TIDMLWB
RNS Number : 9467H
Low & Bonar PLC
27 March 2020
Low & Bonar PLC
("Low & Bonar" or "the Group")
Final Results for the Year ended 30 November 2019
A difficult year with further progress made towards securing a
prosperous future for the Group
Low & Bonar PLC ("Low & Bonar" or "the Group"), the
international performance materials group, today announces its
results for the year ended 30 November 2019.
Continuing Operations 2019 2018 Actual Constant
currency(2)
Key Performance Metrics: (restated)
(1)
Revenue GBP317.3m GBP361.6m (12.3%) (13.2%)
Statutory operating loss (GBP54.3m) (GBP33.4m)
Statutory loss before tax (GBP61.2m) (GBP39.2m)
Statutory basic EPS (9.72p) (14.05p)
Underlying operating profit(3) GBP5.1m GBP22.2m (77.0%) (77.6)%
Underlying operating margin
(3) (4) 1.6% 6.1%
Underlying profit before
tax (3) GBP0.9m GBP16.7m (94.6)% (94.8%)
Basic underlying EPS (3) 0.11p 3.41p
Net debt (5) GBP97.4m GBP128.5m
Dividend per share - 1.42p
Return on capital employed
(3) (5) 2.8% 8.8%
(1) Restated for change in operating segments (Note 18) and prior year
adjustments (Note 17)
(2) Calculated by retranslating comparative period at current period
exchange rates (Note 2)
(3) Metrics are presented on an underlying basis, and exclude all non-underlying
items (which are outlined in Note 4)
(4) Underlying operating profit for the year (GBP5.1m) as a percentage
of revenue (GBP317.3m) (note 2)
(5) (Defined in Note 19)
POTENTIAL SALE OF THE GROUP TO FREUDENBERG AND CONTINGENCY
PLANNING
-- As first announced on 20 September 2019, the Board
recommended to shareholders a cash offer from FV Beteiligungs-GmbH
("FVB", a subsidiary of Freudenberg SE) to acquire the whole Group
at a price of 15.5p per share, and this was approved by
shareholders on 5 November 2019 (the "Offer").
-- The proposed Offer is conditional upon a successful outcome
from an EU competition review, which is in process. We expect a
final decision as to whether Phase I clearance will be granted
during April 2020.
-- In the event that Phase I clearance is granted, all
outstanding conditions of the Offer would have been satisfied and
it is expected that the Offer would proceed to completion on the
most expedient practical timetable.
-- In the event that the Phase I approval is not granted, it is
highly likely that the Offer would lapse. In these circumstances,
the Board would seek to identify and execute alternative plans to
preserve and realise stakeholder value. These could, amongst other
things, include a sale of the Group as a whole or of its
constituent parts, raising additional capital, or a refinancing of
its debt.
-- As previously reported, and reflecting the very difficult
trading conditions experienced through 2019, the Group's financial
position is extremely challenged. Having determined that the Group
would be very unlikely to be able to comply with its temporarily
suspended banking covenants, were these to be reinstated in
circumstances where the Offer lapsed, the Group reached agreement
with its lenders on 27 March 2020 to make further amendments to its
financing facilities.
-- As separately announced today, under the revised financing
agreement, the lenders will assist in providing a stable platform
to allow the Group time, if the Offer does not complete, to execute
alternative plans as referenced above.
PROGRESS ON OTHER STRATEGIC ACTIONS
-- Successful exit from the non-core civil engineering
activities over the summer, with the sale of the Construction
Fibres ("CF") and Needle Punch Non-Wovens ("NPNW") businesses,
simplifying our portfolio and reducing debt. Net proceeds of
cGBP21m were received in relation to these businesses, generating a
loss on disposal of cGBP6m including disposal fees.
-- Successful GBP50m placing and open offer was completed (net
of fees) in February 2019, generating cash to reduce indebtedness,
provide working capital flexibility and to fund incremental capital
expenditure across the Group.
-- Good progress has been made on vital investment programmes in
both Colbond Americas and Coated Technical Textiles ("CTT") leading
to initial improvements in output, efficiency and quality.
-- Further organisational simplification and cost saving
initiatives have been implemented and are expected to deliver
significant savings on an annualised basis.
FINANCIAL HIGHLIGHTS
-- Trading conditions proved very tough all year, leading to a
12.3% reduction in sales and a 77.0% reduction in underlying
operating profit, despite progress being made on key strategic
initiatives.
-- Revenue impacted by tough market conditions in our flooring,
automotive and truck-trailer markets along with low customer
confidence in CTT following the quality issues of previous
years.
-- Profit significantly impacted by operational gearing effect
of the substantial reduction in revenue, together with the ongoing
effects of historical underinvestment along with operational
inefficiencies in our Colbond Americas and CTT businesses.
-- Significant reduction in net debt, principally due to the
GBP50m equity raise completed in February 2019.
-- Statutory loss before tax from continuing operation of
GBP61.2m is after GBP62.1m of non-underlying, mainly non-cash
items, including a GBP33.4m impairment of CTT's intangible assets
and property, plant and equipment ("PPE"), a GBP6.7m impairment of
Yihua Bonar's goodwill and PPE and a GBP1.8m impairment of the
goodwill attributed to Colbond Americas.
-- No dividend has been proposed for 2019. Given the Parent
Company's lack of distributable reserves, arising from the
deterioration in results in the year, along with other restrictions
related to the Group's financial condition and the terms of its
banking covenants, this situation is very unlikely to change in
2020.
Outlook
Trading in the first months of the 2020 financial year has been
challenging. Whist we have taken actions to allow our businesses to
operate responsibly and safely, and whilst all major facilities
continue to operate currently and customer demand has remained
close to expectations, the COVID-19 outbreak is creating enormous
uncertainty in the short-term both operationally and as regards the
level of demand for our products. We remain focused on seeking to
deliver the Offer from FVB as approved by shareholders, and on
developing contingency plans aiming to preserve the stability of
the Group's businesses in the event that the Offer does not
complete. Given the extraordinary current economic situation and
the pending decision on the Offer, we do not believe that we can
give meaningful guidance today as to the financial outcome for
2020
Daniel Dayan, Executive Chairman commented:
"Particularly challenging markets for the Group's products
across a range of sectors, together with the residual impact of
strategic and operational failures over several years, have
contributed to the very weak performance in 2019 and to the Group's
excess leverage. The Board acted decisively during the year to
strengthen the balance sheet, to begin much-needed investments and
restructuring and to realise value for shareholders. The proposed
sale to FVB would be the best outcome for the Group's stakeholders
and I very much hope that the Offer completes. If it cannot, we
will do our best to create a stable platform for the Group's
businesses and implement alternative plans to maximise value for
stakeholders."
27 March 2020
For further information, please contact:
Low & Bonar PLC 020 7535 3180
Daniel Dayan, Executive Chairman
Ian Ashton, Group Chief Financial Officer
Instinctif Partners 020 7457 2020
Matthew Smallwood
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.
EXECUTIVE CHAIRMAN'S STATEMENT
Overview
Having become Chairman in September 2018, it was clear that Low
& Bonar required a fundamental transformation
to improve the Group's financial, commercial and operational
performance. This transformation project was initiated
towards the end of 2018, as described in my Chairman's report at
that time, and included the requirement for additional equity to be
raised to secure sufficient time to successfully transform the
Group. Consequently, a GBP54m placing and open offer was undertaken
in February 2019.
However, the increasing depth of the issues facing the Group
during the first half of the year and the impact of deteriorating
market conditions on the Board's ability to progress the
transformation plan effectively, led it to two key decisions:
1. The need to change CEO to accelerate the transformation
programme further; and
2. The desire to give shareholders the option to realise the
value of the Group through exploring the sale of the Group
via a competitive process.
I took up the role of Executive Chairman on 2 July 2019,
combining the roles of Chairman of the Board and Chief Executive
for a limited period. Immediately, the Board initiated a process,
with the assistance of external corporate finance advisors, to
explore with third parties the value that might be realised from a
sale of the Group. This process was intense over the summer months
and culminated in an agreed offer from FVB, a private German
technology group and competitor in some parts of our business. This
offer, announced on 20 September 2019, has been described in detail
in other documents made available to shareholders and on the public
record. The current status of the Offer is that we are progressing
the required EU competition clearance, closely supporting FVB, and
we currently expect a final decision during April 2020.
In parallel with the sale process for the Group, the sale of the
Group's civil engineering businesses was completed
successfully over the summer, enabling a reduction in debt and
simplification of the portfolio promised last year.
Furthermore, investment programmes crucial to improving the
competitive position of the Group's businesses
have been progressed as rapidly as resources have allowed.
Specifically, major improvements have been made,
with further projects underway, at the Group's Colbond facility
near Asheville in the USA. This has led
to improvements in output, efficiency and quality in the
production of both Colback and Enka fabrics from this
facility, with significant additional progress expected during
the remainder of 2020. At the Group's CTT division, a major project
to improve emissions control was undertaken at the end of 2019, in
addition to a number of smaller projects focused on resolving
long-standing quality issues at the business's major facilities at
Hückelhoven and Fulda, both in Germany. A large project to automate
the visual inspection of finished products has also been initiated
at Hückelhoven and is expected to begin contributing to lower costs
and higher quality by the end of 2020.
Trading conditions proved very tough all year, with a
combination of factors contributing to a significant decline in
important markets for the Group, resulting in a year-over-year
decline in sales of 12.3%. These factors included the
much-publicised decline in automotive production, especially in
Europe, the impact of the US/China trade conflict, a slowdown in
building in many geographies, and uncertainty related to Brexit
impacting the UK, Europe's single largest carpet tile market.
However, the Group's poor financial performance was exacerbated by
poor manufacturing performance in the USA, prior to the improvement
projects mentioned earlier, and by the loss in late 2018 of a small
number of significant contracts in construction materials,
impacting Enka sales in the USA and Colback sales in Europe.
Long-standing quality and supply issues in the CTT business had
also eroded customer confidence and, despite quality improvements
evident during 2019, regaining confidence and business has proved
more lengthy and difficult than previously expected.
As the Board considered the Group's declining financial
performance during the year and need for urgent investment,
together with the reducing headroom under the covenants
associated with the Group's debt, it became clear that further
amendments of our debt agreements were required, as well as a
strategic decision as to the future options facing the Group. After
much discussion, the Board resolved to explore the sale of the
Group, believing this to be the most viable route to a satisfactory
outcome for all relevant stakeholders. I am pleased with the
further agreement reached with the Group's lenders on 27 March
2020, which demonstrates their continuing support of the Group.
I believe that the Board has worked well together, with the
addition of a representative of the Group's largest
shareholder as a Non-Independent Director, as this difficult
situation was faced. It has been a period of intense work
and consultation and I am pleased that the Board was able to
recommend the offer from FVB in September 2019.
The priorities for the Board in 2020 are to:
-- successfully complete the sale of the Group to FVB;
-- ensure that the necessary investment programmes are
well-defined and implemented to the extent possible;
-- ensure that the Group's businesses are as well-prepared as possible for the transition; and
-- in the event that the sale to FVB does not receive EU
competition clearance, execute contingency plans to maximise value
for all stakeholders.
Dividend
No new dividends are declared or recommended for 2019. Following
a significant impairment of investments and inter-company
receivables in the year, arising from the deterioration in results
during the year, the Parent Company of the Group currently has no
distributable reserves with which to pay a dividend. Along with the
pressure on the Group's balance sheet, restrictions arising from
the revisions to banking covenants agreed with the lenders and
announced in July 2019, as well as the need to finance crucial
investment and restructuring, this situation is very unlikely to
change in 2020. The final dividend relating to the 2018 financial
year was paid as planned in February 2019.
Our people
Low & Bonar is its people. Without their commitment, talents
and drive, the Group will not succeed. I am pleased
that despite the significant uncertainty created by the events
of 2019, the teams within Low & Bonar have delivered
and demonstrated great commitment to our customers and
businesses. The Board sought to take employee interests into
account as part of assessing the FVB offer for the Group.
Furthermore, as we have tackled the health and safety issues
arising from the COVID-19 outbreak, I have been very pleased with
the flexible response of Low & Bonar employees as we have
changed patterns of working, sought to minimise infection risk
within our facilities and responded to rapidly-changing regulations
and guidance around the world. I would like to thank everyone
involved for their efforts to continue serving customers and
supporting our businesses at this very difficult time.
Sustainability
Ensuring that Low & Bonar takes a responsible and leading
stance across all the facets of sustainability is one of the
Group's priorities. Today, sustainability is not only the right
thing to do, but a necessity. The Group's products help
create better sustainability outcomes, being lighter and using
fewer natural resources than those of many competitors and play
crucial roles in minimising the impact of the built environment. We
remain committed to minimising waste and energy usage and we strive
to meet all our social and regulatory commitments.
Development of the Board
There was further change on the Board during the year to 30
November 2019. As noted at the time and in last year's
Annual Report, Ian Ashton joined the Board as Group Chief
Financial Officer on 10 December 2018, replacing Simon
Webb, who left on 25 February 2019. Philip de Klerk left the
Board on 1 July 2019. Giulia Nobili joined the Board
from 10 July to 7 November 2019 as a representative of Sterling
Strategic Value Fund S.A., SICAV-RAIF ("Sterling"),
the Group's largest shareholder. Kevin Matthews stepped down
from the Board on 7 November 2019, following
his appointment as Executive Chairman of Scott Bader.
COVID-19 outbreak
Fortunately none of our employees, nor their immediate family
members, have been infected by COVID-19 as far as we are aware, but
our operations in China were affected at the start of the outbreak.
Our operations closed for the Chinese New Year as usual, but the
closure period was extended as directed by the Chinese authorities.
The Colback operations in Changzhou restarted with a one-week delay
on 10 February, though with some restriction, as not all operators
were able to return to Changzhou immediately after the holidays due
to quarantine and travel restrictions. While there have been
difficulties sourcing raw materials and transport services, these
issues have not significantly delayed production. Export sales have
continued as planned, but domestic sales have been badly impacted
by weak domestic demand and because many of our Chinese customers
have also suffered extended shutdowns and poor short-term market
conditions. Our Yihua Bonar operation in Yizheng was less affected
as a greater proportion of its employees are local and had not
travelled away for the New Year holidays. Yihua Bonar has also been
adversely impacted by weak domestic demand following customer
disruption, but, again, export shipments have been made as
planned.
We are very mindful that the further spread of COVID-19 now
being seen will certainly have an effect on demand levels in our
other markets, and as such is very likely to adversely affect
trading across the rest of the Group. The potential impact of this
is, inevitably, hard to predict at this point, but it is likely to
be significant in at least the short term.
In the remainder of the Group outside China, two of our small
manufacturing sites, Burlington in the USA and Dundee in the UK,
have recently temporarily closed following government guidance. The
remainder of the sites current remain fully operational. We have
not yet experienced any significant disruptions to production, nor
any material supply problems, but the likelihood of substantial
problems in the short-term is high. We have restricted travel by
personnel, primarily salespeople, to affected regions and are doing
what we can to support government actions to contain the spread of
the infection. The impact on demand, however, remains very
uncertain.
Low & Bonar businesses have all implemented infection
control procedures as recommended by local government and health
regulations and the health and safety of our employees continues to
be our primary concern during this period.
Daniel Dayan
Executive Chairman
27 March 2020
BUSINESS REVIEW
Colbond
2019 2018(1,2) Actual Constant
currency
(3)
Revenue GBP196.9m GBP219.3m (10.2%) (11.9%)
Underlying operating profit GBP10.9m GBP25.7m (57.6%) (58.7%)
Underlying operating margin 5.5% 11.7%
Statutory operating (loss)/
profit (GBP9.2m) GBP21.9m (142.0%)
Statutory operating margin (4.7%) 10.0%
(1) Restated for changes in operating segments following the
reorganisation (Note 18)
(2) Restated for prior year adjustments (See Note 17)
(3) Constant currency is calculated by retranslating comparative
period results at current period exchange rates
It was a challenging year for the Colbond division. 2019 started
with the reorganisation of the Building & Industrial and
Interiors & Transportation global business units into the new
Colbond division. With a simplified and accountable regional
structure our aim was to enable and improve customer focus and
agility. This has been successful as the customer has been placed
back at the centre of our activities and performance focus has
improved significantly, supported by customer feedback and a
reduction in customer complaints, particularly in our North
American operations.
However the competitive landscape that the division has
navigated throughout the year has been challenging. Revenue
has fallen 10.2% from the prior year with reductions seen in
most of the major markets including flooring, roofing,
transportation and building applications:
-- As reported last year, our North American business faced a
drop in sales in 2019 to a major customer in the building market
and whilst our relationship with the customer is still positive and
sales are still being made to them, this significantly impacted
revenue. We also lost a key tender in the roofing market in EMEA,
and together these issues have led to a decrease of 16% in our
building product sales from last year.
