enter new markets in very demanding applications.
Looking to the future, the completion of the further expansion
of our plant in China in the first quarter of 2018 means we can
meet the market growth that we predict. We are also preparing to
upgrade our yarn technology, so we can develop our product range
for new applications such as filtration and cushion vinyl
flooring.
Financial Review
Profit before tax (all figures are on an underlying basis except
where stated)
Profit before tax from continuing operations increased by 5.1%
to GBP30.7m (2016: GBP29.2m). As we present our results in
Sterling, our reported results are sensitive to the strength of
Sterling against Euro and US dollar. A one cent movement in these
rates approximately equates to a GBP90k (against the US dollar) and
GBP120k (against the Euro) change in our full year profits. In
2017, the impact of foreign exchange rate changes aided reported
profits by GBP1.5m. Operating profits were 2.3% higher than last
year at GBP35.5m (2016: GBP34.7m). Statutory operating losses were
GBP14.9m against a profit of GBP31.4m in 2016. Statutory losses
before tax were GBP19.7m (2016: profit of GBP25.9m) after a net
non-underlying charge of GBP50.4m (2016: GBP3.3m).
Excluding the effect of favourable foreign exchange gains on
translating overseas earnings, operating profit on a constant
currency basis was 4.6% lower than the prior year. Operating
margins reduced to 8.0% against 8.7% last year. Improvements in
B&I and I&T were offset by a disappointing result from CE,
with CTT remaining flat. Significant raw material price increases
in the first half of 2017 were sustained through the second half of
the year. B&I and I&T were able to mitigate most of these
through higher prices, however CE and, to a lesser extent, CTT were
unable to mitigate fully these price increases, reducing profit by
GBP3.5m.
Non-underlying items
There was a net non-underlying charge before tax of GBP50.4m
(2016: GBP3.3m) in relation to continuing operations.
a) Impairment of Civil Engineering assets
Following the poor performance of CE, impairment reviews of its
goodwill and other assets were conducted. These resulted in a full
impairment of the GBP19.4m goodwill balance, with further
impairments of property, plant & equipment (PP&E) and
certain intangible assets totalling GBP6.6m and GBP0.9m
respectively.
b) Write down of Ivanka
As part of the first stage review of CE, it was decided to exit
from the loss-making weaving plant in Ivanka, Slovakia. As a
consequence, the assets have been written down to the proceeds
expected to be realised from the exit, resulting in a charge of
GBP4.7m. This charge is comprised of a write-down of PP&E
totalling GBP3.4m, a write down of intangible assets totalling
GBP0.3m, and a write off of inventory of GBP1.0m.
c) Loss on disposal of the agro-textile business
In October 2017, the Group completed the disposal of the
Lokeren-based agro-textile business. The proceeds totalled GBP6.1m
(EUR7.0m), of which GBP5.8m was received in the year and GBP0.3m in
December 2017. The disposal generated a loss before tax of GBP12.7m
(GBP8.4m after tax).
d) Pension administration costs
The Group incurred GBP0.2m (2016: GBP0.1m) of non-underlying
pension administration costs relating to its UK defined benefit
scheme.
e) Acquisition related costs
In the year the Group incurred costs of GBP0.5m (2016: GBP0.1m)
relating to the acquisition of Walflor Industries Inc.
f) Provision in relation to customs duties
The Group has identified irregularities in relation to customs
duties which relate to sales arranged from a former overseas sales
office which was closed several years ago. The non-underlying
charge of GBP1.7m represents the Group's best estimate of the
liability. A thorough investigation is being undertaken and the
Group is confident that this is a contained matter.
g) Amortisation of acquired intangibles
The amortisation of acquired intangibles of GBP3.7m (2016:
GBP4.0m) is excluded from underlying business profit in accordance
with Group's accounting policies.
h) Discontinued operations
The Group recorded a loss of GBP1.0m in respect of discontinued
operations. During the year, we reached agreement with the
purchaser of the artificial grass yarns business, sold in 2016, on
the level of deferred consideration receivable, and the GBP0.9m
difference between the final amount agreed and the debtor held at
the end of 2016 has been included as a non-underlying item from
discontinued operations, net of a GBP0.2m tax credit. A share of
loss of GBP0.3m from the Bonar Natpet joint venture was also
recognised.
Taxation
The overall tax credit on continuing profit before tax was
GBP2.1m (2016: charge of GBP8.2m). The underlying tax charge from
continuing operations was GBP8.9m (2016: GBP8.8m), an effective
rate of 29.0% (2016: 30.1%). The decrease in effective rate relates
to country mix of profits. In addition, a reduction in the US
federal tax rate from 35% to 21% will take effect from 1 January
2018 and is expected, based on the existing mix of profits, to
reduce the Group's ongoing effective tax rate by around 3% per
annum. It is also expected to generate a one-off benefit of
approximately GBP1.4m on the revaluation of deferred tax
liabilities in 2018.
Acquisitions
On 17 January 2017, the Group acquired the business and assets
of Walflor Industries Inc., a producer of rainscreens and acoustic
mats based near Seattle, USA, for an initial GBP2.9m and contingent
consideration of up to GBP0.7m in cash based on the commercial
performance of the business over the following twelve months.
Net debt
As at 30 November 2017, net debt was GBP138.4m (2016:
GBP111.0m). This was higher than had been anticipated, due
principally to higher than forecast inventories in CE. There is now
a very clear focus on cash generation, and we have a defined plan
to reduce net debt by at least GBP15m in constant currency terms,
over the course of the current year. This will be delivered
principally through improved working capital discipline and a lower
capital expenditure requirement.
Cash inflow from operations was GBP36.6m (2016: GBP38.5m).
During the year, the Group spent GBP28.7m (2016: GBP18.9m) on
property, plant and equipment and GBP5.7m (2016: GBP3.3m) on
intangible assets. Excluding replacement, efficiency and health and
safety related capital expenditure, the amount invested in
equipment to support future growth was GBP22.9m (2016: GBP13.1m).
The main item related to GBP16.2m (2016: GBPnil) spent on expanding
the Colback manufacturing facility in Changzhou, China. The Group
also invested GBP3.2m (2016: GBP2.7m) in the ongoing Group ERP
system, the roll-out of which commenced during the year.
Trade working capital as a percentage of revenue at year end
decreased to 24% (2016: 26%). This reflects the increased revenue,
partly offset by an increase in trade working capital to GBP105.4m
(2016: GBP103.3m).
The analysis of the Group's net debt is as follows:
2017 2016
GBPm GBPm
Cash and cash equivalents 38.2 26.3
Total interest-bearing
loans and borrowings (176.6) (137.3)
----------------------------- ---------- ----------
Net debt (138.4) (111.0)
----------------------------- ---------- ----------
The gearing ratio of total net debt to EBITDA increased from 2.0
times in 2016 to 2.4 times.
