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Annual Report 2014
Welcome to Low & Bonar
We are an international business to business
performance materials group. We design and
manufacture components which add value to,
and improve the performance of, our customers’
products by engineering a wide range of
polymers using our own technologies to create
yarns, fibres, industrial and coated fabrics and
composite materials.
We sell globally and manufacture in Europe,
North America, the Middle East and China.
34 Board of Directors
37 Report of the Directors
40 Corporate Governance
46 Audit Committee Report
49
Directors’ Report on
Remuneration
Statement of Directors’
Responsibilities
Independent Auditor’s
Report
66
67
1 Highlights
2 Low & Bonar at a Glance
4 Our Markets
6 Our Business Model
8 Our Strategy
16 Chairman’s Statement
18 Business Review
19
20
Bonar Division
Technical Coated Fabrics
Division
21 Yarns Division
22 Financial Review
23
Principal Risks and
Uncertainties
Corporate & Social
Responsibility
26
69
70
Consolidated Income
Statement
Consolidated Statement
of Comprehensive
Income
71 Balance Sheets
72
Consolidated Cash Flow
Statement
Company Cash Flow
Statement
Consolidated Statement
of Changes in Equity
Company Statement of
Changes in Equity
Significant Accounting
Policies
73
74
75
76
83 Notes to the Accounts
111 Five Year History
112
Advisers and Financial
Calendar
Visit us online
Our website contains a full
investor relations section with
news, reports, webcasts,
financial calendar and share
price information.
Visit www.lowandbonar.com
and click on Investor centre.
Highlights
Profit before tax(1) £m
£25.2m
-0.4%
Profit before tax(1) at constant currency(3) £m
24.5
23.4
25.3(2)
25.2
18.6
£25.2m
+7.4%
23.5
23.5(2)
25.2
21.3
16.9
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Our Financial Performance
Operational Highlights
Good progress against a challenging backdrop
> Revenue of £410.6m (2013: £403.1m), up 7.2% on a
constant currency(3) basis
> Profit before tax(1) of £25.2m (2013(2): £25.3m), an increase
Continued progress despite European slow-down
> Good progress in MTX and Yarns; Bonar held back by
slow-down in European construction sales in H2
> Strong sales outside Europe; seeding of China market
of 7.4% at constant currency(3)
developing well
Further self-funded investment in growth and
infrastructure
> Capital expenditure of £20.2m (2013: £13.4m)
> Net debt broadly unchanged at £88.0m (2013: £86.8m)
Full year dividend increased 4% to 2.7 pence per
share (2013: 2.6 pence per share)
(1) Before amortisation and non-recurring items
(2) Adjusted for IAS 19 changes in accounting for pensions
(3) Constant currency is calculated by retranslating comparative period results at
current period exchange rates
> Saudi JV manufacturing running well; key approvals
expected in H1 2015
Strategic investments continue
> £5.3m spend on new production facility in China;
commissioning in early 2016
> Yarns operational restructuring announced in October
2014 to improve efficiency, enabled by buy-out of
non-controlling interest in Abu Dhabi business in May
2014
> New bank facility signed in July 2014; increased
headroom to support growth
1
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Low & Bonar at a Glance
Positive global trends in infrastructure
spending and urbanisation, which are largely
taking place in emerging markets, are creating
significant growth opportunities in civil
engineering, flooring and niche building
products. Our joint venture in Saudi Arabia will
service the Middle East and Indian
subcontinent, and we continue to assess
options to develop our business further in
North America, Latin America and Asia.
Where we operate
We sell globally and manufacture in Europe, North America,
the Middle East and China.
Technical Coated Fabrics
Germany – Hückelhoven
and Fulda
Czech Republic – Lomnice
Yarns
UK – Dundee
UAE – Abu Dhabi
Manufacturing facilities
Bonar
Belgium – Zele and Lokeren
The Netherlands – Arnhem
and Emmen
Germany – Obernburg
Hungary – Tiszaújváros
USA – Asheville, NC
China – Yizheng
Slovakia – Ivanka pri Nitre
Saudi Arabia – Yanbu
Revenue by destination:
NORTH
AMERICA
18%
EASTERN
EUROPE
11%
ASIA
6%
WESTERN
EUROPE
56%
MIDDLE
EAST
5%
REST OF
WORLD
4%
Bonar
Revenue
£246.2m
+0.2%
Our Bonar division serves these markets:
• Civil engineering
• Flooring
• Transport
• Industrial
• Building products
Companies
Bonar – Belgium, The Netherlands, USA and UK
Bonar Geosynthetics – Hungary, Slovakia
Bonar Xeroflor – Germany
Yihua Bonar – China (60%)
Bonar Natpet – Saudi Arabia (50%)
Bonar products
• Woven and non-woven geotextiles
• Speciality geosynthetics
• Construction fibres
• Primary backing for carpet tiles and
broadloom carpets
• Horticulture screens and groundcovers
• Roofing components for commercial and
residential property
5
4
6
1
2
3
Revenue by end market:
1. Civil engineering 23%
2. Flooring 19%
3. Industrial 17%
4. Building products 16%
5. Sport and Leisure 11%
6. Transport 14%
60%
Revenue
2014 £246.2m
2013 £245.6m
2012 £238.7m
2
| Low & Bonar PLC Annual Report 2014 Technical Coated Fabrics
Revenue
£128.2m
+2.7%
Our Technical Coated Fabrics division
serves these markets:
• Building products
• Transport
• Leisure
• Industrial
Companies
Mehler Texnologies (“MTX”) – Germany, Czech
Republic and 19 sales offices and warehouses
throughout the world
Technical Coated Fabrics products
• Architectural fabrics for permanent and
temporary building structures
• Trailer side curtains and transport protection
• Printable fabrics for large format advertising
• Coated fabrics for storage and containment
• Coated fabrics for sunshading, boat,
pool, camping and sports
Yarns
Revenue
£36.2m
+10.8%
Our Yarns division serves these markets:
• Artificial grass yarns
• Woven carpet backing
Companies
Bonar Technical Yarns – UK, UAE, Belgium and USA
Yarns products
• Monofilament and fibrillated artificial grass yarns for
sports pitches and landscaping
• Polypropylene carpet backing yarns for woven
carpets
31%
9%
Revenue
2014 £128.2m
2013 £124.7m
2012 £115.3m
Revenue
2014 £36.2m
2013 £32.8m
2012 £26.5m
3
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Our Markets
We hold leading
positions in niche
markets across
the globe
Flooring
% of revenue
19%
A range of high-performance
primary backings for tufted
carpet tiles, broadloom carpets
and other flooring products.
Low & Bonar is an international Group,
manufacturing and supplying a wide range
of products to the performance materials
industry. We are a global business,
supplying yarns, fabrics and fibres to a
broad range of end markets, including civil
engineering, flooring, building products,
transport, sports and leisure, agriculture
and other industrial applications.
You may not always see our products, but
they invariably add key performance
characteristics to our customers’ products.
Civil engineering
% of revenue
23%
A wide range of products used in
major infrastructure projects,
including road and rail building, land
reclamation and coastal defence.
Woven and non-woven geotextiles
have a wide range of uses, including
separation and filtration, membrane
protection in landfills and reservoirs
and for erosion control on riverbanks
and coastlines. Speciality
geosynthetics are used for erosion
control, drainage, soil reinforcement
and stabilisation and soil
consolidation. Construction fibres are
used in concrete to reduce shrinkage
and settlement cracking and as an
alternative to steel mesh
reinforcement.
Growth Drivers
• Urbanisation and need for more
and better infrastructure
• Lower carbon footprint and
environmental benefits compared
to traditional materials
• Faster, safer construction and better
durability
• Increased quality control in
performance and safety
Growth Drivers
• Ease of installation, aesthetic
and design flexibility drive
substitution of wall-to-wall
solutions around the world
• Recovery in the North American
markets and development of the
Chinese markets
• Environmental and technological
leadership to provide
differentiation for the end
consumer
4
| Low & Bonar PLC Annual Report 2014 Industrial
% of revenue
17%
A wide range of products for
multiple application areas,
including screens and
groundcover products in the
professional horticulture
market to improve yield and
reduce energy consumption in
the production of food, plants
and cut flowers. Printable
fabrics for large format prints
used in large area outdoor and
indoor advertising and smaller
fabrics for point of sale
displays. Coated fabrics for
storage and containment, with
application areas including
waste water, biogas, food and
oil. Supplier of support media
for automotive cabin air and
combi filters.
Building products
% of revenue
16%
A range of products in niche
application areas of the
commercial and residential
building market. Specialist
architectural coated fabrics
used as membranes for
roofing, in frame-supported
industrial, event and sports
halls, and marquees for leisure
and business events. Roofing
and flooring products based
on three-dimensional
monofilament mats,
composites and non-wovens
with a variety of applications,
including metal roof
ventilation, subsurface
drainage for green roofs, hard
floor sound control and
reinforcement for waterproof
bituminous roofing
membranes.
Sport and leisure
% of revenue
11%
A diverse range of products
for the sports and leisure
sector. Monofilament and
fibrillated synthetic yarns
used in the construction of
artificial grass for sports and
landscaping applications.
Coated fabric product range
used in a variety of
application areas, including
sunshading, boat and pool,
camping and sports.
Transport
% of revenue
14%
Products used in both heavy and
light vehicle manufacture.
Primary and secondary non-
woven backings for moulded car
carpets and option mats, also
used as reinforcement and carrier
substrates in hood liners, trunk
liners, door panels, package trays
and car seats. Highly resilient and
weatherproof tarpaulins are used
in transport applications,
including trailer side curtain
manufacture and transport
protection in air, road, rail and
sea freight.
Growth Drivers
• Clean air and water
• Higher agricultural
productivity
• Sustainable and
environmentally acceptable
solutions in the supply,
control and management of
waste, liquids and gases
• Continued growth in
outdoor advertising
Growth Drivers
• Safe, ‘green’ environmental
Growth Drivers
• Highly innovative,
building solutions
• Innovative and cost-
effective added
functionality
• Steady global economic
recovery
• More need for sun
protection through design
cost-effective aesthetics
and functionality
• Highly bespoke solutions
to different segments
Growth Drivers
• Environmental leadership
including light weight
vehicles
• Auto manufacture moving
East to support fast growing
Asian markets
• North American vehicle
market recovery
• Wide product range, flexible
and fast response times to
haulage tarpaulin market
5
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Our Business Model
Gaining competitive
advantage through
technologies and
innovation
New product development
Our manufacturing processes begin with
the sourcing of widely available polymers,
including polypropylene, polyethylene,
polyester and nylon, and formulating these
using speciality additives and colours which
help determine performance, aesthetics
and processing efficiencies.
Our core capabilities
Leading positions in niche
industrial markets
We hold leading positions in
attractive niche markets, sustained
with innovative design and
manufacture of components to
meet the evolving demands of our
customers and markets.
Strong customer focus
We populate our development
pipelines with ideas and insight
from our customers and markets.
Our research and development
teams focus on meeting customer
needs with engineered products for
specific applications.
Excellence in innovation
We have dedicated research and
development teams within each of
our businesses. Our innovation is
focused on delivering improved
sustainability, increased functionality
and greater efficiencies.
Operational capability
and efficiency
Our efficient operations and
talented people will underpin our
aspiration to build a global business.
We continue to invest in capability
and efficiency across the Group.
Strengthening
Group resources
We are investing in sales, marketing
and strategy development to drive
growth and build a more market-
driven Group with global reach. We
also continue to invest and increase
effectiveness in procurement and
health and safety.
6
| Low & Bonar PLC Annual Report 2014 Applied technology
Customer insight
■■ Speciality Yarns
■■ Speciality Fabrics
■■ Coated and
Composite Materials
Our proprietary polymer formulations are subsequently processed using
our broad range of proprietary technologies, and are tailored to enable
the final product to deliver the desired performance characteristics.
Our end product is a speciality yarn, fabric or a coated or composite
material. They are typically components which are important
determinants of the performance and/or efficiency of our customers’
final product or process.
Our Strategy
Accelerating growth
We seek to accelerate our
expansion into markets which
have the opportunity to grow
faster than the global average.
Excelling in innovation
Our leading position in niche
industrial markets is based on
the innovative design and
manufacture of components to
meet specific customer needs.
Driving efficiencies and
building capability
We strive to ensure our
product offering is
underpinned by cost and
efficiency leadership.
Complementary M&A
We will complement our
organic growth strategies with
“bolt-on” M&A which either
accelerates our exposure to
global markets or gives us
access to new products in
existing markets.
7
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Our Strategy
Accelerating growth
We build strong relationships with our customers and the markets we
serve, so that we can identify how best to exploit technologies to provide
more added value through differentiation. We seek to accelerate our
expansion into markets which have the opportunity to grow faster than
the global average.
Geographically, these include China, North America, the Middle East and South
America, where industrialisation, urbanisation and high infrastructure
expenditure are driving growth. We also target global markets where they are
supported by strong, long-term growth trends.
Key priorities
• Civil engineering
• Flooring products
• Niche building
products
Growth geographies
• China
• North America
• South America
• Middle East
Deliverables
• Accelerated growth
• Global business
• Scale benefits
We intend to accelerate our global expansion by being more focused on large,
fast-growing segments where we can demonstrate differentiated added value.
We will deliver our growth strategies through focused market-oriented teams,
dedicated to serving the best needs of our customers.
Progress
We have established global, market-focused teams, responsible for developing
better customer insight and strong growth strategies, which are then delivered
through sales teams located close to the customer.
KPI
Sales outside Europe %
Objectives
• Annual growth at least 3%
higher than Eurozone GDP
growth
• 50% of Group sales outside
Europe
50
29
29
32
33
33
2010
2011
2012
2013
2014 Target
8
Credit – Shaw Industries Group Inc.
| Low & Bonar PLC Annual Report 2014 Our Strategy
EXPANSION IN CHINA
The announcement of a €32m investment in a new Colback™ manufacturing plant in
China marks a significant milestone in the Group’s strategy to become a global business.
We will be the first international company to set up local carpet backing production
facilities in China and this should give us a significant selling advantage whilst also
meeting our customers’ needs and maintaining our leading global position.
The plant offers us a huge opportunity to grow our market share in a fast-growing
market. Bonar is the market leader for innovative carpet tile backing within Europe and
the USA and this investment is an important step to building critical mass in Asia.
The new plant will be built in the Changzhou region, close to Bonar’s automotive and
carpet tile manufacturing customers. Land has already been acquired and the new plant is
expected to open in 2016 with one spinning and one fleecing line producing 60 million m2
of Colback non-wovens in Phase 1. Once fully operational, the plant will employ just under
100 people, the majority from the local area, with internal experts bringing know how from
across Bonar to leverage our existing product and manufacturing expertise.
The foundation ceremony took place in September 2014 and was a great success with a
large number of customers and the local community attending.
Credit – Desso
See page 19
for more divisional
details on Bonar
9
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Our Strategy
continued
Excelling in innovation
Our leading position in niche industrial markets is built on a highly
responsive approach to customer needs and by leveraging our broad
range of technologies.
We work closely with our customers to create products that add real value to their
business, by helping their manufacturing processes become more efficient, adding
functionality to their products or by improving their environmental sustainability.
Key priorities
• Sustainability
• Functionality
• Efficiency
Key areas
• Europe
• North America
• Emerging markets
later
Deliverables
• Share gain
• Customer traction
• High-quality business
Progress
Our global business strategies determine the prioritisation of resources to drive
our innovation portfolio, with marketing taking clear responsibility to lead
innovation in partnership with R&D. In 2014, we have continued to sign a
number of co-development agreements with major customers, reflecting our
commitment to focus on customer needs and market-driven innovation. 16% of
the Group’s revenue comes from new products with close to 10% coming from
new-to-the-world solutions. We have close to 100 patents.
KPI
The percentage of sales made
from products launched in the
last three years %
Objectives
• Prioritised innovation
addressing sustainability,
functionality or efficiency
• Increase proportion of
patent-protected innovation
15.8
15.7
16.0
16.0
14.3
13.0
2010
2011
2012
2013
2014 Target
10
| Low & Bonar PLC Annual Report 2014 Our Strategy
continued
MN ULTRA SCORES A WINNER
The latest installation of MN Ultra for Scottish Championship
football team, Queen of the South, is delivering all the usual
benefits of MN Ultra, but with a difference. As well as
offering a high performance surface for players, this was the
first time we had manufactured our yarns for artificial turf
using woven technology. We usually see our yarns tufted
but, using this technique, the fibres stay more upright and so
offer a superior playing experience, offering a unique
balance between resilience, durability and skin-friendliness.
The new manufacturing technique was developed in
collaboration with one of our leading customers, ACT
Global. This is the first time Yarns has supplied yarn for use
in a woven stadium field; the first matches have been played
and feedback is good. The Queen of the South contract is on
the back of successful sales in Brazil, where seven of the nine
World Cup stadiums featured products from Yarns in the
artificial turf used in the dug-outs.
See page 21
for more divisional
details on Yarns
11
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Our Strategy
continued
Driving efficiencies and
building capability
We strive to ensure our product offering is underpinned by cost and
efficiency leadership.
Improvements in productivity and working capital efficiency will be coupled with
group-wide initiatives to invest in our organisational capability and to leverage our
expertise in manufacturing, procurement and health and safety to build the
foundations of a global business.
Key priorities
• Organisational
capability
• Technology leadership
• Technical Coated
Fabrics
Key areas
• Health and safety
• Productivity
• Market insight
• Sales force
effectiveness
Deliverables
• Leverage all expertise
to build global business
• Underpin speciality
offer with cost and
efficiency leadership
Progress
We have delivered operating margins of 7.7%, despite a tough second half of the
year. Our asset efficiency ratio has reduced to 15.7%, due primarily to the higher
level of capital expenditure in the year, including £5.3m on our new
manufacturing plant in Changzhou, China.
KPI
Asset efficiency %(1)
KPI
Operating margins %(2)
16.8
17.2
16.3*
15.7
17.0
15.2
10.0
7.9
8.0
7.8*
7.7
7.5
2010
2011
2012
2013
2014 Target
2010
2011
2012
2013
2014
Target
Objectives
• Organisational capability, leadership and marketing
• Further Texiplast integration to maximise efficiencies and synergies
(1) Operating profit before amortisation and non-recurring items as a percentage of
operating capital (including property, plant and equipment, trade working capital and
prepayments and accruals and excluding intangible assets and goodwill)
(2) Operating profit before amortisation and non-recurring items as a percentage of sales
* Adjusted for IAS19 changes in accounting for pensions
12
| Low & Bonar PLC Annual Report 2014 Our Strategy
continued
MTX DELIVERS ICONIC ROOF FOR TURKISH STADIUM
The distinctive new roof for the Konya Stadium in Turkey takes its inspiration from the
city’s reputation as the ‘Cycling City’, with the roof resembling the colourful spokes of
a wheel.
The new multi-use stadium will be the Turkish venue for the 2020 European Football
Championships and meets all UEFA standards.
In the stadium, which seats a capacity crowd of 42,000, approximately 76,000m2 of
Valmex™ FR 1000 Mehatop were used to create a distinctive pattern using green and
white triangular shapes.
This was the first big stadium project for MTX in Turkey, and its ability to meet the tight
timescales, combined with a good working relationship with the constructor and
competitive prices, were instrumental in securing the contract. The project also helps to
highlight and enhance MTX’s flexible production capability, with the capacity to manage
large orders while maintaining high quality standards and operating efficiencies.
See page 20
for more divisional
details on TCF
13
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Our Strategy
continued
Complementary M&A
We will complement our organic growth strategies with “bolt-on” M&A
which either accelerates our progress to be more global or gives us access
to new products in existing markets or in attractive adjacent markets.
“Bolt-on” investments accelerating growth in under-developed markets
• Creating business and technology platforms outside our ‘heartland’
• Leveraging existing technology, products and expertise to exploit opportunities
Accelerating growth in target segments
• Product and technology in-fills
• Improving innovation capability
We will augment our organic growth with M&A, which either accelerates our
global expansion or supports our strategies in existing markets.
Progress
The acquisition of the non-controlling interest in Bonar Emirates Technical Yarns
Industries LLC has allowed the Group complete control over the future growth
plans for the entity, which operates in a market with growing demand which we
are well placed to develop.
14
| Low & Bonar PLC Annual Report 2014 Our Strategy
continued
PURCHASE OF THE NON-CONTROLLING INTEREST IN BONAR EMIRATES
TECHNICAL YARNS INDUSTRIES LLC
In May 2014, we acquired the non-controlling interest in Bonar Emirates Technical Yarns
Industries LLC (“BETY”). BETY is a manufacturer of artificial grass based in Abu Dhabi that
forms part of the Yarns Division, and has grown significantly in the last two years as the
demand for artificial grass has improved.
BETY benefits from its proximity to growing end-user markets and access to competitively
priced raw materials, energy and labour. With growing demand for both sports and
landscape applications driving the artificial grass market, the acquisition of the non-
controlling interest allows the Group complete control over future growth plans.
15
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Chairman’s Statement
Martin Flower
I am pleased to report that the
Group has continued to progress,
despite challenging European
market conditions.
In the face of very difficult economic
conditions across most of Europe, I am
pleased to be able to report that the Group
has continued to progress.
Having started the year well, the Group
experienced a significant drop in demand
across its European civil engineering
markets from mid-July which resulted in a
change to full year expectations. The Group
still delivered profit before tax, amortisation
and non-recurring items of £25.2m, similar
to last year, despite a significant foreign
exchange headwind of some £2.2m. On a
constant currency basis, profits before tax
increased by 7.4% with existing businesses
advancing by 12.2% before taking into
account the Group’s share of losses within
our Saudi Arabian joint venture. Results
were buoyed by strong and improving
results within Technical Coated Fabrics,
further progress in Yarns and good results
in Bonar’s North American business. The
Group also made good progress in seeding
the flooring and filtration markets in China,
supported by the newly established sales
office in Shanghai.
The Group has continued to invest in assets
to support growth. Capital expenditure
totalled £19.0m (2013: £11.3m) including
£5.3m on a new factory build in
Changzhou, China which is expected to
cost a further £21.0m by its completion
scheduled for the first quarter of 2016. The
Group’s joint venture in Saudi Arabia, Bonar
Natpet, began commercial operations in
October 2013 and its results have been
included for the first time this year. The
quality of manufactured products is of the
highest standard. The JV incurred a loss of
£2.2m in the year of which the Group’s
share was £1.1m. This largely relates to
slower than anticipated sales growth which
has been hindered by procedural delays in
gaining product approvals. We are pleased
to report that product approvals are now
starting to come through.
Earnings per share, before amortisation and
non-recurring items, were 5.5 pence (2013
restated: 6.0 pence) and reflect the share
placing in September 2013, the weak Euro
in comparison to last year and the lower
than originally anticipated sales and profit
growth.
Martin Flower
Chairman
16
| Low & Bonar PLC Annual Report 2014 Our Values
Freedom to operate
We empower our talented people to take initiative, to think and act for themselves.
Accountability
We accept our individual and team responsibilities and we meet our commitments
and take responsibility for our performance in all our decisions and actions.
Innovation
We innovate in everything we do from products to processes and in our organisations
to create value for our stakeholders.
Integrity
We maintain the highest ethical standards wherever we operate. We will ensure the
health and safety of all our people and minimise our impact on the environment.
Open communication
We encourage and are committed to communicating in an open, honest and timely way.
The Board is recommending an unchanged
final dividend of 1.75 pence per share
which would make the full year dividend
2.7 pence per share (2013: 2.6 pence). The
Board believes that this represents a
sensible base for future dividends taking
into account the anticipated sales and profit
growth for the Group whilst balancing the
need to support and fund further
investment. The proposed full year dividend
is covered 2.0 times (2013: 2.3 times) by
earnings before amortisation and non-
recurring items. Subject to shareholder
approval at the Annual General Meeting in
March, the final dividend will be paid on 16
April 2015.
As always, it is my pleasure to acknowledge
the skills and dedication of employees
throughout the Group who have worked
hard to deliver further progress for the
Group under some trying circumstances in
the latter part of this year. In particular, I
would like to thank Steve Good, our former
Group Chief Executive, for re-positioning
the Group and building its organisational
capability. Last but not least, this year we
were delighted to welcome Brett Simpson
as our new Group Chief Executive.
Whilst market conditions in Europe are
expected to remain challenging, the Board
is confident that the Group will continue to
make further progress this year.
Martin Flower
Chairman
3 February 2015
17
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Business Review
Brett Simpson and Mike Holt
Sales and profits within Technical Coated
Fabrics and Yarns grew strongly however
the slowdown in the European construction
industry in the second half of the year led
to a disappointing result for Bonar.
Brett Simpson
Group Chief Executive
Mike Holt
Group Finance Director
Year ended 30 November
2014
2013(1)
Actual
£410.6m £403.1m
£31.7m £31.4m
+1.9%
+1.2%
Constant
currency(2)
+7.2%
+8.2%
£26.3m £25.3m
£(1.1)m
–
£25.2m £25.3m
+4.0% +12.2%
-0.4%
+7.4%
£16.7m £16.7m
–
–
Revenue
Operating profit(3)
Profit before tax,
excluding JVs(3)
Share of JV results(3)
Profit before tax(3)
Profit before tax
(statutory)(4)
(1) Adjusted for IAS 19 changes in accounting for pensions
(2) Constant currency is calculated by retranslating comparative period results at current
period exchange rates
(3) Before amortisation and non-recurring items
(4) After amortisation and non-recurring items
18
Revenue
£410.6m
(2013: £403.1m)
Group Operating Margin*
7.7%
(2013: 7.8%**)
* Before amortisation and non-recurring items
** Adjusted for IAS 19 changes in accounting for pensions
The Group has continued to make progress this
year, albeit full year results were severely
impacted by a drop in demand across its
European civil engineering markets from mid-July.
This also affected the first full year contribution
from Texiplast. Sales on a constant currency basis
increased by 7.2% to £410.6m and operating
profits increased by 8.2% to £31.7m. On a
like-for-like basis, excluding Texiplast, which was
acquired in H2 last year, constant currency sales
were up 5.5%.
Sales and profits in both Technical Coated Fabrics
and Yarns grew strongly aided by market share
gains and ongoing actions to improve operational
efficiency. Having started the year reasonably
well, the slowdown in construction activity within
Europe in the second half of the year led to a
disappointing result for Bonar despite strong
performances within its flooring and industrial
markets.
Profit before tax, amortisation and non-recurring
items, excluding our share of JV results, increased
by 12.2% to £26.3m. The Group’s joint venture in
Saudi Arabia (selling geotextiles into the region’s
civil engineering market) made a loss of £2.2m
due to a slower than anticipated build-up in sales
order intake; the Group’s share of this loss is
£1.1m. For the most part, this relates to a delay in
product certification by key customers which is
expected to be resolved shortly. Including these
losses, the Group’s profit before tax, amortisation
and non-recurring items was £25.2m, an increase
of 7.4% on a constant currency basis.
Return on capital employed was 15.7%, slightly
lower than last year (2013 restated: 16.3%).
| Low & Bonar PLC Annual Report 2014
Bonar
Revenue
£246.2m
(2013: £245.6m)
Operating Profit
£21.0m
(2013: £23.0m)
Operating Margin
8.5%
(2013: 9.4%)
VÁC AND MARMARAY
RAILWAY STATION
In 2014, Bonar was involved in the
construction of the railway stations in Vac,
Hungary and Marmaray, Turkey, providing
soil reinforcement and soil consolidation
products, respectively.
The projects were very exciting for the
Group for a number of reasons:
• each solution was extremely challenging
to develop, taking into account the very
high usage of the products. This meant
that the teams had to be very innovative
in meeting the needs of the customers;
• they help us to maintain and enhance our
position in the railways market
throughout Europe; and
• they were highly prestigious and our
involvement heightened the credibility of
our brand, products and solutions.
The projects have been a success and
support us in our strategy to accelerate our
expansion by focusing on fast-growing
segments as well as excelling in innovation
and ensuring a highly responsive and
flexible approach to customers’ needs.
Our Bonar division supplies products such as geosynthetics, carpet tile
backing, agrotextiles and construction fibres to the civil engineering,
flooring, transport, industrial and construction sectors.
2014
2013
Actual
Revenue
Operating profit(2)
Operating margin(2)
£246.2m £245.6m
£21.0m £23.0m
9.4%
8.5%
+0.2%
(8.5)%
Constant
currency(1)
+5.5%
(3.9)%
(1) Constant currency is calculated by retranslating comparative period results at current
period exchange rates
(2) Before amortisation and non-recurring items
On a constant currency basis, sales increased by 2.8% excluding
acquisitions. Texiplast contributed a further 2.7% to constant currency
sales growth. Given lower than expected sales growth, operating margins
suffered falling to 8.5%. Sales mix contributed, but the recent investment
in sales, application management and business development teams to
build organisational capability and drive sales has yet to be leveraged and
deliver promised sales and profit growth.
Flooring sales, which have grown strongly over the last three years,
recovered from a slow start to the year and increased by 6.7% year-on-
year aided by strong sales growth in China supported by our recently
established sales and technical service organisation in Shanghai and a
strong sales performance in North America. Good progress has been
made in building our activities in the filtration market, which together
with new product launches helped industrial sales advance by 7.2%.
As anticipated, sales to the transport sector were weak in the first half of
the year, following the loss of a major automotive platform part way
through last year, but recovered in the second half, ending the year 1.6%
lower than 2013.
Within civil engineering, sales were on track
through mid-year but suffered a severe
set-back mid-July. Sales on a like-for-like basis
were 7.9% lower in Q3 and 2.8% down in
Q4 compared to 2013 ending the second half
5.1% lower. Activity levels have stabilised but
remain subdued due to difficult economic
conditions in our main European markets.
Sales by Texiplast were £8.8m for the full
year, some £3m lower than had been
expected at the start of the year. The shortfall
largely relates to very weak sales in Poland,
currently the main sales territory for its
products, due to economic slowdown and
geopolitical tensions in Eastern Europe.
Despite the difficulties during the second half
of the year, we remain confident that we are
well positioned in core markets and that the
recent investments will deliver results in the
next few years. Some leadership changes
have been made within the division and the
main focus is on improving customer intimacy
and our commercial effectiveness, particularly
within the civil engineering markets.
19
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Business Review
continued
Technical Coated Fabrics
Revenue
Operating profit(2)
Operating margin(2)
Revenue
£128.2m
(2013: £124.7m)
Operating Profit
£14.2m
(2013: £12.1m)
Operating Margin
11.1%
(2013: 9.7%)
BOAT AND POOL INNOVATION
MTX worked with a long-term Italian customer to develop new pools for their portfolio.
The customer was working alongside a number of garden architects to bring to the
market new pool designs in a range of different colours, which would be introduced in
autumn 2014 for the new season in 2015.
The key was to break through the tradition of “Blue pools” and integrate new colours
such as blackberry, lime, rose and turquoise to enhance the assimilation of the pools into
a garden environment.
The challenge for MTX was to exactly match the required colours with comparable UV
resistance used in the more traditional colours. In addition, the time frame was very
short, with first trial runs for the pools required in three weeks.
MTX was able to provide our customer with the required products in the required
timeframe and the introduction to the market was a success, with significant interest
and pre-ordering for the innovative new pool colours.
20
Our Technical Coated Fabrics division, Mehler
Texnologies (MTX), supplies products such as
side curtains for lorry trailers, advertising
banners, tensioned architectural structures,
awnings, marquees and tarpaulins to the
transport, building products, print, leisure and
industrial markets.
2014
2013
Actual
Constant
currency(1)
£128.2m £124.7m
+8.8%
£14.2m £12.1m +18.0% +27.8%
11.1%
+2.7%
9.7%
(1) Constant currency is calculated by retranslating
comparative period results at current period
exchange rates
(2) Before amortisation and non-recurring items
Technical Coated Fabrics delivered strong
sales and profit growth, building on the
momentum achieved last year. Sales grew
by 8.8% on a constant currency basis. Sales
were better than last year in all major
sectors and margins improved by 140 bps
to 11.1% with constant currency operating
profits growing by 27.8%. Improved
margins reflect increased volumes and
further operational efficiencies in Fulda and
Huckelhoven in Germany and Lomnice in
the Czech Republic.
Significant growth was achieved in the
targeted, higher margin architecture and
industrial sectors. Sales of building
products, principally tensioned architectural
membranes, grew by 10.8% and industrial
product sales increased by 10.5%. Sales to
the transport sector increased by 7.1%
buoyed by market share gains as the trailer
market enjoyed a modest cyclical recovery.
Sales outside Europe grew by 18.1%.
Recent investments in sales and distribution
in India, Brazil and Malaysia, together with
a greater share of the growing architectural
market, should continue this trend.
Over the last two years £3.2m has been
invested in the Technical Coated Fabrics
division to enable margin improvement
through improved operational efficiencies
and a further £1.1m is expected to be
invested in the coming year. We continue to
believe that the division is well positioned
to secure further value from operational
excellence and niche market growth.
| Low & Bonar PLC Annual Report 2014
Yarns
Revenue
£36.2m
(2013: £32.8m)
Operating Profit
£0.8m
(2013: £0.5m)
Operating Margin
2.2%
(2013: 1.5%)
Our Yarns division supplies yarns used in
the manufacture of artificial grass in sports
and landscaping applications as well as
yarns used as backing material in the
manufacture of woven carpet installations.
2014
2013
Actual
Constant
currency(1)
Revenue
Operating profit(2)
Operating margin(2)
£36.2m £32.8m +10.8% +14.1%
£0.5m +56.8% +58.1%
1.5%
£0.8m
2.2%
(1) Constant currency is calculated by retranslating
comparative period results at current period
exchange rates
(2) Before amortisation and non-recurring items
Yarns delivered another significant
improvement this year, albeit profits and
margins remain well below target level.
Sales increased by 14.1% on a constant
currency basis in markets that showed
modest recovery. Market share gains are
being achieved through a growing
reputation for product quality and
customer service.
Actions taken to improve efficiency added
to operational leverage but, with margins
still well below target level, additional
measures are currently being implemented.
In October, we announced our intention to
relocate production of fibrillated yarn from
Dundee in order to concentrate the
majority of production at our class-leading
facility in Abu Dhabi. The consultation
process was completed on 27 November
2014 and the equipment is now being
transferred. To date, about a third of the
reduction in staffing has been completed.
The transfer of production to Abu Dhabi
was enabled by the buy-out of the
non-controlling interest in the business,
which was completed in May 2014 at a cost
of £1.4m.
UNDER-20 WOMEN’S WORLD CUP AND WOMEN’S WORLD CUP
In August 2014, Montreal hosted the Women’s Under-20 World Cup and is due to host the
Women’s World Cup in 2015.
Due to the cold climate in Canada, preparing and maintaining natural grass is challenging,
time-consuming and costly. The Canadian Soccer Association and JSA Sport Architect Inc.
needed a consistent, high-quality surface which utilised high-quality grass fibres as well as
synthetic turf from a FIFA Preferred Producer for professional play. Therefore, they
specifically chose ACT Global, who in turn chose Yarns to create a high-performance
monofilament yarn for this very prestigious project.
The chosen system features our highest quality and most advanced yarn technology, and is
part of a joint development between Yarns and ACT Global. The turf combines our MN
Ultra grass fibres and a unique diamond shaped monofilament to create MN Global, a
highly durable yet resilient and skin-friendly yarn which outperforms all other
monofilaments available on the market.
21
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Financial Review
Pre-tax profit
Reported profit before tax, amortisation and
non-recurring items from continuing
operations was slightly below last year at
£25.2m (2013(1): £25.3m); on a constant
currency basis this represents an increase of
7.4%. Operating profits were 1.2% higher
than last year at £31.7m (2013(1): £31.4m)
including a contribution of £1.1m (2013:
£0.4m) from Bonar Geosynthetics a.s.
(formerly Texiplast), acquired on 6 September
2013. Operating profit growth at constant
currency was 8.2%. Statutory profit before
tax was £16.7m (2013(1): £16.7m) after a net
non-recurring charge of £3.3m (2013(1):
£3.0m) and a £5.2m charge for amortisation
(2013: £5.6m).
Non-recurring items
The Group’s continuing operations incurred
£3.3m (2013(1): £3.0m) of non-recurring items.
Restructuring and redundancy costs of
£2.2m (2013: £0.2m) were incurred in
relocating part of the Yarns business from
Dundee to Abu Dhabi, and in the
integration of the Group’s principal
Performance Technical Textile operations
into a single global business, Bonar. Initial
costs relating to the Group’s construction
of a new manufacturing location in
Changzhou, China, represented a further
£0.2m. In 2013, £1.5m start-up costs
related to the Group’s sales office in
Shanghai, China and the commissioning of
its joint venture, Bonar Natpet.
Acquisition related costs of £0.1m were
expensed in the year (2013: £1.0m,
principally in relation to the acquisition of
Texiplast). A further £0.5m of non-recurring
costs, and £0.4m of capital expenditure,
were incurred this year on site clean-up and
environmental rectification work to bring
Texiplast in line with Group environmental,
health and safety standards.
The Group also incurred £0.3m (2013(1):
£0.3m) of non-recurring pension
administration costs relating to data
cleansing for its UK defined benefit scheme.
Taxation
The overall tax charge on the profit before
tax was £4.9m (2013(1): £4.9m). The tax
charge on profit from continuing operations
before amortisation and non-recurring
items was £7.0m (2013: £6.7m), a rate of
26.5% (2013: 26.0%).
22
Acquisitions
On 11 May 2014, the Group purchased the
non-controlling interest in Bonar Emirates
Technical Yarns Industries LLC for a cash
consideration of $2.0m (£1.2m). As this was
a transaction with minority equity owners
of the business without a change of
control, it has been recognised as an equity
transaction in the Group’s reserves and not
as a business combination or investment.
Directly attributable costs of £0.2m have
been recorded in equity.
Net debt and refinancing
Overall net debt increased to £88.0m from
£86.8m at November 2013. Cash inflow
from operations was £38.1m (2013(1):
£39.9m) excluding movements in loans to
the Group’s Saudi Arabian joint venture,
Bonar Natpet.
Trade working capital as a percentage of
sales increased slightly to 24% from 23% in
the prior year, contributing to a cash
outflow into working capital of £7.0m
(2013: £4.8m) excluding the joint venture
loan.
During the year, the Group spent £1.4m
(2013: £15.9m) on acquisitions, joint
ventures and purchases of non-controlling
interests, £19.0m (2013: £11.3m) on
property, plant and equipment and £1.2m
(2013: £2.1m) on intangible assets.
Excluding replacement and health & safety
capital expenditure, the amount invested in
equipment to support future growth was
£16.2m (2013: £5.3m).
The analysis of the Group’s net debt is
as follows:
2014
£m
2013
£m
Cash and cash
equivalents
Total bank debt
25.8
(113.8)
17.9
(104.7)
Net bank debt
(88.0)
(86.8)
The gearing ratio of total net debt to
EBITDA was unchanged at 1.9 times.
The Group successfully refinanced its
revolving credit facility in July 2014 with a
syndicate of four relationship banks. The
new facility is for a term of five years with
an increased availability of €165m, with a
further €30m available through an
accordion facility if required. Pricing for the
new facility is 40bps lower than the old
facility. The Group’s total committed debt
facilities now total €210m (2013: €175m).
Dividends
The Directors have proposed a final dividend
in respect of the financial year ended
30 November 2014 of 1.75 pence per share
which will absorb an estimated £5.7m 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 24 March 2015, it will be paid on 16 April
2015 to Ordinary Shareholders who are on
the register of members at close of business
on 20 March 2015.
Pensions
The charges for pensions are calculated in
accordance with the requirement of IAS 19
Employee Benefits (revised). 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 23% of the scheme’s assets
(2013: 27%). At 30 November 2014 the UK
scheme showed a surplus of £0.2m
(2013: £3.8m deficit), principally due to the
outperformance of the scheme’s assets
against their expected return. The deficit in
the Group’s overseas schemes in Belgium,
Germany and the USA increased to £11.0m
(2013: £8.9m).