-- The transportation market has been weak in all regions driven
by the ongoing slow-down in the wider automotive market. This has
driven a 5% reduction in sales versus prior year in our automotive
markets.
-- The market environment in the flooring market has been
increasingly competitive throughout the year, particularly in EMEA
and APAC, with pricing having to be re-negotiated to maintain
volumes. This, along with disappointing sales in the decoration
market in APAC, has led to sales in our flooring and decoration
markets being 11% lower than prior year.
-- We have also been impacted by the ongoing US/China tariff
issues which have impacted market confidence and
led to weaker than expected demand in both North American and
APAC markets, as well as restricting the expected supply chain from
China to the USA.
Given the current and anticipated future performance of Yihua
Bonar and Bonar Changzhou (together our operations in China) and
Colbond Americas, the Board has determined it appropriate to
recognise a non-cash impairment of the goodwill and PPE allocated
to Yihua Bonar of GBP7.5m, a non-cash impairment of the intangible
assets and PPE of Bonar Changzhou of GBP6.7m and a GBP1.8m non-cash
impairment of goodwill of Colbond Americas. These have been
reported as non-underlying items.
Underlying operating profit for the year was GBP10.9m, 57.6%
lower than prior year with underlying operating margin reduced from
11.7% to 5.5%. Lower volumes in all parts of the business reduced
profitability with margin being impacted by price concessions,
lower levels of fixed cost coverage from reduced production, along
with some mix impact.
Operationally, we have experienced problems in our North
American Enka business, with production efficiency and output being
inconsistent throughout the year. We have taken further steps to
resolve these issues through the reorganisation of our planning and
production team, investment to improve production reliability and a
new efficiency measurement and management system.
We believe that the market environment will remain challenging
in 2020 with the US/China tariffs leading to continued
uncertainty and it is unlikely that the competitive position in
the flooring market or the slow-down in the transportation market
will significantly improve. We also expect 2020 to be significantly
impacted by COVID-19 although the impact of this cannot yet to be
quantified, as discussed in greater detail on page 5.
However, despite the disappointing year and ongoing market
challenges, we believe that the Colbond business
remains fundamentally strong and has many opportunities. We have
undertaken a further Group-wide transformation
programme to right-size the organisation which will bring cost
benefits going forward, and have taken significant steps
to stabilise the supply and planning processes to minimise
production inefficiencies and coverage losses.
Coated Technical Textiles
2019 2018(1) Actual Constant
currency
(2)
Revenue GBP120.4m GBP138.8m (13.3%) (13.0%)
Underlying operating (loss)/profit (GBP0.4m) GBP2.3m (117.4%) (118.2%)
Underlying operating margin (0.3%) 1.7%
Statutory operating (loss)/
profit (GBP36.6m) (GBP40.6m) 9.9%
Statutory operating margin (30.4%) (29.3%)
(1) Restated for changes in operating segments following the
reorganisation (Note 18)
(2) Constant currency is calculated by retranslating comparative
period results at current period exchange rates
It was a very disappointing year for the CTT division. Sales
were 13.3% lower than prior year with an underlying
operating loss of GBP0.4m, GBP2.7m below 2018. The slow-down of
the truck/trailer original equipment manufacturer (OEM) market in
Germany has played a large part in the deterioration of our
results, with tarpaulin and industrial sales in Germany and Eastern
Europe being significantly lower than prior year. We have also
faced increasing competitive pressures in some
of our key geographies, including APAC and the USA.
As reported in last year's Annual Report, a fire occurred in the
Lomnice coating plant in November 2018. This led to
the temporary closure of the site, with production only starting
again successfully in January 2019. Following the fire we
completed reviews of all thermal oil systems throughout the
Group and are implementing the resulting risk-reduction
actions.
Whilst we have made good progress in largely resolving the
production consistency problems which have been
prevalent in the division over previous years, the division is
still experiencing the knock-on impact of these quality issues
as customer confidence remains low and it is taking longer to
regain trust than previously anticipated.
Operationally we have worked hard to right-size the organisation
and to adjust to lower levels of production and demand. We have
taken advantage of reduced working time initiatives offered by the
German government to optimise flexibility and efficiency. However,
we have not been able to reduce fixed costs fast enough to offset
volume losses which inevitably impacted the margin. We have also
faced some technical challenges with key machinery in our Fulda
plant which impacted profitability in the last quarter of the year.
We now have capital investment plans in place to resolve the
under-investment of recent years and are expecting to see
improvements from the first half of 2020.
The markets in which we operate are still expected to deliver
long-term growth and we therefore still see growth potential for
our products. In 2020 we need to re-focus on our service to
customers, in terms of both the quality and availability of our
products, and we will continue our ongoing initiatives to reduce
our cost base.
As in the Colbond division, we also expect 2020 to be
significantly impacted by COVID-19 although we cannot yet quantify
the impact. This is discussed in greater detail on page 5.
Given the current and future anticipated performance of CTT, the
Board has determined it appropriate to recognise
a non-cash impairment of the intangible assets and PPE in CTT of
GBP33.4m. This has been reported as a non-underlying item.
Civil engineering - discontinued operations
2019 2018(1,2)
Revenue to date of disposal GBP49.3m GBP70.3m
Underlying operating profit GBP2.0m GBP0.2m
to date of disposal
Underlying operating margin 4.1% 0.3%
Statutory operating loss (GBP3.6m) (GBP7.0m)
to date of disposal
Statutory operating margin (7.3%) (10.0%)
(1) Restated for changes in operating segments following the
reorganisation (Note 18)
(2) Restated for prior year adjustments (See Note 17)
The civil engineering division was fully disposed of in 2019,
with the Construction Fibres ("CF") disposal completing on
1 July 2019 and the Needle-punched Non-woven ("NPNW") disposal
completing on 2 September 2019.
The results of the division for the period until disposal have
been presented as discontinued operations, with 2018
numbers also restated as discontinued operations.
Civil engineering's sales for the period before disposal were
GBP49.3m while underlying profits were GBP2.0m, GBP1.8m
higher than prior year. The reorganisation of the previous
organisational structure in 2018 led to quicker commercial
execution and reduced complexity. This, coupled with cost saving
actions initiated in 2018 being realised in 2019, led to the
increase in profits of GBP1.8m.
FINANCIAL REVIEW
Revenue
On a statutory basis, revenue decreased by 12.3%, due to a
combination of macro-economic factors, which adversely affected
several of our end markets, as well as the ongoing effects of
historical underinvestment, notably in CTT and the Colbond Americas
businesses.
Profit before tax (all figures are on a continuing, underlying
basis except where stated)
Profit before tax decreased by 94.6% to GBP0.9m (2018
(restated): GBP16.7m). Statutory loss before tax was GBP61.2m (2018
(restated): loss of GBP39.2m), after a net non-underlying charge of
GBP62.1m (2018 (restated): GBP55.9m).
Operating margins reduced to 1.6% against 6.1% (restated) last
year. The fall in margins was due to the lower sales, with
resulting lower leverage of the fixed cost base, and was despite
continued cost reduction throughout the year and the impact of a
small favourable movement in raw material prices.
As we present results in Sterling, the Group's reported results
are sensitive to the strength of Sterling against the Euro, US
Dollar, and Chinese Yuan. In 2019, the impact of foreign exchange
rate changes reduced reported profits by GBP0.5m.
Disposal of the civil engineering businesses
As part of a simplification of the Group's business, the
decision was taken in 2018 to exit the civil engineering
activities. Following the closure of the Ivanka site and the
transfer of the Enka business into Colbond in 2018, the Group
announced during 2018 its intention to divest the remaining civil
engineering businesses in 2019. As a result, two separate
divestment processes were initiated in the first half of the year
with the CF business being sold on 1 July 2019 and the sale of the
NPNW business completing on 2 September 2019.
The CF business was sold for net proceeds of GBP6.6m, leading to
a profit on disposal of GBP1.5m. The NPNW business was sold for net
proceeds of GBP14.0m, leading to a loss on disposal of GBP7.7m.
Equity raise
Early in the year, the Group raised net proceeds of GBP49.9m via
a placing and open offer (consisting of GBP53.9m of gross proceeds
less expenses of GBP4.0m). This strengthened the balance sheet and
enabled the Group to withstand a very challenging year, whilst also
commencing the much needed investments in the Asheville facility in
the USA and both CTT plants in Germany
Non-underlying items
There was a net non-underlying charge before tax of GBP62.1m
(2018 (restated): GBP55.9m) in relation to continuing operations
and GBP5.6m (2018 (restated): GBP6.6m) in relation to discontinued
operations. The key items within this are listed below:
Continuing operations
Restructuring costs (2019: GBP3.2m; 2018 (restated):
GBP3.7m)
GBP3.2m of costs were incurred in the year in the major
Group-wide transformation programme to right-size the organisation
and optimise the organisational structure. This included the
disentangling of the previous matrix structure across the Group,
and the move to a clearer regional structure within Colbond. Costs
include the non-underlying costs of headcount reduction, plus
certain costs associated with reviewing and optimising the Group's
warehouse footprint and other non-underlying consulting costs.
Costs in 2018 related to the first stage of the transformation
programme.
Coated Technical Textiles impairment (2019: GBP33.4m; 2018:
GBP39.0m)
The results of the CTT cash-generating unit ("CGU") were
significantly below expectations in the period to 31 May 2019
and as such a full impairment review was carried out. This
resulted in the impairment of the full value of the intangible
assets and PPE in the CGU. The impairment charge to intangible
assets was GBP8.8m with an impairment of GBP22.5m impacting PPE. In
the period to 30 November 2019 profitability in the CTT CGU
declined further and as such all assets capitalised in the second
half of the year have also been impaired, resulting in an
additional charge of GBP2.1m.
In the prior year, the full goodwill balance attributed to CTT
was impaired resulting in a total impairment charge of
GBP39.0m.
Yihua Bonar impairment (2019: GBP7.5m; 2018: GBPnil)
The results of the Yihua Bonar CGU, our woven operation in
China, were significantly below expectations in the period
to 31 May 2019, and as such a full impairment review was
completed at 31 May 2019. This resulted in the impairment
of the full value of the goodwill and PPE in the CGU. The
impairment charge to goodwill was GBP0.3m with an impairment of
GBP7.2m impacting PPE.
Bonar Changzhou impairment (2019: GBP6.7m; 2018: GBPnil)
The results of Bonar Changzhou, our Colbond business in China,
were disappointing in 2019 due to lower domestic demand and an
adverse impact from the changes to US/China tariffs, and as such a
full impairment review was completed. This resulted in an
impairment of GBP6.7m, GBP0.1m impacting intangible assets and
GBP6.6m impacting PPE.
Colbond Americas impairment (2019: GBP1.8m; 2018: GBPnil)
Due to the results of Colbond Americas in 2019, a full
impairment review was completed. This resulted in an impairment of
GBP1.8m to goodwill.
Closure of the Ivanka plant (2019: GBP0.4m; 2018: GBP0.5m)
In 2017, as part of the first stage of the strategic review of
civil engineering, it was decided to exit from the loss-making
weaving plant in Ivanka, Slovakia. The GBP0.4m in 2019 relates
to the ongoing costs of running the site until the remaining assets
(the land and buildings) are disposed of, plus the catch up
depreciation charge as the property is no longer classified as an
asset held for sale.
Provision for customs duties and fees (2019: (GBP0.1m); 2018:
GBP1.6m)
In previous periods, the Group identified some limited
irregularities in relation to customs duties in the UAE. These
related to sales arranged through a former overseas sales
office, which was closed several years ago. The 2018 non-underlying
charge of GBP1.6m and closing provision of GBP2.6m represented the
Group's best estimate of the liability. There has been no further
significant progress on the claim in the current year and there is
no substantial change in our view of the duty and penalties to be
paid. The GBP0.1m credit in the period primarily relates to foreign
exchange movements on the provision.
Impairment of the Dundee site (2019: GBP0.2m; 2018 (restated):
GBP0.1m)
In 2019, the results of the Dundee CGU deteriorated against
budget and as such indicators of impairment were present. Based on
the subsequent impairment review at 30 November 2019, the
recoverable assets of the Dundee CGU were found to be significantly
below the carrying value of the assets and therefore the full value
of the non-current assets needed to be impaired. Having reviewed
the results of the CGU over previous years, it was determined that
the impairment should have been recognised in previous periods and
therefore we have recorded a GBP1.3m prior year adjustment against
the opening 2018 PPE balance.
The GBP0.2m charge in 2019 and GBP0.1m charge in 2018 represents
the impairment of additions that have been capitalised in the
current and prior year.
Acquisition and disposal costs (2019: GBP2.2m; 2018:
GBP0.3m)
GBP2.2m of costs have been incurred in the year in relation to
the potential acquisition of the Group by FVB. GBP1.9m relates to
professional fees with GBP0.3m relating to employee retention
plans.
Amortisation of acquired intangible assets (2019: GBP1.7m; 2018:
GBP2.8m)
The amortisation of acquired intangible assets of GBP1.7m is
excluded from underlying profit in accordance with the Group's
accounting policies.
GMP equalisation additional liability (2019: GBPnil; 2018:
GBP4.0m)
A GBP4.0m liability was recorded in 2018 in respect of the UK
pension scheme, relating to a court ruling to equalise all GMP
benefits. There have been no significant updates to this ruling or
its application to our scheme and therefore a liability of GBP4.0m
is still deemed to be appropriate at 30 November 2019.
Customer settlement agreement (2019: GBP0.8m; 2018: GBPnil)
In 2019, a settlement was entered into with a customer of CTT
relating to products sold prior to 2017. This settlement extended
the Group's warranty obligations to the end of 2020 which is beyond
the contractual warranty obligations.
Amendments to the Senior Loan Note debt (2019: GBP2.7m; 2018:
GBPnil)
In the year, a GBP0.6m make-whole payment and a GBP2.1m fair
value adjustment were recorded following modifications to the
Senior Loan Note debt.
The remaining GBP1.6m of non-underlying charges before tax
primarily includes GBP0.2m relating to the operating losses
incurred following the temporary closure of the Lomnice site,
GBP0.9m impairment of R&D costs following the cancellation of a
significant development project and GBP0.4m of additional
impairments relating to intangible assets which are no longer
supportable.
Discontinued operations
Restructuring costs (2019: GBPnil; 2018 (restated): GBP0.5m)
Costs in 2018 relate to the impact of the Group-wide
transformation programme as it related to the civil engineering
entities.
Impairment of Hungary plant and equipment (2019: GBPnil; 2018
(restated): GBP5.0m)
In the prior year, Low & Bonar Hungary Kft incurred
significant operating losses. An impairment review was conducted
which resulted in an impairment of plant and equipment totalling
GBP2.3m. Following a review of the impairment in the current year,
an error in the mechanics of our impairment model was noted.
Correcting for these in the model at 30 November 2018 would have
led to an additional GBP2.7m impairment on the value of Hungary's
assets and therefore a total charge of GBP5.0m was recorded. This
business was sold as part of the civil engineering disposal.
Profit on disposal of the CF disposal group (2019: (GBP1.9m);
2018 GBPnil)
The Group disposed of the CF business on 1 July 2019. On
disposal of these assets a profit of GBP1.9m was recorded,
excluding selling costs.
Loss on disposal of the NPNW disposal group (2019: GBP5.9m; 2018
GBPnil)
The Group disposed of the NPNW business on 2 September 2019. On
disposal of these assets, a loss of GBP5.9m was recorded, excluding
selling costs.
Acquisition and disposal related costs (2019: GBP2.2m; 2018:
GBP0.3m)
Costs relate to the disposal of the civil engineering business
in the year and primarily relate to external consultancy costs and
professional fees.
Costs to exit the Bonar Natpet Joint Venture (2019: GBP0.2m;
2018: GBP0.8m)
This charge relates to additional costs incurred following the
Group's exit from the JV in January 2019. The provision at 30
November 2018 was GBP2.2m (presented as a liability directly
associated with assets held for sale) and has now been extinguished
following the exit.
Impairment of investments and inter-company receivables in the
Parent Company (the "Company")
In the year, an impairment charge of GBP100.8m has been recorded
in the Company against the cost of investments in its subsidiary
undertakings. In addition to this an impairment charge of GBP12.4m
has been recorded against inter-company receivables with an opening
IFRS 9 transition adjustment of GBP29.6m also being recorded. The
net result of these impairments is that the net assets of the
Company are now recorded at GBP106.9m which is reflective of the
open offer from FVB for the Group. Following these impairments, the
Company currently does not have distributable reserves from which
to issue dividends.
Taxation
The overall tax credit on continuing profit before tax was
GBP2.4m (2018 (restated): charge of GBP2.6m), a tax rate of 3.6%.
