Full Year Results year ended 30 November 2018 30 January 2019 1 - - PowerPoint PPT Presentation

30 January 2019

Full Year Results year ended 30 November 2018

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CEO summary

Low & Bonar is a good business with an opportunity to unlock value

• Low & Bonar has a core business with strong fundamentals, based on

differentiated technology and leading niche market positions

• Underperformance resulting from poor choices historically, such as failed

Civil Engineering growth strategy, under-investment in core facilities and insufficient focus on working capital

• Significant improvement actions initiated during 2018
• Clear and compelling strategy, together with a simplified portfolio and

structure, have the ability to generate sustainable profitable growth in the medium term

• The Board believes the Group needs a stronger balance sheet to support

its objectives

3

Solid initial progress on transformation …

Improve cash generation to reduce net debt



• Working capital reduced by £18m
• Net debt reduced by £10m

Optimise operating structure



• B&I/I&T merged into Colbond with regional

structure, closer to customers

• CE and CTT operating as standalone

business units

• Annualised cost savings of £4m

Review strategic importance of CE business



• Stage 1: closure of Ivanka site and transfer
• f its Enka business to B&I - Complete
• Stage 2: divestment process - Underway

Continue to invest in B&I/I&T



• £14m capex in FY2018 (76% Group total)

Resolve CTT production consistency issues



• Issues identified and remediation plans

established,

• Full resolution expected during FY2019

4

… though 2018 was a challenging year

• Top line underlying sales growth of 1.5%*
• Underlying PBTA* £16.7m, down by 42.4%
• Significant increase in raw material prices
• Production and availability issues
• Net debt reduction of £9.9m to £128.5m
• Year-end net debt to underlying EBITDA ratio of 3.2x
• Transformation programme to be continued and intensified

* FY17 retranslated at FY18 exchange rates and restated for disposal of Agro-textile business sold in October 2017 5

Transformation journeys are never smooth

• Legacy of production and service issues to overcome
• Need to rebuild organisation at second level and below
• Need to rebuild customer confidence in some areas
• Some signs of macro-economic slowdown
• Risk of increasing competitive intensity
• Raw material price volatility

Equity raise will significantly strengthen the Group’s balance sheet, allowing management to focus on delivering sustainable, profitable growth and to address a number of legacy issues.

6

Immediate focus areas

• £50m net equity raise to improve the Group’s capital structure
• Complete the Civil Engineering disposal process
• Embed new organisational structure, focused on customers
• Permanently resolve CTT’s production issues
• Initiate improvement across the business, including under-invested sites

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CEO summary Financial Review

Financial summary

Year ended 30 November 2018

Continuing operations 2018 £m 2017 £m Actual y-o-y Adjusted constant currency** y-o-y Revenue

431.9 446.5 (3.3)% 1.5%

EBITA*

22.2 35.5 (37.5)% (34.3)%

Operating margin*

5.1% 8.0% (290) bps

Net interest

(5.5) (4.8)

PBTA*

16.7 30.7 (45.6)% (42.4)%

Statutory LBT

(42.2) (19.7)

ROCE* (12 months trailing)

8.7% 11.1% (240) bps

Cash inflow from operations

51.3 36.6 40.2%

Non-underlying items (operating profit)

(58.6) (50.4)

Basic EPS* (adjusted)

3.56p 6.42p (44.5)% (41.4)%

Dividend per share

1.42p 3.05p

*underlying ** FY17 retranslated at FY18 exchange rates, restated for disposal of Agro-textile business sold in October 2017

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446.5 425.4 431.9 (2.8) (18.3) (2.4) 7.5 (6.1)

FY 2017 Translation FX Agro-Textiles (sold Oct 17) Constant FX Ivanka Volume Mix RM pass through FY 2018 1.8%

7.5

(0.6)%

Revenue growth* of 1.5%

£m

1.8% (1.5)% * FY17 retranslated at FY18 exchange rates and restated for disposal of Agro-textile business sold in October 2017 10 I&T B&I CTT CE CE CTT I&T B&I

Profit* impacted by raw material price increases, product mix and production issues

30.7 (0.6) (1.1) 29.0 4.2 (3.8) (12.0) 7.5 (2.7) (5.5) 16.7 10 15 20 25 30 35

£m

* Underlying profit before tax and amortisation of acquired intangibles (PBTA) 11

Challenging operating and market conditions

Year ended 30 November 2018

* underlying at constant currency, FY17 restated to exclude the Agro-textile business sold in October 2017 and the transfer of Enka business from CE to B&I