Restatement
The Group adopted a new accounting
standard, revised IAS 19 Employee Benefits,
during the year, and as required the
comparative amounts for the year ended 30
November 2013 have been restated. The
impact from the revision of the accounting
policy is that the Group’s operating profit and
profit before tax, amortisation and non-
recurring items for the year to 30 November
2013 are £0.8m lower; and statutory
operating profit and profit before tax are
£1.1m lower. This is due to changes to the
treatment of pension scheme administration
costs and net financing costs, which are
explained further in Accounting policy (A).
Joint venture
The Group’s joint venture in Saudi Arabia,
Bonar Natpet, made a loss during the year of
£2.2m, of which the Group’s share was £1.1m.
Discontinued operations
A profit from discontinued operations of
£0.9m has arisen from the release of a
warranty accrual held in relation to the Floors
business, which was sold in 2008, on expiry of
the warranty period.
(1) Adjusted for IAS 19 changes in accounting for pensions
| Low & Bonar PLC Annual Report 2014 Principal Risks and Uncertainties
The Group has an established risk management framework which is
designed to identify, evaluate and manage the risks and uncertainties
facing the Group. Within this framework, we classify risks into four
distinct categories according to their potential impact on the Group.
Identify
Evaluate
Mitigate
Strategic
Risks impacting long-term strategic
objectives.
Operational
Risks arising during day-to-day activities
which if not managed could impact
upon the running of the business.
Financial
Risks impacting directly upon the
finances of the business.
Compliance
Risks relating to legal and regulatory
sanctions and damage to goodwill
arising from failure to comply with
applicable laws and regulations.
Formal responsibility for risk matters set out
in the Group Risk Register is divided between
the Board, the Audit Committee, the
Remuneration Committee and the Risk
Oversight Committee. Internal Audit also has
a direct reporting line to the Audit Committee
and attends Audit Committee meetings by
invitation. As careful management of risk is
also a key management activity, the Group’s
work in the area of operational risk
management has been facilitated by the Risk
Oversight Committee.
The key risks noted below are evaluated by
these bodies as a standing agenda item at
each of the relevant meetings in terms of the
probability of the risk occurring and the
impact it would have on the Group.
Each identified risk
has a mitigation
process developed for
it, including how often
the mitigation activity
takes place, who is
accountable for the
process, the timetable
for the assessment of
the adequacy of the
mitigation strategy and
who will undertake the
assurance to ensure
that the risk is
mitigated.
Risk Profile
(relative to
prior year)
Strategic
Operational
Financial
Compliance
Increasing
• Global economic activity
• Raw material pricing
Stable
Reducing
• Growth strategy
• Cyber security
• Organic growth/competition
• Employee
• Business continuity
• Health and Safety
• Funding
• Treasury
• Pension funding
• Law and regulations
Credit – Shaw Industries Group Inc.
23
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Principal Risks and Uncertainties
continued
Risk
Movement Mitigating Strategy
Global economic activity
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.
Growth 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.
Organic growth/competition
The markets in which the Group operates
are competitive with respect to price,
geographic distinction, functionality,
brand recognition and the effectiveness
of sales and marketing.
Cyber security
Disruption to or penetration of our
information technology platforms could
have a material adverse effect on the
Group.
Business continuity
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.
Raw material pricing
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.
24
Local operating management monitor 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 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.
Procurement management mitigates supply chain risk by identifying and qualifying
alternative sources of key raw materials.
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.
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.
The Board believes that these factors maintain the Group’s strong competitive
position.
The Group has business continuity measures in place to minimise the impact of any
disruption to its operations. The Group’s information technology resources are
continuously monitored and maintained by appropriately trained staff and safeguards
are in place to provide security of our networks and data.
The Group has business continuity/disaster recovery plans in place to minimise the
impact of any disruption to its operations and has process controls and proactive
maintenance programmes designed to avoid problems arising. These are supported by
regular site visits from risk management and internal audit staff, and training
programmes provided by the global health, safety and environment committee.
Where appropriate, risks are partially transferred through insurance programmes.
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.
| Low & Bonar PLC Annual Report 2014 Risk
Movement Mitigating Strategy
Health and Safety
The nature of the Group’s operations
present 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.
Employee
The Group is reliant on its ability to
attract, develop and retain key
employees.
Funding
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.
Treasury
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, to a lesser extent,
the US Dollar. The Group is exposed to a
lesser extent to other treasury risks such
as interest rate risk and counterparty
credit risk.
Pension funding
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.
Laws and regulations
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 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 level meetings, and the Global health, safety
and environmental 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. Performance is monitored against
Group-wide health and safety KPIs.
Employee retention and development is a key feature in ensuring the continued
success of the Group. Employees are recruited and regularly appraised against a formal
job specification. Formal policies cover all material aspects of employment and we are
committed to effective communication with employees and employee development.
We empower our people to take initiative, to think and act for themselves.
The Group manages its capital to safeguard its ability to continue as a going concern,
to optimise its capital structure and to provide sufficient liquidity to support its
operations and the Board’s strategic plans. The Group’s borrowing requirements are
regularly reforecast to ensure funding is in place to support its operations and growth
plans. Compliance with the covenants associated with these facilities is closely
monitored.
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 focused 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.
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. Regular dialogue takes place with pension fund trustees and the
Board regularly discusses pension fund strategy.
The Group’s policy manuals 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, 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.
25
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Corporate & Social Responsibility
Corporate & social responsibility continues to lie at the heart of Low &
Bonar’s business values, and we understand and recognise that our
stakeholders, ranging from our site neighbours and employees through
to our customers and investors, have rising expectations of both our
corporate & social responsibility commitment and performance. Whilst
each of our business values has a corporate & social responsibility
context, it remains our value of integrity, which we describe as
“maintaining the highest ethical standards wherever we operate ...and
to ensure the health and safety of all our people and minimise our
impact on the environment”, through which we bring corporate & social
responsibility into our day-to-day business operations and practices.
2014 has again been a period during which we have focused significant
effort, resource and capital in key areas of our corporate & social
responsibility management programmes across all of our businesses.
We remain committed to reviewing all aspects of our corporate & social
responsibility management processes and looking for opportunities to
improve them, as we are clear that by doing so we are also supporting
the long-term strategy of the Group.
Stakeholders
26
| Low & Bonar PLC Annual Report 2014Low & Bonar believes that good CSR programmes add value to all of our stakeholders in the short, medium and long term, builds pride in the business for those who work in our company, and helps us to recruit and retain the best talent.FREEDOM TO OPERATEINNOVATIONOPEN COMMUNICATIONACCOUNTABILITYINTEGRITYCORPORATE & SOCIALRESPONSIBILITY 2014
Priorities
2014
Progress
2015
Priorities
Develop new Group
Environmental policy statement
Integrated Group Health, Safety and Environmental
(“HSE”) policy statement developed.
Embed new HSE policy statement across all Group
companies.
Review Low & Bonar
Environmental Management
The review was completed by establishing a broad-
based Group Environmental Panel, supported by the
Global HSE Committee. The three primary outputs
from this review included;
1. agreement of the key points to be included in the
new Group HSE policy statement;
2. a preferred list of environmental metrics to be
introduced; and
3. a new comprehensive environmental programme.
Introduce new environmental metrics and launch
enhanced environmental programme.
Expand use of
Environmental Management Systems
A number of sites have commenced work towards
introducing ISO 14001, and three sites have made
progress in moving towards ISO 50001 certification.
Continue with the programme to expand the use of
Environmental Management Systems.
Complete further energy
saving projects
Complete further waste
reduction projects
New product development
A number of projects have been completed to
reduce energy use, including both gas and electricity
use.
Carry out a series of formal energy audits across
selected locations as part of our new environmental
programme.
A number of waste reduction projects have been
completed as well as investments to increase re-use
of on-site and offsite waste streams.
A survey of key waste reduction projects that have
been completed at our sites will be carried out to
review opportunities for further waste reduction
and re-use.
We have continued to seek to develop new products
that have applications to support global
sustainability megatrends.
Carry out further review of eco-efficiency
opportunities.
Enhance employee engagement for
our health and safety programmes
Successful second Low & Bonar Global health and
safety week event held and annual Global HSE
Community Meeting held.
Continue to seek to enhance employee engagement
for HSE programmes.
Use health and safety Global Improvement
Programmes (GIPs) to reduce inherent risk and
deal with accident hot spot topics
1. Good progress has been made on our Machinery
Safety Programme; and
2. GIPs on hand injuries, manual handling and slip/
trip/fall accidents have been launched and are
already having an impact.
Continue with Machinery Safety Programme and
GIPs on hand injuries, manual handling and slip/trip/
fall accidents. In addition, launch of our GIP on fire
safety of key plant items.
Introduce a range of new
Global health and safety standards
Four new health and safety standards were issued
this year covering Low & Bonar’s health and safety
management system, the notification, reporting and
investigation of accidents and incidents, safe loading
and unloading of road transport vehicles and
thermographic examination of electrical equipment.
A range of further new/updated health and safety
standards will be issued this year based on the
results of a survey carried out within the business.
Reduce LTA incident rate to 1,000 by the
end of 2015
LTA incident rate reduced to 823 in 1 year.
A new LTA target rate will be set for the Group.
27
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Corporate & Social Responsibility
continued
ENVIRONMENT
Environmental Management –
Low & Bonar Group approach
Environmental management remains a key
area of focus for the Group and this year we
have developed a new integrated health,
safety and environmental (“HSE”) policy
statement. This was led by our new Group
Chief Executive, Brett Simpson, in order to
restate our commitment to these priority
topic areas, both internally and externally.
We recognise that we have environmental
impacts as a result of our use of raw
materials, our manufacturing processes,
including use of energy, and our products.
Therefore, we continually seek to improve in
all aspects of our environmental
management, and we regard compliance
with environmental regulation as the
minimum standard to be achieved.
Last year, we reported that the Group was
reviewing its environmental management
programme, including our environmental
management system approach, as well as
key performance indicators for
environmental performance across the
business. This review was completed as
planned and has resulted in:
• an agreement to introduce a new
broadly-defined environmental incident
reporting requirement. This change was
implemented immediately and four
environmental incidents were recorded in
2014, all of which were noise complaints
from local neighbours. These incidents
were fully investigated and appropriate
remedial actions were implemented;
• an additional agreement to expand the
range of environmental performance
metrics to be measured and reported
across the Group, which will be piloted in
2015. We will seek to ensure that the
selected metrics conform to the Global
Reporting Initiative’s G4 guidelines where
possible;
• an enhanced Group-wide environmental
programme has been defined and will be
launched early in 2015 and run for circa
two years prior to review. The key
elements of the programme will include:
– expanding the Group health and safety
Greenhouse Gas emissions
This year, we report for the second time our
Greenhouse Gas Emission Footprint. This
emission data covers all direct and indirect
emissions for all relevant Group companies.
More information is included on page 29.
information sharing platform to
include environmental topics;
– developing and delivering a Low &
Bonar Environmental Masterclass to
the Global HSE Community;
– carrying out checks to confirm
environmental compliance across
all sites;
– setting goals and targets for reductions
in key environmental impact areas
when the enhanced environmental
performance data collection process
mentioned above has been launched;
– a continued focus on energy efficiency
as one of our key environmental
impacts, and carrying out formal
energy audits at each location;
– a continued focus on waste reduction,
the use of internal waste streams as
feedstock, and the use of external
waste streams, where this is possible;
– a review of all site emissions to identify
potential areas for emission control
improvements; and
– opportunities for process efficiency
improvements and innovation
opportunities to reduce our
environmental impacts and enhance
the positive impacts of our products.
Currently, Bonar’s two manufacturing sites
in Belgium and our joint venture operation
in China are certified to the Environmental
Management Systems ISO 14001:2004. The
Bonar and Yarns divisions are currently
looking to expand the number of sites
certified to this standard, and have now
commenced a two-year programme to
include more sites. Meanwhile, both MTX’s
and Bonar’s manufacturing sites in
Germany have made good progress in
implementing the ISO 50001:2011 Energy
Management Systems Standard, and expect
to become certified to this standard during
the course of 2015.
Environmental Management –
Business Unit approach
Our businesses continue to play a key role in
environmental management as their
environmental impacts are specific to their
manufacturing processes and locations, as
well as to their product portfolios. Each
business has local environmental policies and
improvement plans in place to support the
Group HSE Policy, and environmental
performance metrics form an integral part of
their management information. Each business
seeks to continuously improve the
management of their environmental impacts,
ensure that their existing products provide
the best environmental performance available
and, where possible, to innovate with new
products that have sustainability at their core,
and to add real value to our customers.
Divisional environmental overview
MTX continues to operate its “Eco-care”
programme to demonstrate its commitment
to environmental issues. The programme
has been designed to bring the responsible
management of energy and resources,
sustainable materials and recycling of
coated textiles under one all-embracing
label. The Eco-care concept accompanies
products throughout their life cycle,
including incorporation of ecological criteria
in the selection of raw materials, the use of
less environmentally harmful production
processes, the use of recyclable packaging
materials and participation in the
development of recycling systems. More
information on Eco-care can be found at
www.mehler-texnologies.com/mta/
Expect-More/Environmental.php.
Bonar focuses its efforts on energy efficiency,
the reduction of process emissions, the
replacement of virgin raw materials with
recycled material, where possible, and the
minimisation of waste. Active plans are in
place to support continuous improvement
and these plans will be enhanced by
improved reporting metrics and the broader
adoption of certified environmental
management systems as described above.
Please go to www.bonar.com/europe/ru/
about-bonar/health-safety-environment-and-
quality/ for more information.
28
| Low & Bonar PLC Annual Report 2014 Yarns also places environmental management
and performance at the heart of its business.
Yarns use a technology which allows the
recycling of much of the polymer waste from
the production process by re-extruding it into
pellets, which are then reused as raw material
in specific products. This makes the
production process both environmentally and
financially efficient. Please go to:
www.bonaryarns.eu/
environment/#1!environment/ for
more information.
Low & Bonar products
The Group is proud of its many products,
which, as well as providing excellent quality
and value, often support our customers in
reducing the environmental footprint within
their supply chain.
Alternative energy infrastructure and
energy saving products
Alternative energy sources such as biogas
are becoming increasingly important. Biogas
is highly volatile and explosive and must be
stored in containers that offer maximum
levels of safety. Flexible VALMEX® enviro pro
gas tanks, manufactured by MTX, are ideally
suited to this application due to their special
fabric design meeting strict safety standards.
Further details can be found at www.
mehler-texnologies.com.
The recent introduction of Bonar’s Lumina
and Clima ranges, designed to reduce
energy consumption in greenhouses,
remain an important development in our
product range. In addition, World Textile
Information Network, publisher of the
international technical textiles magazine
Future Materials, launched the Future
Materials Awards to recognise success in
textile innovation. In the category Best
Innovation-Agro textile, Bonar’s PhormiTex
GREENHOUSE GAS EMISSIONS
This is our second greenhouse gas (“GHG”) emissions report in line with UK mandatory
reporting requirements as set out under the Companies Act 2006 (Strategic and Directors’
Reports) Regulations 2013. This report reflects certain improvements in the processes used to
capture and record data compared to our first reporting year (see footnotes). It also reflects an
uplift in turnover in some parts of the business and the positive impact of certain energy
efficiency measures that have been implemented since the publication of the previous report.
We have used the methodology set out by the Department for Environment, Food and Rural
Affairs (“DEFRA”) Environmental Reporting Guidelines 2013 to compile this report. As
required, we have reported on our scope 1 and 2 emissions. These are direct emissions, such
as heating and vehicle fuel, and indirect emissions, such as purchased electricity. We have
captured all material qualifying emissions from around the Group.
These sources fall within our consolidated financial statements. We do not have responsibility
for any emission sources that are not included in our consolidated financial statements. Where
data relates to a joint venture (or similar) the emissions have been apportioned on the basis of
equity ownership.
We have computed our emissions using the DEFRA Environmental Reporting Guidelines:
including mandatory Greenhouse Gas Emissions reporting guidance issued in June 2013. For
our UK operations, we have used the UK Government’s 2014 conversion factors. For non-UK
operations we have used the relevant government data where that is available. Where no
local government data was available to us, we have used the best available source. Our total
GHG footprint in line with these guidelines is 112,458 tonnes of CO2e, equivalent to 273.9
tonnes of CO2e per £1m of Group revenue.
Low & Bonar emission data for period 1 December 2013 to 30 November 2014
Energy for own use1,2
Process emissions3
Fugitive emissions
Vehicle related emissions
Total CO2e
Tonnes of CO2e
2013
102,347
19,361
100
84
2013
(Restated)
102,347
–
100
84
2014
111,412
–
72
974
121,892
102,531
112,458
Intensity ratio per £1m of Group revenue
302.4
254.3
273.9
2.
1. There has been an uplift in emissions associated with ‘energy for own use’. This is partly associated with the inclusion of
Texiplast (Slovakia) for a full year (2014) rather than a part year (2013). It is also partly due to the fact that the emissions
from the 50% owned JV, Bonar Natpet LLC, are included within the ‘energy for own use’ emissions but the associated
revenue is not included in the intensity ratio as the JV is equity accounted for in the Group consolidated accounts.
In addition, we experienced a significant uplift in consumption of diesel for running back-up generators at our North
American facility in Asheville due to the unexpected loss of the mains gas line to the site for part of the year.
In our 2013 report we adopted a precautionary approach to emissions reporting and included certain process emissions.
Subsequent assessments have identified that these process emissions fall outside the reporting boundaries and, as such,
have been excluded from this 2014 report. For the purposes of comparison, a restated 2013 intensity ratio has been
provided.
3.
29
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Corporate & Social Responsibility
continued
Eclipse won the award. This new product
supports those plant growers that require a
screen which ensures complete darkness,
but also reflects the sunlight to avoid
warming and enables moisture transport
when the screen is closed on hot summer
days. However, there has been growing
concern that these same screens could
represent a fire hazard due to the lights
and other electrical equipment used in
greenhouses. The new PhormiTex Eclipse
products are flame retardant to minimise
this risk.
Ground management and
groundcover materials
Bonar continues to supply its weed-
controlling groundcovers, which reduce or
eliminate the need for pesticides, as well as
soil-stabilising and filtering geotextiles,
which provide protection against soil
erosion and contamination. A key
component of Bonar’s sustainable
groundcover product range is Duracover, a
100% bio-based textile/compostable
groundcover earning a 4-star certificate
from AIB Vinçotte1.
1. AIB Vinçotte provides specialised and independent
inspection, monitoring and certification services,
analyses and tests for a wide range of applications in
the field of electricity, hoisting apparatus, pressure
equipment, civil engineering, safety in the work place,
environmental protection and radiant protection.
See www.vincotte.com/en/home/
Artificial grass
Yarns is a leading manufacturer of artificial
grass yarns. The use of artificial grass
reduces customer water consumption, along
with consequent reductions in energy use
and other emissions related to water
production. Artificial grass also allows the
end user to eliminate the use of fossil fuels
for lawn or pitch maintenance and to avoid
the dispersion of fertilisers and herbicides
into the environment.
Green building infrastructure materials
Bonar recognises the importance of “Green
Building” design and that LEED
Certification2 of buildings (along with other
green building rating schemes) is becoming
increasingly important. Bonar’s green roof
products, compliance with energy
performance criteria and optimisation of
energy performance, provide important
aids to architects, landscape architects and
engineers to help their buildings achieve
LEED Certification.
2. LEED Certification is a recognised standard for measuring
building sustainability. The LEED green building rating
system, developed and administered by the U.S. Green
Building Council, is designed to promote design and
construction practices that increase profitability while
reducing the negative environmental impacts of
buildings and improving occupant health and well-being.
See www.usgbc.org/LEED
Environmental impacts and examples
of improvement programmes
Raw material usage is an important impact for
all manufacturing businesses. Sourcing and
the efficient use of raw material, including,
where possible, the use of previously used or
recycled material, remain important
environmental activities for Low & Bonar, with
product range examples including:
• Bonar Colback® Green, a high-
performance carpet backing made from
100% recycled raw materials. It contains
post-consumer recycled polyester and
polyamide-6 generated from carpet
waste and creates the first recycling loop
for the face side of carpet tiles and
broadloom carpet;
• Bonar’s Colbonddrain® range of
products, a pre-fabricated vertical drain
for accelerating soil consolidation in civil
engineering projects has a patented
high-performance drainage core made of
recycled polyolefin;
• Bonar also offers EnkaRetain & Drain®, a
drainage, protection and insulation layer
developed to suit the demands of the
growing North American green roof
market, with a composite made from
post-industrial recycled polypropylene;
• MTX sold 2.3 million m2 of coated fabric
based on recycled material in 2014, an
increase of circa 28% compared to last
year, continuing the upward trend of
using recycled material; and
• Yarns’ innovative Bonaeco® carpet yarns
are made from 100% recycled material.
Energy management and the use of
renewable energy
Energy use is a key manufacturing impact
for Low & Bonar, as well as a significant
cost. The Group’s businesses continually
review opportunities to reduce energy use
and review the balance of renewable
energy in their energy mix.
Yarns are part of the UK Government’s
Carbon Reduction Commitment (“CRC”)
energy efficiency scheme and share the
information across their international
operations.
Since 2005, Bonar’s two sites in Belgium
have been working with an energy audit
organisation established under the
framework of the Kyoto Protocol. Bonar’s
non-woven and woven fabrics production
sites have been screened for their energy
consumption and all significant energy uses
in the plants were measured separately,
enabling us to take targeted measures
where necessary. For example, in 2014,
there was continued investment in energy
saving equipment at our Lokeren site: in
the extrusion department we have replaced
the lighting resulting in better lighting and
less energy consumption. In addition, an air
compressor replacement will result in a
reduced use of compressed air and energy.
A further project was completed at our
Zele site, also involving the installation of
new energy efficient lighting in the
construction fibres department. The
intensity of the lighting is regulated by the
intensity of daylight which enters the
building via roof-lights.
The further investment at Arnhem to
further reduce gas consumption at the site
that was announced last year took place as
planned and has so far achieved a gas
saving of circa 3% per m2 of product.
Additional projects have resulted in an
electricity savings of 7%.
In addition, our Emmen site carried out a
number of projects in the drying and
conditioning units which have resulted in
electricity savings of circa 4%.
30
| Low & Bonar PLC Annual Report 2014 Waste management
Waste generation is a key environmental
impact of our business, as well as a cost,
and a waste hierarchy process which starts
with avoiding waste production through to
re-use and recycling has been adopted
throughout our operations.
At MTX, the recycling of PVC waste is key
to environmental performance, and MTX is
a member and financial supporter of the
following industry programmes:
www.pvc-partner.com
www.aktion-pvc-recycling.de
www.vinyl2010.org.
Following the installation of an online
waste recycling unit on one of the extrusion
lines at Bonar’s Lokeren site to reduce
waste levels last year, a third online
recycling installation was completed this
year and additional waste savings of 100
tons of polypropylene are anticipated
in 2015.
At our Slovakian operation, a project on
waste reduction on the extrusion line has
delivered a considerable polypropylene
waste saving.
This year at our manufacturing site in
Asheville, circa 290 US tons of waste
materials, such as process by-product,
waste packaging materials and obsolete
materials, were diverted from landfill
disposal. These were instead redirected
toward re-use and recycling processes
(equivalent to preventing circa 15 tractor
trailer loads of waste from being placed
in landfill).
Water
Water usage is not a significant
environmental impact for the Group due to
the nature of our manufacturing
operations. However, as an important
resource, water usage is tracked and
monitored by Group companies and water
management activities are regularly
reviewed. As an example, in 2014, a new
water retention basin to buffer rainwater
discharge was installed at our Zele site in
Belgium. The slopes are lined with our
Enkadrain product and filled with asphalt
and grass seeds to provide aesthetically
pleasing green slopes and showcase
our products.
• the Global Improvement Programmes on
hand safety, slips, trips and falls and
manual handling accidents, which account
for around 80% of all of our accidents,
are being implemented across the Group,
and we have seen approximately a 10%
reduction in the number of first aid
accidents reported this year, against a
backdrop of encouragement to report
even the most minor accidents;
• the embedding of a broader range of
health and safety metrics that has enabled
us to better understand our risk
improvement opportunities. Within these
new metrics, the first aid/medical
treatment category has now been fully
integrated, and the category of “Near
Miss” incident introduced last year has led
to circa 800 near miss reports being
submitted in the last 12-month period, a
circa 26% increase over last year’s
reporting. This information allows us to
further improve our focus on accident
avoidance;
• a global IT data sharing platform for
Group health and safety information has
been implemented as planned and access
to the site includes all of our Global HSE
Community members;
• a new process for introducing global
health and safety standards was
introduced this year, mandatory across all
Group companies, and the first four
health and safety standards have now
been issued. These standards cover Low
& Bonar’s health and safety management
system, the notification, reporting and
investigation of accidents and incidents,
the safe loading and unloading of road
transport vehicles and thermographic
examination of electrical equipment;
• a process of best practice exchange visits
is ongoing, and involves all business
operations. These visits aim to identify
best practices at locations and then share
the information across the group so that
we share the knowledge and experience
that exists in the business; and
• our Global HSE Community, involving all
plant managers and HSE professionals,
which facilitates best practice exchange
and is a key forum for professional
development, continues to meet. A key
focus this year was our accident
reduction Global Improvement
Programmes, and professional
development sessions on electrostatic
hazards and greenhouse gas emission
reporting.
MANAGEMENT OF HEALTH
AND SAFETY
The health and safety of our employees, as
well as others who may be affected by the
Group’s operations, remains a key priority
throughout the business. Our focus on
health and safety has continued this year as
we continue to aim for improvement both
in our health and safety performance and
in our arrangements for managing health
and safety. This year we have developed a
new integrated HSE Policy Statement, led
by our new Group Chief Executive, Brett
Simpson, in order to restate our
commitment to these priority topic areas,
both internally and externally.
The Group-wide health and safety strategy,
developed by the Global HSE Committee, a
sub-committee of the Risk Oversight
Committee, and approved by the Board of
Directors remains in place. Good progress has
again been made in implementing the
strategy this year, supporting both our “Zero
Accident Goal” and “Best in Class”
aspirations, with the aim of embedding a
strong and proactive health and safety culture
across all aspects of our business. The
cornerstones of the strategy encompass
improvements to visible leadership, employee
engagement, risk-based management,
accountability and health and safety
competence, and a number of initiatives were
either started this year or fully implemented
group-wide. These include:
• in addition to the inclusion of senior
operations employees on the Global HSE
Committee last year, we will seek to
introduce Engineering & Technology as
well as Human Resource representation
this coming year. This committee is key to
ensure we have good employee
engagement on HSE matters, as well as
striking the correct balance between
corporate and operational risk
management;
• continuing on the theme of employee
engagement, Low & Bonar held its second
successful global health and safety week
this year, involving all group sites and
focusing on travel safety;
• enhancement of our HSE resourcing
continued this year, with more resources
added in order to support our ambitious
HSE improvement program. We will review
our structure again this year to ensure it is
right-sized and fit for purpose;
• there has continued to be strong Board
and executive management support for
our health and safety programmes this
year, with health and safety operating
expenditure and capital expenditure
being approved to facilitate our ability to
deliver these changes;
31
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Corporate & Social Responsibility
continued
Health and safety performance
Last year, we announced a move away from
setting targets and measuring health and
safety performance based on the number
of work related accidents that resulted in
more than three days’ absence from work
per 100,000 employees. We reported then
that we would move to a new, more
onerous, monitoring and target setting
process, based on the number of work
related accidents that involved the loss of
any time from work (LTAs) per 100,000
employees. Thus, whilst our goal remains
zero accidents, we set a new LTA interim
incident rate target of 1,000, to be reached
over two years, a target of a further 33%
improvement in the LTA incidence rate. We
are pleased, however, to confirm that we in
fact achieved an LTA incidence rate of 823
in 2014, a reduction of 49%, in one year,
and will now set a new interim target
incidence rate.
It is now more difficult to accurately
benchmark Low & Bonar’s health and safety
performance, but we note that the LTA
incidence rate for LTAs with more than three
days lost (less onerous) across all industry
sectors in the EU 28 member states in 2011
(the latest year for which information is
available) was 1,601. http://ec.europa.eu/
eurostat/statisticsexplained/index.php/
Health_and_safety_at_work_statistics.
Two occupational ill health incidents were
reported this year, both were hearing
threshold shifts (loss) and these events have
been fully investigated.
Our efforts to reduce the number of fire
incidents in the business have been
successful this year, with a reduction in all
fire events of 50%, with ongoing plans to
reduce further fire events.
However, we remain mindful that there is
still much room for improvement, and that
accident statistics such as these continue to
reveal only part of the story of successful
health and safety management, and that
health and safety culture is key. As such,
and as reported last year, a health and
safety survey of 156 plant managers,
supervisors, shift leaders and HSE
professionals was carried out across all
Group companies in order to understand
our health and safety culture better.
The 87% survey response rate gives us a
high degree of confidence in the survey
findings which overall were positive,
indicating high levels of understanding of our
health and safety programme and strong
commitment to deliver it. One of the key
outcomes of this survey was a clear need to
carry out further health and safety training
for all those with management or supervisory
roles within our operational teams, based on
the real day-to-day risks that exist within our
business. To that end, a Low & Bonar health
and safety masterclass has been developed,
covering topics from machinery safety
through to electric hazards, and will be
delivered across the Group in all local
languages in the first part of 2015.
The Group continues to maintain its strong
working relationship with its insurance risk
surveyors, insurance brokers and
underwriters during the year, and
recognises the important role played by
these partners. Risk improvement
recommendations made by risk surveyors as
a result of site visits continue to provide
valuable information to support risk
improvement activities. New brokers were
appointed this year and are supporting us
in enhancing our risk management
approach.
COMMUNITIES AND CHARITIES
Our relationship with the communities in
which we operate is important to both our
long-term financial and social success, and
efforts have again been ongoing this year
to increase our outreach programmes.
Some examples of these efforts are
as follows:
• in Asheville, volunteers from Bonar
participated in a “day of caring” and
helped to paint a local children’s shelter.
The site also held a Health Fair and raised
funds for the United Way (a local
charitable organization);
• MTX is working in co-operation with a
sheltered workshop. The employees of this
workshop help to create thousands of our
brochures and sample cards. Tasks like
gluing samples on a brochure or preparing
colour swatches are performed by their
employees in a relaxed atmosphere, where
every employee can take as much time for
their work as they need. The workshop also
offers leisure time facilities like a gym and an
employee managed café;
32
• at our Tiszaujvaros site in Hungary, in order
to support our move to new leased
premises acquired to facilitate and increase
our manufacturing capacity and product
range, local staff initiated a family day for
staff members and their children at the new
premises prior to our move there. Activities
included;
– a HSE and transport safety quiz for the
children and adults;
– an environmental game where different
types of production waste were provided
and children had to put them into the
correct waste bins; and
– a health and safety game where some
items of personal protective equipment
(PPE) were provided, in a box and when
typical workplace hazards were
described, children had to dress up each
other with the correct PPE;
• charity material donation – MTX supports
the “moving school project” at the Thai/
Burmese border and also supports
“Building Trust International UK”, a
non-profit organization, to develop a
school for refugee children. They launched
an international design competition asking
architects, designers and engineers to
come up with an innovative design solution
for a mobile, modular school which they
would then construct for a displaced
community of migrants and refugees on
the border. The application of a fabric roof
is the first of its kind for a school in the
area, hopefully outlasting the palm
alternatives in the heavy rain which is
common to the area and will be quieter
than a corrugated metal option. MTX’s
8509 Poly Opak (blockout) fabric has made
it possible to trial such a roof for the first
time utilizing Profil Tension System fixings;
and
• other charitable community donations
include local primary schools and a local
football team.
HUMAN RIGHTS
As we do not believe it is necessary for an
understanding of the development,
performance or position of the Company’s
business, this document does not contain
detailed information about human rights
issues or the Company’s policies in relation to
those matters. However, the Company does
wish to record its commitment to respecting
the human rights of its employees and its
commitment to operating in accordance with
its legal obligations. Other parts of this report
refer to its policies with regard to diversity
amongst its workforce and our commitment
to corporate social responsibility.
| Low & Bonar PLC Annual Report 2014 GENDER DIVERSITY
The Board is mindful, in the context of the
current focus on the value of gender
diversity, of the Company’s approach to the
diversity of its management and of the
representation of women in senior roles.
We have one woman on our Board and,
during the on-going process for
appointment of our new Non-Executive
Director, a number of female candidates for
the role have been considered. We have not
set, and do not intend to set, a specific
target for the number of female members of
the Board and wish to continue to appoint
the best candidate available to us for any
particular role. However, in setting the
criteria for selection of candidates, for both
Executive and Non-Executive roles, the
Group is conscious that it is possible to
inadvertently discourage the successful
candidacy of women and we intend to bear
this in mind for all future appointments and
to continue to have regard to the benefits of
diversity, including as to gender. We have
requested of our search consultants that
they provide a sufficient number of female
candidates for any future roles.
The Group has a diversity policy under which
Low & Bonar is committed to: ensuring that
everyone should have the same opportunities
for employment and promotion based on
their ability, qualifications and suitability for
the work in question; seeking excellence in
our employees through the implementation
of recruitment, incentivisation, performance
review, development and promotion
processes that are fair to all; and capitalising
on the added value that diversity brings. We
consider discrimination in the workplace on
the basis of age, gender, disability, ethnic
origin, nationality, sexual orientation, gender
reassignment, religion or belief, marital status
and pregnancy and maternity to
be unacceptable.
The following table sets out a breakdown by
gender showing at 30 November 2014 (i) the
number of persons who were directors of the
Company; (ii) the number of persons who
were senior managers of the Group (other
than persons falling within sub-paragraph (i));
and (iii) the number of persons who were
employees of the Group.
Number
of men
Number
of women
%
%
Directors
Senior managers1
Employees2
83%
5
3 100%
1,663 77.9%
1
0
17%
0%
473 22.1%
1 The Group has three senior managers; the managing
directors of the business units, Bonar EMEA, Bonar
NAFTA and MTX.
2 Employees of its consolidated subsidiaries, excluding Bonar
Natpet LLC.
CONSTRUCTION FIBRES EXPANSION IN ZELE
A new macro fibre line is in the final stages of completion at our Zele plant. The new
line was commissioned due to an increase in demand for our macro fibres and also
due to the large potential for these types of products identified in the construction
market by our sales and marketing team.
The new line has the ability to produce two distinctive fibre types; one with a dogbone
profile and one with an embossed finish, which will enable us to make a fibre tailored to
the distinctive market segments found in the construction projects we are involved in.
The fibres produced on the new line have significant product benefits over steel
reinforcement, these include:
• no corrosion issues;
• an increased speed of construction;
• a reduced cost of construction;
• no off loading/lifting, cutting and fabrication of mesh on site;
• reduced truck movements on public roads and on construction sites;
• ready mixed concrete arrives on site with the fibre reinforcement which reduces the
number of site practises required; and
• concrete at the end of its life or use can be broken up and recycled into “hard-core”
more easily when fibres are present in the concrete instead of steel mesh.
They also have significant HSE benefits, including:
• less storage space required;
• reduced manual handling;
• no cutting and fabrication of mesh on site;
• reduced trip hazards when compared to steel mesh;
• a section of concrete with a protruding steel fibre can pierce human skin, this is
virtually impossible with the new fibres; and
• macro fibres can reduce the carbon footprint of concrete by up to 38%.
33
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Board of Directors
Martin Flower
Chairman (68)
Brett Simpson
Group Chief Executive (50)
Mike Holt
Group Finance Director (54)
Steve Hannam
John Sheldrick
Trudy Schoolenberg
Senior Independent Non-Executive Director,
Non-Executive Director,
Non-Executive Director (56)
Chairman of Remuneration Committee (65)
Chairman of Audit Committee (65)
Appointed as a Non-Executive Director:
January 2007. Appointed Chairman:
June 2010.
Appointed as a Director and Group
Chief Executive: August/September
2014.
Appointed as a Director and Group
Finance Director: November 2010.
Appointed as a Non-Executive Director:
Appointed as a Non-Executive Director:
Appointed as a Non-Executive Director:
September 2002.
October 2011.
May 2013.
Experience:
Experience:
Experience:
Experience:
Experience:
Experience:
Previously Chief Executive of Coats plc, a
company in which he spent his entire
executive career having joined in 1968.
Former Deputy Chairman of Severn Trent
Plc and formerly Chairman of Alpha
Group plc and a non-executive director
of Morgan Advanced Materials plc.
Previously Chief Executive Officer of
Belgium-based LBC Tank Terminals
Group from 2009 to 2014. During his
earlier career, he worked with the Dow
Chemical Company for 23 years in a
variety of senior engineering,
operational, commercial and business
management roles.
A chartered accountant, he was
previously Group Finance Director of Vp
plc for six years and, prior to that, held a
number of senior financial positions with
Rolls-Royce Group plc in the UK, the
USA and Hong Kong.
Formerly non-executive director with
Group Finance Director of Johnson
Formerly Vice-president of Global
Clariant AG, Chairman of Aviagen
Matthey Plc until his retirement in 2009.
Research and Development at Wartsila
International Inc., non-executive director
Formerly non-executive director of GKN
Oy, having previously worked for 21
plc and API Group Plc.
years for Royal Dutch Shell plc.
of AZ Electronic Materials Services
Limited, Chairman of Devro plc and
Group Chief Executive of BTP Chemicals
plc.
External appointments:
External appointments:
External appointments:
External appointments:
External appointments:
External appointments:
Chairman of Croda International Plc.
None.
Non-executive Director of Asian Total
Return Investment Company PLC.
Trustee and treasurer of Target
Ovarian Cancer.
Non-executive director of McBride plc.
Non-executive director of Fenner PLC.
Director of Integrated Supply Chain and
RD&I for AKZO Nobel’s Paints Division.
Non-executive director of COVA and of
Spirax-Sarco Engineering Plc.
Committee membership:
Committee membership:
Committee membership:
Committee membership:
Committee membership:
Committee membership:
Chairman of the Nomination Committee
and member of the Remuneration
Committee.
Member of the Nomination Committee
and the Risk Oversight Committee.
Chairman of the Risk Oversight
Committee.
Chairman of the Remuneration
Chairman of the Audit Committee and a
A member of the Audit, Remuneration
Committee. Member of the Audit and
member of the Remuneration and
and Nomination Committees.
Nomination Committees.
Nomination Committees.
34
| Low & Bonar PLC Annual Report 2014 Martin Flower
Chairman (68)
Brett Simpson
Group Chief Executive (50)
Mike Holt
Group Finance Director (54)
Steve Hannam
Senior Independent Non-Executive Director,
Chairman of Remuneration Committee (65)
John Sheldrick
Non-Executive Director,
Chairman of Audit Committee (65)
Trudy Schoolenberg
Non-Executive Director (56)
Appointed as a Non-Executive Director:
Appointed as a Director and Group
January 2007. Appointed Chairman:
Chief Executive: August/September
Appointed as a Director and Group
Finance Director: November 2010.
Appointed as a Non-Executive Director:
September 2002.
Appointed as a Non-Executive Director:
October 2011.
Appointed as a Non-Executive Director:
May 2013.
June 2010.
2014.
Experience:
Experience:
Experience:
Experience:
Experience:
Experience:
Previously Chief Executive of Coats plc, a
Previously Chief Executive Officer of
A chartered accountant, he was
company in which he spent his entire
Belgium-based LBC Tank Terminals
previously Group Finance Director of Vp
executive career having joined in 1968.
Group from 2009 to 2014. During his
plc for six years and, prior to that, held a
Former Deputy Chairman of Severn Trent
earlier career, he worked with the Dow
number of senior financial positions with
Plc and formerly Chairman of Alpha
Chemical Company for 23 years in a
Rolls-Royce Group plc in the UK, the
Group plc and a non-executive director
variety of senior engineering,
USA and Hong Kong.
of Morgan Advanced Materials plc.
operational, commercial and business
management roles.
