1 Feb 2017 07:00
Low & Bonar PLC
("Low & Bonar" or "the Group")
Final Results for the Year ended 30 November 2016
GOOD PROGRESS BEING MADE
Low & Bonar PLC ("Low & Bonar" or "the Group"), the international performance materials group, today announces its final results for the year ended 30 November 2016.
Key Performance Metrics: | 2016
| 2015 (restated)(1)
| Actual | Constant currency(2)
|
Revenue | £400.0m | £362.1m | 10.5% | (0.2%) |
Operating profit before amortisation and non-recurring items |
£34.7m |
£31.8m |
9.1% |
(2.8%) |
Operating margin before amortisation and non-recurring items(3) |
8.7% |
8.8% |
|
|
Profit before tax, amortisation and non-recurring items |
£29.2m |
£27.4m |
6.6% |
(5.2%) |
Basic EPS before amortisation and non-recurring items |
6.01p |
5.86p |
2.6% |
(9.0%) |
Dividend per share | 3.00p | 2.78p | 7.9% |
|
Return on capital employed(4) | 11.1% | 12.5% |
|
|
(1) Restated to exclude the results of discontinued operations.
(2) Constant currency is calculated by retranslating comparative period results at current period exchange rates.
(3) Operating profit before amortisation and non-recurring items as a percentage of revenue.
(4) Operating profit before amortisation and non-recurring items as a percentage of net assets plus net debt.
· Strong profit growth in Building & Industrial, Civil Engineering and Interiors & Transportation
· Margins improving as a result of ongoing strategic initiatives in these businesses
· Production issues that impacted the performance in Coated Technical Textiles now largely resolved
· Disposal of artificial grass yarns has streamlined the Group's focus
· Acquisition of Walflor, post period end, reflects commitment to invest in most attractive segments
· Exit from the Bonar Natpet JV on track, but slower than originally expected
· Increase of 7.9% in full year dividend, reflecting confidence in the outlook
Statutory Metrics: | 2016
| 2015 (restated)(1)
|
|
|
Operating profit | £31.4m | £25.8m |
|
|
Profit before tax | £25.9m | £21.4m |
|
|
Basic EPS | 5.20p | 4.47p |
|
|
Martin Flower, Chairman, said:
"Low & Bonar has undergone a transformation over the past two years. We are now a nimbler, tighter, customer focussed organisation. We are seeing the tangible results of that transformation with good progress towards our targets for most of the Group. Without the issues in Coated Technical Textiles, we would now be very close to a double digit operating margin for the Group.
We enter 2017 in good shape with a strong platform for growth. We are confident of achieving further progress in 2017 and beyond for all of our businesses."
1 February 2017
Certain information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation. Upon the publication of this announcement via Regulatory Information Service, this inside information is now considered to be in the public domain.
For further information, please contact:
Low & Bonar PLC |
020 7535 3180 |
Brett Simpson, Chief Executive Officer |
|
Mike Holt, Chief Financial Officer |
|
|
|
Instinctif Partners |
020 7457 2020 |
Matthew Smallwood Helen Tarbet |
|
CHAIRMAN'S STATEMENT
I am pleased to report on another year of progress for the Group.
Low & Bonar has undergone a transformation over the past two years. We are now a nimbler, tighter, customer focussed organisation. We are seeing the tangible results of that transformation with good progress towards our targets for most of the Group. Without the issues in Coated Technical Textiles, we would now be very close to a double digit operating margin for the Group.
Profit before tax, amortisation and non-recurring items from continuing operations increased by 6.6% to £29.2m (2015 (restated): £27.4m). On a statutory basis, profit before tax increased by 21.0% to £25.9m from £21.4m (restated) in 2015. On a constant currency basis, operating profits before amortisation and non-recurring items were better than last year in Building & Industrial (+16.0%), Civil Engineering (+27.3%) and Interiors & Transportation (+14.8%) but were down in Coated Technical Textiles (-37.9%). As reported at the half year, profits within Coated Technical Textiles were impacted by production issues which, whilst largely resolved during the second half of the year, impacted sales towards the end of the year. Overall, profit before tax, amortisation and non-recurring items on a constant currency basis decreased by 5.2% to £29.2m (2015 (restated): £30.8m). The Group's operating margin before amortisation and non-recurring items was 8.7% (2015 (restated): 8.8%); lower margins in Coated Technical Textiles offsetting gains in Building & Industrial, Civil Engineering and Interiors & Transportation. Group revenues, on a constant currency basis were broadly flat at £400.0m. Demand generally for our products remained robust, reflecting the diversity and strength of our niche market positions, products and service delivery.
Good strategic progress has been made. The Group's new Colback-manufacturing site at Changzhou, China was commissioned at the start of the year and has performed very well. The Group, also successfully divested its under-performing artificial grass yarns business in September 2016 for £21.7m, in order to focus on our higher margin businesses. In addition, we are on track to exit our joint venture in Saudi Arabia and negotiations are well underway with our partner, Natpet, albeit progressing more slowly than expected.
The Group has continued to invest in assets to support growth. Capital expenditure totalled £22.2m (2015: £33.7m) including £7.8m (total investment being £26.0m) on the new factory in Changzhou, China, the new non-woven plant in Tiszaujvaros, Hungary and new looms in Ivanka, Slovakia which amounted to £1.4m (2015: £5.6m) and £1.7m (2015: £nil) respectively. The Group has also invested £2.7m (2015: £nil) in a new Group ERP system, the first roll-out starts in Q2 2017. On 17 January 2017, the Group purchased for $3.6m the business and assets of Walflor Industries Inc, based near Seattle, USA, which produces rainscreens and acoustic mats. The acquisition significantly strengthens our customer relationships in the US building products market and provides a West Coast platform for further growth. The acquisition is expected to be earnings enhancing in the coming year, albeit profits in the first year are expected to be modest.
To reflect the Board's confidence in making further progress, we are proposing an increased final dividend of 2.00 pence per share (2015: 1.80 pence). Subject to shareholders' approval at the Annual General Meeting on 12 April 2017, the dividend will be paid on 13 April 2017 to members registered as of 17 March 2017. The proposed full year dividend of 3.00 pence per share (2015: 2.78 pence) is covered 2.0 times (2015: 2.0 times) by earnings before amortisation and non-recurring items.
It is my pleasure, as always, to acknowledge the skills and dedication of employees throughout Low & Bonar who have worked hard to deliver further progress for the Group. Their combined efforts have sustained the Group's vision of Progress Through Performance.
It is expected that market conditions in Europe will remain challenging, but we are well positioned. We expect that North American markets will remain supportive and China will continue to develop. The manufacturing issues that have affected Coated Technical Textiles are now largely resolved and we expect to see margins in this business recovering through 2017. We have a clear strategy to enhance returns and will continue to focus on active portfolio management and investing in growth opportunities.
We enter 2017 in good shape with a strong platform for growth. We are confident of achieving further progress in 2017 and beyond for all of our businesses.
Martin Flower
Chairman
1 February 2017
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.
RESULTS OVERVIEW
Key Performance Metrics: | 2016
| 2015 (restated)(1)
| Actual | Constant currency(2)
|
Revenue | £400.0m | £362.1m | 10.5% | (0.2%) |
Operating profit before amortisation and non-recurring items |
£34.7m |
£31.8m |
9.1% |
(2.8%) |
Operating margin before amortisation and non-recurring items(3) |
8.7% |
8.8% |
|
|
Profit before tax, amortisation and non-recurring items |
£29.2m |
£27.4m |
6.6% |
(5.2%) |
Basic EPS before amortisation and non-recurring items |
6.01p |
5.86p |
2.6% |
(9.0%) |
Dividend per share | 3.00p | 2.78p | 7.9% |
|
Return on capital employed(4) | 11.1% | 12.5% |
|
|
(1) Restated to exclude the results of discontinued operations
(2) Constant currency is calculated by retranslating comparative period results at current period exchange rates
(3) Operating profit before amortisation and non-recurring items as a percentage of revenue
(4) Operating profit before amortisation and non-recurring items as a percentage of net assets plus net debt
Statutory Metrics: | 2016
| 2015 (restated)(1)
|
|
|
Operating profit | £31.4m | £25.8m |
|
|
Profit before tax | £25.9m | £21.4m |
|
|
Basic EPS | 5.20p | 4.47p |
|
|
The Group has made further progress over the last twelve months on its transformational journey from a production-led company to a market-focussed, global performance materials business. Results for the year, however, were mixed. As anticipated, there was strong sales and profit growth in Building & Industrial and Interiors & Transportation and profit and margin improvement in Civil Engineering. Operating profit before amortisation and non-recurring items in Building & Industrial and Interiors & Transportation grew by 16.0% and 14.8% respectively and by 27.3% in Civil Engineering. Profits within Coated Technical Textiles were disappointing and 37.9% lower than last year due largely to manufacturing issues during the first half of the year. Overall, the Group operating margin was 8.7% (2015 (restated): 8.8%), this includes the negative drag from Coated Technical Textiles which we estimate to have been 1.3%.