Revenue* Profit* Operating Margin* 2018 £m 2017 (CER) £m 2018 £m

2017 (CER)

£m 2018 2017 I&T 125.7 118.1 6.4% 18.5 18.7 (1.1)% 14.7% 15.9% B&I 89.8 89.0 0.9% 6.9 11.6 (40.5)% 7.7% 12.0% CTT 138.8 137.7 0.8% 2.5 9.4 (73.4)% 1.8% 6.7% CE 77.6 80.6 (3.7)% 0.1 (0.5) 0.1% (0.6)% Central

• (5.8)

(5.4) TOTAL 431.9 425.4 1.5% 22.2 33.8 (34.3)% 5.1% 8.0% Interest (5.5) (4.8) PBTA 16.7 29.0 (42.4)%

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Net debt reduced by £9.9m

First working capital reduction since 2010

(138.4) (128.5)

(1.1) 40.0 18.0 (18.6) (11.0) (3.4) 2.6 (6.0) (10.6)

FY 2017 Translation FX EBITDA before non-underlying items Working capital Capital expenditure Tax/interest/loan fees paid Pension payments Disposals/ acquisitions Restructuring/ provisions Dividends/

• ther

FY 2018

£m

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Free cash flow

Year ended 30 November 2018

2018 £m 2017 £m Statutory operating loss (36.4) (14.9) Add back non-underlying items 58.6 50.4 Underlying operating profit 22.2 35.5 Depreciation / amortisation 17.2 19.6 Non-cash pension charges/other 0.6 1.3 EBITDA 40.0 56.4 Working capital movements 18.0 (19.6) Non-recurring items (cash cost) (6.0) 0.2 Other (POSOFA/other) (0.7) (0.4) Operating cash flow 51.3 36.6 Tax paid (5.4) (10.1) Interest/loan fees paid (5.6) (5.0) Pension payments (3.4) (4.4) Capital expenditure (18.6) (34.4) Proceeds from disposals 2.6 3.8 Free cash flow 20.9 (13.5)

2018 £m 2017 £m H&S 0.5 0.2 Replacement 3.6 2.1 Capability 3.0 3.8 Capacity 8.1 22.9 Software/IA 3.4 5.0 Other

• 0.4
• Focus on cash generation and

working capital reduction more than

• ffset lower EBITDA
• First annual reduction in working

capital since 2010

• Continued investment in B&I/I&T
• £12m lower capex in China vs 2017

as line 2 completed

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Non-underlying operating costs relating to continuing operations

• CTT value in use impairment charge

(non-cash) applied to goodwill

• Further non-cash impairments of:
• CE – Hungary plant/equipment
• ERP – reassessment of value
• Estimated £4.0m cost to pension

scheme for equalising GMP

Year ended 30 November 2018

2018 £m 2017 £m Impairment charges: CTT 39.0

• Impairment charges: CE

2.5 26.9 Impairment charges: ERP 1.5

• 43.0

26.9 Loss on closure of Ivanka site 0.5 4.7 Loss on sale of Agro-Textile business 1.2 12.7 Provision for custom duties 1.6 1.7 Loss on land sale 0.1

• Pension
• GMP equalisation

4.0

• Data cleanse
• 0.2

Restructuring costs 4.2

• M&A-related costs

0.6 0.5 Lomnice fire costs 0.6

• Amortisation of acquired intangible assets

2.8 3.7 58.6 50.4

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• Available facilities of £216.5m
• RCF refinanced in May 2018
• Expires May 2023
• Net debt / EBITDA covenant raised to

3.5x, reverts to 3.0x at November 2019

• Covenants:
• Interest Cover

4.2 (> 3.0)

• Net debt / EBITDA 3.2 (< 3.5)

Balance sheet

Year ended 30 November 2018

2018 £m 2017 £m Property, plant and equipment

137.0 144.5

Trade working capital

90.1 105.4

Prepayments and accruals

(13.7) (14.4)

Operating capital employed

213.4 235.5

Other working capital

2.9 6.5

Intangible assets

51.6 91.7

Pension surplus/(deficit)

0.3 (2.2)

Net debt

(128.5) (138.4)

Net assets held for sale

0.5 (1.4)

Other

(12.7) (11.4)

Net assets

127.5 180.3

LCY £m RCF (May 2023) €165m 146.4 PP (Sept 2022-2026) €60m 53.2 RMB loans (June 2020) RMB150m 16.9 Core funding 216.5

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• Average FY 2018 net debt £159.4m

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CEO summary Operational review

