LWB.L Regulatory News (LWB)

Low & Bonar PLC

("Low & Bonar" or "the Group")

Final Results for the Year ended 30 November 2018

Transformation progressing following a challenging year 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 2018.

The Group consists of four Global Business Units: Building & Industrial ("B&I"), Interiors & Transportation ("I&T"), Civil Engineering ("CE") and Coated Technical Textiles ("CTT").

PROGRESS ON STRATEGIC ACTIONS

In January 2018 the Group announced a series of strategic actions designed to improve the performance of the business and strengthen the balance sheet. Good progress has been made on all of them:

· Focus on cash generation, with an £18.0m working capital reduction the main contributor to a £9.9m reduction in net debt

· Organisational structure simplified and ongoing cost saving initiatives expected to deliver savings of £4m on an annualised basis

· From December 2018, B&I and I&T have been merged to create a new business, Colbond, with a simplified and accountable regional structure, enabling improved customer focus and agility

· Continued investment in B&I and I&T with £14.0m of capital expenditure in the year, including £3.4m to complete the second Colback manufacturing line in Changzhou.

· Solutions for production consistency issues in CTT have been identified and whilst progress on resolving these has been slower than expected, a number have been addressed in the year with the remaining remediation actions to be implemented in 2019

· CE strategic review completed and phase 1 conclusions implemented - closure of Ivanka site and integration of the Enka business into B&I

· CE phase 2 review completed - new management team has improved the underlying performance of the remaining businesses, resulting in a £1.0m profit in H2. We are progressing with the plan to divest the remaining CE business

· The Board has concluded that a stronger balance sheet is required to support the Group's strategic objectives and is today announcing a proposed equity issue to raise net proceeds of £50m

FINANCIAL HIGHLIGHTS

· Performance reflects challenging operating and market conditions despite progress being made on the implementation of strategic initiatives

· Revenue growth of 1.5%, on an adjusted constant currency basis, supported by expansion in China. Revenue on a statutory basis 3.3% below the prior year, due mainly to the impact of the agro-textile disposal in the second half of 2017

· Profit significantly impacted by increased raw material and freight costs, ongoing production consistency issues in CTT and Enka production and supply problems in North America

· Positive cash flow as a result of actively reducing working capital, resulting in a £9.9m reduction in net debt

· Successful refinancing of five-year, €165m, revolving credit facility

· Statutory loss before tax of £42.2m is after £58.9m of non-underlying, mainly non-cash items, including a £39.0m impairment of CTT's goodwill

· Final dividend of 0.37p per share (£1.2m) proposed, which together with the interim dividend of 1.05p per share would result in a total dividend for 2018 of 1.42p per share, representing approximately 40% of underlying profit after tax for the year, in line with the new dividend policy

Outlook

In the early part of the 2019 financial year, cash and profit performance has been in line with expectations. Colbond volumes reflected lower US Enka sales as expected, following reduced volumes with one important customer in the latter part of 2018 and the Group saw subdued demand in some markets, especially in the lower-margin segments of the Colbond and CTT businesses. Reduced capacity at Lomnice, following the fire in 2018, held back CTT volumes and margins. However the site has now returned to full production during January. CE is trading in-line with expectations and ahead of prior year at this stage. Raw material prices have reduced slightly during the early part of the year, supporting margins.

The transformation of Low & Bonar is likely to be complex with a number of challenging issues to overcome. 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. Coupled with some signs of a macro-economic slowdown, the risk of intensifying competition and a backdrop of raw material volatility, the transformation will need to be managed carefully to ensure we unlock the Group's full potential.

With the benefit of a strengthened capital structure, and strategic actions well underway, the Board is confident of progress during the year.

Philip de Klerk, Group Chief Executive Officer, said:

"It has been a tough year for Low & Bonar, but we have recognised and identified the issues within the business and have initiated improvement actions as part of the previously announced transformation programme.

Over recent years, not enough was invested in some of the Group's key manufacturing sites, a failed strategy to expand in Civil Engineering was pursued, and there was insufficient focus on cost and cash. We are now urgently addressing these issues and starting to build a better business.

The equity raise announced today 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. We are grateful for shareholder support."

30 January 2019

For further information, please contact:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation EU no. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain. 

CHAIRMAN'S STATEMENT

I joined the Board of Low & Bonar and became Chairman on 11 September 2018. During the few months that have followed, I have felt privileged to have this opportunity to play a leading role in the transformation of the Group to create a simpler, customer-focused and successful business. In place was a relatively new Group Chief Executive Officer in Philip de Klerk, who is ambitious and driven to transform Low & Bonar at pace and who, while understanding the lengthy and challenging tasks we face, has a clear vision of the successful business that will emerge. Our visions are well-aligned. It became clear early on that Simon Webb wished to leave for personal reasons and I am delighted that Ian Ashton has joined the Low & Bonar Board as Group Chief Financial Officer with effect from 10 December 2018. The Non-Executive team is highly-experienced and committed to supporting and challenging the Executive Directors in the interests of furthering the success of the Group.

2018 was a difficult year for Low & Bonar, despite good progress being made on the improvement actions being initiated at the start of the year. A turnaround of this nature is always complex, lengthy and rarely completely smooth. At the start of the year, the business suffered from weak accountability caused by the Group's structure. Moves began early in 2018 to simplify the structure, with these changes largely completed by the start of 2019. Poor operational and commercial execution over several years led to a loss of market share in some key areas and margin erosion, resulting in unacceptably poor financial performance. Many actions have been initiated to improve operations and reduce costs in the Group's plants, and by the end of 2018 there were clear signs of sustained success, especially in resolving the long-standing production and output issues at CTT.

