Results for the year ended 30 November 2014
Good progress but results impacted by weak Civil sales Good results in TCF and Yarns, more improvement expected After a good start, poor Civil sales in H2 impacted Bonar results Some progress in Saudi JV, but slow hard yards New factory build in Changzhou, China and other ongoing investments Final dividend maintained, full year dividend up 4% Capital Markets Day scheduled for 20 May 1
Financial Highlights 2
Income Statement highlights 2014 2013* Headline y-o-y Constant Currency y-o-y Revenue 410.6 403.1 +2% +7% Operating Profit 31.7 31.4 +1% +8% Operating Margin 7.7% 7.8% Profit before tax, amortisation and non-recurring items - before JV 26.3 25.3 +4% +12% - including JV 25.2 25.3 - +7% Non-recurring items (3.3) (3.0) Adjusted EPS 5.5p 6.0p -9% -1% Dividend per share 2.7p 2.6p +4% +4% Dividend cover 2.0x 2.3x * Adjusted for IAS19 changes in accounting for pensions 3
Good start but H2 impacted by weak Civil sales H1 H2 2014 2013* Constant currency y-o-y 2014 2013* Constant currency y-o-y Revenue 196.3 184.1 10.2% 214.3 219.0 4.7% Operating Profit 11.6 10.1 23.2% 20.1 21.3 1.1% Operating margin 5.9% 5.5% +40bps 9.4% 9.7% (30)bps Net Interest (2.7) (3.1) (11.3)% (2.7) (3.0) (4.1)% Profit before tax, amortisation and non-recurring items before JV 8.9 7.0 39.8% 17.4 18.3 2.0% after JV 8.6 7.0 34.9% 16.6 18.3 (2.7)% * Adjusted for IAS19 changes in accounting for pensions 4
Earnings per share 2014 2013* Profit before tax, amortisation and non-recurring items 25.2 25.3 Tax (7.0) (6.7) Profit after tax 18.2 18.6 Minority interests (0.3) (0.5) Profit attributable to shareholders 17.9 18.1 Average shares 327.0 301.0 EPS 5.46p 5.98p Impact of FX drag c. 0.47 pence; underlying EPS broadly flat insufficient sales growth in FY14 Decrease in minority interests reflects acquisition of non-controlling interest in Yarns Weighted average number of shares for FY15 will be c. 328m * Adjusted for IAS19 changes in accounting for pensions 5
Underlying revenue growth (+7%) Bonar (2.3)m TCF (0.4)m Yarns 0.5m 23.5 (2.2) 410.6 403.1 (20.2) Texiplast +1.6% 6.4 382.9 Bonar +4% TCF +9% Yarns +12% Group +6% 2013 FX Constant FX Acquisition Volume Price/Mix 2014 6
Sales growing but slow-down in European construction % Sales H1 H2 Full Year Y-o-Y Growth @ CER % Sales Y-o-Y Growth @ CER % Sales Y-o-Y Growth @ CER Civil Engineering 23% 14% 23% 1% 23% 6% Flooring 19% 2% 19% 10% 19% 6% Building Products 17% 18% 16% (2)% 16% 7% Transport 14% 2% 14% 7% 14% 4% Leisure 11% 25% 11% 1% 11% 12% Industrial / Other 16% 7% 17% 12% 17% 10% TOTAL 100% 10% 100% 5% 100% 7% Civil excluding Texiplast 21% 5% 21% (5)% 21% 0% 7
Sales slow-down in Europe but strong elsewhere % Sales H1 H2 Full Year Y-o-Y Growth @ CER % Sales Y-o-Y Growth @ CER % Sales Y-o-Y Growth @ CER Europe 67% 10% 66% 3% 67% 6% North America 17% 3% 19% 9% 18% 6% Asia Pacific 8% 9% 9% 24% 8% 17% Middle East 6% 65% 4% (8)% 5% 24% Rest of World 2% (26)% 2% (15)% 2% (21)% TOTAL 100% 10% 100% 5% 100% 7% Europe excluding Texiplast 65% 7% 64% 1% 65% 4% 8
Underlying profit growth (+7%) 25.3 (1.8) 22% drop through 5.1 (1.3) Includes seeding China market (1.7) Texiplast 0.7m Saudi JV (1.1)m (0.4) 25.2 23.5 Capability (1.9)m Inflation (2.0)m Efficiency 2.2m 2013* FX Constant FX Volume Net price/mix Costs Acquisition/JV 2014 * Adjusted for IAS19 changes in accounting for pensions 9
Business Unit Performance 2014 Revenue 2013 CER Y-O-Y 2014 EBITA 2013* CER Y-O-Y Bonar 246.2 233.3 +6% 21.0 21.9-4% Technical Coated Fabrics 128.2 117.9 +9% 14.2 11.1 +28% Yarns 36.2 31.7 +14% 0.8 0.5 +58% Central (4.3) (4.1) +3% Total 410.6 382.9 +7% 31.7 29.4 +8% Operating margin 7.7% 7.8% -10bps * Restated for amendment to IAS19 10