The Group's available debt facilities total GBP215m/EUR244m
(2016: GBP209m/EUR246m) and comprise a five-year revolving credit
facility (RCF) of EUR165m maturing in July 2019, a private
placement of EUR60m scheduled for repayment between September 2022
and September 2026 in equal tranches, and loan facilities of Rmb
150m through to June 2020. We have commenced a process to refinance
the RCF which we expect to have concluded in the first half of
2018.
Return on capital employed
Following the goodwill and other impairments, which totalled
GBP31.6m, the return on capital employed has remained flat at 11.1%
(2016: 11.1%). Adding back these impairments to net assets would
decrease the return to 10.1%. In line with the prior year, the
current year calculation of return is based on net assets and net
debt, the target for which is 12%. The capital expenditure spend is
expected to improve returns in future periods.
Earnings per share
Basic underlying earnings per share was 6.42p, an increase of
6.8% from 6.01p in 2016. On a constant currency basis, basic
underlying earnings per share decreased by 0.8% due to a decrease
in the effective tax rate from 30.1% to 29.0% along with the
constant currency impact on the earnings of the Group. On a
statutory basis, basic earnings per share from continuing
operations decreased from 5.20p in 2016 to a loss per share of
5.56p in 2017.
Dividends
The Board considers dividends to be the primary method of
returning capital to shareholders. In determining the level of
capital to be returned by way of dividend, the Board considers a
number of factors, including:
-- The level of distributable reserves held by the parent
company, and the availability of dividends from subsidiary
companies, from which the parent company derives its distributable
reserves;
-- Projections of future cash flows, including the impact of
dividends on compliance with our loan covenants, and
-- The risks to future cash flows and distributable reserves,
which are set out in the Risks and Uncertainties section on pages
12-13.
The Board review the availability of distributable reserves
prior to the recommendation of any dividend. As at 30 November
2017, the parent company has distributable reserves equal to its
retained earnings of GBP111.2m. As a consequence, the Group is in a
strong position to cover future dividends.
For the financial year ended 30 November 2017, the Board has
proposed a final dividend of 2.00 pence per share which will absorb
an estimated GBP6.6m of shareholders' funds. This has not been
provided for in these accounts because the dividend was proposed
after the year end. If it is approved by shareholders at the Annual
General Meeting of the Company to be held on 13 April 2018, it will
be paid on 19 April 2018 to Ordinary Shareholders who are on the
register of members at close of business on 23 March 2018. The
Company's distributable reserves at November 2017 provide around 10
years' cover for dividend payments at the current rate.
Brexit
We continue to monitor the potential impact of the UK's vote to
leave the European Union. While the UK represents only a small part
of the Group's sales (around 5% of Group sales are made to UK based
customers, 60% of which originate from UK-based entities, and we
have a single UK-based manufacturing facility), the potential for
increased volatility in foreign exchange and interest rates and the
possibility of wider macroeconomic destabilisation across European
or global markets could have an impact on the Group's future
performance.
While foreign exchange rate fluctuations affect our reported
Sterling results, the Group seeks to mitigate their impact on our
banking covenants by drawing debt in the same currencies, and in
the same broad mix, as the currencies that Group profits are
generated in. Our covenants are calculated with debt and EBITDA
translated into Sterling at average exchange rates to reduce the
impact of rate volatility. At 30 November 2017, 38% (2016: 46%) of
the Group's net debt was held on a fixed interest rate basis; and
the Group keeps this under regular review to maintain a reasonable
average cost of borrowing while protecting against medium term
exposure to interest rate changes.
Pensions
The charges for pensions are calculated in accordance with the
requirement of IAS 19 Employee Benefits (revised). At 30 November
2017, the UK scheme showed a surplus of GBP10.0m (2016: deficit of
GBP2.2m). The gain was caused by a combination of higher than
expected asset returns, updates relating to the 2017 actuarial
valuation and shorter assumed life expectancies. The Group has
received legal advice that supports the recognition of this surplus
as an asset on the balance sheet.
The deficit in the Group's overseas schemes in Belgium, Germany
and the USA decreased to GBP12.2m (2016: GBP12.8m), mainly as a
result of favourable investment returns and changes to life
expectancy assumptions.
Risks and Uncertainties
Global activity risks Mitigating strategy
---------------------------------- ------------------------------------------------
The Group may be adversely Business Unit management monitors
affected by global their own markets and are empowered
economic conditions, to respond quickly to changing conditions.
particularly in its Production costs may be quickly flexed
principal markets in to balance production with demand,
mainland Europe and including the use of short-time working
North America. arrangements where available. Further
The volatility of international actions, such as reducing the Group's
markets could result cost base and cancelling or delaying
in reduced levels of capital investment plans, are available
demand for the Group's to allow continued profitability and
products, a greater cash generation in the face of a sustained
risk of customers defaulting reduction in volumes.
on payment terms, supply The Group also has a broad base of
chain risk and a higher customers. Group policies endeavour
risk of inventory obsolescence. to ensure that customers are given
Changes in international an appropriate level of credit based
trade regulations or on their trading history and financial
tariffs, including status, and a prudent approach is
the impact of Brexit, adopted towards credit control. Credit
could potentially disrupt insurance is used where available
the Group's supply and considered appropriate.
chains. Procurement managers endeavour to
mitigate supply chain risk by identifying
and qualifying alternative sources
of key raw materials.
Potential changes to international
trade regulations are monitored in
order to try and anticipate and mitigate
their impact.
---------------------------------- ------------------------------------------------
Growth strategy risks Mitigating strategy
---------------------------------- ------------------------------------------------
The Board believes The current focus of the Group is
that growth, both organic on profitable, cash-generative organic
and through acquisitions, growth supplemented by acquisitions
is a fundamental part where appropriate. Enhanced market
of its strategy for segmentation combined with innovation
the Group. The Board is supporting organic growth ambition.
reviews such growth Acquisitions are made subject to clearly
opportunities on an defined criteria, in existing or adjacent
ongoing basis and its segments whose products and technologies
acquisition strategy are well understood, and only after
is based on appropriate extensive pre-acquisition due diligence.
acquisition targets Acquisition proposals are supported
being available and by a detailed post-acquisition integration
on acquired companies plan that is managed through to completion.
being integrated rapidly
and successfully into
the Group.
---------------------------------- ------------------------------------------------
Organic growth/competition Mitigating strategy
risks
---------------------------------- ------------------------------------------------
The markets in which The Group has chosen to operate in
the Group operates attractive niche markets within the
are competitive with technical textile industry, using
respect to price, geographic some proprietary technology to manufacture
distinction, functionality, products which are important determinants
brand recognition and of the performance and/or efficiency
marketing and customer of our customers' final products or
service. processes.
