Low & Bonar : 2017 Half Year Results

Low & Bonar PLC

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

Half Year Results for the Six Months to 31 May 2017 SOLID FIRST HALF

Low & Bonar PLC ("Low & Bonar" or "the Group"), the international performance materials group, today announces its half year results for the six months to 31 May 2017.

Six months to 31 May

12 months

to 30 Nov

Continuing operations

2017 2016

Actual

Constant Currency(1)

2016

Revenue £210.3m £180.6m 16.4% 4.6% £400.0m Operating profit before

amortisation and non-recurring

items £15.5m £13.3m 16.5% 3.3% £34.7m Operating margin before

amortisation and non-recurring

items(2)7.4% 7.4% 8.7%

Profit before tax, amortisation and

£13.1m £10.6m 23.6% 10.1% £29.2m

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

(2) Operating profit before amortisation and non-recurring items as a percentage of revenue.

(3) Operating profit before amortisation and non-recurring items as a percentage of net assets plus net debt.

• Delivering effectively against strategic objectives despite challenging end markets

• Benefits being delivered from focus on operational excellence, customer intimacy and product development

• Good performance in B&I offsetting slower start in CTT and Civil Engineering

• Strengthened global footprint

  • Acquisition of Walflor Industries Inc in North America integrating well and performing as expected

  • Commenced build of second manufacturing line in Changzhou, China

• Net debt seasonally high, expected to reduce to normal levels of gearing by November

• Post period end, agreed sale of agro-textile business, including the manufacturing site in Lokeren, Belgium for cash consideration of €7.0m (£6.1m)

Martin Flower, Chairman, said:

"The Group had a solid first half. Although we do not envisage a sustained pick-up in our markets, we do anticipate further benefits to be realised from our focus on operational excellence and product development. Overall we remain confident of meeting the Board's expectations for the full year."

11 July 2017

For further information, please contact:

Low & Bonar PLC +44 (0) 20 7535 3180

Brett Simpson, Group Chief Executive Simon Dray, Interim Chief Financial Officer

Instinctif Partners +44 (0) 20 7457 2020

Matthew Smallwood Helen Tarbet

Rosie Driscoll

RESULTS OVERVIEW

We are pleased to report that the Group overall had a solid first half, and that we continue to make good strategic progress in exiting legacy businesses and plants and improving the quality of our core businesses. Sales of

£210.3m were 16.4% ahead of 2016 (£180.6m) and 4.6% ahead at constant currency. Profit before tax, amortisation and non-recurring items from continuing operations for the six months ended 31 May 2017 increased by 23.6% to £13.1m (2016: £10.6m). On a constant currency basis, profit before tax, amortisation and non- recurring items was up 10.1% (2016: £11.9m).

Disposal

As announced separately today, we have successfully agreed the sale of our agro-textile business, including the manufacturing facility based in Lokeren, Belgium, for a cash consideration of £6.1m (€7.0m). The disposal is expected to complete before the end of September 2017, after a period of employee consultation. The agro- textile business comprises a part of the Building & Industrial global business unit and contributed £9.5m of sales and a £(0.1)m loss in the six months to May 2017 (2016: £7.5m sales, £(0.4)m loss). An estimated net loss of

£10.0m will be recorded as a non-recurring item on completion of the disposal. This disposal continues the Group's strategy of active portfolio management to improve the quality of its businesses and to focus its resources on the areas of highest return. Estimated net cash proceeds, after costs, of £5.1m, will be used to reduce Group borrowings.

Operational review

Building & Industrial

Building & Industrial performed strongly; on a constant currency basis sales of £40.9m were 14.2% ahead of the prior period (2016: £35.8m) and operating profits before amortisation and non-recurring items were up 17.6% to £6.0m (2016: £5.1m), driven by robust demand across all its markets, particularly North America, and the strength of its sales and marketing approach to developing niche markets. Walfor Industries Inc, acquired in January 2017, is integrating well and performed in line with our expectations, contributing £0.4m to sales and

£0.1m to profit in the period. The disposal of the agro-textile business, announced today, will improve the quality of business and margins within Building & Industrial over the medium term and focus management time and resources on the core business.

Civil Engineering

Civil Engineering made a slower than expected start to the year, with demand in its core European markets remaining subdued. While sales were up 5.0% at constant currency to £45.8m (2016: £43.6m) the business broke even in the period, compared to an operating profit of £1.0m (before amortisation and non-recurring items) in 2016, due to an adverse sales mix in the period. Transactional sales volumes grew well, however seasonal factors delayed the major project start dates this year, meaning that the majority of the higher margin specification business is expected to fall in the second half this year. The sharp increase in raw material input costs in Q1 2017 also meant margins were squeezed in the low-margin, high volume transactional business. Pricing has now been adjusted and margins are expected to improve in the second half of the year.