STRATEGIC PROGRESS
With a simplified structure and refined corporate strategy, Low & Bonar can combine its collective global expertise to deliver strong results. The Group now has a strong corporate brand, with a portfolio of premium brand products sitting underneath the Low & Bonar umbrella.
In 2016, we strengthened our commercial approach by developing a deeper customer interface to become more proactive and forward-looking as a business, creating bespoke products for our customers to generate greater added-value and deliver better returns. Intimate knowledge of our markets and leveraging our technical expertise can help deliver competitive advantage and provide depth to our four Global Business Units.
Over the year we have invested in increasing capacity and capability across the business to take advantage of future growth opportunities. We are working on increasing our international footprint, based on the regional preferences and requirements of our customers. We are leveraging our European-centric expertise and expanding into other parts of the world, including China and North America, through a mixture of strategic bolt-on acquisitions and organic growth. Our acquisition strategy remains focussed on opportunities which meet our stringent financial criteria.
Key operational highlights in 2016 include our new plant in Changzhou, China, which opened at the start of the year. Low & Bonar is the first British company to produce a proprietary technical textile in China. We use local teams that we have trained to manufacture quality products that meet local and international customers' needs and, in our first year of operation, the plant outperformed expectations. Demand for Colback is strong and growing, and the first commercial products were delivered ahead of forecasts. The plant ended the year with 75% utilisation and expects to reach full capacity by the end of 2017. The Board has approved the next phase of the Changzhou plant's development and we anticipate that a second production line will be built and on-stream by early 2018, at a total cost of around £22m.
We continue to invest in the European heartlands of our business. We are pleased with the strong performance of the new non-woven facility in Tiszaújváros, Hungary, where we have replaced and rejuvenated existing lines. This investment in Civil Engineering, which accounts for on average 23% of the Group's revenue, has strengthened its asset base and added extra capability.
Performance in Civil Engineering has also been boosted by the previous investment in a new 8,000 m² plant in Slovakia, which manufactures woven and non-woven geosynthetics for large-scale infrastructure projects. The Ivanka pri Nitre plant is enabling it to address the significant growth potential in this area.
Building & Industrial continues to see strong profit growth and margin progression. North America, in particular, provides an opportunity to develop its customer-branded (private label) work, including working with major building suppliers.
Interiors & Transportation has strong market drivers with good market growth delivering a solid performance across its three regions. The business has had an encouraging first year with the new China facility and continues to invest in new platforms, bringing the latest technology to its Chinese customer base.
Our Coated Technical Textiles operations, based in Germany and Eastern Europe, have suffered from a combination of more stringent regulatory requirements and operational issues resulting in pressure on profits. We have focussed on addressing the underlying issues and changing the work, sales and operational planning processes to optimise the product mix and shift to higher-end products. We start the new financial year with confidence that Coated Technical Textiles will get back on track during 2017.
A hallmark of our new strategy has been the reorganisation of the Group into an actively-managed portfolio of businesses capable of delivering sustainable growth and high-quality earnings. During 2016, we have been committed to resolving legacy issues. It was for this reason that the Board decided to divest the artificial grass yarns business, which formed the majority of the Sports & Leisure global business unit. We have also made progress in agreeing our exit from our joint venture with Natpet in Saudi Arabia. Proceeds from the sale of artificial grass yarns will be used to invest in assets capable of generating our Group financial targets of 10% return on sales and 12% return on capital employed.
Building & Industrial
The Building & Industrial business unit supplies a range of technical textile solutions for niche applications in the building, roofing, air and water filtration and agricultural markets.
| 2016 | 2015 | Actual | Constant currency (¹) |
|
|
|
|
|
Revenue | £73.4m | £61.7m | +19.0% | +6.4% |
Operating profit before amortisation and non-recurring items |
£10.9m |
£8.4m |
+29.8% |
+16.0% |
Operating Margin before amortisation and non-recurring items |
14.9% |
13.6% |
|
|
(1) Constant currency is calculated by retranslating comparative period results at current period exchange rates.
On a constant currency basis, sales increased by 6.4% and operating profits by 16.0% with operating margins improving to 14.9% from 13.6% last year. Sales were up in all markets; demand was particularly strong during H2, especially for roofing products in the US market. Sales were buoyed by major account wins with roofing, ventilation and green roofing customers. A new global industrial team has been formed to drive sales growth in cabin-air filtration and capitalise on local production and service being available in Asia from our new Colback plant in Changzhou, China.
Global agriculture sales, which were positive but below expectations, were constrained by some service and delivery issues at our Lokeren site, which limited our ability to meet strong market demand for greenhouse screens and mushroom and compost mats. These issues were resolved in Q4 and the Agro business delivered record screen volumes in the final quarter. Favourable market patterns are expected in 2017, and the business remains committed to expansion in the North American market.
The business outlook for 2017 is positive in all segments. On 17 January 2017, the Group purchased for $3.6m the business and assets of Walflor Industries Inc, based near Seattle, USA, which produces rainscreens and acoustic mats. The acquisition significantly strengthens our customer relationships in the US building products market and provides a West Coast platform for further growth. The acquisition is expected to be earnings enhancing in the coming year, albeit profits in the first year are expected to be modest.
Civil Engineering
The Civil Engineering business unit supplies woven and non-woven geotextiles and construction fibres used in major infrastructure projects, including road and rail building, land reclamation and coastal defence.
| 2016 | 2015 | Actual | Constant currency (¹) |
|
|
|
|
|
Revenue | £90.8m | £85.4m | +6.3% | -3.9% |
Operating profit before amortisation and non-recurring items |
£4.2m |
£3.1m |
+35.5% |
+27.3% |
Operating Margin before amortisation and non-recurring items |
4.6% |
3.6% |
|
|
(1) Constant currency is calculated by retranslating comparative period results at current period exchange rates.
Despite challenging market conditions, Civil Engineering improved its profitability and margins through a combination of better sales mix and market share gains in targeted specification sales. On a constant currency basis profits were up 27.3%. Commercial successes during the year included strong volume growth in Adfil macro construction fibres and strong sales in our differentiated products, principally prefabricated vertical drainage and erosion control products, as well as delivering organic growth in the USA.
In 2016, development work was completed to ensure that all geosynthetic products will meet the highest standards of durability in the imminent upgrade of the industry standards. Our new, state-of-the-art, non-woven facility in Tiszaujvaros, Hungary also came on-stream during the year with a new 6.5 metre wide line and the relocation of a renovated line from our older facility nearby. We also successfully developed and launched our new best in class Durus S500 macro synthetic fibre for concrete reinforcement.
Looking forward, geographical opportunities for growth include the US and Asia, while demand next year in core European markets is expected to be broadly unchanged, as they are heavily reliant on public funding. We will continue to leverage our market and technical capabilities to accelerate growth in all our target markets and remain very confident that the business will make further progress towards 10% operating margin.
Coated Technical Textiles
The Coated Technical Textiles business unit supplies a range of technical coated fabrics providing aesthetics and design, performance and protection in products such as tensioned architectural structures, awnings, marquees, advertising banners, tarpaulins and vehicle curtain sides to the transport, building products, print, leisure and industrial markets.
| 2016 | 2015 | Actual | Constant currency (¹) |
|
|
|
|
|
Revenue | £129.8m | £120.4m | +7.8% | -2.4% |
Operating profit before amortisation and non-recurring items |
£8.7m |
£12.8m |
-32.0% |
-37.9% |
Operating Margin before amortisation and non-recurring items |
6.7% |
10.6% |
|
|
(1) Constant currency is calculated by retranslating comparative period results at current period exchange rates.
As previously reported, Coated Technical Textiles has had a poor year, significantly impacted by various manufacturing problems which added approximately £3.4m to costs and negatively impacted sales. On a constant currency basis, sales were down 2.4% compared to last year and profits fell by 37.9% to £8.7m. The manufacturing issues are now resolved for the most part and the focus for the business in 2017 is on restoring market confidence and regaining customers. Markets and customers generally remain supportive.
