LWB.L Regulatory News (LWB)

Low & Bonar PLC

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

Unaudited Results for the Year ended 30 November 2017

Optimising the business and focus on cash

Low & Bonar PLC ("Low & Bonar" or "the Group"), the international performance materials group, today announces its unaudited results for the year ended 30 November 2017.

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

(1) Figures in this table are presented on an underlying basis, and exclude all non-underlying items (which are outlined in Note 6).

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

(3) Underlying operating profit as a percentage of revenue (return on sales).

(4) Interest bearing loans and borrowings, net of cash and cash equivalents.

(5) Underlying operating profit as a percentage of net assets plus net debt.

Martin Flower, Chairman, said:

"The group achieved strong sales growth in 2017 despite a generally difficult market backdrop. The profit performance across our four global business units was mixed, with profit growth in B&I and I&T offset by a significant reduction in profitability in Civil Engineering and a lower than anticipated performance in CTT.

We develop and apply some of the world's most advanced fabric technologies and we do so whilst keeping close to our customers and anticipating their requirements. This makes us well positioned to realise opportunities for profitable growth. 2018 presents both challenges and opportunities for Low & Bonar, as we work to determine the future strategy of the Civil Engineering business, deliver performance improvement at CTT, whilst continuing to support the growth strategies of our strong B&I and I&T businesses. We are confident of making further progress this year across all these areas."

30 January 2018

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

CHAIRMAN'S STATEMENT

The group achieved strong sales growth in 2017 despite a generally difficult market backdrop. The underlying profit performance across our four global business units was mixed, with growth in B&I and I&T offset by a significant reduction in profitability in CE and a lower than anticipated performance in CTT.

Whilst CTT's performance was not in line with our expectations, it is fundamentally a very strong business with a leading market position. A new management team is in place at CTT and is focused on resolving production issues and optimising margins against a background of generally healthy demand.

CE has faced serious challenges in 2017. Market conditions have undoubtedly been a major factor with raw material price increases, fierce competition in some sectors and expected project based demand not materialising. Poor forecasting and strategy execution have also compounded the issues.

CE is a complex business of distinct parts, each with very different commercial and operational characteristics. As announced in October 2017, the Board has been undertaking a comprehensive review of the CE business, in order to determine whether all parts can achieve a sustained level of satisfactory performance in future.

The first phase of the review has been completed, with the conclusions being to:

- close the loss-making weaving plant in Ivanka, Slovakia and transfer some looms to China;

- combine the profitable Enkamat business (erosion control and drainage applications) with our B&I business; and

- address the internal execution issues surrounding our needle-punched nonwoven and our construction fibres businesses.

We will announce our conclusions by July 2018 by when we will have assessed whether the "self-help" actions in relation to resolving the sales, cost and production issues in needle-punched nonwoven and construction fibres can improve these two businesses sufficiently to create long term value for the Group.

I am pleased to report good progress with our investments for growth. The expansion of our £26m Colback manufacturing site in Changzhou, China will be completed shortly and this will support further profitable growth in both our I&T and B&I businesses.

We have also continued to divest businesses with no strategic fit. We disposed of the agro-textiles business in Lokeren, Belgium in October 2017 and have recently signed an agreement with our partner in Saudi Arabia to withdraw from the Bonar Natpet joint venture during the course of this year.

Lower than forecast sales, especially in CE, have resulted in higher than planned inventories and consequently higher than anticipated debt. There is now a very clear focus on cash generation, and we have a defined plan to reduce net debt during 2018 by at least £15m, in constant currency terms. This will principally be through improved working capital discipline and a lower capital expenditure requirement.

More broadly, we have a plan in place to remove cost and improve agility in the group by optimising the operating structure which, over time, has become too complex.

Dividend

To reflect the confidence in our strategy, the Board is proposing to maintain the prior year final dividend of 2.00 pence, increasing the total dividend for 2017 to 3.05 pence per share (2016: 3.00 pence). Subject to shareholders' approval at the Annual General Meeting on 13 April 2018, the final dividend will be paid on 19 April 2018 to members registered as of 23 March 2018.

People

It is with the greatest regret I must report that one of our employees met with a fatal accident this year. Our thoughts are with the family and friends he leaves behind. This distressing occurrence has, needless to say, further sharpened the focus of the Board and the Executive Management team on health and safety.