Building & Industrial (B&I)

• The division continued to grow in 2018, across most segments and driven by China
• Profit reduced due to:
• Enka production & supply issues at Asheville site, which resulted in reduced sales

to one important customer in the US

• Raw material and freight cost increases not passed on in full
• Slow integration of Enka drainage/erosion control business transferred from CE
• Great opportunities for further innovation in existing and adjacent markets
• Investment required to address historical under-investment in Asheville
• Enka production planned in Asia from 2020

Green roofs Building Filtration

Drainage/erosion control

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Interiors & Transportation (I&T)

Modular carpets Wall to Wall Dust control mats

• Strong performance with over 6% constant currency revenue growth
• Sales growth in Flooring offsetting weaker Automotive
• APAC volumes continue to increase
• Profitability only marginally impacted by strong raw material cost increases
• Flooring benefiting from innovation and extending customer footprint in APAC
• Automotive hampered by weaker US luxury car market and cost reduction

measures at European car manufacturers

• Asian decorative business growing well, opportunities to increase business with

local carpet tile makers

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• Disappointing year, operating margin declined to 1.8% (2017: 6.7%)
• Capable of sustained high single digit returns in the medium term, but results impacted by:
• Production inconsistency issues
• Customer confidence due to reduced product availability
• Temporary disruption from fire at Lomnice (Czech) coating plant in October 2018
• Production issues complex and long-standing
• Good progress made on identifying root causes and implementing solutions
• Further work required in 2019, especially to re-certify our improved product and to

address historic under-investment

• Lomnice coating plant restarted production in January 2019

Coated TechnicalTextiles (CTT)

Tarpaulins Stadium membrane 20

• Actions following strategic review successfully executed:
• Loss-making Slovakian site, Ivanka, successfully closed in March 2018
• Enka drainage/erosion control business transferred to Building & Industrial
• Business now focused on Needle-Punched Non-wovens and Construction

Fibres

• New management team in place from February 2018
• Good progress on reducing cost base and improved performance
• Profitability restored in 2018; breakeven for full year, £1m profit in H2
• Further improvement expected in 2019
• Divestment process underway

Civil Engineering (CE)

Tunnelling Construction 21

Key initiatives identified

• Organisational effectiveness

Ensure strength and depth across senior team Leverage benefits of reorganisation

• Improve customer focus

Align organisation behind customer-facing teams and focus relentlessly on OTIF “on time in full” and service

• Customer-led innovation

Growth strategy to be led by market and customer needs

• Optimise manufacturing

Address under-investment in key sites, focus on quality, remove inefficiencies, reduce fixed cost

• Improve procurement

Improve commercial effectiveness of procurement function

• Management information

Define data-strategy and improve reporting capabilities

• Working capital

Reduce inventory days, normalise creditor days

• Portfolio review

Civil Engineering disposal

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Our vision for Low & Bonar

• Customer-focused global technical textile business, with leading

positions in attractive niche segments

• Versatile and market-leading technologies with multiple applications
• Powerful reputation for service excellence, innovation and

sustainability, which contributes to a better world

• Great place to work with passionate and empowered employees
• Capable of generating and sustaining attractive shareholder returns
• Sustainable revenue growth

Annual average of weighted GDP +1-2%

• Margin improvement

Operating margin1 target of 10%

• Generate cash consistently

Operating cash flow2 to EBITDA of >80%

• Strong shareholder returns

Dividend at an average of 40% of PAT

1 Underlying operating profit (before non-recurring items and amortisation of acquired intangibles) as a percentage of revenue 2 Cash inflow from operations, per annual report

Medium term financial targets:

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• Cash and profit performance in the early part of the year in line with

expectations

• Volumes reflect subdued demand in some markets, especially lower-

margin segments of Colbond and CTT

• Reduced capacity in CTT, following fire at Lomnice – site now returned to

full production

• CE trading in line with expectations and ahead of prior year at this stage
• Raw material prices reduced slightly from levels at the end of 2018,

supporting margins

Current trading

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We have a clear plan to transform Low & Bonar to enable the delivery of profitable growth We need to rebuild customer confidence in some parts of the Group, resolve legacy production issues, improve customer service levels and exploit the new customer-focused regional structure fully The transformation will be managed carefully to ensure we unlock the Group’s full potential Whilst market conditions remain challenging, with the benefit of the strengthened capital structure and strategic actions underway, the Board is confident of progress during the year

Outlook

25

Thank you & Questions

27

CEO summary Appendix Year ended 30 November 2018

Our applications in everyday life

28

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Colbond – Colback and Enka technologies

COLBACK Proprietary non-woven technology Multiple niche applications requiring maximum strength with minimum weight.