Formerly non-executive director with
Clariant AG, Chairman of Aviagen
International Inc., non-executive director
of AZ Electronic Materials Services
Limited, Chairman of Devro plc and
Group Chief Executive of BTP Chemicals
plc.
Group Finance Director of Johnson
Matthey Plc until his retirement in 2009.
Formerly non-executive director of GKN
plc and API Group Plc.
Formerly Vice-president of Global
Research and Development at Wartsila
Oy, having previously worked for 21
years for Royal Dutch Shell plc.
External appointments:
External appointments:
External appointments:
External appointments:
External appointments:
External appointments:
Chairman of Croda International Plc.
None.
Non-executive director of McBride plc.
Non-executive director of Fenner PLC.
Non-executive Director of Asian Total
Return Investment Company PLC.
Trustee and treasurer of Target
Ovarian Cancer.
Director of Integrated Supply Chain and
RD&I for AKZO Nobel’s Paints Division.
Non-executive director of COVA and of
Spirax-Sarco Engineering Plc.
Committee membership:
Committee membership:
Committee membership:
Committee membership:
Committee membership:
Committee membership:
Chairman of the Nomination Committee
Member of the Nomination Committee
Chairman of the Risk Oversight
and member of the Remuneration
and the Risk Oversight Committee.
Committee.
Committee.
Chairman of the Remuneration
Committee. Member of the Audit and
Nomination Committees.
Chairman of the Audit Committee and a
member of the Remuneration and
Nomination Committees.
A member of the Audit, Remuneration
and Nomination Committees.
35
Financial Statements Low & Bonar PLC Annual Report 2014 |GovernanceStrategic Report We rely on our Board to provide us with
leadership and inspiration.
They help to develop a clear Group
strategy, monitor our operational and
financial performance against agreed
objectives and ensure that we have the
right controls and systems in place to
manage risk.
Independent Auditor’s Report
37 Report of the Directors
40 Corporate Governance
46 Audit Committee Report
49 Directors’ Report on Remuneration
66 Statement of Directors’ Responsibilities
67
69 Consolidated Income Statement
70 Consolidated Statement of Comprehensive Income
71 Balance Sheets
72 Consolidated Cash Flow Statement
73 Company Cash Flow Statement
74 Consolidated Statement of Changes in Equity
75 Company Statement of Changes in Equity
76 Significant Accounting Policies
83 Notes to the Accounts
111 Five Year History
112 Advisers and Financial Calendar
36
| Low & Bonar PLC Annual Report 2014 Report of the Directors
The Directors present their report and the accounts of
the Company and the Group for the year ended 30
November 2014.
Strategic Report
The Directors have presented their Strategic Report on pages 1 to
33, which contains a fair review of the Company’s business, and a
description of the principal risks and uncertainties facing the
Company. The review is intended to be a balanced and
comprehensive analysis of the development and performance of the
Company’s business during the financial year, and the position of the
Company’s business at the end of that year, consistent with the size
and complexity of the business. The review includes, to the extent
necessary for an understanding of the development, performance or
position of the Company’s business, analysis using financial key
performance indicators. As the Company is a quoted company, the
strategic report also, to the extent necessary for an understanding of
the development, performance or position of the Company’s
business, includes (a) the main trends and factors likely to affect the
future development, performance and position of the Company’s
business, and (b) information about (i) environmental matters
(including the impact of the Company’s business on the
environment), (ii) the Company’s employees, and (iii) social,
community and human rights issues, including information about
policies of the Company in relation to those matters and the
effectiveness of those policies. The Report of the Directors should be
read in conjunction with the Strategic Report, which forms part of
this report and contains details of the principal activities of the
Group during the year and an indication of likely future
developments and an indication of the activities of the Group in the
field of research and development.
The Strategic Report was approved by the Board of Directors on
3 February 2015.
Greenhouse gas reporting
The Directors are required to set out in this report the annual
quantity of emissions in tonnes of carbon dioxide equivalent from
activities for which the Group is responsible, including the
combustion of fuel and the operation of any facility. The report must
state the annual quantity of emissions in tonnes of carbon dioxide
equivalent resulting from the purchase of electricity, heat, steam or
cooling by the Company for its own use. This report is shown on
page 29 and forms part of this report.
Results and dividends
The Group’s consolidated profit for the year attributable to equity
holders of the Company was £12.4m (2013 restated – see
Accounting policy (A): £11.3m).
The Company paid an interim dividend for the year ended
30 November 2014 of 0.95 pence per share on 25 September 2014
to ordinary shareholders whose names appeared in the register at
the close of business on 29 August 2014. The Directors recommend
that a final dividend of 1.75p (2013: 1.75p) be paid on 16 April 2015
to ordinary shareholders on the register at close of business on
20 March 2015.
Dividends
Interim
Final
Total
2014
0.95
1.75
2.70
2013
% Increase
0.85
1.75
2.60
11.8%
0%
3.8%
Directors
The present Directors of the Company are shown on pages 34 and
35. They all held office throughout the financial year under review,
with the exception of Brett Simpson who joined the Board with
effect from 26 August 2014. Steve Good served as a Director of the
Company until 30 September 2014.
The Company has purchased and maintained throughout the year
directors’ and officers’ liability insurance in respect of itself and its
Directors. The Directors also have the benefit of the indemnity
provision contained in the Company’s Articles of Association. The
Company has executed deeds of indemnity for the benefit of each
Director of the Company in respect of liabilities which may attach to
them in their capacity as directors of the Company or of associated
companies. These provisions, which are qualifying third party
indemnity provisions as defined by section 234 of the Companies
Act 2006, were entered into in June 2009 for Mr Flower and Mr
Hannam, November 2010 for Mr Holt, October 2011 for Mr
Sheldrick, May 2013 for Ms Schoolenberg and August 2014 for Mr
Simpson and are currently in force.
Re-election of Directors
Steve Hannam retires by rotation and, being eligible, offers himself
for re-appointment. Mr Hannam’s appointment may be terminated
by either him or the Company giving six months’ notice in writing.
Mr Hannam was appointed as Non-Executive Director of the
Company in September 2002 for an initial term of three years and
was last reappointed in 2014 for a term of one year up to 31 August
2015. Mr Hannam’s re-appointment has taken into account his
performance and commitment to the role, the need for progressive
refreshing of the Board and the Company’s overall corporate
governance standards. The Board continues to believe that it
benefits substantially from Mr Hannam’s experience and expertise
and notes that he is subject to annual re-election due to his long
tenure on the Board. Further details regarding Mr Hannam’s
re-appointment are set out on page 41.
Martin Flower retires by rotation and, being eligible, offers himself
for re-appointment. Mr Flower was appointed as a Director of the
Company in 2007 and as Chairman in June 2010. His appointment
may be terminated by either him or the Company giving not less
than six months’ notice in writing. Mr Flower’s re-appointment has
taken into account his performance and commitment to the role, the
need for progressive refreshing of the Board and the Company’s
overall corporate governance standards.
Mr Simpson was appointed during the year and, in accordance with
the Company’s Articles of Association, offers himself for re-
appointment. His employment may be terminated by the Company
giving him not less than twelve months’ notice in writing or by Mr
Simpson giving the Company not less than six months’ notice in
writing.
The Chairman confirms to shareholders that, following formal
evaluation, the performance of each of the Directors proposed for
re-appointment continues to be effective and to demonstrate
commitment to the role.
Directors’ interests
Directors’ interests in shares and debentures of the Company are
shown on page 63.
37
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Report of the Directors continued
Substantial interests
As at 30 November 2014, the Company’s register of substantial
shareholdings showed the following interests in 3% or more of the
Company’s issued Ordinary Shares, which include interests disclosed
to the Company in accordance with Rule 5 of the UKLA’s Disclosure
and Transparency Rules:
No. of
% of
Ordinary
Shares
Cazenove Capital Management
AXA Framlington Investment Managers
JO Hambro Capital Management
M&G Investments
Unicorn Asset Management
Schroders Investment Management
Aberforth Partners
Henderson Global Investors
Ordinary
Shares
36,173,318
35,710,411
33,291,468
25,226,185
21,432,965
18,225,316
12,834,094
10,361,535
11.03
10.89
10.16
7.70
6.54
5.56
3.92
3.16
At the date of this report, the Company’s register of substantial
shareholdings showed the following interests in 3% or more of the
Company’s issued Ordinary Shares, which include the interests
disclosed to the Company in accordance with Rule 5 of the UKLA’s
Disclosure and Transparency Rules:
No. of
Ordinary
Shares
% of
Ordinary
Shares
AXA Framlington Investment Managers
JO Hambro Capital Management
Cazenove Capital Management
M&G Investments
Unicorn Asset Management
Schroders Investment Management
Aberforth Partners
Henderson Global Investors
36,060,411
33,291,468
32,946,569
25,226,185
21,432,965
17,172,525
12,834,094
10,361,535
11.00
10.16
10.05
7.70
6.54
5.24
3.92
3.16
Ordinary share capital
The Company’s issued share capital as at 30 November 2014
consisted of 327,813,741 ordinary shares with voting rights,
154,571,152 deferred shares without voting rights and £100,000 6
per cent first cumulative preference stock, £100,000 6 per cent
second cumulative preference stock and £200,000 5.5 per cent third
cumulative preference stock (the “preference stock”). Provided that
preference dividends remain paid in accordance with the Company’s
Articles of Association, the preference stock does not carry voting
rights. The Company does not hold any ordinary shares in treasury.
The total number of voting rights in the Company is, therefore,
327,813,741. Further details of the Company’s issued share capital at
30 November 2014 and of options granted and shares issued
pursuant to the Company’s employee share option schemes and
long-term incentive plans are shown in Note 25 to the accounts. The
Company operates an employee benefit trust to hold shares in
relation to satisfying awards made under certain employee share
schemes. At 30 November 2014, the trust held 26,752 ordinary
shares (2013: 26,752 ordinary shares). During the year, 1,162,264
new ordinary shares were subscribed for by the Trust to satisfy
employee share awards which vested. The Company issued a total of
1,520,135 ordinary shares to employees, including 1,162,264 issued
on the exercise of long-term incentive awards to senior executives
and the remainder to employees on the exercise of options under
the Group’s save-as-you-earn plans. Allotment of these shares took
place at various points during the year at prices ranging from
£0.3218 to £0.8825 pence per share according to the terms of the
options and awards.
38
At a general meeting of the Company, on a show of hands, every
member who (being an individual) is present in person or (being a
corporation) is present by a duly authorised representative, shall have
one vote and every proxy present who has been duly appointed by a
member entitled to vote on the resolution shall have one vote. No
member shall, unless the directors otherwise determine, be entitled
to be present or to be counted in a quorum or to vote either
personally or by proxy or otherwise at any general meeting of the
Company or at any separate general meeting of the holders of any
class of the shares of the Company or upon a poll or to exercise any
other right conferred by membership in relation to meetings of the
Company if any call or other sum presently payable by him to the
Company in respect of shares in the Company of which he is the
holder (whether alone or jointly with any other person), together
with interest, costs, charges and expenses (if any), remains unpaid. If
any member, or any other person appearing to be interested in
shares held by such member, has been duly served with a notice
under section 793 of the Companies Act 2006 and is in default for
the prescribed period in supplying to the Company the information
thereby required, then (unless the directors otherwise determine) in
respect of: the shares comprising the shareholding account in the
Register of Members which comprises or includes the shares in
relation to which the default occurred (all or the relevant number as
appropriate of such shares being the default shares, which
expression shall include any further shares which are issued in
respect of such shares); and any other shares held by the member,
the member shall (for so long as the default continues) not nor shall
any transferee to which any of such shares are transferred other than
pursuant to an approved transfer or pursuant to the Articles be
entitled to be present or to vote either personally or by proxy at a
general meeting of the Company or a meeting of the holders of any
class of shares of the Company or to exercise any other right
conferred by membership in relation to general meetings of the
Company or meetings of the holders of any class of shares of the
Company. The profits which the Company may determine to
distribute in respect of any financial year or other period for which its
accounts are made up shall be applied, in the first place, in paying to
the holders of the first cumulative preference stock a fixed
cumulative preferential dividend at the rate of 6 per cent. per annum:
in the second place, in paying to the holders of the second
cumulative preference stock a fixed cumulative preferential dividend
at the rate of 6 per cent. per annum: and, in the third place, in
paying to the holders of the third cumulative preference stock a fixed
cumulative preferential dividend at the rate of 5½ per cent. per
annum, and, subject to any special rights which may be attached to
any shares hereafter created or issued, the balance of the said profits
shall be distributed among the holders of the ordinary shares. On a
return of assets on liquidation or otherwise, the assets of the
Company available for distribution among the members shall be
applied, in the first place, in repaying to the holders of the first
cumulative preference stock the sum of £1 for each £1 of such stock
held (together with a sum equal to any arrears or deficiency of the
fixed dividend thereon to be calculated down to the date of the
return of capital): in the second place, in repaying to the holders of
the second cumulative preference stock the sum of £1 for each £1 of
such stock held (together with a sum equal to any arrears or
deficiency of the fixed dividend thereon to be calculated down to the
date of the return of capital): and, in the third place, in repaying to
the holders of the third cumulative preference stock the sum of £1
for each £1 of such stock held (together with a sum equal to any
arrears or deficiency of the fixed dividend thereon to be calculated
down to the date of the return of capital), and, subject to any special
rights which may be attached to any shares hereafter created or
issued, the balance shall belong to and be distributed among the
holders of the ordinary shares. A Deferred Share entitles its holder on
a return of capital on a winding-up (but not otherwise) only to the
repayment of the amount paid up on that share after payment of (i)
| Low & Bonar PLC Annual Report 2014 the amounts entitled to be paid to holders of the preference stock,
and (ii) the capital paid up on each ordinary share of five pence in
the share capital of the Company and the further payment of
£10,000,000 on each such ordinary share. The full rights and
obligations attaching to ownership of shares in the Company are
contained in its Articles of Association.
The Directors have authority to allot relevant securities and to allot
equity securities for cash without first offering them pro rata to
existing shareholders granted at last year’s Annual General Meeting.
The Directors will seek to renew this authority at the upcoming
Annual General Meeting as those existing authorities will expire.
The current authority to allot “Relevant Securities” in accordance
with section 551 of the Companies Act 2006 (the 2006 Act) is as
follows:
1. in relation to a pre-emptive rights issue only, equity securities up
to a maximum nominal amount of £10,876,453.50, which
represented approximately 66.66% of the Company’s issued
ordinary shares at the date the authority was granted (reduced by
the nominal amount of any Relevant Securities allotted under the
next paragraph); and
2. in any other case, Relevant Securities up to a maximum nominal
amount of £5,438,226.75, (approximately 33.33% of the
Company’s issued ordinary shares), reduced by the nominal
amount of any equity securities allotted under the previous
paragraph.
The current authority to allot equity securities (as defined by section
560 of the 2006 Act) or sell treasury shares for cash without first
offering them to existing shareholders in proportion to their existing
holdings is as follows:
1. in relation to a pre-emptive rights issue only, up to a maximum
nominal amount of £10,876,453.50; or
2. in any other case, up to a maximum nominal amount of
£815,734.00, which represented approximately 5% of the
Company’s issued ordinary shares (excluding treasury shares) as at
the date the authority was granted.
In compliance with the guidelines issued by the Pre-Emption Group,
the Directors will ensure that, other than in relation to a rights issue,
no more than 7.5% of the issued ordinary shares (excluding treasury
shares) will be allotted for cash on a non pre-emptive basis over a
rolling three-year period unless shareholders have been notified and
consulted in advance.
Annual General Meeting
The Annual General Meeting will be held at The Pullman Hotel,
London St Pancras, 100-110 Euston Road, London NW1 2AJ on
24 March 2015, commencing at 10am. The notice of meeting is
contained in the separate booklet which is enclosed. The booklet
contains the text of the resolutions to be proposed and explanatory
notes concerning the proposals to authorise the Directors to allot
relevant securities and to allot equity securities for cash other than
on a pre-emptive basis.
Going concern
Having reviewed the medium-term forecasts and compared the cash
flow with available bank facilities, the Directors are of the opinion
that the Group has adequate resources to continue in operational
existence for the foreseeable future. For this reason, the Directors
continue to adopt the going concern basis in preparing the accounts.
Employee involvement
The Group’s overall policy is to keep employees informed on matters
of concern to them and to encourage employee involvement. This
policy is implemented in a wide variety of ways, which are reported
on by the Group’s businesses, including the publication of a
company newsletter, “Your Low & Bonar”, at least twice a year, and
regular meetings with employees’ representatives, including a
European Works Council. The Group’s employees are invited to
participate in sharesave plans to encourage equity ownership.
Disabled employees
The Group has a policy for giving full and fair consideration to
applications for employment made by disabled persons, having
regard to their particular aptitudes and abilities, for continuing the
employment of, and for arranging appropriate training for,
employees who have become disabled persons during the period
when they were employed by the Group and for their training,
career development and promotion. The terms of the Group’s
diversity policy are given on page 33.
Financial Instruments
The financial risk management objectives and policies of the
Company and policies for hedging each major type of forecasted
transaction for which hedge accounting is used and the exposure of
the Company to price risk, credit risk, liquidity risk and cashflow risk
are set out in note 20 on pages 97 to 103.
Significant agreements
The Group’s principal banking facilities may become repayable upon
a change of control of the Company.
Information to the auditor
The Directors who held office at the date of this Directors’ Report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company’s auditor is unaware, and that
each Director has taken all steps that he ought to have taken as a
Director to make himself aware of any relevant audit information
and to establish that the Company’s auditor is aware of that
information.
Auditor
A resolution to reappoint KPMG LLP as auditor will be proposed at
the forthcoming Annual General Meeting.
Fair, balanced and understandable
The Directors consider this annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
By order of the Board
Matthew Joy
Company Secretary
3 February 2015
39
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Corporate Governance
Martin Flower
Non-Executive Chairman
40
In my Chairman’s Statement I have highlighted the
priorities and main areas of focus for the Board during the
last financial year. In this report, I am pleased to discuss
more fully the work and operation of the Board and the
framework of governance it deploys to lead and control
the business and report on the Group’s performance.
We are committed to maintaining high standards of corporate
governance and to applying the principles of good governance as set
out in the UK Corporate Governance Code (the “Code”) published
by the FRC. The Directors can confirm compliance throughout the
year with the Code except in the following respect: Provision D.2.2
of the Code requires that the Remuneration Committee should have
delegated responsibility for setting the remuneration of the
Chairman. At Low & Bonar, the remuneration of the Chairman is
determined by the Board based on the recommendation of the
Remuneration Committee. This gives full transparency and allows
the views of the Executive Directors to be taken into account.
The Board
The Group is controlled through its Board of Directors, which
provides entrepreneurial leadership of the Group and is ultimately
responsible for its long-term success. Our main objectives are to
create value for shareholders, to set the Group’s strategic objectives,
to ensure that the necessary financial and human resources are
made available to enable it to meet those objectives and to review
executive management performance, all within a framework of
prudent and effective controls which enable risk to be assessed and
managed. The Board also sets the Group’s values and standards and
ensures that its obligations to shareholders and others are
understood and met.
We have a formal schedule of reserved powers which we retain for
Board decision-making on a range of key issues, including the
formulation of Group strategy, the approval of the annual budget,
the approval of reported financial statements and dividends, the
approval of acquisitions, divestments and significant items of capital
expenditure and the Group’s risk management strategy.
I chair the Board. The Group Chief Executive is Brett Simpson and
the Senior Independent Non-Executive Director is Steve Hannam.
Our current thoughts on the issue of diversity as it pertains to
membership of the Board are given on page 33.
The roles of the Chairman and Group Chief Executive
My role and that of the Group Chief Executive are separate and
clearly defined. I am responsible for leading the Board, facilitating
the effective contribution of all members and ensuring that it
operates effectively in the interests of shareholders. The Group Chief
Executive is responsible for leadership of the business and
implementation of strategy.
Directors and Directors’ independence
The Board currently comprises a Non-Executive Chairman, three
independent Non-Executive Directors and two Executive Directors.
The names of the Directors, together with their biographical details,
are set out on pages 34 and 35. In determining the membership of
the Board, we are mindful that it should be of sufficient size that the
requirements of the business can be met and that changes to its
composition and that of the committees can be managed without
undue disruption, but should not be so large as to be unwieldy. I
believe that our Board has the appropriate combination of Executive
and Non-Executive Directors (and, in particular, independent
Non-Executive Directors) and that no individual or small group of
individuals can dominate decision making. A search for a new
Non-Executive Director to join the Board and augment its skill set
and knowledge base later in 2015 is underway.
| Low & Bonar PLC Annual Report 2014 I am also concerned to ensure that the Board and its committees
should have the appropriate balance of skills, experience,
independence and knowledge of the Group to enable them to
discharge their respective duties and responsibilities effectively. This
principle has been under active consideration during the search for a
new Non-Executive Director.
The independent Non-Executive Directors challenge constructively
and help develop proposals on strategy and bring strong,
independent judgement, knowledge and experience to the Board’s
deliberations. We believe that an effective balance of power and
authority is maintained through the number and calibre of Non-
Executive Directors. All Directors have access to the advice and
services of the Company Secretary and Directors may take
independent professional advice at the Company’s expense.
Details of my professional commitments are included in my
biography. The Board is satisfied that these are not such as to
interfere with the performance of my duties for the Group, which
are based around a commitment of at least one day and no more
than two days per week.
The Chairman and the Non-Executive Directors are not employees of
the Group.
The Board considers that Steve Hannam, John Sheldrick and Trudy
Schoolenberg, the Non-Executive Directors, are independent in
character and judgement and we continue to monitor whether there
are relationships or circumstances which are likely to affect, or could
appear to affect, a Director’s judgement. Although he has served on
the Board for more than twelve years, we continue to view Steve
Hannam as independent in character and judgement. Steve is highly
experienced in both relevant executive and non-executive roles and
continues to offer a regular and substantive challenge to the
Executive Directors on their strategy for and management of the
business. Steve is asked to submit himself for re-election to the
Board annually given his long tenure and we consider his continued
membership of the Board rigorously. We continue to value his
contribution (and the continuity which it brings) highly.
I ensure that the Non-Executive Directors meet without the Executive
Directors present from time to time.
Professional development and performance evaluation
The Board has adopted a policy of providing appropriate training for
all new Directors who have not previously received such training. A
personal induction programme is provided for each new Director,
depending on the experience and needs of the individual. On
appointment, they receive information about the Group, the role of
the Board and the matters reserved for its decision, the terms of
reference and membership of the principal Board and management
committees, and the powers delegated to those committees, and
the latest financial information about the Group. This is
supplemented by visits to key locations and meetings with key senior
executives. I work to ensure that the Directors continually update
their skills and the knowledge and familiarity with the Group
required to fulfill their role both on the Board and its committees
and to make sure that the necessary resources for developing and
updating Directors’ knowledge and capabilities are made available. I
encourage Directors to avail themselves of opportunities to meet our
major shareholders.
The Board has established a process, led by me, for the annual
evaluation of the performance of the Board and its principal
committees. A list of questions is drawn up by me with the
assistance of the Company Secretary to provide a framework for the
evaluation process during a meeting of the Board. Again this year,
we considered the merits of using external assistance in connection
with the evaluation but determined that it was not necessary to do
so given the size of the Board, the good working practices and
relationships which we have established over the years and the open
and constructive way in which Directors express their views in
relation to the operation of the Board on an ongoing basis.
I have also reviewed the contribution of individual Directors, in
conjunction with my colleagues as appropriate, to reassure myself
and the Board that each Director continues to contribute effectively
and to demonstrate commitment to the role (including commitment
of time for Board and committee meetings and any other duties).
The Senior Independent Non-Executive Director leads the Non-
Executive Directors in conducting my annual performance
evaluation, taking into account the views of the Executive Directors.
Information and meetings
The Board meets regularly to review the performance of the Company
and to formulate strategy and information is supplied in advance of
each meeting with an agenda and papers covering the financial and
operating performance of the Group’s businesses and other matters to
be considered at the meeting. It is my goal to ensure that the
information available to the Board is accurate, timely and clear.
Executive management reports on a continuing basis against the
Group’s budget (set at the start of the financial year) and the quarterly
forecasts for the year which are made three times a year. The Board also
considers other key developments, such as the implementation of major
projects. I encourage the Non-Executive Directors to seek clarification
and amplification of information where necessary.
I set the agenda in discussion with executive management and the
Company Secretary and consideration is given to ensuring that
adequate time is available for discussion of all agenda items. The papers
are supplemented by information specifically requested by the Directors
from time to time. Other members of senior management attend the
Board meetings from time to time to present to the Board on the
strategy for and performance of businesses within the Group. I also
now arrange for the Board to meet in separate sessions to consider and
approve the strategy for the Group so that adequate time can be given
to this vital aspect of its role away from the normal business of monthly
Board meetings.
I also arrange for the Board to meet in more informal surroundings
several times a year to discuss topics of interest and relevance to the
Group and our external advisers are often invited to these sessions
to offer their counsel.
The full Board had eight scheduled meetings during the year. The
attendance details of the meetings of the Board and its main
committees are set out below:
Board
Meetings
8 meetings
7
3
6
7
8
8
8
Martin Flower
Brett Simpson1
Steve Good2
Mike Holt
Steve Hannam
John Sheldrick
Trudy Schoolenberg
Audit
Committee
Meetings
3 meetings
Remuneration
Committee
Meetings
3 meetings
Nomination
Committee
Meetings
3 meetings
–
–
–
–
3
3
3
2
–
–
–
3
3
3
3
1
2
–
3
3
3
1 Mr Simpson joined the Board on 26 August 2014 and has attended all its meetings
and those of its committees held since that date.
2 Mr Good left the Board on 30 September 2014 and attended all its meetings and
those of its committees held on or prior to that date.
41
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Corporate Governance continued
I also encourage the Board to establish closer links with the Group’s subsidiaries and their key executive management by visiting the Group’s
facilities and, in 2014, one of the Board meetings was held at the Group’s manufacturing facility in Slovakia. I am considering ways in which
the Board’s links to the subsidiaries and their executive management might be strengthened further in 2015. The scheduled Board meetings
concentrate on strategy, financial and business performance. Additional meetings, including of certain ad hoc committees, were called
during the year to deal with specific matters. I also encourage individual Non-Executive Directors to meet with executive management to
ensure constructive relations between them and to continue to promote a culture of openness and debate and to improve the effectiveness
of the contribution of our Non-Executive Directors as I believe that, to function effectively, all Directors need appropriate knowledge of the
Group and access to its operations and staff.
The Company Secretary is tasked with advising the Board on governance matters through me. I use the Board agenda to ensure that
Directors, especially Non-Executive Directors, have access to independent professional advice at the Company’s expense where we judge it
necessary to discharge our responsibilities as Directors. This includes the Group’s corporate finance, insurance, public relations, legal and
pensions advisers attending Board meetings from time to time.
Conflicts
A director has a duty under the Companies Act 2006 (the “Act”) to avoid a situation in which he has or can have a direct or indirect interest
that conflicts or possibly may conflict with the interests of the company. The Act allows directors of public companies to authorise conflicts
and potential conflicts where the Articles of Association contain a provision to that effect and the Company’s Articles of Association include
such provisions. The Board considers each Director’s conflicts or potential conflicts of interest. Only Directors that have no interest in the
matter under consideration take the relevant decision. In addition, the Board considers each conflict situation separately on its particular
facts; considers the conflict situation in conjunction with the rest of a Director’s duties under the Act; keeps records and minutes of
authorisations granted by Directors and the scope of any approvals given; and regularly reviews conflict authorisations (at least annually). In
addition, the Directors are able to impose limits or conditions when giving authorisation if they think this is appropriate.
Committees
In accordance with the Code, the Board has established Audit, Remuneration and Nomination Committees. All of the committees have
written terms of reference, approved by the Board. The terms of reference of the committees are available on the Company’s website via the
following link: www.lowandbonar.com/investor-centre/corporate-governance.aspx, or on request from the Company Secretary. The Board
has also established a Risk Oversight Committee (which itself has delegated authority to committees to deal with health and safety and
information security) which is discussed in more detail on pages 44 and 45.
Committee
Key members
Invited to attend regularly
Chairman
Group Chief Executive
Group Finance Director
Deputy Group Finance Director
Representative of the Internal Audit function
External auditor
Group Chief Executive
Remuneration consultants
Audit Committee
John Sheldrick, Chairman
Steve Hannam
Trudy Schoolenberg
Remuneration Committee
Steve Hannam, Chairman
Martin Flower
John Sheldrick
Trudy Schoolenberg
Nomination Committee
Risk Oversight Committee
Martin Flower, Chairman
Steve Hannam
John Sheldrick
Trudy Schoolenberg
Steve Good, until his retirement on 30 September 2014
Brett Simpson, from his appointment on 26 August 2014
Group Chief Executive
Group Finance Director, Chairman
Other members of senior executive management,
including the Managing Directors of Bonar EMEA, Bonar
NA, MTX, the Deputy Group Finance Director, the Group
Health and Safety Director, a representative of Internal
Audit and the Head of Legal Affairs
The Board recognises the value of ensuring that committee membership is refreshed and that undue reliance is not placed on particular
individuals in deciding chairmanship and membership of committees. Membership of our committees has been refreshed over the last few
years and all of the main committees have appointed new chairmen since July 2010. The new Non-Executive Director who will join the Board
in 2015 will be asked to join its committees.
We adhere to the principle that no one other than the committee chairman and members are entitled to be present at a meeting of the
Nomination, Audit or Remuneration Committees, but others may attend at the invitation of the committee and our practice in this respect is
addressed below.
42
| Low & Bonar PLC Annual Report 2014 Audit Committee
The work of our Audit Committee is addressed in more detail on pages 46 to 48 by its Chairman, John Sheldrick.
Remuneration Committee
The work of our Remuneration Committee is addressed in more detail on pages 49 to 65 by its Chairman, Steve Hannam. The Remuneration
Committee is responsible for recommending to the Board the Company’s broad policy for executive remuneration, including both short-term
and long-term incentive arrangements, and for reviewing and approving, at least annually, the entire remuneration packages of the Executive
Directors and certain other senior executives of the Group. The Committee is also responsible for recommending the Chairman’s
remuneration to the Board. The Committee is entitled to obtain, at the expense of the Company, such external advice as it sees fit on any
matters falling within its terms of reference.
Nomination Committee
The Nomination Committee is responsible for regularly reviewing the structure, size and composition of the Board and for making
recommendations to the Board with regard to any changes, including recommending candidates for appointment as both Executive and
Non-Executive Directors. Appointments are discussed fully before a proposal is made to the Board and, as Chairman of the Committee, I am
mindful that there should be a formal, rigorous and transparent procedure for the appointment of new Directors. The selection criteria are
agreed by me in conjunction with my colleagues and we make use of independent recruitment consultants and the final appointment rests
with the full Board.
As part of its review of non-executive succession, the Committee identified the need for the recruitment of a new Non-Executive Director in
2015 and discussed the appropriate role specification and time commitment expected. It was agreed that this should include the requirement
for recent experience in an international “B2B” manufacturing business. An independent consultant, Korn Ferry, was appointed to conduct
the search and a long-list of names was developed by them in consultation with me. A short-list of candidates was developed and the best
candidates for the role were interviewed by myself and the Group Chief Executive and our favoured candidates are also being seen by all
members of the Board prior to final selection and formal appointment. The Committee was also instrumental in developing the specification
for the new Group Chief Executive and in the eventual recruitment of Brett Simpson, again with the assistance of Korn Ferry. Mr Simpson
was interviewed by all members of the Board prior to his recruitment. Korn Ferry has no other connection with the Company.
In 2014, I also used the Nomination Committee to assist me in reviewing the training and development needs for each Director.
Relations with shareholders
I work to ensure that there is a dialogue with shareholders based on the mutual understanding of objectives. The Board as a whole has
responsibility for ensuring that a satisfactory dialogue with shareholders takes place. Whilst recognising that most shareholder contact is with
the Group Chief Executive and Group Finance Director, I ensure that all Directors are made aware of major shareholders’ issues and concerns
in whatever ways are most practical and efficient. This includes meeting directly with our brokers and public relations advisers and receiving
written reports from them, as well as through direct meetings with shareholders. The Board is also given copies of the reports on the Group
written by analysts. It is also our practice to consider feedback from shareholders following results presentations. Our Non-Executive
Directors have opportunities to meet with shareholders on request and, in 2015, I will again encourage them to attend results presentations
and investor days so that they have an opportunity to meet with key stakeholders in person.
The Company maintains good communications with its shareholders through its Interim and Annual Reports and through information posted
on its website at www.lowandbonar.com. The Company holds regular meetings throughout the year with major shareholders, analysts and
the financial press, in particular following the announcements of its interim and full year results. Visits for analysts and large shareholders are
also arranged from time to time to operating units. I have met with a number of the Group’s largest shareholders during the year to discuss
governance and strategy with them.
The Company’s Annual General Meeting is used as an opportunity to communicate with private investors. Shareholders attending the
Annual General Meeting are invited to ask questions and to meet with the Directors informally after the meeting. I, as Chairman of the
Board and Nomination Committee, Steve Hannam as Senior Independent Non-Executive Director and as Chairman of the Remuneration
Committee, and John Sheldrick as Chairman of the Audit Committee, will answer questions, as appropriate, at the Annual General Meeting.
Shareholders are given the opportunity to vote separately on each proposal, including on the report and accounts. For each resolution, proxy
appointment forms provide shareholders with the option to direct their proxy to vote either for or against the resolution or to withhold their
vote. The proxy form and any announcement of the results of a vote make it clear that a “vote withheld” is not a vote in law and will not be
counted in the calculation of the proportion of the votes for and against the resolution.
43
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Corporate Governance continued
The numbers of proxy votes cast in respect of each resolution are announced after the resolution has been voted on by a show of hands. The
Company ensures that all valid proxy appointments received for general meetings are properly recorded and counted by its registrar. For each
resolution, where a vote has been taken on a show of hands, we ensure that the following information is given at the meeting and made
available as soon as reasonably practicable on our website:
• the number of shares in respect of which proxy appointments have been validly made;
• the number of votes for the resolution;
• the number of votes against the resolution; and
• the number of shares in respect of which the vote was directed to be withheld.
Notice of the Annual General Meeting is sent to shareholders at least 20 working days prior to the date of the meeting.
Internal control and risk management
The Directors acknowledge their responsibility for the systems of internal control within the Group. The purpose of these systems is to
provide reasonable assurance as to the reliability of financial information and to maintain proper control over the income, expenditure, assets
and liabilities of the Group. The Board has also reviewed in detail the areas of major risk that the Group faces in its operations. It has noted
and is satisfied with the current control mechanisms and reporting lines that have been in place throughout the year. However, no system of
control can provide absolute assurance against material misstatement or loss. In carrying out our review, the Directors have regard to what
controls in our judgement are appropriate to the Group’s businesses, to the materiality and the likelihood of the risks inherent in these
businesses and to the relative costs and benefits of implementing specific controls.
Risk Oversight
▼▼
Board of Directors
oversees risk management as a whole and delegates responsibility for addressing individual risk issues to
▼▼
▼▼
▼▼
Audit Committee
delegated responsibility for control of
funding and capital, financial controls,
evaluation and control of acquisitions,
information, valuation and reporting in
respect of pensions and treasury matters
Board
political risks, take-overs, funding and
capital, acquisitions, the funding of
pensions and investor relations
Risk Oversight Committee
delegated responsibility for risks in the
areas of health and safety, information
security, the environment, major physical
or operational incidents, raw materials,
product failure, new product development,
competition, customers, human resources
and regulatory and compliance issues
▼▼
▼▼
▼▼
Remuneration Committee
considers risks associated with remuneration structures and advises the Board, the Audit Committee and the
Risk Oversight Committee as appropriate
In recognition of its responsibility for risk issues, the Board has reviewed the key risks associated with the business and will continue to do so
as a regular agenda item at its meetings in the coming year. Formal responsibility for risk matters set out in the Group Risk Register is divided
between the Board, the Audit Committee and the Risk Oversight Committee. The Board has primary responsibility for those risks broadly
categorised as political risks, take-overs, funding and capital, acquisitions, the funding of pensions and investor relations. The Audit
Committee has delegated responsibility for control of funding and capital, financial controls, evaluation and control of acquisitions,
information, valuation and reporting in respect of pensions and treasury matters. The internal audit function has a direct reporting line to the
Audit Committee and relevant representatives attend Audit Committee meetings by invitation. The Remuneration Committee considers risks
associated with remuneration structures and advises the Board, the Audit Committee and the Risk Oversight Committee accordingly.
As careful management of risk is also a key management activity, the Group’s work in the area of operational risk management is facilitated
by the Risk Oversight Committee. The Risk Oversight Committee has delegated responsibility for risks in the areas of health and safety,
information security, the environment, major physical or operational incidents, raw materials, product failure, new product development,
competition, customers, human resources and regulatory and compliance issues. HSE matters have been overseen by a sub-committee,
known as the Global HSE Committee, which is chaired by the Group Health and Safety Director. Information security matters are now
overseen by a sub-committee, known as the Information Security Committee, which is chaired by the Deputy Group Finance Director.
44
| Low & Bonar PLC Annual Report 2014 The Risk Oversight Committee meets at least three times a year and operates under formal terms of reference established by the Board and is
committed to continuing to develop and embed risk management processes within the Group. The Risk Oversight Committee is specifically
charged with developing Group management of, and policy towards, environmental, social and governance (“ESG”) risks so that the Board
may take account of their significance to the business of the Group in both the short and long term and to ensure that the Group has in
place effective systems for managing and mitigating significant ESG risks, including appropriate key performance indicators. The work of all
of the Board committees relating to risk management are discussed at full Board meetings on a regular basis in addition to the work
undertaken by the Board on key risk issues. The Risk Oversight Committee receives reports from the Global HSE Committee and the
Information Security Committee and reports on relevant matters to the Board. The Group Health and Safety Director, who deals with HSE
issues, reports to the Risk Oversight Committee in his capacity as Chairman of the Global HSE Committee.
In addition to the risk review process and the internal audit function, the Group operates within an established internal financial control
framework, which can be described under three headings:
• financial reporting: there is a comprehensive budgeting system with an annual budget approved by the Directors. Monthly actual results
are reported against budget and revised forecasts for the year, which are prepared regularly.
• operating unit controls: financial controls and procedures, including information system controls, are detailed in the Group Policies and
Procedures Manual. All operating units are required to confirm quarterly their compliance with policies and procedures set out in the
manual (including those relating to HSE matters), local laws and regulations and report any control weaknesses identified in the past year.
Independent confirmation of compliance is obtained annually for selected operating units.
• investment appraisal: the Group has clearly defined guidelines for capital expenditure which are also set out in the Group Policies and
Procedures Manual. These include detailed appraisal and review procedures, levels of authority and post-completion audits. Where
businesses are being acquired, detailed due diligence is undertaken in advance of acquisition.
The Company is committed to ensuring that all employees comply with all anti-trust legislation. To ensure that relevant employees are aware
of the issues and receive the appropriate level of training and information, the Group has a personalised online anti-trust compliance training
programme which all relevant personnel within the Group are required to complete on a regular basis.
The continued development and implementation of the risk management and internal control system across the Group has allowed the
Directors to comply with the Code provisions on internal control in the course of the financial year ended 30 November 2014.