The underlying tax charge from continuing operations was GBP1.3m
(2018 (restated): GBP3.9m) an underlying effective tax rate of
181.6% (2018 (restated): 23.8%). The increase in the effective rate
relates primarily to losses arising in Germany for which no tax
credit has been recognised
Net debt
As at 30 November 2019, net debt (as defined in Note 19) was
GBP97.4m (2018: GBP128.5m). The biggest factor in this reduction
was the equity raise of GBP49.9m in the early part of the year. In
addition to this, the Group received net proceeds of approximately
GBP21m from the sale of the civil engineering division. Cash
outflow from operations was GBP10.4m (2018: inflow of GBP51.3m),
affected by an expected reduction in trade creditors as we
normalised our timing of half-year and year-end payments to
suppliers.
During the year, the Group spent GBP12.2m (2018: GBP15.2m) on
PPE and GBP1.6m (2018: GBP3.4m) on intangible assets. Of this, the
majority was invested in the Colbond business, notably in starting
the improvement programme in Asheville. We also commenced the
investment plan in CTT, with the initial focus on the quality
improvement plans.
Trade working capital as a percentage of revenue at year end
increased to 30% (2018: 21%), reflecting the increase in trade
working capital to GBP94.7m (2018: GBP90.1m) and the significant
reduction in revenue over the year.
The analysis of the Group's net debt is as follows:
2019 2018
GBPm GBPm
Cash and cash equivalents 29.8 47.8
Total interest-bearing loans and borrowings (129.7) (176.3)
Less: Net fair value adjustment on the amendment 2.5 -
of Senior Loan Note debt
-------------------------------------------------- --------- ----------
Net debt (97.4) (128.5)
-------------------------------------------------- --------- ----------
The Group's available debt facilities total GBP130.9m (2018:
GBP216.5m) and comprise the revolving credit facility ("RCF")
maturing in May 2023, Senior Loan Note debt scheduled for repayment
between September 2022 and September 2026 in equal tranches, and
RMB loan facilities available through to June 2020.
The Group renegotiated its debt facilities during the year. In
July 2019 we negotiated an initial relaxing of covenant tests as at
November 2019. Under the terms of these amendments, rather than
reverting to 3.0x at 30 November 2019, the leverage covenant would
remain at its existing level of 3.5x, before reducing to 3.0x at
May 2020. In addition, the interest cover covenant would be reduced
to 2.5x at November 2019, before returning to 3.0x at May 2020.
Under these revised financing terms, the Group agreed that, amongst
certain other undertakings, the Group will only pay dividends where
doing so would not cause leverage to increase above 2.5x and only
then once the Group has achieved a leverage ratio of <2.5x for
two successive covenant testing periods.
In September 2019 the Group engaged with its lenders and agreed
that the financial covenants which were due to be tested as at 30
November 2019 would be waived, in order to assist the Group in
progressing both its turnaround plan and the proposed transaction
with FVB. As part of these waivers, it was agreed that any further
drawings under the RCF would require majority lender consent and
that, in the event that the Offer were to lapse before 31 May 2020,
financial covenants would be tested within 14 days of such lapse
with respect to the financial position as at the previous
month-end. Whether the Offer were to have lapsed or not, the
scheduled covenant test as at 31 May 2020 was to occur.
In the light of the risk that the Offer may not complete, and
the fact that, if covenants were to be tested under the prior
arrangements, they would be breached, the Group reached an
agreement with its lenders on 27 March 2020 under which the lenders
will assist in providing a stable platform to allow the Group time,
if the Offer does not complete, to execute alternative plans. Under
the terms of this agreement, the lenders have agreed to extend the
existing covenant waivers until 30 November 2020, irrespective of
the status of the Offer. The agreement also requires the Group to
report on certain milestones associated with the Offer and, as
appropriate, the delivery of the alternative plans. The lenders
have also agreed to make available additional facilities of GBP12m,
the majority of which are under the RCF, with draw down requests on
these facilities to be reviewed on a case by case basis. Under the
agreement, the lenders will have the right to reinstate a stop on
drawings if the Group's forecast liquidity, covering the forward
thirteen weeks, looks likely to fall below certain levels. The
Group will provide certain additional conventional security and
guarantees to the lenders in connection with these further
drawings. In addition, a fixed asset loan agreement in China, under
which repayment of the outstanding RMB 70m balance was due on 30
June 2020, has been extended, with repayment now due on 30 December
2020, and the Group will provide enhanced security to the lender.
At the time of signing this report, the amendments to the lender
agreements have been approved by each of the lenders' credit
committees and signed by all parties. Certain elements of the terms
around the further drawings remain subject to full documentation,
including certain conditions precedent, notably around agreement
and execution of full documentation for the associated security.
These are expected to follow a customary format and the Group does
not envisage any scenario whereby these conditions will not be met.
For clarity, certain of the terms of the agreements will only come
in to effect if the FVB offer lapses.
The Group's leverage ratio increased from 3.2x in 2018 to 5.6x
at 30 November 2019.
Covenants are calculated with debt and adjusted EBITDA
translated into Sterling at average exchange rates to reduce the
impact of exchange rate volatility. At 30 November 2019, 47% (2018:
41%) 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.
Return on capital employed
Return on capital employed reduced to 2.8% from 8.8% (restated)
in 2018, the reduction driven principally by the decrease in
profitability in the year.
Earnings per share
Basic underlying earnings per share was 0.11p, a decrease of
3.30p from 3.41p (restated) in 2018. On a statutory basis, basic
earnings per share from continuing operations decreased from a loss
per share of 12.06p (restated) in 2018 to a loss per share of 9.13p
in 2019.
Dividends
In determining the level of dividend, the Board considers a
number of factors, including:
-- t he level of distributable reserves held by the Company, and
the availability of dividends from subsidiary companies from which
the 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 principal risks and uncertainties section
on pages 36 to 39 of the 2019 Annual Report.
The Board also considers the Group's stated dividend policy,
under which the Group intends to pay 40% of underlying profit
before tax on average over the medium and long term. However,
following the significant impairment of investments and
inter-company receivables in the year, arising from the
deterioration in results in the year , the Company currently does
not have distributable reserves from which to pay a dividend.
Therefore, no dividend will be paid for the current financial year
(2018: final dividend of 0.37 pence per share). In addition, and as
noted on page 11, as part of the renegotiation of its banking
facilities in July 2019, the Group will only pay dividends where
doing so would not cause leverage to increase above 2.5x and only
then once the Group has achieved a leverage ratio of <2.5x for
two successive covenant testing periods. The Group does not meet
these conditions at the present time.
Pensions
The Group has a number of defined benefit schemes in place, both
in the UK and overseas. In April 2019, the Group supported the UK
scheme in its decision to enter into a buy-in of GBP82.1m of the UK
scheme's liabilities to reduce the scheme's exposure to investment,
inflation and mortality risk and to protect the long-term financial
security of members' benefits.
At 30 November 2019, the UK scheme showed a surplus of GBP4.2m
(2018: surplus of GBP11.0m). The reduction in the surplus was
driven by two factors:
1) an actuarial loss of GBP6m due to the price paid for the
insurance policy purchased in the buy-in being slightly higher than
the accounting liability in respect of the members insured; and
2) a reduction in the discount rate from 2.9% at 30 November 2018 to 1.9% at 30 November 2019.
The net deficit in the Group's overseas schemes in Germany and
the USA increased to GBP13.6m (2018: GBP10.7m) mainly as a result
of unfavourable changes to financial assumptions. In the year, the
Belgian scheme was disposed of as part of the NPNW disposal.
At 30 November 2018, an allowance of GBP4.0m was included within
defined benefit obligations for the potential impact of the GMP
equalisation ruling. Since the prior year, there has been little
movement on this ruling and there have been no trigger points in
the year to suggest that our initial estimate is not reasonable.
Additionally the Trustees have not yet formed a view as to the
impact of the ruling on the scheme and as such we do not propose to
adjust our initial
estimate of GBP4.0m at 30 November 2019.
Going concern
At the time of signing these financial statements, there remain
several material uncertainties related to events or conditions that
may cast doubt on the Group's ability to continue as a going
concern and, therefore, that it may be unable to realise its assets
and discharge its liabilities in the normal course of business.
The material uncertainties are:
1. Whether the Offer from FVB completes or lapses. For the
avoidance of doubt there is a risk that it lapses.
2. Whether, in the event that the Offer lapses, the remaining
conditions are met to enable the Group to access the new funds.
3. Whether, in the event that the Offer lapses, the Group
implements the alternative plans within the timetable agreed with
the lenders.
4. Whether, in the event that the Offer lapses, the Group
maintains certain levels of liquidity and hence access to the new
funds available at the levels required prior to implementing the
alternative plans.
5. Whether, in the event that the Group does not achieve 3 or 4
above, the lenders continue to support the Group in order to allow
the Group to complete the execution of the alternative plans,
including potentially providing a further waiver with respect to
the 30 November 2020 covenant tests.
6. Market conditions over coming months in light of the
continuing spread of the COVID-19 virus and the measures being
adopted in much of the world to address it, which could lead to
lower than expected cash flows, at levels which may cause the
Group's liquidity to fall below the minimum levels required under
the new banking arrangements referenced above and so leave the
group unable to access the funds.
However, the Directors have an expectation, which they believe
is reasonable, that either the Offer will complete successfully,
or, in the event that the Offer lapses, that either an alternative
source of funding would be found by 30 November 2020, or that
lenders and other stakeholders would continue to support the Group
beyond 30 November 2020 for a sufficient period of time to allow
alternative plans to be executed. Accordingly, but recognising the
high degree of uncertainty in respect of the dynamic situation
unfolding with COVID-19, and the likely impact of this on the
global economy, the Directors believe that it is appropriate to
prepare the financial statements on a going concern basis. The
financial statements do not reflect any adjustments that would be
required to be made, if they were prepared on a basis other than
the going concern basis.
Please refer to the basis of preparation on pages 19-21 for
further details.
Brexit
We continue to monitor the potential impact of the UK's decision
to leave the European Union. The UK represents a small percentage
of the Group's direct sales (around 5%, 50% of which originate from
UK-based entities), and we have one relatively small UK
manufacturing facility. Additionally, the fluctuations in exchange
rates arising from the uncertainty caused by Brexit may have an
impact on the Group's Sterling results.
Ian Ashton
Group Chief Financial Officer
27 March 2020
Co ns olid a t ed Inc ome Sta te m e nt
f or t he y ear e nded 30 Nov e mber
2019 2018
Non-underlying Non-underlying
Underlying (Note 4) Total Underlying (Note 4) Total
(restated (restated (restated
- Note - Note - Note
17) 17) 17)
Note GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 317.3 - 317.3 361.6 - 361.6
----------- --------------- -------- ----------- --------------- ----------
Operating profit/(loss) 2 5.1 (59.4) (54.3) 22.2 (55.6) (33.4)
Financial income 0.2 - 0.2 0.2 - 0.2
Financial expense (4.4) (2.7) (7.1) (5.7) (0.3) (6.0)
----------- --------------- -------- ----------- --------------- ----------
Net financing costs (4.2) (2.7) (6.9) (5.5) (0.3) (5.8)
----------- --------------- -------- ----------- --------------- ----------
Profit/(loss) before
taxation 0.9 (62.1) (61.2) 16.7 (55.9) (39.2)
Taxation (1.3) 3.7 2.4 (3.9) 1.3 (2.6)
----------- --------------- -------- ----------- --------------- ----------
Profit/(loss) after
taxation (0.4) (58.4) (58.8) 12.8 (54.6) (41.8)
Profit/(loss) for
the year from continuing
operations (0.4) (58.4) (58.8) 12.8 (54.6) (41.8)
----------- --------------- -------- ----------- --------------- ----------
Profit/(loss) for
the year from discontinued
operations 1.2 (4.8) (3.6) (0.3) (6.7) (7.0)
----------- --------------- -------- ----------- --------------- ----------
Profit/(loss) for
the year 0.8 (63.2) (62.4) 12.5 (61.3) (48.8)
----------- --------------- -------- ----------- --------------- ----------
Attributable to
Equity holders of
the Company 0.7 (60.4) (59.7) 12.0 (61.3) (49.3)
Non-controlling interest 0.1 (2.8) (2.7) 0.5 - 0.5
----------- --------------- -------- ----------- --------------- ----------
0.8 (63.2) (62.4) 12.5 (61.3) (48.8)
----------- --------------- -------- ----------- --------------- ----------
Earnings per share 5
Continuing operations:
Basic (0.09p) (9.13p) 3.50p (12.06p)
Diluted (0.09p) (9.13p) 3.46p (12.06p)
Discontinued operations:
Basic 0.20p (0.59p) (0.09p) (1.99p)
Diluted 0.20p (0.59p) (0.08p) (1.99p)
Total:
Basic 0.11p (9.72p) 3.41p (14.05p)
Diluted 0.11p (9.72p) 3.38p (14.05p)
Co ns olid a t ed S t at e m e nt of C omp r e h ensive Inc o
me
f or t he y ear e nded 30 Nov e mber
2019 2018
(restated)
GBPm GBPm
Loss f o r t he y e ar
Ot h er c ompre h ens ive (loss)/in c ome
Items that will not be reclassified subsequently
to profit or loss: (62.4) (48.8)
Actuarial (loss)/gain on defined benefit pension
schemes (13.7) 3.5
D e f e rred tax on de f i n ed be n e fit pe nsion
s ch emes 3.8 (1.4)
Items that may be reclassified subsequently to
profit or loss:
E xch a nge di ff ere nc es on t r a nslation of
f oreign operat ions (1.6) 1.6
Total ot h er (loss)/ c ompre h ens ive in c ome
f or the y e ar, net of t ax (11.5) 3.7
-------- -----------
Tot al c o m prehensive loss f or the ye ar (73.9) (45.1)
-------- -----------
Att ribut a ble to
E quity h olders of t he Company (71.1) (45.7)
N on-c o n trolli ng in terest (2.8) 0.6
-------- -----------
Total (73.9) (45.1)
-------- -----------
Co ns olid a t ed Balance She et
a s at 30 Nov ember
2019 2018
(restated
- Note 17)
No te GBPm GBPm
Non-current assets
Goodwill 10 25.0 28.2
In ta ngible assets 9 10.7 22.7
P ropert y, pla nt a nd e q uipm
e nt 9 87.9 133.1
Investment in joint venture 0.6 -
Inv estme nt in asso ciates - 0.8
D e f e rred tax assets 0.8 4.7
Post-employment benefits 7 4.2 11.4
129.2 200.9
Current assets
Inventories 78.2 93.9
T rade a nd ot h er re c eiv
ables 48.8 77.7
Cash a nd c a sh equ i v ale
n ts 29.8 47.8
Current tax receivables 2.2 -
Assets classified as held for
sale - 2.7
------ ------------
C urr e nt lia bili t i es 159.0 222.1
In terest-bearing loa ns a nd
borrowings 9.7 5.0
Curre nt tax liabilities 0.6 0.7
T rade a nd ot h er pa y ables 46.8 92.7
P rovisio ns 8 4.7 3.8
Liabilities directly associated with assets held
for sale - 2.2
61.8 104.4
------ ------------
Net curr e nt ass e ts 97.2 117.7
------ ------------
Total assets less current liabilities 226.4 318.6
Non-current liabiliti es
Interest-bearing loans and borrowings 120.0 171.3
D e f e rred tax liabilities 4.7 12.7
P ost-employ m e nt be n e fits 7 13.6 11.1
Provisions 8 0.5 -
Other payables 0.1 0.8
------ ------------
138.9 195.9
------
Net assets 87.5 122.7
------ ------------
Equi ty a t tribut a b le to e qui ty h old ers
o f the Company
Sh a re c apital 65.4 47.4
Sh a re premium a c cou nt 74.8 74.8
Other reserve 31.9 -
T ra nslation reserve (35.7) (24.9)
Retained earnings (52.3) 18.8
------ ------------
Total equity attributable to
------------
Equity holders of the Company 84.1 116.1
------------
Non-controlling interest 3.4 6.6
------ ------------
Total equity 87.5 122.7
------ ------------
Co ns olid a t ed C ash F l ow S t a t ement
f or t he y ear e nded 30 Nov e mber
2019 2018
(restated)
GBPm GBPm
Loss f o r t he y e ar from c ontinuing o p era tions (58.8) (41.8)
Loss for the year from discontinued operations (3.6) (7.0)
------- ------------
Loss for the year (62.4) (48.8)
Adjustments for:
D e pre ciation 10.6 15.8
Amortisation 3.2 4.1
Income tax (credit)/ expe nse (2.4) 3.3
Net financing costs 6.9 5.8
Share of profit from joint venture (0.1) (0.1)
Profit on disposal of the CF business (net of FX recycling) (1.5) -
Loss on disposal of the NPNW business (net of FX recycling) 9.5 -
FX recycling on Bonar Natpet exit (0.8) -
Civil Engineering impairment charge - 5.0
CTT impairment charge 33.4 39.0
Dundee impairment charge 0.2 0.1
Yihua Bonar impairment charge 7.5 -
Bonar Changzhou impairment charge 6.7 -
Colbond Americas impairment charge 1.8 -
ERP impairment charge - 1.5
Other impairment charges 1.1 1.0
Non-cash pension charges 0.3 4.5
Other non-cash income 0.6 (0.2)
Decrease in inventories 1.4 4.4
Decrease in trade and other receivables 7.8 9.5
(Decrease)/increase in trade a nd ot h er pa y ables (35.9) 4.0