The new sales team focus on the higher margin segments (flexible containers and tensile architecture) is beginning to gain traction. Major developments in 2016 included a significant order to supply fabric for the Volgograd stadium in Russia for the 2018 World Soccer tournament. We have also launched Camouflage for an inflatable boat application and Flexi Pools, designed to withstand extreme UV exposure and for improved durability when in contact with treated pool water.
The focus for 2017 will be on reliability and rebuilding Coated Technical Textiles' reputation for service delivery and quality product. Further gains in higher margin segments should support further profit improvement.
Interiors & Transportation
The Interiors & Transportation business unit supplies technical fabrics used in transportation, interior carpeting, resilient tiles and decorative products.
| 2016 | 2015 (restated) (2) | Actual | Constant currency(¹) |
|
|
|
|
|
Revenue | £106.0m | £94.6m | +12.1% | +1.7% |
Operating profit before amortisation and non-recurring items |
£17.1m |
£13.4m |
+27.6% |
+14.8% |
Operating Margin before amortisation and non-recurring items |
16.1% |
14.2% |
|
|
(1) Constant currency is calculated by retranslating comparative period results at current period exchange rates.
(2) Restated to include the continuing Sports & Leisure segment
Interiors and Transportation delivered very good profit growth; profits were up 14.8% to £17.1m on a constant currency basis. Sales were 1.7% ahead on a constant currency basis for the full year. Sales in H1 were 3.8% ahead aided by additional capacity from the new plant in Changzhou, China but sales in H2 were flat due to the pass-through of price reductions in connection with lower raw material prices.
The performance in China has been pleasing with both sales and margins being ahead of plan. The total sales of Colback in China were £11.7m (2015: £8.5m). Sales of Colback from Changzhou, including £3.1m export sales, totalled £9.6m (2015: £nil).
The Interiors & Transportation business serves a number of nascent market segments, where Colback has established a strong market position with recognised advantages and a reputation for innovating, so the outlook is positive for good growth from a leading position. We enter 2017 with a good supply situation.
Financial Review
Pre-tax profit
Profit before tax, amortisation and non-recurring items from continuing operations increased by 6.6% to £29.2m (2015 (restated for discontinued operations): £27.4m). The impact of foreign exchange rate changes aided reported profits by £3.5m following the significant weakening of sterling against the Euro and US dollar. Operating profits before amortisation and non-recurring items were 9.1% higher than last year at £34.7m (2015 (restated): £31.8m). Statutory operating profits were 21.7% higher at £31.4m against £25.8m in 2015 (restated). Statutory profit before tax was £25.9m (2015 (restated): £21.4m) after a net non-recurring credit of £0.7m (2015 (restated): charge of £1.9m) and a £4.0m charge for amortisation (2015: £4.1m).
Excluding the effect of favourable foreign exchange gains on translating overseas earnings due to weaker sterling, profit before tax, amortisation and non-recurring items on a constant currency basis was 5.2% lower than the prior year, profit before tax, amortisation and non-recurring items in 2015 being £30.8m. Operating margins remained stable at 8.7% against 8.8% (restated for discontinued operations) last year. Volume growth in Building & Industrial and Interiors & Transportation and effective margin management in Civil Engineering, together with net pricing gains, offset further investment in operational capability and a disappointing performance by Coated Technical Textiles, primarily within production. Manufacturing performance was also disappointing at our weaving site at Lokeren, Belgium which held back potential gains in our agriculture segment.
Non-recurring items
There was a net non-recurring credit of £0.7m (2015 (restated): net non-recurring charge of £1.9m) in relation to continuing operations.
The Group recorded a profit of £1.1m on the sale of unused land at our North American manufacturing site in Asheville. The Group also incurred £0.1m (2015: £0.2m) of non-recurring pension administration costs relating to its UK defined benefit scheme. A further £0.2m (2015: £0.2m) of professional fees were incurred in respect of the medically-underwritten buy-in of £34m of UK pension scheme liabilities, which completed on 3 December 2015.
During the prior year, construction and start-up costs relating to the Group's construction of a new manufacturing facility in Changzhou, China, totalled £1.1m and reorganisation costs of £0.4m were incurred in the integration of the Group's operations into a single global business.
Discontinued operations
On 4 July 2016, the Board announced the disposal of the Group's artificial grass yarns business (previously comprising the majority of its Sport & Leisure global business unit). The disposal completed on 1 September 2016 and the prior period income statement has been restated accordingly.
The Group's joint venture in Saudi Arabia, Bonar Natpet, made a loss during the year of £2.6m (2015: £3.6m), of which the Group's share was £1.3m (2015: £1.8m). The Board is pursuing the disposal of the Group's interest in the joint venture and negotiations with interested parties are ongoing. Due to this, the Group's share of the results of the joint venture has been presented as discontinued operations.
Taxation
The overall tax charge on continuing profit before tax was £8.2m (2015: £6.2m). The tax charge from continuing operations before amortisation and non-recurring items was £8.8m (2015: £7.6m), a rate of 30.4% (2015 (restated): 27.8%). The increase in effective rate relates to country mix of profits, in particular more profits derived from the USA and the disposal of the grass yarns business.
Acquisitions
There were no acquisitions in 2016. 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 $3.6m and a contingent consideration of up to $0.9m in cash based on the commercial performance of the business over the next twelve months.
Net debt
As at 30 November 2016, net debt was £111.0m (2015: £102.1m). This was circa £15m higher than had been expected at the half-year, due principally to the progressive weakening in sterling which accounted for about £12m and the deferred receipt of working capital proceeds from the sale of the artificial grass yarns business. Stock build was also a little higher than had been anticipated in Lokeren and at other sites due to buffering to meet demand in H1 2017. Capital expenditure was however lower with payments moving into 2017.
Cash inflow from operations was £38.5m (2015: £39.8m). During the year, the Group spent £18.9m (2015: £33.0m) on property, plant and equipment and £3.3m (2015: £0.7m) on intangible assets. Excluding replacement, efficiency and health and safety related capital expenditure, the amount invested in equipment to support future growth was £13.1m (2015: £23.0m). The main items related to the new factory build in Changzhou, China, the new non-woven plant in Tiszaujvaros, Hungary and new looms in Ivanka, Slovakia which amounted to £7.8m (2015: £13.6m), £1.4m (2015: £5.6m) and £1.7m (2015: £nil) respectively. The Group also invested £2.7m (2015: £nil) in a new Group ERP system, the roll-out of which will commence in 2017. The total investment for the new ERP system is expected to be about £9m.
The Group received proceeds of £21.7m from the sale of the artificial grass yarns business in September 2016 and holds a receivable of £4.3m reflecting a working capital adjustment, based on the sale agreement, which the Group is due to receive in 2017. Costs incurred relating to the disposal of the business totalled £2m.
Trade working capital as a percentage of sales at year end increased to 26% (2015: 23%), the increase being mainly due to an increase in inventories of £14.7m. This reflects the planned ramp-up in our new facility in Changzhou, together with stock build to fulfil orders and product launches in early 2017, and continued production and scheduling issues at our Lokeren site.
The analysis of the Group's net debt is as follows:
| 2016 £m | 2015 £m |
|
Cash and cash equivalents |
26.3 |
33.9 |
|
Total bank debt | (137.3) | (136.0) |
|
Net bank debt |
(111.0) |
(102.1) |
|
The gearing ratio of total net debt to EBITDA decreased from 2.19 times (in 2015) to 1.98 times.
The Group's available debt facilities total €246m (2015: €233m) and comprise a five-year revolving credit facility of €165m through to July 2019, a private placement of €60m scheduled for repayment between September 2022 and September 2026 in even tranches, and loan facilities of Rmb 150m through to June 2020.
Net debt at 30 November 2017 is expected to be similar to 30 November 2016, on a constant currency basis.
Return on capital employed
The return on capital employed has reduced to 11.1% (2015 (restated): 12.5%) due to significant capital expenditure in the year and stock build. The 2015 calculation has been restated to remove £20.2m of net assets associated with the disposed business and assets. 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, and the higher inventories were held to fulfil orders in H1 2017 and mitigate production bottlenecks at our site in Lokeren, Belgium.
Earnings per share
Basic earnings per share, before amortisation and non-recurring items was 6.01p, an increase of 2.6% from 5.86p in 2015 (restated). On a constant currency basis, basic earnings per share, before amortisation and non-recurring items reduced by 9.0% due to an increase in the effective tax rate from 27.8% to 30.4% along with the constant currency impact on the earnings of the Group. Basic earnings per share from continuing operations increased 16.3% from 4.47p in 2015 (restated) to 5.20p in 2016.
