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

Full Year Results year ended 30 November 2018 30 January 2019 1

CEO summary 2

Low & Bonar is a good business with an opportunity to unlock value  Low & Bonar has a core business with strong fundamentals, based on differentiated technology and leading niche market positions  Underperformance resulting from poor choices historically, such as failed Civil Engineering growth strategy, under-investment in core facilities and insufficient focus on working capital  Significant improvement actions initiated during 2018  Clear and compelling strategy, together with a simplified portfolio and structure, have the ability to generate sustainable profitable growth in the medium term  The Board believes the Group needs a stronger balance sheet to support its objectives 3

Solid initial progress on transformation … Improve cash generation to reduce net debt  Working capital reduced by £18m   Net debt reduced by £10m Optimise operating structure  B&I/I&T merged into Colbond with regional  structure, closer to customers  CE and CTT operating as standalone business units  Annualised cost savings of £4m Review strategic importance of CE business  Stage 1: closure of Ivanka site and transfer  of its Enka business to B&I - Complete  Stage 2: divestment process - Underway Continue to invest in B&I/I&T  £14m capex in FY2018 (76% Group total)  Resolve CTT production consistency issues  Issues identified and remediation plans  established,  Full resolution expected during FY2019 4

… though 2018 was a challenging year  Top line underlying sales growth of 1.5% * Underlying PBTA * £16.7m, down by 42.4%   Significant increase in raw material prices  Production and availability issues  Net debt reduction of £9.9m to £128.5m  Year-end net debt to underlying EBITDA ratio of 3.2x  Transformation programme to be continued and intensified * FY17 retranslated at FY18 exchange rates and restated for disposal of Agro-textile business sold in October 2017 5

Transformation journeys are never smooth  Legacy of production and service issues to overcome  Need to rebuild organisation at second level and below  Need to rebuild customer confidence in some areas  Some signs of macro-economic slowdown  Risk of increasing competitive intensity  Raw material price volatility Equity raise will significantly strengthen the Group’s balance sheet, allowing management to focus on delivering sustainable, profitable growth and to address a number of legacy issues. 6

Immediate focus areas  £50m net equity raise to improve the Group’s capital structure  Complete the Civil Engineering disposal process  Embed new organisational structure, focused on customers  Permanently resolve CTT’s production issues  Initiate improvement across the business, including under-invested sites 7

CEO summary Financial Review 8

Financial summary Year ended 30 November 2018 2018 2017 Actual Adjusted £m £m constant y-o-y Continuing operations currency** y-o-y 431.9 446.5 (3.3)% 1.5% Revenue 22.2 35.5 (37.5)% (34.3)% EBITA* 5.1% 8.0% (290) bps Operating margin* (5.5) (4.8) Net interest 16.7 30.7 (45.6)% (42.4)% PBTA* (42.2) (19.7) Statutory LBT 8.7% 11.1% (240) bps ROCE* (12 months trailing) 51.3 36.6 40.2% Cash inflow from operations (58.6) (50.4) Non-underlying items (operating profit) 3.56p 6.42p (44.5)% (41.4)% Basic EPS* (adjusted) 1.42p 3.05p Dividend per share *underlying ** FY17 retranslated at FY18 exchange rates, restated for disposal of Agro-textile business sold in October 2017 9

Revenue growth * of 1.5% £m 1.8% (1.5)% (0.6)% 1.8% (2.8) (2.4) (18.3) (6.1) 7.5 7.5 I&T CE 446.5 B&I 431.9 425.4 CTT CTT I&T CE B&I FY 2017 Translation Agro-Textiles Constant FX Ivanka Volume Mix RM pass FY 2018 FX (sold Oct 17) through * FY17 retranslated at FY18 exchange rates and restated for disposal of Agro-textile business sold in October 2017 10

Profit* impacted by raw material price increases, product mix and production issues £m 35 30.7 29.0 30 (0.6) (1.1) (3.8) 4.2 25 (2.7) 20 16.7 7.5 (12.0) (5.5) 15 10 * Underlying profit before tax and amortisation of acquired intangibles (PBTA) 11

Challenging operating and market conditions Year ended 30 November 2018 Revenue* Profit* Operating Margin* 2017 2017 2018 (CER) 2018 ( CER) £m £m £m £m 2018 2017 I&T 125.7 118.1 6.4% 18.5 18.7 (1.1)% 14.7% 15.9% B&I 89.8 89.0 0.9% 6.9 11.6 (40.5)% 7.7% 12.0% CTT 138.8 137.7 0.8% 2.5 9.4 (73.4)% 1.8% 6.7% CE 77.6 80.6 (3.7)% 0.1 (0.5) 0.1% (0.6)% Central - - - (5.8) (5.4) TOTAL 431.9 425.4 1.5% 22.2 33.8 (34.3)% 5.1% 8.0% Interest (5.5) (4.8) PBTA 16.7 29.0 (42.4)% * underlying at constant currency, FY17 restated to exclude the Agro-textile business sold in October 2017 and the transfer of Enka business from CE to B&I 12