Coated Technical Textiles

On a constant currency basis, Coated Technical Textiles sales were flat at £66.5m (2016: £66.6m), although operating profits before amortisation and non-recurring items of £4.9m were 32.4% above the prior period (2016:

£3.7m). The manufacturing problems which impacted profits in 2016 have been resolved and product availability has improved. As expected, despite a relatively supportive market, trailer market volumes were subdued as the business rebuilds its reputation for service delivery and product quality. This was partially offset by improved sales of building products, assisted by ongoing tensile architecture projects. We anticipate volumes will continue to recover over the second half of 2017.

Interiors & Transportation

Interiors & Transportation sales of £57.1m were 3.8% ahead of 2016 (£55.0m) at constant currency, however higher raw material input costs held operating profits before amortisation and non-recurring items at £7.9m, 3.7% below 2016 (£8.2m) on a constant currency basis. Interiors sales performed well, compensating for flat demand in transportation, and raw material cost pressure is expected to reduce over the second half. Sales in China continue to grow strongly, and, with export sales, the plant in Changzhou is running at capacity. Work has commenced on adding a second manufacturing line in the facility, which will complete in early 2018; total spend is expected to be around £22m of which £10m has been incurred at May 2017.

Discontinued operations

We reached agreement with the purchaser of the artificial grass yarns business, sold in 2016, on the level of deferred purchase consideration receivable; half of the €4.3m agreed amount was received in April 2017 with the balance due in September 2017. A non-recurring charge to discontinued operations of £0.9m has been made to reflect the difference between the final amount agreed and the debtor held at the end of 2016.

Good progress has been made on agreeing our exit from the Bonar Natpet JV. We wrote off our investment in 2015, and anticipate that the £1.1m provision held at May 2017 will be sufficient to cover any resultant costs of exit, and no further charge has been accrued in the period.

Amortisation and non-recurring items

The charge for amortisation of acquired intangible assets was £1.8m (2016: £1.9m) in the period. During the period, the Group incurred £0.5m of non-recurring costs from continuing operations; £0.2m of acquisition-related costs and £0.3m of costs associated with the disposal of the agro-textile business.

Interim dividend

To reflect the solid first half of the year and the Board's confidence in the Group's future, we are declaring an interim dividend of 1.05 pence per share, an increase of 5.0% on last year, payable on 22 September 2017 to shareholders registered on 25 August 2017.

Net debt and interest

Net debt, which is seasonally higher at the half year, increased to £149.0m (2016: £139.5m) from £111.0m (2016: £102.1m) at the start of the year. Foreign exchange rate differences account for £2m (2016: £4m) of the increase in the period. Cash outflow into working capital was £27.8m in the six months to May 2017 (2016:

£26.0m). The seasonal stock build was higher than normal, with inventories brought forward from 2016 taking longer to unwind than expected, particularly within Civil Engineering in preparation for a more specification- weighted second half. Higher sales in May 2017 also increased trade debtors. As anticipated, a further £15.0m (2016: £14.3m) was spent on capital expenditure. This includes £7.5m (2016: £nil) of investment in the second production line at our facility in Changzhou, China and £2.2m (2016: £1.2m) of spend relating to the new Group ERP system. The first ERP roll-out went ahead at the end of Q2 2017 and to date the project has gone to plan. Gearing at 31 May 2017 was 2.5 times (2016: 2.7 times), we expect the net consideration receivable from the agro-textile business disposal, working capital efficiency measures and the normal seasonal pattern of sales to reduce this to normal levels by November 2017.

Return on capital

The Group's return on capital on a 12-month trailing basis was 10.4%, compared to 11.3% in the first half of last year, principally due to higher working capital and the assets under construction in China.

Outlook

This is expected to be a year of significant progress for the Group, with our focus on operational excellence and product development starting to bear fruit, and we are confident of achieving our objectives for the second half. Whilst we have seen little evidence of a sustained pick-up in demand in our markets, we are pleased that growth continues to come as a result of our disciplined approach to sales and marketing and offering clients innovative solutions.

Overall, we remain confident of meeting the Board's expectations for the full year.

Martin Flower Brett Simpson

Chairman Group Chief Executive