Dividends
The Directors have proposed an increased final dividend in respect of the financial year ended 30 November 2016 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 12 April 2017, it will be paid on 13 April 2017 to Ordinary Shareholders who are on the register of members at close of business on 17 March 2017. The Company's distributable reserves at November 2016 provide around 10 years' cover for dividend payments at the current rate.
Pensions
The charges for pensions are calculated in accordance with the requirement of IAS 19 Employee Benefits (revised). At 30 November 2016, the UK scheme showed a deficit of £2.2m (2015: surplus of £5.2m), the increase in the deficit is principally due to the fall in bond yields in the year, partially mitigated by the Scheme's assets outperforming expected returns and lower than anticipated levels of inflation. During the year, the Group's UK defined benefit scheme continued to adopt a lower risk investment strategy in which the interest rate and inflation risks were more closely hedged and the exposure to equities reduced to 13% of the scheme's assets (2015: 19%). On 3 December 2015 the Group also completed a medically-underwritten buy-in of £34m of liabilities within its UK pension scheme, to eliminate interest rate, inflation and mortality risks and provide an effective liability and cash flow match.
The deficit in the Group's overseas schemes in Belgium, Germany and the USA increased to £12.8m (2015: £9.9m), again due to the fall in bond yields in the year.
Restatement
Due to the disposal of the artificial grass yarns business (disclosed as discontinued operations), the remaining continuing interests within the Sport & Leisure segment have now been included within the Interiors & Transportation segment due to the similar nature of the products provided. The Group's reportable segments have also been restated to reflect the discontinued operations noted in the period and the change in operating segments
Risks and Uncertainties
Global activity risks | Mitigating strategy | |
The Group may be adversely affected by global economic conditions, particularly in its principal markets in mainland Europe and North America. The volatility of international markets could result in reduced levels of demand for the Group's products, a greater risk of customers defaulting on payment terms, supply chain risk and a higher risk of inventory obsolescence. Changes in international trade regulations or tariffs could potentially disrupt the Group's supply chains. | Business Unit management monitors their own markets and are empowered to respond quickly to changing conditions. Production costs may be quickly flexed to balance production with demand, including the use of short-time working arrangements where available. Further actions, such as reducing the Group's cost base and cancelling or delaying capital investment plans, are available to allow continued profitability and cash generation in the face of a sustained reduction in volumes. The Group also has a broad base of customers. Group policies endeavour to ensure customers are given an appropriate level of credit based on their trading history and financial status, and a prudent approach is adopted towards credit control. Credit insurance is used where available and considered appropriate. Procurement management endeavour to mitigate supply chain risk by identifying and qualifying alternative sources of key raw materials. Potential changes to international trade regulations are monitored in order to try and anticipate and mitigate their impact. | |
Growth strategy risks | Mitigating strategy | |
The Board believes that growth, both organic and through acquisitions, is a fundamental part of its strategy for the Group. The Board reviews such growth opportunities on an ongoing basis and its acquisition strategy is based on appropriate acquisition targets being available and on acquired companies being integrated rapidly and successfully into the Group. | The current focus of the Group is on profitable, cash-generative organic growth supplemented by acquisitions where appropriate. The senior management team is experienced and has successfully executed and integrated several acquisitions and joint ventures in the past. Acquisitions are made subject to clearly defined criteria in existing or adjacent segments whose products and technologies are well understood, and only after extensive pre-acquisition due diligence. Acquisition proposals are supported by a detailed post-acquisition integration plan that is rigorously managed through to completion. | |
Organic growth/competition risks | Mitigating strategy | |
The markets in which the Group operates are competitive with respect to price, geographic distinction, functionality, brand recognition and marketing and customer service. | The Group has chosen to operate in attractive niche markets within the technical textile industry, using proprietary technology to manufacture products which are important determinants of the performance and/or efficiency of our customers' final product or process. Significant resources are dedicated to developing and maintaining strong relationships with our customers, and to developing new and innovative products which meet their precise needs. Innovation pipelines are Business Unit-led and rigorously managed through a stage-gate process. | |
Cyber security risks | Mitigating strategy | |
Disruption to or penetration of our information technology platforms could have a significant adverse effect on the Group. | The Group's information technology resources are continuously monitored and maintained and safeguards are in place to provide security for our networks and data. These are backed up by training programmes for relevant members of staff. Business continuity measures are in place to minimise the impact of any disruption to its operations.
| |
Business continuity risks | Mitigating strategy |
|
The occurrence of major operational problems could have a material adverse effect on the Group. These may include risks of fire or major environmental damage. | The Group has process controls and proactive maintenance programmes designed to avoid problems arising. These are supported by regular site visits from risk management, internal audit staff and the Group Health, Safety and Environment ("HSE") committee. Crisis response procedures including business continuity/ disaster recovery plans are in place to minimise the impact of any disruption to its operations. Where appropriate, risks are partially transferred through insurance programmes. |
|
Raw material pricing risks | Mitigating strategy |
|
The Group's profitability can be affected by the purchase price of its key raw materials and its ability to reflect any changes through its selling prices. The Group's main raw materials are polypropylene, polyester, nylon, polyethylene and PVC. The prices of these raw materials are volatile, and they are influenced ultimately by oil prices and the balance of supply and demand for each polymer. | The Group has a good level of expertise in polymer purchasing and uses a number of suppliers to ensure a balance between competitive pricing and continuity of supply. The Group's focus on operating efficiencies and the strength of its product propositions has in the past allowed the effect of raw material cost fluctuations to be successfully managed.
|
|
Health and Safety risks | Mitigating strategy |
|
The nature of the Group's operations presents risks to the health and safety of employees, contractors and visitors. Furthermore, inadequate health and safety practices could lead to business disruption, financial penalties or loss of reputation. | The Group's health and safety strategy aims to embed a strong and proactive health and safety culture across all aspects of our business. Health and safety matters are discussed at Group Board and Business Unit level meetings, and the Group HSE committee meets regularly to develop and implement Group health and safety standards and Global Improvement Programmes, investigate incidents and near misses, and share best practice through site audits and training programmes. Performance is monitored against Group-wide health and safety KPIs. |
|
Employee risks | Mitigating strategy |
|
The Group is reliant on its ability to attract, develop and retain talented leaders, professionals and specialists throughout the organisation. | Employees are recruited and regularly appraised utilising a structured performance management system. This is directly linked both to rewards and developmental outcomes. HR policies are in place covering all aspects of employment across the Group. We are committed to effective communication and engagement with employees which takes place on a continuous basis. We utilise our values of: be world class; empower and perform; collaborate to transform in the way that we engage with our people and conduct our business. |
|
Funding risks | Mitigating strategy |
|
The Group, like many other companies, is dependent on its ability to both service its existing debts, and to access sufficient funding to refinance its liabilities when they fall due and to provide sufficient capital to finance its growth strategy. | The Group manages its capital to safeguard its ability to continue as a going concern, to provide sufficient liquidity to support its operations and the Board's strategic plans and to optimise its capital structure. The Group's borrowing requirements are regularly reforecast with the object of ensuring adequate funding is in place to support its operations and growth plans. Compliance with the covenants associated with these facilities is closely monitored. |
|
Treasury risks | Mitigating strategy |
|
Foreign exchange is the most significant treasury risk for the Group. The reported value of profits earned by the Group's overseas entities is sensitive to the strength of Sterling, particularly against the Euro and the US Dollar. The Group is exposed to a lesser extent to other treasury risks such as interest rate risk and counterparty credit risk. | Group policy aims to naturally hedge transactional foreign exchange risks by buying and selling in the same currency. Policy in relation to residual risk ensures treasury activities are focussed on the management of risk with high quality counterparties; no speculative transactions are undertaken. The Group uses financial instruments to manage the exposures that may arise from its business operations as a result of movements in financial markets. |
|
Pension funding risks | Mitigating strategy |
|
The Group may be required to increase its contributions into its defined benefit pension schemes to cover funding shortfalls. The funding may be affected by poor investment performance of pension fund investments, changes in the discount rate applied and longer life expectancy of members. | Regular dialogue takes place with pension fund trustees and the Board regularly discusses pension fund strategy. The main Group scheme is closed to new members and to future benefit accrual; and assumptions, including funding rates, are set in line with the actuaries' recommendations. A medically-underwritten buy-in of certain of the Group's pension liabilities was undertaken in December 2015, to reduce volatility from changing life expectancy. |
|
Laws and regulations risks | Mitigating strategy |
|
The Group's operations are subject to a wide range of laws and regulations, including employment, environmental and health and safety legislation, along with product liability and contractual risks. | The Group's policy manuals endeavour to ensure all applicable legal and regulatory requirements are met or exceeded in all territories in which it operates, and ongoing programmes and systems monitor compliance and provide training for relevant employees. Product liability risks are managed through stringent quality control procedures covering review of goods on receipt and prior to despatch and all manufacturing processes. Insurance cover, judged appropriate for the nature of the Group's business and its size, is maintained. The Group also seeks to minimise risks through its terms and conditions of trading. |
|
Responsibility statement of the Directors on the Annual Report and Accounts
The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 30 November 2016. Certain parts thereof are not included within this Preliminary Announcement.
