LWB.L Regulatory News (LWB)

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.

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 c£21m were received in relation to these businesses, generating a loss on disposal of c£6m including disposal fees.

· Successful £50m 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 £50m equity raise completed in February 2019.

· Statutory loss before tax from continuing operation of £61.2m is after £62.1m of non-underlying, mainly non-cash items, including a £33.4m impairment of CTT's intangible assets and property, plant and equipment ("PPE"), a £6.7m impairment of Yihua Bonar's goodwill and PPE and a £1.8m 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:

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 £54m 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

(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 £7.5m, a non-cash impairment of the intangible assets and PPE of Bonar Changzhou of £6.7m and a £1.8m non-cash impairment of goodwill of Colbond Americas. These have been reported as non-underlying items.

Underlying operating profit for the year was £10.9m, 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

(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 £0.4m, £2.7m 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 £33.4m. This has been reported as a non-underlying item.

Civil engineering - discontinued operations

(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 £49.3m while underlying profits were £2.0m, £1.8m

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 £1.8m.

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 £0.9m (2018 (restated): £16.7m). Statutory loss before tax was £61.2m (2018 (restated): loss of £39.2m), after a net non-underlying charge of £62.1m (2018 (restated): £55.9m).

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 £0.5m.

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 £6.6m, leading to a profit on disposal of £1.5m. The NPNW business was sold for net proceeds of £14.0m, leading to a loss on disposal of £7.7m.

Equity raise

Early in the year, the Group raised net proceeds of £49.9m via a placing and open offer (consisting of £53.9m of gross proceeds less expenses of £4.0m). 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 £62.1m (2018 (restated): £55.9m) in relation to continuing operations and £5.6m (2018 (restated): £6.6m) in relation to discontinued operations. The key items within this are listed below:

Continuing operations

Restructuring costs (2019: £3.2m; 2018 (restated): £3.7m)

£3.2m 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: £33.4m; 2018: £39.0m)

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 £8.8m with an impairment of £22.5m 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 £2.1m.

In the prior year, the full goodwill balance attributed to CTT was impaired resulting in a total impairment charge of £39.0m.

Yihua Bonar impairment (2019: £7.5m; 2018: £nil)

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 £0.3m with an impairment of £7.2m impacting PPE.

Bonar Changzhou impairment (2019: £6.7m; 2018: £nil)

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 £6.7m, £0.1m impacting intangible assets and £6.6m impacting PPE.

Colbond Americas impairment (2019: £1.8m; 2018: £nil)

Due to the results of Colbond Americas in 2019, a full impairment review was completed. This resulted in an impairment of £1.8m to goodwill.

Closure of the Ivanka plant (2019: £0.4m; 2018: £0.5m)

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 £0.4m 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: (£0.1m); 2018: £1.6m)

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 £1.6m and closing provision of £2.6m 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 £0.1m credit in the period primarily relates to foreign exchange movements on the provision.

Impairment of the Dundee site (2019: £0.2m; 2018 (restated): £0.1m)

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 £1.3m prior year adjustment against the opening 2018 PPE balance.

The £0.2m charge in 2019 and £0.1m charge in 2018 represents the impairment of additions that have been capitalised in the current and prior year.

Acquisition and disposal costs (2019: £2.2m; 2018: £0.3m)

£2.2m of costs have been incurred in the year in relation to the potential acquisition of the Group by FVB. £1.9m relates to professional fees with £0.3m relating to employee retention plans.

Amortisation of acquired intangible assets (2019: £1.7m; 2018: £2.8m)

The amortisation of acquired intangible assets of £1.7m is excluded from underlying profit in accordance with the Group's accounting policies.

GMP equalisation additional liability (2019: £nil; 2018: £4.0m)

A £4.0m 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 £4.0m is still deemed to be appropriate at 30 November 2019.

Customer settlement agreement (2019: £0.8m; 2018: £nil)

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: £2.7m; 2018: £nil)

In the year, a £0.6m make-whole payment and a £2.1m fair value adjustment were recorded following modifications to the Senior Loan Note debt.

The remaining £1.6m of non-underlying charges before tax primarily includes £0.2m relating to the operating losses incurred following the temporary closure of the Lomnice site, £0.9m impairment of R&D costs following the cancellation of a significant development project and £0.4m of additional impairments relating to intangible assets which are no longer supportable.

Discontinued operations

Restructuring costs (2019: £nil; 2018 (restated): £0.5m)

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: £nil; 2018 (restated): £5.0m)

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 £2.3m. 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 £2.7m impairment on the value of Hungary's assets and therefore a total charge of £5.0m was recorded. This business was sold as part of the civil engineering disposal.

Profit on disposal of the CF disposal group (2019: (£1.9m); 2018 £nil)

The Group disposed of the CF business on 1 July 2019. On disposal of these assets a profit of £1.9m was recorded,

excluding selling costs.

Loss on disposal of the NPNW disposal group (2019: £5.9m; 2018 £nil)

The Group disposed of the NPNW business on 2 September 2019. On disposal of these assets, a loss of £5.9m was recorded, excluding selling costs.

Acquisition and disposal related costs (2019: £2.2m; 2018: £0.3m)

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: £0.2m; 2018: £0.8m)

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 £2.2m (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 £100.8m has been recorded in the Company against the cost of investments in its subsidiary undertakings. In addition to this an impairment charge of £12.4m has been recorded against inter-company receivables with an opening IFRS 9 transition adjustment of £29.6m also being recorded. The net result of these impairments is that the net assets of the Company are now recorded at £106.9m 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 £2.4m (2018 (restated): charge of £2.6m), a tax rate of 3.6%. The underlying tax charge from continuing operations was £1.3m (2018 (restated): £3.9m) 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 £97.4m (2018: £128.5m). The biggest factor in this reduction was the equity raise of £49.9m in the early part of the year. In addition to this, the Group received net proceeds of approximately £21m from the sale of the civil engineering division. Cash outflow from operations was £10.4m (2018: inflow of £51.3m), 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 £12.2m (2018: £15.2m) on PPE and £1.6m (2018: £3.4m) 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 £94.7m (2018: £90.1m) and the significant reduction in revenue over the year.

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

The Group's available debt facilities total £130.9m (2018: £216.5m) 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

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 £12m, 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:

· the 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

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 £82.1m 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 £4.2m (2018: surplus of £11.0m). The reduction in the surplus was driven by two factors:

1) an actuarial loss of £6m 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 £13.6m (2018: £10.7m) 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 £4.0m 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 £4.0m 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

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 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 £50m 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 £12m, 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 £0.1m 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 £29.6m 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 £0.6m (£0.5m 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 £4.1m-£5.2m will be recognised with a corresponding liability in the range of £14.7m-£16.5m. The estimated impact on the 2020 income statement would be savings of c£3.3m at an EBIT level, and £2.6m 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 c£6.9m 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. Segmental information

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

*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.

*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.