The Risk Oversight Committee also ensures that the Group is able to respond adequately to the UK’s Bribery Act 2010 and has overseen an
enterprise-wide risk assessment process and developed a detailed set of polices and procedures in response to the findings of that
assessment. The Group values its reputation for ethical behaviour and for financial integrity and has a commitment to carry out business
fairly, honestly and openly. We will not tolerate bribery in our dealings. It is illegal and harmful for business. Any involvement with improper
inducements in order to secure business or gain any advantage for either any Group company or our employees reflects adversely on our
image and reputation and undermines the confidence of our customers and other business partners in us. We seek to eliminate bribery in
our business dealings by:
• setting out a clear anti-bribery policy;
• training all of our employees so that they can recognise and avoid the use of bribery by themselves and others;
• encouraging our employees to be vigilant and to report any suspicion of bribery through suitable channels of communication and
ensuring sensitive information is treated appropriately;
• rigorously investigating instances of alleged bribery and assisting the police and other appropriate authorities in any resultant prosecution;
and
• taking firm and vigorous action against any individual(s) involved in bribery.
Martin Flower
Non-Executive Chairman
On behalf of the Board of Directors
3 February 2015
45
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Audit Committee Report
The responsibilities and work carried out by the Audit Committee in
the year under review are set out in the following report.
Composition and governance
The Committee comprises the three independent Non-Executive
Directors, John Sheldrick (Chairman of the Committee), Steve
Hannam and Trudy Schoolenberg, who, collectively, have the skills
and experience required to fully discharge their duties. John
Sheldrick meets the requirements of recent and relevant financial
experience having been Group Finance Director of Johnson Matthey
Plc from 1995 until his retirement in 2009.
The Chairman, Group Chief Executive and Group Finance Director
also generally join at least part of Audit Committee meetings by
invitation.
The Committee Chairman may call a meeting at the request of any
member, the Company’s external auditor or internal audit. The Audit
Committee meets privately with the external auditor and internal
audit at least once a year. Both internal audit and the external
auditor have direct access to the Chairman of the Committee outside
of formal Committee meetings.
The Audit Committee meets at least three times a year. The primary
role of the Committee, which reports its findings to the Board, is to
ensure the integrity of the financial reporting and audit process and
the maintenance of sound internal control and risk management
systems. It is responsible for monitoring and reviewing:
• the integrity of the Group’s financial statements and any formal
announcements relating to its financial performance;
• the Group’s internal financial controls and internal control and
risk management systems;
• the effectiveness of the Group’s internal audit function;
• the effectiveness of the external audit process and making
recommendations to the Board on the appointment,
re-appointment and removal of the external auditor;
• policy on the engagement of the external auditor to supply
non-audit services; and
• taking specific responsibility for certain key areas of risk
management to support the Board’s role in overseeing an
enterprise-wide approach to risk identification, management and
mitigation.
Its terms of reference are available on the Company’s website at
www.lowandbonar.com.
The Audit Committee is entitled to obtain, at the expense of the
Company, such external advice as it sees fit on any matters falling
within its terms of reference.
Audit Committee Report
John Sheldrick
Non-Executive Director and
Chairman of the Audit Committee
46
| Low & Bonar PLC Annual Report 2014 Activities in 2014
The Audit Committee met on three occasions during 2014. The meetings of the Committee coincided with key dates in the financial
reporting and audit cycle. The external auditor, KPMG LLP, and the Group’s internal audit function attended all of the meetings.
The Audit Committee discharged its responsibilities by:
• reviewing the Group’s draft financial statements and interim results statement prior to Board approval and reviewing the external auditor’s
detailed reports thereon and also reporting to the Board the significant issues that the Committee considered in relation to the financial
statements and how those issues were addressed, having regard to matters communicated to it by the auditor;
• reviewing the appropriateness of the Group’s accounting policies;
• reviewing and approving the audit fee and reviewing non-audit fees payable to the Group’s external auditor in accordance with the policy
it has adopted;
• reviewing the external auditor’s plan for the audit of the Group’s accounts, which included key areas of extended scope work, key risks on
the accounts, confirmations of auditor independence and the proposed audit fee;
• reviewing an annual report on the Group’s system of internal control and its effectiveness and reporting to the Board on the results of the
review;
• assisting the Board with overseeing an enterprise-wide approach to risk identification, management and mitigation;
• receiving regular reports from the Group internal audit function following operational audits;
• reviewing the performance and effectiveness of internal and external audit; and
• reviewing the arrangements by which staff of the Company may, in confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters.
Financial reporting and significant areas of judgement
The Audit Committee reviewed a wide range of financial reporting and related matters in respect of the Company’s half-year and annual
results statements and the Annual Report prior to their consideration by the Board. Reports highlighting key accounting matters and
significant judgements were also received from KPMG LLP in respect of the year-end statements and discussed by the Committee. In
particular, these included the significant judgement area of the impairment of goodwill:
Area of judgement
Impairment of goodwill
Detail
Company response
Under IFRS, goodwill arising on acquisitions is
tested for impairment at each reporting date
based on projected cash flows discounted to
calculate their net present value. Details of the
assumptions used in these valuations are set
out in note 11 on page 92
The Group has significant goodwill in three of
its cash generating units: Bonar EMEA, Bonar
North America and Technical Coated Fabrics
(see Note 11). Both Bonar North America and
Technical Coated Fabrics performed well in
2014. However, Bonar EMEA experienced a
drop in demand in its European civil
engineering markets in the second half of the
year. The 2015 budget for Bonar EMEA, which
has been used in preparing the cash flow
projections in the goodwill impairment review,
reflects the more subdued activity levels in that
market in the near-term.
The Committee discussed with KPMG LLP the
cashflow projections and discount rates used
in these calculations and the headroom for
each group of cash generating units.
Analysis to support the going concern statement given on page 39 was also reviewed, with the Committee receiving reports from
management and the external auditor on this matter.
Following consideration of the matters presented to it and discussion with both management and KPMG LLP, the Committee was satisfied
that the significant judgements made were justified and that the financial reporting disclosures made were appropriate.
Whistleblowing
Low & Bonar operates a Group-wide international telephone hotline to support whistleblowing. The hotline is facilitated by an independent
third party with a market-leading reputation in the provision of such services. The hotline facilitates arrangements whereby employees can
make confidential disclosures about suspected impropriety and wrongdoing, in compliance with local laws and regulations in the relevant
jurisdiction. Any matters so reported are investigated by management as appropriate considering the nature of the issues involved and can,
where relevant and appropriate, be reported to the Audit Committee. A report summarising all disclosures made during the period is
considered by the Audit Committee annually.
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Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Audit Committee Report continued
Internal audit
During the year, the Committee reviewed the results of audits
undertaken by internal audit and management responses, including
the implementation of any recommendations made. The Committee
considered and approved the 2014 internal audit programme. The
effectiveness of internal audit was formally reviewed. For 2014, the
Company has co-sourced its internal audit function with
PricewaterhouseCoopers LLP (“PwC”) following the retirement of
the Head of Internal Audit who left the Company at the end of 2013.
The PwC partner-in-charge attends Audit Committee meetings.
John Sheldrick
Non-Executive Director and Chairman of the Audit Committee
On behalf of the Board of Directors
3 February 2015
External auditor
The Audit Committee is responsible for ensuring that an appropriate
relationship between the Group and the external auditor is
maintained, including reviewing non-audit services and fees. It has
developed and implemented a policy on the supply of non-audit
services by the external auditor to ensure their continued objectivity
and independence. The Committee is satisfied that the provision by
KPMG LLP of non-audit services currently provided does not impair
their independence or objectivity. The Audit Committee has
approved the range of services that may be provided by the external
auditor. These include taxation compliance services, transaction due
diligence and accountancy assistance on projects. Subject to
approved authorisation limits, the services require prior authorisation
from either the Group Finance Director, the Chairman of the Audit
Committee or the full Audit Committee. During the year, non-audit
fees amounting to £0.2m were incurred, all of which were for
corporate tax consultancy and compliance services. The Committee
is satisfied that the majority of the tax services supplied by KPMG
LLP during the year were compliance related or related principally to
foreign advisory work that required a detailed understanding of the
Group and which did not impair their independence.
The Committee received and reviewed written confirmation from the
external auditors on all relationships that, in their judgement, may
bear on their independence. The external auditors have also
confirmed that they consider themselves independent within the
meaning of UK regulatory and professional requirements.
The current overall tenure of the external auditor, KPMG LLP (and its
predecessor KPMG Audit PLC), dates from 1975, although a
re-tender exercise was conducted in 2002 and a limited review was
conducted in 2008. Any decision to open the external audit to
tender is taken on the recommendation of the Audit Committee.
There are no contractual obligations that restrict the Company’s
current choice of external auditor. In 2012, a new lead partner was
appointed in line with KPMG’s policy of partner rotation to ensure
continued auditor independence.
The UK Corporate Governance Code has recommended that
companies in the FTSE 350 index put their external audit contract
out to tender at least every ten years. The Committee has considered
this recommendation and it has recommended to the Board that the
external audit contract be put out to tender in 2016. Mindful of FRC
advice on the impracticality of all companies conducting a tender
exercise at the same time, the precise timing of this exercise will be
kept under review.
The performance and effectiveness of the external auditor was
formally reviewed by the Committee taking into account the views of
Directors and senior management on such matters as independence,
objectivity, proficiency, resourcing and audit strategy and planning.
The Committee concluded that the performance of the external
auditor remained satisfactory following the review. The performance
of the external auditor will continue to be reviewed annually. The
Committee has recommended to the Board that KPMG LLP should
be re-appointed as the Company’s external auditor for the next
financial year. Following this recommendation, the Board is
proposing the re-appointment of the external auditor to
shareholders at the Annual General Meeting.
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| Low & Bonar PLC Annual Report 2014
Directors’ Report on Remuneration
Steve Hannam
Senior Independent Non-Executive Director, Chairman
of the Remuneration Committee
ANNUAL STATEMENT BY THE CHAIRMAN OF THE
REMUNERATION COMMITTEE
This report sets out details of the remuneration policy for Executive
and Non-Executive Directors, describes how the remuneration policy
is implemented and discloses the amounts paid relating to the year
ended 30 November 2014.
Last year, our first remuneration Policy Report was put to
shareholders in a binding vote at the AGM on 24 March 2014. I am
pleased to report that this was approved with 99.4% of shareholder
votes for the relevant resolution. The policy is therefore in place for
three years from 24 March 2014. For reference the policy is once
again reproduced on pages 50 to 57 of this report.
The Annual Report on Remuneration (set out on pages 57 to 65)
describes how the policy has been implemented over the year to
30 November 2014 and how we intend to implement the policy for
the year ahead. As usual the Annual Report on Remuneration will be
subject to an advisory vote at the AGM.
Performance and Reward
As described in the Chairman’s Statement, the year started well but,
during the summer, the European economic market suffered a
marked slowdown particularly affecting the civil engineering markets
we serve. As a result, key financial targets for the year were not met
and there will be no annual bonus payable to our Executive Directors
this year.
The slowdown in the second half of the year also affected the
performance targets for awards under the Long Term Incentive Plan
(“LTIPs”) and, as a result, there will be no vesting of shares under the
awards made in 2012 on the EPS performance condition (the period
for which ended with the 2014 financial year).
In order to incentivise management, we will be making further
long-term incentive awards to our Executive Directors in line with
our remuneration policy. Awards for the current year will, therefore,
be at 125% of salary and linked to performance targets in line with
those used in previous years.
Change of Chief Executive
A major event during the year was the retirement of Steve Good as
Group Chief Executive in September 2014 and the appointment of
Brett Simpson as his successor.
Steve Good continued to be remunerated within the policy until his
retirement and no payment was made to him in connection with his
retirement. As a retiree, he was a “good leaver” in relation to his
outstanding long-term incentive awards and his awards will vest
(subject to the relevant performance targets being met) following
the conclusion of the relevant three year performance periods and a
time pro-rata reduction where relevant in line with the plan rules
(consistent with our policy).
Brett Simpson was appointed with a salary 2% higher than his
predecessor and with the same bonus and long-term incentive
opportunities. His salary will not be reviewed until 1st December 2015.
When there is a change in a small executive team there is always
additional load on the remaining member. The Board recognised this
and in agreeing for Mike Holt, the Group Finance Director, to take on
additional duties during the prolonged CEO transfer period it also
agreed to make an additional monthly payment to him of £3,333.33
over the transfer period (for one year from 1 April 2014). Further
details, including a summary of the enhanced role undertaken by the
Group Finance Director, are set out on page 58 below. In his normal
annual review, Mike Holt’s salary was increased by 2.5%, which is
consistent with the increases awarded to UK-based employees.
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Risk
In terms of risk, the Committee is comfortable that the current
arrangements do not inadvertently encourage undue risk-taking given
the clear long-term focus in our policy. The operation of the 2013
Long-Term Incentive Plan will continue to ensure that a substantial
proportion of pay is earned based on long-term performance, with
the Company’s share ownership guidelines ensuring further long-term
alignment between our executive team and shareholders. The
Committee has also embedded clawback provisions in its incentive
structures for Executive Directors, providing a further safeguard to
shareholders in the event of a misstatement in results.
Chairman and other fees
There will be no change to the fees payable to the Chairman or our
Non-Executive Directors in 2015.
POLICY REPORT
This part of the Directors’ Report on Remuneration sets out the key
elements of the remuneration policy for the Company which was
approved by shareholders at last years AGM in accordance with The
Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (‘the Regulations’). The
policy was developed taking into account the principles of the UK
Corporate Governance Code and the views of our major
shareholders and describes the policy to be applied in relation to the
current financial year and future financial years. The Policy Report
was put to a binding shareholder vote at the 2014 AGM and, having
received majority shareholder support, has been effective from the
Effective Date (25 March 2014) for the purposes of complying with
the Regulations.
The Committee looks forward to your continuing support of our
remuneration policy.
Yours sincerely
Steve Hannam
Senior Independent Non-Executive Director and Chairman of the
Remuneration Committee
On behalf of the Board of Directors
3 February 2015
The summary of the policy that follows is as per the Policy Report
included in last year’s Directors’ Remuneration Report with the only
amendments being to remove the references made last year to
specific levels of pay in the 2014 financial year (e.g. the base salaries
set with effect from 1 December 2013 and the scenarios chart which
was based on these salary levels) and the specific contents of
individual Executive Directors’ service contracts which has been
moved to the Annual Report on Remuneration so that the specific
terms of Brett Simpson’s service contract can be disclosed alongside
those of the Group Finance Director. The full text of the policy, as
approved by shareholders, is available in our 2013 Annual Report,
which can be viewed on the Company’s website at www.
lowandbonar.com/investor-centre/reports-and-presentations/
yr-2013.aspx.
Overview of the remuneration policy
The Group’s remuneration policy is to ensure that the remuneration
of Executive Directors and senior executives properly reflects their
duties and responsibilities and is sufficient to recruit, retain and
motivate high-quality executive talent, taking into account their
geographical location and the territories which their responsibilities
cover, whilst aligning the interests of senior executives as closely as
possible with the interests of shareholders. The remuneration of the
Executive Directors has been structured to provide a significant
performance-related element linked to the achievement of stretching
performance targets. The Committee keeps the Company’s
remuneration policy under review to ensure that an appropriate
balance between fixed and variable pay is maintained.
More generally, the Committee also takes into account the principles
of sound risk management when setting pay and takes action to
satisfy itself that the remuneration structure at Low & Bonar does
not encourage undue risk.
There are three main elements of the remuneration package for
Executive Directors, and the senior executive population:
1. Fixed pay, comprising base salary, pension scheme contributions
and other benefits;
2. Annual performance-related remuneration; and
3. Long-term performance-related remuneration in the form of
share awards.
50
| Low & Bonar PLC Annual Report 2014 The policies relating to each of the constituent parts of these main components of the Executive Directors’ remuneration packages are
summarised in the table below:
Salary
Purpose and link to strategy
To provide competitive fixed remuneration that will attract, retain and motivate high-quality
key employees and reflect their experience, duties and geographical location.
Operation
Reviewed annually.
Maximum opportunity
Benchmarked periodically against relevant market comparators as appropriate, including
companies of a similar international reach and complexity.
Individual pay levels determined by reference to performance, skills and experience in post.
Consideration given to the pay levels in the country in which the Executive Director lives and
works and the wider salary increases across the Group more generally.
Salary levels will be eligible for increases during the three-year period that the Remuneration
Policy operates from the Effective Date.
During this time, salaries may be increased each year. The Committee will be guided by
general conditions (such as the level of inflation) in the country in which the Director lives, the
salary increase budget set within that country for the Group and the salary budget across the
workforce generally, as well as the overall financial performance of the Group.
Increases beyond those linked to the workforce (in percentage of salary terms) may be
awarded in certain circumstances at the Board’s discretion (based on the recommendation of
the Committee) such as where there is a change in responsibility, experience or a significant
increase in the scale of the role and/or size, value and/or complexity of the Group.
Framework used to assess performance and
for the recovery of sums paid
The Committee considers individual salaries at the appropriate Committee meeting each year
taking due account of the factors noted in operation of the salary policy.
Benefits
Purpose and link to strategy
To provide competitive benefits in line with market practice.
Operation
The Company typically provides the following benefits:
• Car allowance
• Private health insurance
• Death in service cover
• Other ancillary benefits, including relocation expenses/arrangements (as required).
Where Executive Directors are recruited from overseas, benefits more tailored to their
geographical location may be provided.
Where revised benefits are offered to employees more generally within a geographic location
or across the Group, Executive Directors are likely to be eligible to receive those benefits.
The cost of some of these benefits is not pre-determined and may vary from year to year
based on the overall cost to the Company in securing these benefits for a population of
employees (particularly health insurance and death-in-service cover).
Maximum opportunity
Framework used to assess performance
and for the recovery of sums paid
None.
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Pension
Purpose and link to strategy
To provide a market competitive, yet cost-effective, long-term retirement benefit.
Operation
A Company contribution to a defined contribution scheme or the provision of a cash
supplement equivalent.
Maximum opportunity
Company contributions of up to 25% of salary.
Framework used to assess performance and
for the recovery of sums paid
None.
Annual Bonus
Purpose and link to strategy
Operation
To incentivise annual delivery of performance objectives relating to the short-term goals of the
Company.
Annual cash bonus awards are earned with the majority based on performance against a
sliding scale of challenging profit-based targets and with a minority based on targets related
to the Company’s other key performance indicators (e.g. return on capital employed). The
Committee adjusts these targets each year to ensure there is alignment with the Group’s
strategic objectives.
Maximum opportunity
Maximum (% salary):
100%
Framework used to assess performance and
for the recovery of sums paid
Details of the performance measures used for the bonus relating to the previous financial year
and targets set for the year under review and performance against them are provided in the
Annual Report on Remuneration.
The annual bonus is determined based on performance against a range of the Company’s key
performance indicators and paid following the approval of the Group’s audited results for the
year by the Board.
The majority of the bonus will be earned on the basis of stretching profit-based targets.
A minority may be based on targets related to the Company’s other key performance
indicators (e.g. return on capital employed).
Some guidance on targets for the bonus for the coming year is set out in the Directors’ Report
on Remuneration below but the specific targets are considered by the committee to be
commercially sensitive and will not be disclosed in advance.
No more than 30% of salary in total is earned at the threshold performance levels, with a
graduated scale operating thereafter through to maximum bonuses being earned for
out-performance of the Company’s targets for the year.
Payments under the annual bonus plan may be subject to clawback in the event of a material
misstatement of the Company’s financial results or misconduct that leads to such material
misstatement or if an error is made in assessing the extent to which any target and/or any
other condition imposed on the bonus was satisfied. The clawback provisions will operate for
a two-year period following the date on which the bonus is paid.
52
| Low & Bonar PLC Annual Report 2014 Long-Term Incentive Plan Awards
Purpose and link to strategy
Operation
To drive superior long-term financial performance and shareholder returns, aid retention and
align the interests of Executive Directors with shareholders.
An annual award of free shares (i.e. either conditional shares or nil-cost options) which vest
after three years subject to continued service (save in “good leaver” circumstances) and the
achievement of challenging performance conditions.
A dividend equivalent provision operates enabling dividends to be paid (in cash or shares) on
shares that vest.
Maximum opportunity
Maximum (% salary):
125%
Framework used to assess performance and
for the recovery of sums paid
Granted subject to challenging financial (e.g. adjusted EPS) and total shareholder return
performance targets tested over three years.
In exceptional circumstances (e.g. recruitment), awards can be made up to 200% of salary.
20% of awards will vest for threshold performance, with full vesting taking place for
equalling, or exceeding, the maximum performance targets.
The Committee may scale back the level of vesting of an award if it considers underlying
financial performance over the performance period has been significantly worse than the level
of vesting would otherwise indicate.
Payments may be subject to clawback in the event of a material misstatement of the
Company’s financial results or misconduct that leads to such material misstatement or if an
error is made in assessing the extent to which any target and/or any other condition imposed
on the award was satisfied. The clawback provisions will operate for a two-year period
following the date on which awards vest.
All-employee Save-As-You-Earn Plan
Purpose and link to strategy
Encourages long-term shareholding in the Company.
Operation
Periodic invitations are made to participate in the Group’s Save-As-You-Earn (“SAYE”) Plan.
Provides all employees with the opportunity to become owners in the Company on similar
terms.
Maximum opportunity
Shares acquired through the SAYE Plan (via exercising an option to acquire shares at the end
of a savings contract) have significant tax benefits in the UK, subject to satisfying certain
HMRC requirements.
The SAYE Plan can only operate on an “all employee”/equal terms basis. A plan operates on
similar terms, but on a non-tax favoured basis, outside the UK as appropriate.
The maximum participation level in the SAYE Plan is as per HMRC limits with participants
granted linked share options (by reference to projected savings) with a strike price currently up
to a 20% discount to the prevailing share price at the time of grant. On the maturity of the
savings contracts, participants can elect to (i) use the accumulated savings to exercise the
option or (ii) request the return of their savings.
Framework used to assess performance and
for the recovery of sums paid
In line with the relevant HMRC legislation (applicable to UK-based employees), there are no
post-grant performance targets applicable to awards.
Share Ownership Guidelines
Purpose and link to strategy
To align interests of Executive Directors with shareholders.
Operation
Executive Directors are expected to retain 50% of the after-tax number of vested shares
issued under long-term incentive awards until the guideline is achieved (applicable to awards
granted from 2011 onwards).
The Committee will monitor progress towards the guideline on an annual basis.
Maximum opportunity
A 100% of salary share ownership guideline applies to the Executive Directors.
Framework used to assess performance and
for the recovery of sums paid
None.
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Bonus Plan & LTIP Policy
The Committee will operate the annual bonus plan, the LTIP and SAYE Plan according to their respective rules and in accordance with the
Listing Rules and HMRC rules, where relevant. The Committee retains discretion, consistent with market practice, in a number of regards to
the operation and administration of these plans. These include the following (albeit with quantum and performance targets restricted to the
descriptions detailed in the policy table set out on pages 52 and 53):
• Who participates in the plans;
• The timing of the grant of an award and/or payment;
• The size of an award and/or a payment;
• The determination of vesting and/or meeting targets;
• Discretion required when dealing with a change of control (e.g. the timing of testing performance targets) or restructuring of the Group;
• Determination of a good/bad leaver for incentive plan purposes based on the rules of each plan and the annual bonus and the
appropriate treatment chosen;
• Adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, events and special dividends); and
• The annual review of performance measures weighting, and targets for the annual bonus plan and the LTIP from year to year.
The Committee also retains the ability to adjust the targets and/or set different measures and alter weightings for the annual bonus plan and
to adjust targets for the LTIP if events occur (e.g. material divestment of a Group business) which cause it to determine that the conditions
are no longer appropriate and the amendment is required so that the conditions achieve their original purpose and are not materially less
difficult to satisfy.
All historic awards that were granted under the 2003 and 2013 LTIPs and remain outstanding remain eligible to vest based on their original
award terms. With regards to any promotions to the executive Board, the Company will retain the ability to honour payments agreed prior to
joining the Board (such as, for example, an annual bonus formulated to reflect divisional performance), albeit that any payments agreed in
consideration of being promoted to the Board will be consistent with the Recruitment and Promotion Policy. A bonus may be forfeited on
cessation of employment in certain circumstances as outlined in “Directors’ service contracts and payments for loss of office”.
Choice of performance measures and approach to target setting
The performance metrics that are used for annual bonus and LTIP awards are a subset of the Group’s key performance indicators.
Under the annual bonus plan, profit is used as the primary performance metric. Other metrics based on the Company’s key performance
indicators are also used to provide clear alignment with the over-arching strategy of achieving profitable cash-generative growth whilst
ensuring that efficient management of capital is fully encouraged.
In terms of long-term performance targets, LTIP awards vest subject to (i) challenging EPS growth targets that are aligned with the long-term
levels of earnings growth targeted by the Company and (ii) relative TSR targets which provide clear alignment of interests between
shareholders and executives.
Targets are set based on sliding scales that take account of internal planning and external market expectations for the Company. Only
modest rewards are available for delivering threshold performance levels, with maximum rewards requiring substantial out-performance of
the challenging plans approved at the start of each year.
No performance targets are applied to the SAYE Plan, which is aimed at encouraging broad-based equity ownership.
Differences in remuneration policy for Executive Directors compared to other employees
The Committee is made aware of pay structures in the different countries in which the Group operates when setting the remuneration policy
for Executive Directors.
The workforce at Low & Bonar is increasingly geographically diverse and so local salary budgets are often influenced by the differing working
conditions, regulations and economic conditions (including rates of inflation) in each location. As a result, when determining basic salary
increases, the Committee considers the general basic salary increase and prevailing conditions for the country in which the Executive Director
is based and, also, the general basic salary increase across the broader Group. Given the diverse nature of the Group, it is not as relevant to
tie remuneration practices to those of the workforce more generally as, perhaps, would be the case in a UK-centric company.
The key difference between Executive Directors’ remuneration and that of other employees is that, overall, the remuneration policy for
Executive Directors is more heavily weighted towards variable pay. In particular, long-term incentives are not provided outside of the most
senior executive population as they are reserved for those considered to have the greatest potential to influence overall levels of
performance. Share ownership guidelines require lower levels of share retention for non-Directors. Annual bonuses are not made available to
all employees, again being targeted at those with greater potential to influence performance, and performance targets, whilst being in line
with Group objectives, are tailored to incentivise employees against targets which are relevant to the business in which they operate.
The level of variable pay varies by level of employee within the Group and is informed by the specific responsibilities of each role and local
market practice as appropriate.
54
| Low & Bonar PLC Annual Report 2014 How the views of employees are taken into account
The Company does not actively consult with employees on executive remuneration. The Group has a diverse workforce operating in many
different countries, with various local pay practices, which would make any cost-effective consultation impractical. However, the Committee
is made aware of overall pay and employment conditions in the wider workforce and takes this into account when determining executive
remuneration policy.
How the views of shareholders are taken into account
The Remuneration Committee considers shareholder feedback received in relation to the AGM each year. This feedback, together with any
additional feedback received during any communications from time to time, is then considered as part of the Company’s annual review of
remuneration policy. The Committee consulted with key investors ahead of its 2013 AGM in relation to the adoption of the 2013 Long-Term
Incentive Plan.
Recruitment and Promotion Policy
For Executive Director recruitment and/or promotion situations, the Committee will follow the guidelines outlined below:
Remuneration Element
Policy
Base Salary
Benefits
Pension
Annual Bonus
Long-Term Incentives
Buy-out Awards
Salary for a new hire (or on promotion to Executive Director) would be set at a level sufficient
to attract the best candidate available to fill the role, taking into account the Group’s position
and strategy and the country in which the new hire will live and work. For example, it may set
the salary of a new hire at a premium to those paid to the predecessor if this was necessary to
attract a candidate with experience in a business of the size which the Group aspires to
become or, conversely, could be set at a discount to those offered in companies of a similar
size, geographical reach and complexity initially, with a series of planned increases over
subsequent years, in order to bring the salary to the desired level, subject to individual
performance.
Benefits will be set in accordance with the Company’s remuneration policy. In addition, where
necessary, the Committee may approve the payment of relocation expenses to facilitate
recruitment and flexibility is retained to pay for legal fees and other costs incurred by the
individual in relation to their appointment. Consideration may need to be given to particular
elements of benefit packages if a new Director was recruited outside of the UK.
A defined contribution or cash supplement at the level provided to current Executive Directors,
again subject to particular considerations for a recruit from outside the UK.
The annual bonus will operate as outlined for current Executive Directors, with the respective
maximum opportunity, albeit usually pro-rated for the period of employment. Depending on
the timing and responsibilities of the appointment, it may be necessary to set different
performance measures and targets initially.
The maximum ongoing incentive opportunity under the Company’s policy is 100% of salary.
LTIP awards will be granted in line with the policy outlined for the current Executive Directors.
An award may (and would usually) be made upon appointment (subject to the Company not
being prohibited from doing so). For an internal hire, existing awards would continue over
their original vesting period and remain subject to their terms as at the date of grant and
further awards may also be considered.
The maximum ongoing annual award level is 125% of salary but an award, in exceptional
circumstances (as determined by the Committee) (e.g. as in the case of a “buy-out” as detailed
below), may be granted up to 200% of salary under the rules of the LTIP.
In the case of an external hire, the Committee may offer additional cash and/or share-based
elements when it considers these to be in the best interests of the Company (and therefore
shareholders) to facilitate the buy-out of value forfeited on joining the Company. This includes
the use of awards made under Rule 9.4.2 of the Listing Rules. Such payments would take
account of remuneration relinquished when leaving a former employer and would reflect (as
far as possible) the nature and time horizons attaching to that remuneration and the impact of
any performance conditions. Shareholders will be informed of any such payments at the time
of appointment.
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Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Directors’ Report on Remuneration continued
Directors’ service contracts and payments for loss of office
The policy of the Company is to have service contracts for all the Executive Directors that continue indefinitely unless determined by their
notice period.
The Committee’s policy is to set notice periods of up to 12 months for the Company to dismiss an Executive Director. Should notice be served
by either party, the executive will be able to continue to receive basic salary and other emoluments (but not bonus) for the duration of their
notice period during which time the Company may require the individual to continue to fulfill their current duties or may assign a period of
garden leave.
A bonus has only been payable if the relevant Director is in the employment of Low & Bonar PLC on the date on which bonuses are paid by
the Company following the end of the relevant financial year (the “Payment Date”) and he/she has not given notice of intention to leave
employment. The Company’s policy now includes the ability for payments to be made to Executive Directors on a pro-rata basis if the
Director is a “good leaver” during the year: i.e. in certain prescribed circumstances, such as ill health, injury or disability, redundancy,
retirement, transfer or sale of the employing company, or other circumstances at the discretion of the Committee. If the Company dismisses
the Director on or after the final date of the financial year but before the Payment Date (other than for reasons of gross misconduct) he/she
will remain eligible to receive the bonus.
Executive Directors’ service contracts may be terminated without notice for certain events, such as gross misconduct. No payment or
compensation beyond sums accrued up to the date of termination will be made if such event occurs.
At the Company’s discretion, Executive Directors may receive a payment in lieu of notice. The payment in lieu of notice would relate to the
unexpired notice period and include base salary and other emoluments (but not bonus). The policy for a new hire would be that a payment
in lieu of notice may be made but that it would be subject to full, on-going mitigation.
The treatment for share-based incentives previously granted to an Executive Director will be determined based on the relevant plan rules. The
default treatment will be for outstanding awards to lapse on cessation of employment. However, in relation to awards granted under the
2013 LTIP, in certain prescribed circumstances, such as retirement, injury or disability, redundancy, transfer or sale of the employing company,
or other circumstances at the discretion of the Committee (reflecting the circumstances that prevail at the time) “good leaver” status may be
applied. If treated as a good leaver, awards will remain subject to performance conditions, which will be measured over the performance
period from grant to the normal vesting date, and will be reduced pro-rata to reflect the proportion of the performance period actually
served (although the Committee can decide not to pro-rate if it considers it inappropriate to do so). The Committee can also decide, in
exceptional circumstances, to allow the award to vest on the date of cessation, subject to performance to that date and pro-rating. Options
held under the SAYE Plan generally lapse when employment ceases, subject again to certain good leaver provisions.
The Company may enable the provision of outplacement services to a departing Director, where appropriate.
With regards to awards previously granted under the 2003 LTIP, the extent of early vesting that takes place in certain good leaver
circumstances is broadly equivalent to that described for the 2013 LTIP. No further awards can be granted under this arrangement.
External appointments
The Committee recognises that Executive Directors may be invited to become Non-Executive Directors in other companies and that these
appointments can enhance their knowledge and experience to the benefit of the Company. It is the Company’s policy that Board approval is
required before any external appointment may be accepted by an Executive Director. The Executive Director is permitted to retain any fees
paid for such services.
Non-Executive Directors’ letters of appointment
Non-Executive Directors do not have service contracts but are appointed pursuant to letters of appointment renewable usually for periods of
three years. The appointment of the Non-Executive Directors may be terminated by either the Director or the Company giving six months’
notice in writing. Continuation of an appointment is contingent on re-election by the shareholders as required by the Articles.
Non-Executive Director’s service contract
Martin Flower has a service contract with the Company dated 12 February 2010 (which replaced his letter of appointment relating to his
previous service as a Non-Executive Director dated 1 January 2007). Mr Flower’s appointment is for a period of three years from 30 June
2013, which can be extended for a further three-years upon expiry. The appointment may be terminated at any time by either party giving to
the other six months’ prior written notice. If the Company gives notice it may, at its discretion, terminate the appointment with immediate
effect by paying an amount in respect of the fee for the notice period. Mr Flower’s appointment as Chairman will terminate forthwith and
without any compensation for loss of office if he is removed as a Director by resolution passed at a general meeting or if he ceases to be a
Director pursuant to any provision of the Articles of Association.
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| Low & Bonar PLC Annual Report 2014
The policy on Non-Executive Directors’ fees is:
Fees
Purpose and link to strategy
Operation
Maximum opportunity
To provide a competitive fee which will attract those high-calibre individuals with the relevant
skills and experience necessary to contribute to a high performing board.
The fees for the Chairman and the Non-Executive Directors are reviewed every year, although
not always changed.
Fee levels are set by reference to the expected time commitments and responsibility and are
periodically market-tested to determine if fee levels are in line with those offered in companies
of a comparable size, international reach and complexity for each role.
The Chairman and Non-Executive Directors are paid an annual fee and do not participate in
any of the Company’s incentive arrangements or receive any pension provision.
The Non-Executive Directors receive a basic fee, with additional fees payable for chairmanship
of the Company’s key committees.
The Committee recommends the remuneration of the Chairman to the Board.
The Chairman’s fee is considered by the Remuneration Committee (during which the Chairman
has no part in discussions) and the Non-Executive Directors’ fee is determined by the Board
excluding the Non-Executives.
The fee levels will be eligible for increases during the three-year period that the remuneration
policy operates to ensure they continue to appropriately recognise the time commitment of
the role, increases to fee levels for Non-Executive Directors in general and fee levels in
companies of a similar size and complexity.
Framework used to assess performance and
for the recovery of sums paid
None.
ANNUAL REPORT ON REMUNERATION
This part of the report has been prepared in accordance with Part 4 of The Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 and Rule 9.8.6R of the Listing Rules. The Annual Remuneration Report will be put to an advisory
shareholder vote at the 2015 AGM. The information on pages 61 to 63 has been audited.
UNAUDITED INFORMATION
The Remuneration Committee
The Committee currently comprises the following Non-Executive Directors of the Company: Steve Hannam, Chairman of the Committee;
Trudy Schoolenberg; Martin Flower; and John Sheldrick, who were all members of the Committee throughout the year under review. All of
the Committee members, with the exception of Mr Flower, are considered by the Board to be independent. Mr Flower became a member of
the Committee on 6 July 2010 and, while it is no longer appropriate to apply the test of independence to him following his appointment as
Chairman, he was considered by the Board to be independent on his initial appointment as a Non-Executive Director.
The Group Chief Executive and the Group Finance Director may be invited to attend meetings of the Committee. The Committee keeps itself
informed of all relevant developments and best practice in the field of remuneration and seeks advice where appropriate from external
advisers. The Group Chief Executive, the Group Finance Director and the Company Secretary also assist the Committee, except in relation to
their own remuneration. The attendance of each Director at meetings during the year is shown on page 41.
The Committee continues to consider, in line with the Investment Association’s Guidelines on Responsible Investment Disclosures, whether
the incentive policies for Executive Directors and senior executives raise any ESG issues or risks by inadvertently motivating irresponsible
behaviour (with liaison between the Risk Oversight, Audit and Remuneration Committees where appropriate). As part of this action, the
Committee periodically commissions a remuneration risk assessment, the last one being undertaken during 2014. This assessment confirmed
that the Company’s remuneration policy is aligned with the Group’s strategy and does not encourage undue risk-taking given the internal
controls operated by the Group, the range of performance measures used for incentive purposes and the significant weighting placed on
long-term performance.
The Committee’s remit is set out in its terms of reference, a copy of which is available on the Company’s website. In 2014, the Committee
recommended to the Board the broad policy for the remuneration of the Chairman, the Executive Directors and other senior executives.
57
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Directors’ Report on Remuneration continued
External advisers
The Committee has authority to obtain the advice of external independent remuneration consultants. It is solely responsible for their
appointment, retention and termination and for approval of the basis of their fees and other terms. During the year, the Committee sought
advice from New Bridge Street, a trading name of Aon Hewitt Limited (an Aon plc company), and, in relation to certain matters of legal
compliance only, Freshfields Bruckhaus Deringer and Squire Patton Boggs. New Bridge Street has no connection with the Company other
than in the provision of advice in relation to executive remuneration and Non-Executive Director fees and nor do any other companies within
the Aon plc group provide other services to the Company. The total fees paid to New Bridge Street in respect of its services during the year
were £46,000. New Bridge Street is a signatory to the Remuneration Consultants Group Code of Conduct. Freshfields Bruckhaus Deringer
and Squire Patton Boggs provide legal advice to the Company on matters other than remuneration on a regular and continuing basis. The
Committee regularly reviews the external advisor relationship and is comfortable that the advice it is receiving remains objective and
independent.
Implementation of remuneration policy for year ending 30 November 2014
i) Basic salary
The Group Chief Executive’s salary was set on his appointment in August 2014 and is not set to be considered for an increase until December
2015. The Group Finance Director’s base salary was reviewed in December 2014. The Committee took account of his performance in post as
well as his ongoing responsibilities, skills and experience when reviewing his salary. The Committee also considered the wider pay levels and
salary increases being proposed across the Group as a whole. As a result, the Committee decided to increase his salary by around 2.5% with
effect from 1 December 2014. The base salary of Brett Simpson is 2% higher than that of his predecessor, Steve Good.
Group Chief Executive
Group Finance Director
Salary as at
1 December
2014
Salary as at
1 December
20131
£360,000 £353,000
£275,200 £268,500
Increase
2.0%
2.5%
1 With regards to the salary level for the position of the Group Chief Executive, Brett Simpson, was appointed on a base salary of £360,000 with effect from 8 September 2014
with his predecessor, Steve Good, on a base salary of £353,000 during the year under review until his retirement on 30 September 2014.
The salary levels operating with effect from 1 December 2014 are considered by the Committee to be consistent with achieving salary levels
that reflect the Company’s policy objective of offering base salaries that are in line with those offered by companies of a similar size,
international reach and complexity. Overall, the Committee is satisfied that the salary levels of the Executive Directors’ are appropriate in light
of the calibre and experience of the individuals.