Significant resources are dedicated
to developing and maintaining strong
relationships with our customers,
and to developing new and innovative
products which meet their precise
needs.
Innovation pipelines are Business
Unit-led and managed through a stage-gate
process.
---------------------------------- ------------------------------------------------
Cyber security risks Mitigating strategy
---------------------------------- ------------------------------------------------
Disruption to or penetration The Group's information technology
of our information resources are continuously monitored
technology platforms and maintained, and safeguards are
could have a significant in place to provide security for our
adverse effect on the networks and data. These are backed
Group. up by training programmes for relevant
members of staff.
Business continuity measures are in
place to minimise the impact of any
disruption to its operations.
---------------------------------- ------------------------------------------------
Business continuity Mitigating strategy
risks
---------------------------------- ----------------------------------------------
The occurrence of major The Group has process controls and
operational problems proactive maintenance programmes
could have a material designed to avoid problems arising.
adverse effect on the These are supported by regular site
Group. These may include audits. Crisis response procedures
risks of fire or major including business continuity/disaster
environmental damage recovery plans are in place to minimise
such as hurricanes. the impact of any disruption to its
operations. Where appropriate, financial
risk impact is covered by insurance
programmes.
---------------------------------- ----------------------------------------------
Raw material pricing Mitigating strategy
risks
---------------------------------- ----------------------------------------------
The Group's profitability The Group has a good level of expertise
can be affected by in polymer purchasing and uses a
the purchase price number of suppliers to ensure a balance
of its key raw materials between competitive pricing and continuity
and its ability to of supply.
reflect any changes The Group's focus on operating efficiencies,
through its selling and the strength of its product propositions
prices. The Group's enables some of the effect of raw
main raw materials material cost fluctuations to be
are polypropylene, successfully managed.
polyester, nylon, polyethylene Innovation, technology differentiation
and PVC. The prices and customer focus will partially
of these raw materials offset increased price competition
are volatile and they in certain markets.
are influenced ultimately
by oil prices and the
balance of supply and
demand for each polymer.
---------------------------------- ----------------------------------------------
Health and Safety risks Mitigating strategy
---------------------------------- ----------------------------------------------
The nature of the Group's The Group's health and safety strategy
operations presents aims to embed a strong and proactive
risks to the health health and safety culture across
and safety of employees, all aspects of our business. Health
contractors and visitors. and safety matters are discussed
Furthermore, inadequate by the Board of Directors and at
health and safety practices Business Unit meetings. The Group
could lead to business Health & Safety Committee meets regularly
disruption, financial to develop and implement Group health
penalties or loss of and safety standards and global improvement
reputation. programmes, investigate incidents
and near misses, and share best practice
through site audits and training
programmes. Performance is monitored
against Group-wide health and safety
KPIs.
---------------------------------- ----------------------------------------------
Employee risks Mitigating strategy
---------------------------------- ----------------------------------------------
The Group is reliant Employees are recruited and regularly
on its ability to attract, appraised utilising a structured
develop and retain performance management system. This
talented leaders, professionals is directly linked to both rewards
and specialists throughout and developmental outcomes. HR policies
the organisation. are in place covering aspects of
employment across the Group. We are
committed to effective communication
and engagement with employees which
takes place on a continuous basis.
---------------------------------- ----------------------------------------------
Funding risks Mitigating strategy
---------------------------------- ----------------------------------------------
The Group, like many The Group manages its capital to
other companies, is safeguard its ability to continue
dependent on its ability as a going concern, to provide sufficient
to both service its liquidity to support its operations
existing debts, and and the Board's strategic plans and
to access sufficient to optimise its capital structure.
funding to refinance The Group's borrowing requirements
its liabilities when are regularly reforecast with the
they fall due and to objective to ensure adequate funding
provide sufficient is in place to support its operations
capital to finance and growth plans. Compliance with
its growth strategy. the covenants associated with these
facilities is closely monitored.
---------------------------------- ----------------------------------------------
Treasury risks Mitigating strategy
---------------------------------- ----------------------------------------------
Foreign exchange is Group policy aims to naturally hedge
the most significant transactional foreign exchange risks
treasury risk for the by buying and selling in the same
Group. currency. Policy in relation to residual
The reported value risk ensures treasury activities
of profits earned by are focused on the management of
the Group's overseas risk with high quality counterparties;
entities is sensitive no speculative transactions are undertaken.
to the strength of The Group uses selective financial
Sterling, particularly instruments to manage the exposures
against the Euro and that may arise from its business
the US Dollar. The operations as a result of movements
Group is exposed to in financial markets.
a lesser extent to
other treasury risks
such as interest rate
risk and counterparty
credit risk.
---------------------------------- ----------------------------------------------
Laws and regulations Mitigating strategy
risks
---------------------------------- ----------------------------------------------
The Group's operations The Group's policy manuals endeavour
are subject to a wide to ensure that all applicable legal
range of laws and regulations, and regulatory requirements are met
including tax, employment, or exceeded in all territories in
environmental and health which it operates, and ongoing programmes
and safety legislation, and systems monitor compliance and
along with product provide training for relevant employees.
liability and contractual Compliance is being reviewed on a
terms. regular basis and a legal team is
Non-compliance with in place to manage any compliance
these laws and regulations issues.
could result in compromising Product liability risks are managed
our ability to conduct through stringent quality control
business in certain procedures covering review of goods
jurisdictions and exposing on receipt and prior to dispatch
the Group to potential and all manufacturing processes.
reputational damage Insurance cover, judged appropriate
and financial penalties. for the nature of the Group's business
and its size, is maintained. The
Group also seeks to minimise risks
through its terms and conditions
of trading.