Increase in provision for disposal of Bonar Natpet
(liabilities held for sale) 0.2 0.7
Increase in other provisions 0.5 2.1
Loss/(gain) on disposal of non-current assets 0.9 (0.2)
Equity-settled share-based payment 0.1 (0.2)
------- ------------
C as h (outflow)/ inflow from o p erations (10.4) 51.3
In terest re c eiv ed 0.1 0.1
In terest paid (5.4) (5.2)
T a x paid (3.0) (5.4)
Pension cash contributions (3.6) (3.4)
------- ------------
Net cash (outflow)/ inflow from o p era t ing ac tivi
t i es (22.3) 37.4
------- ------------
Net proceeds from the disposal of the CF business 6.6 -
Net proceeds from the disposal of the NPNW business 12.2 -
Proceeds from the disposal of fixed assets 0.1 2.6
Payment on exit of Bonar Natpet (2.4) -
Dividend from joint venture 0.4 -
Acquisition of propert y, pla nt a nd equipm e nt (12.2) (15.2)
Intangible assets purchased (1.6) (3.4)
------- ------------
Net cash inflow/( o u t flow) from inve s ting activi
ties 3.1 (16.0)
------- ------------
D rawdown of borrow i ngs 24.7 129.0
Re pa y me nt of borrowings (70.3) (127.9)
Loan fees repaid (0.7) (1.6)
Proceeds of share issues to employees - 0.2
Proceeds from equity raise 53.9 -
Costs associated with the equity raise (4.0) -
Unclaimed dividends 0.2 -
Equity dividends paid (1.2) (10.1)
Dividends paid to non-controlling interests (0.4) -
------- ------------
Net cash inflow/(outflow) from financing activities 2.2 (10.4)
------- ------------
Net cash (outflow)/ inflow (17.0) 11.0
------- ------------
C as h a nd cash e quiva lents at s t art of ye ar 47.4 35.5
F oreign e x ch a nge dif f ere n c es (0.8) 0.9
C as h a nd cash e quiva lents at e nd of ye ar 29.6 47.4
------- ------------
Co ns olid a t ed S t at e m e nt of Cha n ges in Equity
f or t he y ear e nded 30 Nov e mber
Equity
attributable
to equity Non-controlling
Share Share Other Translation Retained holders interest Total
capital premium reserve reserve earnings of the equity
Company
GBP GBP GBPm GBP m GBP GBP m GBP m GBPm
m m m
At 30 November
2017
(as previously
reported) 47.4 74.6 - (26.4) 78.3 173.9 6.4 180.3
Prior year
adjustments
(Note 39) - - - - (2.0) (2.0) - (2.0)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
At 30 November
2017
(restated) 47.4 74.6 - (26.4) 76.3 171.9 6.4 178.3
(Loss)/profit
for
the year - - - - (46.9) (46.9) 0.5 (46.4)
Other
comprehensive
income - - - 1.5 2.1 3.6 0.1 3.7
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
Total
comprehensive
profit/(loss)
for
the year - - - 1.5 (44.8) (43.3) 0.6 (42.7)
Divid ends p a
id
to
Ordinary
Shareho
l ders - - - - (10.1) (10.1) - (10.1)
Dividends paid - - - - - - - -
to
Non-Controlling
interests
S hares iss u ed - 0.2 - - - 0.2 - 0.2
S hare - b as ed
paym e nt - - - - (0.2) (0.2) - (0.2)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
Net inc r e as
e/(decrease)
f o r the ye ar - 0.2 - 1.5 (55.1) (53.4) 0.6 (52.8)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
At 30 Nove m b
er
2018 (restated) 47.4 74.8 - (24.9) 21.2 118.5 7.0 125.5
Prior year
adjustments
(Note 39) - - - - (2.4) (2.4) (0.4) (2.8)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
At 30 November
2018
(restated) 47.4 74.8 - (24.9) 18.8 116.1 6.6 122.7
Opening balances
adjustment on
application
of new
standards
(IFRS 9) - - - - (0.6) (0.6) - (0.6)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
At 30 November
2018
(adjusted) 47.4 74.8 - (24.9) 18.2 115.5 6.6 122.1
Loss for the
year - - - - (59.7) (59.7) (2.7) (62.4)
Other
comprehensive
loss - - - (1.5) (9.9) (11.4) (0.1) (11.5)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
Total
comprehensive
loss for the
year - - - (1.5) (69.6) (71.1) (2.8) (73.9)
Divid ends p a
id
to
Ordinary
Shareho
l ders - - - - (1.2) (1.2) - (1.2)
Unclaimed
dividends - - - - 0.2 0.2 - 0.2
Dividends paid
to
non-controlling
interests - - - - - - (0.4) (0.4)
S hares iss u ed
(net of costs)
(Note
16) 18.0 - 31.9 - - 49.9 - 49.9
S hare - b as ed
paym e nt - - - - 0.1 0.1 - 0.1
FX recycled from
reserves - - - (9.3) - (9.3) - (9.3)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
Net inc r e as
e/(decrease)
f o r the ye ar 18.0 - 31.9 (10.8) (70.5) (31.4) (3.2) (34.6)
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
At 30 Nove m b
er
2019 65.4 74.8 31.9 (35.7) (52.3) 84.1 3.4 87.5
--------- --------- --------- ------------- ---------- ------------- ----------------- --------
No t es
1. Basis of pre p ara t i on
This announcement was approved by the Board of Directors on 27
March 2020.
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. UK company law requires
directors to consider whether it is appropriate to prepare the
financial statements on the basis that the Company and the Group
are a going concern.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 30 November 2019
or 2018 but is derived from those accounts. Statutory accounts for
2018 (audited by KPMG LLP) have been delivered to the Registrar of
Companies and those for 2019 are available to view on the Company's
website at www.lowandbonar.com/investors and will also be available
shortly at http://www.morningstar.co.uk/uk/NSM . The auditor has
reported on those accounts. Their report for 2019 was (i)
unqualified, (ii) contains a number of material uncertainties in
respect of going concern to which the auditor drew attention by way
of emphasis without modifying their report and (iii) did not
contain a statement under section 498(2) or (3) of the Companies
Act 2006. KPMG LLP's report for the accounts of 2018 was (i)
unqualified, (ii) contained a material uncertainty in respect of
going concern to which the auditor drew attention by way of
emphasis without modifying 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.
Going concern
The Group closely monitors and manages its funding position
throughout the year, including monitoring forecast compliance with
covenants and available facilities to ensure it has sufficient
headroom to fund operations. Forecasts are produced regularly and
these, along with related sensitivity analyses, allow management to
proactively manage liquidity or covenant compliance risks in a
timely manner.
During 2019, the Directors took action to strengthen the Group's
balance sheet. These actions included raising GBP50m of equity,
completing the sale of the civil engineering businesses, and
heavily restricting dividend payments. Given weaker than expected
trading, management also took action to implement certain cost
saving programmes, to reduce planned operational expenditure and
general and administrative spend, and to better control working
capital. As announced in May 2019, the Board also began at that
point to explore other opportunities to maximise stakeholder value,
and, as announced on 20 September 2019, the boards of directors of
the Group and of FV Beteiligungs-GmbH (a wholly owned subsidiary of
Freudenberg SE, hereafter referred to as "FVB") reached agreement
on a recommended acquisition of Low & Bonar PLC and its
subsidiaries ("the Offer") by FVB. The Offer was approved by the
Group's shareholders on 5 November 2019 and remains subject to
European Union competition approval by the European Commission
("EC").
As a consequence of the continued weaker than expected trading
performance announced at various points during the year, as well as
a deterioration in outlook, and also in light of the Group having
less flexibility in managing supplier credit terms than had been
the case historically, the Group engaged with its lenders and
agreed that the financial covenants which were due to be tested as
at 30 November 2019 would be waived, in order to assist the Group
in progressing both its turnaround plan and the Offer. As part of
these waivers, it was agreed that any further drawings under the
Group's Revolving Credit Facility (the "RCF") would require
majority lender consent and that, in the event that the Offer were
to lapse before 31 May 2020, financial covenants would be tested
within 14 days of such lapse with respect to the financial position
as at the previous month-end. Whether the Offer were to have lapsed
or not, the scheduled covenant test as at 31 May 2020 was to occur.
Were the financial covenants to have been tested under the waiver
terms as referenced above, then they would have been breached.
At the time of publication of this report, and according to the
EC's own guidelines, a formal decision on the Phase 1 review of the
competition approval should be provided by 17 April 2020. The EC
will provide feedback to the parties on its preliminary assessment
of the application ahead of that date, which may include a
preliminary view as to the likelihood of Phase 1 clearance. The
Directors have a reasonable basis to believe that, under this
timetable, if the EC unconditionally approves the Offer during
Phase 1, the acquisition is expected to complete before 30 April
2020 or shortly thereafter. In this scenario, the Directors have
good reason to believe that FVB has sufficient resources, and the
intention, to enable the Group to meet its debts as and when they
fall due, including, as may be required, the repayment of the RCF
and the Private Placement Notes.
There remains a risk that the EC will not approve the
acquisition either (i) unconditionally during the initial phase of
the antitrust process, which could cause the offer to lapse, or
(ii) before the longstop date of 30 June 2020. Were the Offer to
lapse, the Board would seek to execute alternative plans to realise
or preserve stakeholder value. This could, amongst other things,
include a sale of the Group as a whole or of its constituent parts,
raising additional capital, or a refinancing of its debt (the
"alternative plans").
In the light of the risk that the Offer may not complete, and
the fact that, if covenants were to be tested under the prior
arrangements, they would be breached, the Group reached an
agreement with its lenders on 27 March 2020 under which the lenders
will assist in providing a stable platform to allow the Group time,
if the Offer does not complete, to execute alternative plans. Under
the terms of this agreement, the lenders have agreed to extend the
existing covenant waivers until 30 November 2020, irrespective of
the status of the Offer. The agreement also requires the Group to
report on certain milestones associated with the Offer and, as
appropriate, the delivery of the alternative plans. The lenders
have also agreed to make available additional facilities of GBP12m,
the majority of which are under the RCF, with draw down requests on
these facilities to be reviewed on a case by case basis. Under the
agreement, the lenders will have the right to reinstate a stop on
drawings if the Group's forecast liquidity, covering the forward
thirteen weeks, looks likely to fall below certain levels. The
Group will provide certain additional conventional security and
guarantees to the lenders in connection with these further
drawings. In addition, a fixed asset loan agreement in China, under
which repayment of the outstanding RMB 70m balance was due on 30
June 2020, has been extended, with repayment now due on 30 December
2020, and the Group will provide enhanced security to the lender.
At the time of signing this report, the amendments to the lender
agreements have been approved by each of the lenders' credit
committees and signed by all parties. Certain elements of the terms
around the further drawings remain subject to full documentation,
including certain conditions precedent, notably around agreement
and execution of full documentation for the associated security.
These are expected to follow a customary format and the Group does
not envisage any scenario whereby these conditions will not be met.
For clarity, certain of the terms of the agreements will only come
in to effect if the FVB offer lapses.
Accordingly, if the Offer were to lapse, the Group's ability to
remain a going concern will be dependent on implementing the
alternative plans.
In the absence of a significant new transaction or significant
injection of debt and/or equity within such timeframe as is set out
in the recently updated agreements, forecasts indicate that
covenants would be breached when tested at 30 November 2020, and
therefore if further waivers were not agreed the lenders could
demand accelerated repayment of their debt. In the event of such a
demand, the Group would not expect to have the funds to make these
repayments in full.
The COVID-19 virus will clearly have an effect on the Group as
it will on virtually all businesses in most geographies over the
coming weeks and months. The Board is monitoring this closely, but
at this stage it is too early to fully understand and quantify its
impact on trading and what the wider impact may be on the Group.
Given the Group's financial position, the impact on liquidity is
potentially material. Significant reduction in revenue could lead
to lower than expected cash flows, at levels which may cause the
Group's liquidity to fall below the minimum levels required under
the new banking arrangements referenced above and so leave it
unable to access the funds it had been expecting to be able to draw
on as outlined above.
Accordingly, at the time of signing these financial statements,
there remain several material uncertainties related to events or
conditions that may cast doubt on the Group's ability to continue
as a going concern and, therefore, that it may be unable to realise
its assets and discharge its liabilities in the normal course of
business.
For further clarity, the material uncertainties are:
1. Whether the Offer from FVB completes or lapses. For the
avoidance of doubt there is a risk that it lapses.
2. Whether, in the event that the Offer lapses, the remaining
conditions are met to enable the Group to access the new funds.
3. Whether, in the event that the Offer lapses, the Group
implements the alternative plans within the timetable agreed with
the lenders.
4. Whether, in the event that the Offer lapses, the Group
maintains certain levels of liquidity and hence access to the new
funds available at the levels required prior to implementing the
alternative plans.
5. Whether, in the event that the Group does not achieve 3 or 4
above, the lenders continue to support the Group in order to allow
the Group to complete the execution of the alternative plans,
including potentially providing a further waiver with respect to
the 30 November 2020 covenant tests.
6. Market conditions over coming months in light of the
continuing spread of the COVID-19 virus and the measures being
adopted in much of the world to address it, which could lead to
lower than expected cash flows, at levels which may cause the
Group's liquidity to fall below the minimum levels required under
the new banking arrangements referenced above and so leave the
group unable to access the funds.
However, the Directors have an expectation, which they believe
is reasonable, that either the Offer will complete successfully,
or, in the event that the Offer lapses, that either an alternative
source of funding would be found by 30 November 2020, or that
lenders and other stakeholders would continue to support the Group
beyond 30 November 2020 for a sufficient period of time to allow
alternative plans to be executed. Accordingly, but recognising the
high degree of uncertainty in respect of the dynamic situation
unfolding with COVID-19, and the likely impact of this on the
global economy, the Directors believe that it is appropriate to
prepare the financial statements on a going concern basis. The
financial statements do not reflect any adjustments that would be
required to be made, if they were prepared on a basis other than
the going concern basis.
New accounting standards
(i) IFRS 9 Financial Instruments
For the Group, transition to IFRS 9 is effective from 1 December
2018 with this Annual Report being the first to be published in
accordance with IFRS 9. The Group has elected not to restate
comparatives on initial application of IFRS 9, instead the opening
impact of adoption of IFRS 9 has been recognised in reserves.
The Group's use of financial instruments is limited to
short-term trading balances such as receivables and payables and
borrowings. The classification and measurement requirement of IFRS
9 therefore did not have a significant impact on the Group. The
Group continues to measure at fair value all financial assets
previously held at fair value under IAS 39. There are also no
changes in classification and measurement for the Group's financial
liabilities.
The adoption of IFRS 9 has fundamentally changed the Group's
accounting for impairment losses for financial assets by replacing
IAS 39's incurred loss approach with a forward-looking ECL
approach. As part of the transition exercise, we identified a
difference to trade receivables calculated for our CTT division.
The impact is to increase the provision against trade receivables
by approximately GBP0.1m resulting from an estimate of lifetime
ECLs being applied to all receivables, even those not past due. In
accordance with IFRS 9, this
adjustment is reflected as an opening retained earnings
adjustment in these financial statements. This adjustment has a
minimal impact on earnings per share.
The impact of IFRS 9 on the financial instruments in the Company
relates to adopting the ECL approach on inter-company receivables.
The impact of adopting the standard has been a GBP29.6m increase in
the provision against inter-company receivables. This has been
reflected as an opening retained earnings adjustment.
We also identified a further adjustment to the accounting
treatment of non-substantial debt modifications under IFRS 9 of
GBP0.6m (GBP0.5m net of tax). This adjustment is also reflected as
an opening retained earnings adjustment in these financial
statements.
(ii) IFRS 15 Revenue from Contracts with Customers
For the Group, transition to IFRS 15 is effective from 1
December 2018 with this Annual Report being the first to be
published in accordance with IFRS 15. The Group has elected to
apply the new standard retrospectively with the cumulative effect
of initially applying the standard recognised at the date of
initial application. As such,
comparatives for the year ended 30 November 2018 are not
restated.