It is now abundantly clear that some of the strategic, organisational and financial decisions taken in recent years together with the 2018 performance have left Low & Bonar with an over-stretched balance sheet and over-complex portfolio given the scale of the Group. As set out in the Group's trading update of 14 December 2018, the Board has been reviewing the Group's capital structure with the objective of reducing net debt. Having considered the options available, including further disposals and working capital reduction, the Board has concluded that a significant equity raise is necessary to reduce leverage to acceptable levels and create the financial headroom necessary for the Group to embark on a series of initiatives designed to transform the organisation into one focused on successful execution, customer service and developing excellence in people. As a result, the Group has today announced an equity raise to raise net proceeds of £50m, which if approved by shareholders will, the Board believes, establish a stronger capital structure for the Group. We are grateful for the support of all shareholders at this time.

The announcement of the proposed disposal of the Group's Civil Engineering business was made prior to my appointment to the Board. We are continuing to progress this strategic project, with a clear view of the valuation we expect to achieve. In the meantime, the Civil Engineering business is improving, and we will consider all options as we review possible offers for the business.

The priorities for the Board and executive management in 2019 are to:

1. Successfully complete the equity raise to reduce net debt and enable necessary investment

2. Progress the Civil Engineering disposal process, whilst ensuring we generate value

3. Embed the new Colbond organisation and start the implementation of the Asheville improvement plan

4. Resolve CTT's ongoing production consistency issues and begin implementation of a plan to improve CTT's cost base significantly

5. Improve profitability and free cashflow

Dividend

Underlying profit before tax of £16.7m or 3.56p earnings per share, together with a limited, but nevertheless welcome reduction in working capital, resulted in net debt at 3.2x underlying adjusted Earnings before Interest, Tax, Depreciation and Amortisation (adjusted EBITDA) compared to a bank covenant limit of 3.5x, allowing little room for manoeuvre. In light of this, the Board proposes a final dividend for the 2018 year of 0.37p per share, which taking into account the interim dividend already paid of 1.05p per share, amounts to a full-year dividend of 1.42p per share or £4.7m, which is approximately 40% of underlying profit after tax.

Subject to the approval of shareholders at the Group's Annual General Meeting to be held on 5 April 2019, the dividend to Ordinary Shareholders is payable on 10 April 2019 to Ordinary Shareholders who are on the register of members at 15 February 2019. The dividend will not be paid on new shares issued in the anticipated equity raise. The Board looks forward to implementing a future dividend policy of paying 40% of underlying profit after tax on average, as the performance of the Group recovers, and to maintaining its historical policy of paying 1/3 of the expected annual dividend at the interim stage and proposing a 2/3 final dividend.

Our People

Low & Bonar is its people. Without their commitment, talents and drive, the Group will not succeed. Clearly, strategic, leadership and organisational decisions taken by previous management have not delivered. We will put a framework in place that encourages improvement, rewards performance, creates clear accountability and makes Low & Bonar an exciting and attractive employer. There is much to do and I am delighted that we have begun by recruiting an experienced Human Resources Director to define and lead these activities alongside the Group Chief Executive Officer and Executive Leadership Team.

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 many competitors and play crucial roles in minimising the impact of the built environment. We remain committed to minimising waste, energy usage and strive to meet all our social and regulatory commitments.

Development of the Board

2018 has seen considerable change amongst the Board. At the start of the year, Trudy Schoolenberg kindly stepped in as interim Group Chief Executive Officer on the departure of Brett Simpson. Philip de Klerk was then promoted to Group Chief Executive Officer following a very short tenure as Group Chief Financial Officer. Shortly thereafter, Simon Webb was recruited as Group Chief Financial Officer. Simon subsequently expressed a desire to leave for personal reasons on 25 September 2018 and stepped down from the Board on 17 December 2018. He will leave the Group on 25 February 2019. A comprehensive external search was carried out and we are delighted to welcome Ian Ashton to the Low & Bonar Board as Group Chief Financial Officer.

Martin Flower retired as Chairman on 11 September 2018 after many years as a Non-Executive Director and then as Chairman, and I was appointed a Director and Chairman on the same day.

Peter Bertram joined the Board as a Non-Executive Director on 1 February 2018, and his experience and counsel have been valuable throughout the year. Peter is a member of the Advisory Committee of one of the Group's largest shareholders - Sterling Strategic Value Fund (SSVF). However, from the time of his appointment and in line with the terms of an agreement between the Group and SSVF, Peter has recused himself from any discussion of Low & Bonar with SSVF. Subsequently the Board, excluding Peter, has considered his position and deemed him independent with effect from 20 November 2018.

It remains very early days in my tenure with Low & Bonar, but I am confident that we have a Board with the requisite skills, commitment and experience to transform the performance and future of the Group.

Daniel Dayan

Chairman

30 January 2019

BUSINESS REVIEW

Low & Bonar PLC is an international business to business performance materials group. The Group designs and manufactures components which add value to, and improve the performance of, customers' products by engineering a wide range of polymers using proprietary technologies to create yarns, fibres, industrial and coated fabrics and composite materials.

It has been a tough year for Low & Bonar, but we have recognised and identified the issues within the business and have initiated improvement actions as part of the previously announced transformation programme.