---------------------------------- ----------------------------------------------
Consolidated Income Statement
for the year ended 30 November
2017 2016
Non-underlying Non-underlying
(note (note
Underlying 6) Total Underlying 6) Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 446.5 - 446.5 400.0 - 400.0
----------- --------------- -------- ----------- --------------- --------
Operating profit/(loss) 2 35.5 (50.4) (14.9) 34.7 (3.3) 31.4
Financial income 0.1 - 0.1 0.2 - 0.2
Financial expense (4.9) - (4.9) (5.7) - (5.7)
----------- --------------- -------- ----------- --------------- --------
Net financing
costs 3 (4.8) - (4.8) (5.5) - (5.5)
----------- --------------- -------- ----------- --------------- --------
Profit/(loss)
before taxation 30.7 (50.4) (19.7) 29.2 (3.3) 25.9
Taxation 4 (8.9) 11.0 2.1 (8.8) 0.6 (8.2)
----------- --------------- -------- ----------- --------------- --------
Profit/(loss)
after taxation 21.8 (39.4) (17.6) 20.4 (2.7) 17.7
Profit/(loss)
for the year
from continuing
operations 21.8 (39.4) (17.6) 20.4 (2.7) 17.7
----------- --------------- -------- ----------- --------------- --------
(Loss)/profit
for the year
from discontinued
operations 9 - (1.0) (1.0) 0.5 (3.7) (3.2)
----------- --------------- -------- ----------- --------------- --------
Profit/(loss)
for the year 21.8 (40.4) (18.6) 20.9 (6.4) 14.5
----------- --------------- -------- ----------- --------------- --------
Attributable
to
Equity holders
of the Company 21.2 (40.4) (19.2) 20.3 (6.4) 13.9
Non-controlling
interest 8 0.6 - 0.6 0.6 - 0.6
----------- --------------- -------- ----------- --------------- --------
21.8 (40.4) (18.6) 20.9 (6.4) 14.5
----------- --------------- -------- ----------- --------------- --------
Earnings per
share 7
Continuing operations:
Basic 6.42p (5.56)p 6.01p 5.20p
Diluted 6.32p (5.56)p 5.95p 5.15p
Discontinued
operations:
Basic - (0.30)p 0.14p (0.98)p
Diluted - (0.30)p 0.14p (0.97)p
Total:
Basic 6.42p (5.86)p 6.15p 4.22p
Diluted 6.32p (5.86)p 6.09p 4.18p
Consolidated Statement of Comprehensive Income
for the year ended 30 November
Note 2017 2016
GBPm GBPm
(Loss)/profit for the year
Other comprehensive income:
Items that will not be reclassified
subsequently to profit or loss: (18.6) 14.5
Actuarial gain/(loss) on defined benefit
pension schemes 9.8 (11.8)
Deferred tax on defined benefit pension
schemes (3.2) 0.3
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations, net of hedging - 36.7
Exchange differences recycled from
reserves - (1.7)
-------- ------
Other comprehensive income for the
year, net of tax 6.6 23.5
-------- ------
Total comprehensive (loss)/income for
the year (12.0) 38.0
-------- ------
Attributable to
Equity holders of the parent (13.0) 37.4
Non-controlling interest 8 1.0 0.6
-------- ------
(12.0) 38.0
-------- ------
Consolidated Balance Sheet
as at 30 November
2017 2016
Note GBPm GBPm
Non-current assets
Goodwill 66.9 82.6
Intangible assets 24.8 22.2
Property, plant and equipment 144.5 150.3
Investment in joint venture - -
Investment in associate 0.7 0.5
Deferred tax assets 10.1 5.6
Post-employment benefits 10.0 -
257.0 261.2
Current assets
Inventories 97.3 97.5
Trade and other receivables 86.9 79.1
Cash and cash equivalents 38.2 26.3
------ ------
Current liabilities 222.4 202.9
Interest-bearing loans
and borrowings 2.7 0.1
Current tax liabilities 2.2 4.4
Trade and other payables 86.7 84.4
Provisions 1.7 -
Liabilities directly associated
with assets held for
sale 9 1.4 1.3
94.7 90.2
------ ------
Net current assets 127.7 112.7
------ ------
Total assets less current
liabilities 384.7 373.9
Non-current liabilities
Interest-bearing loans
and borrowings 173.9 137.2
Deferred tax liabilities 17.5 19.1
Post-employment benefits 12.2 15.0
Other payables 0.8 0.2
------ ------
204.4 171.5
------
Net assets 180.3 202.4
------ ------
Equity attributable to equity
holders
of the parent
Share capital 47.4 47.4
Share premium account 74.6 74.4
Translation reserve (26.4) (26.0)
Retained earnings 78.3 100.2
------ ------
Total equity attributable to
------
Equity holders of the parent 173.9 196.0
------
Non-controlling interest 8 6.4 6.4
------ ------
Total equity 180.3 202.4
------ ------
Consolidated Cash Flow Statement
for the year ended 30 November
2017 2016
GBPm GBPm
(Loss)/profit for the year from
continuing operations (17.6) 17.7
Loss for the year from discontinued
operations (1.0) (3.2)
------- -------
(Loss)/profit for the year (18.6) 14.5
Adjustments for:
Depreciation 18.5 15.8
Amortisation 4.8 5.2
Civil Engineering impairment charge 31.6 -
Income tax (credit)/expense (2.1) 8.2
Net financing costs 4.8 5.5
Provision for disposal of Bonar
Natpet 0.3 1.3
Share of profit from associate (0.2) -
Non-cash pension charges 1.1 1.0
Increase in inventories (9.2) (14.7)
(Increase)/decrease in trade and
other receivables (10.3) 1.7
Decrease in trade and other payables (0.1) (2.0)
Increase/(decrease) in provisions 1.7 (0.1)
Loss on disposal of grass yarns
business 0.7 1.3
Loss on disposal of agro-textile 12.7 -
business
Loss/(gain) on disposal of non-current
assets 0.2 (0.1)
Equity-settled share-based payment 0.7 0.9
------- -------
Cash inflow from operations 36.6 38.5
Interest received - 0.1
Interest paid (4.4) (5.0)
Tax paid (10.3) (10.8)
Pension cash contributions (4.4) (4.6)
------- -------
Net cash inflow from operating activities 17.5 18.2
Proceeds from the disposal of the 4.2 -
agro-textile business
Proceeds from the disposal of the
grass yarns business 3.0 21.7
Acquisition of Walflor Industries (3.4) -
Inc.