IFRS 15 replaces existing revenue guidance including IAS 18
"Revenue", and sets out the requirements for recognising revenue
from contracts with customers. The standard requires entities to
apportion revenue earned from contracts to individual promises, or
performance obligations, on a stand-alone selling price basis,
based on a five-step model:
-- Step 1: Identify the contract(s) with a customer
-- Step 2: Identify the performance obligations in the contract
-- Step 3: Determine the transaction price
-- Step 4: Allocate the transaction price to the performance obligations in the contract
-- Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
The Group's performance obligations are mainly limited to the
delivery of goods and there is therefore no significant change
required to the accounting previously adopted under IAS 18. The net
impact to the opening balance sheet, balance sheet as at 30
November 2019 and earnings per share is therefore immaterial.
New IFRS not yet effective
IFRS 16 Leases
For the Group, transition to IFRS 16 took effect from 1 December
2019. The half-year results for the period ending 31 May 2020 will
be IFRS 16 compliant with the first Annual Report published in
accordance with
IFRS 16 being for the year ending 30 November 2020.
IFRS 16 provides a single on-balance sheet accounting model for
lessees which recognises a right-of-use asset, representing its
right to use the underlying asset, and lease liability,
representing its obligations to make payment in respect of the use
of the underlying asset. The distinction between finance and
operating leases for lessees is removed. In addition, the profile
of expenses related to leasing arrangements will change. Straight
line operating lease expenses will be replaced by the recognition
of depreciation of the right-of-use asset and interest charges on
lease liabilities.
The Group expects to apply the exemptions available in respect
of leases which are less than 12 months long and those which have
been classified as leases of low-value items. In addition, the
Group expects to apply the practical expedient to all contracts,
previously assessed as containing a lease under IAS 17, without
reassessing whether such contracts meet the definition of a lease
under IFRS 16. The Group has opted to use the modified
retrospective approach on all leases. Property leases are assessed
on an individual basis and other leases are separated into lease
classes by geography.
The key judgements in determining the impact of the new standard
include: the Group's borrowing rate at 30 November 2019, the
composition of the Group's lease portfolio at transition date, the
Group's view on whether renewal options will be exercised, and the
potential impact of a day-1 impairment to any of the assets
brought
onto the balance sheet.
The most significant financial impact will be that the Group's
PPE leases will be brought onto the balance sheet resulting in an
increase in right-of-use assets and lease liabilities, and
depreciation and interest expense in the income statement, rather
than the current lease expense included in operating expenses. We
anticipate that
an asset in the range of GBP4.1m-GBP5.2m will be recognised with
a corresponding liability in the range of GBP14.7m-GBP16.5m. The
estimated impact on the 2020 income statement would be savings of
cGBP3.3m at an EBIT level, and GBP2.6m of PBT. The estimated impact
on EPS would be 0.003p. In determining the value of the asset to be
brought onto the balance sheet, a day-1 impairment of cGBP6.9m will
be recognised based on the IAS 36 impairment reviews completed at
30 November 2019. The impairment relates to leases in the CTT and
Yihua Bonar CGUs.
Alternative Performance measures
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;
-- adjusted earnings before interest, tax, depreciation and
amortisation, IFRS 2 charge and pension administration costs
(adjusted EBITDA). This is defined in Note 19;
-- net debt. This is defined in Note 19;
-- return on capital employed. This is defined in Note 19; and
-- constant currency which retranslates prior results at the
current period's rates of exchange.
Prior year restatements
Please refer to Note 17 for details on the prior year
restatements which have been recorded in the year.
2. S e gment al inf orma tion
The Group's principal activities are in the international
manufacturing and supply of those performance materials commonly
referred to as technical textiles. In October 2018, the Board
approved the combination of the Building & Industrial,
Interiors & Transportation and Dundee business units into one
single group known as "Colbond". Following this reorganisation,
effective 1 December 2018, the Group's reportable segments are as
follows:
-- The Colbond segment, selling products to the building,
flooring, industrial and automotive industries, and comprising the
Group's Colback and Enka technologies, along with the woven product
produced in China. This segment comprises three business segments,
organised regionally, being EMEA, APAC and the Americas. These
three regional business segments possess similar economic
characteristics, products and services, manufacturing processes and
customer types, and have therefore been aggregated into a single
reportable segment.
-- The Coated Technical Textile segment producing coated fabrics; and
-- The civil engineering segment, producing and selling
needle-punched non-woven fabrics and construction fibres - this
segment (with the exception of the Ivanka site) is now presented as
discontinued operations - see Note 11.
Management monitors the operating results of business segments
separately for the purpose of making decisions about resource
allocation and for assessing performance. Segment performance is
evaluated based on operating profit or loss. Finance costs, finance
income and income taxes are managed on a group basis. 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 2019 2018*
GBPm GBPm
Colbond 196.9 219.3
Coated Technical Textiles 120.4 138.8
Civil engineering
- Ivanka - 3.5
Revenue for the year 317.3 361.6
------- --------
Operating profit/(loss) Underlying Non-underlying Total
2019 2018* 2019 2018* 2019 2018*
GBPm GBPm GBPm GBPm GBPm GBPm
Colbond 10.9 25.7 (20.1) (3.8) (9.2) 21.9
Coated Technical Textiles (0.4) 2.3 (36.2) (42.9) (36.6) (40.6)
Civil engineering -
Ivanka - - (0.4) (0.5) (0.4) (0.5)
Unallocated central (5.4) (5.8) (2.7) (8.4) (8.1) (14.2)
------ ------ -------- ------- ------- -------
Operating profit/(loss) 5.1 22.2 (59.4) (55.6) (54.3) (33.4)
------ ------ -------- ------- ------- -------
Net finance expense (4.2) (5.5) (2.7) (0.3) (6.9) (5.8)
------ ------ -------- ------- ------- -------
Profit/(loss) before
tax 0.9 16.7 (62.1) (55.9) (61.2) (39.2)
------ ------ -------- ------- ------- -------
Return on sales/operating 2019 2018*
margin**
Colbond 5.5% 11.7%
Coated Technical Textiles (0.3%) 1.7%
Civil engineering - - -
Ivanka
Total 1.6% 6.1%
------- ------
* Restated for the change in operating segments following the
reorganisation (Note 18) and prior year adjustments (Note 17).
**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, Civil Coated
other information engineering Technical Unallocated
2019 Colbond - Ivanka Textiles central Total
GBPm GBPm GBPm GBPm GBPm
Reportable segment
assets 185.9 2.1 61.5 1.1 250.6
Investment in joint
venture 0.6
Cash and cash
equivalents 29.8
Post-employment
benefits 4.2
Assets classified as
held
for sale -
Other unallocated
assets 3.0
---------------
Total Group assets 288.2
---------------
Reportable segment
liabilities (29.7) (0.4) (17.7) (4.3) (52.1)
Loans and borrowings (129.7)
Post-employment
benefits (13.6)
Liabilities directly
associated
with assets classified
as held for sale -
Other unallocated
liabilities (5.3)
---------------
Total Group
liabilities (200.7)
---------------
Other information -
continuing
operations
Additions to PPE 9.6 - 2.9 - 12.5
Additions to
intangible
assets and goodwill 1.2 - 0.3 0.1 1.6
Depreciation (8.4) (0.2) (1.7) (0.1) (10.4)
Amortisation of
acquired
intangible assets (0.7) - (1.0) - (1.7)
Non-underlying items -
continuing operations (19.4) (0.4) (35.2) (2.7) (57.7)
----------- -------------- ------------- ------------- ---------------
Segment assets,
liabilities, Civil Coated
other information engineering Technical Unallocated Discontinued
Colbond** - Ivanka Textiles central operations** Total**
2018* GBPm GBPm GBPm GBPm GBPm GBPm
Reportable segment
assets 210.5 - 105.0 2.5 37.6 355.6
Investment in
associates 0.8
Cash and cash
equivalents 47.8
Post-employment
benefits 11.4
Assets classified as
held
for sale 2.7
Other unallocated
assets 4.7
--------------
Total Group assets 423.0
--------------
Reportable segment
liabilities (42.6) (0.5) (28.0) - (21.4) (92.5)
Loans and borrowings (176.3)
Post-employment
benefits (11.1)
Liabilities directly
associated
with assets
classified
as held for sale (2.2)
Other unallocated
liabilities (18.2)
--------------
Total Group
liabilities (300.3)
--------------
GBPm
Year ended 30 November Civil Unallocated Discontinued
2018* Colbond** CTT engineering Central operations** Total
Additions to PPE 11.7 2.8 0.2 - 0.5 15.2
Additions to
intangible
assets and goodwill 2.6 0.3 - 0.4 0.1 3.4
Depreciation (10.7) (3.8) (0.1) (0.2) (1.0) (15.8)
Amortisation of
acquired
intangible assets (0.6) (2.2) - - - (2.8)
Non-underlying items
- continuing
operations (3.2) (40.7) (0.5) (8.4) (6.6) (59.4)
* Restated for the change in operating segments following the
reorganisation (Note 18)
** Restated due to prior year adjustments (Note 17)
Segment information - Constant currency analyses
Constant currency analyses retranslate prior period results at
the current period's rates of exchange. Management believe this
allows a better understanding of underlying business
performance.
2018*
2019 2018* Year (constant Year
(reported) on year currency) on year
change change
GBPm GBPm % GBPm %
Revenue
Colbond 196.9 219.3 (10.2%) 223.6 (11.9%)
Coated Technical
Textiles 120.4 138.8 (13.3%) 138.4 (13.0%)
Civil engineering
- Ivanka - 3.5 (100.0%) 3.5 (100.0%)
Revenue for the year 317.3 361.6 (12.3%) 365.5 (13.2%)
------- ------------- ------------
Underlying profit before tax from continuing operations
Colbond 10.9 25.7 (57.6%) 26.4 (58.7%)
Coated Technical
Textiles (0.4) 2.3 (117.4%) 2.2 (118.2%)
Civil engineering - - - - -
- Ivanka
Unallocated Central (5.4) (5.8) 6.9% (5.8) 6.9%
------- ------------- ------------
Underlying operating
profit 5.1 22.2 (77.0%) 22.8 (77.6%)
Net financing costs (4.2) (5.5) 23.6% (5.6) 25.0%
Total 0.9 16.7 (94.6%) 17.2 (94.8%)
------- ------------- ------------
* Restated for the change in operating segments following the
reorganisation (Note 18) and prior year adjustments (Note 17).
The following significant exchange rates applied during the
year:
Year
Average Average Year end end
rate rate rate rate
2019 2018 2019 2018
Sterling/Euro 1.14 1.13 1.17 1.13
Sterling/US Dollar 1.27 1.34 1.29 1.28
Sterling/Czech Crown 29.17 29.03 29.97 29.26
Sterling/Hungarian Forint 368.54 360.32 392.14 364.54
Sterling/Chinese Yuan 8.78 8.83 9.10 8.87
------- ------- -------- ------
3. Divi de n ds
Amounts recognised as distributions to equity shareholders in
the year were as follows:
2019 2018
GBPm GBPm
Final dividend for the year ended 30 November 2018
- 0.37 pence per share (2017: 2.00 pence per share) 1.2 6.6
Interim dividend for the year ended 30 November
2019 - nil pence per share (2018: 1.05 pence per
share) - 3.5
----- -----
1.2 10.1
----- -----
The Directors have proposed no final or interim dividend in
respect of the financial year ended 30 November 2019. Following the
significant impairment of investments and inter-company receivables
in the year, arising from the deterioration in results in the year
, the Parent Company of the Group currently has no distributable
reserves from which to pay a dividend.
During the year the Board declared a final dividend on Ordinary
Shares in relation to the year ended 30 November 2018 of 0.37 pence
per share which was paid to Ordinary Shareholders on the register
of members at close of business on 15 February 2019. The dividend
was not paid on the new shares issued in the equity raise.
4. Non-underlying it ems
During the year the Group recognised significant non-underlying
items and amortisation of acquired intangible assets as detailed
below:
2019
2018
(restated
-Note 17
GBPm GBPm
Amounts charged/(credited) to operating profit
Restructuring costs - (All segments) (a) 3.2 3.7
Coated Technical Textiles Impairment - (Coated Technical
Textiles
segment ) (b) 33.4 39.0
Yihua Bonar impairment (Colbond segment) (c) 7.5 -
Bonar Changzhou impairment - (Colbond segment) (d) 6.7 -
Colbond Americas impairment - (Colbond segment) (e) 1.8 -
Impairment of the ERP system - (Unallocated segment) (f) - 1.5
Dundee impairment - (Colbond segment) (g) 0.2 0.1
Closure of Ivanka plant - (Civil Engineering segment) (h) 0.4 0.5
Provision for customs duties & fees - (Unallocated
segment) (i) (0.1) 1.6
Acquisition and disposal related costs -(All segments) (j) 2.2 0.3
Amortisation of acquired intangible assets - (Colbond
and Coated Technical Textiles segments) (k) 1.7 2.8
Loss on the disposal of land and buildings - (Coated
Technical
Textiles segment ) (l) - 0.1
Disposal of the agro-textile business - (Colbond
segment) (m) - 1.2
Costs associated with the fire in Lomnice - (Coated
Technical Textiles
segment ) (n) 0.2 0.6
GMP equalisation additional liability -(Unallocated
segment) (o) - 4.0
Settlement agreement (Coated Technical Textiles
segment) (p) 0.8 -
Impairment of R&D (Colbond segment) (q) 0.9 0.2
Other impairments (Colbond and Unallocated segments) (r) 0.4 -
Other 0.1 -
----- ----------
Total charge to operating profit 59.4 55.6
Amendments to the Senior Loan Note debt - (Unallocated
segment) (s) 2.7 -
Write-off of arrangement fees - (Unallocated segment) (t) - 0.3
----- ----------
Total charge to profit before tax 62.1 55.9
Tax credit in the year (u) (3.7) (1.3)
----- ----------
Total charge to profit - continuing operations 58.4 54.6
----- ----------
Restructuring costs (a) - 0.5
Impairment of Hungary plant and equipment (v) - 5.0
Profit on disposal of CF disposal group (net of
FX recycling) (w) (1.9) -
Loss on disposal of NPNW disposal group (net of
FX recycling) (x) 5.9 -
Acquisition and disposal related costs (y) 2.2 0.3
FX recycling on Bonar Natpet JV (z) (0.8) -
Costs to exit the Bonar Natpet JV (aa) 0.2 0.8
Tax (credit)/charge on non-underlying items (ab) (0.8) 0.1
----- ----------
Total charge to discontinued operations 4.8 6.7
----- ----------
Total charge to profit for the year 63.2 61.3
----- ----------
a) GBP3.2m of costs have been incurred in the year in the
further Group-wide transformation programme to right-size the
organisation and to optimise the organisational structure (2018:
GBP4.2m). Costs primarily include the non-underlying costs of
headcount reduction, and certain costs associated with reviewing
and optimising the Group's warehouse footprint.
b) The results of the CTT CGU were significantly below
expectations in the first half of the year and as such a full
impairment review was completed at 31 May 2019. This resulted in
the impairment of the full value of the intangible assets and PPE
in the CGU at 31 May 2019. In the second half of the year, results
have declined further and therefore all assets capitalised in the
second half of the year have also been fully impaired. The
impairment charge relating to intangible assets was GBP8.8m with an
impairment of GBP24.6m impacting PPE. Please refer to Note 9 for
full details of the impairment tests conducted.
In the prior year, following the annual goodwill impairment
review of CTT, the goodwill was fully impaired from GBP39.0m to
GBPnil (Note 10).
c) The results of the Yihua Bonar CGU, our woven operation in
China, were significantly below expectations in the first half of
the year and as such a full impairment review was completed at 31
May 2019. This resulted in the impairment of the full value of the
goodwill and PPE in the CGU at 31 May 2019. The impairment charge
to goodwill was GBP0.3m with an impairment of GBP7.2m impacting
PPE. No further significant assets have been capitalised in the
second half of the year and there are no indications that this
impairment should be reversed based on the performance of the CGU
in the second half of the year. Please refer to Note 9 for full
details of the impairment tests conducted.
d) An impairment of GBP6.7m has been recorded in the year in
relation to the Bonar Changzhou CGU, GBP0.1m relating to intangible
assets with GBP6.6m relating to PPE. The CGU has had a difficult
2019, facing an increasingly difficult market environment in its
key flooring and decoration markets along with ongoing impacts from
the US/China tariff disputes. Please refer to Note 9 for full
details of the impairment tests conducted.
e) An impairment of GBP1.8m has been recorded in the year in
relation to the goodwill attributed to the Colbond Americas CGU.