In addition to his base salary, the Group Finance Director was also paid an allowance from 1 April 2014 (at the rate of £40,000 per annum) in
relation to fulfilling a range of additional duties and responsibilities in connection with the effective transition of responsibilities arising from
the intended retirement of Mr Good as Group Chief Executive. These additional responsibilities included: taking a leading role in investor
relations on behalf of the Company; being the main contact for and providing continuity in relationships with the Company’s joint venture
partners; having overall responsibility for the Group purchasing function, including line management responsibility for the Group Purchasing
Director; and developing an interim talent management solution for the Bonar executive team. This additional fee (which does not form part
of his salary for the purposes of assessing the amount of any bonus payment, in relation to the Company’s contribution to his pension, an
award of long-term incentive awards or any payments to him or his family under the Company’s life policy/death-in-service scheme or
otherwise) is payable for a period of one year from 1 April 2014 (or until such earlier date as the Board shall specify e.g. in the event that
these responsibilities are transferred in part, or in full, to the current Group Chief Executive).
ii) Pension and benefits
Executive Directors receive a car allowance (not Mr Simpson), private health insurance, death in service cover and a Company pension
contribution of 25% of salary.
iii) Performance-related bonus
Details of the annual bonus payments made and the metrics used for the year ended 30 November 2014 are set out on page 61. The specific
targets relating to the annual bonus for the year ended 30 November 2015 are considered to be commercially sensitive and will not therefore
be disclosed in advance. They will be disclosed in next year’s Annual Report on Remuneration, along with disclosure of performance against
them and the payments resulting. However, an overview of the bonus structure that is intended to operate in the current financial year is set
out below.
In 2015, the Executive Directors will again be eligible to receive a performance-related bonus of up to 100% of salary with the metrics and
opportunity composed as follows:
Metric
Profit*
ROCE**
Opportunity
(% Salary)
70%
30%
* Profit before tax, amortisation and non-recurring items, at budgeted exchange rates on a constant basis throughout the year.
** ROCE targets are subject to achieving a threshold level of profit before tax, amortisation and non-recurring items to ensure that the sales growth and returns are delivered on a
profitable basis.
58
| Low & Bonar PLC Annual Report 2014 In line with the policy detailed in the Policy Report, the bonus targets operating for the year ended 30 November 2015 will be structured on
a graduated scale around targeted levels of performance. In relation to the profit element of a bonus (maximum of 70% of salary), the bonus
payable at the threshold performance level is 20% of salary through to a maximum bonus being earned at up to 70% of salary in relation to
delivering performance ahead of the Company’s target. In relation to the ROCE element of the bonus (maximum of 30% of salary), the
bonus payable at the threshold performance level is 10% of salary through to a maximum bonus being earned at up to 30% of salary in
relation to delivering performance ahead of the Company’s target. No bonus is earned against non-financial targets. As was the case with
the bonuses for the year ended 30 November 2014, the annual bonus for the year ended 30 November 2015 will also be subject to clawback
provisions which will enable the Committee to recover the value overpaid to an Executive Director in respect of 2015 performance in the
event of a material misstatement of the Company’s financial results or misconduct that leads to such material misstatement or if an error is
made in assessing the extent to which any target and/or any other condition imposed on the bonus was satisfied. The clawback provisions
are structured so as to enable the Committee to withhold shares held under outstanding long-term incentive awards and/or future cash
bonus payments as part of the process through which any overpayment of annual bonus is recovered by the Company. The Committee may
also request a repayment (in cash) if any clawback cannot be satisfied through the withholding of incentive pay. The clawback provisions will
operate for a two-year period following the date on which the bonus is paid. Bonuses for Executive Directors are subject to provisions
allowing for payment on a pro rata basis to “good leavers” during the year as outlined above.
iv) Long-term Incentive Plan
The maximum normal award limit under the 2013 LTIP is 125% of salary and it is intended that awards will be granted at this level in the
current financial year as nil-cost options. The quantum of awards has been set after taking due account of (i) the need to motivate and retain
the Executive Directors and other participants and (ii) the challenging nature of the performance targets set.
The performance targets to apply to the awards to be granted in the current financial year under the 2013 LTIP will be, as in prior years, split
so that half will vest dependent on challenging EPS growth targets and half dependent on relative TSR measured against the constituents of
the FTSE Small Cap Index (excluding investment trusts). The targets, each tested over three years, are as follows:
Relative Total Shareholder Return (50% of an award)
Low & Bonar TSR Ranking versus FTSE Small Cap Index
(excluding investment trusts)
Below median
Median
Upper quartile
Straight-line vesting between performance points
Earnings Per Share (50% of an award)
Adjusted annualised EPS growth1
Below 6% p.a.
6% p.a.
14% p.a.
Straight-line vesting between performance points
Percentage
vesting
0%
20%
100%
Percentage
vesting
0%
20%
100%
1 The base-year EPS (i.e. that for the year ended 30 November 2014) is 5.75p, being our reported adjusted EPS of 5.46p adjusted to exclude costs relating to the Group’s pension
schemes as calculated in accordance with IAS 19 Revised. The Remuneration Committee will also adjust reported EPS for these same pension-related costs when assessing
achievement of performance targets at the end of the performance period in order that the volatility in results which may arise from pension scheme investment strategy, which
is managed by independent trustees, is excluded from consideration of management performance.
The Committee will have a power to reduce vesting if the Company’s overall financial performance over the performance period is
significantly worse than the level of vesting indicates. In such circumstances, the Committee may reduce the level of vesting of an award so
that, in the reasonable opinion of the Committee, it reflects the Company’s overall financial performance over the performance period. In
making its assessment, the Committee will consider the Company’s broad range of key performance indicators from time to time (which
currently include profit before tax and return on capital employed).
The use of EPS and relative TSR, consistent with the approach taken in prior years, reflects our continued long-term focus on delivering
long-term profitable growth and creating above market levels of shareholder value. Setting absolute EPS growth targets is considered to
provide a clear and transparent approach to incentivising Executive Directors and mirrors the approach taken in recent years. The range of
EPS targets reflects the current trading environment and is aligned with the continued focus on profitable growth, which is a key factor in
our strategy. Use of relative TSR provides clear alignment between the Executive Directors and the Company’s shareholders. We believe the
targets to be appropriately challenging given the proposed level of the awards.
59
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Directors’ Report on Remuneration continued
When testing these targets, the Committee’s policy will be to (i) request from its advisers an independent assessment of the extent to which
the relative TSR target has been satisfied and (ii) consider the Company’s audited results (and the need to make any adjustments) when
determining the extent of vesting in respect of EPS targets.
The awards will be subject to clawback provisions which will enable the Committee to recover the value overpaid to an Executive Director
under an award in respect of performance to the year ending 30 November 2017 in the event of a material misstatement of the Company’s
financial results or misconduct that leads to such material misstatement or an error is made in assessing the extent to which any target and/
or any other condition imposed on vesting was satisfied. The clawback provisions are structured so as to enable the Committee to withhold
shares held under outstanding long-term incentive awards and/or future cash bonus payments as part of the process through which any
value overpaid is recovered by the Company. The Committee may also request a repayment (in cash) if any clawback cannot be satisfied
through the withholding of incentive pay. The clawback provisions will operate for a two-year period following the date on which the awards
vest.
v) Other share-based incentives
Executive Directors remain eligible to participate in the SAYE Plan on the same terms as any other eligible employee.
vi) Directors’ Service Contracts
In relation to the current Executive Directors’ service contracts, Brett Simpson entered into a service agreement in June 2014, in respect of his
employment which commenced on 26 August 2014, and Mike Holt entered into a service agreement in September 2010, in respect of his
appointment which commenced on 22 November 2010.
The contract of the current Group Finance Director provides that, if a payment in lieu of notice is made, then on the date of notice of
termination a payment of six months’ salary is made. Further payments are made only if he is not in full-time employment at the time at
which the payments fall to be made. For the Group Chief Executive, the Company has reserved the right to pay any sums due in equal
monthly instalments during what would have been the unexpired portion of his contractual notice period. In such circumstances, the Group
Chief Executive will be under a duty to take reasonable steps to mitigate any consequential losses by seeking an alternative remunerative
position, whether as employee, director, self-employed consultant or shareholder, and to notify the Company in writing as soon as any such
position is accepted, of when it is due to commence and the financial terms applicable to it. If he obtains an alternative position during this
period any sums due to him will be reduced or extinguished accordingly.
vii) External Appointments
Mr Holt is currently a Non-Executive Director of Asian Total Return Investment Company Plc. The Executive Directors hold no other
remunerated external appointments.
viii) Non-Executive Directors’ remuneration
The term of appointment for the Company’s Non-Executive Directors are as follows:
Steve Hannam
Trudy Schoolenberg
Martin Flower
John Sheldrick
Original
appointment date
Renewed from
1/9/2014 for 1 year
1/9/2002
1/5/2013
N/A
1/1/2007 30/6/2013 for 3 years
1/10/14 for 3 years
1/10/2011
Fees for the year ended 30 November 2015 (which are unchanged from the year under review) are:
• Chairman: £135,757
• Non-Executive Director base fee: £40,000
• Chairman of the Audit Committee: £7,000
• Chairman of the Remuneration Committee: £7,000
Non-Executive Directors are not eligible to participate in short or long-term incentive plans or to receive any pension from the Group.
60
| Low & Bonar PLC Annual Report 2014 AUDITED INFORMATION
Table 1 Analysis of individual Directors’ emoluments
Executive Directors
S Good
B Simpson
M Holt
Non-Executive Directors
SJ Hannam7
MC Flower
FB Blaisse8
T Schoolenberg9
JN Sheldrick10
Salaries
and fees
£
Benefits
in kind1
£
Annual bonus2
£
LTIP
awards3
£
Pensions4
£
Total
£
20145
2013
20145
2013
20146
2013
294,167
342,140
95,538
–
295,167
260,000
17,545
19,735
682
–
19,078
18,535
–
–
–
–
–
–
118,112
617,100
–
–
89,728
439,900
73,542
503,366
85,535 1,064,510
120,220
24,000
–
–
471,098
67,125
783,435
65,000
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
47,000
43,012
135,757
135,757
–
15,838
40,000
22,174
47,000
45,000
47,000
43,012
135,757
135,757
–
15,838
40,000
22,174
47,000
45,000
1 Benefits in kind are a car allowance (Mr Good and Mr Holt) and health insurance for the Director and his spouse/children under 21. In relation to the benefits detailed in the
above table, the benefit which is considered to be significant in value terms is the provision of a car allowance, which was limited to an annual cost of £16,200 for Mr Good and
£15,000 for Mr Holt.
2 The annual bonus is the only payment made to Directors which falls within paragraph 7(1)(c) of Part 3 of Schedule 8 to the Regulations. In setting the bonus plan for 2013, the
metrics used were chosen to be aligned with the Group’s stated medium-term objectives and were set out in more detail on page 56 of last year’s Annual Report.
The metrics used in the annual bonus plan in the year under review were chosen to be aligned with the Group’s stated medium-term objectives. This resulted in a combination
of profit and ROCE targets being set. The sliding scales of targets set took due account of both internal planning and the external market’s expectations for the Company’s
performance. The bonus payable to both Mr Good and Mr Simpson were to be pro-rated to the portion of the bonus year in which they were employed by the Company in
accordance with the terms of their original participation in the bonus plan and the Company’s remuneration policy. The bonus earned against the targets set, and a summary
of the targets and weightings applying to each measure for 2014, is set out below:
Metric
Profit*
ROCE**
Opportunity (% salary)
Payment (% salary)
70%
30%
0%
0%
* Profit before tax, amortisation and non-recurring items at budgeted exchange rates. A “profit” element of the bonus was to be paid if profit before tax, amortisation and
non-recurring items (“PBTA”) equalled or exceeded the lower limit of £29.0m. At the lower limit, a ‘profit’ bonus of 17.5% of salary was payable. Below the lower limit, no
“profit” element of the bonus was to be paid. At a PBTA of £30.8m (the mid-point), a profit element of the bonus of 42% of salary was to be payable. A maximum “profit”
element of the bonus of 70% of salary was to be payable if PBTA was equal to or more than £32.3m (the upper limit). Between the lower and mid point and between the mid
point and the upper limit, the profit bonus percentage was to increase on a straight-line basis. As the targets were set at budgeted exchange rates, the level of profit determined
to have been made during the year would differ from reported profits, which are based upon actual exchange rates during the year. Certain other minor adjustments to reported
profits may also be taken into account when determining profits for the purposes of annual bonuses.
** ROCE targets were subject to achieving a threshold level of PBTA (calculated as set out above) to ensure that the returns were delivered on a profitable basis. A return on capital
employed element of the bonus was to be payable if return on capital employed for the relevant periods equalled or exceeded the rates for the periods referred to in the table
below. Return on capital employed was operating profit before non-recurring items and amortisation for the twelve-month period ending on 30 November 2014 divided by the
total sum of fixed assets (property, plant and equipment), inventories, trade debtors, prepayments, trade creditors and accruals at budgeted exchange rates. Below the lower limit
specified, no “return on capital employed” element of the bonus was to be paid. A maximum “return on capital employed” element of the bonus of 30% of salary was only to
be payable if return on capital employed was equal to or more than the rate specified (the upper limit).
30 November 2014
Period-end return on
capital employed
Bonus entitlement
(as % of salary)
15.2%
15.6%
16.0%
7.5%
18.0%
30.0%
Between the lower and upper limits, the return on capital employed bonus percentage was to increase on a straight-line basis. The “return on capital employed” element of the
bonus was only to become payable if actual PBTA was at least £29.0m. No bonuses became payable for the Executive Directors as the adjusted PBTA for the year was below the
lower limit.
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Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Directors’ Report on Remuneration continued
3 The amounts stated for 2013 comprise the value of ordinary shares vesting and being received in that financial year under (a) LTIP awards made in 2010 in relation to the TSR
performance target (but not the EPS target) as the performance period in relation to the TSR target ended in that financial year and the shares vested and were issued to the
relevant Directors in April 2013 and (b) LTIP awards made in 2011 in relation to the EPS performance target (but not the TSR target) as the performance period in relation to the
EPS target ended in that financial year, although those shares vested and, in the case of Mr Holt, were issued in May 2014. For last year’s annual report, the amounts relating to
(b) were estimated at £123,135 and £93,544, respectively, for Mr Good and Mr Holt as the values were based on the market price of the shares over the last quarter of the 2013
financial year in relation to the shares to be issued under the 2011 award (being 74.28p) and the shares were eventually issued at a price of 75.0p per share to Mr Holt. As a
result, the amounts estimated have increased to £124,329 and £94,450, respectively. Mr Good has still not called for shares to be issued to him under that 2011 award, although
the award vested before his retirement in accordance with its terms.
The amounts stated for 2014 comprise the value of ordinary shares (a) vesting and being received in that financial year under LTIP awards made in 2011 in relation to the TSR
performance target (but not the EPS target) as the performance period in relation to the TSR target ended in that financial year and the shares vested and were issued to Mr Holt
in May 2014 (Mr Good has still not called for shares to be issued to him under that award and so sums for him are stated at the price per share at which shares were issued to Mr
Holt for comparison purposes) and (b) to vest and be issued under LTIP awards made in 2012 in relation to the EPS performance target (but not the TSR target) as the
performance period in relation to the EPS target ended in that financial year, although those shares have not yet vested or been issued to the relevant Directors, which is
expected to occur in March 2015. Unless otherwise stated, the values stated are the prices at which the relevant shares (or a portion of them) were sold in the market
immediately after their allotment to the Director in respect of the shares issued under the 2010 and 2011 awards. No shares will vest under the under LTIP awards made in 2012
in relation to the EPS performance target and so no value is ascribed to them.
The 2010 LTIP awards vested as to the maximum level in relation to both the EPS and TSR performance conditions in April 2013. This level of vesting was triggered as a result of
achieving (i) EPS of 6.28p in the year ending 30 November 2012, which was above the maximum EPS target of 5.4p and thus resulted in maximum vesting in respect of this part
of the award and (ii) a three-year total shareholder return of 110.4%, which was above the upper quartile level of the FTSE Small Cap Index (excluding investment trusts) over the
three-year period of 94.5%, which triggered vesting in respect of 100% of this part of the award. The 2011 LTIP awards vested in May 2014 to 44% of the maximum in relation
to the EPS performance targets (22% of the total of the award) and 41.8% in relation to the TSR performance condition (20.9% of the total award). This level of vesting was
triggered as a result of achieving (i) EPS of 6.23p in the year ending 30 November 2013 compared to the EPS target range of 5.7p to 7.0p and (ii) a three-year total shareholder
return of 71.9%, which was below the upper quartile level of the FTSE Small Cap Index (excluding investment trusts) over the three-year period of 114.7% and above the median
level of 55.8%, which triggered vesting in respect of 41.8% of this part of the award. The 2012 LTIP awards are due to vest in March 2015 to 0% of the maximum in relation to
the EPS performance targets (0% of the total of the award). This level of vesting was triggered as a result of achieving EPS of 5.46p in the year ending 30 November 2014
compared to the EPS target range of 7.1p to 8.8p. At vesting (15 March 2015), the value of the vested shares to Executive Directors is estimated at £0 for Mr Good and £0 for Mr
Holt. The LTIP Awards made in 2011 and 2012 are subject to clawback as described elsewhere in this report.
4
In addition to their salaries, the Executive Directors are entitled to a percentage of their basic salary to enable them to make retirement benefit arrangements. Payments made
under this arrangement during the year were a contribution of 25% of salary.
5 Steve Good ceased to be a director on 30 September 2014 and the information in this report for 2014 relates only to the period up to that date. Brett Simpson became a director
on 26 August 2014 and the information in this report for 2014 relates only to the period from that date.
6
Includes Mr. Holt’s salary of £268,500 and also £26,667 in respect of the additional fee paid to Mr Holt from 1 April 2014 in recognition of additional duties assumed by him as
set out in more detail on page 58.
7 Steve Hannam received a fee of £7,000 for his chairmanship of the Remuneration Committee in 2014 (2013: £5,000) (which is included in the number in the table).
8
Folkert Blaisse ceased to be a director on 30 April 2013 and the information in this report for 2013 relates only to the period up to that date.
9 Trudy Schoolenberg became a Director on 1 May 2013 and the information in this report for 2013 relates only to the period from that date until 30 November 2013.
10 John Sheldrick received a fee of £7,000 for his chairmanship of the Audit Committee (which is included in the number in the table).
Table 2 The Low & Bonar Long-Term Incentive Plan
Awards held by Directors under the LTIP are as follows:
S Good
M Holt
S Good1
M Holt
S Good1
M Holt
B Simpson
M Holt
At 1 December
2013
753,505
572,430
570,926
394,297
575,993
437,710
–
–
Awarded in year
Vested in year
Lapsed in year
At 30 November
2014
Share price at date
of award
–
–
–
–
–
–
542,168
364,810
(323,254)
(245,572)
–
–
–
–
–
–
(430,251)
(326,858)
–
–
–
–
–
–
–
–
570,926
394,297
575,993
437,710
542,168
364,810
53.50p
53.50p
64.00p
64.00p
74.25p
74.25p
83.00p
92.00p
Date of award
15/3/20112
15/3/20112
16/3/20123
16/3/20123
9/4/20134
9/4/20134
26/8/145
3/3/145
1
In line with the rules of the 2003 and 2013 LTIPs, as a retiree, Mr Good is a “good leaver”. As a result, his March 2012 LTIP award in respect of 570,926 ordinary shares will
remain eligible to vest on its original vesting date subject to the extent that the performance targets are met. The provisions of the 2003 LTIP were such that the time pro-rating
operated based on the proportion of the vesting period served rounded-up to the next complete financial year. On this basis, since Mr Good retired in the final year of the
vesting period for this award, it is not subject to a pro-rata reduction. In relation to his April 2013 award in respect of 575,993 ordinary shares, this award will also remain eligible
to vest on its original vesting date subject to the extent that the performance targets are met and a pro-rata reduction within the 2013 LTIP provisions is applied such that the
number of shares vesting will be scaled back pro-rata for the proportion of the three year vesting period that Mr Good was in employment (rounded-up to the nearest whole
month).
2 The performance criteria applying to these awards were structured as follows:
50% of the shares were subject to an EPS growth target and 50% a relative TSR target measured against the constituents of the FTSE Small Cap Index. Under the EPS element,
20% of shares vested for EPS in the year ended 30 November 2013 of 5.9 pence, rising on a straight-line basis to full vesting for EPS of 7.0 pence. Under the TSR element, 20%
of shares vested for median TSR, rising on a straight-line basis to full vesting for upper quartile. The awards vested as to 42.95% in May 2014, although Mr Good has not yet
called for these shares to be issued to him in accordance with the terms of the award. The gains made by the directors on the vesting of these awards were £242,440.99 for Mr
Good (2013: £985,542.06) and £184,178.60 (2013: £690,900.00) for Mr Holt.
62
| Low & Bonar PLC Annual Report 2014
3 The performance criteria applying to these awards are structured as follows:
50% of the shares are subject to an EPS growth target and 50% a relative TSR target measured against the constituents of the FTSE Small Cap Index over the period until
15 March 2015. Under the EPS element, 20% of shares vest for EPS in the year ended 30 November 2014 of 7.1 pence, rising on a straight-line basis to full vesting for EPS of 8.8
pence. Under the TSR element, 20% of shares vest for median TSR, rising on a straight-line basis to full vesting for upper quartile.
4 The performance criteria applying to these awards are structured as follows:
50% of the shares are subject to an EPS growth target and 50% a relative TSR target measured against the constituents of the FTSE Small Cap Index over the period until 8 April
2016. Under the EPS element, 20% of shares vest for EPS in the year ended 30 November 2015 of 7.5 pence, rising on a straight-line basis to full vesting for EPS of 9.3 pence.
Under the TSR element, 20% of shares vest for median TSR, rising on a straight-line basis to full vesting for upper quartile.
5 The performance criteria applying to these awards are structured as follows:
50% of the shares are subject to an EPS growth target and 50% a relative TSR target measured against the constituents of the FTSE Small Cap Index over the period until
2 March 2017. Under the EPS element, 20% of shares vest for EPS in the year ended 30 November 2016 of 7.42 pence, rising on a straight-line basis to full vesting for EPS of 9.23
pence. Under the TSR element, 20% of shares vest for median TSR, rising on a straight-line basis to full vesting for upper quartile.
LTIP award granted in the year
On 3 March 2014 (for Mr Holt) and 26 August 2014 (for Mr Simspon), an LTIP award was made to each of the Executive Directors at 125% of
salary. The award was made on the following basis:
B Simpson
M Holt
Nil-cost option
Nil-cost option
125% of salary
125% of salary
£0.83
£0.92
542,168
364,810
£450,000
£335,625
Type of Award
Basis of award
granted
Share price at date
of grant
Number of shares
awarded
Face value of award
% of face value
which vests at
threshold
20%
20%
Details of the performance conditions attaching to this award are provided as a footnote to table 2.
Directors’ share options
As at 30 November 2014, Mike Holt held 42,579 options under the SAYE Plan. No options have been granted to any Director during the
period 1 December 2014 to 3 February 2015.
The market price of a share at 30 November 2014 was 49.25p and the range during the year to 30 November 2014 was 96.00p to 44.25p.
Table 3 Directors’ interests in shares
The interests of the Directors and their connected persons in the shares of the Company were:
S Good1
MC Flower
M Holt
SJ Hannam
J Sheldrick
B Simpson
T Schoolenberg
Beneficially owned
as at 30 November
2014
Beneficially owned as
at 1 December 2013
Target shareholding
guideline level (%
salary)
Outstanding LTIP
awards
Outstanding LTIP
awards (vested but
unexercised)
Outstanding options
(unvested)
–
556,912
496,398
348,232
76,993
75,000
36,231
1,010,915
481,912
366,535
348,232
76,993
–
36,231
N/A
–
100%
–
–
100%
–
1,146,919
–
1,196,817
–
–
542,168
–
323,254
–
–
–
–
–
–
–
42,579
–
–
–
1 Mr Good ceased to be a director on 30 September 2014 and so information in relation to his shareholding is not included for 2014.
The Executive Directors are expected to retain 50% of the after-tax number of vested long-term incentive awards until they hold shares of a
value equivalent to 100% of their salary. As at 31 January 2015 (the latest practical date prior to the completion of this report), the value of
the holdings of shares held by the Executive Directors were as follows:
Director
B Simpson
M Holt
Number of
shares held
Value of
holding (£)
% of salary
75,000 38,438 10.7
496,398 254,404 92.4
During the period 1 December 2014 to 3 February 2015, no changes in Directors’ interests have been notified to the Company.
No Director held any beneficial interest in or options over shares in or debentures of any other Group company at 30 November 2014 or at
3 February 2015, save as set out above.
63
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Directors’ Report on Remuneration continued
UNAUDITED INFORMATION
Performance graph
The following graph illustrates the TSR performance of the Company compared to the FTSE Small Cap Total Return Index (the “Index”) over
the past six years. The Index has been chosen as the appropriate benchmark for the Company. It is a recognised broad equity market index
of which the Company has been a member throughout the period. The Index constituents are also used for the purposes of measuring the
Company’s relative TSR performance which governs 50% of the vesting of each LTIP award. Performance, as required by legislation, is
measured by TSR, being the increase in the share price over the period including the value of net dividends which are assumed to be
reinvested in the Company’s shares on the ex-dividend date by the Company.
This graph shows the value, by 30 November 2014, of £100 invested in Low & Bonar PLC on 30 November 2008 compared with the value of
£100 invested in the FTSE Small Cap Index. The other points plotted are the values at intervening financial year-ends.
)
£
(
l
e
u
a
V
350
300
250
200
150
100
50
0
FTSE Small Cap Index
Low & Bonar PLC
30-Nov-08
30-Nov-09
30-Nov-10
30-Nov-11
30-Nov-12
30-Nov-13
30-Nov-14
Total shareholders return – Source: Thomson Reuters
Remuneration of the Group Chief Executive
The table below shows the total remuneration figure for the Group Chief Executive during each of the past five financial years. The total
remuneration figure includes the annual bonus and LTIP awards which vested based on performance in those years. The annual bonus and
LTIP percentages show the payout for each year as a percentage of the maximum.
Total remuneration (£)
Annual bonus (%)
LTIP vesting (%)2
2010
2011
2012
2013
20141
710,067
100%
0%
803,309 1,308,727 1,064,510
0%
79.3%
98.7%4
72%
81%
50%3
623,586
0%
20.9%
1
In 2014, the Group had two Chief Executive Officers: Mr Steve Good, until 8 September 2014, and Brett Simpson, from 8 September 2014. The total remuneration for 2014
represents those amounts paid to Mr Good (£503,366) until 30 September 2014 (the date on which he ceased to be a director) and those amounts paid to Mr Simpson
(£120,220) from 26 August 2014 (the date on which his employment with the Company started) to the end of that year.
2 The LTIP awards are included in relation to any financial year on the same basis as those set out in table 2 on pages 62 and 63.
3 Awards made to Paul Forman (a former CEO) in 2009 lapsed when he left the Company in 2009 and are not reflected in this column. The stated figure relates only to awards held
by Mr Steve Good and relates to vesting in relation to the EPS performance condition relating to awards made in 2009.
4 Awards made to Paul Forman in 2009 lapsed when he left the Company in 2009 and are not reflected in this column. The stated figure relates only to awards held by Mr Steve
Good and relates to vesting in relation to the TSR performance condition relating to awards made in 2009 and the EPS performance condition relating to awards made in 2010.
Other than his treatment as a good leaver under the rules of the 2003 and 2013 LTIPs (detailed on page 62) Mr Good will receive no further
payments in connection with his retirement.
64
| Low & Bonar PLC Annual Report 2014
Percentage change in remuneration levels
The table below shows the movement in the salary, benefits and annual bonus for the Group Chief Executive between the current and
previous financial year compared to that for the average UK employee. The Committee has chosen this comparator as it feels that it provides
a more appropriate reflection of the earnings of the average worker than the movement in the Group’s total wage bill, which is distorted by
movements in the number of employees and variations in wage practices in our overseas markets. For the benefits and bonus per employee,
this is based on those employees eligible to participate in such schemes.
Chief Executive (£)
– salary
– benefits
– bonus
Average per employee1 (£)
– salary
– benefits
– bonus
2013
20142
% change
342,140
19,735
–
353,000
20,245
–
3.2%
2.6%
0.0%
53,601
2,002
3,940
57,845
1,930
1,045
7.9%
-3.6%
-73.5%
1 The Group operates from four locations in the UK: its head office and one facility for each of Yarns, Bonar and MTX. The average is a weighted-average across those four
locations.
2
In 2014, the Group had two Chief Executive Officers. Steve Good, until 8 September 2014, and Brett Simpson, from 8 September 2014. The salary and other amounts represent
those paid to Mr Good during the year on an annualised basis, and not those sums payable to Mr Simpson, to avoid double counting of sums payable whilst they were both
employees of the Company.
Relative importance of the spend on pay
The table below shows the movement in spend on staff costs versus that in dividends.
– Staff costs
– Dividends1
1 Dividends declared in respect of the year.
2013
2014
% change
£79.8m £81.2m
£8.8m
£8.2m
1.8%
7.3%
External Directorships
During the year under review, Mr Holt was a director of Asian Total Return Investment Company PLC. The Executive Directors did not hold
any other external Non-Executive roles.
Statement of shareholder voting
At last year’s AGM, the remuneration policy and the Directors’ Remuneration Report received the following votes from shareholders:
Remuneration policy
– Votes cast in favour
– Votes cast against
– Total votes cast
– Abstentions
Directors’ Remuneration Report
– Votes cast in favour
– Votes cast against
– Total votes cast
– Abstentions
2014 AGM
255,985,610
1,642,039
257,627,649
92,227
2014 AGM
256,151,158
1,474,466
257,625,624
94,702
99.36%
0.64%
100%
99.43%
0.57%
100%
During the year, the Remuneration Committee did not engage with the Company’s major shareholders following the prior year’s consultation
on the adoption of the 2013 LTIP and the approval of the remuneration policy at the 2014 AGM. All shareholders were broadly supportive of
the Committee’s approach on this matter.
Steve Hannam
Chairman, Remuneration Committee
On behalf of the Board of Directors
3 February 2015
65
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Statement of Directors’ Responsibilities in respect
of the Annual Report and the Financial Statements
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss 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 issuer and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face.
Brett Simpson
3 February 2015
Mike Holt
3 February 2015
The Directors are responsible for preparing the Annual Report and
the Group and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that law
they are required to prepare the Group financial statements in
accordance with IFRSs as adopted by the EU and applicable law and
have elected to prepare the parent company financial statements on
the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent company and of
their profit or loss for that period. In preparing each of the Group
and parent company financial statements, the Directors are required
to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs
as adopted by the EU; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent company and enable them to ensure
that its financial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
66
| Low & Bonar PLC Annual Report 2014 Independent Auditor’s Report to the Members of
Low & Bonar PLC only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Low & Bonar PLC for
the year ended 30 November 2014 set out on pages 69 to 110. In
our opinion:
• the financial statements give a true and fair view of the state of
the Group’s and of the parent company’s affairs as at
30 November 2014 and of the Group’s profit for the year then
ended;
• the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU);
• the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU and as
applied in accordance with the provisions of the Companies Act
2006; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the
risk of material misstatement that had the greatest effect on our
audit was as follows:
Impairment of goodwill
Refer to page 47 (Audit Committee Report), page 81 (accounting
policy) and page 92 (financial disclosures).
The risk The Group has significant goodwill allocated to three of its
five groups of cash generating units (‘CGUs’). In September 2014 the
Directors announced that the Group had experienced a drop in
demand across its European civil engineering markets reflecting a
slowdown in construction activity and the continuing difficult
economic and geopolitical climate in Europe. This sector represents
approximately one quarter of the Group’s sales and primarily affects
the results of Bonar EMEA. In the light of these or other adverse
trading conditions, the carrying value of goodwill held by the CGUs
may be in excess of their recoverable amount and an impairment
may arise. Due to the inherent uncertainty involved in forecasting
and discounting future cash flows, which are the basis of the
recoverable amount, this is the key judgmental area that our audit
was concentrated on.
Our response Our audit procedures included, among others,
testing the controls relating to the preparation and approval of the
Group’s budgeting process upon which the forecasts are based. We
critically assessed the budgets in order to obtain an understanding
of the risks inherent within them. We considered the historical
accuracy of budgeting and considered the extent to which adverse
trading conditions experienced in certain sectors in 2014 were
assumed to continue in the forecast period. We challenged the
assumptions in the budgets with reference to historical trends, and
our own expectations based on our knowledge of the business.
In respect of the medium and longer-term growth rates used in the
impairment testing, for each group of CGUs we compared, where
possible, the Group’s assumptions to externally derived data for
inputs such as OECD country GDP forecasts.
In respect of the discount rate, we utilised our own valuation
specialist to provide a view of the applicable discount rates. We
applied sensitivities to the budgets for the financial year to
30 November 2015, medium and long-term growth rates and the
discount rate. In particular, we applied rigorous sensitivities to the
groups of CGUs that include European civil engineering markets
both by increasing the discount rate, reducing budgeted profits and
reducing future growth rates. This was performed in order to reflect
the risks of under-performance and forecasting risk. We calculated a
range of discount rates, performance shortfalls in the financial year
to 30 November 2015 and growth rates where the recoverable
amount of assets equalled the net book value and considered this as
part of our sensitivity analysis. We compared the sum of the
discounted cash flows to the Group’s market capitalisation to assess
the reasonableness of the aggregate discounted cash flow. We also
assessed whether the Group’s disclosures about the sensitivity of the
outcome of the impairment assessment to changes in key
assumptions reflected our own sensitivity analysis.
3. Our application of materiality and an overview of the
scope of our audit
The materiality for the Group financial statements as a whole was
set at £2,600,000, determined with reference to a benchmark of
Group revenue, of which it represents 0.6%. We consider that
revenue is appropriate to use as a benchmark for materiality as
revenue is a key focus area for the users of the financial statements,
the Group has a number of components in a start-up phase and a
material level of non-recurring expenses.
We report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £75,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Of the Group’s reporting components, we subjected nine to audits
for Group reporting purposes and four to specified risk-focused
audit procedures. The latter were not individually financially
significant enough to require an audit for Group reporting purposes,
but did present specific individual risks that needed to be addressed,
or to provide further audit coverage over the total population.
The components within the scope of our work accounted for the
following percentages of the Group’s results:
Number of
components
Group
revenue
Group profit
before tax
Group total
assets
Audits for Group
reporting purposes
Specified risk-focused
audit procedures
Total
9
4
13
71%
78%
75%
8%
79%
4%
82%
9%
84%
The remaining 21% of total Group revenue, 18% of Group profit
before tax and 16% of total Group assets is represented by a
number of reporting components, none of which individually
represented more than 6% of any of total Group revenue, Group
profit before tax or total Group assets.
For the remaining components, we performed analysis at an
aggregated Group level to re-examine our assessment that there
were no significant risks of material misstatement within these.
67
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Independent Auditor’s Report to the Members of
Low & Bonar PLC only continued
The Group audit team instructed component auditors as to the
significant areas to be covered, including the relevant risks detailed
above and the information to be reported back. The Group audit
team approved the component materiality level, which was
£1,950,000, having regard to the mix of size and risk profile of the
Group across the components. The work on eight components was
performed by component auditors and the remainder by the Group
audit team.
The Group audit team physically attended the completion meetings
for the components in the Netherlands, Belgium and Germany.
Video and telephone conference meetings were also held with these
component auditors and also with the component teams in the USA
and Scotland. We held telephone discussions with the other
component audit teams during the year as we felt appropriate. At
these visits and meetings, the findings reported to the Group audit
team were discussed in more detail, and any further work required
by the Group audit team was then performed by the component
auditor.
4. Our opinion on other matters prescribed by the Companies
Act 2006 is unmodified
In our opinion:
• the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006;
• the information given in the Strategic Report and Directors’
Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• information given in the Corporate Governance statement set out
on page 44 to 45 with respect to internal control and risk
management systems in relation to financial reporting processes
and about share capital structures is consistent with the financial
statements.
5. We have nothing to report in respect of the matters on
which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identified
other information in the annual report that contains a material
inconsistency with either that knowledge or the financial statements,
a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the Directors’
statement that they consider that the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group’s performance, business model and strategy; or
• the Audit Committee Report does not appropriately address
matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit; or
• a Corporate Governance Statement has not been prepared by
the company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 39 in relation to going
concern; and
• the part of the Corporate Governance statement on pages 40 to
45 relating to the company’s compliance with the ten provisions of
the 2012 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement
set out on page 66, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view. A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council’s website
at www.frc.org.uk/auditscopeukprivate. This report is made solely to
the Company’s members as a body and is subject to important
explanations and disclaimers regarding our responsibilities, published
on our website at www.kpmg.com.uk/auditscopeukco2014a, which
are incorporated into this report as if set out in full and should be
read to provide an understanding of the purpose of this report, the
work we have undertaken and the basis of our opinions.