• Carpet tiles: strength, stability, sustainability
• Car carpets: efficiency, low weight, acoustics
• Filtration: efficiency, durability, functionality
• Building: durability, breathability
• Roofing: strength, stability, low weight

ENKA 3D entangled polymer mat Lightweight but high compressive strength, with open structure allowing excellent passage of gases or liquids.

• Building: Soundproofing, ventilation
• Roofing: Green roof carrier
• Industrial: Flow medium, biotrickling filters, cushioning
• Leisure: Sports field shock pad
• Civil: Erosion control, drainage

Coated Fabrics (CTT)

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• Strong but lightweight and flexible
• Can be made impermeable or semi-permeable to air,

water and uv radiation

• Broad selection of finishes, textures, colours and

coatings

• Rapid availability and fulfilment across core range
• Production quality and consistency

Tough and durable fabric suitable for demanding

• utdoor applications
• Transport: Truck tarpaulins
• Architecture: Tensile architecture, tents and sun shading
• Leisure: Boats, pools, tents, sports mats
• Industrial: Tarpaulins, containers

Recent innovations

31

Colback Gold – cradle to cradle certified primary carpet tile backing Colback SNS50 – secondary backing for carpet tiles Five new rainscreen product launches Lower cost/ higher performance acoustic mats Enkair – foam replacement for breathable cushioning in mattresses and seat covers High performance, low emission filter support media

Four Divisions

32

Building & Industrial Civil Engineering Coated Technical Textiles Interiors & Transportation Colback Colback Enka Coated fabrics

Construction Fibres Needle-punched non- wovens

32

Being combined into Colbond

Technical fabrics used in transportation, interior carpeting, resilient tiles and decorative products Range of technical textile solutions for niche applications in air and water filtration, building, roofing, drainage and erosion control Range of technical coated fabrics providing aesthetics and design, performance and protection in a number of different markets Fabrics and fibres used in major infrastructure projects, including road and rail building, land reclamation and coastal defence

• Significant inflation in

most polymers across 2017/18

• PA6 increase

particularly pronounced

• Net pricing drag in

2018 of £4.5m

• Continuing to

manage pricing impact

Polymer prices – 4 years

Year ended 30 November 2018

33

Net cash flow

2018 £m 2017 £m Free cash flow 20.9 (13.5) Dividends (10.1) (10.0) Dividends to minority interest

• (1.0)

Proceeds from share issues 0.2 0.2 FX (1.1) (3.1) Movement in net debt 9.9 (27.4) Net debt brought forward (138.4) (111.0) Net debt carried forward 128.5 (138.4)

Year ended 30 November 2018

• RCF refinanced in May 2018
• Available facilities £216.5m
• Cash and undrawn facilities at

November 2018 of £88.0m

• Covenants (tested semi-annually in

May and November):

• Interest cover - >3.0x
• Net debt/EBITDA1 - <3.5x,

reducing to <3.0x in June 2019)

1 EBITDA is profit before non-recurring items, interest, tax, depreciation and amortisation

34

Spot rates Rates FY 18 average Jan 19 spot Euro

1.13 1.16

USD

1.34 1.31

CZK

29.03 29.68

RMB

8.83 8.88

FX impact

Year ended 30 November 2018

Translation impact vs Jan 19 spot rates £m (0.1) 0.2

• (0.1)
• In broad terms, a 1 cent movement equates to c£60k ($) and c£40k (€)

change in reported £ profits on full year basis

35

Location of customer Location of selling entity

UK Europe N America Middle East Asia / ROW Total UK 3% 1%

• 4%

Europe 2% 57% 1% 2% 4% 66% N America

• 20%
• 20%

Middle East

• 1%
• 1%

Asia / ROW

• 1%
• 8%

9% Total 5% 58% 22% 3% 12% 100%

Geographic Sales – naturally hedged

Year ended 30 November 2018

• 5% of sales in UK (3%

imported from Europe)

• Most regions naturally

hedged

• Financial covenants based
• n average FX rates,

currency borrowings matched with currency earnings

36

• UK triennial valuation completed, deficit

repair contributions reduced to £3m pa

• £4m provision recognised to equalise

GMP benefits following court ruling

• Net overseas deficit: US £2.1m; Germany

£8.9m; others net £0.3m surplus

• Six schemes; three closed, three
• pen

DB Pension schemes

Year ended 30 November 2018

UK £m Overseas £m Total £m Liabilities

(176.0) (21.7) (197.7)