The CGU had some operational issues in 2019 and faces some
challenges in its building and automotive markets. Please refer to
Note 9 for full details of the impairment tests conducted.
f) In the prior year, a review was made of the benefits expected
to be derived from the implementation of the Group-wide ERP system
following the change in organisational structure. Based on this
review, a total impairment of GBP1.5m was recorded, GBP0.7m related
to computer software and GBP0.8m related to assets in the course of
construction. No further impairments have been recorded in
2019.
g) In 2019, the results of the Dundee CGU deteriorated against
budget and as such an indicator of impairment was present. Based on
the subsequent impairment review at 30 November 2019, the
recoverable assets of the Dundee CGU were found to be significantly
below the carrying value of the net assets and therefore the full
value of the intangible assets and PPE needed to be impaired.
Having reviewed the results of the CGU over previous years, it was
determined that the impairment should have been recognised in
previous periods and therefore we have recorded a GBP1.3m prior
year adjustment (effective pre-2018). The current year impairment
charge of GBP0.2m and the GBP0.1m charge in 2018 reflects the
additions that were capitalised in the current and prior year.
h) In 2017, as part of the first stage of the strategic review
of civil engineering, it was decided to exit from the loss-making
weaving plant in Ivanka, Slovakia. The GBP0.5m charge in 2018
related to redundancies, consultancy costs and a loss on
inventories sold at a reduced price following the site closure. The
GBP0.4m in 2019 relates to the ongoing site costs until the
remaining assets (the land and buildings) are disposed of and the
additional depreciation recorded on the transfer of the Ivanka site
from assets held for sale to PPE.
i) In previous periods, the Group identified limited
irregularities in relation to customs duties in the UAE. At 30
November 2018, the closing provision for our best estimate of the
costs to be incurred in relation to this issue was GBP2.6m. There
has been no further significant progress on the claim in the period
and there is no substantial change in our view of the duty and
penalties to be paid. The GBP0.1m credit in the period relates
primarily to the impact of foreign exchange movements on the
provision.
j) GBP2.2m has been recorded in the year in relation to costs
incurred on the potential takeover of the Group by FVB. GBP1.9m
relates to professional fees with GBP0.3m relating to employee
retention plans. This does not include costs which are contingent
on the deal completing successfully, and which have been recorded
as contingent liabilities.
k) The amortisation of acquired intangibles of GBP1.7m (2018:
GBP2.8m) is excluded from underlying business profit in accordance
with the Group's accounting policies. The significant reduction
from the prior year relates to impairment of the CTT intangible
assets in the year.
l) In the prior year a loss of GBP0.1m was recorded relating to
the disposal of unused land and buildings at the Group's
manufacturing site in Lomnice, Czech Republic.
m) In 2017, the Group completed the disposal of the
Lokeren-based agro-textile business. GBP0.6m of the cost in 2018
represented the fair value of an unfavourable contract to purchase
woven products from the purchasers of the agro-textile business,
which was entered into at the time of the sale. The remaining
GBP0.6m related to additional
disposal costs.
n) In late 2018 there was a fire at our CTT plant in Lomnice
(Czech Republic). Due to the fire, production was severely
disrupted and the GBP0.2m costs in the current year and GBP0.6m in
the prior year represent the operating loss incurred in the periods
due to the temporary closure of the plant. Insurance recoveries of
these costs, when they are received, will also be treated as a
non-underlying item.
o) A GBP4.0m additional liability was recognised in the UK
pension scheme of 2018 following the result of the court case to
equalise all GMP benefits in October 2018.
p) In the first quarter of 2019, an agreement was entered into
with a key customer of CTT to settle claims relating to products
sold prior to 2017. This settlement resulted in CTT agreeing to pay
for claims received beyond their normal contractual warranty
obligations. This agreement expires at the end of 2020. A GBP0.8m
charge was recognised during 2019 in respect of this settlement.
Given the material size of this item, the fact that settlement of
claims outside the standard contractual terms is non-routine, and
reflecting the fact that this cost relates to items sold prior to
2017, it has been determined that the costs relating to this
agreement should be presented as non-underlying items in line with
the Group's accounting policies.
q) The impairment of R&D costs relates to a significant
development project in Colbond which has been cancelled in the
year.
r) GBP0.4m of additional impairments have been made in the year
relating to intangible assets which are no longer supportable. This
includes the write-off projects that have been reassessed following
the re-organisation of the Group, such as website development costs
and costs capitalised relating to the generation of a Group-wide
procurement function.
s) In 2019, a portion of the Senior Loan Note debt was repaid
early following the sale of the civil engineering business. As a
result, a GBP0.6m make-whole payment was charged by the holders of
the loan notes. At the same time as the repayment, the debt was
amended to include additional fees. These changes result in a
GBP2.1m fair value adjustment on modification of the debt.
t) During 2018, the Group's Revolving Credit Facility was
refinanced. As this was deemed to be a substantial modification of
the previous financing agreement, the arrangement fees for the
previous agreement were immediately written off to the income
statement.
u) The non-underlying tax credit of GBP3.7m (2018 (restated):
GBP1.3m) includes:
2019 2018
(restated)
GBPm GBPm
Tax credits on non-underlying expenses 1.7 1.4
Deferred tax on non-underlying pension movements - 1.4
Deferred tax on pension contributions (1.1) (1.1)
Deferred tax on impairments of non-current assets 3.7 0.3
Deferred tax on debt modification 0.4 -
Revaluation of deferred tax assets and liabilities arising
from changes
in tax rates 0.3 2.0
De-recognition of previously recognised net deferred
tax assets (1.8) (3.5)
Amortisation of acquired intangible assets 0.5 0.8
------ ------------
Total 3.7 1.3
------ ------------
v) In 2018, the Group recorded an impairment of GBP5.0m relating
to the Hungary CGU following the poor performance of the
business.
w) On 1 July 2019, the Group disposed of the CF business for
GBP6.6m net proceeds generating a profit on disposal, net of fees,
of GBP1.9m. Please refer to note 12 for further details.
x) On 2 September 2019, the Group disposed of the NPNW business
for GBP14.0m net proceeds generating a loss on disposal, net of
fees, of GBP5.9m. Please refer to note 12 for further details.
y) GBP2.2m of costs have been incurred in the year in relation
to the sale of the civil engineering business, primarily made up of
external consultancy costs and professional fees.
z) A GBP0.8m foreign exchange gain was recycled from reserves on
the exit of the Bonar Natpet JV.
aa) This comprises additional costs incurred following the
Group's exit from the Bonar Natpet JV in January 2019.
ab) The non-underlying tax credit of GBP0.8m (2018 (restated):
charge of GBP0.1m) for discontinuing operations includes:
2019 2018
(restated)
GBPm GBPm
Tax credits on non-underlying expenses 0.2 0.2
Tax on disposal of civil engineering 0.6 -
Tax on civil engineering disposal - (0.7)
Tax on Hungary impairment - 0.5
Revaluation of deferred tax assets and liabilities arising
from changes
in tax rates - (0.1)
Total 0.8 (0.1)
------ ------------
5. Earnings p er sha re
Due to the equity raise in the year, where shares were issued
for less than the prevailing market price, the earnings per share
calculations for 2019 have been completed and the 2018 calculations
restated, to take into account the "bonus element" of the equity
raise.
The weighted average number of ordinary shares used in the
calculation exclude those held by the Employee benefit trust
("EBT") which are treated as cancelled for the purpose of this
calculation. For diluted earnings per share, the weighted average
number of Ordinary Shares in issue is adjusted to assume conversion
of all dilutive potential Ordinary Shares. The Group has two
classes of dilutive potential Ordinary Shares: those share options
granted to employees where the exercise price is less than the
average market price of the Company's Ordinary Shares during the
year; and those long-term incentive plan awards for which the
performance criteria have been satisfied.
Reconciliations of the earnings and weighted average number of
shares used in the calculations are set out below:
2019 2018*
Total operations
Earnings - Statutory (restated) GBPm (59.7) (49.3)
Earnings - Underlying (restated) GBPm 0.7 12.0
Weighted average number of shares (millions) 614.618 351.172
Effect of dilutive shares (millions) - 4.131
Diluted weighted average number of shares (millions) 614.618 355.303
Statutory
Basic earnings per share (restated) p (9.72) (14.05)
Diluted earnings per share (restated)(*) p (9.72) (14.05)
Underlying
Basic earnings per share (restated) p 0.11 3.41
Diluted earnings per share (restated) p 0.11 3.38
*In the prior year, on a statutory basis, the effect of the
dilutive shares has been ignored as it is deemed to be
anti-dilutive (i.e. it is reducing the loss per share).
6. Reconciliation of net cash flow to movement in net debt
Year Year
ended ended
30 November 30 November
2019 2018
GBPm GBPm
Net (decrease)/increase in cash
and cash equivalents (17.8) 11.9
Net cash flow from movements in
debt financing 45.6 (1.1)
Amortisation of bank arrangement
fees (0.3) (0.6)
Loan fees paid 0.7 1.6
Cash disposed as part of the NPNW (1.8) -
disposal
Foreign exchange differences 4.7 (1.9)
Movement in net debt in the year 31.1 9.9
Net debt at 1 December (128.5) (138.4)
------------ ------------
Net debt at 30 November (97.4) (128.5)
------------ ------------
30 November 30 November
2019 2018
GBPm GBPm
Analysis of net debt
Cash at bank and in hand 29.8 47.8
Senior Loan Note due 2022-2026 (48.3) (53.2)
Less: Fair value adjustment 2.5 -
Multi-currency revolving credit
facility (73.1) (110.3)
RMB facilities (9.5) (13.5)
Bank overdrafts (0.2) (0.4)
Prepaid arrangement fees 1.8 1.5
Preference shares (0.4) (0.4)
------------ ------------
Net debt at 30 November (97.4) (128.5)
------------ ------------
The Group's main bank facilities include:
-- a 5 year, revolving credit facility of EUR85.2m with a
syndicate of five relationship banks expiring in May 2023. The
facility bears interest at between 0.95% to 1.95% above LIBOR
depending on the ratio of the Group's net debt (as defined in Note
19) to EBITDA at each of its half-year and year end reporting dates
whilst the leverage ratio does not exceed 3.0x EBITDA. The margin
is increased to 2.45% whilst the leverage ratio exceeds 3.0x
EBITDA. From April 2020 the margin increases to 2.75% regardless of
leverage. Subsequent to year-end, as set out in note 15, a further
GBP10m is expected to be made available to the Group, subject to
the provision of certain guarantees and security, and full
documentation of the terms and conditions. In addition a Payment in
Kind ('PIK') margin has been introduced, where the PIK interest
accrues and is added to the principal, rather than paid in cash.
This margin is leverage-based, and ranges from 0% at leverage below
3x, to 3.75% where leverage exceeds 7x;
-- a EUR56.5m Senior Loan Note debt raised by private placement
with Pricoa Capital Group Limited; this funding is unsecured and is
scheduled for repayment between September 2022 and September 2026
in even tranches. The loan note has a fixed interest rate of 2.57%
per annum however an extra 0.5% margin is applied where the
leverage ratio exceeds 2.25 x EBITDA and an extra 1.0% margin is
applied where the leverage ratio exceeds 3.0 x EBITDA. From April
2020 an additional fee of 0.3% per annum will be charged. A PIK
margin, similar to the one introduced on the RCF, has also been
introduced on the Notes, following the waivers agreed in March 2020
as set out in note 15;
-- RMB69.99m of unsecured term loan facilities, maturing in June
2020 (extended to 30 December 2020 subsequent to the year end -
refer note 15), arranged in July 2015 to finance the construction
of the Group's manufacturing facility in Changzhou, China. This
loan is guaranteed by Low & Bonar Plc and, subsequent to year
end, it was agreed that this loan would be secured over the assets
of the Changzhou operations; and
-- RMB50m uncommitted and unsecured revolving facility available
to the Group's Changzhou operations to fund working capital
requirements. This facility is guaranteed by Low & Bonar Plc.
Subsequent to the year end this facility was draw stopped at the
drawn amount of RMB4.5m. As announced on 27 March 2020, the lender
has agreed to increase this facility to RMB20m, subject to the
provision of certain guarantees and security, and full
documentation of the terms and conditions, and this is to be
secured over the assets of the Changzhou operations.
EBITDA for covenant purposes is calculated as underlying
operating profit, adding back depreciation, underlying
amortisation, IFRS 2 charge and pension administration costs.
In the financing agreements, there are two principal covenants
within both the Senior Loan Note debt and the RCF which relate to
interest cover and financial gearing. These are tested bi-annually
on a 12 month trailing basis using average exchange rates on both
income statement items and net debt. The covenants are as
follows:
Measure Covenant
Consolidated net debt / Adjusted EBITDA <3.50*
EBITA / Net interest payable >3.00**
* For the 30 November 2019 test date, before reducing to <3.0
thereafter.
** There is a one-time relaxation to >2.5 for the 30 November
2019 test date, before then reverting to >3.0 thereafter.
At 30 November 2019, the leverage ratio was 5.6x EBITDA and the
EBITDA ratio was 2.0 x interest payable. However, the Group has
engaged with its lenders and have agreed amendments to financing
agreements which waive the financial covenants which were due to be
tested as at 30 November 2019, in order to assist the Company in
progressing both its turnaround plan and the recommended cash
acquisition of the Company by FVB. These covenants will next be
tested at 30 November 2020.
7. Pensions
The Group operates a number of pension schemes in the UK and
overseas. These are either defined benefit or defined contribution
in nature. The assets of the schemes are held separately from those
of the Group.
The movement in the Group's UK and overseas defined benefit
schemes' in the year ended 30 November 2019 is summarised
below:
30 November 2019 30 November
2018
UK scheme Overseas Group Group
schemes
GBPm GBPm GBPm GBPm
Net asset/(liability)
at the start of the
period 11.0 (10.7) 0.3 (2.2)
Interest income/(cost) 0.4 (0.3) 0.1 0.1
Current service cost - (0.3) (0.3) (0.3)
Past service costs - - - (4.0)
Contributions from
employers 3.1 0.5 3.6 3.4
Administration costs - - - (0.2)
Actuarial (loss)/gain (10.3) (3.4) (13.7) 3.5
Disposal of Belgian
pension scheme - 0.1 0.1 -
Exchange adjustments - 0.5 0.5 -
----------- ----------- ----------- ------------
Net asset/(liability)
at the end of the
period 4.2 (13.6) (9.4) 0.3
----------- ----------- ----------- ------------
In applying IAS 19, the Company has considered the requirements
of IFRIC 14 and whether the Company has an 'unconditional right' to
a refund of surplus, in particular assuming the gradual settlement
of the Scheme liabilities over time until all members have left the
Scheme (i.e. on the death of the last beneficiary). The company has
concluded that it does have an effective unconditional right to a
refund under these circumstances, and on these grounds IFRIC 14
does not require an adjustment to the net pension asset.
In April 2019, the Group supported the UK scheme in its decision
to enter into a buy-in of GBP82.1m of the UK Scheme's liabilities
to reduce the Scheme's exposure to investment, inflation and
mortality risk and to protect the long-term financial security of
members' benefits. As a consequence of this buy-in, there was an
actuarial loss of GBP6m due to the price paid for the insurance
policy purchased in April 2019 being higher than the accounting
liability in respect of the members insured. In addition to this,
the main reason for the reduction in surplus in the period was a
significant fall in discount rates between 30 November 2018 and 30
November 2019 from 2.9% to 1.9%.
8. Provisions
Total current Non-current Total provisions
Current provisions provisions provisions
Customs duties Restructuring Other Group Other Group
and fees
GBPm GBPm GBPm GBPm
At 30 November 2018 2.6 0.9 0.3 3.8 - 3.8
Created in the year - 3.4 0.6 4.0 - 4.0
Utilised in the
year - (2.6) (0.3) (2.9) - (2.9)
Reclassification - - - - 0.5 0.5
Exchange result (0.2) - - (0.2) - (0.2)
--------------- -------------- ---------- -------------- ------------ -----------------
At 30 November 2019 2.4 1.7 0.6 4.7 0.5 5.2
--------------- -------------- ---------- -------------- ------------ -----------------
Current provisions
Customs duties and fees
This provision relates to some limited irregularities in
relation to customs duties that were identified in previous periods
in the UAE. In the year ended 30 November 2019, there has been no
further significant progress on the claim in the year and the
GBP0.2m movement in the provision relates to foreign exchange
differences. The resulting provision of GBP2.4m represents the
Group's best estimate of the remaining costs to settle this issue.
In forming a view as to the adequacy of the provision, management
have taken account of the findings of the investigation to date
which include some assessments and assumptions that could
significantly alter the level of costs to be incurred, were they to
be incorrect.
These assessments and assumptions include the identification of
all transactions with irregularities, the value of customs duties
impacted and the level of relief for penalties that could be given
due to the Group's active management of the issue. The
investigation is ongoing and the timing of any cash outflows is
uncertain. Whilst management believe that the assessments and
assumptions used in calculating the required provision are
appropriate, it is reasonably possible that, within the next
financial year, variations in key assessments and assumptions,
particularly the level of relief given for penalties, could lead to
a material change to the amount provided.