After the year end, on 20 December 2017, we announced that Brett Simpson had resigned and that Trudy Schoolenberg, a Non-Executive Director since 2013, had replaced him immediately as Interim Group Chief Executive. We are now very pleased to announce that Philip de Klerk will be appointed Group Chief Executive with effect from 1 March 2018. We are greatly indebted to Trudy for stepping into the breach in December and also for agreeing to lead the restructuring of the global supply chain to ensure it meets the needs of our future organisational structure. She will revert to being a Non-Executive Director at the end of April 2018.

Philip joined Low & Bonar as Group Chief Financial Officer in October 2017 and he brings to his new role a depth and breadth of senior executive experience with international companies including Unilever, SAB Miller, Ineos and Flybe. The Board has set out very clear areas of immediate focus for the Group and is confident that Philip is ideally qualified to execute this agenda effectively and also to lead Low & Bonar on its next stage of profitable growth. A search for a successor to Philip de Klerk as Group Chief Financial Officer is underway and further announcements will be made in due course.

We are also pleased to announce the appointment of Peter Bertram as a Non-Executive Director with effect from 1 February 2018. Peter Bertram is a highly experienced senior professional who has served and advised many public and private companies. He has held both CEO and CFO roles during his executive career and was previously Senior Independent Director and Chairman of the Audit Committee at Microgen plc and Non-Executive Chairman of Phoenix IT Group plc. Peter Bertram is currently Non-Executive Chairman of Zinc Media Group plc, Hobs Group Limited and Esteem Holdings Limited. He is also a member of the Advisory Committee of Sterling Strategic Value Fund, a shareholder in Low & Bonar.

I would also like to take this opportunity to recognise the commitment, skill and expertise of all our people and to thank them for all their hard work.

We develop and apply some of the world's most advanced fabric technologies and we do so whilst keeping close to our customers and anticipating their requirements. This makes us well positioned to realise opportunities for profitable growth. 2018 presents both challenges and opportunities for Low & Bonar, as we work to determine the future strategy of the Civil Engineering business, deliver performance improvement at CTT, and continue to support the growth strategies of our strong B&I and I&T businesses. Trading conditions since the year end have been consistent with those experienced in the last quarter of 2017. Whilst we remain mindful of any further raw material cost and currency translation headwinds, we are confident of making further progress this year across our strategic focus areas.

Martin Flower

Chairman

30 January 2018

BUSINESS REVIEW

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

In the year ended 30 November 2017, we made further progress in the execution of our strategy and achieved strong revenue growth of 11.6% to £446.5m, 4.5% in constant currency. Three of our four business units contributed, with the exception being CTT where our manufacturing capacity is almost fully utilised.

Underlying profit before tax from continuing operations increased by 5.1% to £30.7m (2016: £29.2m), although this represented a reduction of 2.2% at constant currency. On a statutory basis the Group reported a loss before tax of £19.7m compared to a profit of £25.9m in 2016, mainly driven by impairment charges related to the CE business (£31.6m) and a loss on disposal of the agro-textile business (£12.7m).

Our B&I business unit benefitted from its market segment focus with underlying operating profit rising 6.0% in constant currency. I&T performed solidly, with strong sales growth in China, and underlying operating profits rose 5.5% in constant currency. CTT entered the year with the need to regain customer confidence after resolving the production constraints in 2016. Disappointingly, production consistency issues, which led to higher than expected customer discounts, and a weak fourth quarter meant that performance fell below expectations with underlying operating profit only increasing by 1.1% in constant currency.

Conditions in Civil Engineering deteriorated during the year resulting in only £0.1m of underlying operating profit compared to £4.4m in 2016, in constant currency. In Eastern Europe, the reinforcement market was oversupplied with new imports. Weather conditions and project funding constraints in North America and Europe delayed potential projects. Execution issues and increased raw material prices further compounded the issues.

As a result, group underlying operating margin reduced from 8.7% last year to 8.0%, reflecting double digit returns in B&I and I&T, CTT flat at 6.7% and a negligible return at CE.

Operational

Health and safety is paramount to us at Low & Bonar. We have long-term programmes in place to ensure that safety considerations override all others. Our Lost Time Incidence (LTI) on a one day lost time basis is currently 0.7%. We will continue, as a high priority, to invest in HSE programmes, to help us achieve our objective of no illness or injury resulting from our business activities.

We will continue to focus on operational excellence, developing our people and focusing our business. We believe that there is scope to reduce cost, improve cash generation, increase commercial effectiveness and create greater agility across the organisation, to better align it with the needs of the different business units. Implementing these actions will enable us to improve sales and reduce costs, with the result that our margin should improve in line with the overall Group target of 10% return on sales. We anticipate a non-underlying restructuring cost of c£4m in 2018 in respect of these actions, which once implemented will generate an annualised saving of c£3m.