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the company and the undertakings included in the consolidation taken as a whole; and
· the Strategic Report includes a fair review of the development and performance of the business and the position of the company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Directors
The Directors of the Company are:
Martin Flower, Chairman
Brett Simpson, Chief Executive Officer
Mike Holt, Chief Financial Officer
Steve Hannam, Non-Executive Director
Kevin Matthews, Non-Executive Director
Trudy Schoolenberg, Non-Executive Director
John Sheldrick, Non-Executive Director
Mike Powell, Non-Executive Director
Related party transactions
There are no related party transactions requiring disclosure.
Brett Simpson Mike Holt
1 February 2017 1 February 2017
Forward looking statements
This announcement includes statements that are, or may be deemed to be, "forward looking statements". These forward looking statements can be identified by the use of forward looking terminology, including, but not limited to, the terms "believes", "estimates", "anticipates", "expects", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward looking statements include matters that are not historical facts.
By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and liquidity may differ materially from the impression created by the forward looking statements contained in this announcement. In addition, even if the results of operations, financial condition, and liquidity are consistent with the forward looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to: changes in the competitive framework in which the Group operates and its ability to retain market share; the Group's ability to generate growth or profitable growth; the Group's ability to generate sufficient cash to service its debt; the Group's ability to control its capital expenditure and other costs; significant changes in exchange rates, interest rates and tax rates; significant technological and market changes; future business combinations or dispositions; and general local and global economic, political, business and market conditions. In light of these risks, uncertainties and assumptions, the events described in the forward looking statements in this announcement may not occur.
Other than in accordance with its legal or regulatory obligations, the Group does not undertake any obligation to update or revise publicly any forward looking statement, whether as a result of new information, future events or otherwise.
Consolidated Income Statement
for the year ended 30 November
|
|
| 2016 |
| 2015 | ||
|
| Before amortisation and non-recurring items
| Amortisation and non-recurring items (note 6)
| Total
| Before Amortisation and non-recurring items (restated) | Amortisation and non-recurring items (note 6) (restated) | Total (restated) |
| Note | £m | £m | £m | £m | £m | £m |
Revenue | 2 | 400.0 | - | 400.0 | 362.1 | - | 362.1 |
Operating profit/(loss) | 2 | 34.7 | (3.3) | 31.4 | 31.8 | (6.0) | 25.8 |
Financial income |
| 0.2 | - | 0.2 | 0.1 | - | 0.1 |
Financial expense |
| (5.7) | - | (5.7) | (4.5) | - | (4.5) |
Net financing costs | 3 | (5.5) | - | (5.5) | (4.4) | - | (4.4) |
Profit/(loss) before taxation |
| 29.2 | (3.3) | 25.9 | 27.4 | (6.0) | 21.4 |
Taxation | 4 | (8.8) | 0.6 | (8.2) | (7.6) | 1.4 | (6.2) |
Profit/(loss) after taxation |
| 20.4 | (2.7) | 17.7 | 19.8 | (4.6) | 15.2 |
Profit/(loss) for the year from continuing operations |
| 20.4 | (2.7) | 17.7 | 19.8 | (4.6) | 15.2 |
Profit/(loss) for the year from discontinued operations | 9 | 0.5 | (3.7) | (3.2) | (0.8) | (8.2) | (9.0) |
Profit/(loss) for the year |
| 20.9 | (6.4) | 14.5 | 19.0 | (12.8) | 6.2 |
Attributable to |
|
|
|
|
|
|
|
Equity holders of the Company |
| 20.3 | (6.4) | 13.9 | 18.5 | (12.8) | 5.7 |
Non-controlling interest | 8 | 0.6 | - | 0.6 | 0.5 | - | 0.5 |
|
| 20.9 | (6.4) | 14.5 | 19.0 | (12.8) | 6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share | 7 |
|
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
|
|
Basic |
| 6.01p |
| 5.20p | 5.86p |
| 4.47p |
Diluted |
| 5.95p |
| 5.15p | 5.75p |
| 4.39p |
Discontinued operations: |
|
|
|
|
|
|
|
Basic |
| 0.14p |
| (0.98p) | (0.25p) |
| (2.74p) |
Diluted |
| 0.14p |
| (0.97p) | (0.24p) |
| (2.69p) |
Total: |
|
|
|
|
|
|
|
Basic |
| 6.15p |
| 4.22p | 5.61p |
| 1.73p |
Diluted |
| 6.09p |
| 4.18p | 5.51p |
| 1.70p |
Consolidated Statement of Comprehensive Income
for the year ended 30 November
| Note | 2016 £m | 2015 £m |
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss: |
| 14.5 | 6.2 |
Actuarial (loss)/gain on defined benefit pension schemes |
| (11.8) | 2.2 |
Deferred tax on defined benefit pension schemes
|
| 0.3 | - |
|
|
|
|
Items that may be reclassified subsequently to profit or loss: |
|
|
|
Exchange differences on translation of foreign operations, net of hedging |
| 36.7 | (17.8) |
Exchange differences recycled from reserves |
| (1.7) | - |
Other comprehensive income for the year, net of tax |
| 23.5 | (15.6) |
Total comprehensive income for the year |
| 38.0 | (9.4) |
Attributable to Equity holders of the parent |
|
37.4 |
(10.1) |
Non-controlling interest | 8 | 0.6 | 0.7 |
|
| 38.0 | (9.4) |
Consolidated Balance Sheet
as at 30 November
|
Note | 2016 £m | 2015 £m |
| |
Non-current assets |
|
|
|
| |
Goodwill |
| 82.6 | 69.6 |
| |
Intangible assets |
| 22.2 | 20.3 |
| |
Property, plant and equipment |
| 150.3 | 132.0 |
| |
Investment in joint venture |
| - | - |
| |
Investment in associate |
| 0.5 | 0.5 |
| |
Deferred tax assets |
| 5.6 | 4.4 |
| |
Post-employment benefits |
| - | 5.2 |
| |
|
| 261.2 | 232.0 |
| |
Current assets |
|
|
|
| |
Inventories |
| 97.5 | 82.6 |
| |
Trade and other receivables |
| 79.1 | 71.1
|
| |
Cash and cash equivalents |
| 26.3 | 33.9 |
| |
Current liabilities |
| 202.9 | 187.6 |
| |
Interest-bearing loans and borrowings |
| 0.1 | 31.5 |
| |
Current tax liabilities |
| 4.4 | 5.7 |
| |
Trade and other payables |
| 84.4 | 77.0 |
| |
Provisions |
| - | 0.1 |
| |
Derivative liabilities |
| - | 0.1 |
| |
Liabilities directly associated with assets held for | sale | 1.3 | - |
| |
|
| 90.2 | 114.4 |
| |
Net current assets |
| 112.7 | 73.2 |
| |
Total assets less current liabilities |
| 373.9 | 305.2 |
| |