Overview

Over recent years, not enough was invested in some of the Group's key manufacturing sites, a failed strategy to expand in Civil Engineering was pursued and there was insufficient focus on cost and cash. During 2018 we began implementing focused initiatives to address these issues and establish a stronger platform for the business. This focus will continue into 2019 and we will also pursue further identified actions to maximise the capability of the Group's core businesses to allow us to capitalise on the attractive long term opportunity for Low & Bonar.

When I started as Group Chief Executive Officer at the beginning of 2018, I outlined the priorities for the year ahead. We delivered on all of them:

1. Improve cash generation and reduce working capital: for the first time in the last six years, we have actively reduced inventories. Working capital improved by £18.0m, which was the main contributor to a reduction in net debt by £9.9m.

2. Optimise operating structure: we removed most of the complex matrix organisation and simplified the organisation, resulting in 55 fewer roles and a reduction of £4m cost, of which £2m was realised in 2018.

3. Review strategic importance of the CE business: we closed one unprofitable site, integrated Enka into the B&I business, improved the underlying performance of the remaining CE businesses and commenced a process for their divestment.

4. Continue to invest in B&I and I&T: invested in both manufacturing sites and innovation, resulting in growth for the core Colbond businesses.

5. Resolve production issues in CTT: we identified root causes and started to address most of them in the year. Some of these were directly linked to lack of investment in both equipment and skilled personnel.

However, the Group's profitability and cash flow were significantly impacted by several factors. In particular, we were not able to pass on in full to customers, the significant increase in raw material costs during the year due to the Group's competitive position and product composition. Part of our products' differentiated performance in areas like strength / weight ratio arises from a composition that requires more polyamide than in competitor products. As a result of these, we suffered more from an increase in these input costs as it is impractical in many cases to use alternative polymers. We are now working more closely with customers to ensure the benefits from our product mix are fully known and understood so as to strengthen our position to pass through price increases when they arise. This ability to pass on costs was further hindered by customer service issues. We are now focusing on solving production issues, improving reliability and customer service. Being customer centric is now at the core of what we do and how we operate.

Sales growth, on an adjusted constant currency basis, increased by 1.5%, supported by expansion in China. However, profit was significantly impacted by production issues, raw material price volatility and mix. Underlying profit before tax was down from £30.7m to £16.7m, which was disappointing.

Operational

Health, safety and environment (HSE) is very important to us at Low & Bonar. We have long-term programmes in place to ensure that safety considerations override all others and that we endeavour to make continuous improvement in this critical area. The number of Lost Time Accidents (LTA) has improved for a second consecutive year, with 11 in 2018 compared to 14 in 2017. We have invested in a Safety Leadership Programme and all senior managers have participated. However, even more can be done in order to achieve the Group's objective of no illness or injury resulting from business activities. We have decided to further integrate HSE with the HR function, as we believe that behaviours and culture change amongst all employees can make a true difference in safety.

Strategic progress

This year's results demonstrate that investing in sustainable, organic growth in the B&I and I&T businesses is successful and consequently we will continue to invest in the technologies and applications supporting these segments. We have encountered a number of production, planning and customer service issues which have impacted on performance as a result of an overly complex organisational structure, combined with the inability to pass on cost increases. We have therefore decided to merge the B&I and I&T divisions and apply a regional approach for these businesses. This will make us more customer centric, with clearer accountability and more agile decision making. Global activities such as innovation, marketing and R&D remain global, but with a greater focus on customer driven innovations.

CTT performed poorly, mainly due to its production issues. The underlying business is competitive with good market positions and a strong brand. Our focus is to improve production, as a higher input of first grade product is the key driver of improved profitability.

We will progress with the CE disposal process, whilst ensuring we generate value. We are pleased that we have improved the underlying business, which is now profitable.

Transformation and priorities for 2019

While we made progress in the first year of the transformation, it was not enough to strengthen the balance sheet sufficiently and address some of the legacy issues. We are seeking to raise equity in order to address these issues and to allow for a controlled disposal of CE. I will lead the organisation in order to achieve our vision: to become a highly efficient, sustainable, profitable and innovative organisation, which creates, makes and sells technical textile products in such a way that we contribute to a better world. We shall be strong and competitive. We will build a powerful and clear reputation for service excellence and product innovation. We will be a great business to work for and to do business with.

While continuing our progress on reducing cost levels and improving working capital, we have identified six areas of focus for the coming year:

1. Become truly customer centric, improving product quality and service delivery

2. Optimise manufacturing and address the lack of maintenance spend

3. Customer driven, focused innovation

4. Improve procurement and our ability to pass on input cost

5. Improve reporting, forecasting and manage expectations

6. Improve employee engagement

Building & Industrial

The B&I Global Business Unit supplies a range of technical textile solutions for niche applications in air and water filtration, building, roofing, drainage and erosion control.

(1) Restated for transfer of Enka business from Civil Engineering to Building & Industrial as set out in Note 12

(2) Constant currency is calculated by retranslating comparative period results at current period exchange rates. For the period ended 30 November 2017, the results of the agro-textile business disposed of in October 2017 have been removed to present the figures on a consistent basis with the current period results (see note 13)

As set out at the start of 2018, the Group announced a series of strategic actions designed to improve the performance of the business. Following the first phase of the review of the Civil Engineering business, the Enka range of products was transferred into Building & Industrial from Civil Engineering in Q2 2018. The 2017 segment results have therefore been restated to ensure comparability.

On a reported basis, revenue in B&I has decreased by 17.0%, due primarily to the disposal of the agro-textile business part-way through 2017. On an adjusted constant currency basis (excluding the prior year sales from the agro-textile business), revenue increased by 0.9%.