Working capital has increased in certain areas of the business where fierce competition and operational execution has led to lower off take, notably CE. We have measures in place to reduce the levels of inventory in the business, whilst not impacting our growth in B&I and I&T.

Strategic progress

This year's results demonstrate that our strategy was successful for our speciality orientated businesses B&I and I&T. Here we will continue to execute our strategy: invest in sustainable growth and look for bolt on acquisitions that match our business model and contribute to our Group targets.

Our strategy aimed to move CE away from more commoditised segments to bespoke products has only been partly successful and in 2017 we recorded non-cash impairments of £31.6m in respect of CE. The strategic outlook is complicated and we are reviewing this in detail. The first stage of this review has been completed, and we are implementing the actions to improve performance. The second stage of the review will determine whether the needle-punched nonwoven and construction fibres businesses are capable of meeting our strategic Group targets, and be retained.

We will continue to review our capability in supporting our business model, and at the same time will continue to execute our strategy of operational excellence, commercial execution, technology differentiation by continued innovation and investment for sustainable growth in B&I and I&T.

Building & Industrial

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

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

B&I has achieved record sales growth in 2017, delivering 9.6% growth over 2016 at constant currency rates. All major market sectors achieved good year-on-year progress and all geographic regions delivered double-digit growth. We managed our portfolio dynamically, with the acquisition of Walflor Industries in the USA, the expansion of our production plant in Changzhou, China, the integration of the Xeroflor Green Roof business in North America and the disposal of the agro-textile business in Lokeren, Belgium.

The green roof segment saw nearly 20% growth as we aligned Xeroflor with the core building business. The acoustics business in North America grew by 18% as multi-family housing construction markets continued to expand, with this trend set to continue into 2018. The acquisition of the Walflor business further strengthens our position in the growing North American market, by establishing a presence on the West Coast. European roofing and building markets reversed a multi-year low growth trend and expanded by nearly 12%, although consolidation accelerated in 2017, increasing competitive pressure. In response we are pursuing strategic initiatives to drive value-adding functionality in new higher-end products and initiating proactive cost reductions. Although the agro-textile business grew in 2017, given the significant investment required to take it to the next level of development, we sold this business in October 2017 realising a loss after tax of £8.4m.

For 2018 our strategy will focus on new business development, faster innovation and margin management. Our business is aligned with key global and sustainability mega-trends and we see many opportunities for existing products in technical fields, product development and regional expansion.

Civil Engineering

The CE Global Business Unit supplies woven and nonwoven geotextiles and construction fibres used in major infrastructure projects, including road and rail building, land reclamation and coastal defence.

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

CE sales grew 4.9% at constant currency. However an excess of capacity in the market for more commoditised products meant we were unable to pass on the sharp increase in the cost of raw materials. Despite a good flow of early enquiries, these did not translate into new business, and the anticipated benefits from investing in a technical sales force did not materialise. Together these had an adverse impact on product margins and mix and the business broke even for the year (2016: £4.2m profit).

We nevertheless won a number of major infrastructure projects; including products and services for motorways in Hungary and rigid reinforcement for Istanbul airport. We also launched a range of synthetic fibres offering better finishing quality and higher performance. We upgraded our geo-synthetic range, so all of our products are fulfilling the new CE requirements on durability, and most of them are certified to last up to 100 years. In addition, we opened our new concrete testing lab in Belgium earlier this year. This will, in turn, further accelerate our product development and support our construction fibres customers with product testing.

We are addressing our competitive position in the reinforcement markets in Central and Eastern Europe. Our North American sales were also disappointing this year, with no new or significant soil consolidation projects and several reinforcement projects being delayed. The devastating hurricanes also took their toll, with related projects being delayed until 2018.

We expect the tough market conditions to continue into 2018. Our focus is on improving our cost position and sales and customer execution. We have initiatives underway to deliver this and are reviewing our portfolio to ensure we provide products that offer most value to our customers.

Coated Technical Textiles

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

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

In 2017 we focused on consolidating and improving our CTT portfolio. In practice, that meant a greater emphasis on higher margin products; this has resulted in a sales portfolio weighted more towards interior products than was previously the case.