Assets

187.0 11.0 198.0

Net surplus/(deficit)

11.0 (10.7) 0.3

Movement in year: Actuarial gain

1.9 1.6 3.5

Net interest

0.3 (0.2) 0.1

Current service cost

• (0.3)

(0.3)

Contributions

3.0 0.4 3.4

Administration costs

(0.2)

• (0.2)

Past service cost

(4.0)

• (4.0)

FX

• Net change

1.0 1.5 2.5

37

• NCI relates to 40%

minority stake in Yihua Bonar

• Dilution relates to
• utstanding share
• ptions

Earnings per share – continuing operations

Year ended 30 November 2018

2018 £m 2017 £m YoY % YoY CER Underlying PBTA

16.7 30.7

• 45.6%
• 42.4%

Tax

(4.4) (8.9)

• 50.6%
• 47.6%

PAT

12.3 21.8

• 43.6%
• 40.3%

NCI

(0.5) (0.6)

• 16.7%
• 16.7%

Earnings

11.8 21.2

• 44.3%
• 41.0%

Tax Rate

26.3% 29.0% (270)bps

Number of shares:

• Basic

329.8 329.4 +0.1%

• Dilutive

3.9 5.6

• 30.4%

Underlying EPS

• Basic

3.56 6.42

• 44.5%
• 41.4%
• Diluted

3.52 6.32

• 44.3%
• 41.0%

38

Tax rate reconciliation

• Profit mix driven by:
• unrecognised losses in Hungary;

partially offset by

• Reduction in US tax rate reduction
• One-off £2.1m benefit from revaluation of

US deferred tax shown as a non-recurring item

2018 % 2017 % Prior year underlying rate

31.1 33.2

Profit mix effect

0.6 (2.1)

Current year underlying rate

31.7 31.1

Innovation box

(0.9) (1.8)

Effective rate

30.9 29.3

Prior year adjustments

(4.4) (0.3)

Reported rate

26.4 29.0

Year ended 30 November 2018

39

Diverse global business, enjoying strong positions in niche markets

40

EMEA Americas APAC Colbond (B&I/I&T) CTT CE

Colbond revenue by key market Colbond regional revenue 2018 Group revenue

Furnishing Building Transportation Other

40

FY19 planning assumptions

41

FY18 actual FY19 forecast FY19 notes

Effective tax rate on underlying PBTA 26% 26% Full year impact of US rate change – offset by mix changes in Europe Capital expenditure £19m £20-25m Targeted investments in Asheville, CTT coating Pension - cash £3.4m c£4m Including £0.5m related to equity raise Acquisitions/ disposals - cash Net £3.8m inflow Net £0m Further Ivanka proceeds, c£2m, to offset Bonar Natpet related cost c£(2)m CE would be incremental

This document (the “Presentation”) has been prepared by Low & Bonar PLC (referred to herein as “Low & Bonar” or the “Company”) solely for informational purposes. By reading the Presentation, you will be deemed to have (i) agreed to all of the following restrictions and made the following undertakings and (ii) acknowledged that you understand the legal and regulatory sanctions attached to the misuse, disclosure or improper circulation of the Presentation. This Presentation does not purport to contain all the information that may be required by the recipient to make an evaluation of the Company. The Company prepared this Presentation on the basis of information which it has and from sources believed to be reliable. To the extent available, the industry, market and competitive position data contained in this Presentation come from official or third party sources. Third party industry publications, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but that there is no guarantee of the accuracy or completeness of such

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certain of the industry, market and competitive position data contained in this Presentation come from the Company's own internal research and estimates based on the knowledge and experience of the Company’s management in the market in which the Company operates. While the Company believes that such research and estimates are reasonable and reliable, they, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are by reference to the time the Presentation was prepared and are subject to change without notice. Accordingly, undue reliance should not be placed on any of the industry, market or competitive position data contained in this Presentation. Neither the Company nor any of its respective directors, officers, employees, agents, affiliates or advisers is under any obligation to update or keep current the information contained in the Presentation. This Presentation may contain certain forward-looking statements, forecasts, estimates, projections and opinions ("Forward Statements"), which are based on current assumptions and estimates by the management of Low & Bonar. These Forward Statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “plans”, “may”, “will” or “should”

• r, in each case, their negative or other variations or comparable terminology. By their nature, Forward Statements involve known and unknown risks, uncertainties, assumptions and other factors because they relate

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