Acquisition of property, plant and
equipment (28.7) (18.9)
Intangible assets purchased (5.7) (3.3)
------- -------
Net cash outflow from investing
activities (30.6) (0.5)
Proceeds of other share issues to
employees 0.2 0.2
Drawdown of borrowings 36.4 17.8
Repayment of borrowings - (37.9)
Movement in cash flow hedges - 0.1
Equity dividends paid (10.0) (9.2)
Dividends paid to non-controlling
interests (1.0) (0.3)
------- -------
Net cash inflow/(outflow) from financing
activities 25.6 (29.3)
Net cash inflow/(outflow) 12.5 (11.6)
Cash and cash equivalents at start
of year 26.3 33.9
Foreign exchange differences (0.6) 4.0
Cash and cash equivalents at end
of year 38.2 26.3
------- -------
Consolidated Statement of Changes in Equity
for the year ended 30 November
Equity
attributable
to equity Non-controlling
Share Share Translation Retained holders interest Total
capital premium reserve earnings of the equity
parent
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 December
2015 47.4 74.2 (61.0) 105.3 165.9 6.1 172.0
Total comprehensive
income for the
year - - 35.0 2.4 37.4 0.6 38.0
Dividends paid
to
Ordinary
Shareholders - - - (9.2) (9.2) - (9.2)
Dividends paid
to Non-Controlling
interests - - - - - (0.3) (0.3)
Disposal of
equity
participation
in a subsidiary - - - 0.8 0.8 - 0.8
Shares issued - 0.2 - - 0.2 - 0.2
Share-based
payment - - - 0.9 0.9 - 0.9
---------- ---------- ------------- ----------- ------------- ----------------- ---------
Net
increase/(decrease)
for the year - 0.2 35.0 (5.1) 30.1 0.3 30.4
---------- ---------- ------------- ----------- ------------- ----------------- ---------
At 30 November
2016 47.4 74.4 (26.0) 100.2 196.0 6.4 202.4
---------- ---------- ------------- ----------- ------------- ----------------- ---------
Total comprehensive
income for the
year - - (0.4) (12.6) (13.0) 1.0 (12.0)
Dividends paid
to
Ordinary
Shareholders - - - (10.0) (10.0) - (10.0)
Dividends paid
to Non-Controlling
interests - - - - - (1.0) (1.0)
Shares issued - 0.2 - - 0.2 - 0.2
Share-based
payment - - - 0.7 0.7 - 0.7
---------- ---------- ------------- ----------- ------------- ----------------- ---------
Net
increase/(decrease)
for the year - 0.2 (0.4) (21.9) (22.1) - (22.1)
At 30 November
2017 47.4 74.6 (26.4) 78.3 173.9 6.4 180.3
---------- ---------- ------------- ----------- ------------- ----------------- ---------
Notes
1. Basis of preparation
This announcement was approved by the Board of Directors on 30
January 2018.
The financial statements are presented in pounds sterling,
rounded to the nearest hundred thousand pounds. They are prepared
on the historical cost basis except for the revaluation to fair
value of certain financial instruments.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 30 November 2017
or 2016 but is derived from those accounts. Statutory accounts for
2016 have been delivered to the registrar of companies, and those
for 2017 will be delivered in due course. The audit of the
statutory accounts for the year ended 30 November 2017 is not yet
complete. The auditor has reported on the 30 November 2016
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. Whilst the financial information included in this
announcement has been computed in accordance with International
Financial Reporting Standards (IFRS), this announcement does not
itself contain sufficient information to comply with IFRS.
The Group uses alternative performance measures as it believes
they allow a better understanding of underlying business
performance, are consistent with its communication with investors,
and facilitates better comparison with peer companies.
These alternative performance measures are:
-- Underlying operating profit, underlying profit before tax, and basic underlying EPS. These numbers are available
on the face of the Consolidated Income Statement.
-- Underlying segment operating profit is set out in Note 2.
-- Underlying operating margin/return on sales is set out in Note 2.
-- Earnings before interest, tax, depreciation and amortisation (EBITDA), which is calculated in accordance with the
Group's banking covenants. It is calculated as underlying operating profit before depreciation and amortisation,
the non-cash IFRS 2 charge and pension costs, and the impact of any acquisition during the period is annualised.
-- Net debt, being interest-bearing liabilities net of cash and cash equivalents.
-- Return on capital employed, which is calculated as underlying operating profit divided by the total of net debt
plus net assets.
2. Segmental information
The Group's principal activities are in the international
manufacturing and supply of those performance materials commonly
referred to as technical textiles. For the purposes of management
reporting to the chief operating decision maker, the Group is split
into four reportable business units: Building & Industrial,
Civil Engineering, Coated Technical Textiles and Interiors &
Transportation. These segments consist of operating segments with
similar economic characteristics, products and services,
manufacturing processes and customer types. Segment assets and
liabilities include items directly attributable to segments as well
as those that can be allocated on a reasonable basis. Unallocated
items comprise mainly cash and cash equivalents, interest-bearing
loans, borrowings, investments in joint ventures and associates,
post-employment benefits and corporate assets and expenses.
Inter-segment sales are not material.
Segment analysis
Revenue from
external customers 2017 2016
GBPm GBPm
Building & Industrial 85.9 73.4
Civil Engineering 102.0 90.8
Coated Technical
Textiles 138.3 129.8
Interiors & Transportation 120.3 106.0
Revenue for the
year 446.5 400.0
======= =======
Operating profit/(loss) Underlying Non-underlying Total
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
Building & Industrial 12.4 10.9 (13.7) (0.1) (1.3) 10.8
Civil Engineering 0.1 4.2 (31.6) (0.5) (31.5) 3.7
Coated Technical
Textiles 9.3 8.7 (3.0) (2.8) 6.3 5.9
Interiors & Transportation 19.1 17.1 - 0.5 19.1 17.6
Unallocated central (5.4) (6.2) (2.1) (0.4) (7.5) (6.6)
------ ------ --------- ------ ------- ------
Total 35.5 34.7 (50.4) (3.3) (14.9) 31.4
====== ====== ========= ====== ======= ======
Return on sales/operating 2017 2016
margin
Building & Industrial 14.4% 14.9%
Civil Engineering 0.1% 4.6%
Coated Technical
Textiles 6.7% 6.7%
Interiors & Transportation 15.9% 16.1%
------- ------
Total 8.0% 8.7%
======= ======
Return on sales / operating margin for each segment is
calculated by dividing each segment's underlying operating profit
by its revenue from external customers.
Segment assets,
liabilities, Building Coated Interiors
other information & Civil Technical & Unallocated
2017 Industrial Engineering Textiles Transportation Central Total
GBPm GBPm GBPm GBPm GBPm GBPm
Reportable segment
assets 67.3 52.8 154.0 145.5 0.8 420.4
Investment in
associate 0.7
Cash and cash
equivalents 38.2
Post-employment
benefits 10.0
Other unallocated
assets 10.1
-----------
Total Group assets 479.4
===========
Reportable segment
liabilities (15.4) (17.4) (26.1) (30.1) - (89.0)
Loans and
borrowings (176.6)
Derivative
liabilities -
Post-employment
benefits (12.2)
Other unallocated
liabilities (21.3)
-----------
Total Group
liabilities (299.1)
===========
Other information
Additions to
property,
plant and
equipment 3.0 2.6 3.0 20.7 - 29.3
Additions to
intangible
assets and
goodwill 5.3 1.6 0.1 1.6 0.8 9.4
Depreciation (3.6) (3.0) (3.6) (8.2) (0.1) (18.5)
Amortisation of
acquired
intangible assets (0.6) (0.1) (3.0) - - (3.7)
Non-underlying
items
- continuing
operations (13.1) (31.5) - - (2.1) (46.7)
============ ============= =========== =============== ============= ===========
Segment assets,
liabilities, Building Coated Interiors
other & Civil Technical & Unallocated
information Industrial Engineering Textiles Transportation Central Total
2016 GBPm GBPm GBPm GBPm GBPm GBPm
Reportable
segment
assets 64.2 83.4 145.7 127.0 - 420.3
Investment in
associate 0.5
Cash and cash
equivalents 26.3
Post-employment
benefits -
Other unallocated
assets 17.0
---------
Total Group
assets 464.1
=========
Reportable
segment
liabilities (17.2) (17.7) (24.2) (25.4) - (84.5)
Loans and
borrowings (137.3)
Derivative
liabilities -
Post-employment
benefits (15.0)
Other unallocated
liabilities (24.9)
---------
Total Group
liabilities (261.7)
=========
Other information
Additions to
property,
plant and
equipment 1.6 4.6 2.2 9.4 0.7 18.5
Additions to
intangible
assets and
goodwill 1.0 1.0 0.2 1.1 - 3.3
Depreciation (2.6) (2.6) (3.3) (7.1) (0.2) (15.8)
Amortisation of
acquired
intangible
assets (0.5) (0.5) (2.8) (0.2) - (4.0)
Non-underlying
items
- continuing
operations 0.4 - - 0.7 (0.4) 0.7
============ ============= =========== =============== ============= =========
Segment information - Constant currency analyses
Constant currency analyses retranslate prior year results at the
current year's rates of exchange. Management believe this allows a
better understanding of underlying business performance.