Non-current liabilities |
|
|
|
| |
Interest-bearing loans and borrowings |
| 137.2 | 104.5 |
| |
Deferred tax liabilities |
| 19.1 | 17.2 |
| |
Post-employment benefits |
| 15.0 | 9.9 |
| |
Other payables |
| 0.2 | 1.6 |
| |
|
| 171.5 | 133.2 |
| |
Net assets | 202.4 | 172.0 |
| ||
Equity attributable to equity holders |
|
|
| ||
of the parent |
|
|
| ||
Share capital | 47.4 | 47.4 |
| ||
Share premium account | 74.4 | 74.2 |
| ||
Translation reserve | (26.0) | (61.0) |
| ||
Retained earnings | 100.2 | 105.3 |
| ||
|
|
|
| ||
Total equity attributable to
|
|
|
| ||
Equity holders of the parent | 196.0 | 165.9 |
| ||
Non-controlling interest 8 | 6.4 | 6.1 |
| ||
Total equity | 202.4 | 172.0 |
| ||
Consolidated Cash Flow Statement
for the year ended 30 November
| 2016 £m | 2015 (restated) £m |
|
|
|
Profit for the year from continuing operations | 17.7 | 15.2 |
Loss for the year from discontinued operations | (3.2) | (9.0) |
Profit for the year | 14.5 | 6.2 |
|
|
|
Adjustments for: |
|
|
Depreciation | 15.8 | 12.4 |
Amortisation | 5.2 | 5.2 |
Income tax expense | 8.2 | 6.2 |
Net financing costs | 5.5 | 4.4 |
Share of results of joint venture | 1.3 | 1.8 |
Impairment of investment in joint venture | - | 8.2 |
Non-cash pension charges | 1.0 | 1.1 |
(Increase)/decrease in inventories | (14.7) | 2.8 |
Decrease/(increase) in trade and other receivables | 1.7 | (6.4) |
Decrease in trade and other payables | (2.0) | (2.3) |
Decrease in provisions | (0.1) | (0.4) |
Loss on disposal of grass yarns business | 1.3 | - |
Profit on disposal of non-current assets | (0.1) | - |
Equity-settled share-based payment | 0.9 | 0.6 |
Cash inflow from operations | 38.5 | 39.8 |
|
|
|
Interest received | 0.1 | - |
Interest paid | (5.0) | (4.5) |
Tax paid | (10.8) | (7.5) |
Pension cash contributions | (4.6) | (4.5) |
|
|
|
Net cash inflow from operating activities | 18.2 | 23.3 |
|
|
|
Proceeds from the disposal of the grass yarns business | 21.7 | - |
Acquisition of property, plant and equipment | (18.9) | (33.0) |
Intangible assets purchased | (3.3) | (0.7) |
Dividends paid to non-controlling interests | (0.3) | (1.0) |
|
|
|
Net cash outflow from investing activities | (0.8) | (34.7) |
Proceeds of other share issues to employees | 0.2 | 0.3 |
Drawdown of borrowings | 17.8 | 28.8 |
Repayment of borrowings | (37.9) | - |
Movement in cash flow hedges | 0.1 | - |
Equity dividends paid | (9.2) | (9.0) |
|
|
|
Net cash (outflow)/inflow from financing activities | (29.0) | 20.1 |
|
|
|
Net cash (outflow)/inflow | (11.6) | 8.7 |
|
|
|
Cash and cash equivalents at start of year | 33.9 | 25.8 |
Foreign exchange differences | 4.0 | (0.6) |
|
|
|
Cash and cash equivalents at end of year | 26.3 | 33.9 |
|
|
|
Consolidated Statement of Changes in Equity
for the year ended 30 November
|
Share capital |
Share premium |
Translation reserve |
Retained earnings | Equity attributable to equity holders of the parent |
Non-controlling interest |
Total equity |
| £m | £m | £m | £m | £m | £m | £m |
At 1 December 2014
| 47.3 | 74.0 | (43.0) | 105.8 | 184.1 | 6.4 | 190.5 |
Total comprehensive income for the year |
- |
- |
(18.0) |
7.9 |
(10.1) |
0.7 |
(9.4) |
Dividends paid to Ordinary Shareholders |
- |
- |
- |
(9.0) |
(9.0) |
- |
(9.0) |
Dividends paid to Non-Controlling interests |
- |
- |
- |
- |
- |
(1.0) |
(1.0) |
Shares issued | 0.1 | 0.2 | - | - | 0.3 | - | 0.3 |
Share-based payment | - | - | - | 0.6 | 0.6 | - | 0.6 |
Net increase/(decrease) for the year |
0.1 |
0.2 |
(18.0) |
(0.5) |
(18.2) |
(0.3) |
(18.5) |
At 30 November 2015 | 47.4 | 74.2 | (61.0) | 105.3 | 165.9 | 6.1 | 172.0 |
|
|
|
|
|
|
|
|
Total comprehensive income for the year |
- |
- |
35.0 |
2.4 |
37.4 |
0.6 |
38.0 |
Dividends paid to Ordinary Shareholders |
- |
- |
- |
(9.2) |
(9.2) |
- |
(9.2) |
Dividends paid to Non-Controlling interests |
- |
- |
- |
- |
- |
(0.3) |
(0.3) |
Disposal of equity participation in a subsidiary |
- |
- |
- |
0.8 |
0.8 |
- |
0.8 |
Shares issued | - | 0.2 | - | - | 0.2 | - | 0.2 |
Share-based payment | - | - | - | 0.9 | 0.9 | - | 0.9 |
Net increase/(decrease) for the year |
- |
0.2 |
35.0 |
(5.1) |
30.1 |
0.3 |
30.4 |
|
|
|
|
|
|
|
|
At 30 November 2016 | 47.4 | 74.4 | (26.0) | 100.2 | 196.0 | 6.4 | 202.4 |
|
|
|
|
|
|
|
|
Notes
1. Basis of preparation
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 2016 or 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the registrar of companies, and those for 2016 will be delivered in due course. The auditor has reported on those 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.
The following non-GAAP measures have been used in the financial statements:
· Profit before tax, amortisation and non-recurring items
· Operating profit before amortisation and non-recurring items
· Operating margin before amortisation and non-recurring items
· Basic EPS before amortisation and non-recurring items
Management uses these terms as it believes they allow a better understanding of underlying business performance and are consistent with its communication with investors.
The financial information for the comparative periods has been restated to present the results of our artificial grass yarns business business and our joint venture interest in Bonar Natpet LLC within discontinued operations.
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 previously split into five reportable business units: Building & Industrial, Civil Engineering, Coated Technical Textiles, Interiors & Transportation and Sport & Leisure. Due to the disposal of the artificial grass yarns business (disclosed as discontinued operations), the remaining continuing interests within the Sport & Leisure segment have now been included within the Interiors & Transportation segment due to the similar nature of the products provided. The Group's reportable segments have also been restated to reflect the discontinued operations noted in the period and the change in operating segments. Segment assets and liabilities include items directly attributable to segments as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly cash and cash equivalents, interest-bearing loans, borrowings, investments in joint ventures and associates, post-employment benefits and corporate assets and expenses. Inter-segment sales are not material.