Core markets continued to show growth throughout 2018. However, limited sales growth following a reduction in sales from a major customer in North America, the impact of the integration of the lower margin Enka business, raw material and freight cost increases that we were unable to pass on substantially, all contributed to a fall in underlying operating profit of 40.5%, on an adjusted constant currency, restated basis.

The reduction in sales from a significant customer in North America is disappointing and was caused in part by production and supply issues in Enka which we are in the process of resolving. Despite this set-back, revenue in the Building segment increased by 3.6% on a constant currency basis. Colback roofing and polymeric membrane reinforcement volumes grew and the recent Colback expansion in Changzhou along with the enhanced sales and marketing team in the region, drove market penetration and growth in the APAC, building, roofing and waterproofing markets.

Industrial sales grew by 6.8% on a constant currency basis, following significant progress to extend our product portfolio with newly developed air filtration media along with new product development in the shock pad and drainage portfolio.

Enka products, whilst displaying strong potential, were hampered by economic difficulties in emerging markets. Delayed projects and intensified competition adversely impacted profitability. Sales fell by 11.4% on a constant currency basis as the drainage and soil consolidation business did not perform in line with expectations, partly due to the impact of the integration process.

The priorities of the business unit are to resolve Enka North America production and supply issues, improve customer service, innovate and rebound from the market share loss in North America.

Coated Technical Textiles

The CTT Global Business Unit supplies a range of technical coated fabrics providing aesthetics and design, performance and protection in a number of different markets.

 (1) Constant currency is calculated by retranslating comparative period results at current period exchange rates

2018 has been a very difficult year for the CTT business. Sales have increased by 0.8% on a constant currency basis, however underlying profitability has reduced significantly from £9.3m to £2.5m on a reported basis. The underperformance being driven principally by ongoing production inconsistencies alongside high levels of raw material cost inflation.

There have been several production issues, some of which we have now discovered have existed for a number of years. These issues have impacted the output of production, both in quantity and quality, which resulted in both a cost increase and a customer service challenge.

The identification of root causes and subsequent resolution of these issues has been the primary focus in 2018. We have directed Operations and R&D resources fully towards these issues and have made good progress in understanding the root cause of these issues and resolving them. However, they are taking longer to resolve than anticipated and there is further work to do in 2019. Some investment may be required to address a lack of maintenance spend in the past.

During the year, we also unfortunately had a fire in the Lomnice coating plant, caused by thermal oil issues. This severely disrupted production and temporarily closed the site. Following the fire, we have accelerated engineering reviews of all thermal oil systems in the Group and are implementing projects to reduce the risks. The coating plant started up successfully at the beginning of January 2019.

We made a structural change to the CTT organisation in May 2018, with full operational and commercial responsibility returning, from the previous matrix structure, to the CTT team. This has removed complexity from the decision making process, increased flexibility within the organisation and created alignment and focus on the key issues that need to be addressed. It will also improve the availability of stock, resulting in faster delivery capability and fulfilment across our range.

CTTs key markets are still growing and with production being more reliable, we should be able to serve these markets better in 2019; increasing quality and quantity of production, regaining the trust of customers and ensuring adequate availability of products on a global basis, resulting in improved profitability.

However, based on the performance of CTT in 2018 and the slower than expected resolution of key issues, the Board has deemed it appropriate to recognise a non-cash impairment of the outstanding goodwill allocated to CTT of £39.0m which has been reported as a non-underlying item.

Interiors & Transportation

The I&T Global Business Unit supplies technical fabrics used in transportation, interior carpeting, resilient flooring and decorative products.

(1) Constant currency is calculated by retranslating comparative period results at current period exchange rates

I&T has performed well in 2018 despite challenging market conditions. Sales, at constant currency grew by 6.4% and profitability is only slightly reduced on a constant currency basis notwithstanding strong raw material cost inflation and increasing levels of competition in the market. We have continued to strengthen our position in China with volumes growing following the completion of the second Colback manufacturing line in Changzhou and commencement of production in Q1 2018.

Flooring sales have increased by 8.7% on a constant currency basis, with growth in all regions. We have focused on protecting and growing key accounts along with accelerating new primary and secondary carpet backing business both with new and existing customers. This strategy resulted in growth despite significant competitive pressure during the year due to overcapacity in the market and the qualification of some 2nd sources at a number of I&T's largest US customers.

The Automotive market has faced a number of significant headwinds in 2018. Sales in the higher end luxury US car market, predominantly our target market, suffered as the popularity of pick-up trucks and SUVs rose; models which typically don't use tufted carpets. In Europe, car manufacturers also continued to push down cost saving requirements to their suppliers following the engine emissions scandal of the past few years. Due to these issues, sales in this segment decreased by 5.7% on a constant currency basis.

In Decorative products, the Wall Covering sub-segment in Asia performed strongly and above expectations, which more than compensated for a reduction in sales in Decoration applications in the smaller maturing European market.

We expect to see further growth in most markets in 2019. I&T's priorities include furthering the penetration we have made in 2018 at the key Chinese carpet tile makers and accelerated activity in the US for lower weight products. We will also drive the Group's innovation agenda with new products and will explore new technologies to serve the current customer base as well as adjacent markets.

Civil Engineering

The CE Global Business Unit supplies needle-punched non-woven products and construction fibres used in major infrastructure projects, including road and rail building, land reclamation and coastal defence.