2016
2017 2016 Year (constant Year
on year currency) on year
change change
(reported)
GBPm GBPm % GBPm %
Revenue
Building & Industrial 85.9 73.4 +17.0% 78.4 +9.6%
Civil Engineering 102.0 90.8 +12.3% 97.2 +4.9%
Coated Technical
Textiles 138.3 129.8 +6.5% 139.3 -0.7%
Interiors & Transportation 120.3 106.0 +13.5% 112.3 +7.1%
Revenue for the
year 446.5 400.0 +11.6% 427.2 +4.5%
====== ============== =============
Underlying profit before tax from continuing
operations
Building & Industrial 12.4 10.9 +13.8% 11.7 +6.0%
Civil Engineering 0.1 4.2 -97.6% 4.4 -97.7%
Coated Technical
Textiles 9.3 8.7 +6.9% 9.2 +1.1%
Interiors & Transportation 19.1 17.1 +11.7% 18.1 +5.5%
Unallocated Central (5.4) (6.2) -12.9% (6.2) -12.9%
------ -------------- -------------
Underlying operating
profit 35.5 34.7 +2.3% 37.2 -4.6%
Net financing
costs (4.8) (5.5) -12.7% (5.8) -17.2%
Total 30.7 29.2 +5.1% 31.4 -2.2%
====== ============== =============
The following significant exchange rates applied during the
year:
Year Year
Average Average end end
rate rate rate rate
2017 2016 2017 2016
Sterling/Euro 1.15 1.23 1.14 1.18
Sterling/US Dollar 1.28 1.37 1.35 1.25
Sterling/Czech Crown 30.26 33.31 28.98 31.87
Sterling/Hungarian Forint 354.05 384.22 355.33 368.84
Sterling/Chinese Yuan 8.70 9.02 8.95 8.61
------- ------- ------ ------
3. Financial income and financial expense
2017 2016
GBPm GBPm
Financial income
Interest income 0.1 0.2
0.1 0.2
------ ------
Financial expense
Interest on bank overdrafts and loans (4.5) (5.2)
Amortisation of bank arrangement fees (0.4) (0.4)
Net interest on pension scheme liabilities (0.2) (0.1)
Capitalised interest 0.2 -
(4.9) (5.7)
------ ------
Net financing costs (4.8) (5.5)
------ ------
4. Taxation
2017 2016
GBPm GBPm
Current Tax
UK corporation tax:
Current year - -
Prior year - -
Overseas tax:
Current year 8.4 10.2
Prior Year (0.1) (0.3)
-------- -------
Total current tax 8.3 9.9
Deferred tax (10.4) (1.7)
Total tax (credit)/charge in the income
statement from continuing operations (2.1) 8.2
-------- -------
Tax from discontinued operations - -
Tax on disposal of discontinued operations (0.2) (0.9)
Total tax (credit)/charge in the income
statement (2.3) 7.3
-------- -------
5. Dividends
Amounts recognised as distributions to equity shareholders in
the year were as follows:
2017 2016
GBPm GBPm
Final dividend for the year ended 30
November 2016 - 2.00 pence per share
(2015: 1.80 pence per share) 6.6 5.9
Interim dividend for the year ended
30 November 2017 - 1.05 pence per share
(2016: 1.00 pence per share) 3.4 3.3
----- -----
10.0 9.2
----- -----
For the year ended 30 November 2017, the Board has proposed a
final dividend of 2.00 pence per share which will absorb an
estimated GBP6.6m of shareholders' funds. This has not been
provided for in these accounts because the dividend was proposed
after the year end. If it is approved by shareholders at the Annual
General Meeting of the Company on 13 April 2018, it will be paid on
19 April 2018 to Ordinary Shareholders who are on the register of
members at close of business on 23 March 2018.
During the year the Board declared a final dividend on Ordinary
Shares in relation to the year ended 30 November 2016 of 2.00 pence
per share, which was paid to Ordinary Shareholders on the register
of members at close of business on 17 March 2017.
The Board declared an interim dividend on Ordinary Shares in
relation to the year ended 30 November 2017 of 1.05 pence per
share, which was paid to Ordinary Shareholders on the register of
members at close of business on 26 August 2017.
6. Non-underlying items
During the year the Group recognised significant non-underlying
items as detailed below:
2017 2016
GBPm GBPm
Amounts charged/(credited)
to operating profit
Impairment of Civil Engineering
assets (a) 26.9 -
Write down of Ivanka (b) 4.7 -
Loss on disposal of the Agro-textile
business (Note 10) (c) 12.7 -
Pension administration costs (d) 0.2 0.1
Acquisition-related costs (e) 0.5 0.1
Provision for custom duties (f) 1.7 -
Profit from sale of land (h) - (1.1)
Pension buy-in costs (h) - 0.2
Amortisation of acquired intangible
assets (g) 3.7 4.0
------ -----
Total charge to operating profit 50.4 3.3
Tax credit in the year (i) (11.0) (0.6)
Total charge to discontinued
operations (Note 9) (j) 1.0 3.7
------ -----
Total charge to profit for
the year 40.4 6.4
------ -----
(a) Impairment of Civil Engineering assets
Following the poor performance of CE, impairment reviews of its
goodwill and other assets were conducted. These resulted in a full
impairment of the GBP19.4m goodwill balance, with further
impairments of property, plant & equipment (PP&E) and
certain intangible assets totalling GBP6.6m and GBP0.9m
respectively.