The growth in interior products was primarily attributable to new product developments. Technical innovations in the development of partition walls for sport and event venues led to increasing sales volumes. Three major sporting venues have benefitted from the deployment of an innovative material that has waterproofing and self-cleaning attributes. This material is attractive to stadium owners as it saves on long-term maintenance and replacement costs as well as extending the lifespan of the venue and increasing its sustainability.

The completion of two prestigious football stadia - the Volgograd Arena in Russia and the Mercedes-Benz Arena in Stuttgart - showcased our capability to undertake architectural projects of substantial size. Under new leadership, our strategy for this business unit will be to optimise margins through focusing available capacity on the highest value market segments, against a review of plant utilisation.

Our priority this year was to improve customer service. This approach helped the Tensile Architecture team win several new technical projects. As well as ensuring that we meet our customers' specialist requirements, we expanded the range and quantity of stock that we carry, so we can now offer a much better delivery service.

In 2017 we identified and addressed the specific production difficulties we faced in 2016 and sought to rebuild trust in our product quality among our customers. To do so, we invested in our assets and in our people. While some improvements have been made, we continued to experience problems with production consistency, with higher waste and lower proportions of premium grade product than we expected, especially in the latter part of the year. Improving this is a key objective for 2018.

Looking to the future, we seek to extend our customer base with a particular emphasis on the Americas.

Interiors & Transportation

The I&T business unit supplies technical fabrics used in transportation, interior carpeting, resilient tiles and decorative products.

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

Both sales volume and revenue showed growth in 2017 of around 7% over 2016 at constant currency, in spite of the significant increases in the price of raw materials and competitive pressure in the market. Volume growth in I&T in China, including profitable new revenue streams from wall coverings and decoration, was particularly strong, and now represents over 20% of divisional sales. The expansion of the Changzhou facility means we are well placed to build on our success in this growing market.

In 2017 we were successful both in winning new customers in new markets and expanding our business with existing clients. We have introduced a range of new products to the market. We are particularly proud of Colback Gold: an innovative primary backing material that enables customers to develop products that qualify for cradle-to-cradle Gold certification, a highly respected accreditation that recognises sustainable manufacturing.

Collaborative partnership is at the heart of how we do business. This year the I&T team launched in4nite - a project combining ideas and creativity of product designers, graphic designers and architects with Low & Bonar's Colback fabric. This initiative demonstrates to the design community that Low & Bonar can work with designers and architects to develop innovative solutions, utilising our unique technology and expertise.

We continue to invest and improve our technology base. The technology we use in our facility in China has delivered the most consistent control of material performance ever seen and has helped us enter new markets in very demanding applications.

Looking to the future, the completion of the further expansion of our plant in China in the first quarter of 2018 means we can meet the market growth that we predict. We are also preparing to upgrade our yarn technology, so we can develop our product range for new applications such as filtration and cushion vinyl flooring.

Financial Review

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

Profit before tax from continuing operations increased by 5.1% to £30.7m (2016: £29.2m). As we present our results in Sterling, our reported results are sensitive to the strength of Sterling against Euro and US dollar. A one cent movement in these rates approximately equates to a £90k (against the US dollar) and £120k (against the Euro) change in our full year profits. In 2017, the impact of foreign exchange rate changes aided reported profits by £1.5m. Operating profits were 2.3% higher than last year at £35.5m (2016: £34.7m). Statutory operating losses were £14.9m against a profit of £31.4m in 2016. Statutory losses before tax were £19.7m (2016: profit of £25.9m) after a net non-underlying charge of £50.4m (2016: £3.3m).

Excluding the effect of favourable foreign exchange gains on translating overseas earnings, operating profit on a constant currency basis was 4.6% lower than the prior year. Operating margins reduced to 8.0% against 8.7% last year. Improvements in B&I and I&T were offset by a disappointing result from CE, with CTT remaining flat. Significant raw material price increases in the first half of 2017 were sustained through the second half of the year. B&I and I&T were able to mitigate most of these through higher prices, however CE and, to a lesser extent, CTT were unable to mitigate fully these price increases, reducing profit by £3.5m.

Non-underlying items

There was a net non-underlying charge before tax of £50.4m (2016: £3.3m) in relation to continuing operations.

a) Impairment of Civil Engineering assets

Following the poor performance of CE, impairment reviews of its goodwill and other assets were conducted. These resulted in a full impairment of the £19.4m goodwill balance, with further impairments of property, plant & equipment (PP&E) and certain intangible assets totalling £6.6m and £0.9m respectively.

b) Write down of Ivanka

As part of the first stage review of CE, it was decided to exit from the loss-making weaving plant in Ivanka, Slovakia. As a consequence, the assets have been written down to the proceeds expected to be realised from the exit, resulting in a charge of £4.7m. This charge is comprised of a write-down of PP&E totalling £3.4m, a write down of intangible assets totalling £0.3m, and a write off of inventory of £1.0m.

c) Loss on disposal of the agro-textile business

In October 2017, the Group completed the disposal of the Lokeren-based agro-textile business. The proceeds totalled £6.1m (€7.0m), of which £5.8m was received in the year and £0.3m in December 2017. The disposal generated a loss before tax of £12.7m (£8.4m after tax).

d) Pension administration costs

The Group incurred £0.2m (2016: £0.1m) of non-underlying pension administration costs relating to its UK defined benefit scheme.

e) Acquisition related costs

In the year the Group incurred costs of £0.5m (2016: £0.1m) relating to the acquisition of Walflor Industries Inc.

f) Provision in relation to customs duties

The Group has identified irregularities in relation to customs duties which relate to sales arranged from a former overseas sales office which was closed several years ago. The non-underlying charge of £1.7m represents the Group's best estimate of the liability. A thorough investigation is being undertaken and the Group is confident that this is a contained matter.

g) Amortisation of acquired intangibles

The amortisation of acquired intangibles of £3.7m (2016: £4.0m) is excluded from underlying business profit in accordance with Group's accounting policies.

h) Discontinued operations

The Group recorded a loss of £1.0m in respect of discontinued operations. During the year, we reached agreement with the purchaser of the artificial grass yarns business, sold in 2016, on the level of deferred consideration receivable, and the £0.9m difference between the final amount agreed and the debtor held at the end of 2016 has been included as a non-underlying item from discontinued operations, net of a £0.2m tax credit. A share of loss of £0.3m from the Bonar Natpet joint venture was also recognised.

Taxation

The overall tax credit on continuing profit before tax was £2.1m (2016: charge of £8.2m). The underlying tax charge from continuing operations was £8.9m (2016: £8.8m), an effective rate of 29.0% (2016: 30.1%). The decrease in effective rate relates to country mix of profits. In addition, a reduction in the US federal tax rate from 35% to 21% will take effect from 1 January 2018 and is expected, based on the existing mix of profits, to reduce the Group's ongoing effective tax rate by around 3% per annum. It is also expected to generate a one-off benefit of approximately £1.4m on the revaluation of deferred tax liabilities in 2018.

Acquisitions

On 17 January 2017, the Group acquired the business and assets of Walflor Industries Inc., a producer of rainscreens and acoustic mats based near Seattle, USA, for an initial £2.9m and contingent consideration of up to £0.7m in cash based on the commercial performance of the business over the following twelve months.

Net debt

As at 30 November 2017, net debt was £138.4m (2016: £111.0m). This was higher than had been anticipated, due principally to higher than forecast inventories in CE. There is now a very clear focus on cash generation, and we have a defined plan to reduce net debt by at least £15m in constant currency terms, over the course of the current year. This will be delivered principally through improved working capital discipline and a lower capital expenditure requirement.

Cash inflow from operations was £36.6m (2016: £38.5m). During the year, the Group spent £28.7m (2016: £18.9m) on property, plant and equipment and £5.7m (2016: £3.3m) on intangible assets. Excluding replacement, efficiency and health and safety related capital expenditure, the amount invested in equipment to support future growth was £22.9m (2016: £13.1m). The main item related to £16.2m (2016: £nil) spent on expanding the Colback manufacturing facility in Changzhou, China. The Group also invested £3.2m (2016: £2.7m) in the ongoing Group ERP system, the roll-out of which commenced during the year.

Trade working capital as a percentage of revenue at year end decreased to 24% (2016: 26%). This reflects the increased revenue, partly offset by an increase in trade working capital to £105.4m (2016: £103.3m).

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

The gearing ratio of total net debt to EBITDA increased from 2.0 times in 2016 to 2.4 times.

The Group's available debt facilities total £215m/€244m (2016: £209m/€246m) and comprise a five-year revolving credit facility (RCF) of €165m maturing in July 2019, a private placement of €60m scheduled for repayment between September 2022 and September 2026 in equal tranches, and loan facilities of Rmb 150m through to June 2020. We have commenced a process to refinance the RCF which we expect to have concluded in the first half of 2018.

Return on capital employed

Following the goodwill and other impairments, which totalled £31.6m, the return on capital employed has remained flat at 11.1% (2016: 11.1%). Adding back these impairments to net assets would decrease the return to 10.1%. In line with the prior year, the current year calculation of return is based on net assets and net debt, the target for which is 12%. The capital expenditure spend is expected to improve returns in future periods.