Segment analysis
Revenue from external customers |
|
2016 |
|
|
2015 (restated) |
|
| £m |
|
| £m |
|
|
|
|
|
|
Building & Industrial |
| 73.4 |
|
| 61.7 |
Civil Engineering |
| 90.8 |
|
| 85.4 |
Coated Technical Textiles |
| 129.8 |
|
| 120.4 |
Interiors & Transportation |
| 106.0 |
|
| 94.6 |
Revenue for the period |
| 400.0 |
|
| 362.1 |
Operating profit/(loss) |
| Before amortisation and non-recurring items |
| After amortisation and non-recurring items | ||||
|
|
2016 |
|
2015 (restated) |
|
2016 |
|
2015 (restated) |
|
| £m |
| £m |
| £m |
| £m |
|
|
|
|
|
|
|
|
|
Building & Industrial |
| 10.9 |
| 8.4 |
| 10.8 |
| 7.8 |
Civil Engineering |
| 4.2 |
| 3.1 |
| 3.7 |
| 2.0 |
Coated Technical Textiles |
| 8.7 |
| 12.8 |
| 5.9 |
| 10.3 |
Interiors & Transportation |
| 17.1 |
| 13.4 |
| 17.6 |
| 12.1 |
Unallocated central |
| (6.2) |
| (5.9) |
| (6.6) |
| (6.4) |
Operating profit |
| 34.7 |
| 31.8 |
| 31.4 |
| 25.8 |
Financial income |
|
|
|
|
| 0.2 |
| 0.1 |
Financial expense |
|
|
|
|
| (5.7) |
| (4.5) |
Net financing costs |
|
|
|
|
| (5.5) |
| (4.4) |
Profit before taxation |
|
|
|
|
| 25.9 |
| 21.4 |
Taxation |
|
|
|
|
| (8.2) |
| (6.2) |
Profit for the year - continuing operations |
|
|
|
|
| 17.7 |
| 15.2 |
Loss for the year - discontinued operations |
|
|
|
|
| (3.2) |
| (9.0) |
Profit for the year |
|
|
|
|
| 14.5 |
| 6.2 |
Segment assets, liabilities, other information 2016 | Building & Industrial | Civil Engineering | Coated Technical Textiles | Interiors & Transportation | Unallocated Central | Total |
| £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
Reportable segment assets | 64.2 | 83.4 | 145.7 | 127.0 | - | 420.3 |
Investment in joint venture |
|
|
|
|
| - |
Investment in associate |
|
|
|
|
| 0.5 |
Cash and cash equivalents |
|
|
|
|
| 26.3 |
Post-employment benefits |
|
|
|
|
| - |
Other unallocated assets |
|
|
|
|
| 17.0 |
Total Group assets |
|
|
|
|
| 464.1 |
|
|
|
|
|
|
|
Reportable segment liabilities | (17.2) | (17.7) | (24.2) | (25.4) | - | (84.5) |
Loans and borrowings |
|
|
|
|
| (137.3) |
Derivative liabilities |
|
|
|
|
| - |
Post-employment benefits |
|
|
|
|
| (15.0) |
Other unallocated liabilities |
|
|
|
|
| (24.9) |
Total Group liabilities |
|
|
|
|
| (261.7) |
|
|
|
|
|
|
|
Other information |
|
|
|
|
|
|
Additions to property, plant and equipment | 1.6 | 4.6 | 2.2 | 9.4 | 0.7 | 18.5 |
Additions to intangible assets and goodwill | 1.0 | 1.0 | 0.2 | 1.1 | - | 3.3 |
Depreciation | 2.6 | 2.6 | 3.3 | 7.1 | 0.2 | 15.8 |
Amortisation of acquired intangible assets | 0.5 | 0.5 | 2.8 | 0.2 | - | 4.0 |
Non-recurring items- continuing operations | (0.4) | - | - | (0.7) | 0.4 | (0.7) |
Segment assets, liabilities, other information 2015 | Building & Industrial
| Civil Engineering
| Coated Technical Textiles
| Interiors & Transportation (restated) | Unallocated Central
| Total (restated) |
| £m | £m | £m | £m | £m | £m |
|
|
|
|
|
|
|
Reportable segment assets | 53.1 | 69.1 | 125.9 | 125.6 | - | 373.7 |
Investment in joint venture |
|
|
|
|
| - |
Investment in associate |
|
|
|
|
| 0.5 |
Cash and cash equivalents |
|
|
|
|
| 33.9 |
Post-employment benefits |
|
|
|
|
| 5.2 |
Other unallocated assets |
|
|
|
|
| 6.3 |
Total Group assets |
|
|
|
|
| 419.6 |
|
|
|
|
|
|
|
Reportable segment liabilities | (14.1) | (15.9) | (17.5) | (26.4) | - | (73.9) |
Loans and borrowings |
|
|
|
|
| (136.0) |
Derivative liabilities |
|
|
|
|
| (0.1) |
Post-employment benefits |
|
|
|
|
| (9.9) |
Other unallocated liabilities |
|
|
|
|
| (27.7) |
Total Group liabilities |
|
|
|
|
| (247.6) |
|
|
|
|
|
|
|
Other information |
|
|
|
|
|
|
Additions to property, plant and equipment | 2.6 | 7.5 | 3.2 | 19.8 | 0.1 | 33.2 |
Additions to intangible assets and goodwill | 0.3 | 0.1 | 0.1 | 0.2 | - | 0.7 |
Depreciation | 2.2 | 2.2 | 3.0 | 5.0 | - | 12.4 |
Amortisation of acquired intangible assets | 0.5 | 0.9 | 2.5 | 0.2 | - | 4.1 |
Non-recurring items - continuing operations | 0.1 | 0.2 | - | 1.1 | 0.5 | 1.9 |
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.
|
|
2016 |
|
2015 (restated) (reported) |
|
Period on period change |
|
2015 (restated) (constant currency) |
|
Period on period change |
|
| £m |
| £m |
| % |
| £m |
| % |
Revenue |
|
|
|
|
|
|
|
|
|
|
Building & Industrial |
| 73.4 |
| 61.7 |
| +19.0% |
| 69.0 |
| +6.4% |
Civil Engineering |
| 90.8 |
| 85.4 |
| +6.3% |
| 94.5 |
| -3.9% |
Coated Technical Textiles |
| 129.8 |
| 120.4 |
| +7.8% |
| 133.0 |
| -2.4% |
Interiors & Transportation |
| 106.0 |
| 94.6 |
| +12.1% |
| 104.2 |
| +1.7% |
Revenue for the period |
| 400.0 |
| 362.1 |
| +10.5% |
| 400.7 |
| -0.2% |
|
|
|
|
|
|
|
|
|
|
|
PBTA |
|
|
|
|
|
|
|
|
|
|
Building & Industrial |
| 10.9 |
| 8.4 |
| +29.8% |
| 9.4 |
| +16.0% |
Civil Engineering |
| 4.2 |
| 3.1 |
| +35.5% |
| 3.3 |
| +27.3% |
Coated Technical Textiles |
| 8.7 |
| 12.8 |
| -32.0% |
| 14.0 |
| -37.9% |
Interiors & Transportation |
| 17.1 |
| 13.4 |
| +27.6% |
| 14.9 |
| +14.8% |
Unallocated Central |
| (6.2) |
| (5.9) |
| +5.1% |
| (5.9) |
| +5.1% |
Operating profit before non-recurring items |
|
34.7 |
|
31.8 |
|
+9.1% |
|
35.7 |
|
-2.8% |
Net financing costs |
| (5.5) |
| (4.4) |
| +25.0% |
| (4.9) |
| +12.2% |
PBTA before non-recurring items and discontinued operations |
|
29.2 |
|
27.4 |
|
+6.6% |
|
30.8 |
|
-5.2% |
The following significant exchange rates applied during the year:
| Average rate 2016 | Average rate 2015 | Year end rate 2016 | Year end rate 2015 | ||||
Sterling/Euro | 1.23 | 1.37 | 1.18 | 1.43 | ||||
Sterling/US Dollar | 1.37 | 1.53 | 1.25 | 1.51 | ||||
Sterling/Czech Crown | 33.31 | 37.53 | 31.87 | 38.54 | ||||
Sterling/Hungarian Forint | 384.22 | 425.15 | 368.84 | 443.05 | ||||
Sterling/Chinese Yuan | 9.02 | 9.60 | 8.61 | 9.63 | ||||
3. Financial income and financial expense
| 2016 | 2015 |
| £m | £m |
Financial income |
|
|
Interest income | 0.2 | 0.1 |
| 0.2 | 0.1 |
Financial expense |
|
|
Interest on bank overdrafts and loans | (5.2) | (3.9) |
Amortisation of bank arrangement fees | (0.4) | (0.4) |
Net interest on pension scheme liabilities | (0.1) | (0.2) |
| (5.7) | (4.5) |
|
|
|
Net financing costs | (5.5) | (4.4) |
4. Taxation
| 2016 | 2015 |
| £m | £m |
Current Tax |
|
|
UK corporation tax: |
|
|
Current year | - | - |
Prior year | - | - |
Overseas tax: |
|
|
Current year | 10.2 | 8.5 |
Prior Year | (0.3) | (0.1) |
Total current tax | 9.9 | 8.4 |
|
|
|
Deferred tax | (1.7) | (2.2) |
|
|
|
Total tax charge in the income statement from continuing operations | 8.2 | 6.2 |
|
|
|
Tax from discontinued operations | - | - |
Tax on disposal of discontinued operations | (0.9) | - |
|
|
|
Total tax charge in the income statement | 7.3 | 6.2 |
5. Dividends
Amounts recognised as distributions to equity shareholders in the year were as follows:
| 2016 £m | 2015 £m |
Final dividend for the year ended 30 November 2015 - 1.80 pence per share (2014: 1.75 pence per share) | 5.9 | 5.8 |
Interim dividend for the year ended 30 November 2016 - 1.00 pence per share (2015: 0.98 pence per share) | 3.3 | 3.2 |
| 9.2 | 9.0 |
The Board have proposed a final dividend in respect of the financial year ended 30 November 2016 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 on 12 April 2017, it will be paid on 13 April 2017 to Ordinary Shareholders who are on the register of members at close of business on 17 March 2017.
During the year the Board declared a final dividend on Ordinary Shares in relation to the year ended 30 November 2015 of 1.80 pence per share, which was paid to Ordinary Shareholders on the register of members at close of business on 18 March 2016.