Bonar: mixed results (strong USA, weaker Europe) 2014 Y-o-Y H1 H2 Revenue 246.2m +6% +7% +4% Operating profit 21.0m -4% +15% -12% Operating margin 8.5% -90bps +40bps -190bps % Sales Civil 38% 6.5% 13.9% 0.7% Flooring 29% 6.7% 1.8% 11.6% Building Products 16% 4.4% 12.8% (2.3)% Transport 7% (1.6)% (10.6)% 8.5% Industrial/Other 10% 7.2% 6.2% 8% Like-for-like sales up 2.8% (H1: 3.6%; H2: 2.1%) Like-for-like Civil sales down 0.8% (H1: +4.7%, H2-5.1%) Texiplast sales were 8.8m (H1: 3.6m; H2: 5.2m), some 3m lower than expected Strong growth outside Europe USA (+6%) China (+32%) Western Europe (-3%) 11
Technical Coated Fabrics: good progress continues Strong sales and profit growth across all key sectors 2014 Y-o-Y H1 H2 Revenue 128.2m +9% +12% +6% Operating profit 14.2m +28% +36% +21% Operating margin 11.1% +140bps +160bps +130bps Significant growth in targeted high margin niches Architectural membranes Industrial products Market share gains Customer service Product quality Additional sales offices established 12
Yarns: gaining momentum Significant progress, albeit still below target level 2014 Y-o-Y Revenue 36.2m +14% Operating profit 0.8m +58% Operating margin 2.2% +70bps Fibrillated yarn production being moved to Abu Dhabi (c. 1.2m annualised saving; 0.6m in FY 15) Market share gains Customer service Product quality On-going innovation 13
Investing further to support growth 2014 2013* EBITDA 47.3 46.3 Changes in working capital (6.5) (4.6) Share option charge/other 0.6 0.6 Operating cash flow 41.4 42.3 Growth capex (16.2) (5.3) Replacement capex (2.7) (4.2) Health & Safety capex (1.3) (3.9) Net interest (5.1) (5.3) Non-recurring (3.3) (2.4) Pension deficit contributions (4.0) (4.0) Tax paid (7.7) (6.8) Free cash flow 1.1 10.4 TWC/Sales broadly unchanged (23.5% vs. 22.5%) Increased capex includes 5m new factory build in China (total cost 26m) Higher tax payments principally reflect lower capital allowances in USA Non-recurring costs largely relate to Texiplast and reorganisation costs * Adjusted for IAS19 changes in accounting for pensions 14
Net debt broadly unchanged, in line with guidance 2014 2013* Free cash flow 1.1 10.4 Short term loan to JV 4.4 (9.1) Acquisition of subsidiaries - (15.9) Dividends (8.8) (7.2) Proceeds of share issues 0.1 19.9 (1.4) - Purchase of non-controlling interest FX 3.4 (2.3) Movement in net debt (1.2) (4.2) Net debt b/fwd (86.8) (82.6) Net debt c/fwd (88.0) (86.8) Net debt/ebitda 1.9x 1.9x 4.4m of the short-term loan to JV was repaid in the year. The current balance is 5.2m, repayment is expected in H1 FY15 Increased dividend Re-financing of bank facilities completed in July: 165m RCF (July 2019) 45m PP (September 2016) * Adjusted for IAS19 changes in accounting for pensions 15
FX guidance for 2015 December Impact on FXR Profit FY 14 FY 15 FY 14 FY 15 Euro 1.24 1.27 (0.3) (0.4) USD 1.66 1.57 0.5 0.8 CZK 34.03 35.06 (0.2) (0.1) RMB 10.19 9.68-0.1-0.4 Now Spot Ave Euro 1.34 1.34 (1.0) (0.9) USD 1.50 1.50 0.9 0.6 CZK 37.18 37.07 (0.5) (0.3) RMB 9.39 9.40 0.1 0.1 (0.5) (0.5) Market expectations rebased in December US dollar has continued to strengthen and Euro is weaker; delta impact of c. (0.5)m for FY15 Impact on PY comparatives would be (0.5)m from 25.2m to 24.7m 16
Strategic update & future prospects 17
Initial observations from a new CEO A business with good market positions Opportunity to improve commercial effectiveness Customer intimacy Value selling Organisational realignment Scope to differentiate technology and be more global Saudi JV fundamentals still solid but need to penetrate local markets Capital Markets Day scheduled for May 18