Earnings per share

Basic underlying earnings per share was 6.42p, an increase of 6.8% from 6.01p in 2016. On a constant currency basis, basic underlying earnings per share decreased by 0.8% due to a decrease in the effective tax rate from 30.1% to 29.0% along with the constant currency impact on the earnings of the Group. On a statutory basis, basic earnings per share from continuing operations decreased from 5.20p in 2016 to a loss per share of 5.56p in 2017.

Dividends

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

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

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

· The risks to future cash flows and distributable reserves, which are set out in the Risks and Uncertainties section on pages 12-13.

The Board review the availability of distributable reserves prior to the recommendation of any dividend. As at 30 November 2017, the parent company has distributable reserves equal to its retained earnings of £111.2m. As a consequence, the Group is in a strong position to cover future dividends.

For the financial year ended 30 November 2017, the Board has proposed a final dividend of 2.00 pence per share which will absorb an estimated £6.6m of shareholders' funds. This has not been provided for in these accounts because the dividend was proposed after the year end. If it is approved by shareholders at the Annual General Meeting of the Company to be held on 13 April 2018, it will be paid on 19 April 2018 to Ordinary Shareholders who are on the register of members at close of business on 23 March 2018. The Company's distributable reserves at November 2017 provide around 10 years' cover for dividend payments at the current rate.

Brexit

We continue to monitor the potential impact of the UK's vote to leave the European Union. While the UK represents only a small part of the Group's sales (around 5% of Group sales are made to UK based customers, 60% of which originate from UK-based entities, and we have a single UK-based manufacturing facility), the potential for increased volatility in foreign exchange and interest rates and the possibility of wider macroeconomic destabilisation across European or global markets could have an impact on the Group's future performance.

While foreign exchange rate fluctuations affect our reported Sterling results, the Group seeks to mitigate their impact on our banking covenants by drawing debt in the same currencies, and in the same broad mix, as the currencies that Group profits are generated in. Our covenants are calculated with debt and EBITDA translated into Sterling at average exchange rates to reduce the impact of rate volatility. At 30 November 2017, 38% (2016: 46%) of the Group's net debt was held on a fixed interest rate basis; and the Group keeps this under regular review to maintain a reasonable average cost of borrowing while protecting against medium term exposure to interest rate changes.

Pensions

The charges for pensions are calculated in accordance with the requirement of IAS 19 Employee Benefits (revised). At 30 November 2017, the UK scheme showed a surplus of £10.0m (2016: deficit of £2.2m). The gain was caused by a combination of higher than expected asset returns, updates relating to the 2017 actuarial valuation and shorter assumed life expectancies. The Group has received legal advice that supports the recognition of this surplus as an asset on the balance sheet.

The deficit in the Group's overseas schemes in Belgium, Germany and the USA decreased to £12.2m (2016: £12.8m), mainly as a result of favourable investment returns and changes to life expectancy assumptions.

Risks and Uncertainties

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 2018.

The financial statements are presented in pounds sterling, rounded to the nearest hundred thousand pounds. They are prepared on the historical cost basis except for the revaluation to fair value of certain financial instruments.

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 November 2017 or 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The audit of the statutory accounts for the year ended 30 November 2017 is not yet complete. The auditor has reported on the 30 November 2016 accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS.

The Group uses alternative performance measures as it believes they allow a better understanding of underlying business performance, are consistent with its communication with investors, and facilitates better comparison with peer companies.

These alternative performance measures are:

2. Segmental information

The Group's principal activities are in the international manufacturing and supply of those performance materials commonly referred to as technical textiles. For the purposes of management reporting to the chief operating decision maker, the Group is split into four reportable business units: Building & Industrial, Civil Engineering, Coated Technical Textiles and Interiors & Transportation. These segments consist of operating segments with similar economic characteristics, products and services, manufacturing processes and customer types. Segment assets and liabilities include items directly attributable to segments as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly cash and cash equivalents, interest-bearing loans, borrowings, investments in joint ventures and associates, post-employment benefits and corporate assets and expenses. Inter-segment sales are not material.

Segment analysis

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

Segment information - Constant currency analyses

Constant currency analyses retranslate prior year results at the current year's rates of exchange. Management believe this allows a better understanding of underlying business performance.

The following significant exchange rates applied during the year:

3. Financial income and financial expense