Wayne Cox (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
St Nicholas House
Park Row
Nottingham
NG1 6FQ
3 February 2015
68
| Low & Bonar PLC Annual Report 2014 Consolidated Income Statement
for the year ended 30 November
2014
2013
(restated – see Accounting policy (A))
Revenue
Operating profit/(loss)
Financial income
Financial expense
Net financing costs
Share of results of joint venture
Profit/(loss) before taxation
Taxation
Profit/(loss) after taxation
Profit/(loss) for the year from continuing operations
Profit for the year from discontinued operations
Profit/(loss) for the year
Attributable to
Equity holders of the Company
Non-controlling interest
Earnings per share
Continuing operations:
Basic
Diluted
Discontinued operations:
Basic
Diluted
Total:
Basic
Diluted
Note
1
1
6
6
15
2
7
30
28
10
Before
amortisation
and non–
recurring
items
£m
Amortisation
and
non–
recurring
items
(Note 5)
£m
410.6
31.7
–
(8.5)
–
–
–
–
(8.5)
2.1
(6.4)
(6.4)
0.9
(5.5)
(5.5)
–
(5.5)
0.1
(5.5)
(5.4)
(1.1)
25.2
(7.0)
18.2
18.2
–
18.2
17.9
0.3
18.2
5.46p
5.37p
–
–
5.46p
5.37p
Total
£m
410.6
23.2
0.1
(5.5)
(5.4)
(1.1)
16.7
(4.9)
11.8
11.8
0.9
12.7
12.4
0.3
12.7
3.50p
3.44p
0.26p
0.26p
3.76p
3.70p
Before
amortisation
and
non–recurring
items
£m
Amortisation
and
non–recurring
items
(Note 5)
£m
–
(8.0)
–
–
–
(0.6)
(8.6)
1.8
(6.8)
(6.8)
–
(6.8)
(6.8)
–
(6.8)
403.1
31.4
0.1
(6.2)
(6.1)
–
25.3
(6.7)
18.6
18.6
–
18.6
18.1
0.5
18.6
5.98p
5.86p
–
–
5.98p
5.86p
Total
£m
403.1
23.4
0.1
(6.2)
(6.1)
(0.6)
16.7
(4.9)
11.8
11.8
–
11.8
11.3
0.5
11.8
3.74p
3.66p
–
–
3.74p
3.66p
69
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Consolidated Statement of Comprehensive Income
for the year ended 30 November
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/gain on defined benefit pension schemes
Deferred tax on defined benefit pension schemes
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations, net of hedging
Total other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to
Equity holders of the parent
Non-controlling interest
2013
(restated – see
Accounting
policy (A))
£m
11.8
2014
£m
12.7
(0.8)
0.8
(5.8)
(5.8)
6.9
6.3
0.6
6.9
10.4
(0.4)
0.1
10.1
21.9
21.5
0.4
21.9
Note
4
4
28
70
| Low & Bonar PLC Annual Report 2014 Balance Sheets
as at 30 November
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investment in subsidiaries
Investment in joint venture
Investment in associate
Deferred tax assets
Other receivables
Post-employment benefits
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax receivable
Current liabilities
Interest-bearing loans and borrowings
Current tax liabilities
Trade and other payables
Provisions
Derivative liabilities
Net current assets
Total assets less current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Deferred tax liabilities
Post-employment benefits
Other payables
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium account
Translation reserve
Retained earnings
Total equity attributable to
Equity holders of the parent
Non-controlling interest
Total equity
Group
2014
£m
Note
2013
£m
81.2
34.0
114.2
–
4.7
0.4
3.1
–
–
237.6
86.8
81.7
17.9
–
78.0
27.8
119.3
–
3.6
0.5
4.4
–
0.2
233.8
90.9
75.3
25.8
–
192.0
186.4
–
4.8
82.4
0.5
–
87.7
104.3
338.1
113.8
20.8
11.0
2.0
147.6
190.5
47.3
74.0
(43.0)
105.8
184.1
6.4
190.5
–
5.4
82.9
–
0.1
88.4
98.0
335.6
104.7
23.2
12.7
1.9
142.5
193.1
47.2
73.9
(36.9)
102.5
186.7
6.4
193.1
Company
2014
£m
–
–
0.2
93.6
–
–
–
22.7
0.2
2013
£m
–
–
0.3
93.6
–
–
–
23.9
–
116.7
117.8
–
150.5
3.6
0.2
154.3
8.0
–
21.1
–
–
29.1
125.2
241.9
98.2
–
–
–
98.2
–
138.6
–
–
138.6
4.6
1.7
15.9
–
–
22.2
116.4
234.2
88.5
–
3.8
–
92.3
143.7
141.9
47.3
74.0
–
22.4
143.7
–
143.7
47.2
73.9
–
20.8
141.9
–
141.9
11
12
13
14
15
16
21
18
4
17
18
20
20
19
19
22
20
20
21
4
23
25
26
27
28
The consolidated financial statements on pages 69 to 110 were approved by the Board on 3 February 2015 and signed on its behalf by:
Brett Simpson
3 February 2015
Mike Holt
3 February 2015
Registered number: SC008349
71
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Note
29
2013
(restated – see
Accounting
policy (A))
£m
11.8
–
11.8
12.8
6.3
4.9
6.1
0.6
1.4
(7.3)
0.5
(9.1)
2.0
(0.1)
0.3
0.6
30.8
–
(4.8)
(6.8)
(4.0)
15.2
(15.9)
(11.3)
(2.1)
–
(29.3)
–
(8.5)
19.8
0.1
–
(7.2)
4.2
(9.9)
26.9
0.9
17.9
2014
£m
11.8
0.9
12.7
12.7
6.1
4.9
5.4
1.1
1.1
(9.0)
(2.0)
4.4
4.0
0.5
–
0.6
42.5
–
(4.5)
(7.7)
(4.0)
26.3
–
(19.0)
(1.2)
–
(20.2)
106.0
(93.4)
–
0.1
(1.4)
(8.8)
2.5
8.6
17.9
(0.7)
25.8
Consolidated Cash Flow Statement
for the year ended 30 November
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
Adjustments for:
Depreciation
Amortisation
Income tax expense
Net financing costs
Share of results of joint venture
Non-cash pension charges
Increase in inventories
(Increase)/decrease in trade and other receivables
Movement in short-term loan to joint venture
Increase in trade and other payables
Increase/(decrease) in provisions
Loss on disposal of non-current assets
Equity-settled share-based payment
Cash inflow from operations
Interest received
Interest paid
Tax paid
Pension cash contributions
Net cash inflow from operating activities
Acquisition of subsidiaries
Acquisition of property, plant and equipment
Intangible assets purchased
Proceeds from disposal of non-current assets
Net cash outflow from investing activities
Drawdown of borrowings
Repayment of borrowings
Proceeds of share issues from the share placing
Proceeds of other share issues to employees
Purchase of non-controlling interest
Equity dividends paid
Net cash inflow from financing activities
Net cash inflow/(outflow)
Cash and cash equivalents at start of year
Foreign exchange differences
Cash and cash equivalents at end of year
72
| Low & Bonar PLC Annual Report 2014 Company Cash Flow Statement
for the year ended 30 November
Profit for the year
Adjustments for:
Depreciation
Income tax credit
Net financing income
Non-cash pension charges
Increase in receivables
Increase/(decrease) in payables
Equity-settled share-based payment
Cash inflow from operations
Interest received
Interest paid
Taxation paid
Pension cash contributions
Net cash (outflow)/inflow from operating activities
Net cash outflow from investing activities
Proceeds of share issues from the share placing
Proceeds of other share issues to employees
Drawdown/(repayment) of borrowings
Equity dividends paid
Net cash inflow/(outflow) from financing activities
Net cash inflow/(outflow)
Cash and cash equivalents at start of year
Foreign exchange differences
Cash and cash equivalents at end of year
Note
8
29
2013
(restated – see
Accounting
policy (A))
£m
2.0
0.1
–
(0.6)
1.1
(0.4)
(0.2)
0.6
2.6
6.4
(4.6)
–
(3.3)
1.1
(0.1)
19.8
0.1
(17.5)
(7.2)
(4.8)
(3.8)
3.8
–
–
2014
£m
8.3
0.1
(1.2)
(1.1)
0.8
(10.5)
5.7
0.6
2.7
6.3
(5.6)
(0.7)
(3.3)
(0.6)
–
–
0.1
12.6
(8.8)
3.9
3.3
–
0.3
3.6
73
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Consolidated Statement of Changes in Equity
for the year ended 30 November
At 1 December 2012
Total comprehensive income for the year
Dividends paid to Ordinary Shareholders
Shares issued
Share-based payment
Net increase for the year
At 30 November 2013
Total comprehensive income for the year
Dividends paid to Ordinary Shareholders
Shares issued
Share-based payment
Purchase of non-controlling interest
Net increase/(decrease) for the year
Share
capital
£m
45.5
–
–
1.7
–
1.7
47.2
–
–
0.1
–
–
0.1
55.5
–
–
18.4
–
18.4
73.9
–
–
0.1
–
–
0.1
Share
premium
£m
Translation
reserve
£m
Retained
earnings
£m
Equity
attributable
to equity
holders of
the parent
£m
151.9
21.5
(7.2)
19.9
0.6
34.8
(37.0)
0.1
–
–
–
0.1
87.9
21.4
(7.2)
(0.2)
0.6
14.6
(36.9)
102.5
186.7
(6.1)
–
–
–
–
(6.1)
12.4
(8.8)
(0.1)
0.6
(0.8)
3.3
6.3
(8.8)
0.1
0.6
(0.8)
(2.6)
Non-
controlling
interest
£m
6.0
0.4
–
–
–
0.4
6.4
0.6
–
–
–
(0.6)
–
6.4
Total
equity
£m
157.9
21.9
(7.2)
19.9
0.6
35.2
193.1
6.9
(8.8)
0.1
0.6
(1.4)
(2.6)
190.5
At 30 November 2014
47.3
74.0
(43.0)
105.8
184.1
74
| Low & Bonar PLC Annual Report 2014 Company Statement of Changes in Equity
for the year ended 30 November
At 1 December 2012
Profit for the year (restated – see Accounting policy (A))
Actuarial gain on defined benefit pension scheme – (restated – see Accounting policy (A))
Dividends paid to Ordinary Shareholders
Shares issued
Share-based payment
Net increase for the year
At 30 November 2013
Profit for the year
Actuarial gain on defined benefit pension scheme
Dividends paid to Ordinary Shareholders
Shares issued
Share-based payment
Net increase for the year
At 30 November 2014
Share capital
£m
Share
premium
£m
Retained
earnings
£m
Total equity
£m
45.5
–
–
–
1.7
–
1.7
47.2
–
–
–
0.1
–
0.1
55.5
–
–
–
18.4
–
18.4
73.9
–
–
–
0.1
–
0.1
47.3
74.0
15.9
116.9
2.0
9.7
(7.2)
(0.2)
0.6
4.9
20.8
8.3
1.6
(8.8)
(0.1)
0.6
1.6
22.4
2.0
9.7
(7.2)
19.9
0.6
25.0
141.9
8.3
1.6
(8.8)
0.1
0.6
1.8
143.7
75
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Significant Accounting Policies
General information
Low & Bonar PLC (the “Company”) is a company domiciled in
Scotland and incorporated in Scotland under the Companies
(Consolidation) Act 1908. The address of the registered office is
Whitehall House, 33 Yeaman Shore, Dundee, DD1 4BJ. The
management head office is 10th Floor, 1 Eversholt Street, London,
NW1 2DN.
financial statements are those that were effective at 30 November
2014. The Group has adopted the following new Standards,
Interpretations and Amendments which became effective during the
year with no significant impact on the Group’s consolidated financial
results or position:
• IFRS 1 (amended) (Government Loans)
• IFRS 1 (amended) (Severe Hyperinflation and Removal of Fixed
The consolidated financial statements of the Company for the year
ended 30 November 2014 comprise the Company and its
subsidiaries (together referred to as the “Group”).
(A) 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. UK company law requires directors to consider
whether it is appropriate to prepare the financial statements on the
basis that the Company and the Group are a going concern.
The Group’s business activities, together with the factors likely to
affect its future development, performance and position, together
with details of cash flows and borrowing requirements, are set out
in the Strategic Report on pages 1 to 33. The information contained
in the Strategic Report and Note 20 to the financial statements sets
out the Group’s objectives, policies and processes for managing its
capital, financial risks and hedging activities together with its
exposure to credit and liquidity risks. The principal risks and
uncertainties section on pages 23 to 25 provides further details of
the key risks affecting the Group and Company.
The current global economic conditions create uncertainty,
particularly over the level of demand for the Group’s products and
the price of its raw materials. The Group funds its day-to-day
working capital requirements by using the facilities available to it
(see Note 20). The Directors have reviewed the Group’s
medium-term forecasts to determine whether the committed
banking facilities are sufficient to support the Group’s projected
liquidity requirements, taking into account the recent refinancing of
the Group’s revolving credit facility, which is discussed further in
Note 20, in July 2014. The Directors have also considered whether
the Group’s forecast earnings are sufficient to meet the covenants
associated with its committed facilities.
After making enquiries, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future, and are
not aware of any material uncertainties related to events or
conditions that may cast significant doubt on the ability of the
Company and the Group to continue as a going concern.
Accordingly, they have continued to adopt the going concern basis
in preparing the financial statements.
Both the parent Company financial statements and the Group
financial statements have been prepared in accordance with IFRS as
adopted by the EU (“adopted IFRS”). At the date of authorisation of
these financial statements, there are a number of Standards,
Interpretations and Amendments in issue but not yet effective and
which have therefore not yet been applied in these financial
statements (accounting policy X).
On publishing the parent Company financial statements here
together with the Group financial statements, the Company has
taken advantage of the exemption in section 408 of the Companies
Act 2006 not to present its individual income statement and related
Notes which form a part of these approved financial statements.
The adopted IFRS applied by the Group in the preparation of these
76
Dates for First-time Adopters)
• IFRS 7 (amended) (Disclosures – Offsetting Financial Assets and
Financial Liabilities)
• Annual Improvements to IFRS’s (2009-2011 cycle)
• IAS 12 (amended) (Deferred Tax: Recovery of Underlying Assets)
• IFRS 13 Fair Value Measurement
• IFRIC 20 Stripping Costs in the Production Phase of a
Surface Mine.
The Group also adopted IAS 19 Employee Benefits (Revised) in the
year, the impact of which can be seen below.
The revised standard requires retrospective application, therefore the
narrative below reflects the adjustments made to the comparative
amounts for the year ended 30 November 2013.
The impact from the revision of the accounting policy is that
operating profit and profit before tax, amortisation and
non-recurring items as at 30 November 2013 are £0.8m lower; and
statutory operating profit and profit before tax are £1.1m lower;
due to:
• pension administration costs of £1.1m, which were previously
reported within financing costs, being reclassified into
administrative expenses; £0.8m of these costs have been charged
against operating profit before tax, amortisation and
non-recurring items, and £0.3m against non-recurring items, due
to the nature of the costs concerned; and
• financing costs are £1.1m higher due to the interest cost and
expected return on scheme assets being replaced by a single net
interest charge, calculated by applying the discount rate to the
net defined benefit liability.
Correspondingly, actuarial gains in the Consolidated Statement of
Comprehensive Income increased by £1.1m for the year ended
30 November 2013. The tax impact of the restatement is a reduction
in the income statement tax charge of £0.1m for the year to
30 November 2013 and a corresponding increase in the tax charge
in the Consolidated Statement of Comprehensive Income.
Due to the restatement, earnings per share for the year ended
30 November 2013 (based on earnings before amortisation and
non-recurring items) reduced to 5.98p from the 6.23p previously
reported and statutory earnings per share reduced to 3.74p from the
4.08p previously reported.
(B) Basis of consolidation
(i) Subsidiaries
Subsidiaries are those entities controlled by the Group. The financial
statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that
control ceases. In the parent Company financial statements,
investments in subsidiaries are carried at cost less impairment.
The interest of non-controlling interests is initially stated at the
non-controlling interest’s share of the fair values of the identifiable
assets and liabilities recognised on the date of acquisition.
Subsequent to this acquisition, the carrying amount of
non-controlling interest is the amount of those interests at initial
recognition plus the non-controlling interests’ share of subsequent
changes in equity. Changes in the Group’s interest that do not result
| Low & Bonar PLC Annual Report 2014 in a loss of control are accounted for as equity transactions. The
carrying amount of the Group’s interests and the non-controlling
interests are adjusted to reflect the change in their relative interests
in the subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and
attributed to the owners of the Company.
(ii) Associates
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating policies.
The consolidated financial statements include the Group’s share of
the total recognised gains and losses of associates on an
equity-accounted basis, from the date that significant influence
commences until the date that significant influence ceases. When
the Group’s share of losses exceeds its interest in an associate, the
Group’s carrying amount is reduced to nil and recognition of further
losses is discontinued except to the extent that the Group has
incurred legal or constructive obligations or made payments on
behalf of an associate.
(iii) Joint ventures
Joint ventures are those entities over whose activities the Group has
joint control, established by contractual agreement.
The Group accounts for its joint ventures using the equity method.
The investment in the joint venture is recognised initially at cost and
is adjusted thereafter for the post-acquisition change in the Group’s
share of net assets of the joint venture.
(iv) Transactions eliminated on consolidation
Intra-Group balances and transactions and any unrealised gains
arising from intra-Group transactions are eliminated in preparing the
consolidated financial statements.
(v) Discontinued operations
A discontinued operation is a component of the Group’s businesses
that represents a separate major line of business or geographical
area of operations that has been disposed of or is held for sale, or is
a subsidiary acquired exclusively with a view to resale. Classification
as a discontinued operation occurs upon disposal or when the
operation meets the criteria to be classified as held for sale, if earlier.
When an operation is classified as a discontinued operation, the
comparative income statement is re-presented as if the operation
had been discontinued from the start of the comparative period.
(vi) Business Combinations
Acquisitions of subsidiaries and businesses are accounted for using
the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the sum
of the acquisition-date fair values of assets transferred by the Group,
liabilities incurred by the Group to the former owners of the acquiree
and the equity interest issued by the Group in exchange for control
of the acquiree. Acquisition-related costs are recognised in profit or
loss as incurred.
(C) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet
date are translated into Pounds Sterling at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non-monetary
assets and liabilities denominated in foreign currencies that are
stated at fair value are translated into Pounds Sterling at exchange
rates ruling at the date the fair values were determined.
Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction.
(ii) Translation of foreign operations
The assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on consolidation, are translated at
foreign exchange rates ruling at the balance sheet date. The income
statements of foreign operations are translated at an average rate
for the period where this rate approximates to the foreign exchange
rates ruling at the date of the transactions. Exchange differences
arising from the translation of foreign operations, and of related
qualifying hedges, are taken to Other Comprehensive Income. They
are released to the income statement upon disposal. Monetary items
receivable from or payable to a foreign operation for which
settlement is neither planned nor likely to occur in the foreseeable
future are treated as part of the net investment in the
foreign operation.
(iii) Hedging of risks
In order to hedge its exposure to certain foreign exchange risks, the
Group enters into forward exchange contracts (see accounting
policies D and E).
(D) Derivative financial instruments
The Group uses derivative financial instruments to hedge its
exposure to foreign exchange risks arising from operational and
investment activities. The Group does not hold or issue derivative
financial instruments for trading purposes.
Derivative financial instruments are recognised initially at fair value.
Derivative financial instruments are subsequently remeasured to their
fair value with the resulting gain or loss being recognised in profit or
loss. However, where derivatives qualify for hedge accounting,
recognition of any resulting gain or loss depends on the nature of
the item being hedged (see accounting policy E).
Financial instruments carried at fair value are required to be
measured by reference to the following levels:
Level 1: quoted prices in active markets for identical instruments;
Level 2: inputs other than quoted prices included within Level 1 that
are observable for the instrument, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); or
Level 3: inputs for the instrument that are not based on observable
market data (unobservable inputs).
All financial instruments have been measured using a Level 2
valuation method.
(E) Hedging
(i) Cash flow hedges
Where a derivative financial instrument is designated as a hedge of
the variability in cash flows of a recognised asset or liability, a firm
commitment or a highly probable forecast transaction, the effective
part of any gain or loss on the derivative financial instrument is
recognised in Other Comprehensive Income. When the firm
commitment or forecast transaction results in the recognition of a
non-financial asset or liability, the cumulative gain or loss is removed
from equity and included in the initial measurement of the asset or
liability. Otherwise, the cumulative gain or loss is removed from
equity and recognised in the income statement at the same time as
the hedged transaction. The ineffective part of any gain or loss is
recognised in the income statement immediately.
77
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Significant Accounting Policies continued
10–50 years
3–15 years
3–7 years
2–5 years
1–5 years
3–5 years
When a hedging instrument or hedge relationship is terminated but
the hedged transaction is still expected to occur, the cumulative gain
or loss at that point remains in equity and is recognised in
accordance with the above policy when the transaction occurs. If the
hedged transaction is no longer expected to take place, the
cumulative unrealised gain or loss recognised in equity is recognised
in the income statement immediately.
The estimated useful lives for significant classes of assets are
as follows:
– property
– plant and equipment
For other assets, the useful economic lives are:
(ii) Hedge of net investment in foreign operations
Exchange differences arising from the translation of the net
investment in foreign operations, and of related hedges, are taken to
the translation reserve. They are released to the income statement
upon disposal of the foreign operation.
– fixtures and fittings
– computer hardware
– tooling
– motor vehicles
In respect of all foreign operations, any differences that have arisen
since 1 December 2004, the date of transition to IFRS, are presented
as a separate component of equity in the Group financial
statements. When foreign operations have been disposed of, any
cumulative differences are recycled to retained earnings.
(G) Intangible assets
(i) Goodwill
Goodwill is recognised only in a business combination and is
measured as a residual. Goodwill represents the excess of the fair
value of the consideration paid over the share of the identifiable
assets acquired and liabilities assumed.
The Group tests effectiveness on a prospective and retrospective
basis to ensure compliance with IAS 39.
Goodwill is stated at deemed cost less any accumulated impairment
losses (see accounting policy K).
(F) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost less
accumulated depreciation (see below) and impairment losses (see
accounting policy K). The cost of self-constructed assets includes the
cost of materials, direct labour and an appropriate proportion of
production overheads. Borrowing costs related to the acquisition or
construction of qualifying assets are capitalised.
Where an item of property, plant and equipment comprises major
components with different useful lives, the components are
accounted for as separate items of plant, property and equipment.
(ii) Leased assets
Leases whereby the Company or the Group assumes substantially all
the risks and rewards of ownership are classified as finance leases.
Plant and equipment acquired by way of finance lease is stated at an
amount equal to the lower of its fair value and the present value of
the minimum lease payments at inception of the lease, less
accumulated depreciation (see below) and impairment losses (see
accounting policy K). Lease payments are accounted for as described
in accounting policy R. Where land and buildings are held under
lease the accounting treatment of the land is considered separately
from that of buildings.
(iii) Subsequent expenditure
The Company and the Group recognise in the carrying amount of an
item of property, plant and equipment the cost of replacing part of
such an item when that cost is incurred, if it is probable that the
future economic benefits associated with the item will flow to the
Company or the Group and the cost of the item can be measured
reliably. Subsequent costs are capitalised if it is probable that the
future economic benefits will flow to the entity, and the costs can be
reliably measured.
(iv) Depreciation
Depreciation is charged to the income statement on a straight-line
basis over the estimated useful lives of items of property, plant and
equipment and major components that are accounted for separately.
Land is not depreciated.
(ii) Research and development
Expenditure on research activities, undertaken with the prospect of
gaining new scientific or technical knowledge and understanding, is
recognised in the income statement when it is incurred.
Expenditure on development activities, where research findings are
applied to a plan or design for the production of new or substantially
improved products and processes, is capitalised if the product or
process is technically and commercially feasible and the Group has
sufficient resources to complete development, future economic
benefits are probable and if the Group can measure reliably the
expenditure attributable to the intangible asset during its
development. The expenditure capitalised includes the cost of
materials, direct labour and an appropriate proportion of overheads.
Other development expenditure is recognised in the income
statement as an expense is incurred. Capitalised development
expenditure is stated at cost less accumulated amortisation and
impairment losses (see accounting policy K).
(iii) Other intangible assets
Other intangible assets that are acquired by the Group are stated at
cost less accumulated amortisation and impairment losses (see
accounting policy K). Expenditure on internally generated goodwill
and brands is recognised in the income statement when it
is incurred.
(iv) Amortisation
Amortisation is charged to the income statement on a straight-line
basis over the estimated useful lives of intangible assets unless such
lives are indefinite. Goodwill and intangible assets with an indefinite
life are not amortised but are systematically tested for impairment
annually and further tested at each balance sheet date if there is any
evidence of potential impairment. Other intangible assets are
amortised from the date that they are available for use.
The estimated useful lives of the identified intangible assets are
as follows:
– technology based
– customer relationships
– marketing related
– order backlog
– non-compete agreements
– software
5–10 years
4–11 years
10 years
3 months
4–5 years
3–5 years
78
| Low & Bonar PLC Annual Report 2014 (H) Trade and other receivables
Trade and other receivables are initially recognised at fair value and
thereafter stated at their amortised cost less impairment losses (see
accounting policy K).
(I) Inventories
Inventories are stated at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and
selling expenses.
The cost of inventories is based on the first-in first-out principle and
includes expenditure incurred in acquiring the inventories and
bringing them to their existing location and condition. In the case of
manufactured inventories and work in progress, cost includes an
appropriate share of overheads based on normal operating capacity.
(J) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
Bank overdrafts that are repayable on demand and form an integral
part of the Company’s or the Group’s cash management are
included as a component of cash and cash equivalents for the
purpose of the Statement of Cash Flows.
(K) Impairment
The carrying amounts of the Company’s and the Group’s assets,
other than inventories (accounting policy I), and deferred tax assets
(accounting policy T) are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such
indication exists, the asset’s recoverable amount is estimated. For
goodwill, assets that have an indefinite useful life and intangible
assets that are not yet available for use, the recoverable amount is
estimated at each balance sheet date. An impairment loss is
recognised whenever the carrying amount of an asset or its cash
generating unit exceeds its recoverable amount. Impairment losses
recognised in respect of cash generating units are allocated first to
reduce the carrying amount of any goodwill allocated to cash
generating units (group of units) and then to reduce the carrying
amount of other assets in the unit (group of units) on a pro rata
basis. Impairment losses are recognised in the income statement.
An impairment loss in respect of goodwill is not reversible. Other
impairment losses are reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
(i) Calculation of recoverable amount
Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their fair
value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assumptions of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the cash
generating unit to which the asset belongs.
(L) Share capital
(i) Preference share capital
Financial instruments issued by the Company are treated as equity
only to the extent that they meet the following two conditions:
a. they include no contractual obligations upon the Company to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Company; and
b. where the instrument will or may be settled in the Company’s
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company’s own
equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts
presented in these financial statements for called up share capital
and share premium account exclude amounts in relation to
those shares.
Finance payments associated with financial liabilities are dealt with
as part of financial expenses. Finance payments associated with
financial instruments that are classified in equity are dividends, and
are recorded directly in equity.
(ii) Dividends
Dividends on redeemable Preference Shares are recognised as a
liability on an accruals basis. Dividends on Ordinary Shares are
recognised as a liability in the period in which they are declared.
Dividend income is recognised in the income statement on the date
that the dividend is declared.
(iii) Equity transaction costs
Directly attributable and incremental transaction costs of an equity
transaction are accounted for as a deduction from equity, net of any
related income tax benefit.
(M) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value, less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in
the income statement over the period of the borrowings on an
effective-interest basis.
(N) Employee benefits
The Company and the Group operate defined benefit pension plans
and defined contribution pension plans. The Company also offers
share-based compensation benefits to certain employees of
the Group.
(i) Defined contribution plans
A defined contribution pension plan is one under which fixed
contributions are paid to a third party. The Company and the Group
have no further payment obligations once these contributions have
been paid. Obligations for contributions to defined contribution
pension plans are recognised as an expense in the income statement
as incurred.
79
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Significant Accounting Policies continued
(ii) Defined benefit plans
A defined benefit pension plan is one that specifies the amount of
pension benefit that an employee will receive on retirement. The
Company’s and the Group’s net obligation in respect of defined
benefit pension plans is calculated separately for each plan by
estimating the amount of future benefits that employees have
earned in return for their service in the current and prior periods;
that benefit is discounted to determine the present value, and the
fair value of any plan assets is deducted. The discount rate is the
yield at the balance sheet date on AA credit-rated bonds that have
maturity dates approximating to the terms of the Company’s or the
Group’s obligations. The calculation is performed by a qualified
actuary using the projected unit credit method. Where the
calculation results in a benefit to the Company or the Group, the
recognised asset is limited to the present value of any future refunds
from the plan or reductions in future contributions to the plan.
The Group determines the extent to which payments made which
fulfil obligations to make future contributions to cover an existing
shortfall will be available as a refund or reduction in future
contributions after they are paid in to the plan. To the extent that the
contributions payable will not be available after they are paid in to
the plan, the Group recognises a liability when the obligation arises.
Actuarial gains and losses are recognised immediately in Other
Comprehensive Income.
(iii) Equity and equity-related compensation benefits
The Company and Group have applied the requirements of IFRS 2.
In accordance with the exemption available within the transitional
provisions of IFRS 1, IFRS 2 has been applied to all grants of equity
instruments after 7 November 2002 that were unvested as of
1 January 2005.
The Company operates various equity-settled and cash-settled share
option schemes. Equity-settled share-based payments are measured
at fair value at the date of the grant, and the fair value determined
at the grant date of these payments is expensed on a straight-line
basis over the vesting period, based on the Group’s estimate of
shares that will eventually vest. Fair value is measured taking into
account market conditions and by use of the Black-Scholes model or
a Stochastic model, as appropriate. Measurement inputs include
share price at the measurement date, exercise price of the
instrument, expected volatility (based on historic volatility patterns),
the expected dividend yield and the risk-free interest rate (calculated
based on UK Gilts with a term commensurate with the expected
term remaining of the performance period at grant). The fair values
of cash-settled payments are re-measured at each balance sheet
date and the cost of these payments is recognised over the vesting
period, taking into account the re-measurement of fair value at each
balance sheet date.
The Low & Bonar 1995 Employees’ Share Ownership Plan Trust (the
“ESOP”) purchases shares in the Company in order to satisfy awards
made under the Company’s Long-term Incentive Plan. Shares held by
the ESOP are treated as treasury shares and a deduction is computed
in the Company’s issued share capital for the purposes of
calculating EPS.
(O) Provisions
A provision is recognised in the balance sheet when the Company or
the Group has a present legal or constructive obligation as a result of
a past event, it is probable that an outflow of economic benefits will
be required to settle the obligation and a reliable estimate can be
made of the obligation. Provisions for restructuring costs are
recognised when the Group has a detailed formal plan for the
restructuring that has been communicated to the affected parties.
(P) Trade and other payables
Trade and other payables are initially recognised at fair value and
thereafter stated at their amortised cost. They are not interest-bearing.
(Q) Revenue
Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for goods provided
in the normal course of business, net of discounts, VAT and other
sales related taxes. Revenue is reduced for estimated customer
returns, rebates and other similar allowances. Sales of goods are
recognised when the Group has transferred the significant risks and
rewards of ownership of the goods to the buyer (which is
predominantly on despatch as most items are sold on a CIF basis),
the amount of revenue can be measured reliably and it is probable
that the economic benefits of the transaction will flow to the Group.
(R) Expenses
(i) Operating lease payments
Payments made under operating leases are recognised in the income
statement on a straight-line basis over the term of the lease. Lease
incentives are recognised in the income statement as an integral part
of the total lease expense.
(ii) Finance lease payments
Payments made under finance leases are apportioned between the
finance charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability.
(iii) Net financing costs
Net financing costs comprise interest payable on borrowings
calculated using the effective interest rate method, dividends on
redeemable preference shares, net interest costs on scheme liabilities
in respect of defined benefit pension schemes, interest receivable on
funds invested, dividend income and gains and losses on hedging
instruments that are recognised in the income statement (see
accounting policy E). Interest income is recognised in the income
statement as it accrues, using the effective interest rate.
(S) Non-recurring items
Items which are both material and non-recurring are presented
within their relevant consolidated income statement category and
are described in more detail in Note 5. Non-recurring costs include
items which are not expected to recur or are not related to the
underlying trading activities of the Group. The separate reporting of
non-recurring items helps to provide a better indication of the
Group’s underlying business performance. Such items may include
restructuring costs, acquisition related costs, redundancy costs and
costs of establishing new ventures.
80
| Low & Bonar PLC Annual Report 2014 (T) Taxation
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised in Other
Comprehensive Income or directly in equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is provided using the balance sheet liability method,
providing for timing differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The following timing
differences are not provided for: the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit; and
differences relating to investments in subsidiaries to the extent that
the Group is able to control the timing of the reversal of the timing
difference and it is probable that the timing difference will not
reverse in the future. The amount of deferred tax provided is based
on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will
be realised.
(U) Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker has been identified as the Board
of Directors.
(V) Significant judgements and estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only
that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
The significant judgement area for the Group is the valuation of the
Group’s goodwill and intangible assets. Impairment tests have been
undertaken with respect to goodwill and intangible assets (Notes 11
and 12) using commercial judgement and key assumptions and
estimates including the discount rate, the long term growth rate and
the cash flow projections to be used. Estimating a value in use
amount requires management to make an estimate of the future
expected cash flows from each cash generating unit and also to
choose a suitable discount rate in order to calculate the present
value of those cash flows.
Other judgement areas include the valuation of the Group’s
property, plant and equipment, the provision for post-employment
benefits, the impairment provision for trade receivables, the
valuation of the share based payments within the Group and key
taxation judgements.
In relation to the Group’s property, plant and equipment (Note 13),
useful economic lives and residual values of assets have been
established using historical experience and an assessment of the
nature of the assets involved.
Note 4 outlines the key assumptions used to value the Group’s
post-employment obligations and the sensitivity of obligations to
changes in these assumptions. The key assumptions include the
discount rate, the rate of inflation, the mortality assumptions and
the rate of future pension increases. Measurement of the UK
Scheme’s defined benefit obligation is particularly sensitive to
changes in certain key assumptions including the discount rate.
An increase or decrease of 0.5% in the discount rate would result
in a decrease or increase in the defined benefit obligation of
c £11.3m–12.6m.
A number of accounting estimates and judgements are incorporated
within the impairment provisions for trade receivables and provision
for share-based payments which are described in more detail in Note
18 and Note 25, respectively.
The Group has a number of taxation judgements to consider
including the recoverability of deferred tax assets, the estimation of
the corporation tax in each of the jurisdictions in which it operates
and the total provision for income tax based on management’s
interpretation of country specific tax law and the likelihood of
settlement. Management evaluates each of these risks on a case by
case basis and regularly re-evaluates their assessment of the likely
outcome based on the latest fact pattern and information.
(W) Financial guarantee contracts
Where the Company enters into contracts to guarantee the
indebtedness of other companies within the Group, these are
considered to be insurance arrangements and are accounted for as
such. In this respect, the Company treats the guarantee contract as a
contingent liability unless it becomes probable that the Group will be
required to make a payment under the guarantee.
81
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Significant Accounting Policies continued
(X) New IFRS not yet applied
On the date on which these financial statements were authorised
the following Standards, Interpretations and Amendments had been
issued but were not effective for the year ended 30 November 2014
(and in some cases had not yet been adopted by the EU) and have
not yet been adopted by the Group:
• IFRS 9 Financial Instruments and additions to IFRS 9 (issued
October 2010) – not yet endorsed by the EU.
• IFRS 10 Consolidated Financial Statements – effective for the year
ending 30 November 2015.
• IFRS 11 Joint Arrangements – effective for the year ending
30 November 2015.
• IFRS 12 Disclosure of Interests in Other Entities – effective for the
year ending 30 November 2015.
• IAS 27 Separate Financial Statements – effective for the year
ending 30 November 2015.
• IAS 28 Investments in Associates and Joint Ventures – effective
for the year ending 30 November 2015.
• IAS 32 Financial Instruments (amended) (offsetting financial
assets and financial liabilities) – effective for the year ending
30 November 2015.
• IAS 36 (amended) (Recoverable Amount Disclosures for
Non-Financial Assets) – effective for the year ending
30 November 2015.
• IAS 39 (amended) (Novation of Derivatives and continuation of
Hedge Accounting) – effective for the year ending 30 November
2015.
• IFRIC 21 Levies – effective for the year ending 30 November 2015.
• Amendments to IAS 19 – Defined Benefit Plans: Employee
Contributions – not yet endorsed by the EU.
• Annual Improvements to IFRSs – 2010-2012 Cycle – not yet
endorsed by the EU.
• Annual Improvements to IFRSs – 2011-2013 Cycle – not yet
endorsed by the EU.
• IFRS 14 Regulatory Deferral Accounts – not yet endorsed by the EU.
• Amendments to IFRS 11 – Accounting for Acquisitions of Interests
in Joint Operations – not yet endorsed by the EU.
• Amendments to IAS 16 and IAS 38 – Clarification of Acceptable
Methods of Depreciation and Amortisation – not yet endorsed by
the EU.
• Amendments to IAS 16 and IAS 41 – Agriculture: Bearer Plants –
not yet endorsed by the EU.
• Amendments to IAS 27 –Equity Method in Separate Financial
Statements – not yet endorsed by the EU.
• Amendments to IFRS 10 and IAS 28 – Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture –
not yet endorsed by the EU.
• Annual Improvements to IFRSs – 2012-2014 Cycle – not yet
endorsed by the EU.
• IFRS 15 – Revenue from Contracts with Customers – not yet
endorsed by the EU.
It is anticipated that adoption of these Standards and Interpretations
in future periods will not have a material impact on the Group’s
financial results except for the following standards that may alter
measurement and disclosure:
• IFRS 9 Financial Instruments and additions to IFRS 9.
• IFRS 12 Disclosure of Interests in Other Entities.
Beyond the information above, it is not practicable to provide a
reasonable estimate of the effect of these standards until a detailed
review has been completed.
82
| Low & Bonar PLC Annual Report 2014 Notes to the Accounts
1. Segmental information
The Group’s principal activities are in the international manufacturing and supply of those performance materials commonly referred to as
technical textiles. For the purposes of management reporting to the chief operating decision maker, the Group is organised into three
reportable operating divisions: Bonar, Technical Coated Fabrics and Yarns. 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 and borrowings, derivative assets and liabilities,
post-employment benefits and corporate assets and expenses. Inter-segment sales are not material.
Revenue from external customers – continuing operations
Operating profit/(loss) before amortisation and non-recurring items
Amortisation of acquired intangible assets
Operating profit/(loss) before non-recurring items
Non-recurring items
Operating profit/(loss)
Financial income
Financial expense
Net financing costs
Share of results of joint venture
Profit before taxation
Taxation
Profit for the year – continuing operations
Profit for the year – discontinued operations
Profit for the year
Segment assets
Investment in joint venture
Investment in associate
Cash and cash equivalents
Post-employment benefits
Other unallocated assets
Total Group assets
Segment liabilities
Loans and borrowings
Post-employment benefits
Derivative liabilities
Other unallocated liabilities
Total Group liabilities
Technical
Coated
Fabrics
£m
Bonar
£m
246.2
128.2
21.0
(2.4)
18.6
(1.4)
17.2
14.2
(2.8)
11.4
(0.9)
10.5
2014
Yarns
£m
36.2
0.8
–
0.8
(0.6)
0.2
Unallocated
Central
£m
Total
£m
–
410.6
(4.3)
–
(4.3)
(0.4)
(4.7)
217.3
143.7
29.8
–
(51.3)
(19.8)
(9.0)
–
31.7
(5.2)
26.5
(3.3)
23.2
0.1
(5.5)
(5.4)
(1.1)
16.7
(4.9)
11.8
0.9
12.7
390.8
3.6
0.5
25.8
0.2
4.9
425.8
(80.1)
(113.8)
(11.0)
–
(30.4)
(235.3)
Other information
Additions to property, plant and equipment
Additions to intangible assets and goodwill
Depreciation
14.9
0.8
8.4
3.1
0.4
3.6
1.1
–
0.7
–
–
–
19.1
1.2
12.7
83
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Notes to the Accounts continued
1. Segmental information continued
2013
(restated – see Accounting policy (A))
Revenue from external customers – continuing operations
Operating profit/(loss) before amortisation and non-recurring items
Amortisation of acquired intangible assets
Operating profit/(loss) before non-recurring items
Non-recurring items
Operating profit/(loss)
Financial income
Financial expense
Net financing costs
Share of results of joint venture
Profit before taxation
Taxation
Profit for the year – continuing operations
Segment assets
Investment in joint venture
Investment in associate
Cash and cash equivalents
Other unallocated assets
Total Group assets
Segment liabilities
Loans and borrowings
Post-employment benefits
Derivative liabilities
Other unallocated liabilities
Total Group liabilities
Technical
Coated
Fabrics
£m
Bonar
£m
245.6
124.7
23.0
(2.7)
20.3
(2.1)
18.2
12.1
(2.9)
9.2
–
9.2
Yarns
£m
32.8
0.5
–
0.5
–
0.5
223.9
145.9
27.7
(52.2)
(23.5)
(8.5)
Unallocated
Central
£m
Total
£m
–
403.1
(4.2)
–
(4.2)
(0.3)
(4.5)
–
–
31.4
(5.6)
25.8
(2.4)
23.4
0.1
(6.2)
(6.1)
(0.6)
16.7
(4.9)
11.8
397.5
4.7
0.4
17.9
3.5
424.0
(84.2)
(104.7)
(12.7)
(0.1)
(29.2)
(230.9)
Other information
Additions to property, plant and equipment
Additions to intangible assets and goodwill
Depreciation
6.2
8.3
8.3
4.5
0.2
3.7
0.6
–
0.8
0.3
–
–
11.6
8.5
12.8
The geographical analysis of external revenue by location of customers and non-current assets by location of assets, as presented to the
chief operating decision maker, is as follows:
Western Europe
Eastern Europe
North America
Middle East
Asia
Rest of the World
Total
External revenue by location of customers
Non-current assets by
location of assets
2014
£m
231.1
43.1
75.0
20.7
26.0
14.7
410.6
2014
%
56.3
10.5
18.3
5.0
6.3
3.6
100.0
2013
£m
238.0
33.2
74.8
17.9
23.2
16.0
403.1
2013
%
59.0
8.2
18.6
4.4
5.8
4.0
100.0
2014
£m
177.1
10.0
22.9
7.9
11.3
–
229.2
2013
£m
189.5
10.0
22.9
7.2
4.9
–
234.5
Revenues arising in the UK, which is the parent Company’s country of domicile, were £25.6m (2013: £24.3m). The net book value of
non-current assets located in the UK at 30 November 2014 was £1.3m (2013: £0.9m). In the current and prior year, more than 10% of the
Group’s revenues arose in Germany. The net book value of non-current assets located in Germany at 30 November 2014 was £78.4m
(2013: £85.2m) and revenues in the year to 30 November 2014 were £69.8m (2013: £71.1m).