The Board declared an interim dividend on Ordinary Shares in relation to the year ended 30 November 2016 of 1.00 pence per share, which was paid to Ordinary Shareholders on the register of members at close of business on 26 August 2016.
6. Amortisation and non-recurring items
During the year the Group recognised significant non-recurring items and amortisation of acquired intangible assets as detailed below:
| 2016
£m | 2015 (restated) £m |
Amounts (credited)/charged to operating profit |
|
|
Profit from sale of land | (1.1) | - |
Pension administration costs | 0.1 | 0.2 |
Pension buy-in costs | 0.2 | 0.2 |
Acquisition-related costs | 0.1 | - |
China factory start-up costs | - | 1.1 |
Reorganisation costs | - | 0.4 |
Total non-recurring items | (0.7) | 1.9 |
Amortisation of acquired intangible assets | 4.0 | 4.1 |
Total charge to operating profit | 3.3 | 6.0 |
Tax credit in the year | (0.6) | (1.4) |
Total charge to discontinued operations (Note 9) | 3.7 | 8.2 |
Total charge to profit for the period | 6.4 | 12.8 |
Total charge to operating profit
The Group recorded a profit of £1.1m on the sale of unused land at our manufacturing site in Asheville, USA.
The Group also incurred £0.1m (2015: £0.2m) of non-recurring pension administration costs relating to its UK defined benefit scheme. A further £0.2m (2015: £0.2m) of professional fees were incurred in respect of the medically-underwritten buy-in of £34m of UK pension scheme liabilities, which completed on 3 December 2015.
During the prior year, construction and start-up costs relating to the Group's construction of a new manufacturing facility in Changzhou, China, totalled £1.1m and reorganisation costs of £0.4m were incurred in the integration of the Group's operations into a single global business.
Total charge to discontinued operations
The Group recorded £3.7m in discontinued operations consisting of a loss on disposal before tax of £2.2m, an associated tax credit of £0.9m, redundancy costs of £0.7m, transaction costs of £0.5m, claims costs of £0.8m and £0.4m relating to the write off of intangible assets linked to the disposed business.
In the prior year, the Group impaired the carrying value of its investment in, and loan to, its joint venture Bonar Natpet LLC, resulting in a charge of £8.2m.
7. Earnings per share
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
| 2016 | 2015 |
| |||||
| Earnings
£m | Weighted average number of shares (millions) | Per share amount
pence | Earnings (restated) £m | Weighted average number of shares
(millions) | Per share amount (restated) pence | ||
Statutory - continuing operations: |
|
|
|
|
|
| ||
Basic earnings per share |
|
|
|
|
|
| ||
Earnings attributable to Ordinary Shareholders |
17.1 |
328.984 |
5.20 |
14.7 |
328.116 |
4.47 | ||
Effect of dilutive items |
|
|
|
|
|
| ||
Share-based payment | - | 3.330 |
| - | 6.230 |
| ||
Diluted earnings per share | 17.1 | 332.314 | 5.15 | 14.7 | 334.346 | 4.39 | ||
|
|
|
|
|
|
| ||
Statutory - discontinued operations: |
|
|
|
|
|
| ||
Basic earnings per share |
|
|
|
|
|
| ||
Earnings attributable to Ordinary Shareholders |
(3.2) |
328.984 |
(0.98) |
(9.0) |
328.116 |
(2.74) | ||
Effect of dilutive items |
|
|
|
|
|
| ||
Share-based payment | - | 3.330 |
| - | 6.230 |
| ||
Diluted earnings per share | (3.2) | 332.314 | (0.97) | (9.0) | 334.346 | (2.69) | ||
|
|
|
|
|
|
| ||
Statutory - total operations: |
|
|
|
|
|
| ||
Basic earnings per share |
|
|
|
|
|
| ||
Earnings attributable to Ordinary Shareholders |
13.9 |
328.984 |
4.22 |
5.7 |
328.116 |
1.73 | ||
Effect of dilutive items |
|
|
|
|
|
| ||
Share-based payment | - | 3.330 |
| - | 6.230 |
| ||
Diluted earnings per share | 13.9 | 332.314 | 4.18 | 5.7 | 334.346 | 1.70 | ||
|
|
|
|
|
|
| ||
Before amortisation and non-recurring items - continuing operations |
|
|
|
|
|
| ||
Basic earnings per share |
|
|
|
|
|
| ||
Earnings attributable to Ordinary Shareholders |
19.8 |
328.984 |
6.01 |
19.3 |
328.116 |
5.86 | ||
Effect of dilutive items |
|
|
|
|
|
| ||
Share-based payment | - | 3.330 |
| - | 6.230 |
| ||
Diluted earnings per share | 19.8 | 332.314 | 5.95 | 19.3 | 334.346 | 5.75 | ||
8. Non-controlling interest
| 2016 £m | 2015 £m |
At 1 December | 6.1 | 6.4 |
Share of profit after taxation | 0.6 | 0.5 |
Dividends | (0.3) | (1.0) |
Exchange adjustment | - | 0.2 |
At 30 November | 6.4 | 6.1 |
9. Discontinued operations
On 4 July 2016, the Board announced the disposal of the Group's artificial grass yarns business (previously comprising the majority of its Sport & Leisure Global Business Unit). The disposal completed on 1 September 2016 and the prior period income statement has been restated accordingly.
In addition to this, the Board are pursuing the disposal of the Group's interest in its joint venture Bonar Natpet LLC. Negotiations with interested parties are ongoing and the disposal is expected to complete within 12 months and therefore the Group's interest in the joint venture has been classified as a disposal group held for sale and presented separately in the balance sheet. The interest in the joint venture was previously presented separately on the face of the income statement and balance sheet.
The results of the discontinued operations, which have been included in the consolidated income statement, were as follows.
| Group | |
| 2016 | 2015 |
| £m | £m |
Revenue | 22.3 | 33.7 |
Expenses | (22.9) | (32.7) |
(Loss) / profit before tax | (0.6) | 1.0 |
Attributable tax expense | - | - |
Loss on disposal of grass yarns (Note 10) | (2.2) | - |
Tax on loss of disposal of grass yarns | 0.9 | - |
Net (loss)/profit from the disposal of the Grass yarns business | (1.9) | 1.0 |
Share of results from Bonar Natpet LLC | (1.3) | (1.8) |
Impairment of investment in Bonar Natpet LLC | - | (8.2) |
Net loss attributable to discontinued operations (attributable to owners of the Company) | (3.2) | (9.0) |
During the year ended 30 November 2016, the discontinued businesses contributed £(3.6m) (2015: (£0.5m)) outflow to the Group's net operating cash flows and paid £nil (2015: £0.7m) in respect of investing activities and financing activities.
Liabilities held for sale at 30 November 2016 represent the provision created for the Group's share of the result for the year from Bonar Natpet LLC.
10. Disposal of a business
|
| 2016 £m |
Consideration received in cash and cash equivalents |
| 21.7 |
Deferred consideration |
| 4.3 |
Foreign exchange differences recycled from reserves |
| 1.7 |
Analysis of assets and liabilities over which control was lost |
|
|
Trade receivables |
| 8.3 |
Prepayments and other debtors |
| 0.7 |
Inventories |
| 16.0 |
Equity participation in subsidiary |
| 0.8 |
Property, Plant and equipment |
| 8.3 |
Payables |
| (4.2) |
Net assets disposed of |
| 29.9 |
Loss on disposal |
| (2.2) |
The loss on disposal is included in the loss for the year from discontinued operations (Note 9).
Net cash inflow on disposal of the business comprises only the consideration received. The deferred consideration will be settled by cash by the purchaser during 2017.
11. Post Balance Sheet event
On 17 January 2017 Low & Bonar acquired 100% of the share capital of Walflor Industries Inc., a company registered in Washington state, USA, on a debt-free cash-free basis for an initial cash consideration of $3.6m and a contingent consideration of up to $0.9m in cash based on the commercial performance of the business in the 12 months following acquisition. The contingent consideration has been fair-valued upon acquisition at $0.6m. The company produces rainscreens and acoustic mats and the acquisition significantly strengthens our customer relationships in the US building products market and provides a West Coast platform for further growth.
The provisional fair value of net assets acquired is $0.7m, of which $0.6m relates to property, plant & equipment acquired. However, due to the limited time available between the acquisition and the approval of the financial statements, the Group has not yet completed its assessment of the fair value of separately identifiable intangible assets.
12. Annual General Meeting
The Annual General Meeting will be held on 12th April 2017 at The Royal Institution, 21 Albemarle St, London W1S 4BS.