(1) Restated for transfer of Enka business from Civil Engineering to Building & Industrial as set out in Note 12

(2) Constant currency is calculated by retranslating comparative period results at current period exchange rates

2018 has been a year of significant change for Civil Engineering. The strategic actions set out by the Group at the beginning of 2018 have led to the closure of the loss-making Ivanka site in Slovakia, the transfer of the Enka business into B&I and, following a thorough review of the business, the decision to divest the remaining part of the Civil Engineering business. As part of this review, full operational and commercial responsibility has been returned to the Civil Engineering business with the dismantling of the previous matrix structure. A new management team has also been in place from Q2 and have made good progress in reducing costs and improving performance.

Following the transfer of the Enka range of products to the B&I Global Business Unit, we have restated the 2017 comparatives to ensure comparability.

On a restated basis, sales, at constant currency, have decreased by 3.7%, however underlying profit at constant currency, has increased from a loss of £0.5m to a profit of £0.1m.

The reduction is sales is driven primarily by the closure of the Ivanka site in the year, with a reduction in sales of £3.6m from 2017. Sales in needle-punched non-wovens have increased by 3.8%, maintaining our leading position in the European market in this technology. Construction fibre sales have decreased by 6.9%, with lower volumes driving the decrease in sales.

A reduction in the cost base in both the Zele and Tiszaújváros plants, against a back drop of sharply rising raw material costs, has driven the £0.6m increase in underlying profit and we expect the full year benefit of cost saving actions undertaken in 2018 to be realised in 2019. Cost savings have been achieved through reducing headcount, restructuring and combining roles and re-evaluating the level of support costs needed to run the business in the new structure.

The outlook for 2019 is promising, sales growth is anticipated and with the full benefit of cost savings, we are expecting to see further growth in profitability. As disclosed in July 2018, we have decided to divest the Civil Engineering business and an orderly sales process is in progress. However, as at 30 November 2018, we concluded that there is not sufficient certainty regarding the disposal to treat the business as either "held for sale" or as a discontinued operation under IFRS 5 "Non-current assets held for resale and discontinued operations".

Financial Review

Revenue

On a statutory basis, revenue decreased by 3.3% due primarily to the 2017 disposal of the agro-textile business in Lokeren. On an adjusted constant currency basis (removing Lokeren results from the 2017 comparatives), revenue increased by 1.5%, with revenue growth seen in all business units apart from Civil Engineering.

Profit before tax (all figures are on an underlying basis except where stated)

Profit before tax from continuing operations decreased by 45.6% to £16.7m (2017: £30.7m). Statutory loss before tax was £42.2m (2017: loss of £19.7m), after a net non-underlying charge of £58.9m (2017: £50.4m).

Operating margins reduced to 5.1% against 8.0% last year. All business units faced continuing raw material price headwinds with significant increases in costs throughout the year. Some of these were at least partially offset by price increases, notably in the B&I, I&T and CE businesses, but the net impact on profit was approximately £4.5m. Production consistency issues persisted in CTT. We have made good progress in understanding the root cause of these issues and resolving them but they are taking longer to resolve than originally anticipated and the resulting impact of these issues led to a £6.8m fall in CTT's operating profit from £9.3m in 2017 to £2.5m in 2018. I&T continued to perform well in challenging market conditions and Civil Engineering showed improved results following the organisational change during the year. However, B&I had a challenging year, with significantly reduced revenue from one large North American customer.

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. A ten percent movement in these rates approximately equates to a £0.4m (against the US dollar), £0.1m (against the Euro) and £0.4m (against the Chinese Yuan) change in full year profits. In 2018, the impact of foreign exchange rate changes aided reported profits by £0.5m.

Non-underlying items

There was a net non-underlying charge before tax of £58.9m (2017: £50.4m) in relation to continuing operations. The key items within this include:

Restructuring costs (2018: £4.2m; 2017:£nil)

£4.2m of costs have been incurred in the year in the major Group-wide transformation programme to right-size the organisation and optimise the organisational structure. 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.

Coated Technical Textiles Impairment (2018:£39.0m; 2017:£nil)

As noted above, CTT had a poor year, with profitability falling short of expectations and prior year. At the half year, an impairment review was conducted which resulted in a partial impairment of £13.3m of the goodwill balance. At 30 November 2018, the annual impairment review was conducted which resulted in an additional impairment of £25.7m of the goodwill balance, resulting in a total impairment in the year of £39.0m.

Impairment of Hungary plant & equipment - Civil Engineering (2018:£2.3m; 2017:£nil)

In the current year, Low & Bonar Hungary Kft incurred significant operating losses. An impairment review was conducted which resulted in an impairment of plant & equipment totalling £2.3m.

Impairment of the ERP system (2018:£1.5m; 2017:£nil)

Following changes to the organisational structure in the year and the removal of the matrix structure, a review was undertaken of the benefits expected to be realised from the implementation of the Group-wide ERP system. Based on this review, an impairment of £1.5m has been recorded to write the asset down to its recoverable value.

Provision for custom duties and fees (2018:£1.6m; 2017:£1.7m)

In previous periods, the Group identified irregularities in relation to customs duties. These related to sales arranged through a former overseas sales office, which was closed several years ago. The 2018 non-underlying charge of £1.6m and closing provision of £2.6m represents the Group's best estimate of the liability (both the penalty expected to be incurred and the related professional fees).

Amortisation of acquired intangibles (2018:£2.8m; 2017:£3.7m)

The amortisation of acquired intangibles of £2.8m is excluded from underlying profit in accordance with the Group's accounting policies.