84
| Low & Bonar PLC Annual Report 2014 2. Profit before taxation
Total operating costs
Comprises:
Cost of sales
Distribution costs
Administrative and other costs
Research and development expenditure recognised as an expense
Non-recurring items
Total operating costs above include:
Staff costs
Inventories
Cost of inventories recognised as an expense
Write down of inventories recognised as an expense
Change in provisions held against inventories
Depreciation of property, plant and equipment
Amortisation of intangible assets
Exchange differences recognised as a loss / (gain)
Loss on disposal of non-current assets
Amounts payable under operating leases:
Property
Plant and equipment
The balance of operating costs relates to other external charges.
Auditor’s remuneration
During the year the Group obtained the following services from its auditor at costs detailed below:
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates for other services to the Group:
The audit of the Company’s subsidiaries
Non-audit services:
Corporate tax compliance
Corporate tax consultancy
Other non-audit services
The total amount paid to the auditor was £0.7m (2013: £0.7m).
3. Staff numbers and costs
The average number of persons employed by the Group during the year including Executive Directors was:
Production
Sales
Administrative
The average number of persons employed by the Company during the year was 20 (2013:20).
2013
(restated – see
Accounting
policy (A))
£m
2014
£m
387.4 379. 7
304.6
33.6
42.0
3.9
3.3
298.3
31.5
43.7
3.8
2.4
81.2
79.8
198.9
0.1
0.3
12.7
6.1
0.6
–
4.1
1.5
2014
£m
0.2
0.3
0.1
0.1
–
196.6
–
(0.1)
12.8
6.3
(0.6)
0.3
4.1
1.5
2013
£m
0.2
0.3
–
0.1
0.1
Group
2014
1,502
296
246
2,044
2013
1,499
255
251
2,005
85
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Notes to the Accounts continued
3. Staff numbers and costs continued
The aggregate staff costs were:
Wages and salaries
Social security costs
Pension costs
Wages and salaries
Social security costs
Pension costs
Group
2014
£m
63.9
13.4
3.9
81.2
Company
2014
£m
2.4
0.3
0.3
3.0
2013
£m
62.9
13.7
3.2
79.8
2013
£m
2.6
0.3
0.2
3.1
The Directors of the Company are listed on pages 34 and 35.
4. Post-employment benefits
The Group operates a number of pension schemes in the UK and overseas. These are either defined benefit or defined contribution in nature.
The assets of all the schemes are held separately from those of the Group.
(a) Defined contribution schemes
Various defined contribution pension schemes exist around the Group. These are accounted for on a contribution payable basis. The total
cost charged to income in respect of defined contribution pension schemes was £3.1m (2013: £2.9m).
(b) Defined benefit schemes
(i) United Kingdom
The UK defined benefit scheme is a funded pension scheme, closed to future accrual of benefits, providing benefits linked to inflation. The
weighted duration of the expected benefit payments from the scheme is around 15 years.
The UK defined benefit scheme (the “Scheme”) was independently valued by a qualified actuary at 31 March 2014 using the projected unit
method. The main assumption in carrying out the valuation was for investment returns of 5.4% per annum in respect of investments in higher risk
assets and 3.65% in respect of lower risk assets. At 31 March 2014 the total market value of assets in the UK scheme was £159.9m. The overall
level of funding was 84.3%. The net income statement charge for the year ended 30 November 2014 for the UK pension scheme was £0.9m (2013
Restated – see Accounting policy (A): £1.8m charge). The Scheme is held by the Company and all of the UK disclosures relate to the Company and
the Group.
Following the 2011 valuation of the UK scheme, the Company agreed a schedule of contributions with the Trustee of the Scheme under
which the Company paid contributions of £3.3m per annum from the year ending 30 November 2012. The Company was required to make
further contributions to the UK scheme if the Group’s net cash inflow exceeds certain agreed levels provided that the total contributions
payable in any one year were no more than £4.0m and the total contributions payable under the revised schedule (which ran to 2019) did not
exceed £28.4m.
Following the 2014 valuation, the Company has been in discussions with the trustee of the Scheme to establish a revised schedule of
contributions for the Scheme. Those discussions are ongoing and are expected to be concluded by the end of June 2015 at the latest, the
statutory deadline for concluding the 2014 valuation. It is likely that there will be an increase to the annual deficit reduction contributions
payable by the Company.
There is a risk that 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. This risk is mitigated by the main Group scheme being closed to new members and to future benefit
accrual along with the assumptions, including funding rates, being set in line with the actuaries’ recommendations. Regular dialogue also
takes place with pension fund trustee and the Board regularly discusses pension fund strategy.
(ii) Non-UK
Defined benefit schemes are held in Germany, Belgium and the United States relating to the Bonar business and the Mehler Texnologies
business in Germany. Further disclosure on these schemes is detailed below, given the relative immateriality of these schemes their results
have been combined in the following disclosures. Defined benefit schemes also exist in the Group’s Dutch businesses, which are members of
an industry-wide scheme; it is not possible to separately identify assets and liabilities and therefore these schemes are accounted for on a
contribution payable basis.
86
| Low & Bonar PLC Annual Report 2014 4. Post-employment benefits continued
(iii) Financial assumptions
Management determines the assumptions to be adopted in discussion with their actuaries. The application of different assumptions could
have a significant effect on the amounts reflected in the consolidated income statement, the consolidated statement of comprehensive
income and the balance sheet in respect of post-employment benefits. The valuations require the exercise of judgment in relation to various
assumptions, including the discount rate, future pension increases and employee and pensioner demographics. The assumptions vary among
the countries in which the Group operates and there may be an interdependency between some of the assumptions.
The financial assumptions used to estimate defined benefit obligations are:
Discount rate
Future salary increases
Future pension increases
Inflation increase (Consumer Price Index)
Health care cost trend – immediate
Health care cost trend – ultimate
UK schemes
Non-UK schemes
Weighted average
assumptions
2014
%
3.60
–
2.90
2.00
–
–
2013
%
4.40
–
3.30
2.40
–
–
2014
%
3.00
2.25
1.80
2.00
7.0
4.5
2013
%
3.75
2.25
2.00
2.00
7.2
4.5
In assessing the Group’s post-employment liabilities, management monitor mortality assumptions and use up-to-date mortality tables.
Allowance is made for expected future increases in life expectancy. The figures assume that a UK Scheme male member, currently aged 65,
will survive a further 21.5 years and a female member for a further 23.5 years (2013: male – 21 years, female – 23 years). They also assume
that a UK Scheme male member currently aged 45, will survive a further 43.2 years and a female member for a further 45.4 years (2013:
male – 42.7 years, female – 44.6 years). Management considers that the assumptions used are appropriate approximations to the life
expectancy of Scheme members in the light of scheme specific experience and more widely available statistics.
(iv) Financial impact of schemes
The total amount recognised for defined benefit schemes is as follows:
Fair value of scheme assets
Present value of defined benefit obligations
Net asset/(liability) recognised in the balance sheet
UK schemes
Non-UK schemes
Total
2014
£m
176.5
(176.3)
0.2
2013
£m
159.4
(163.2)
(3.8)
2014
£m
10.0
(21.0)
(11.0)
2013
£m
9.6
(18.5)
(8.9)
2014
£m
2013
£m
186.5
(197.3)
169.0
(181.7)
(10.8)
(12.7)
Amounts recognised as a charge to the income statement in respect of the defined benefit pension schemes are as follows:
Current service cost
Net Interest cost
Administration costs
Amounts recognised in Other Comprehensive Income are as follows:
Net actuarial (loss)/gain in the year due to:
– Changes in financial assumptions
– Changes in demographic assumptions
– Experience adjustments on benefit obligations
Actual return on plan assets less interest on plan assets
Associated deferred tax
UK schemes
Non-UK schemes
Total
2013
(restated – see
Accounting
policy (A))
£m
–
0.7
1.1
1.8
2014
£m
–
0.1
0.8
0.9
2014
£m
0.3
0.3
–
0.6
2013
£m
0.3
0.1
–
0.4
2013
(restated – see
Accounting
policy (A))
£m
0.3
0.8
1.1
2.2
2014
£m
0.3
0.4
0.8
1.5
Group
Company
2013
(restated – see
Accounting
policy (A))
£m
10.4
(1.1)
0.6
(0.3)
11.2
(0.4)
2014
£m
(0.8)
(15.8)
(2.4)
1.3
16.1
0.8
2013
(restated – see
Accounting
policy (A))
£m
9.8
(1.6)
0.6
(0.1)
10.9
–
2014
£m
1.6
(13.7)
(1.9)
1.4
15.8
–
The Company has not recorded a deferred tax asset or liability against the movement recognised in Other Comprehensive Income as it is not
probable that a tax benefit will be realised in the future.
87
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
4. Post-employment benefits continued
(iv) Financial impact of schemes continued
The changes in the net (liabilities)/assets recognised in the balance sheet are as follows:
Opening balance sheet liability
Amount recognised in income statement
Amount recognised in other comprehensive income
Contributions paid
Past service cost
Exchange gain/(loss)
Closing balance sheet asset/(liability)
Changes in the present value of the defined benefit obligation are as follows:
UK schemes
Non-UK schemes
Total
2014
£m
(3.8)
(0.9)
1.6
3.3
–
–
0.2
2013
£m
(15.1)
(1.8)
9.8
3.3
–
–
(3.8)
2014
£m
(8.9)
(0.6)
(2.4)
0.7
0.1
0.1
(11.0)
2013
£m
(9.7)
(0.4)
0.6
0.7
–
(0.1)
(8.9)
2014
£m
(12.7)
(1.5)
(0.8)
4.0
0.1
0.1
(10.8)
UK schemes
Non-UK schemes
Total
Opening defined benefit obligation
Current service cost
Interest cost
Past service cost
Actuarial loss/(gain) due to:
– Changes in financial assumptions
– Changes in demographic assumptions
– Experience adjustments on benefit obligations
Benefits paid
Benefits paid directly by the employer
Exchange adjustments
Closing defined benefit obligation
2014
£m
163.2
–
7.0
–
14.2
13.7
1.9
(1.4)
(8.1)
–
–
2013
£m
163.4
–
6.7
–
1.1
1.6
(0.6)
0.1
(8.0)
–
–
176.3
163.2
2014
£m
18.5
0.3
0.7
(0.1)
2.7
2.1
0.5
0.1
(1.0)
–
(0.1)
21.0
2013
£m
19.0
0.3
0.7
–
(0.3)
(0.5)
–
0.2
(1.1)
(0.2)
0.1
2014
£m
181.7
0.3
7.7
(0.1)
16.9
15.8
2.4
(1.3)
(9.1)
–
(0.1)
2013
£m
(24.8)
(2.2)
10.4
4.0
–
(0.1)
(12.7)
2013
£m
182.4
0.3
7.4
–
0.8
1.1
(0.6)
0.3
(9.1)
(0.2)
0.1
18.5
197.3
181.7
Changes in the fair value of scheme assets are as follows:
UK schemes
Non-UK schemes
Total
Opening fair value of scheme assets
Interest on scheme assets
Actual return on scheme assets less interest on scheme assets
Administration costs
Contributions by employers
Benefits paid
Exchange adjustments
Closing fair value of scheme assets
2013
(restated – see
Accounting
policy (A))
£m
148.3
6.0
10.9
(1.1)
3.3
(8.0)
–
159.4
2014
£m
159.4
6.9
15.8
(0.8)
3.3
(8.1)
–
176.5
The fair value of the UK scheme assets at the balance sheet date is analysed as follows:
Equity securities
Debt securities
Diversified growth funds
LDI funds
Property
Cash and other
88
2013
(restated – see
Accounting
policy (A))
£m
157.6
6.6
11.2
(1.1)
4.0
(9.3)
–
169.0
2013
%
27
18
27
12
10
6
2014
£m
169.0
7.3
16.1
(0.8)
4.0
(9.1)
–
186.5
2013
£m
43.4
28.7
43.4
19.5
15.3
9.1
2013
£m
9.3
0.6
0.3
–
0.7
(1.3)
–
9.6
2014
%
23
–
41
20
10
6
2014
£m
9.6
0.4
0.3
–
0.7
(1.0)
–
10.0
2014
£m
40.2
–
72.2
35.8
18.0
10.3
176.5
100
159.4
100
| Low & Bonar PLC Annual Report 2014 4. Post-employment benefits continued
(iv) Financial impact of schemes continued
The assets are invested in quoted pooled funds, apart from £72.2m invested in a segregated diversified growth fund for which quoted prices
are not available. The scheme uses Liability Driven Investment (“LDI”) funds to help manage investment risk.
The fair value of the non-UK scheme assets at the balance sheet date is analysed as follows:
Equity securities
Debt securities
Property
Cash and other
Sensitivity analysis of significant assumptions on the UK scheme at 30 November 2014 is as follows:
Discount rate
Inflation and pension increases (Consumer Price Inflation)
Life Expectancy
2014
£m
4.3
5.2
0.1
0.4
10.0
2014
%
43
52
1
4
100
2013
£m
3.8
5.1
0.1
0.6
9.6
2013
%
40
53
1
6
100
Effect on obligation (£m)
-0.5% pa
+0.5% pa
(12.6)
6.7
11.3
(7.0)
-1 year
7.2
+1 year
(7.3)
5. Amortisation and non-recurring items
During the year the Group recognised significant non-recurring items and amortisation of acquired intangible assets from continuing
operations as detailed below:
Amounts charged to operating profit
Joint venture start-up costs
Acquisition-related costs
China office set-up costs
Site clean-up costs
Reorganisation costs
Redundancy costs
Pension administration costs
Total non-recurring items
Amortisation of acquired intangible assets
Total charge to operating profit
Share of results of joint venture
Total charge to profit before tax
2014
£m
–
0.1
0.2
0.5
1.6
0.6
0.3
3.3
5.2
8.5
–
8.5
2013
(restated – see
Accounting
policy (A))
£m
0.6
1.0
0.3
–
0.2
–
0.3
2.4
5.6
8.0
0.6
8.6
Restructuring and redundancy costs of £2.2m (2013: £0.2m) were incurred in relocating part of the Yarns business from Dundee to Abu
Dhabi, and in the integration of the Group’s principal Performance Technical Textile operations into a single global business, Bonar. Initial
costs relating to the Group’s construction of a new manufacturing location in Changzhou, China, represented a further £0.2m (2013: £0.3m
in respect of setting up a sales and distribution office in China).
Acquisition-related costs of £0.1m were expensed in the year (2013: £1.0m, principally in relation to the acquisition of Texiplast). A further
£0.5m of non-recurring costs, and £0.4m of capital expenditure, were incurred this year on site clean-up and environmental rectification
work to bring Texiplast in line with Group environmental, health and safety standards.
The Group also incurred £0.3m (2013: £0.3m) of non-recurring pension administration costs relating to its UK defined benefit scheme.
During the prior year, the Group incurred £1.2m of costs in respect of the start-up of its joint venture in Saudi Arabia; £0.6m incurred by the
Group and £0.6m from its share of the joint venture’s results.
89
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Notes to the Accounts continued
6. Financial income and financial expense
Financial income
Interest income
Financial expense
Interest on bank overdrafts and loans
Interest payable on other loans
Amortisation of bank arrangement fees
Net Interest on pension scheme liabilities
Amounts capitalised within property, plant and equipment
7. Taxation
Recognised in the income statement
Current tax
UK corporation tax
– current year
– prior year
Overseas tax
– current year
– prior year
Total current tax
Deferred tax
Total tax charge in the income statement
The amount of deferred tax income relating to changes in tax rates is £0.1m (2013: £nil).
2013
(restated – see
Accounting
policy (A))
£m
0.1
0.1
(4.8)
(0.1)
(0.5)
(0.8)
–
(6.2)
2013
(restated – see
Accounting
policy (A))
£m
–
–
6.3
0.2
6.5
(1.6)
4.9
2014
£m
0.1
0.1
(4.5)
–
(0.6)
(0.4)
–
(5.5)
2014
£m
–
(0.1)
6.7
0.6
7.2
(2.3)
4.9
Reconciliation of effective tax rate
The differences between the total tax charge shown above and the amount calculated by applying the standard rate of UK corporation tax
of 21% (2013: 23%) to the profit before tax are as follows:
Profit before tax from continuing operations
Profit before tax from discontinued operations
Tax charge at 21% (2013: 23%)
Expenses not deductible and income not taxable
Higher tax rates on overseas earnings
Current tax losses not utilised
Other differences
Prior period adjustments
Total tax charge for the year
Deferred tax recognised directly in Other Comprehensive Income
Actuarial gains and losses relating to post employment benefit obligations
Total of items that will not be reclassified subsequently to profit or loss
A 2% reduction in the main rate of UK corporation tax from 23% to 21% took effect from 1 April 2014 and a further 1% reduction from
21% to 20% will take effect from 1 April 2015. Given that the Group does not expect to pay corporation tax in the UK in the foreseeable
future, these changes are not considered to have any material impact on the Group.
90
2013
(restated – see
Accounting
policy (A))
£m
16.7
–
3.8
(2.0)
1.0
1.2
0.7
0.2
4.9
2014
£m
16.7
0.9
3.7
(1.5)
1.3
1.4
(0.5)
0.5
4.9
2013
(restated – see
Accounting
policy (A))
£m
(0.4)
(0.4)
2014
£m
0.8
0.8
| Low & Bonar PLC Annual Report 2014 8. Profits of the Company
The Company has not presented its own income statement as permitted by section 408 of the Companies Act 2006. The profit after tax was
£8.3m (2013: £2.0m (restated – see Accounting policy (A))).
9. Dividends
Amounts recognised as distributions to equity shareholders in the year were as follows:
Final dividend for the year ended 30 November 2013 – 1.75 pence per share (2012: 1.6 pence per share)
Interim dividend for the year ended 30 November 2014 – 0.95 pence per share (2013: 0.85 pence per share)
2014
£m
5.7
3.1
8.8
2013
£m
4.7
2.5
7.2
The Directors have proposed a final dividend in respect of the financial year ended 30 November 2014 of 1.75 pence per share which will
absorb an estimated £5.7m 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 24 March 2015, it will be paid on
16 April 2015 to Ordinary Shareholders who are on the register of members at close of business on 20 March 2015.
During the year, the Board declared a final dividend on Ordinary Shares in relation to the year ended 30 November 2013 of 1.75 pence per
share, which was paid to Ordinary Shareholders on the register of members at close of business on 21 March 2014.
The Directors declared an interim dividend on Ordinary Shares in relation to the year ended 30 November 2014 of 0.95 pence per share,
which was paid to Ordinary Shareholders on the register of members at close of business on 29 August 2014.
10. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to Ordinary Shareholders by the weighted-average number of
Ordinary Shares outstanding, excluding those held by the ESOP which are treated as cancelled for the purpose of this calculation. For diluted
earnings per share, the weighted-average number of Ordinary Shares in issue is adjusted to assume conversion of all dilutive potential
Ordinary Shares. The Group has two classes of dilutive potential Ordinary Shares: those share options granted to employees where the
exercise price is less than the average market price of the Company’s Ordinary Shares during the year; and those long-term incentive plan
awards for which the performance criteria have been satisfied.
Reconciliations of the earnings and weighted-average number of shares used in the calculations are set out below:
Statutory – continuing operations
Basic earnings per share
Earnings attributable to Ordinary Shareholders
Effect of dilutive items
Share-based payment
2014
Weighted
average
number
of shares
(millions)
Earnings
£m
2013
(restated – see Accounting policy (A))
Per share
amount
pence
Earnings
£m
Weighted
average
number
of shares
(millions)
Per share
amount
pence
11.5
327.035
3.50
11.3
301.035
3.74
–
5.572
–
7.249
Diluted earnings per share
11.5
332.607
3.44
11.3
308.284
3.66
Statutory – discontinued operations
Basic earnings per share
Earnings attributable to Ordinary Shareholders
Effect of dilutive items
Share-based payment
Diluted earnings per share
Statutory – total operations
Basic earnings per share
Earnings attributable to Ordinary Shareholders
Effect of dilutive items
Share-based payment
0.9
327.035
0.26
–
5.572
0.9
332.607
0.26
–
–
–
301.035
7.249
308.284
–
–
12.4
327.035
3.76
11.3
301.035
3.74
–
5.572
–
7.249
Diluted earnings per share
12.4
332.607
3.70
11.3
308.284
3.66
Before amortisation and non-recurring items – continuing and
total operations
Basic earnings per share
Earnings attributable to Ordinary Shareholders
Effect of dilutive items
Share-based payment
17.9
327.035
5.46
18.1
301.035
5.98
–
5.572
–
7.249
Diluted earnings per share
17.9
332.607
5.37
18.1
308.284
5.86
91
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
11. Goodwill
Cost
At 1 December
Exchange adjustments
Arising on acquisition
At 30 November
Accumulated impairment losses
At 1 December
Impairment loss recognised
At 30 November
Net book value at 30 November
Group
2014
£m
89.6
(3.2)
–
86.4
8.4
–
8.4
2013
£m
82.6
1.3
5.7
89.6
8.4
–
8.4
78.0
81.2
Cash generating units
Goodwill is allocated to the grouping of cash generating units (“CGUs”) which have been identified according to the principal markets in
which each business operates. A summary of the carrying value presented at CGU level is shown below:
Cash generating unit
Specialist yarns
Bonar EMEA
Bonar North America
Bonar APAC
Technical Coated Fabrics
At 30 November
Group
2014
Net book
value
£m
2013
Net book
value
£m
–
30.1
12.4
0.3
35.2
78.0
–
31.2
12.9
0.3
36.8
81.2
The Group tests goodwill values annually for impairment or more frequently if there are indications that goodwill might be impaired. The
recoverable amounts are determined using value in use calculations for each CGU based on projected cash flows, discounted to calculate the
net present value. The approach to what is considered to be the key assumptions within the impairment reviews is outlined below:
Cash flow projections
Cash flow projections for each CGU are derived from the most recent annual budgets and five-year plans approved by the Board, which take
into account current market conditions and long-term average and projected growth rates for each of the key markets served by the CGUs,
along with forecast changes to selling prices and direct costs and CGU specific forecast risks and potential cash volatilities. These cash flow
projections are based on management’s expectations of future changes in markets informed by various external sources of information.
The Group has significant goodwill in three of its cash generating units: Bonar EMEA, Bonar North America and Technical Coated Fabrics.
Both Bonar North America and Technical Coated Fabrics performed well in 2014 however Bonar EMEA experienced a drop in demand in their
European civil engineering markets in the second half of the year. The 2015 budget for Bonar EMEA, which has been used in preparing the
cash flow projections in the impairment review, reflects the more subdued activity levels in that market in the near-term.
Long-term growth rates
The value in use calculations assume terminal growth rates of between 2% and 2.5% (2013: between 2% and 2.5%) beyond year five.
Discount rate
Forecast pre-tax cash flows for each CGU are discounted to net present value using the Group’s discount rate, calculated based on external
advice. Pre-tax discount rates ranged from 10.8% to 11.1% (2013: 11.8% to 11.9%) to calculate value in use for CGUs.
Sensitivity analysis has shown that with an increase of 390 basis points in the pre-tax discount rate applied to each CGU, excluding Specialist
yarns, there would be no impairment at a terminal growth rate of 2.0% (2013: no impairment with an increase of 750 basis points and 2.0%
terminal growth rate, excluding Specialist yarns).
Conclusion
No impairment arose as a result of the valuations of the CGUs. Management believe that the valuations are sufficiently robust such that
reasonably foreseeable variations in the key assumptions would not result in significant changes to the results of the impairment tests. The
assumptions have been reviewed in the light of the current economic environment and are considered appropriate. The value in use
calculations, show at least 44% headroom (2013: 68% headroom) compared to the book values of the CGUs (excluding Specialist yarns).
92
| Low & Bonar PLC Annual Report 2014
12. Intangible assets
Group
Cost
At 30 November 2012
Exchange adjustment
Additions
Retirements
Arising on acquisition
At 30 November 2013
Exchange adjustment
Additions
At 30 November 2014
Aggregate amortisation
At 30 November 2012
Exchange adjustment
Retirements
Charge for the year
At 30 November 2013
Exchange adjustment
Charge for the year
At 30 November 2014
Net book value
At 30 November 2014
At 30 November 2013
At 30 November 2012
Computer
software
£m
Research and
development
£m
Order
backlog
£m
Customer
relationships
£m
Marketing-
related
£m
Technology-
based
£m
Non-compete
agreements
£m
Total
£m
2.7
–
1.3
(0.1)
–
3.9
(0.2)
0.2
3.9
2.0
–
(0.1)
0.3
2.2
(0.1)
0.5
2.6
1.3
1.7
0.7
3.5
0.1
0.8
–
–
4.4
(0.2)
1.0
5.2
1.2
0.1
–
0.4
1.7
(0.1)
0.4
2.0
3.2
2.7
2.3
0.4
33.1
13.9
20.5
1.3
75.4
–
–
–
–
0.4
–
–
0.4
0.4
–
–
–
0.4
(0.1)
–
0.3
0.1
–
–
0.5
–
–
0.4
0.4
–
–
0.3
0.5
–
–
–
34.0
14.6
21.0
(1.3)
–
32.7
15.1
0.1
–
2.6
17.8
(0.6)
2.6
19.8
12.9
16.2
18.0
(0.6)
–
14.0
5.3
0.2
–
1.1
6.6
(0.3)
1.1
7.4
6.6
8.0
8.6
(0.8)
–
20.2
13.4
0.3
–
1.9
15.6
(0.6)
1.5
16.5
3.7
5.4
7.1
–
–
–
–
1.3
(0.1)
–
1.2
1.5
2.1
(0.1)
0.7
79.6
(3.2)
1.2
77.6
1.3
38.7
–
–
–
1.3
(0.1)
–
1.2
–
–
–
0.7
(0.1)
6.3
45.6
(1.9)
6.1
49.8
27.8
34.0
36.7
Notes
1 Marketing-related intangible assets are assets that are primarily used in the marketing or promotion of products or services. Such assets include trademarks, trade names, service
marks and internet domain names.
2 Non-compete agreements prohibit a seller from competing with the purchaser of a business.
3 Customer relationships consist of customer lists, customer contracts and relationships and non-contractual customer relationships.
4 Technology-based intangible assets relate to innovations and technological advances and include patented and unpatented technology, databases and trade secrets.
5 Research and development assets relate to expenditure incurred in the course of research where findings can be applied to a plan or design for the production of new or
substantially improved products and processes.
93
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
13. Property, plant and equipment
Group
Property
£m
Plant and
equipment
£m
Assets under
construction
£m
Total
£m
Property
£m
Company
Plant and
equipment
£m
Assets under
construction
£m
Cost
At 30 November 2012
Exchange adjustment
Additions
Reclassifications
Disposals
Acquisition of subsidiary
At 30 November 2013
Exchange adjustment
Additions
Reclassifications
Disposals
At 30 November 2014
Accumulated depreciation
At 30 November 2012
Exchange adjustment
Charge for the year
Reclassifications
Disposals
At 30 November 2013
Exchange adjustment
Charge for the year
Reclassifications
Disposals
At 30 November 2014
Net book value
At 30 November 2014
At 30 November 2013
At 30 November 2012
48.1
207.0
2.4
257.5
0.1
0.6
0.3
(0.8)
2.9
0.4
2.7
4.2
(3.5)
3.6
51.2
214.4
(1.6)
0.6
0.6
–
(4.7)
5.1
6.6
(0.8)
50.8
220.6
17.9
130.8
–
1.1
1.5
(0.6)
0.2
11.7
(1.5)
(3.3)
19.9
137.9
(0.6)
1.1
(1.4)
–
(3.9)
11.6
1.3
(0.8)
19.0
146.1
(0.1)
8.3
(4.2)
–
–
6.4
0.2
13.4
(7.0)
–
13.0
–
–
–
–
–
–
–
–
–
–
–
31.8
31.3
30.2
74.5
76.5
76.2
13.0
6.4
2.4
0.5
–
0.3
–
(0.4)
–
0.4
–
–
–
–
0.4
11.6
0.3
(4.3)
6.5
272.0
(6.1)
19.1
0.2
(0.8)
284.4
0.4
148.7
0.2
12.8
–
(3.9)
157.8
(4.5)
12.7
(0.1)
(0.8)
165.1
119.3
114.2
108.8
0.3
–
0.1
–
(0.3)
0.1
–
0.1
–
–
0.2
0.2
0.3
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
0.5
–
0.3
–
(0.4)
–
0.4
–
–
–
–
0.4
0.3
–
0.1
–
(0.3)
0.1
–
0.1
–
–
0.2
0.2
0.3
0.2
The carrying value of freehold land not depreciated at 30 November 2014 was £4.0m (2013: £3.2m). Committed capital expenditure at
30 November 2014 totalled £11.9m (2013: £0.5m).
14. Investment in subsidiaries
Cost at 1 December and 30 November
Provision for impairment at 1 December
Increase in provision
Provision for impairment at 30 November
Net book value at 1 December
Net book value at 30 November
Company
2014
£m
2013
£m
103.5
103.5
(9.9)
–
(9.9)
93.6
93.6
(9.9)
–
(9.9)
93.6
93.6
The subsidiary undertakings whose results, or financial position, in the opinion of the Directors, principally affected the results shown in
these accounts are shown within Note 35.
94
| Low & Bonar PLC Annual Report 2014 15. Investment in joint venture
Cost and net book value
At 1 December
Equity investment in joint venture
Share of retained loss
Exchange adjustment
At 30 November
The Group’s share of the assets, liabilities, income and expenses of its joint venture is shown below:
Total assets
Total liabilities
Total net assets
Group share of net assets
Total revenue
Total loss for the year
Group share of loss for the year
Group
2014
£m
4.7
–
(1.1)
–
3.6
2014
£m
34.0
(26.8)
7.2
3.6
3.8
(2.2)
(1.1)
2013
£m
5.3
–
(0.6)
–
4.7
2013
£m
26.2
(16.9)
9.3
4.7
–
(1.2)
(0.6)
The joint venture whose results, or financial position, in the opinion of the Directors, principally affected the results shown in these accounts
is shown within Note 35.
16. Investment in associate
Cost and net book value
At 1 December
Share of retained profit
Dividends received
At 30 November
The Group’s share of the assets, liabilities, income and expenses of its associated undertakings is shown below:
Total assets
Total liabilities
Total net assets
Group share of net assets
Total revenue
Total profit for the year
Group share of profit for the year
Group
2014
£m
0.4
0.1
–
0.5
2014
£m
1.3
–
1.3
0.5
3.4
0.3
0.1
2013
£m
0.4
0.1
(0.1)
0.4
2013
£m
1.4
(0.1)
1.3
0.4
4.0
0.4
0.1
The associate whose results, or financial position, in the opinion of the Directors, principally affected the results shown in these accounts is
shown within Note 35.
17. Inventories
Raw materials
Work in progress
Finished goods
Group
2014
£m
19.7
14.6
56.6
90.9
2013
£m
17.7
16.2
52.9
86.8
Inventories are presented in the balance sheet net of provision for impairment of obsolete and slow moving items. Impairment is estimated
by management based upon prior experience and their assessment of the current and future economic environment. The write down of
inventories is included in cost of sales.
95
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
18. Trade and other receivables
Current
Trade receivables
Provision for impairment of receivables
Net trade receivables
Other receivables
Prepayments and accrued income
Non-current
Amounts owed by subsidiaries
Current
Amounts owed by subsidiaries
Other receivables
Prepayments and accrued income
Group
2014
£m
65.6
(2.8)
62.8
10.0
2.5
75.3
2013
£m
66.9
(3.1)
63.8
16.1
1.8
81.7
Company
2014
£m
2013
£m
22.7
23.9
149.8
0.3
0.4
150.5
137.9
0.3
0.4
138.6
Included within the Group’s other receivables is £4.7m (2013: £9.1m) owed by Bonar Natpet LLC, a joint venture. The Group has an
established credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment
terms and conditions are offered. The Group’s review includes external ratings and bank references, where available. Purchase limits are
established for each customer; these limits are reviewed quarterly. The Group has a long history of trading with a number of its customers.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.
Impairment losses
The age profile of gross trade receivables at the balance sheet date was:
Group
2014
£m
54.3
4.5
2.2
4.6
65.6
Group
2014
£m
(3.1)
(0.4)
0.2
0.3
-
0.2
(2.8)
2013
£m
55.1
4.3
2.0
5.5
66.9
2013
£m
(3.3)
(0.7)
0.3
0.7
(0.1)
–
(3.1)
Not past due
0–30 days past due
31–120 days past due
More than 120 days past due
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 December
Increased during the year
Released during the year
Utilised during the year
Arising on acquisition
Exchange adjustments
At 30 November
96
| Low & Bonar PLC Annual Report 2014 18. Trade and other receivables continued
The allowance for impairment in respect of trade receivables at the end of the year was allocated against aged receivables as follows:
Not past due
0–30 days past due
31–120 days past due
More than 120 days past due
At 30 November
Group
2014
£m
–
–
(0.1)
(2.7)
(2.8)
2013
£m
–
–
(0.1)
(3.0)
(3.1)
Provisions for impairment of receivables are estimated by management based on prior experience and their assessment of the current
economic environment. The trade receivables impairment provision as at 30 November 2014 was £2.8m (2013: £3.1m). Management believe
that this provision is adequate to cover the risk of bad debts and exposure to credit risk. At 30 November 2014, 64.7% (2013: 61.8%) of
trade receivables were insured.
19. Trade and other payables
Current
Trade payables
Other taxes and social security
Other payables
Accruals
Current tax liabilities
Current
Amounts owed to subsidiaries
Other taxes and social security
Other payables
Accruals
Current tax liabilities
Group
2014
£m
57.3
2.2
7.1
15.8
82.4
4.8
87.2
Company
2014
£m
16.0
0.1
4.0
1.0
21.1
–
21.1
2013
£m
59.9
3.4
5.0
14.6
82.9
5.4
88.3
2013
£m
13.5
0.1
1.2
1.1
15.9
1.7
17.6
Included within the Group’s and Company’s other payables is £3.1m (2013: £nil) owed to National Petrochemical Industrial Company
(Natpet), the Group’s joint venture partner in Bonar Natpet LLC.
20. Financial assets, liabilities, derivatives and financial risk management
The objectives of the Group’s treasury policies are to ensure sufficient liquidity to meet the Group’s operational and strategic needs and the
management of financial risk at optimal cost. The main financial risks to which the Group is exposed are foreign currency risk, credit risk and
interest rate risk. Group treasury policies are set by the Board and permit the use of conventional financial instruments and certain derivative
instruments to manage and mitigate these risks. There were no changes to this policy in the year ended 30 November 2014.
The Group treasury function is responsible for implementing Group policy and for managing the Group’s relationships with its key providers
of debt and other treasury services. The treasury function is operated as a cost centre and no speculative transactions are permitted.
Underlying policy assumptions and activities are reviewed by the Board. Controls over exposure changes and transaction authenticity are in
place. The treasury function is subject to periodic independent review by the internal audit function.
97
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
20. Financial assets, liabilities, derivatives and financial risk management continued
Fair value of financial assets and liabilities
The fair value of the Group’s financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Cash at bank and in hand
Trade and other receivables
Trade and other payables
Derivative liabilities
Bank overdrafts
Preference shares
Prepaid arrangement fees
Floating rate borrowings
Fixed rate borrowings
Group
Company
Fair value
2014
£m
Book value
2014
£m
Fair value
2013
£m
Book value
2013
£m
Fair value
2014
£m
Book value
2014
£m
Fair value
2013
£m
Book value
2013
£m
25.8
72.8
(89.2)
–
–
(0.4)
1.5
(78.9)
(36.7)
25.8
72.8
(89.2)
–
–
(0.4)
1.5
(78.9)
(36.0)
(105.1)
(104.4)
17.9
79.9
(90.2)
(0.1)
–
(0.4)
0.6
(67.5)
(39.1)
(98.9)
17.9
79.9
(90.2)
(0.1)
–
(0.4)
0.6
(67.5)
(37.4)
(97.2)
3.6
172.8
(21.1)
–
(8.0)
(0.4)
1.5
(63.3)
(36.7)
48.4
3.6
172.8
(21.1)
–
(8.0)
(0.4)
1.5
(63.3)
(36.0)
49.1
–
162.1
(17.6)
–
(4.6)
(0.4)
0.6
(51.3)
(39.1)
49.7
–
162.1
(17.6)
–
(4.6)
(0.4)
0.6
(51.3)
(37.4)
51.4
Estimation of fair value
The major methods and assumptions used in estimating the fair values of financial instruments reflected in the table are summarised
as follows:
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. Where it is not
repayable on demand then the fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at
the balance sheet date.
Trade and other receivables/payables
The fair value of trade and other receivables and trade and other payables is estimated as the present value of future cash flows, discounted
at the market rate of interest at the balance sheet date if the effect is material.
Interest-bearing financial assets and liabilities
The fair value of interest-bearing assets and liabilities that bear interest at floating rates approximates to their carrying value. The fair value of
the fixed interest financial liabilities is determined by discounting future contracted cash flows, using appropriate yield curves, to their net
present value.
Forward exchange contracts
The fair value of forward foreign exchange contracts is based on their publicly available market price. If this is not available, forward contracts
are marked to market based on the current spot rate.
Funding and liquidity
Negotiations to refinance the €130m unsecured multi-currency revolving credit facility, which expired in February 2015, were completed in
the year. The Group’s committed borrowing facilities at 30 November 2014 totalled €210.0m (£167.2m) (2013: €175.0m (£145.5m)),
comprising:
• a €165m unsecured multi-currency revolving credit facility with a syndicate of four of its key relationship banks, committed until July
2019, which bears interest at between 1.00% to 2.00% above LIBOR depending on the ratio of the Group’s net debt to EBITDA at each
of its half-year and year-end reporting dates; and
• a €45m senior loan note raised by private placement with Pricoa Capital Group Limited; this funding is unsecured and is scheduled for
repayment in September 2016, and bears interest at a fixed rate of 5.90% per annum for the term of the loan.
The Group’s objectives when managing capital are:
• to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits
for other stakeholders; and
• to provide an adequate return to shareholders commensurate with the level of risk.
The Group sets the amount of capital in proportion to risk. The Group manages its capital structure and makes changes in the light of
changes in economic conditions and risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the
Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce
debt. There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its
subsidiaries are subject to externally imposed capital requirements.
98
| Low & Bonar PLC Annual Report 2014
20. Financial assets, liabilities, derivatives and financial risk management continued
Funding and liquidity continued
The Group’s capital structure is as follows:
Net debt
Total equity
Analysis of cash and cash equivalents
Sterling
Euro
US Dollar
Other
Analysis of interest-bearing borrowings
Borrowings falling due within one year or on demand
Bank loans and overdrafts
Borrowings falling due after more than one year
Bank loans and overdrafts
5.9% €45m Senior Note due 2016
Other borrowings
– Preference shares
All of the Company’s and Group’s borrowings are unsecured.
Group
2014
£m
88.0
190.5
278.5
2013
£m
86.8
193.1
279.9
Group
Company
2014
£m
(0.8)
10.3
6.1
10.2
25.8
2013
£m
(0.4)
7.3
5.5
5.5
17.9
2014
£m
–
–
–
3.6
3.6
Group
Company
2014
£m
–
–
77.6
35.8
0.4
2013
£m
–
–
67.2
37.1
0.4
113.8
104.7
2014
£m
8.0
8.0
62.0
35.8
0.4
98.2
2013
£m
–
–
–
–
–
2013
£m
4.6
4.6
51.0
37.1
0.4
88.5
The following tables show the undiscounted contracted cash flows and maturities of financial liabilities, together with their carrying amounts
and average effective interest rates, as at the balance sheet date:
Effective
rate
%
Carrying
amount
£m
Contractual
cash flows
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
>5 years
£m
Group 2014
Non-derivative financial liabilities:
Multi-currency revolving facility
– Sterling
– Euro
– US Dollar
5.9% €45m Senior Note due 2016
Bank overdrafts
– Sterling
– Euro
– Other
Preference shares
Prepaid arrangement fees
Trade and other payables
Derivative financial liabilities:
Forward exchange contracts used for hedging
– Outflow
2.1
2.2
2.1
5.9
5.8
(27.0)
(41.7)
(10.2)
(36.0)
–
–
–
(0.4)
1.5
(29.7)
(46.0)
(11.2)
(39.9)
–
–
–
(0.4)
–
(0.6)
(0.9)
(0.2)
(2.1)
(0.6)
(0.9)
(0.2)
(37.8)
(28.5)
(44.2)
(10.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(113.8)
(89.2)
(127.2)
(89.2)
(3.8)
(87.2)
(39.5)
(2.0)
(83.5)
–
–
–
–
–
–
–
–
(0.4)
–
(0.4)
–
–
–
–
–
–
–
(203.0)
(216.4)
(91.0)
(41.5)
(83.5)
(0.4)
99
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Notes to the Accounts continued
20. Financial assets, liabilities, derivatives and financial risk management continued
Analysis of interest-bearing borrowings continued
Non-derivative financial liabilities:
Multi-currency revolving facility
– Sterling
– Euro
– US Dollar
5.9% €45m Senior Note due 2016
Bank overdrafts
– Sterling
– Euro
– Other
Preference shares
Prepaid arrangement fees
Trade and other payables
Derivative financial liabilities:
Forward exchange contracts used for hedging
– Outflow
Non-derivative financial liabilities:
Multi-currency revolving facility
– Sterling
– Euro
– US Dollar
5.9% €45m Senior Note due 2016
Bank overdrafts
– Sterling
– Euro
– Other
Preference shares
Prepaid arrangement fees
Trade and other payables
Derivative financial liabilities:
Forward exchange contracts used for hedging
– Outflow
Effective
rate
%
Carrying
amount
£m
Contractual
cash flows
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
>5 years
£m
Group 2013
2.5
2.2
2.2
5.9
5.8
(17.0)
(40.7)
(9.8)
(37.4)
–
–
–
(0.4)
0.6
(17.5)
(41.8)
(10.1)
(43.6)
–
–
–
(0.4)
–
(0.4)
(0.9)
(0.2)
(2.2)
–
–
–
–
–
(17.1)
(40.9)
(9.9)
(2.2)
–
–
–
(39.2)
–
–
–
–
–
–
–
–
–
–
(104.7)
(90.2)
(113.4)
(90.2)
(3.7)
(88.3)
(70.1)
(1.9)
(39.2)
–
(0.1)
(0.1)
(195.0)
(203.7)
(0.1)
(92.1)
–
–
(72.0)
(39.2)
–
–
–
–
–
–
–
(0.4)
–
(0.4)
–
–
(0.4)
Effective
rate
%
Carrying
amount
£m
Contractual
cash flows
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
>5 years
£m
Company 2014
2.1
2.2
2.1
5.9
2.1
1.3
1.7
5.8
(27.0)
(26.1)
(10.2)
(36.0)
(1.7)
(5.7)
(0.6)
(0.4)
1.5
(29.7)
(28.9)
(11.2)
(39.9)
(1.7)
(5.7)
(0.6)
(0.4)
–
(0.6)
(0.6)
(0.2)
(2.1)
(1.7)
(5.7)
(0.6)
–
–
(0.6)
(0.6)
(0.2)
(37.8)
(28.5)
(27.7)
(10.8)
–
–
–
–
–
–
–
–
–
–
–
(106.2)
(21.1)
(118.1)
(21.1)
(11.5)
(21.1)
(39.2)
–
(67.0)
–
–
–
–
–
–
(127.3)
(139.2)
(32.6)
(39.2)
(67.0)
–
–
–
–
–
–
–
(0.4)
–
(0.4)
–
–
(0.4)
100
| Low & Bonar PLC Annual Report 2014 20. Financial assets, liabilities, derivatives and financial risk management continued
Analysis of interest-bearing borrowings continued
Non-derivative financial liabilities:
Multi-currency revolving facility
– Sterling
– Euro
– US Dollar
5.9% €45m Senior Note due 2016
Bank overdrafts
– Sterling
– Euro
– Other
Preference shares
Prepaid arrangement fees
Trade and other payables
Derivative financial liabilities:
Forward exchange contracts used for hedging
– Outflow
Effective
rate
%
Carrying
amount
£m
Contractual
cash flows
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
>5 years
£m
Company 2013
2.5
2.2
2.2
5.9
3.0
1.3
1.6
5.8
(17.0)
(24.5)
(9.8)
(37.4)
(0.6)
(3.7)
(0.3)
(0.4)
0.6
(17.5)
(25.1)
(10.1)
(43.6)
(0.6)
(3.7)
(0.3)
(0.4)
–
(0.4)
(0.5)
(0.2)
(2.2)
(0.6)
(3.7)
(0.3)
–
–
(17.1)
(24.6)
(9.9)
(2.2)
–
–
–
(39.2)
–
–
–
–
–
–
–
–
–
–
(93.1)
(17.6)
(101.3)
(17.6)
(7.9)
(17.6)
(53.8)
–
(39.2)
–
–
–
–
–
–
(110.7)
(118.9)
(25.5)
(53.8)
(39.2)
–
–
–
–
–
–
–
(0.4)
–
(0.4)
–
–
(0.4)
At 30 November 2014 the Group’s committed borrowing facilities comprised a multi-currency revolving credit facility of €165m, expiring in
July 2019, and a €45m Senior Note, falling due in September 2016.
Foreign exchange risk
(a) Translational
The Group has significant net assets based outside of the UK, predominantly in the Eurozone and the USA, with further amounts held in the
Czech Republic, the Middle East and China. The Group has elected to use its direct currency borrowings under the senior note private
placement and its €165m multi-currency revolving facility as hedges against movements in the Sterling value of its Euro and US Dollar
investments and mitigate the risk associated with fluctuations in foreign currency rates. The Group recognised an amount of £Nil in the
income statement as a result of ineffectiveness arising from those hedges of net investments in foreign operations. Profit before tax,
amortisation and non-recurring items for the year ended 30 November 2013 retranslated using 2014 average exchange rates would have
been £1.8m lower.
(b) Transactional
The Company and Group have limited transactional currency exposures, arising on sales and purchases made in currencies other than the
functional currency of the entity making the sale or purchase. Significant exposures which are deemed at least highly probable are matched
where possible, and the remaining transactional risk may be mitigated using forward foreign exchange contracts, all of which mature within
one year of the balance sheet date.
The following tables show the derivative assets/(liabilities) recognised in the accounts in respect of these hedging instruments:
Forward exchange contracts
4.3
–
–
–
–
–
Carrying and fair value amount 2014
Notional
contract
amount
£m
Designated
as cash flow
hedges
£m
Designated
as net
investment
hedges
£m
Not
designated
as hedges
£m
Derivative
assets
£m
Derivative
liabilities
£m
Forward exchange contracts
Carrying and fair value amount 2013
Designated
as cash flow
hedges
£m
Designated
as net
investment
hedges
£m
Not
designated
as hedges
£m
Derivative
assets
£m
Derivative
liabilities
£m
–
–
–
–
(0.1)
Notional
contract
amount
£m
3.3
The gains and losses on ineffective portions of such derivatives are recognised immediately in the income statement. During the year to
30 November 2014, an amount of £nil (2013: £nil) was recognised due to hedge ineffectiveness. The amount recognised in equity in the
year in respect of hedges was £nil (2013: loss of £0.1m).
101
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
20. Financial assets, liabilities, derivatives and financial risk management continued
Forward exchange contracts
The Group had the following forward foreign exchange contracts in place at the balance sheet date, all of which mature within one year of
the balance sheet date:
Sterling/Euro
Euro/US Dollar
Euro/Saudi Riyal
Euro/Hungarian Forint
2014
2013
Currency
million
Average
exchange
rate
–
–
25.4
–
–
–
4.70
–
Currency
million
1.1
0.1
–
814.0
Average
exchange
rate
1.17
1.38
–
296.1
The Company had the following forward foreign exchange contracts in place at the balance sheet date:
Euro/Saudi Riyal
The following significant exchange rates applied during the year:
Sterling/Euro
Sterling/US Dollar
Sterling/Czech Crown
Sterling/Hungarian Forint
Sterling/Chinese Yuan
2014
2013
Currency
million
Average
exchange
rate
Currency
million
Average
exchange rate
25.4
4.70
–
–
Average
rate
2014
1.24
1.66
34.03
380.88
10.19
Average
rate
2013
1.18
1.56
30.52
350.83
9.61
Year end
rate
2014
1.26
1.57
34.72
384.83
9.62
Year end
rate
2013
1.20
1.64
32.94
362.54
9.98
Sensitivity analysis
A 10% strengthening of Sterling against the following currencies would have decreased equity and profit before amortisation and
non-recurring items after tax by the amounts shown below. This analysis assumes that all other variables, including interest rates,
remain constant:
US Dollar
Euro
Czech Crown
Chinese Yuan
2014
2013
Profit
£m
(0.6)
(0.5)
(0.4)
(0.1)
Equity
£m
(1.5)
(7.3)
(1.1)
(2.1)
Profit
£m
(0.6)
(0.5)
(0.4)
(0.1)
Equity
£m
(1.3)
(6.7)
(0.9)
(1.4)
A 10% weakening of Sterling against the above currencies as at 30 November 2014 and 2013 would have had the equal but opposite effect
to the amounts shown above, on the basis that all other variables remain constant.
Credit risk
Credit risk is the loss in relation to a financial asset due to non-payment by the customer or counterparty. The Group’s objective is to reduce
its exposure to counterparty default by restricting the type of counterparty it deals with and by employing an appropriate policy in relation to
the collection of financial assets. The Group’s principal financial assets are cash, derivative financial instruments and receivables which
represent the Group’s maximum exposure to credit risk in relation to financial assets.
The credit risk in relation to cash and derivative financial instruments is mitigated by Group policies which restrict dealings to approved
counterparties with high credit ratings and with whom the Group has an ongoing banking relationship. The Group has set maximum
permitted exposures with each counterparty which are reviewed regularly.
Trade receivable exposures are with a wide range of counterparties, and the credit strength of these counterparties is monitored. Where
appropriate, credit risks are minimised through the use of forward funding, letters of credit, variations in payment terms and insurance. The
maximum exposure to credit risk is represented by the carrying value of each financial asset as recorded in the balance sheet. There are no
significant concentrations of credit risk at the balance sheet date nor are there any significant exposures to any one customer. See Note 18
for further details.
The Group’s policy is to provide financial guarantees only where there is a clear commercial advantage in doing so.
The Company believes that all amounts receivable from subsidiary companies are recoverable in full.
102
| Low & Bonar PLC Annual Report 2014
20. Financial assets, liabilities, derivatives and financial risk management continued
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum credit risk at the reporting date was:
Financial assets at fair value through profit and loss
Trade and other receivables
Cash and cash equivalents
Group
Company
2014
£m
–
72.8
25.8
98.6
2013
£m
–
79.9
17.9
97.8
2014
£m
–
172.8
3.6
176.4
2013
£m
–
162.1
–
162.1
Interest rate risk
The Group’s strategy seeks a balance between fixed and floating rate borrowings, to achieve a reasonable effective interest rate whilst
protecting the Group against material adverse changes in interest rates over the medium term.
All of the Group’s interest-bearing assets and liabilities at 30 November 2014 and 2013 were on a floating rate basis, apart from preference
debt with an average coupon rate of 5.75% and the €45m Senior Note due 2016 which bears interest at 5.90% until its maturity in
September 2016.
Floating rate financial assets and liabilities comprise borrowings under the Group’s syndicated multi-currency revolving credit facility, which
bear interest at LIBOR (or, in the case of borrowings in Euro, EURIBOR), or the lender’s base rate for the currency concerned, plus a margin of
between 1.00% and 2.00%, and cash deposits and bank overdrafts which bear interest at market rates.
Profile
At the balance sheet date, the interest rate profile of the Group’s and Company’s interest-bearing net debt and financial instruments was:
Fixed rate
Net debt
Financial instruments
Total fixed rate
Floating rate
Net debt
Financial instruments
Total floating rate
Total interest-bearing net debt and financial instruments
Group
Company
2014
£m
2013
£m
2014
£m
2013
£m
(36.2)
–
(36.2)
(51.8)
–
(51.8)
(88.0)
(37.5)
–
(37.5)
(49.3)
(0.1)
(49.4)
(86.9)
(36.2)
–
(36.2)
(66.4)
–
(66.4)
(102.6)
(37.5)
–
(37.5)
(55.6)
–
(55.6)
(93.1)
The Group and Company’s interest-bearing net debt and financial instruments do not include amounts owed or owing to joint ventures or
joint venture partners.
Sensitivity analysis
A change of 100 basis points in interest rates would have increased or decreased equity by £0.6m (2013: £0.6m). The impact on the profit or
loss for the period would have been to increase or decrease profit by £0.8m (2013: £0.8m). This analysis assumes that all other variables, in
particular foreign currency rates, remain constant.
21. Deferred taxation
Group
Recognised deferred tax assets and liabilities:
Intangible assets
Retirement benefit liabilities
Accelerated tax depreciation
Other
Tax assets/(liabilities)
2014
2013
Assets
£m
Liabilities
£m
Net assets/
(liabilities)
£m
Assets
£m
Liabilities
£m
–
2.3
–
2.1
4.4
(6.1)
–
(13.2)
(1.5)
(20.8)
(6.1)
2.3
(13.2)
0.6
(16.4)
–
1.5
–
1.6
3.1
(7.7)
–
(13.7)
(1.8)
(23.2)
Net assets/
(liabilities)
£m
(7.7)
1.5
(13.7)
(0.2)
(20.1)
103
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
21. Deferred taxation continued
Group continued
Unrecognised deferred tax assets:
Tax losses
Retirement benefit liabilities
Employee share schemes
Accelerated tax depreciation
2014
£m
29.0
–
1.4
0.9
31.3
2013
£m
27.9
0.8
0.6
0.9
30.2
Tax losses include an amount of £7.6m (2013: £7.6m) in respect of capital losses. The tax losses have no expiry date.
Movement in deferred tax during the year ended 30 November 2014:
Intangible assets
Retirement benefit liabilities
Accelerated tax depreciation
Other
Movement in deferred tax during the year ended 30 November 2013:
Recognised
in Other
Comprehensive
Income
£m
–
0.8
–
–
0.8
Balance
1 Dec 2013
£m
(7.7)
1.5
(13.7)
(0.2)
(20.1)
Recognised
in income
£m
Exchange
adjustments
£m
Balance
30 Nov 2014
£m
1.3
–
0.4
0.6
2.3
0.3
–
0.1
0.2
0.6
(6.1)
2.3
(13.2)
0.6
(16.4)
Intangible assets
Retirement benefit liabilities
(restated – Accounting policy (A))
Accelerated tax depreciation
Other
Recognised
in Other
Comprehensive
Income
£m
–
(0.4)
–
–
(0.4)
Balance
1 Dec 2012
£m
(8.8)
1.7
(14.0)
0.9
(20.2)
Recognised
in income
£m
Arising on
acquisitions
(Note 24)
£m
Exchange
adjustments
£m
Balance
30 Nov 2013
£m
1.4
0.2
0.4
(0.4)
1.6
(0.1)
–
–
(0.7)
(0.8)
(0.2)
–
(0.1)
–
(0.3)
(7.7)
1.5
(13.7)
(0.2)
(20.1)
The Group has recognised deferred tax assets of £4.4m (2013: £3.1m) as the Directors believe it is probable that future taxable profits will be
available against which the assets can be utilised as they reverse over the coming years.
The Group has not recognised deferred tax liabilities in respect of investments in subsidiaries as the Group is able to control the timing of the
reversal of the timing difference and it is probable that the timing difference will not reverse in the foreseeable future. In the majority of
cases, it is likely that sufficient underlying tax credits will be available to offset the tax liability arising and it is not considered practicable to
disclose the amount of the timing difference in respect of the deferred tax liabilities which have not been recognised.
Company
The Company has not recognised deferred tax assets or liabilities as the Directors believe that it is not probable that future taxable profits will
be available against which the assets can be utilised as they reverse over the coming years.
Unrecognised deferred tax assets:
Tax losses
Retirement benefit liabilities
Employee share schemes
2014
£m
16.3
–
1.4
17.7
2013
£m
16.1
0.8
0.6
17.5
Tax losses include an amount of £5.2m (2013: £5.2m) in respect of capital losses. The tax losses have no expiry date.
104
| Low & Bonar PLC Annual Report 2014
22. Provisions
Current
At 30 November 2012
Utilised in the year
Exchange difference
At 30 November 2013
Created in the year
Utilised in the year
Exchange difference
At 30 November 2014
23. Other payables
Non-current
Other payables
Non-current
Amounts owed to subsidiaries
Restructuring
£m
0.1
(0.1)
–
–
0.5
–
–
0.5
2013
£m
1.9
2013
£m
–
Group
2014
£m
2.0
Company
2014
£m
–
24. Purchase of non-controlling interest
On 11 May 2014, the Group purchased the non-controlling interest in Bonar Emirates Technical Yarns Industries LLC for a cash consideration
of $2m (£1.2m). As this was a transaction with minority equity owners of the business without a change of control, it has been recognised as
an equity transaction in the Group’s reserves and not as a business combination or investment. Directly attributable costs of £0.2m have
been recorded in equity.
As a result of the purchase of this non-controlling interest, the financial statements show no non-controlling interest in the Consolidated
Balance Sheet at 30 November 2014 in relation to Bonar Emirates Technical Yarns Industries LLC and record a non-controlling share of profits
only up to 11 May 2014, being £0.0m.
25. Share capital
Allotted, called up and fully paid
At 1 December
326,293,606 (2013: 290,914,798) Ordinary Shares at 5 pence each
154,571,152 Deferred Shares at 20 pence each
1,520,135 Ordinary Shares (2013: 5,752,808) issued under share option plans and long-term
incentive plan
Nil Ordinary Shares (2013: 29,626,000) issued in placing
At 30 November
327,813,741 (2013: 326,293,606) Ordinary Shares of 5 pence each
154,571,152 Deferred Shares of 20 pence each
Group and Company 2014
Group and Company 2013
Ordinary
Shares
£m
Deferred
Shares
£m
Ordinary
Shares
£m
Deferred
Shares
£m
16.3
–
0.1
–
16.4
–
–
30.9
–
–
–
30.9
14.6
–
0.2
1.5
16.3
–
–
30.9
–
–
–
30.9
Capital reorganisation
On 11 March 2009, the Company’s Ordinary Share capital was reorganised by means of a capital reorganisation involving: (i) the subdivision
and reclassification of each issued Ordinary Share into one new Ordinary Share of 5 pence and one Deferred Share of 20 pence; and (ii) the
subdivision of each authorised but unissued Ordinary Share into five new Ordinary Shares of 5 pence each. On completion of the capital
reorganisation, each Ordinary Shareholder held one new Ordinary Share and one Deferred Share for each Ordinary Share previously held.
A Deferred Share: (i) does not entitle its holder to receive any dividend or other distribution; (ii) does not entitle its holder to receive notice of,
nor to attend, speak or vote at, any general meeting of the Company; (iii) entitles its holder on a return of capital on a winding-up (but not
otherwise) only to the repayment of the amount paid up on that share after payment of (a) the amounts entitled to be paid up to holders of
the Preference Shares and (b) the capital paid up on each Ordinary Share of 5 pence in the share capital of the Company and the further
payment of £10m on each such Ordinary Share; and, (iv) does not entitle its holder to any further participation in the capital, profits or assets
of the Company.
105
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Notes to the Accounts continued
25. Share capital continued
Shares issued during the year
During the year ended 30 November 2014, 357,871 shares (2013: 1,028,822 shares) were issued to employees who exercised share options.
1,162,264 shares were issued pursuant to awards made under the LTIPs granted in 2010 and 2011 (2013: 4,723,986). In the prior year,
29,626,000 shares were issued as part of the share placing which took place in September 2013.
Preference Shares
Allotted, called up and fully paid
100,000 (2013: 100,000) 6% first cumulative preference stock of £1.00 each
100,000 (2013: 100,000) 6% second cumulative preference stock of £1.00 each
200,000 (2013: 200,000) 5.5% third cumulative preference stock of £1.00 each
Group and Company
2014
£m
0.1
0.1
0.2
0.4
2013
£m
0.1
0.1
0.2
0.4
Preference Shares are included within borrowings. Preference Shares have priority over Ordinary Shares on a winding up of the Company.
Provided that preference dividends remain paid in accordance with the Company’s Articles of Association, Preference Shares do not carry
voting rights.
Potential issues of Ordinary Shares
An element of senior executive remuneration is provided in the form of share options and long-term incentive plan awards. More details of
these options and awards can be found in the Directors’ Report on Remuneration on pages 49 to 65. Employees are also invited to
participate in the Low & Bonar Sharesave schemes.
Share options
Under the provisions of the employee share option schemes there were options for a total of 3.9 million Ordinary Shares outstanding at
30 November 2014 (2013: 3.5 million Ordinary Shares). The number of options outstanding which were granted in the last financial year was
1.2 million (2013: 1.1 million).
Details of the options included in the IFRS 2 charge are as follows:
Year of grant
Share options
2004
2006
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
Phantom share options
2004
2006
Total
Average
fair value
in pence
Exercise
price
in pence
29.30
27.23
31.41
19.98
18.31
14.08
14.07
13.50
13.50
22.17
22.16
19.61
19.31
18.55
20.29
22.37
21.89
91.45
108.18
101.95
75.73
75.73
32.18
32.18
26.00
26.00
42.80
42.80
51.20
51.20
58.80
58.80
68.80
68.80
Exercise period
1 Dec 2013
Granted
Exercised
Forfeited
30 Nov 2014
Ordinary Shares of 5p each
2007 to 2014
2009 to 2016
2012 to 2013
2013 to 2014
2013 to 2014
2012 to 2015
2012 to 2015
2013 to 2015
2013 to 2015
2014 to 2016
2014 to 2016
2015 to 2017
2015 to 2017
2016 to 2018
2016 to 2018
2017 to 2019
2017 to 2019
53,322
442,126
–
4,297
11,858
110,171
216,695
160,282
409,492
116,088
119,610
86,594
143,897
322,262
730,540
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
482,191
790,308
–
–
–
(4,297)
(2,710)
(110,171)
(75,509)
–
–
(77,166)
(82,491)
–
–
(5,527)
–
–
–
(53,322)
–
–
–
(9,148)
–
–
–
–
–
(431)
(25,077)
–
442,126
–
–
–
–
141,186
160,282
409,492
38,922
36,688
61,517
(8,750) 135,147
(34,265) 282,470
(62,760) 667,780
(80,700) 401,491
(21,875) 768,433
1.95
2.93
91.45
108.18
2007 to 2014
2009 to 2016
267,677
336,836
–
–
–
–
(267,677)
–
–
336,836
3,531,747 1,272,499 (357,871)
(564,005) 3,882,370
The weighted-average exercise price of share options outstanding at 30 November 2014 was 66.15p (2013: 65.13p). The weighted average
exercise prices of share options granted, exercised and forfeited in the year to 30 November 2014 were 68.80p, 39.17p and 62.57p,
respectively (2013: 58.80p, 27.19p and 58.34p, respectively). 0.8 million share options were exercisable at 30 November 2014 (2013:
1.1 million).
The fair values of share options granted in the year to 30 November 2014 ranged from 21.27p to 26.36p (2013: 17.96p to 26.26p) and were
derived using the Black-Scholes model. The assumed future volatility ranged from 36% to 42% (2013: 40% to 55%), the dividend yield was
3.7% (2013: 3.7%), the expected term ranged from 3.3 years to 5.3 years (2013: 3.4 years to 5.4 years) and the risk-free rate ranged from
1.3% to 1.8% (2013: 0.4% to 1.0%).
106
| Low & Bonar PLC Annual Report 2014
25. Share capital continued
Share options continued
The fair values of the phantom share options were recalculated based on data at 30 November 2014 using the Stochastic model. The
assumed future volatility ranged from 41% to 42% (2013: 41% to 42%) the dividend yield was 3.7% (2013: 3.7%), the expected term
ranged from 1.6 years to 3.4 years (2013: 1.6 years to 3.4 years) and the risk-free rate ranged from 0.3% to 0.4% (2013: 0.3% to 0.4%).
The average share price in the year ended 30 November 2014 was 76.45p (2013: 67.86p).
Long-term incentive plan awards
Under the provisions of the long-term incentive plans there were awards for a total of 7.5 million Ordinary Shares outstanding at
30 November 2014 (2013: 8.9 million Ordinary Shares). The number of awards outstanding which were granted in the last financial year was
2.1 million (2013: 2.5 million).
Details of the awards included in the IFRS 2 charge are shown below:
Year of grant
Average fair
value in pence
Award price in
pence
Vesting period
1 Dec 2013
Awarded
Exercised
Forfeited
30 Nov 2014
Ordinary Shares of 5p each
2009
2009
2010
2010
2011
2012
2012
2013
2014
2014
Total
28.33
30.48
25.19
36.87
41.11
45.40
45.02
53.07
75.48
66.05
55.23
35.25
35.00
33.00
45.00
53.50
61.00
62.00
70.50
89.75
82.00
65.02
–
2009 to 2012
–
2009 to 2012
265,000
2010 to 2013
2010 to 2013
–
2011 to 2014 2,845,028
2012 to 2015 3,030,194
2012 to 2015
229,839
2013 to 2016 2,549,496
2014 to 2017
2014 to 2017
–
–
–
–
–
–
–
–
– 1,798,039
542,168
–
–
–
(265,000)
–
–
–
–
–
(897,264) (1,624,511)
–
–
–
–
323,253
(281,564) 2,748,630
229,839
(536,466) 2,013,030
(199,115) 1,598,924
542,168
–
–
–
–
–
–
–
8,919,557 2,340,207 (1,162,264) (2,641,656) 7,455,844
323,253 instruments awarded under the Group’s long-term incentive plans were exercisable at 30 November 2014 (no instruments at
30 November 2013). The fair values of awards made in the year to 30 November 2014 ranged from 50.10p to 89.75p (2013: 43.04p to
63.09p) and were derived using the Black-Scholes or Stochastic models. The assumed future volatility ranged from 29.6% to 36.9% (2013:
39%) the dividend yield was 0% (2013: 3.7%), the expected term was 3 years (2013: 3 years) and the risk-free rate ranged from 0.97% to
1.04% (2013: 0.3%).
The total amount charged to the Consolidated Income Statement in respect of share-based payments was £0.6m (2013: £0.6m). Liabilities in
respect of cash-settled share-based payments were not material at either 30 November 2014 or 30 November 2013.
26. Share premium account
At 1 December
Premium on Ordinary Shares issued during the year
At 30 November
27. Translation reserve
At 1 December
Adjustments on translation of net assets and results of overseas subsidiaries, net of hedging
At 30 November
28. Non-controlling interest
At 1 December
Share of profit after taxation
Acquisition of non-controlling interest
Exchange adjustment
At 30 November
Group and Company
2014
£m
73.9
0.1
74.0
2013
£m
55.5
18.4
73.9
Group
2014
£m
(36.9)
(6.1)
(43.0)
2013
£m
(37.0)
0.1
(36.9)
Group
2014
£m
6.4
0.3
(0.6)
0.3
6.4
2013
£m
6.0
0.5
–
(0.1)
6.4
107
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 |
Notes to the Accounts continued
29. Reconciliation of net cash flow movement to movement in net debt
For the year ended 30 November
Net increase/(decrease) in cash and cash equivalents
Net cash flow from movements in debt financing
Amortisation of bank arrangement fees
Finance lease capital repayments
Foreign exchange differences
Movement in net debt in the year
Net debt at 1 December
Net debt at 30 November
For the year ended 30 November
Net increase/(decrease) in cash and cash equivalents
Net cash flow from movements in debt financing
Amortisation of bank arrangement fees
Foreign exchange differences
Movement in net debt in the year
Net debt at 1 December
Net debt at 30 November
Group
2014
£m
8.6
(12.6)
(0.6)
-
3.4
(1.2)
(86.8)
(88.0)
Company
2014
£m
3.3
(12.6)
(0.6)
0.4
(9.5)
(93.1)
2013
£m
(9.9)
8.5
(0.5)
–
(2.3)
(4.2)
(82.6)
(86.8)
2013
£m
(3.8)
17.5
(0.5)
0.2
13.4
(106.5)
(102.6)
(93.1)
30. Discontinued operations
The profit from discontinued operations arose from the release of a warranty accrual held in relation to the Floors business which was sold in
2008. This release has occurred because the time period for which the warranty accrual was valid has now expired.
Profit on disposal of discontinued operations
Attributable tax expense
At 30 November
31. Operating lease commitments
At 30 November, the Group had total non-cancellable commitments under operating leases as follows:
Group
2014
£m
0.9
–
0.9
2013
£m
–
–
–
Group
Company
2014
£m
1.3
0.9
0.8
–
3.0
5.4
4.2
10.3
15.0
34.9
2013
£m
1.1
0.8
0.5
0.1
2.5
3.9
3.7
9.4
5.4
22.4
2014
£m
2013
£m
–
–
–
–
–
0.1
–
–
–
0.1
–
–
–
–
–
0.1
–
–
–
0.1
Plant and equipment
Lease payments within one year
Lease payments between one and two years
Lease payments between two and five years
Lease payments beyond five years
Property
Lease payments within one year
Lease payments between one and two years
Lease payments between two and five years
Lease payments beyond five years
108
| Low & Bonar PLC Annual Report 2014 32. Contingent liabilities
At the time of disposing of the Group’s North American packaging operations in March 2000, the Company entered into an Environmental
Agreement with the purchasers of the business. The Environmental Agreement contains provisions regarding the remediation of known
environmental contamination in the vicinity of one of the facilities which was sold in Burlington, Ontario. The Environmental Agreement
expired in September 2006 and the Group has an ongoing liability only in respect of outstanding claims notified prior to this date.
At 30 November 2014, an accrual of £nil (2013: £nil) remains in the Group’s balance sheet for the ongoing remediation costs as the
Directors now believe that all costs have been incurred.
In addition, the Company from time to time guarantees certain obligations of its subsidiaries arising in the normal course of trade.
At 30 November 2014, £1.0m of guarantees were outstanding (2013: £0.4m).
33. Related party transactions
At 30 November 2014, the Group was owed £4.7m (2013: £9.1m) by Bonar Natpet LLC, a joint venture and both the Group and Company
owed £3.1m (2013: £Nil) to National Petrochemical Industrial Company (Natpet), the Group’s joint venture partner in Bonar Natpet LLC.
At 30 November 2014, the Group was owed £0.3m (2013: £0.3m) by the Low & Bonar Group Retirement Benefit Scheme.
The Company provides debt finance to various operating subsidiaries. A total of £172.5m was outstanding at 30 November 2014
(2013: £161.8m). The Company also borrows surplus funds from its subsidiaries. At 30 November 2014, the total amount payable to
subsidiaries was £16.0m (2013: £13.5m). The Company received income in respect of management services provided to its subsidiaries
totalling £3.9m (2013: £4.0m). The Company received interest income from related parties totalling £5.9m (2013: £6.5m) and accrued
interest payable to related parties of £0.1m (2013: £0.1m). The Company received dividend income from its subsidiaries of £10.0m
(2013: £3.4m).
All related party transactions were conducted on an arm’s-length basis.
The remuneration of key personnel (including Directors) of the Group was:
Short-term benefits
Post-employment benefits
Share-based payments
Termination benefits
2014
£m
2.0
0.3
0.5
0.2
3.0
2013
£m
1.7
0.3
1.9
–
3.9
Key personnel comprise three Executive Directors (2013: two), four Business Unit Managing Directors (2013: three) who are directly
responsible for the Group’s operating companies and one Director of Marketing and Strategy (2013: one).
The aggregate amount of Directors’ remuneration was £1.1m (2013:£0.9m) and the aggregate gain made by the Directors on the exercise of
share options was £0.4m (2013: £1.7m). The cash paid into defined contribution schemes was £0.2m (2013: £0.1m) and three Directors were
members of defined contribution schemes (2013: two). Full details of Directors’ emoluments, pension benefits and interests in the shares of
the Company are set out in the Directors’ Report on Remuneration on pages 49 to 65.
In the prior year, as part of the share placing, the Company agreed to place 7,025,000 new ordinary shares with direct and indirect
subsidiaries of Cazenove Capital Management and 3,000,000 new ordinary shares with direct and indirect subsidiaries of Axa Framlington
Investment Managers, each a substantial shareholder of the Company and a related party of the Company for the purposes of the
Listing Rules.
34. Prior year acquisition
On 6 September 2013, the Group acquired Bonar Geosynthetics a.s. (formerly Texiplast a.s), a Slovakian producer of high strength
geosynthetic products serving the civil engineering market, on a cash-free debt-free basis for a cash consideration of €18.9m (£15.9m). The
provisional fair value of the net assets acquiredacquired in the transaction were £10.2m with goodwill arising on acquisitionacquisition of
£5.7m. There have been no changes to the provisional fair value of the acquired assets and liabilities in the current year.
109
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Notes to the Accounts continued
35. Group companies
Subsidiary undertakings
Bonar
Bonar NV
Yihua Bonar Yarns & Fabrics Co. Ltd
Bonar Limited (trading as ADFIL)
Bonar Geosynthetics Kft
Bonar BV
Bonar Produktions GmbH
Bonar GmbH and Co.KG
Bonar SARL
Bonar Inc
Bonar Xeroflor GmbH
XF Technologies BV
Bonar Geosynthetics a.s.
Low & Bonar (Shanghai) Trading Company Limited
Bonar High Performance Materials (Changzhou) Co Ltd
Technical Coated Fabrics
Mehler Texnologies Logistics GmbH
Mehler Texnologies GmbH
Mehler Texnologies S.R.L.
Mehler Texnologies Ltd
Mehler Texnologies S.p.A.
Mehler Texnologies SARL
Mehler Texnologies Inc
Mehler Texnologies s.r.o.
Mehler Texnologies Sp. Z o.o.
Mehler Texnologies Teknik Tekstil Limited Sirketi
Mehler Texnologies s.i.a.
Mehler Texnologies Middle East General Trading LLC
Low & Bonar Technical Textiles Russia OOO
Mehler Texnologies India Private Limited
Low & Bonar Brasil Têxtil E Participações Ltda
Yarns
Bonar Yarns & Fabrics Limited
Bonar Emirates Technical Yarns Industries LLC
Bonar Xirion NV
Bonar Technical Yarns Inc
Bonar Yarns BV
Holding companies
Bonar International Holdings Limited
Bonar International Sarl
Low & Bonar (Nederland) BV
LCM Construction Products Ltd
Low & Bonar Technical Textiles Holding BV
Colbond Holding BV
Low & Bonar Verwaltungs GmbH
Colbond (Nederland) BV
Joint venture
Bonar Natpet LLC
Associated undertaking
CPW GmbH
Principal product areas
Country
%
Woven and non-woven fabrics
Woven fabrics
Construction fibres
Non-woven fabrics
Polymeric mats and composites
Polymeric mats and composites
Polymeric mats and composites,
and holding company
Polymeric mats and composites
Polymeric mats and composites
Green roofs
Intellectual property
Geotextiles
Polymeric mats and composites
Polymeric mats and composites
Belgium
People’s Republic of China
England and Wales
Hungary
The Netherlands
Germany
Germany
France
USA
Germany
The Netherlands
Slovakia
People’s Republic of China
People’s Republic of China
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Technical coated fabrics
Specialist yarns
Specialist yarns
Specialist yarns
Specialist yarns
Specialist yarns
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Germany
Germany
Romania
England and Wales
Italy
France
USA
Czech Republic
Poland
Turkey
Latvia
UAE
Russia
India
Brazil
Scotland
UAE
Belgium
USA
The Netherlands
Scotland
Luxembourg
The Netherlands
England and Wales
The Netherlands
The Netherlands
Germany
The Netherlands
100.0
60.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0*
100.0
100.0
100.0
100.0
100.0*
100.0
100.0
100.0*
100.0
100.0
100.0
100.0
Geotextiles
Saudi Arabia
50.0
Intellectual property
Germany
33.3
1 Unless otherwise stated, shares held are ordinary, common or unclassified.
2 The percentage of the nominal value of issued shares held is shown following the name of each company.
3 An asterisk* indicates that the percentage of share capital shown is held directly by the Company.
4 A number of subsidiary undertakings, the trading results and assets of which are not material in relation to the Group as a whole, have been omitted from the above list. In
compliance with the Companies Act 2006, particulars of these undertakings will be annexed to the next annual return.
5 The companies listed were incorporated in the country shown against each of them and, with the exception of Bonar International Sarl which operates primarily in England, that
country is also the principal country of operation.
110
| Low & Bonar PLC Annual Report 2014 Five Year History
Revenue
Continuing operations
Discontinued operations
Total (including discontinued operations)
Operating profit before amortisation and non-recurring items
Continuing operations
Discontinued operations
Total (including discontinued operations)
Operating profit
Continuing operations
Discontinued operations
Total (including discontinued operations)
Profit before tax, amortisation and non-recurring items
Continuing operations
Discontinued operations
Total (including discontinued operations)
Profit before tax
Continuing operations
Discontinued operations
Total (including discontinued operations)
Net debt
2013
(restated – see
Accounting
policy (A))
£m
2012
£m
2011
£m
2010
£m
403.1
–
403.1
380.5
–
380.5
388.7
–
388.7
344.6
–
344.6
31.4
–
31.4
23.4
–
23.4
25.3
–
25.3
16.7
–
30.5
–
30.5
12.1
–
12.1
24.5
–
24.5
6.1
–
30.6
–
30.6
30.6
–
30.6
23.4
–
23.4
23.4
2.2
25.8
–
25.8
12.0
–
12.0
18.6
–
18.6
10.2
–
2014
£m
410.6
–
410.6
31.7
–
31.7
23.2
–
23.2
25.2
–
25.2
16.7
–
16.7
(88.0)
16.7
(86.8)
6.1
(82.6)
25.6
(85.3)
10.2
(62.0)
Per Ordinary Share
Basic earnings per share (including discontinued operations) (pence)
Dividends declared per share (pence)
3.76
2.7
3.74
2.6
0.47
2.4
7.29
2.1
2.19
1.6
111
Financial StatementsGovernanceStrategic Report Low & Bonar PLC Annual Report 2014 | Advisers and Financial Calendar
Financial Calendar
Annual General Meeting
24 March 2015
Announcements for results for the year ending 30 November 2015
Half year
July 2015
February 2016
Full year
Final dividend payment for the year ended 30 November 2014
Ordinary Shares
First, second and third cumulative
preference stock
16 April 2015
1 March 2015 and
1 September 2015
Company Secretary
Matthew Joy
Registered Office
Whitehall House
33 Yeaman Shore
Dundee
DD1 4BJ
Head Office
10th Floor
1 Eversholt Street
London
NW1 2DN
Telephone: 020 7535 3180
Fax: 020 7535 3181
Website: www.lowandbonar.com
Registered number: SC008349
Advisers
Registrar
Computershare Investor Services PLC
Leven House
10 Lochside Place
Edinburgh Park
Edinburgh
EH12 9DF
Telephone: 0870 702 0010
Auditor
KPMG LLP
Solicitors
Freshfields Bruckhaus Deringer LLP
Squire Patton Boggs LLP
Principal bankers
The Royal Bank of Scotland Plc
Barclays Bank PLC
HSBC
Santander
KBC Bank NV
ING Bank NV
Comerica Bank
Corporate finance advisers
NM Rothschild & Sons Limited
Brokers
Peel Hunt LLP
112
| Low & Bonar PLC Annual Report 2014
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Low & Bonar PLC
10th Floor, 1 Eversholt Street
London NW1 2DN
Telephone: 020 7535 3180
Fax: 020 7535 3181
www.lowandbonar.com