(b) Write down of Ivanka
As part of the first stage review of CE, it was decided to exit
from the loss-making weaving plant in Ivanka, Slovakia. As a
consequence, the assets have been written down to the proceeds
expected to be realised from the exit, resulting in a charge of
GBP4.7m. This charge is comprised of a write-down of PP&E
totalling GBP3.4m, a write down of intangible assets totalling
GBP0.3m, and a write off of inventory of GBP1.0m.
(c) Loss on disposal of the Agro-textile business
In October 2017, the Group completed the disposal of the
Lokeren-based agro-textile business. The proceeds totalled GBP6.1m
(EUR7.0m), of which GBP5.8m was received in the year and GBP0.3m in
December 2017. The disposal generated a loss before tax of GBP12.7m
(GBP8.4m after tax).
(d) Pension administration costs
The Group incurred GBP0.2m (2016: GBP0.1m) of pension
administration costs relating to its UK defined benefit scheme.
(e) Acquisition related costs
In the year the Group incurred costs of GBP0.5m (2016: GBP0.1m)
relating to the acquisition of Walflor Industries Inc.
(f) Provision in relation to customs duties
The Group has identified irregularities in relation to customs
duties which relate to sales arranged from a former overseas sales
office which was closed several years ago. The non-underlying
charge of GBP1.7m represents the Group's best estimate of the
liability and it has been treated as non-underlying due to its
nature, and the fact that it does not relate to the current period.
A thorough investigation is being undertaken and the Group is
confident that this is a contained matter.
(g) Amortisation of acquired intangibles
The amortisation of acquired intangibles of GBP3.7m (2016:
GBP4.0m) is excluded from underlying business profit in accordance
with Group's accounting policies.
(h) Prior period
In the year to 30 November 2016, the Group incurred professional
fees of GBP0.2m in respect of the medically-underwritten buy-in of
GBP34m of UK pension scheme liabilities, which completed on 3
December 2015; and recorded a profit of GBP1.1m on the sale of
unused land at the Group's manufacturing site in Asheville,
USA.
(i) Taxation
The non-underlying tax credit of GBP11.0m (2016: GBP0.6m)
includes:
-- GBP3.1m credit in respect of the recognition of previously
unrecognised tax losses due to the recognition of a deferred tax
liability on a pension asset that has been recognised in Other
Comprehensive Income;
-- GBP4.3m credit on the loss on disposal of the agro-textile business;
-- GBP2.2m credit in respect of the Civil Engineering impairment;
-- GBP1.1m credit in respect of the amortisation of acquired intangibles, and
-- GBP0.3m credit on other non-underlying items.
(j) Total charge to discontinued operations
Current period
The Group recorded a loss of GBP1.0m in respect of discontinued
operations. We reached agreement with the purchaser of the
artificial grass yarns business, sold in 2016, on the level of
deferred consideration receivable, and the GBP0.9m difference
between the final amount agreed and the debtor held at the end of
2016 has been included as a non-underlying item from discontinued
operations, net of a GBP0.2m tax credit. A share of loss of GBP0.3m
from the Bonar Natpet joint venture was also recognised.
Prior period
In the year ended 30 November 2016, the GBP3.7m loss reflected
the loss from the sale of the artificial grass yarns business.
7. Earnings per share
Basic earnings per share and basic underlying earnings per share
are based on the weighted average number of Ordinary Shares in
issue during the year. The calculation of fully-diluted earnings
per share is based on the weighted average number of Ordinary
Shares in issue plus the dilutive effect of outstanding share
options and the Low & Bonar 2003 Long-Term Incentive Plan (the
"2003 LTIP") awards (to the extent to which performance criteria
had been achieved at 30 November 2017).
During the year 392,716 Ordinary Shares were issued (2016:
314,549).
The Directors consider that the calculation of basic underlying
earnings per share gives a more meaningful indication of the
Group's underlying performance. Reconciliations of the earning and
weighted average number of shares used in the calculation are set
out below:
2017 2016
Total operations
Earnings - Statutory GBPm (19.2) 13.9
Earnings - Underlying GBPm 21.2 20.3
Weighted average number of
shares (millions) 329.425 328.984
Effect of dilutive shares (millions) 5.556 3.330
Diluted weighted average number
of shares (millions) 334.981 332.314
Statutory
Basic earnings per share p (5.86) 4.22
Diluted earnings per share(a) p (5.86) 4.18
Underlying
Basic earnings per share p 6.42 6.15
Diluted earnings per share p 6.32 6.09
(a) On a statutory basis, the effect of the dilutive shares has
been ignored as it is deemed to be anti-dilutive (ie it is reducing
the loss per share)
8. Non-controlling interest
2017 2016
GBPm GBPm
At 1 December 6.4 6.1
Share of profit after taxation 0.6 0.6
Dividends (1.0) (0.3)
Exchange adjustment 0.4 -
----- -----
At 30 November 6.4 6.4
----- -----
The non-controlling interest represents the 40% minority
interest in Yihua Bonar Yarns & Fabrics Co. Ltd.
9. Discontinued operations
Discontinued operations
During the prior year, the Board announced the disposal of the
Group's artificial grass yarns business (previously comprising the
majority of its Sport & Leisure global business unit). The
disposal completed on 1 September 2016. In the prior periods the
results were presented within discontinued operations on the face
of the income statement and as a disposal group held for sale on
the balance sheet. The GBP0.9m loss for the year represents the
true-up of the final settlement of the deferred purchased
consideration receivable outstanding at 30 November 2016.
In addition to this, the Board has agreed to dispose of the
Group's interest in the joint venture, Bonar Natpet LLC. Efforts to
sell the business had commenced in 2016 and the investment was
treated as a discontinued operation in the November 2016 accounts.
The results for the year ended 30 November 2017 include a share of
loss of GBP0.3m (2016: GBP1.3m).
The results of the discontinued operations, which have been
included in the consolidated income statement, were as follows:
2017 2016
GBPm GBPm
Revenue - 22.3
Expenses - (22.9)
Loss before tax - (0.6)
Attributable tax expense - -
Loss on disposal of grass yarns business (0.9) (2.2)
Tax on disposal of grass yarns business 0.2 0.9
----- ------
Net loss from disposal of grass yarns
business (0.7) (1.9)
Share of results of Bonar Natpet LLC (0.3) (1.3)
Net loss attributable to discontinued
operations
(attributable to owners of the Company) (1.0) (3.2)
----- ------
During the year ended 30 November 2017, the discontinued
businesses contributed GBP3.0m (2016: GBP3.6m outflow) to the
Group's net operating cash flows and paid GBPnil (2016: nil) in
respect of investing activities and financing activities.