Restructuring
This provision relates to the ongoing costs relating to the
transformation programmes that are yet to be settled. The Group
recognised a charge of GBP3.4m in respect of the programmes and
have utilised GBP2.6m of the provision in the period. There is
minimal uncertainty in the amount and timing of the anticipated
cash inflows in this provision as the provision is on an employee
by employee basis and contractually agreed.
Other
GBP0.5m of the closing provision and the creation in the period
relates to a capital commitment made in the Fulda plant (CTT) to
replace a piece of faulty equipment. As discussed in Note 9, the
full value of the PPE balance in CTT has been impaired at 30
November 2019 and as such, the value of this capital commitment can
also not be supported. Given this is part of the total impairment
of the PPE in CTT, the creation of the provision has been included
within non-underlying items. GBP0.1m of the closing provision and
the creation in the period relates to an environmental liability in
Zele and represents management's best view of the costs needed to
remediate the soil pollution identified.
At 30 November 2018, there was a GBP0.3m provision relating to
the fair value of a contract entered into by the Group with the
purchasers of the agro-textile business to purchase woven products
at an above market price. The contract was entered into at the time
of disposal. The full provision has been utilised in the
period.
Non-current provisions
The non-current provision relates to a long-term employee
liability in the Netherlands that has previously been classified as
accruals. It is not due to be paid out within the next 12 months
and has therefore been classified as a non-current provision. The
discounting impact on this provision would be minimal.
9. Impairment testing
At 30 November 2019, there were indicators of impairment in all
CGUs in the Group. These indicators are in line with those present
at 31 May 2019 and include:
-- Slower than expected progress in recovering customers in the
CTT division following the significant production issues in
previous periods;
-- Global macro-economic uncertainty including the China-US tariffs;
-- Slowdown of the global automotive market in the Colbond division;
-- Production issues in our Asheville plant leading to lower than expected margins;
-- Significant price competition from some of our main competitors; and
-- Reduction in the demand for the products of our key
customers, particularly in the German truck/trailer OEM market and
flooring markets
31 May 2019 impairment approach
At 31 May 2019, due to these indicators of impairment,
impairment reviews were carried out on all CGUs in the Group. The
recoverable amounts were determined using the higher of value in
use ("VIU") and fair value less costs to sell ("FVLCOS")
calculations for each CGU group based on projected cash flows,
discounted to calculate the net present value.
For the VIU calculations for all CGUs, the cash flows reflected
management's updated five-year projections. Annual growth rates of
2.5% from 2024 thereafter were applied (2018: 2.5%) for the Colbond
EMEA, Colbond Americas and CTT CGUs and a rate of 4.0% was used for
the Bonar Changzhou and Yihua Bonar CGUs. (The Bonar Changzhou CGU
represents our core operations in China, both Colback and Enka, and
includes the assets from the significant capital investment we have
made over the last few years. The Yihua Bonar CGU represents our
operation in China which manufactures and sells woven products.
Cash flows were discounted at a pre-tax rate ranging between
13.9%-22.4%. The top end of the range related to the Yihua Bonar
CGU and was a result of high tax cash outflows relative to other
cash movements in the terminal value year.
For the FVLCOS calculation for all CGU's, 2019 forecast EBITDA
was used as a base and appropriate multiples based on an assessment
of peer multiples were used for each part of the business.
The impairment reviews concluded that no impairment was
necessary in the Colbond EMEA, Colbond Americas and Bonar Changzhou
CGUs. Their recoverable values, based on management's expectations
were in excess of the carrying value of their non-current assets,
including goodwill.
The CTT analysis indicated an estimated recoverable value of
GBP27.2m, based on a VIU calculation, for the CGU and resulted in a
full impairment to the carrying value of the non-current assets
(intangible assets and PPE) of GBP31.3m, with GBP8.8m relating to
intangible assets and the remainder relating to PPE. The
significant impairment was reflective of the deterioration in CTTs
results and the speed of its recovery plus growing uncertainty over
their competitive position in the market and the demand for their
key customers' products
The Yihua Bonar analysis indicated an estimated recoverable
value of GBP3.4m for the CGU, based on FVLCOS calculation, and
resulted in a full impairment to the carrying value of the
noncurrent assets (goodwill and PPE) of GBP7.5m, with GBP0.3m
relating to goodwill and the remainder relating to PPE. The
significant impairment was reflective of significant reduction in
demand for our products, particularly from domestic customers
driven by a general slow-down in the Chinese economy and
uncertainty around tariffs being imposed by the US.
30 November 2019 impairment approach
Results in the CTT CGU have declined further in the second half
of the year and as such, all non-current assets capitalised in H2
have been fully impaired. A further GBP2.1m impairment charge has
been recorded at 30 November 2019 relating to additional PPE.
Results in the Yihua Bonar CGU have remained stable from the
projections at 31 May 2019 and as such, there is no indication that
the impairment made at 31 May should be reversed. No material
assets have been capitalised in H2 which require consideration for
impairment.
Given the impairment indicators noted above, the Colbond CGUs
have also been reassessed at 30 November 2019. The approach to what
is considered to be the key assumptions within the VIU impairment
reviews is outlined below:
Cash flow projections
Cash flow projections for each CGU group are derived from the
most recent annual budgets approved by the Board (being the 2020
budget plan with 2021-2024 extrapolated from the 2020 budget),
which take into account current market conditions and the long-term
average and projected growth rates for each of the key markets
served by the CGUs, along with forecast changes to selling prices
and direct costs and CGU-specific forecast risks and potential
cash
volatilities. These cash flow projections are based on
management's expectations of future changes in markets informed by
various external sources of information.
Long-term growth rates
The VIU calculations assume terminal growth rates of 2.5% - 4.0%
beyond year five which is consistent with rates disclosed by the
OECD.
Discount rate
Forecast pre-tax cash flows for each CGU group are discounted to
net present value using the Group's discount rate, calculated based
on external advice. Pre-tax discount rates were calculated
separately for each CGU group and were 11.9% to 15.6% (2018: 13.0%
to 14.4%). These were used to calculate the VIU for each CGU group,
reflecting management's views of the individual risks and rewards
associated with each CGU group.
As with the May 2019 approach, the FVLCOS estimates are based on
EBITDA multiples.
The impairment reviews conclude that no impairment is necessary
in the Colbond EMEA CGU. Its recoverable value, based on
management's expectations, is in excess of the carrying value of
its non-current assets, including goodwill.
Bonar Changzhou impairment of intangible assets and PPE
The Bonar Changzhou impairment analysis indicated an estimated
recoverable value of GBP38.5m, based on a VIU calculation, for the
CGU and resulted in a GBP6.7m impairment to non-current assets.
GBP0.1m of intangible assets have been impaired with GBP6.6m of PPE
being impaired. This partial impairment was reflective of the
challenging market conditions that the CGU has faced in 2019,
particularly in its key markets of flooring and decoration where
price competition has been intense. The ongoing US/China tariffs
have also impacted performance with lower market confidence and
demand in the APAC markets alongside a restricted supply chain from
China to the US.
Colbond Americas impairment of goodwill
The Colbond Americas impairment analysis indicated an estimated
recoverable value of GBP55.9m, based on a VIU calculation, for the
CGU and resulted in a GBP1.8m impairment to goodwill. This partial
impairment was reflective of the
operational problems the CGU faced in 2019 along with
challenging automotive and building markets.
Dundee impairment of intangible assets and PPE
The Dundee analysis indicated an estimated recoverable value
significantly below its carrying value, based on a VIU calculation,
and therefore resulted in a full impairment to the carrying value
of the non-current assets (intangible assets and PPE). By reviewing
the results of the CGU in previous years, it was determined that
the impairment related to periods pre-2018 and therefore an
impairment of GBP1.3m (relating to PPE) has been posted as a prior
year adjustment impacting the 2018 opening PPE balances. Further
impairments have been made in 2019 and 2018 to reflect the
impairment of assets capitalised in those periods. In addition to
the impairment of the non-current assets, a GBP0.3m prior year
impairment has been recorded in relation to Dundee's allocation of
the Group-wide ERP system. This is also determined to have been
effective pre-2018 and therefore a GBP0.3m impairment (relating to
computer software) has been noted as a prior year adjustment
impacting the 2018 opening intangible assets balance.
Sensitivity
Given that the full value of the non-current assets in the year
have been fully impaired, we do not deem it necessary to calculate
any further sensitivities for the CTT, Yihua Bonar and Dundee CGUs.
At 30 November 2019, there was sufficient headroom on the
impairment assessment performed for the Colbond EMEA such that
reasonably possible changes in key assumptions would not lead to an
impairment.
Bonar Changzhou and Colbond Americas
Whilst management believe that the assumptions used in
impairment testing are realistic, it is possible that variations in
key assumptions could affect the recoverable amounts. Accordingly,
a sensitivity analysis has been performed by varying key
assumptions whilst holding other variables constant.
The below table outlines the additional impairment against
goodwill, intangible assets and PPE that would be recorded if
certain key assumptions were reduced:
Bonar Changzhou Colbond Americas
(GBPm) (GBPm)
10% decrease in Terminal value calculations 2.5 3.9
1% increase in discount rate 3.7 5.4
0% long term growth rate 8.5 8.7
10. Goodwill
30 November 30 November
2019 2018
GBPm GBPm
Cost
At 1 December 86.8 86.3
Disposal of subsidiaries (19.4) -
Exchange adjustments (2.7) 0.5
------------ ------------
At 30 November 64.7 86.8
------------ ------------
Accumulated impairment losses
At 1 December 58.6 19.4
Impairment loss recognised 2.1 39.0
Disposal of subsidiaries (19.4) -
Exchange adjustments (1.6) 0.2
------------ ------------
At 30 November 39.7 58.6
------------ ------------
Net book value at 30 November 25.0 28.2
------------ ------------
GBP1.8m of the current year impairment charge relates to the
partial write-off of goodwill relating to the Americas portion of
the Colbond acquisition.
The remaining GBP0.3m impairment charge relates to the write-off
of the goodwill related to the Yihua Bonar acquisition. Both are
discussed in Note 9.
Goodwill is allocated to the grouping of CGUs which have been
identified according to the principal markets in which each
business operates. There has been a change in the composition of
the CGUs in the current year based upon a reorganisation of the
Group. In line with IAS 36 "Impairment of Assets", goodwill has
therefore been reallocated to the units affected using the relative
value approach. The change in the structure has only impacted the
Colbond business units with the previous Buildings & Industrial
and Interiors & Transportation CGUs now being managed on an
overall Colbond basis, with disaggregation into regions, Colbond
EMEA, Colbond Americas and Colbond APAC. There has been no change
to the Coated Technical Textiles CGU.
A summary of the net book value of goodwill presented at CGU
level is shown below:
30 November 30 November
2019 2018
GBPm GBPm
Cash generating units
Colbond EMEA 13.2 13.8
Colbond Americas 11.8 14.1
Colbond APAC - 0.3
Coated Technical Textiles - -
------------ ------------
Net book value at 30 November 25.0 28.2
------------ ------------
11. Discontinued operations
Bonar Natpet
In January 2018, the Board agreed to exit from the Bonar Natpet
joint venture. At 30 November 2018, the expected costs to exit,
which primarily included a contribution to Bonar Natpet of 50% of
all trade debts older than six months, totaled GBP2.2m. This
liability was classified as Liabilities directly associated with
assets classified as held for sale on the balance sheet.
In January 2019, the exit from the joint venture was completed
with a payment of GBP2.4m made to the joint venture partner.
Following this, the liability directly associated with assets
classified as held for sale was extinguished. The GBP0.2m
additional costs paid over the amount provided at 30 November 2018
has been classified as a non-underlying item within discontinued
operations, in line with how the original provision for the costs
of exit was created (see Note 4).
Civil engineering division
The sales of the CF and the NPNW businesses within civil
engineering were both completed in the year. These two businesses
constituted the majority of the civil engineering operating segment
as presented in previous periods. Given these disposals, the
businesses have been classified as discontinued operations as at 30
November 2019 and are presented separately from the remaining
continuing operations of the Group. Prior periods have been
restated accordingly. Ivanka is considered to be a separate
disposal group and remains within continuing operations consistent
with the assessment performed during the previous periods.
The results of the discontinued operations, which have been
included in the Consolidated Income Statement, were as follows:
30 November 30 November
2019 2018
GBPm GBPm
Revenue 49.3 70.3
Expenses (47.3) (70.1)
------------ ------------
Underlying operating profit of
civil engineering 2.0 0.2
Finance costs - -
------------ ------------
Underlying profit before tax from
discontinued operations (civil
engineering) 2.0 0.2
Attributable tax expense (0.8) (0.5)
------------ ------------
Underlying net profit/(loss) from
the civil engineering division 1.2 (0.3)
Non-underlying items
Movement in exit cost provision
for Bonar Natpet (0.2) (0.8)
Profit on disposal of the CF disposal 1.9 -
group (net of FX recycling)
Loss on disposal of the NPNW disposal (5.9) -
group (net of FX recycling)
Civil engineering non-underlying
items (2.2) (5.8)
FX recycling on Bonar Natpet JV 0.8 -
Tax on non-underlying items 0.8 (0.1)
------------ ------------
Non-underlying items from discontinued
operations (4.8) (6.7)
Net loss attributable to discontinued
operations (attributable to the
owners of the Company) (3.6) (7.0)
------------ ------------
12. Disposal of the civil engineering division
Construction Fibres disposal
30 November
2019
GBPm
Consideration received in cash and cash
equivalents (net of fees) 6.6
Foreign exchange differences recycled
from reserves 3.9
Analysis of assets and liabilities over
which control was lost
PPE 3.6
Intangible assets 0.2
Trade receivables 3.0
Inventories 2.7
Payables (0.5)
------------
Net assets disposed of 9.0
Profit on disposal 1.5
------------
NPNW disposal
30 November
2019
GBPm
Consideration received in cash and cash
equivalents (net of fees) 14.0
Foreign exchange differences recycled
from reserves 4.6
Analysis of assets and liabilities over
which control was lost
PPE 5.4
Trade receivables 10.8
Prepayments and other debtors 5.3
Inventories 8.3
Cash 1.8
Payables (8.1)
Current tax asset 0.1
Deferred tax asset 2.8
Pension liability (0.1)
------------
Net assets disposed of 26.3
Loss on disposal (7.7)
------------
The losses on disposal are included in the loss for the year
from discontinued operations (Note 11). Consideration received, as
noted above, comprises the consideration received less costs to
sell the business. In the Group's Consolidated Cash Flow Statement,
net cash inflow on disposal of the NPNW business comprises the
consideration noted above less the cash transferred to the
buyer.
13. Risks and uncertainties
The Group has in place processes for identifying, evaluating and
managing key risks. The principal risks and uncertainties, together
with the approach to their mitigation, are discussed in Principal
risks and uncertainties on pages 36 to 39 of the 2019 Annual
Report, which is available on the Group's website at
www.lowandbonar.com , remain relevant and there are no significant
changes.
14. Contingent liabilities
Given the nature of the Group's manufacturing processes, there
is a potential for issues to arise in terms of the impact we make
on our environment. The Group is aware of a potential environmental
issue in Germany, but at this date there is not enough evidence
available on the extent and impact of the issue to establish a
reliable estimate of the costs that would be needed to remediate
the problem. There is also no certainty on who would be responsible
for carrying out any remediation work necessary. Given this, we
have not provided for the issue in the financial statements but
will continue to monitor the situation going forward to establish
if a provision is necessary.
The Group is aware of a claim from a customer within its CTT
division in Germany relating to the supply of defective products.
The claim, which is for a sum of up to EUR1.4m, is in its early
stages and we currently believe that there is only a possible, but
not probable, chance that this claim will succeed. As such, no
provision for any liability has been made in these financial
statements.
GBP2.6m of professional fees and employee retention bonuses are
also contingent on the takeover by FVB completing successfully.
These costs will be paid and incurred once it becomes probable that
the deal will complete.
15. Post Balance Sheet events
COVID-19 outbreak
The COVID-19 outbreak has had a significant impact on our
operations in China, although we are pleased to report that none of
our employees, nor their immediate family members, have been
infected, as far as we are aware.
Colback operations in Changzhou had a delayed start-up after the
usual closure for the Chinese New Year, with the closure period
initially extended by the Chinese authorities and production then
being further delayed as not all operators were able to return to
Changzhou after the holidays due to quarantine and travel
restrictions. Export sales have continued as planned, but domestic
sales have been badly impacted by weak domestic demand and because
many of our Chinese customers have also suffered extended shutdowns
and poor short-term market conditions.
Our Yihua Bonar operation in Yizheng were also impacted by a
delay in restarting production but to a lesser extent than
Changzhou as the workforce is largely local and therefore had not
travelled for the holidays. Weak domestic demand following customer
disruption is adversely impacting sales although export shipments
have been made as planned.
We are very mindful that the further spread of COVID-19 now
being seen will certainly have an effect on demand levels in our
other markets, and as such is very likely to adversely affect
trading across the rest of the Group. The potential of this is,
inevitably, hard to predict at this point, but it is likely to be
significant in at least the short term.
In the remainder of the Group outside China, two of our small
manufacturing sites, Burlington in the USA and Dundee in the UK,
have recently temporarily closed following government guidance. The
remainder of the sites currently remain fully operational. The
health and safety of our employees continues to be our primary
concern and we have ensured that we are adhering to the relevant
national official guidance to continue to provide a safe working
environment, including a restriction on travel for our employees to
affected regions.
Whilst the impact on the Group's results is difficult to
predict, absent any other improvements, we would be likely to see
the COVID-19 outbreak causing further impairments in our Bonar
Changzhou and Colbond Americas CGUs in 2020. We do not anticipate
the headroom in the Colbond EMEA CGU currently being eliminated at
this point. Please refer to Note 9 and 10 for details of the
impairment tests completed and the carrying value of the
non-current assets in the Group.
Post-year end debt modification
T he Group reached an agreement with its lenders on 27 March
2020 under which the lenders will assist in providing a stable
platform to allow the Group time, if the Offer does not complete,
to execute alternative plans. Under the terms of this agreement,
the lenders have agreed to extend the existing covenant waivers
until 30 November 2020, irrespective of the status of the Offer.
The agreement also requires the Group to report on certain
milestones associated with the Offer and, as appropriate, the
delivery of the alternative plans. The lenders have also agreed to
make available additional facilities of GBP12m, the majority of
which are under the RCF, with draw down requests on these
facilities to be reviewed on a case by case basis. Under the
agreement, the lenders will have the right to reinstate a stop on
drawings if the Group's forecast liquidity, covering the forward
thirteen weeks, looks likely to fall below certain levels. The
Group will provide certain additional conventional security and
guarantees to the lenders in connection with these further
drawings. In addition, a fixed asset loan agreement in China, under
which repayment of the outstanding RMB 70m balance was due on 30
June 2020, has been extended, with repayment now due on 30 December
2020, and the Group will provide enhanced security to the lender.
At the time of signing this report, the amendments to the lender
agreements have been approved by each of the lenders' credit
committees and signed by all parties. Certain elements of the terms
around the further drawings remain subject to full documentation,
including certain conditions precedent, notably around agreement
and execution of full documentation for the associated security.
These are expected to follow a customary format and the Group does
not envisage any scenario whereby these conditions will not be met.
For clarity, certain of the terms of the agreements will only come
in to effect if the Offer lapses.
Status of the potential acquisition from FVB
The offer for the Group from FVB, announced on 20 September
2019, has been described in detail in other documents made
available to shareholders and on the public record. The Offer is
conditional upon a successful outcome from an EU competition
review, which is in process. We expect a final decision as to
whether Phase I clearance will be granted during April 2020.
16. Equity raise
During the period, the Group raised net proceeds of GBP49.9m via
an equity raise (consisting of GBP53.9m of gross proceeds less
expenses of GBP4.0m). There was no tax impact on the fees. A cash
box structure was used in such a way that merger relief was
available under the Companies Act 2006, section 612. In this
circumstance no share premium is recorded and the GBP31.9m excess
of the net proceeds over the nominal value of the share capital
issue has been recorded in Other Reserves. The proceeds of this
issue were used to reduce net indebtedness, provide working capital
flexibility and to fund incremental capital expenditure across the
wider Group. For amounts passed to entities in the Group by way of
intercompany loans, this Other reserve is not immediately
distributable. This reserve will qualify as distributable on
settlement of these intercompany funding arrangements in the
future.
17. Restatement of prior year adjustments
The following adjustments have been noted, which are the
correction of errors from prior years. The impact of the errors on
30 November 2018 and previous periods is as follows:
Balance Update Update
impacted of Dundee of Dundee
impairment impairment Update Correction
2018 as mechanics mechanics of Hungary Netting of NCI Balance
previously -pre 2018 - 2018 impairment of Deferred dividend as
GBPm reported adjustment adjustment mechanics tax balances payable Other restated
(Colbond) (Colbond) (Civil (Unallocated) (Colbond) (Colbond)
eng)
PPE 137.0 (1.3) 0.1 (2.7) - - - 133.1
Intangible
assets 23.4 (0.3) (0.1) - - - (0.3) 22.7
Deferred
tax assets 8.6 - - 0.2 (4.1) - - 4.7
Trade and
other
receivables 77.8 - - - - - (0.1) 77.7
Trade and
other payables (92.4) - - - - (0.4) 0.1 (92.7)
Deferred
tax liabilities (16.8) - - - 4.1 - - (12.7)
------------ ----------- ----------- ------------ -------------- ------------ ---------- ----------
Net assets 127.5 (1.6) - (2.5) - (0.4) (0.3) 122.7
Retained
earnings (23.2) 1.6 - 2.5 - - 0.3 (18.8)
Non-controlling
interest (7.0) - - - - 0.4 - (6.6)
------------ ----------- ----------- ------------ -------------- ------------ ---------- ----------
Shareholder
equity (127.5) 1.6 - 2.5 - 0.4 0.3 (122.7)
------------ ----------- ----------- ------------ -------------- ------------ ---------- ----------
Update of Dundee impairment mechanics
In the period to 30 November 2019 we identified an error in the
mechanics of our impairment model due to the exclusion of excluding
central costs and the incorrect calculating of tax cash flows.
Correcting for these issues in the model would have led to a
GBP1.3m impairment on the value of Dundee's PPE and a GBP0.3m
impairment of their portion of the Group-wide ERP system which is
held as a corporate asset. However, by reviewing the results of the
CGU over previous years, we have determined that these impairments
related to periods prior to 2018 and as such we have adjusted the
opening 2018 balances in the Consolidated Statement of Changes in
Equity, Intangible assets and PPE notes to reflect these
impairments.
All assets capitalised in 2018 and 2019 have also therefore been
subsequently impaired (GBP0.2m in 2019 and GBP0.1m in 2018) and
depreciation and amortisation in these years has also been reversed
through underlying profit (GBP0.1m in both years).
We do not consider that a third balance sheet for 2017 needs to
be presented given the relative immateriality of the adjustments
against both the Group's PPE and intangible assets balances and the
net assets position overall.
Update of Hungary impairment mechanics
As noted above, in the year, we identified an error in the
mechanics of our impairment model for Hungary. Correcting for these
in the model at 30 November 2018 would have led to an additional
GBP2.7m impairment on the value of Hungary's assets (GBP2.5m net of
deferred tax). PPE and retained earnings has therefore been
restated accordingly. Hungary forms part of the NPNW business which
has been disposed of in the year. The restatement therefore reduced
the loss we have made in the current period on the sale of NPNW.
This error did not impact the income statement or balance at 30
November 2017.
Netting of deferred tax balances
Deferred tax balances that have arisen in the same jurisdictions
and are expected to unwind over a similar timeframe should be
netted rather than being presented as gross. We have therefore
restated the 30 November 2018 deferred tax assets and liabilities
to present these balances on a net basis as noted above. The error
did not have an income tax impact. The impact at 30 November 2017
is as follows:
30 November 2017
GBPm Previously Adjustment Balance
Balance impacted reported as restated
Deferred
tax assets 10.1 (1.8) 8.3
Deferred
tax liabilities (17.5) 1.8 (15.7)
Correction of non-controlling interest ("NCI") dividend
payable
The 2017 dividend payable from Yihua Bonar to our NCI partner
was declared and approved in June 2018 but was not paid until
December 2018. We did not account for this in 2018 when it was
declared and instead accounted for this when it was paid. As
dividends should be accounted for when they are declared and
approved, we have now restated the 30 November 2018 balance sheet
to reflect this. This error did not have an income tax impact. This
error did not impact the income statement or balance sheet at 30
November 2017.
Other
Impairment of royalty and patent assets
GBP0.4m of royalty and patent assets (recorded as intangible
assets and other receivables) were assessed as being impaired in
2019. However, on reflection of the nature of the impairments, we
have determined that the impairments related to periods prior to
2018 and as such we have adjusted the opening 2018 balances in the
Consolidated Statement of Changes in Equity, Intangible assets and
Trade and other receivables notes.
As noted above, we do not consider that a third balance sheet
for 2017 needs to be presented given the relative immateriality of
the adjustment against the Group's intangible assets and the net
asset position overall.
Misstatement of accruals
In the prior year, the vacation accrual in Colbond Americas was
overstated by GBP0.4m and VAT payable in Bonar Changzhou was
understated by GBP0.3m. Both are now corrected in the 2019 balance
sheet.
Company
Impairment of inter-company receivables in the Company
A GBP4.8m impairment to inter-company receivables has been
recorded as a prior year adjustment. This relates to the write-down
of balances with dormant subsidiaries and should have been recorded
prior to 2018. The adjustment of GBP4.8m reduces 2018 net assets
from GBP216.8m to GBP212.0m, reduces 2017 net assets from GBP233.2m
to GBP228.4m and the 2017 receivables balance from GBP220.1m to
GBP215.3m
18. Segmental restatement
As disclosed in Note 2, the Group has reorganised it structure
within the period, with Building & Industrial and Interiors
& Transportation being merged into the Colbond segment. As part
of this change, the civil engineering segment was also reorganised
to consist of only the elements of the business which have been
sold. Any other revenue, profit, assets or liabilities that are not
attributed to these businesses but which were previously reported
as within the civil engineering operating segment (due to the
nature of the products) are now reported within the Colbond
segment. The remaining balances within the civil engineering
segment relate entirely to Ivanka which did not meet the
classification of discontinued operations in the prior year or the
current year.
The tables below show the impact of this restatement on the
segment information previously provided:
Move to Prior year
Reorganisation discontinued adjustments
GBPm Reported reclassification operations (Note 17) Restated
Revenue
Building & Industrial 89.8 (89.8) - - -
Interiors & Transportation 125.7 (125.7) - - -
Colbond - 219.3 - - 219.3
Coated technical textiles 138.8 - - - 138.8
Civil engineering 77.6 (3.8) (70.3) - 3.5
Continuing operations 431.9 - (70.3) - 361.6
Discontinued operations - - 70.3 - 70.3
-------------- ------------------ -------------- ------------- ---------
Total 431.9 - - - 431.9
-------------- ------------------ -------------- ------------- ---------
Underlying profit before tax
from continuing operations
Building & Industrial 6.9 (6.9) - - -
Interiors & Transportation 18.5 (18.5) - - -
Colbond - 25.5 - 0.2 25.7
Coated technical textiles 2.5 (0.2) - - 2.3
Civil engineering 0.1 0.1 (0.2) - -
Unallocated central (5.8) - - - (5.8)
Continuing operations 22.2 - (0.2) 0.2 22.2
Discontinued operations - - 0.2 - 0.2
Total 22.2 - - 0.2 22.4
-------------- ------------------ -------------- ------------- ---------
Return on sales
Building & Industrial 7.7% -
Interiors & Transportation 14.7% -
Colbond - 11.7%
Coated technical textiles 1.8% 1.7%
Civil engineering 0.1% -
Continuing operations 5.1% 6.1%
Discontinued operations (0.3%)
Total 5.1% 5.1%
-------------- ------------------ -------------- ------------- ---------
Reportable segment assets
(restated)
Building & Industrial 61.7 (61.7) - - -
Interiors & Transportation 149.7 (149.7) - - -
Colbond - 212.5 - (2.0) 210.5
Coated technical textiles 105.0 - - - 105.0
Civil engineering 41.4 (1.1) (40.3) - -
Civil engineering - Ivanka - - - - -
Unallocated central 2.5 - - - 2.5
Continuing operations 360.3 - (40.3) (2.0) 318.0
Discontinued operations - - 40.3 (2.7) 37.6
Total 360.3 - - (4.7) 355.6
-------------- ------------------ -------------- ------------- ---------
Move to Prior year
Reorganisation discontinued adjustments
GBPm Reported reclassification operations (Note 17) Restated
Reportable segment liabilities
(restated)
Building & Industrial (13.2) 13.2 - - -
Interiors & Transportation (28.7) 28.7 - - -
Colbond - (42.3) - (0.3) (42.6)
Coated technical textiles (28.0) - - - (28.0)
Civil engineering (22.3) 0.9 21.4 - -
Civil engineering - Ivanka - (0.5) - - (0.5)
Unallocated central - - - - -
Continuing operations (92.2) - 21.4 (0.3) (71.1)
Discontinued operations - - (21.4) - (21.4)
Total (92.2) - - (0.3) (92.5)
--------- ------------------ -------------- ------------- ---------
The impact of the Segmental restatement on the other segment
information disclosed is set out below:
As restated
GBPm
Year ended 30 November Civil engineering Unallocated Discontinued
2018 Colbond CTT central operations* Total
Additions to PPE 11.7 2.8 0.2 - 0.5 15.2
Additions to intangible
assets and goodwill 2.6 0.3 - 0.4 0.1 3.4
Depreciation (10.7) (3.8) (0.1) (0.2) (1.0) (15.8)
Amortisation of acquired
intangible assets (0.6) (2.2) - - - (2.8)
Non-underlying items
- continuing operations (3.2) (40.7) (0.5) (8.4) (6.6) (59.4)
As reported
GBPm
Year ended 30 Building
November & Interiors Unallocated
2018 Industrial Civil engineering* CTT & transportation* central Total*
Additions to
PPE 1.7 1.3 2.8 9.4 - 15.2
Additions to
intangible
assets and
goodwill 1.0 0.1 0.3 1.6 0.4 3.4
Depreciation (3.0) (1.1) (3.8) (7.7) (0.2) (15.8)
Amortisation of
acquired
intangible
assets (0.6) - (2.2) - - (2.8)
Non-underlying
items
- continuing
operations (1.7) (6.6) (40.7) (1.2) (8.4) (58.6)
Non-underlying
items
- discontinued
operations - - - - (0.8) (0.8)
* restated for prior year adjustments (see Note 17).
19. Alternative Performance Measures
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 income statement;
-- underlying segment operating profit is set out in Note 2;
-- underlying operating margin/return on sales is set out in
Note 2;
-- adjusted earnings before interest, tax, depreciation,
amortisation, IFRS 2 charge and pension administration costs
("adjusted EBITDA");
-- net debt;
-- return on capital employed; and
-- constant currency which translates prior results at the
current period's rates of exchange as set out in note 2.
Adjusted EBITDA
Adjusted EBITDA is used in determining the Group's gearing, and
is calculated based on the definition set out in the Group's
banking covenants. A reconciliation is as follows:
2019 2018
(restated)**
GBPm GBPm
Underlying operating profit 5.1 22.4
Add backs: Depreciation* 10.2 15.8
Amortisation of intangibles 3.2 4.1
Less: amortisation included as a non-underlying
item (1.7) (2.8)
IFRS 2 (credit)/charge 0.1 (0.2)
Pension administration costs 0.7 0.5
Share of profit of joint venture (0.1) (0.1)
Dividend received from joint venture 0.4 -
Other 0.1 0.4
------ --------------
Adjusted EBITDA 18.0 40.1
------ --------------
*Excludes GBP0.2m relating to depreciation presented in
non-underlying items in relation to the Ivanka site
** 2018 restated for prior year adjustments (Note 17) and
includes continuing and discontinued operations
Net debt
Net debt is calculated as follows:
2019 2018
GBPm GBPm
--------------- -------
Interest-bearing loans and borrowings 129.7 176.3
Less: Net fair value adjustment to Senior Loan Note debt (2.5) -
Less: Cash and cash equivalents (29.8) (47.8)
Net debt(*) 97.4 128.5
--------------- -------
* Net debt for covenant compliance purposes is retranslated at
the average exchange rates for the year, to match the rates used to
translate adjusted EBITDA. The resulting figure was GBP100.4m
(2018: GBP127.9m).
Return on capital employed ("ROCE")
ROCE is one of the Group's key measures for assessing its
performance. It is calculated as follows:
2019 2018
GBPm (restated)
GBPm
Underlying operating profit 5.1 22.2
Divided by: capital employed 184.9 251.2
--------------- --------------------
ROCE 2.8% 8.8%
--------------- --------------------
2019 2018
GBPm (restated)
GBPm
Net debt 97.4 128.5
Net assets 87.5 122.7
--------------- --------------------
Capital employed 184.9 251.2
--------------- --------------------
20. Annual Ge n eral Me e t ing
The Annual General Meeting will be held on 22 May 2020 at Low
& Bonar PLC, One Connaught Place, London, W2 2ET.
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR PPUAGWUPUGRM
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March 27, 2020 14:32 ET (18:32 GMT)
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