Opportunity now in execution phase Phase 1 Phase 2 Transition Phase 3 Execution PBT Lokeren Restructuring TCF Growth and Efficiency Projects Group Reorganisation Texiplast Acqn & Placing Colback Asia Yarns Restructuring KSA JV Xeroflor Acqn 2009 2010 2011 2012 2013 2014 2015 19
Investment in China remains compelling Global value proposition The global industry leader Creating unique, innovative, sustainable and cost effective carrier products Committed to be the best in quality & product performance Creating and delivering regionally tailored solutions Asking and being awarded a premium for the delivered performance Winning in China Local manufacturing and servicing replicating successful North American and European model Capability to perform better on all factors which customers judge critical Technical know how and product performance Unique technology for tailored customer solutions Extensive sales and technical service support Supportive market developments Tile market is at the early stage of its life cycle Tile performance in the local market is rapidly developing, driven by North American tile companies and large market driven local players Rapid conversion of local low-end market tiles towards mid-end tiles driven by more professional utilization of floor-space Vision of flowers by Desso Deconstruct by Patcraft Our most competitive cost position globally; compelling alternative to a dominant player 20
Bonar Natpet making progress Production facility is running well Product quality better than Europe Product and vendor approvals starting to come through Need to leverage more support from local partner Saudi government seems committed to continue infrastructure spend despite oil price Returns expected to be achieved, albeit slower than initially expected 21
Ambition and resolve to build a more global business strategy refresh underway Financial Strengths GDP+ growth capability Margin improvement through technical differentiation Capability and growth investment benefits to be leveraged Market Strengths Specialist, high value product offering and services Broad spread of end markets Market leading positions Continuous innovation of products and services Accelerating development outside of Europe Management Strengths Experienced and knowledgeable management team Augmented by new hires Ambition and resolve to build a more global business 22
Outlook 23
Expectations remain positive for all our businesses Civils demand is stabilising Further progress in TCF and Yarns Reduced JV losses Extending reach beyond Europe Some benefit from lower polymer prices 24
Supplementary schedules 25
Five year financial performance Pre-tax profits (constant FX) Operating margin (%) 16.9 21.3 23.5 23.5 25.2 7.5% 7.9% 8.0% 7.8% 7.7% Underlying profit growth 4 year CAGR 10.5% 5 year CAGR 13.0% 2010 2011 2012 2013* 2014 ROCE** 15.2% 16.8% 17.2% 16.3% 15.7% 2010 2011 2012 2013* 2014 6.5 5.5 4.5 3.5 2.5 1.5 0.5-0.5 2010 2011 2012 2013* 2014 EPS (constant FX) / Dividends 6.0 5.4 4.0 EPS Dividends 5.5 5.5 1.6 2.1 2.4 2.6 2.7 2010 2011 2012 2013* 2014 Opportunities to improve returns and margins, leveraging recent investments (opex and capex) Progressive dividend * Adjusted for IAS19 changes in accounting for pensions ** Based on operating capital employed 26
Five years of significant investment (self-funded) Capex by Type Total Debt 40 110 35 100 30 25 Growth capex spend FY10 FY14 of 44m 90 80 20 15 70 10 60 5 50 0 2010 2011 2012 2013 2014 2015 est 40 2010 2011 2012 2013 2014 2015 est Replacement H&S Growth Bank debt Swap liability 27