Disposal of the agro-textile business (2018:£1.2m; 2017:£12.7m)

In October 2017, the Group completed the disposal of the Lokeren-based agro-textile business. The disposal generated a loss before tax of £12.7m (£8.4m after tax). In 2018, £1.2m of further costs have been recorded relating to the disposal including the fair value of an unfavourable contract to purchase woven products from the purchaser of the business (entered into at the time of the sale) and costs incurred relating to claims which have subsequently been received.

GMP equalisation additional liability (2018:£4.0m; 2017:£nil)

An additional £4.0m liability has been recorded in 2018 in respect of the UK pension scheme, relating to a recent court ruling to equalise all GMP benefits. Given the recent nature of the ruling and the high levels of uncertainty and complexity in both the ruling and the Group's UK scheme, we have only been able to make a high-level estimate of the additional liability due. We will continue to revise this estimate going forward as we gain more clarity and understanding on how this ruling will apply to the scheme.

The remaining £2.3m of non-underlying charges before tax primarily includes £0.6m relating to the operating losses incurred following the temporary closure of the Lomnice site, £0.5m of costs relating to the closure of the Ivanka site and £0.6m of acquisition and disposal costs.

Discontinued operations (2018:£0.7m; 2017:£1.0m)

The Group recorded a loss of £0.7m in respect of discontinued operations. This relates to the increase in the provision held by the Group for costs expected to be incurred on the exit of the Bonar Natpet joint venture. The provision at 30 November 2018 is £2.2m (2017:£1.4m) and is presented as a liability directly associated with assets held for sale. The exit from the joint venture is expected to be completed in the first quarter of 2019.

Taxation

The overall tax charge on continuing profit before tax was £3.5m (2017: credit of £2.1m), a tax rate of (8.3)%. The underlying tax charge from continuing operations was £4.4m (2017: £8.9m), an underlying effective rate of 26.5% (2017: 29.0%). The decrease in the effective rate relates primarily to the impact of prior year tax adjustments. The reduction in the US federal tax rate from 35% to 21% from 1 January 2018, generated a one-off benefit of approximately £2.1m on the revaluation of deferred tax liabilities in 2018, this is presented within non-underlying tax items.

Proposed disposal of the Civil Engineering business

In July 2018, it was announced that the Group planned to divest the Civil Engineering business, following the initial steps taken with the closure of the Ivanka site and the internal transfer of the Enka business. The business is currently being actively marketed and an orderly sale process is underway. However, as at 30 November 2018, we concluded that there is insufficient certainty regarding the disposal to treat the business as either "held for sale" or as a discontinued operation under IFRS 5 "Noncurrent assets held for resale and discontinued operations".

Net debt

As at 30 November 2018, net debt was £128.5m (2017: £138.4m). The Group had a very clear focus on cash generation and reducing net debt over 2018, and more can now be done to embed this in a sustainable way. We will continue to improve working capital management and discipline around capital expenditure. Average month end net debt was £159.4m in 2018 compared to £160.9m in 2017.

Cash inflow from operations was £51.3m (2017: £36.6m) helped significantly by a reduction in working capital of £18.0m (2017: increase of £19.6m). During the year, the Group spent £15.2m (2017: £28.7m) on property, plant and equipment and £3.4m (2017: £5.7m) on intangible assets. Significant capital outflows included £3.4m (2017: £16.2m) spent on expanding the Colback manufacturing facility in Changzhou and £1.7m (2017: £1.5m) on the refurbishment of one of the manufacturing lines in Emmen.

Following focused activity on working capital reduction, trade working capital as a percentage of revenue at year end decreased to 21% (2017: 24%), reflecting the decrease in trade working capital to £90.1m (2017: £105.4m).

The analysis of the Group's net debt is as follows:

During 2018, the Group successfully refinanced the five-year €165m revolving credit facility ("RCF"). The Group's available debt facilities total £216.5m/€244m (2017: £215m/€244m) and comprise the RCF of €165m, maturing in May 2023, a private placement of €60m scheduled for repayment between September 2022 and September 2026 in equal tranches, and loan facilities of RMB150m available through to June 2020.

The gearing ratio of total net debt to adjusted EBITDA increased from 2.4x in 2017 to 3.2x, which was within the renegotiated 3.5x covenant level specified in the new RCF agreement. From 30 November 2019 this covenant level reduces to 3.0x. The Group is seeking to reduce leverage to 2.0x in the medium term, driven by the continued focus on working capital discipline, as well as business growth and improved profitability.

We seek to mitigate the impact of foreign exchange rate fluctuations on banking covenants by drawing debt in the same currencies, and in the same broad mix, as the currencies that Group profits are generated in. Covenants are calculated with debt and adjusted EBITDA translated into Sterling at average exchange rates to reduce the impact of rate volatility. At 30 November 2018, 41% (2017: 38%) 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.

As described in the Chairman's statement, in addition to delivering important operational improvements, the Board is seeking the support of investors in an equity raise. This capital will be deployed to put the Group on a more stable footing, in order to: reduce its net indebtedness, enable the Group to continue to focus on delivering its improvement initiatives, support ongoing growth and remedial investment, allow a successful divestment of CE from a position of strength and provide working capital flexibility across the Group.

Return on capital employed

Return on capital employed reduced to 8.7% from 11.1% in 2017, the reduction driven principally by the decrease in profitability in the year. Excluding asset write offs, return on capital employed reduced to 7.3% from 10.1% in 2017.