Liabilities held for sale at 30 November 2017 of GBP1.4m (2016:
GBP1.3m) represent the estimate of the Group's obligation to fund
the joint venture.
10. Disposal of the agro-textile business
In 2017, the Board commenced a plan to sell the Group's
Lokeren-based agro-textile business, which is part of its Building
& Industrial global business unit and operating segment. The
disposal was completed on 31 October 2017 and the net loss on
disposal was as follows:
2017
GBPm
Consideration received in cash and cash equivalents 5.8
Deferred consideration (received December 2017) 0.3
----------
Total consideration received and receivable 6.1
Analysis of assets and liabilities over which
control was lost
Intangible assets 0.4
Property, plant and equipment 6.5
Inventories 10.3
Net assets disposed of 17.2
Transaction costs 1.6
----------
Loss on disposal 12.7
Tax on disposal (4.3)
----------
Net loss on disposal 8.4
----------
11. Business combinations
On 17 January 2017, Low & Bonar acquired 100% of the share
capital of Walflor Industries Inc., a company registered in
Washington State, USA, on a debt-free, cash-free basis for a total
consideration of GBP2.9m and a contingent consideration of up to
GBP0.7m in cash based on the commercial performance of the business
in the 12 months following acquisition. The contingent
consideration has been fair-valued at November 2017 at GBP0.3m. The
company produce rain screens and acoustic mats and the acquisition
significantly strengthens our customer relationships in the US
building products market and provides a West Coast platform for
further growth.
Acquisition costs of GBP0.5m have been charged to non-underlying
items. Results of the acquired business are included with the
results of the Building & Industrial global business unit.
The acquired business contributed GBP1.1m to the Group's
consolidated revenue for the year and increased the Group's
consolidated underlying profit before interest and tax for the year
by GBP0.4m. Had the business been owned by the Group for the entire
year, the contribution to the Group's consolidated revenue and
consolidated underlying profit before interest and tax would have
been GBP1.3m and GBP0.5m respectively.
Details of the purchase consideration, the provisional fair
values of net assets acquired and provisional goodwill arising on
the acquisition of Walflor Industries Inc. are as follows:
Book value Fair Value Provisional
at acquisition adjustments fair value
GBPm GBPm GBPm
Intangible assets
Customer related - 2.5 2.5
Technology related - 0.1 0.1
Non-compete agreement related - 0.2 0.2
Property, plant and equipment 0.2 0.3 0.5
Inventories 0.1 - 0.1
Deferred tax liabilities (0.1) (1.0) (1.1)
---------------- ------------- ------------
Net assets acquired 0.2 2.1 2.3
Cash consideration 2.9
Contingent consideration 0.3
------------
Fair value of consideration 3.2
Goodwill arising on acquisition 0.9
------------
Goodwill of GBP0.9m arising from the acquisition is attributable
to revenue synergies expected to be generated from new
cross-selling opportunities across the enlarged US building
products market. It also includes expected benefits from the
existing workforce and expertise as a result of being part of the
enlarged Buildings & Industrial global business unit.
12. Post Balance Sheet events
Bonar Natpet
In January 2018, the Group reached agreement with National
Petrochemical Industrial Co. (Natpet), to exit from the joint
venture Bonar Natpet. The agreement is conditional upon amongst
other things:
-- regulatory approval in Saudi Arabia,
-- Agreement by Saudi Investment Development Fund (SIDF) to
refinance Bonar Natpet's funding, release Low & Bonar Technical
Textiles Holding BV (a wholly owned subsidiary of the Company) from
its guarantee of that funding, and secure such additional security
as it requires from Natpet; and
-- Upon finalisation of the new SIDF arrangements, confirmation
from Natpet's own banks that they approve the refinancing
package.
Under the terms of the agreement, the Group will contribute
GBP0.1m to Natpet's costs associated with the transaction, and pay
to Bonar Natpet 50% of the value of all its trade debts older than
six months at the date of sale (estimated to be GBP1.3m). The Group
will be entitled to a fee of 25% of Bonar Natpet's contribution
margin from above-budgeted levels of revenue to the end of its 2019
financial year. The Group will also continue to license certain
trademarks related to the business to Bonar Natpet until 2020, and
will also appoint it as its exclusive distributor in the region for
its geo-textile product range for a 5-year period.
Completion is expected to take place on or prior to 15 September
2018, and if it has not done so the agreements will terminate
unless both parties agree to extend the period for completion.
Closure of Ivanka plant
Subsequent to the year-end, as an outcome of the first phase of
the Board's review of the Civil Engineering Global Business Unit, a
decision has been taken to close the loss-making weaving plant in
Ivanka, Slovakia.
Change in tax rates
The reduction in the US federal tax rate from 35% to 21%, which
was enacted on 22 December 2017 and which will take effect from 1
January 2018, is expected to generate a one-off benefit of
approximately GBP1.4m on the revaluation of deferred tax
liabilities in 2018. In addition, from that date the Group's
ongoing effective tax rate is expected to reduce by 3% to 26%,
assuming the existing mix of profits.
13. Annual General Meeting
The Annual General Meeting will be held on 13 April 2018 at The
Royal Institution, 21 Albemarle St, London W1S 4BS.
Forward looking statements
This announcement may include statements that are, or may be
deemed to be, "forward looking statements". These forward looking
statements can be identified by the use of forward looking
terminology, including, but not limited to, the terms "believes",
"estimates", "anticipates", "expects", "may", "would", "could" or
"should" or, in each case, their negative or other variations or
comparable terminology. These forward looking statements include
matters that are not historical facts.
By their nature, forward looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. Forward
looking statements are not guarantees of future performance. The
Group's actual results of operations, financial condition and
liquidity may differ materially from the impression created by the
forward looking statements contained in this announcement. In
addition, even if the results of operations, financial condition,
and liquidity are consistent with the forward looking statements
contained in this announcement, those results or developments may
not be indicative of results or developments in subsequent periods.
Important factors that could cause these differences include, but
are not limited to: changes in the competitive framework in which
the Group operates and its ability to retain market share; the
Group's ability to generate growth or profitable growth; the
Group's ability to generate sufficient cash to service its debt;
the Group's ability to control its capital expenditure and other
costs; significant changes in exchange rates, interest rates and
tax rates; significant technological and market changes; future
business combinations or dispositions; and general local and global
economic, political, business and market conditions. In light of
these risks, uncertainties and assumptions, the events described in
the forward looking statements in this announcement may not
occur.
Other than in accordance with its legal or regulatory
obligations, the Group does not undertake any obligation to update
or revise publicly any forward looking statement, whether as a
result of new information, future events or otherwise.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR WGUGWGUPRPWU
(END) Dow Jones Newswires
January 31, 2018 02:00 ET (07:00 GMT)
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