Net debt reduced by £9.9m First working capital reduction since 2010 £m (1.1) (10.6) (6.0) 2.6 (3.4) (11.0) 40.0 (18.6) 18.0 (138.4) (128.5) FY 2017 Translation EBITDA before Working Capital Tax/interest/loan Pension Disposals/ Restructuring/ Dividends/ FY 2018 FX non-underlying items capital expenditure fees paid payments acquisitions provisions other 13

Free cash flow 2018 2017  Focus on cash generation and Year ended 30 November 2018 £m £m working capital reduction more than (36.4) (14.9) Statutory operating loss offset lower EBITDA 58.6 50.4 Add back non-underlying items  First annual reduction in working 22.2 35.5 Underlying operating profit capital since 2010 17.2 19.6 Depreciation / amortisation Continued investment in B&I/I&T  0.6 1.3 Non-cash pension charges/other  £12m lower capex in China vs 2017 40.0 56.4 EBITDA as line 2 completed 18.0 (19.6) Working capital movements (6.0) 0.2 Non-recurring items (cash cost) 2018 2017 £m £m (0.7) (0.4) Other (POSOFA/other) H&S 0.5 0.2 51.3 36.6 Operating cash flow Replacement 3.6 2.1 (5.4) (10.1) Tax paid Capability 3.0 3.8 (5.6) (5.0) Interest/loan fees paid Capacity 8.1 22.9 (3.4) (4.4) Pension payments Software/IA 3.4 5.0 (18.6) (34.4) Capital expenditure Other - 0.4 2.6 3.8 Proceeds from disposals 20.9 (13.5) Free cash flow 14

Non-underlying operating costs relating to continuing operations Year ended 30 November 2018 2018 2017 £m £m 39.0 - Impairment charges: CTT 2.5 26.9 Impairment charges: CE 1.5 - Impairment charges: ERP  CTT value in use impairment charge 43.0 26.9 (non-cash) applied to goodwill 0.5 4.7 Loss on closure of Ivanka site Further non-cash impairments of:  1.2 12.7 Loss on sale of Agro-Textile business  CE – Hungary plant/equipment 1.6 1.7 Provision for custom duties  ERP – reassessment of value 0.1 - Loss on land sale  Estimated £4.0m cost to pension 4.0 - Pension - GMP equalisation scheme for equalising GMP - 0.2 - Data cleanse 4.2 - Restructuring costs 0.6 0.5 M&A-related costs 0.6 - Lomnice fire costs 2.8 3.7 Amortisation of acquired intangible assets 58.6 50.4 15

Balance sheet Available facilities of £216.5m  Year ended 30 November 2018  RCF refinanced in May 2018 2018 2017  Expires May 2023 £m £m  Net debt / EBITDA covenant raised to 137.0 144.5 Property, plant and equipment 3.5x, reverts to 3.0x at November 2019 90.1 105.4 Trade working capital LCY £m (13.7) (14.4) Prepayments and accruals RCF €165m 146.4 (May 2023) 213.4 235.5 Operating capital employed PP €60m 53.2 2.9 6.5 Other working capital (Sept 2022-2026) 51.6 91.7 RMB loans RMB150m 16.9 Intangible assets (June 2020) 0.3 (2.2) Pension surplus/(deficit) Core funding 216.5 (128.5) (138.4) Net debt  Covenants: 0.5 (1.4) Net assets held for sale  Interest Cover 4.2 (> 3.0) (12.7) (11.4) Other  Net debt / EBITDA 3.2 (< 3.5) 127.5 180.3 Net assets Average FY 2018 net debt £159.4m  16

CEO summary Operational review 17

Building & Industrial (B&I)  The division continued to grow in 2018, across most segments and driven by China  Profit reduced due to:  Enka production & supply issues at Asheville site, which resulted in reduced sales to one important customer in the US  Raw material and freight cost increases not passed on in full  Slow integration of Enka drainage/erosion control business transferred from CE  Great opportunities for further innovation in existing and adjacent markets  Investment required to address historical under-investment in Asheville  Enka production planned in Asia from 2020 Building Drainage/erosion control Filtration Green roofs 18