Earnings per share

Basic underlying earnings per share was 3.56p, a decrease of 44.5% from 6.42p in 2017. On a statutory basis, basic earnings per share from continuing operations decreased from a loss per share of 5.56p in 2017 to a loss per share of 14.04p in 2018.

Dividends

The Board considers dividends to be the primary method of returning capital to shareholders. In determining the level of capital to be returned by way of dividend, the Board considers a number of factors, including:

· The level of distributable reserves held by the parent company, and the availability of dividends from subsidiary companies, from which the parent company derives its distributable reserves;

· Projections of future cash flows, including the impact of dividends on compliance with loan covenants; and

· The risks to future cash flows and distributable reserves, which are set out in the Principal risks and uncertainties section (see note 10)

The Board review the availability of distributable reserves prior to the recommendation of any dividend. As at 30 November

2018, the parent company had distributable reserves of £94.6m (2017: £111.2m), equal to its retained earnings less foreign exchange within reserves.

For the financial year ended 30 November 2018, the Board has proposed a final dividend of 0.37 pence per share, which will absorb an estimated £1.2m of shareholders' funds. This has not been provided for in these accounts because the dividend was proposed after the year end. If it is approved by shareholders at the Annual General Meeting of the Group to be held on 5 April 2019, it will be paid on 10 April 2019 to Ordinary Shareholders who are on the register of members at 15 February 2019. The dividend will not be payable on the new shares issued in the anticipated equity raise. The Company's distributable reserves at November 2018 provide around 20 years' cover for dividend payments at the current rate.

Pensions

The Group has a number of defined benefit schemes in place which are accounted for in accordance with the requirements of IAS 19 Employee Benefits (revised). At 30 November 2018, the UK scheme showed a surplus of £11.0m (2017: surplus

of £10.0m). The increase in the surplus was driven by net actuarial gains of £1.9m (principally from changes in key financial assumptions) and contributions paid of £3.0m, partially offset by the £4.0m additional liability which has arisen following the recent court ruling to equalise all GMP benefits. The Group has received legal advice that supports the recognition of this surplus as an asset on the balance sheet.

The net deficit in the Group's overseas schemes in Belgium, Germany and the USA decreased to £10.7m (2017: £12.2m)

mainly as a result of favourable changes to financial and demographic assumptions.

Brexit

We continue to monitor the potential impact of the UK's vote to leave the European Union. The UK represents a small percentage of the Group's sales (around 5%, 50% of which originate from UK-based entities), and we have one relatively small UK manufacturing facility. As you would expect, we are working diligently with customers and suppliers to minimise any potential disruption to our supply chain and to customers.

Additionally, the fluctuations in exchange rates arising from the uncertainty caused by Brexit may have an impact on the Group's sterling results.

Consolidated Income Statement

for the year ended 30 November

Consolidated Statement of Comprehensive Income

for the year ended 30 November

Consolidated Balance Sheet

as at 30 November

Consolidated Cash Flow Statement

for the year ended 30 November

Consolidated Statement of Changes in Equity

for the year ended 30 November

Notes

1. Basis of preparation

This announcement was approved by the Board of Directors on 30 January 2019.

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 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 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 2018 was (i) unqualified, (ii) contains 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. Their report for the accounts of 2017 was (i) unqualified, (ii) did not include a reference of any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS.

Going concern

The Group closely monitors and manages its funding position and liquidity risk throughout the year, including monitoring forecast covenant results to ensure it has access to sufficient funds to meet forecast cash requirements. Cash forecasts are regularly produced and sensitivities considered for, but not limited to, reduced volume growth, raw material price changes, and reduction in margins. These forecasts and sensitivity analyses allow management to mitigate any liquidity or covenant compliance risks in a timely manner.

During the year, management has taken action to implement certain cost saving programmes, to reduce planned operational expenditure, general and administrative spend and capital expenditure and to better control working capital. Management also successfully refinanced the Group's Revolving Credit Facility and Private Placement Notes, including a relaxation of the leverage covenant from 3x adjusted EBITDA to 3.5x adjusted EBITDA until, and including, the May 2019 covenant test.

At the year end, the Group had headroom of £88m on its borrowing facilities and headroom on its related financial covenants which are the same under both the Revolving Credit Facility and the Private Placement Notes. The Group routinely takes action to manage working capital every six months, and the headroom reflects the benefit of these actions.

The forecasts which underpin our going concern assessment, are based on the approved 2019 budget, and reflect an assumed growth in sales volumes of B&I and I&T, an increase in profitability of Civil Engineering, following the operational improvement actions undertaken by management, and an improvement in profitability of CTT reflecting the progress made during 2018 to resolve the production consistency issues that have been experienced. The forecasts reflect an increase in raw material prices from 2018, and also reflect the net debt benefit of the working capital management actions taken each six months, at levels broadly similar to the amounts delivered in 2018. The forecasts indicate that the Group will be able to operate within the headroom of its existing borrowing facilities for at least 12 months from the date of approval of the Annual Report and Accounts.

Notwithstanding this, the level of headroom over the loan covenants is limited. Whilst further headroom could be created through certain mitigating actions, such as reduction in capex, further cost savings, and a reduction in dividends, risks to the business exist which could eliminate this headroom. These risks, which have been taken into account in modelling downside scenarios for the purposes of the assessment, and the Viability statement review, include lower than projected sales growth, the recovery of CTT being slower than anticipated, the impact of foreign exchange fluctuations on the Group's reported Sterling results following the UKs withdrawal from the EU and/or significant raw material price increases above those assumed in the budget combined with an inability to pass the price increases on to customers. The Directors are also pursuing the sale of the Civil Engineering business, and this disposal, which would create further headroom, has not been assumed within the projections.