European Construction Outlook Source:Euroconstruct 2013) 28
Polymer Prices recent trends 1800 1600 H1 H2 13 H1 14 H2 14 Q1 15 2600 1400 2100 /t 1200 PA6 /t 1600 1000 800 1100 600 Nov 12 May 13 Nov 13 May 14 Nov 14 600 LLDPE (Butene C4) EUR/t S PVC Base EUR/t PP Raffia EUR/t PET Chips EUR/t PA 6 EUR/t 29
IAS 19 restatement As reported Admin costs NRI/ OCI Asset returns Restated EBITA 32.2 (1.1) 0.3-31.4 Bank interest (5.3) - - - (5.3) Pension interest cost (7.4) - - - (7.4) Expected return on pension assets 6.6 1.1 - (1.1) 6.6 PBTA 26.1-0.3 (1.1) 25.3 Tax (6.8) - - 0.1 (6.7) PATA 19.3-0.3 (1.0) 18.6 Minority interests (0.5) - - - (0.5) Earnings 18.8-0.3 (1.0) 18.1 Operating margin 8.0% 7.8% Earnings per share 6.23p 5.98p 30
Balance sheet 2014 2013 Property, plant and equipment 119.3 114.2 Trade working capital 96.4 90.7 Prepayments and accruals (13.3) (12.8) Operating capital employed 202.4 192.1 Other working capital 0.7 5.8 Intangible assets 105.8 115.2 Pension deficit (10.8) (12.7) Net debt (88.0) (86.8) Other (19.6) (20.5) Net assets 190.5 193.1 Other working capital includes 4.7m (2013: 9.1m) JV receivable Actuarial loss on pension schemes of 0.8m Committed facilities of 210m (c. 167m) Comfortably inside covenants: Net debt / EBITDA 1.9 (< 3.0) Interest Cover 6.7 (> 3.0) 31
DB Pension Schemes UK Overseas Total Liabilities (176.3) (21.0) (197.3) Assets 176.5 10.0 186.5 Net surplus / (deficit) 0.2 (11.0) (10.8) Movement in year: Actuarial gain / (loss) 1.6 (2.4) (0.8) Net interest (0.1) (0.3) (0.4) Current service cost - (0.3) (0.3) Contributions 3.3 0.7 4.0 Administration costs (0.8) - (0.8) Past service cost - 0.1 0.1 FX - 0.1 0.1 Net change 4.0 (2.1) 1.9 The 2014 valuation is still in progress. The revised schedule of contributions will be agreed with the Trustee by the end of June 2015. UK scheme surplus driven by outperformance of assets against expected returns Composition of UK scheme assets: Equities 23% DGF 41% LDI funds 20% Property 10% Cash 6% Net overseas deficit: US 3.0m; Germany 7.6m; Others 0.4m Six schemes; all closed except one German and one Belgian scheme 32
Tax rate 2014 % 2013 % Prior year 25.2 29.9 Mix 0.9 (4.7) Underlying rate 26.1 25.2 Innovation box (1.4) - Effective rate 24.7 25.2 Prior year adjustments 1.8 0.8 Reported rate 26.5 26.0 Mix impact driven by increased losses in Belgium (Yarns) Innovation box re-negotiated in 2014, next renewal in 2017 Reported rate is expected to be circa 26.5% in 2015 33
Non-recurring items 2014 2013 Acquisition expenses (0.1) (1.0) Saudi set-up - Own costs - 50% JV costs - - (0.6) (0.6) Reorganisation costs (1.6) (0.2) Pension administration costs (0.3) (0.3) Bonar Changzhou costs (0.2) - Site clean up costs (0.5) - Redundancy costs (0.6) - China office set up costs - (0.3) Total non-recurring (3.3) (3.0) FY14 Reorganisation costs within Bonar, to accelerate globalisation and integration programme Pension administration costs incurred on one-off project Redundancy costs on restructuring of Yarns site in Dundee (c. 68 jobs) 0.5m spend on post-acquisition HSE improvement exercise within Texiplast (+ 0.4m capex) Initial expenses associated with Bonar Changzhou development FY15 (anticipated) Pre-operating expenses of c. 0.6m for Bonar Changzhou Pension administration costs c. 0.2m 34
Five year total shareholder return 300 250 TSR (rebased to 100) 200 150 100 50 0 30-Nov-09 30-Nov-10 30-Nov-11 30-Nov-12 30-Nov-13 30-Nov-14 Low & Bonar PLC FTSE Small Cap Index 35