The Directors have considered the base case projections, and the impact of the plausible risks to the business on these projections. Despite the actions taken to date to reduce cost, improve working capital and improve the business, there remains a risk that the leverage ratio will exceed the maximum leverage ratio under the Debt Facility Arrangement of 3.5x in the measurement period ended 31 May 2019 and in subsequent periods, noting that the leverage ratio covenant reduces to 3x for the test date ended 30 November 2019 and future test dates.

Should a breach on the leverage covenant begin to appear likely despite mitigating actions that management would take, in the first instance we would seek to renegotiate the terms of the debt facilities or seek an amendment or waiver of the leverage ratio covenant. However, we may not be able to obtain such amendment or waiver from the lenders either at all, or without a significant cost. In this situation, the lenders could demand accelerated repayment and we may not have the funds to make these repayments.

In the light of this, the Group is intending to raise a net amount of £50m via an equity raise, the prospectus for which was published on 30 January 2019.

The Directors have considered in their assessment of going concern, the prospects of the equity raise proceeding and the net proceeds of the equity raise being received by the Group, together with the risks attached to the equity raise not taking place, including appetite in the market as a result of Brexit uncertainty. The Directors highlight that whilst the equity raise is fully underwritten, it is dependent on the receipt of shareholder approval, which is subject to customary conditions and which is not scheduled to complete until after the date of signing of these financial statements.

Accordingly, at the time of signing these financial statements, there remains a material uncertainty related to events or conditions that may cast a significant 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. However, the Directors believe that shareholder approval will be received with the general meeting to approve the equity raise scheduled for 19 February 2019, and that taking into account the proceeds of the equity raise, they therefore have a reasonable expectation that the Company and the Group will be able to operate within the level of available facilities and cash for the foreseeable future and accordingly believe that it is appropriate to prepare the financial statements on a going concern basis.

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 (adjusted EBITDA), which is calculated in accordance with the Group's banking covenants. It is calculated as underlying operating profit before depreciation and amortisation, the non-cash IFRS 2 charge and pension administration costs, and the impact of any acquisition during the period is annualised. This is defined in Note 13.

· Net debt, being interest-bearing liabilities net of cash and cash equivalents. This is defined in Note 13.

· Return on capital employed, which is calculated as underlying operating profit divided by the total of net debt plus net assets. This is defined in Note 13.

· Constant currency which retranslates prior results at the current period's rates of exchange.

· Adjusted constant currency which retranslates prior results at the current period's rates of exchange and for the year ended 30 November 2017, the results of the agro-textile business disposed of in October 2017 have been removed to present the figures on a consistent basis as the current period results. This is defined in Note 13.

Restatement of Cashflow Statement

The prior year cash and cash equivalent amounts in the Consolidated Cash flow Statement and Company Cash Flow Statement have been restated to include bank overdrafts. This adjustment has resulted in Cash and cash equivalents at the end of the year decreasing from £38.2m at 30 November 2017 to £35.5m for the Group and £0.1m to £(1.9)m for the Company. Drawdown on borrowings has decreased from £36.4m at 30 November 2017 to £33.7m for the Group and £23.8m to £23.1m for the Company. The restatement has no impact on the net assets of the Group or Company.

2. Segmental information

The Group's principal activities are in the international manufacturing and supply of those performance materials commonly referred to as technical textiles. For the purposes of management reporting to the chief operating decision maker, the Group is split into four reportable business units: Building & Industrial, Civil Engineering, Coated Technical Textiles and Interiors & Transportation. 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.

From December 2018, Building & Industrial and Interiors & Transportation will be reorganised into a regional structure being Europe, North America and APAC.

Segment analysis

*Restated for transfer of Enka business from Civil Engineering to Building & Industrial as set out in Note 12.

**Return on sales/operating margin for each segment is calculated by dividing each segment's underlying operating profit by its revenue from external customers.

*Restated for transfer of Enka business from Civil Engineering to Building & Industrial as set out in Note 12.

Segment information - Constant currency analyses

Adjusted 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. For the year ended 30 November 2017, the results of the agro-textile business disposed of in October 2017 have been removed to present the figures on a consistent basis as the current period results (see note 13).

*Restated for transfer of Enka business from Civil Engineering to Building & Industrial as set out in Note 12.

The following significant exchange rates applied during the year:

3. Dividends

Amounts recognised as distributions to equity shareholders in the year were as follows:

The Directors have proposed a final dividend in respect of the financial year ended 30 November 2018 of 0.37 pence per share which will absorb an estimated £1.2m of shareholders' funds. This has not been provided for in these accounts because the dividend was proposed after the year end. If it is approved by shareholders at the Annual General Meeting of the Group to be held on 5 April 2019, it will be paid on 10 April 2019 to Ordinary Shareholders who are on the register of members at 15 February 2019. The dividend will not be paid on the new shares issued in the anticipated equity raise.

During the year the Board declared a final dividend on Ordinary Shares in relation to the year ended 30 November 2017 of 2.00 pence per share, which was paid to Ordinary Shareholders on the register of members at close of business on 19 April 2018.

The Directors declared an interim dividend on Ordinary Shares in relation to the year ended 30 November 2018 of 1.05 pence per share, which was paid to Ordinary Shareholders on the register of members at close of business on 21 September 2018.

4. Non-underlying items

During the year the Group recognised significant non-underlying items and amortisation of acquired intangible assets as detailed below: