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A global leader in
performance materials
Annual Report and Accounts 2016
We take plastics and convert them into yarns and fibres. From
these we produce a mixture of woven, non-woven, coated and
composite materials and sell them into a range of end markets and
applications that affect everyday life.
We use our own process technology and know-how to produce performance materials
that provide our customers with enhanced functional value.
Strategic Report
Governance
Financial Statements
42 Board of Directors
44 Corporate governance
47 Audit Committee Report
50 Nomination Committee Report
51 Directors’ Remuneration Report
53 Remuneration Policy
61 Annual Remuneration Report
69 Directors’ Report
72 Statement of Directors’
Responsibilities
1 Highlights
2 Chairman’s statement
4 What we do
6 Where we operate
8 How we grow
10 Our business model
12 Our strategic framework
14 Our strategy in action and KPIs
18 Chief Executive’s review
20 Business review
24 Executive Leadership Team
26 Financial review
30 Principal risks and uncertainties
34 Corporate & social responsibility
Independent Auditor’s Report
73
75 Consolidated Income Statement
76 Consolidated Statement of
Comprehensive Income
77 Balance Sheets
78 Consolidated Cash Flow Statement
79 Company Cash Flow Statement
80 Consolidated Statement of
Changes in Equity
81 Company Statement of
Changes in Equity
82 Significant Accounting Policies
88 Notes to the Accounts
121 Five Year History
122 Advisers and Financial Calendar
Operational highlights
Financial highlights
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¡ Strong profit growth in Building & Industrial, Civil
Engineering and Interiors & Transportation
¡ Margins improving as a result of ongoing strategic
initiatives in these businesses
¡ Production issues that impacted the performance
in Coated Technical Textiles now largely resolved
¡ Disposal of artificial grass yarns has streamlined
the Group’s focus
¡ Acquisition of Walflor, post period end, reflects
commitment to invest in most attractive segments
¡ Exit from the Bonar Natpet JV on track, but slower
than originally expected
¡ Increase of 7.9% in full year dividend, reflecting
confidence in the outlook
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Revenue
£400.0m
(Actual: +10.5%, Constant currency1 -0.2%)
Profit before tax, amortisation and
non-recurring items
£29.2m
(Actual: +6.6%, Constant currency1 -5.2%)
Profit before tax (statutory)
£25.9m
(Actual: +21.0%)
Basic EPS before amortisation and
non-recurring items
6.01p
(Actual: +2.6%, Constant currency1 -9.0%)
Basic EPS (statutory)
5.20p
(Actual: +16.3%)
Dividend per share
3.00p
(Actual: +7.9%)
1. Constant currency is calculated by retranslating prior
period results at current period exchange rates.
Low & Bonar Annual Report and Accounts 2016
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Chairman’s statement
Good performance and
strategic progress
I am pleased to report on another year of progress for the Group.
Low & Bonar has undergone a transformation over the past two years.
We are now a nimbler, tighter, customer focussed organisation.
Martin Flower
Chairman
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Low & Bonar Annual Report and Accounts 2016
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To reflect the Board’s confidence in making further progress,
we are proposing an increased final dividend of 2.00 pence per
share (2015: 1.80 pence). Subject to shareholders’ approval at
the Annual General Meeting on 12 April 2017, the dividend will be
paid on 13 April 2017 to members registered as of 17 March 2017.
The proposed full year dividend of 3.00 pence per share
(2015: 2.78 pence) is covered 2.0 times (2015: 2.0 times) by
earnings before amortisation and non-recurring items.
It is my pleasure, as always, to acknowledge the skills and
dedication of employees throughout Low & Bonar who have
worked hard to deliver further progress for the Group. Their
combined efforts have sustained the Group’s vision of Progress
Through Performance.
It is expected that market conditions in Europe will remain
challenging, but we are well positioned. We expect that North
American markets will remain supportive and China will continue
to develop. The manufacturing issues that have affected Coated
Technical Textiles are now largely resolved and we expect to see
margins in this business recovering through 2017. We have a clear
strategy to enhance returns and will continue to focus on active
portfolio management and investing in growth opportunities.
We enter 2017 in good shape with a strong platform for growth.
We are confident of achieving further progress in 2017 and beyond
for all of our businesses.
Martin Flower
Chairman
1 February 2017
We are seeing the tangible results of that transformation with good
progress towards our targets for most of the Group. Without the
issues in Coated Technical Textiles, we would now be very close to
a double digit operating margin for the Group.
Profit before tax, amortisation and non-recurring items from
continuing operations increased by 6.6% to £29.2m (2015
(restated): £27.4m). On a statutory basis, profit before tax
increased by 21.0% to £25.9m from £21.4m (restated) in 2015.
On a constant currency basis, operating profits before
amortisation and non-recurring items were better than last year
in Building & Industrial (+16.0%), Civil Engineering (+27.3%) and
Interiors & Transportation (+14.8%) but were down in Coated
Technical Textiles (-37.9%). As reported at the half year, profits
within Coated Technical Textiles were impacted by production
issues which, whilst largely resolved during the second half of the
year, impacted sales towards the end of the year. Overall, profit
before tax, amortisation and non-recurring items on a constant
currency basis decreased by 5.2% to £29.2m (2015 (restated):
£30.8m). The Group’s operating margin before amortisation and
non-recurring items was 8.7% (2015 (restated): 8.8%); lower
margins in Coated Technical Textiles offsetting gains in Building
& Industrial, Civil Engineering and Interiors & Transportation.
Group revenues, on a constant current basis were broadly flat at
£400.0m. Demand generally for our products remained robust,
reflecting the diversity and strength of our niche market positions,
products and service delivery.
Good strategic progress has been made. The Group’s new
Colback-manufacturing site at Changzhou, China was
commissioned at the start of the year and has performed very well.
The Group also successfully divested its under-performing artificial
grass yarns business in September 2016 for £21.7m, in order to
focus on our higher margin businesses. In addition, we are on
track to exit our joint venture in Saudi Arabia and negotiations are
well under way with our partner, Natpet, albeit progressing more
slowly than expected.
The Group has continued to invest in assets to support growth.
Capital expenditure totalled £22.2m (2015: £33.7m) including
£7.8m (total investment being £26.0m) on the new factory in
Changzhou, China, the new non-woven plant in Tiszaújváros,
Hungary and new looms in Ivanka, Slovakia which amounted to,
£1.4m (2015: £5.6m) and £1.7m (2015: £nil) respectively. The
Group has also invested £2.7m (2015: £nil) in a new Group ERP
system, the first roll-out starts in Q2 2017. On 17 January 2017,
the Group purchased for $3.6m the business and assets of
Walflor Industries Inc, based near Seattle, USA, which produces
rainscreens and acoustic mats. The acquisition significantly
strengthens our customer relationships in the US building products
market and provides a West Coast platform for further growth. The
acquisition is expected to be earnings enhancing in the coming
year, albeit profits in the first year are expected to be modest.
Low & Bonar Annual Report and Accounts 2016
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What we do
Driving progress through
performance materials
Our organisational structure enables us to better understand
and respond to current and emerging customer needs.
Building & Industrial
A range of technical textile solutions for niche
applications in the building, roofing, air and water
filtration and agricultural markets.
Percentage of revenue
18%
Clark Halladay
Global Business Director
See page 20 for more information
Civil Engineering
Percentage of revenue
Woven and non-woven geotextiles and construction
fibres used in major infrastructure projects,
including road and rail building, land reclamation
and coastal defence.
23%
Neil Ryan
Global Business Director
See page 21 for more information
Coated Technical Textiles
A range of technical coated fabrics providing
aesthetics and design, performance and protection
in tensioned architectural structures, awnings,
marquees, advertising banners, tarpaulins and
vehicle curtain sides to the transport industry,
building products, print, leisure and industrial
markets.
See page 22 for more information
Percentage of revenue
32%
Marc Krauth
Global Business Director
Interiors & Transportation
Technical fabrics used in transportation, interior
carpeting, resilient tiles and decorative products.
Percentage of revenue
27%
Gareth Kaminski-Cook
Global Business Director
See page 23 for more information
4
Low & Bonar Annual Report and Accounts 2016
Our four Global Business Units (“GBUs") are each focussed on
specific sectors; this approach builds greater customer intimacy,
improves our responsiveness to market, transforms opportunities
and addresses market challenges with innovation by embracing
new solutions.
Led by a Global Business Director, each has a focussed strategy
and five-year plan with projected revenues and profitability. The
GBUs collaborate in close partnership with Group Functions,
which in turn bring value through specific expertise and
knowledge, sharing best practices and supporting strategic
decision-making.
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Low & Bonar Annual Report and Accounts 2016
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Where we operate
Improving the quality of
daily life across the globe
20
Countries
2,163
Employees
Sales offices
19
15
Manufacturing facilities
North America
Manufacturing facilities
USA
Asheville, NC
Percentage of sales to
customers in North America
22%
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Low & Bonar Annual Report and Accounts 2016
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Middle East
Manufacturing facilities
Saudi Arabia
Yanbu
Asia
Manufacturing facilities
China
Yizheng and Changzhou
Europe
Manufacturing facilities
UK
Dundee
Belgium
Zele and Lokeren
The Netherlands
Arnhem and Emmen
Germany
Obernburg, Hückelhoven and Fulda
Czech Republic
Lomnice
Hungary
Tiszaújváros
Slovakia
Ivanka pri Nitre
Percentage of sales to
customers in Europe
Percentage of sales to
customers in the Middle East
Percentage of sales to
customers in Asia and ROW
64%
3%
Low & Bonar Annual Report and Accounts 2016
11%
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How we grow
Our market drivers
Our customers are facing growing global challenges. In helping them to meet the
demands of social and environmental changes, our solutions are laying the
foundations to improve the quality of daily life.
Population growth
Limited resources
Resulting in rapid urbanisation, transport and
infrastructure needs and requirements for clean
water, air, and food.
Sustainable production and consumption
requiring materials efficiency, re-manufacturing
and the use of renewables.
Group drivers:
¡ Urbanisation and need for better infrastructure
¡ Food safety in agriculture and protection of food supplies in
Group drivers:
¡ Water conservation in agriculture
¡ Lower carbon footprint and environmental benefits
transportation
¡ Demand for air, water, home and automotive filtration
¡ Faster and safer construction
¡ Demands for infrastructure in areas of economic
development
compared to traditional materials
¡ Growth in the renewable energy sector
¡ Carbon-emission reduction driving towards lighter
weights and electric engines
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Low & Bonar Annual Report and Accounts 2016
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Transformative technologies
Quality of life
Advancements accelerating and creating new
markets in smart fabrics, lightweight materials and
advanced robotics.
Lifestyle and buying habits which emphasise safety,
attitudes to product quality, customer service and
imported products.
Group drivers:
¡ Improved durability of construction
¡ Ease of handling, aesthetic and design flexibility driving
substitution of wall-to-wall carpets with carpet tiles
¡ Economic and environmental requirements driving high
strength, low weight flooring solutions
¡ Design of “healthier” buildings with better air flow, moisture
control and acoustic performance
Group drivers:
¡ Increased quality control in performance and safety
¡ Demands for quality of life improvements in areas of
economic development
¡ Higher disposable income and emerging middle class
driving demand for luxury cars
¡ Outdoor advertising trends
Low & Bonar Annual Report and Accounts 2016
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Our business model
We seek to gain competitive advantage
through new product development,
customer insight and applied technology
Our resources
How we do it
Strong product portfolio
of leading brands
Our portfolio of premium brands are
well positioned in their respective markets
for growth.
Strong customer insight
Our technology and understanding of
customers processes, as well as our close
working partnerships co-developing solutions,
enables us to meet their unique needs.
International
manufacturing capability
Our commitment to developing global supply
capability in all regions with local technical
service support, whilst leveraging our
European experience and knowledge, makes
us more responsive to changing market needs.
Differentiated technology
Our advanced research and development
capabilities, own manufacturing technologies
and in-depth knowledge of each local market
enables us to focus on engineering products
for specific transformational applications.
Experienced and expert workforce
We invest wisely in our people and our
organisation to ensure that we realise their
full potential and leverage their skills to deliver
our promises.
Financial strength
Our financial strength gives us the ability to
invest in attractive opportunities that will allow
us to maximise value for our shareholders.
We use our
resources
Strong product
portfolio of
leading brands
Strong
customer
insight
International
manufacturing
capability
Differentiated
technology
Experienced
and expert
workforce
Financial
strength
In our chosen
markets
Building
& Industrial
Civil Engineering
Coated Technical
Textiles
Interiors &
Transportation
Our values underpin how we operate
Be world class
Be market leaders across the
full range of our products and
services, delivering solutions that
are the best in our industry.
Empower and perform
Collaborate across functions
and geographies to make the
right decisions and take the
best to our customers.
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Low & Bonar Annual Report and Accounts 2016
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Applying our
core capabilities
To create
value
High return on
investment
Strong revenue
growth
Leading positions
in niche industrial
markets
Creating bespoke
solutions for our
customers
Excellence in
innovation
Operational
capability and
efficiency
People and
culture
Our core capabilities
Leading positions in niche
industrial markets
We hold leading positions in attractive niche
markets, sustained through our innovative
design and component manufacture, and our
ability to meet the evolving demands of our
customers and markets.
Creating bespoke solutions
for our customers
Our businesses are aligned to the global
market areas we serve ensuring we put
customers at the centre of everything we do.
Excellence in innovation
We focus our innovation on delivering
improved sustainability, increased functionality
and greater efficiencies. Our development
pipelines are populated with ideas and insight
from our customers and markets. Our
research and development teams focus on
meeting our customers’ needs with
engineered products for specific applications.
We dedicate a controlled amount of focussed
resource to identifying transformational growth
opportunities in new and existing markets.
Operational capability and efficiency
We operate Group-wide capability and
efficiency improvement programmes.
People and culture
We value the diversity of experiences of our
people. We have resourceful individuals who
bring ideas and initiatives to contribute to the
growth of our Group.
Our values underpin how we operate
Embrace the new
Enhance our offer through innovation
and customer collaboration,
thereby anticipating where the
opportunities and challenges lie.
Collaborate to transform
Work together and form strong
and meaningful relationships for
the benefit of our customers.
Our strategy for
growth is outlined
on pages 12-13
Low & Bonar Annual Report and Accounts 2016
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Our strategic framework
Low & Bonar’s ambition is to be the
acknowledged leader in performance
materials solutions
Our new four-pillar strategy
Our ambition is to be the acknowledged leader in performance materials solutions.
We will use our proprietary technologies, our strong and deep relationships with our
customers and seamless commercial execution to nurture existing business and
pursue sustainable, profitable growth. We strive to bring bespoke solutions to our
customers through higher-margin products based on superior customer insight and
the best use of our applied technologies.
Sustained Shareholder Value
Return on Sales
Target: 10.0% – Actual 8.7%
Revenue Growth Strategy
Commercial Execution
Our customers are at the centre of what we do. We closely
engage with our customers to anticipate their needs and
retain their support. Our forward-looking, responsive and
proactive approach helps us to deliver high quality,
personalised solutions which add value to, and improve the
performance of, our customers’ end products.
Geographical Expansion
We are a global Group. We seek to develop our international
footprint with a local presence in growth markets, targeting
global industries whilst leveraging our strong European
base, experience and knowledge.
See page 14 for our strategy in action
See page 15 for our strategy in action
Driven by the Low & Bonar Premium Brands
Adfil
Adding life to concrete
BonarAgro
Sustainable performance
BonarBuilt
Materials and expertise that
enhance performance
Bonar Pure
Expertise and technologies
that contribute to cleaner,
purer air, water and
industrial processes
Our Promise:
Low & Bonar enables progress through performance and provides technologies to exceed our
customers’ needs, address the challenges of an evolving world and improve the quality of daily life.
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Low & Bonar Annual Report and Accounts 2016
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An evolving strategy
As part of the transformation of our business, which has been underway for the last
two years, we have transitioned our strategic pillars to reflect our evolving approach,
simplified structure and refined corporate strategy. These pillars underpin our five-
year plan.
Sustained Shareholder Value
Return On Capital Employed
Target: 12.0% – Actual 11.1%
Productivity Strategy
Technology Differentiation
We believe our approach to innovation and our ability to
differentiate our core technologies gives us a unique
competitive advantage. We work closely with our customers
to identify their unmet needs, improve our existing product
range and add value to newly developed products.
Operational Excellence
We champion best practice to optimise business processes
across the Group. Our Group-wide efficiency improvement
programmes, standardised work processes and shared
best practices enables us to develop our manufacturing
techniques, to engage and motivate our people, to promote
cost savings and ultimately to deliver value to our
customers.
See page 16 for our strategy in action
See page 17 for our strategy in action
Colback
Enables customers
to excel, distinguish
and differentiate
Enka Solutions
Engineering nature
Mehgies
Transforming people’s lives
and environments
Xeroflor
Bringing nature back.
Innovative, extensive
vegetation technologies
Our Vision:
Driving exceptional value through performance materials and technical expertise that
contribute to a more sustainable world.
Low & Bonar Annual Report and Accounts 2016
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Our strategy in action and KPIs
Commercial
Execution
We have a customer-focussed, unified approach to commercial
execution. Our realignment into a structure with a clear focus
on our markets has enabled us to get closer to our customers
and markets, resulting in faster and improved execution, a
focus on higher quality, value-added products, and ultimately
improving returns.
Progress
Over the past year all businesses have significantly strengthened
their marketing segmentation activity in order to strengthen value
propositions and drive product innovation. There is more focus
on driving pull-through demand in the growth strategies, as well
as selling to the direct customer, this creates stronger customer
loyalty and better pricing. A Group-wide Commercial Effectiveness
programme has been developed by the sales and marketing
communities to share best practices, and to leverage experience and
resource in order to develop skills and jointly target opportunities.
Outlook
The Group is well-positioned to retain and grow
market share in all its chosen markets.
¡ In Geosynthetics the Civil Engineering team will continue
building project pipelines. The Macro fibres business will
continue to grow through best-in-class new product launches.
¡ The Interiors & Transportation business has strong market
positions in its core tufted flooring and auto businesses in both
Europe and North America and has excellent opportunities to
continue growing share in Asia, in the adjacent resilient markets
in North America and decorative markets in Asia.
¡ The Building & Industrial business will continue its fast growth
across all segments: roofing, building, industrial, agro and
filtration. There is continuous product development and
significant market share growth opportunity across all
segments and regions.
¡ Coated Technical Textiles has reorganised its offering to
increase its appeal to two target segments: design-oriented
applications and performance-focussed segments. This will
transform communication and the relevance of the offer.
Key priorities
¡ Continuously improve segmentation and depth of insight so
that value propositions are truly differentiated and drive product
development
¡ Disciplined implementation of sales plans
¡ Continuously invest in developing skills and leveraging
collective capability between GBUs
KPI
Return on sales
(Operating profit before amortisation and
non-recurring items as a percentage of sales)
Target
2016
2015
2014
10%
8.7%
8.8% (restated)
7.7%
The movement in return on sales in the year
is discussed in detail on page 27.
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Combining flexibility and expertise
The relocation of refugees from the French “jungle” to the
18th Borough in Paris required a Refugee Registration
Centre with a welcoming architectural design to serve as a
shelter, an information hub and meeting point.
Starting in July 2016, with a September 2016 deadline, the
structure was planned as the heart of the refugee centre
and required a smart solution with materials capable of
saving time and fitting in with the architect’s design
concept.
Low & Bonar’s unique material MEHGIES® VALMEX® 7211
was chosen to cover a 900m² site, supported by our strong
client relationship and ability to supply the product within a
strict timeframe.
The project demonstrates our agility to fit specific client
demands; we take time to gain an in-depth understanding
of their needs and translate them into our daily processes
to meet bespoke requirements.
Low & Bonar Annual Report and Accounts 2016
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Geographical
Expansion
A key part of our business model is to be truly local. As our
customers become more global we are expanding our market
reach to ensure we are closer to them, in particular in China and
North America. Our established sales and manufacturing
presence in these regions means we can be more responsive to
changing market needs and better exploit opportunities.
Expansion into China
Colback is a widely-used primary backing in carpet tiles,
high-grade patterned wall-to-wall carpeting, walk-off mats
and moulded car carpets.
Until 2016, it was produced exclusively in the Netherlands
and the US, resulting in long lead times and high costs for
some global customers. Asia Pacific is a core market for
the Group and we decided to build a production plant in
Changzhou, China, to support global customers with an
increasing focus towards the region.
In 2016 Colback was produced for the first time in
Changzhou. The £26m site now supplies high-quality
applications to the flooring market, building and automotive
industries in domestic and Asian regional markets. It
provides full control of the production process and has the
ability to produce 60 million m2 per annum of Colback, with
space to launch a second production line to meet future
customer requirements.
Changzhou reduces our customers’ environmental footprint
within their supply chain and makes them price
competitive. It consolidates our position as global leader in
the carpet tile backing and automotive markets.
Progress
The major geographic expansion in 2016 was the commissioning
of a new plant in China, serving the Interiors & Transportation
and Building & Industrial businesses, with an annual capacity
of 60 million m2 of Colback. This was in response to local
demands from international customers and also enables
us to capture growth opportunities in APAC. It allows us
to offer supply security to customers across the world.
The new capacity has been matched with investment in
local sales, technical and service support. We also remain
committed to building our North American presence.
All four GBUs will benefit from our presence in China.
Approximately 10% of Colback is sold into China and this will
increase as our flooring, filtration, building and decorative
segments expand in this region. In Europe, we continue to
strengthen our asset bases in Hungary and Slovakia.
Outlook
Over the coming year we will continue to strengthen our
global footprint in China by doubling the Colback capacity by
early 2018. In addition, we will introduce scrim technology in
the China facility, enabling the Building & Industrial and Civil
Engineering businesses to bring new products to local markets.
Key priorities
¡ Increase market penetration in China and North America
¡ Continue to position ourselves as an early innovator
¡ Mitigate against regional economic uncertainty by spreading
risk across geographic markets
KPI
Sales outside Europe
Target
2016
2015
2014
50%
36%
35% (restated)
33%
The increase in the year is due to strong
sales in North America and the opening of
the Changzhou factory in China.
Low & Bonar Annual Report and Accounts 2016
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Our strategy in action and KPIs continued
Technology
Differentiation
Innovation is critical to our future growth and productivity, which is why
we have adopted a strategic marketing approach. We work closely
with our customers to ensure our new product solutions create value
and significant profit growth, using collaborative, open innovation
partnerships to develop new solutions. Our dedicated innovation team
is focussed on engineering products for specific applications, and
identifying transformational growth opportunities.
Co-developing with customers
A leading filter manufacturer approached BonarPure with a
development need, requiring new technology and machinery.
The customer wanted to use Colback on its new lines,
while eliminating seams and defects using USB (Ultra Sonic
Bonding) seaming technology, a new development for
the Group.
The project required us to identify a company to provide a
seaming unit to fit on a re-winder as well as be automated
and meet the customer’s process. Through collaboration
between the Group and the customer, a solution was
identified, tested and approved. After pilot trials, a unit was
installed in late 2016.
Colback without seams eliminates problems running the
new, faster and wider automated filter manufacturing lines.
Long-term benefits include an increased value proposition
for many Colback applications in the Filtration market, fewer
risks for the customers’ production process and packaging,
and growth and expansion opportunities.
Further existing filter customers have been identified who will
benefit from seamless Colback rolls without defects.
Progress
Our technology group is dedicated to optimising our existing
technology base and enhancing the functionality of our
products through new technologies. Over the past year we have
concentrated our expertise and know-how in our four global
technology centres, and launched our corporate incubator, which
provides an innovative environment to develop new ventures.
We have launched three ventures, in acoustics, cushioning
and comfort, and smart architectural textiles, and enriched our
pipeline of new venturing opportunities. We have extended our
collaborative partnerships with customers, suppliers, institutes
and technology start-ups. We have implemented technology
development roadmaps for our key technologies, supporting
better investment decisions. This allows us to ensure that the
second Colback line in Changzhou will conform to state-of-
the-art non-woven technology. We have also upgraded the
technical capabilities of our weaving plant in Hungary.
Outlook
As we continue to diversify, our technology capabilities will be
enhanced, delivering on the product development initiatives of our
GBUs, and focussing on our strategic marketing capabilities to
identify unmet market needs and realise new product solutions.
We will drive our current ventures, developing new business
propositions to the point of investment decisions, initiate promising
new technologies and enrich our innovation pipeline. We will
deepen and expand our collaborative partnerships to transform
our offering and will consider strategic bolt-on acquisitions if they
help us deliver innovation and add to business diversification.
Key priorities
¡ Develop new product solutions that differentiate
¡ Enhance current technologies and consider technology
acquisitions to develop functional products
¡ Explore and implement longer-term transformational
technologies
KPI
Percentage of sales made from products
launched in the last 3 years
Target
2016
2015
2014
12.6%
13.7%
16.0%
16.0%
The KPI is expected to increase in future
years following the launch of a number of
projects in 2017.
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Operational
Excellence
Our ambition is to manufacture in global, world class facilities that
deliver high-quality products today and in the future. Our organisational
structure allows us to leverage our Group functions to ensure we
deliver optimal business process effectiveness, and we are developing
a range of best practice programmes to drive this forward.
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Collaborating and partnering
Over 2015 we worked with a major OEM Building Products
company that was dissatisfied with a current product, which
was expensive to produce, to design a new solution. We
embraced teamwork, strategic focus and professionalism to
give this customer a unique advantage, and executed the
project with operational discipline and focus, resulting in the
2016 launch of an innovative product.
Our collaborative approach created new ways of working
and cross-functional participation throughout the Group,
with a high level of overall professionalism, customer
communication and knowledgeable response. Our
integrated team drew on expertise throughout the Group;
involving Sales, Project Management, Applications, R&D,
Operations, Purchasing and Production. Advanced
pre-planning paid off, with focus enhanced by regular
internal and customer communication, stakeholder
ownership and accountability.
Our internal expertise, operations and professionalism resulted
in a mutually beneficial relationship, with unique opportunities
for growth and multiple application development. We have a
continued partnership, opening the door to global
opportunities and additional building applications.
Progress
Our Manufacturing Excellence programme has been defined
and is now being implemented Group-wide. The key pillars
of this programme are based on well-established world class
lean manufacturing principles. We have restructured our global
manufacturing footprint into core technologies and appointed a
Manufacturing Manager to each, to oversee the implementation
of best practice in terms of safety, quality, reliability and efficiency.
Global Champions have also been appointed to support
the Manufacturing Managers in each pillar of the excellence
programmes and to promote best practice exchange.
We have developed standard KPIs and these are now being used
across all sites to enable clearer monitoring and reporting of progress.
Outlook
Our biggest opportunity is building organisational excellence
across the Group. We are half-way through a three year
programme to embed our organisational structure, becoming
efficient in a new way of working. Over the coming year we will
continue to deliver on our strategic plans; our priorities are health
and safety, putting the right people in the right roles and talent
development. Continual fine-tuning of our processes to deliver
efficiency should translate into stronger Group performance.
Key priorities
¡ Focus on the health, safety and environmental performance of
our facilities and products
¡ Use standardised processes to enhance product quality and to
enhance our supply chain reliability, adding value to our customers
¡ Optimise manufacturing output to support demand
requirements in terms of current and new products
KPI
Return on capital employed
(Operating profit before amortisation and non-recurring
items as a percentage of net assets plus net debt)
Target
2016
2015
2014
12.0%
11.1%
12.5% (restated)
11.4%
The movement in return on capital employed is discussed
in detail on page 29. The KPI in 2016 is also impacted by
foreign exchange effects with earnings being retranslated
at average rates and net assets and net debt at closing
rates. The impact in 2016 is a net reduction of 70bps, with
sterling being weaker at the year end.
Low & Bonar Annual Report and Accounts 2016
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Chief Executive’s review
Becoming a global leader in
performance materials
The Group has made further progress over the last twelve months on its
transformational journey from a production-led company to a market-focussed,
global performance materials business.
Brett Simpson
Group Chief Executive
¡ Revenue increased 10.5% to £400.0m despite mixed
market conditions
¡ Profit before tax, amortisation and non-recurring items
increased 6.6% to £29.2m with strong growth
from Building & Industrial, Interiors & Transportation and
Civil Engineering
¡ Margins remained stable at 8.7% (2015: 8.8%) –
held back by CTT issues
¡ We successfully reorganised the Group into an actively-
managed portfolio of businesses delivering growth and
high-quality earnings
¡ We opened the new Colback plant in Changzhou, China,
and approved the next phase of development
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Results for the year, however, were mixed. As anticipated, there
was strong sales and profit growth in Building & Industrial and
Interiors & Transportation and profit and margin improvement in
Civil Engineering. Operating profit before amortisation and
non-recurring items in Building & Industrial and Interiors &
Transportation grew by 16.0% and 14.8% respectively and by
27.3% in Civil Engineering. Profits within Coated Technical Textiles
were disappointing and 37.9% lower than last year due largely to
manufacturing issues during the first half of the year. Overall, the
Group operating margin was 8.7% (2015 (restated): 8.8%), this
includes the negative drag from Coated Technical Textiles which
we estimate to have been 1.3%.
Strategic Progress
With a simplified structure and refined corporate strategy,
Low & Bonar can combine its collective global expertise to deliver
strong results. The Group now has a strong corporate brand,
with a portfolio of premium brand products sitting underneath
the Low & Bonar umbrella.
In 2016, we strengthened our commercial approach by developing
a deeper customer interface to become more proactive and
forward-looking as a business, creating bespoke products for
our customers to generate greater added-value and deliver better
returns. Intimate knowledge of our markets and leveraging our
technical expertise can help deliver competitive advantage and
provide depth to our four Global Business Units.
Over the year we have invested in increasing capacity and
capability across the business to take advantage of future growth
opportunities. We are working on increasing our international
footprint, based on the regional preferences and requirements of
our customers. We are leveraging our European-centric expertise
and expanding into other parts of the world, including China and
North America, through a mixture of strategic bolt-on acquisitions
and organic growth. Our acquisition strategy remains focussed on
opportunities which meet our stringent financial criteria.
Key operational highlights in 2016 include our new plant in
Changzhou, China, which opened at the start of the year.
Low & Bonar is the first British company to produce a proprietary
technical textile in China. We use local teams that we have trained
to manufacture quality products that meet local and international
customers’ needs and, in our first year of operation, the plant
outperformed expectations. Demand for Colback is strong and
growing, and the first commercial products were delivered ahead of
forecasts. The plant ended the year with 75% utilisation and expects
to reach full capacity by the end of 2017. The Board has approved the
next phase of the Changzhou plant’s development and we anticipate
that a second production line will be built and on-stream by early
2018, at a total cost of around £22m.
We continue to invest in the European heartlands of our business.
We are pleased with the strong performance of the new non-
woven facility in Tiszaújváros, Hungary, where we have replaced
and rejuvenated existing lines. This investment in Civil Engineering,
which accounts for on average 23% of the Group’s revenue,
has strengthened its asset base and added extra capability.
Performance in Civil Engineering has also been boosted by the
previous investment in a new 8,000 m² plant in Slovakia, which
manufactures woven and non-woven geosynthetics for large-scale
infrastructure projects. The Ivanka pri Nitre plant is enabling it to
address the significant growth potential in this area.
Building & Industrial continues to see strong profit growth and
margin progression. North America, in particular, provides an
opportunity to develop its customer-branded (private label) work,
including working with major building suppliers.
Interiors & Transportation has strong market drivers with good
market growth delivering a solid performance across its three
regions. The business has had an encouraging first year with
the new China facility and continues to invest in new platforms,
bringing the latest technology to its Chinese customer base.
Our Coated Technical Textiles operations, based in Germany and
Eastern Europe, have suffered from a combination of more stringent
regulatory requirements and operational issues resulting in pressure
on profits. We have focussed on addressing the underlying issues
and changing the work, sales and operational planning processes
to optimise the product mix and shift to higher-end products. We
start the new financial year with confidence that Coated Technical
Textiles will get back on track during 2017.
A hallmark of our new strategy has been the reorganisation of the
Group into an actively-managed portfolio of businesses capable of
delivering sustainable growth and high-quality earnings. During
2016, we have been committed to resolving legacy issues. It was
for this reason that the Board decided to divest the artificial grass
yarns business, which formed the majority of the Sports & Leisure
global business unit. We have also made progress in agreeing our
exit from our joint venture with Natpet in Saudi Arabia. Proceeds
from the sale of artificial grass yarns will be used to invest in assets
capable of generating our Group financial targets of 10% return on
sales and 12% return on capital employed.
Brett Simpson
Group Chief Executive
1 February 2017
Low & Bonar Annual Report and Accounts 2016
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Business review
Building & Industrial
The Building & Industrial GBU supplies a range of technical textile
solutions for niche applications in the building, roofing, air and water
filtration and agricultural markets.
On a constant currency basis, sales increased by 6.4% and operating profits by 16.0% with operating margins
improving to 14.9% from 13.6% last year. Sales were up in all markets; demand was particularly strong during
H2, especially for roofing products in the US market. Sales were buoyed by major account wins with roofing,
ventilation and green roofing customers. A new global industrial team has been formed to drive sales growth
in cabin-air filtration and capitalise on local production and service being available in Asia from our new
Colback plant in Changzhou, China.
Global agriculture sales, which were positive but below expectations, were constrained by some service
and delivery issues at our Lokeren site, which limited our ability to meet strong market demand for
greenhouse screens and mushroom and compost mats. These issues were resolved in Q4 and the Agro
business delivered record screen volumes in the final quarter. Favourable market patterns are expected in
2017, and the business remains committed to expansion in the North American market.
The business outlook for 2017 is positive in all segments. On 17 January 2017, the Group purchased
for $3.6m the business and assets of Walflor Industries Inc, based near Seattle, USA, which produces
rainscreens and acoustic mats. The acquisition significantly strengthens our customer relationships in
the US building products market and provides a West Coast platform for further growth. The acquisition
is expected to be earnings enhancing in the coming year, albeit profits in the first year are expected to
be modest.
Market drivers
¡ Food safety in agriculture and protection of food supplies in transportation
¡ Water conservation in agriculture
¡ Demand for air, water, home and automotive filtration
Revenue
Operating Profit before amortisation and
non-recurring items
Operating Margin before amortisation and
non-recurring items
2016
2015
Actual
Constant
currency1
£73.4m
£61.7m
+19.0%
+6.4%
£10.9m
£8.4m
+29.8%
+16.0%
14.9%
13.6%
1. Constant currency is calculated by retranslating comparative period results at current period exchange rates.
Clark Halladay
Global Business Director
Revenue
£73.4m
Operating profit before
amortisation and
non-recurring items
£10.9m
Operating margin before
amortisation and
non-recurring items
14.9%
BonarAgro Duracover – Conserving fragile natural areas
All around Europe, invasive exotic weeds,
such as Japanese knotweed, are difficult to
eradicate and stifle vegetation. European
Integrated Pest Management legislation
aims to reduce pesticides being used and a
sustainable solution is needed.
installing Duracover, the weeds were
eradicated without using pesticides, with
recolonisation by other vegetation within
three years.
Based on this success, French cities,
municipalities and environmental
organisations are now using BonarAgro’s
Duracover to fight invasive weeds.
BonarAgro’s Duracover is the only 100%
bio-based woven product available in the
landscaping sector worldwide. A pilot
project was set up at Pas de Calais (France)
by Eden 62, an organisation responsible for
conserving fragile natural areas. After
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Civil Engineering
The Civil Engineering GBU supplies woven and non-woven geotextiles
and construction fibres used in major infrastructure projects, including
road and rail building, land reclamation and coastal defence.
Despite challenging market conditions, Civil Engineering improved its profitability and margins through
a combination of better sales mix and market share gains in targeted specification sales. On a constant
currency basis profits were up 27.3%. Commercial successes during the year included strong volume
growth in Adfil macro construction fibres and strong sales in our differentiated products, principally
prefabricated vertical drainage and erosion control products, as well as delivering organic growth in
the USA.
In 2016, development work was completed to ensure that all geosynthetic products will meet the highest
standards of durability in the imminent upgrade of the industry standards. Our new, state-of-the-art,
non-woven facility in Tiszaújváros, Hungary also came on-stream during the year with a new 6.5m wide
line and the relocation of a renovated line from our older facility nearby. We also successfully developed
and launched our new best in class Durus S500 macro synthetic fibre for concrete reinforcement.
Looking forward, geographical opportunities for growth include the US and Asia, while demand next year
in core European markets is expected to be broadly unchanged, as they are heavily reliant on public
funding. We will continue to leverage our market and technical capabilities to accelerate growth in all our
target markets and remain very confident that the business will make further progress towards 10%
operating margin.
Market drivers
¡ Urbanisation and need for better infrastructure
¡ Lower carbon footprint and environmental benefits compared to traditional materials
¡ Faster and safer construction and increased quality control in performance and safety
Revenue
Operating Profit before amortisation and
non-recurring items
Operating Margin before amortisation and
non-recurring items
2016
2015
Actual
Constant
currency1
£90.8m
£85.4m
+6.3%
-3.9%
£4.2m
£3.1m
+35.5%
+27.3%
4.6%
3.6%
1. Constant currency is calculated by retranslating comparative period results at current period exchange rates.
Neil Ryan
Global Business Director
Revenue
£90.8m
Operating profit before
amortisation and
non-recurring items
£4.2m
Operating margin before
amortisation and
non-recurring items
4.6%
Embankment protection
Dutch Water Authorities are constantly
challenged to keep water under control and
protect embankment erosion of inland
waterways. Waterway De Dalle flows
through a peaty area, which can easily
erode and settles unevenly. This makes
erosion control particularly difficult. To
ensure De Dalle would be able to cope with
increasing future water flows, it was
decided to widen the waterway and to
make the embankments less steep.
The Water Authority Hollandse Delta chose
Enkamat A20 to cover and provide 15km of
erosion protection for waterway
embankments.
Enkamat A20 is a unique 20mm high 3D
structure mat prefilled with bitumen-bound
chippings with open spaces, allowing
vegetation to grow through the mat. It
provides a strong vegetation foothold, with
embankments keeping their natural
appearance, and offers permanent
protection with low maintenance.
Low & Bonar Annual Report and Accounts 2016
21
Business review continued
Coated Technical Textiles
The Coated Technical Textiles GBU supplies a range of technical
coated fabrics providing aesthetics and design, performance and
protection in a number of different markets.
As previously reported, Coated Technical Textiles has had a poor year, significantly impacted by
various manufacturing problems which added approximately £3.4m to costs and negatively impacted
sales. On a constant currency basis, sales were down 2.4% compared to last year and profits fell by
37.9% to £8.7m. The manufacturing issues are now resolved for the most part and the focus for the
business in 2017 is on restoring market confidence and regaining customers. Markets and customers
generally remain supportive.
The new sales teams’ focus on the higher margin segments (flexible containers and tensile
architecture) is beginning to gain traction. Major developments in 2016 included a significant order to
supply fabric for the Volgograd stadium in Russia for the 2018 World Soccer tournament. We have
also launched Camouflage for an inflatable boat application and Flexi Pools, designed to withstand
extreme UV exposure and for improved durability when in contact with treated pool water.
The focus for 2017 will be on reliability and rebuilding Coated Technical Textiles’ reputation for
service delivery and quality product. Further gains in higher margin segments should support further
profit improvement.
Marc Krauth
Global Business Director
Revenue
£129.8m
Operating profit before
amortisation and
non-recurring items
£8.7m
Operating margin before
amortisation and
non-recurring items
6.7%
Market drivers
¡ Demand for infrastructure and quality of life improvements in areas of economic development
¡ Protection of food supplies in transportation
¡ Growth in the renewable energy sector
Revenue
Operating Profit before amortisation and
non-recurring items
Operating Margin before amortisation and
non-recurring items
2016
2015
Actual
Constant
currency1
£129.8m £120.4m
+7.8%
-2.4%
£8.7m
£12.8m
-32.0%
-37.9%
6.7%
10.6%
1. Constant currency is calculated by retranslating comparative period results at current period exchange rates.
Unique textile façades for extreme weather conditions
Preysi, an Ecuadorean engineering
company, wanted to build a new
Government building in Esmeralda, on the
West coast of Ecuador with an unhindered
view to the ocean, integrated into local
surroundings and providing a special
feature at night.
VALMEX® TF400 mesh in silver. Opened in
2016, the grid fabric serves as a sun screen
and wind shield and is visually appealing.
The textile façade can be used as a cinema
screen by night, integrating the
governmental building into the newly-
developed recreational heart of the city and
opening the coastline to the public.
Situated close to the equator, Esmeralda
experiences bright sunlight. The answer
was to wrap the building in an innovative
textile façade – Low & Bonar’s MEHGIES®
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Interiors & Transportation
The Interiors & Transportation GBU supplies technical fabrics used in
transportation, interior carpeting, resilient tiles and decorative products.
Interiors & Transportation delivered very good profit growth; profits were up 14.8% to £17.1m on a
constant currency basis. Sales were 1.7% ahead on a constant currency basis for the full year. Sales
in H1 were 3.8% ahead aided by additional capacity from the new plant in Changzhou, China, but
sales in H2 were flat due to the pass-through of price reductions in connection with lower raw
material prices.
Gareth Kaminski-Cook
Global Business Director
The performance in China has been pleasing with both sales and margins being ahead of plan. The
total sales of Colback in China were £11.7m (2015: £8.5m). Sales of Colback from Changzhou,
including £3.1m export sales, totalled £9.6m (2015: £nil).
The Interiors & Transportation business serves a number of nascent market segments, where
Colback has established a strong market position with recognised advantages and a reputation for
innovating, so the outlook is positive for good growth from a leading position. We enter 2017 with a
good supply situation.
Revenue
£106.0m
Operating profit before
amortisation and
non-recurring items
£17.1m
Operating margin before
amortisation and
non-recurring items
16.1%
Market drivers
¡ Economic and environmental requirements driving high strength, low-weight flooring solutions
¡ Ease of handling, aesthetic and design flexibility driving substitution of wall-to-wall carpet with
carpet tiles
Revenue
Operating Profit before amortisation and
non-recurring items
Operating Margin before amortisation and
non-recurring items
2016
2015
(restated)2
Actual
Constant
currency1
£106.0m
£94.6m
+12.1%
+1.7%
£17.1m
£13.4m
+27.6%
+14.8%
16.1%
14.2%
1. Constant currency is calculated by retranslating comparative period results at current period exchange rates.
2. Restated to include the continuing Sport & Leisure segment.
Next generation technology for the global automotive market
With increased demand from the
automotive market to produce high quality,
tufted moulded car carpets with a reduced
weight and optimised material composition,
and stringent OEM cost savings
requirements, we developed Colback
ProMotive, a new generation of 3D
mouldable primary carpet backings.
Launched in 2016, it is now available to
the global automotive market.
Colback ProMotive provides unrivalled
robustness and consistency, and superior
and consistent moulding properties. It is a
thermally-bonded, spun-laid non-woven,
made from bi-component filaments and
designed to meet high performance
requirements at lower weight.
The technology can be applied to other
applications requiring high-quality moulded
products at a reduced weight, opening up
further growth opportunities.
Low & Bonar Annual Report and Accounts 2016
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Executive Leadership Team
Leading the Group ’s transformation
1
Our Executive Leadership Team (“ELT”)
is a unified leadership team committed to
development and delivery of the Group strategy.
It is a critical decision-making forum led by the
Group Chief Executive and consisting of the
Global Business Directors and our leaders in
Finance, Operations, HR, Legal, Supply Chain
and R&D Group functions.
The responsibilities of the ELT are stewardship of:
¡ Group-wide strategy, direction and financial
performance
¡ Customer intimacy and commercial execution
¡ Operational excellence
¡ Portfolio management
¡ Group-wide branding and brand values
¡ HR management
¡ Capital allocation
¡ Influencing external perceptions
¡ Corporate governance
The ELT is the heart of the business.
We have good people with expertise,
judgement and a passion for service.
But it’s more than that, it’s about
providing a strong point of view that
brings insight and thinking that tells me
this is the right team to enable change
and build for the future.
Brett Simpson
Group Chief Executive
1. Brett Simpson
Group Chief Executive
2. Mike Holt
Chief Financial Officer
3. Clark Halladay
Global Business Director,
Building & Industrial
4. Neil Ryan
Global Business Director,
Civil Engineering
5. Marc Krauth
Global Business Director,
Coated Technical Textiles
6. Gareth Kaminski-Cook
Global Business Director,
Interiors & Transportation
7. Wayne Currie
Group Director of Operations
8. Jan van Boldrik
Group Director of Special
Projects/Adviser to CEO
9. Francis Bird
Group Director of
Human Resources
10. Hans Kolnaar
Group Director of
Innovation
11. Matthew Joy
Group General Counsel
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Financial review
Delivering strong growth
throughout the Group
We are starting to see tangible results from our transformation. There
was good profit growth in three of our four businesses. Results in
Coated Technical Textiles, however, were disappointing.
Mike Holt
Chief Financial Officer
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2015
(restated)1
£400.0m £362.1m
£31.8m
8.8%
£27.4m
5.86p
2.78p
12.5%
£34.7m
8.7%
£29.2m
6.01p
3.00p
11.1%
Actual
10.5%
9.1%
6.6%
2.6%
7.9%
Constant
currency2
(0.2%)
(2.8%)
(5.2%)
(9.0%)
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Results Overview
Revenue
Operating profit before amortisation and non-recurring items
Operating margin before amortisation and non-recurring items3
Profit before tax, amortisation and non-recurring items
Basic EPS before amortisation and non-recurring items
Dividend per share
Return on capital employed4
1. Restated to exclude the results of discontinued operations.
2. Constant currency is calculated by retranslating comparative period results at current period exchange rates.
3. Operating profit before amortisation and non-recurring items as a percentage of revenue
4. Operating profit before amortisation and non-recurring items as a percentage of net assets plus net debt.
2016
£m
£31.4m
£25.9m
5.20p
2015
(restated)1
£m
£25.8m
£21.4m
4.47p
Non-recurring items
There was a net non-recurring credit of £0.7m (2015 (restated): net
non-recurring charge of £1.9m) in relation to continuing operations.
The Group recorded a profit of £1.1m on the sale of unused land at
our North American manufacturing site in Asheville. The Group
also incurred £0.1m (2015: £0.2m) of non-recurring pension
administration costs relating to its UK defined benefit scheme. A
further £0.2m (2015: £0.2m) of professional fees were incurred in
respect of the medically-underwritten buy-in of £34m of UK
pension scheme liabilities, which completed on 3 December 2015.
During the prior year, construction and start-up costs relating to
the Group’s construction of a new manufacturing facility in
Changzhou, China, totalled £1.1m and reorganisation costs of
£0.4m were incurred in the integration of the Group’s operations
into a single global business.
Operating profit (statutory)
Profit before tax (statutory)
Basic EPS (statutory)
Pre-tax profit
Profit before tax, amortisation and non-recurring items
from continuing operations increased by 6.6% to £29.2m
(2015 (restated for discontinued operations): £27.4m). The impact
of foreign exchange rate changes aided reported profits by £3.5m
following the significant weakening of sterling against the Euro and
US Dollar. Operating profits before amortisation and non-recurring
items were 9.1% higher than last year at £34.7m (2015 (restated):
£31.8m). Statutory operating profits were 21.7% higher at £31.4m
against £25.8m in 2015 (restated). Statutory profit before tax was
£25.9m (2015 (restated): £21.4m) after a net non-recurring credit of
£0.7m (2015 (restated): charge of £1.9m) and a £4.0m charge for
amortisation (2015: £4.1m).
Excluding the effect of favourable foreign exchange gains on
translating overseas earnings due to weaker sterling, profit before
tax, amortisation and non-recurring items on a constant currency
basis was 5.2% lower than the prior year, profit before tax,
amortisation and non-recurring items in 2015 being £30.8m.
Operating margins remained stable at 8.7% against 8.8% (restated
for discontinued operations) last year. Volume growth in Building &
Industrial and Interiors & Transportation and effective margin
management in Civil Engineering, together with net pricing gains,
offset further investment in operational capability and a
disappointing performance by Coated Technical Textiles, primarily
within production. Manufacturing performance was also
disappointing at our weaving site at Lokeren, Belgium which held
back potential gains in our agriculture segment.
Low & Bonar Annual Report and Accounts 2016
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Financial review continued
Discontinued operations
On 4 July 2016, the Board announced the disposal of the
Group’s artificial grass yarns business (previously comprising the
majority of its Sport & Leisure GBU). The disposal completed on
1 September 2016 and the prior period income statement has
been restated accordingly.
The Group’s joint venture in Saudi Arabia, Bonar Natpet, made a
loss during the year of £2.6m (2015: £3.6m), of which the Group’s
share was £1.3m (2015: £1.8m). The Board is pursuing the disposal
of the Group’s interest in the joint venture and negotiations
with interested parties are ongoing. Due to this, the Group’s share
of the results of the joint venture has been presented as
discontinued operations.
Taxation
The overall tax charge on continuing profit before tax was £8.2m
(2015: £6.2m). The tax charge from continuing operations before
amortisation and non-recurring items was £8.8m (2015: £7.6m), a
rate of 30.4% (2015 (restated): 27.8%). The increase in effective rate
relates to country mix of profits, in particular more profits derived
from the USA and the disposal of the grass yarns business.
Acquisitions
There were no acquisitions in 2016. On 17 January 2017, the
Group acquired the business and assets of Walflor Industries Inc,
a producer of rainscreens and acoustic mats based near Seattle,
USA, for an initial $3.6m and a contingent consideration of up to
$0.9m in cash based on the commercial performance of the
business over the next twelve months.
Net debt
As at 30 November 2016, net debt was £111.0m (2015: £102.1m).
This was circa £15m higher than had been expected at the
half-year, due principally to the progressive weakening in sterling
which accounted for about £12m and the deferred receipt of
working capital proceeds from the sale of the artificial grass yarns
business. Stock build was also a little higher than had been
anticipated in Lokeren and at other sites due to buffering to meet
demand in H1 2017. Capital expenditure was however lower with
payments moving into 2017.
Cash inflow from operations was £38.5m (2015: £39.8m). During
the year, the Group spent £18.9m (2015: £33.0m) on property,
plant and equipment and £3.3m (2015: £0.7m) on intangible
assets. Excluding replacement, efficiency and health and safety
related capital expenditure, the amount invested in equipment to
support future growth was £13.1m (2015: £23.0m). The main items
related to the new factory build in Changzhou, China, the new
non-woven plant in Tiszaújváros, Hungary and new looms in
Ivanka, Slovakia which amounted to £7.8m (2015: £13.6m),
£1.4m (2015: £5.6m) and £1.7m (2015: £nil) respectively. The
Group also invested £2.7m (2015: £nil) in a new Group ERP
system, the roll-out of which will commence in 2017. The total
investment for the new ERP system is expected to be about £9m.
The Group received proceeds of £21.7m from the sale of the
artificial grass yarns business in September 2016 and holds a
receivable of £4.3m reflecting a working capital adjustment, based
on the sale agreement, which the Group is due to receive in 2017.
Costs incurred relating to the disposal of the business totalled
£2.0m.
Trade working capital as a percentage of sales at year end
increased to 26% (2015: 23%), the increase being mainly due to
an increase in inventories of £14.7m. This reflects the planned
ramp-up in our new facility in Changzhou, together with stock build
to fulfil orders and product launches in early 2017, and continued
production and scheduling issues at our Lokeren site.
The analysis of the Group’s net debt is as follows:
Cash and cash equivalents
Total bank debt
Net bank debt
2016
£m
26.3
(137.3)
(111.0)
2015
£m
33.9
(136.0)
(102.1)
The gearing ratio of total net debt to EBITDA decreased from 2.19
times (in 2015) to 1.98 times.
The Group’s available debt facilities total €246m (2015: €233m)
and comprise a five-year revolving credit facility of €165m through
to July 2019, a private placement of €60m scheduled for
repayment between September 2022 and September 2026 in
even tranches, and loan facilities of Rmb150m through to June
2020. Net debt at 30 November 2017 is expected to be similar to
30 November 2016, on a constant currency basis.
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Restatement
Due to the disposal of the artificial grass yarns business (disclosed
as discontinued operations), the remaining continuing interests
within the Sport & Leisure segment have now been included within
the Interiors & Transportation segment due to the similar nature of
the products provided. The Group’s reportable segments have
also been restated to reflect the discontinued operations noted in
the period and the change in operating segments.
Mike Holt
Chief Financial Officer
1 February 2017
Return on capital employed
The return on capital employed has reduced to 11.1%
(2015 (restated): 12.5%) due to significant capital expenditure in
the year and stock build. The 2015 calculation has been restated
to remove £20.2m of net assets associated with the disposed
business and assets. In line with the prior year, the current year
calculation of return is based on net assets and net debt, the
target for which is 12%. The capital expenditure spend is expected
to improve returns in future periods, and the higher inventories
were held to fulfil orders in H1 2017 and mitigate production
bottlenecks at our site in Lokeren, Belgium.
Earnings per share
Basic earnings per share, before amortisation and non-recurring
items was 6.01p, an increase of 2.6% from 5.86p in 2015
(restated). On a constant currency basis, basic earnings per share
before amortisation and non-recurring items reduced by 9.0% due
to an increase in the effective tax rate from 27.8% to 30.4% along
with the constant currency impact on the earnings of the Group.
Basic earnings per share from continuing operations increased
16.3% from 4.47p in 2015 (restated) to 5.20p in 2016.
Dividends
The Directors have proposed an increased final dividend in respect
of the financial year ended 30 November 2016 of 2.00 pence per
share which will absorb an estimated £6.6m of shareholders’
funds. This has not been provided for in these accounts because
the dividend was proposed after the year end. If it is approved by
shareholders at the Annual General Meeting of the Company to be
held on 12 April 2017, it will be paid on 13 April 2017 to Ordinary
Shareholders who are on the register of members at close of
business on 17 March 2017. The Company’s distributable reserves
at 30 November 2016 provide around 10 years cover for dividend
payments at the current rate.
Pensions
The charges for pensions are calculated in accordance
with the requirement of IAS 19 Employee Benefits (revised).
At 30 November 2016, the UK scheme showed a deficit of £2.2m
(2015: surplus of £5.2m), the increase in the deficit is principally
due to the fall in bond yields in the year, partially mitigated by the
Schemes assets outperforming expected returns and lower than
anticipated levels of inflation. During the year, the Group’s UK
defined benefit scheme continued to adopt a lower risk investment
strategy in which the interest rate and inflation risks were more
closely hedged and the exposure to equities reduced to 13% of
the scheme’s assets (2015: 19%). On 3 December 2015 the Group
also completed a medically-underwritten buy-in of £34m of
liabilities within its UK pension scheme, to eliminate interest rate,
inflation and mortality risks and provide an effective liability and
cash flow match.
The deficit in the Group’s overseas schemes in Belgium, Germany
and the USA increased to £12.8m (2015: £9.9m), again due to the
fall in bond yields in the year.
Low & Bonar Annual Report and Accounts 2016
29
Principal risks and uncertainties
Risk management framework
The Group faces a variety of risks which, were they to materialise, could affect the
delivery of its strategic objectives or the safe and efficient running of its operations.
The Group has an established risk management framework which is designed to
identify, evaluate and mitigate the risks and uncertainties facing the Group and to
embed effective risk management into the culture and behaviour of its employees.
Within this framework, we classify risks into four distinct categories according to their
potential impact on the Group.
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 reputational
damage arising from failure to comply with applicable laws
and regulations.
Risk registers are held at each Global Business Unit and at each
manufacturing site, and are assessed, discussed and updated at
management team meetings. These registers document existing and
emerging risks and assess their potential significance and likelihood
of occurrence. A Group risk register collates the risks identified at
Global Business Units and manufacturing sites together with certain
strategic risks managed at Group level, and is formally reviewed by
the Board.
The risk registers ensure that each identified risk has a mitigation
process developed for it, and documents how the mitigation strategy
is implemented, the frequency of review, who is accountable for the
process, the assessment of the adequacy of the mitigation strategy
and who will undertake the steps to ensure that the risk is mitigated.
Identify
and
evaluate
Mitigate
Risk Profile
Strategic
Operational
Financial
Compliance
(Relative To Prior Year)
Increasing
Global activity
Risk key
Stable
Organic growth/
competition
Cyber security
Growth strategy
Business
continuity
Employee
Raw material
pricing
Laws and
regulations
Treasury
Health and safety
Pension funding
Reducing
Funding
The key risks noted above are evaluated by the bodies on page 31 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.
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Risk Oversight
Board of Directors
oversees risk management as a whole, with specific responsibility for political risks, take-over risks,
funding and capital, acquisitions, investor relations and significant capital expenditure 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.
Risk Oversight Committee
delegated responsibility for maintaining the Group risk register,
and for managing 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, employees
and regulatory and compliance issues.
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-over risks,
funding and capital, acquisitions and significant capital expenditure
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 Group’s work in the area of operational risk management is
facilitated by the Risk Oversight Committee, which is chaired by
the Chief Financial Officer and is attended by the Group Chief
Executive and other members of the Executive Leadership Team,
together with the Group Health & Safety Director and Deputy
Group Finance Director. The Risk Oversight Committee has
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, employees and regulatory and
compliance issues. Health, safety and environmental (“HSE") and
information security matters are delegated to the Group HSE
Committee, which is chaired by the Group Health and Safety
Director, and the Information Security Committee, which is chaired
by the Deputy Group Finance Director, respectively.
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 work of all of the
Board committees relating to risk management is 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 Group HSE Committee and
the Information Security Committee and reports on relevant
matters to the Board.
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;
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; and
¡ 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 continued development and implementation of the risk
management and internal control system across the Group has
allowed the Directors to comply with the UK Corporate
Governance Code provisions on internal control in the course of
the financial year ended 30 November 2016.
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 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 policies 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
¡ operating unit controls: financial controls and procedures,
¡ taking firm and vigorous action against any individual(s) involved
including information system controls, are detailed in the Group
Policies and Procedures Manual. All operating units are
in bribery.
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Principal risks and uncertainties continued
Risk
Movement Mitigating strategy
Global 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. Changes in international
trade regulations or tariffs could potentially
disrupt the Group’s supply chains.
Organic growth/competition
The markets in which the Group operates
are competitive with respect to price,
geographic distinction, functionality,
brand recognition and marketing and
customer service.
Cyber security
Disruption to or penetration of our
information technology platforms could
have a significant adverse effect on
the Group.
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.
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.
Employee
The Group is reliant on its ability to
attract, develop and retain talented
leaders, professionals and specialists
throughout the organisation.
Business Unit management monitors their own markets and are
empowered to respond quickly to changing conditions. Production costs
may be quickly flexed to balance production with demand, including the
use of short-time working arrangements where available. Further actions,
such as reducing the Group’s cost base and cancelling or delaying capital
investment plans, are available to allow continued profitability and cash
generation in the face of a sustained reduction in volumes.
The Group also has a broad base of customers. Group policies
endeavour to ensure that customers are given an appropriate level of
credit based on their trading history and financial status, and a prudent
approach is adopted towards credit control. Credit insurance is used
where available and considered appropriate.
Procurement management endeavour to mitigate supply chain risk by
identifying and qualifying alternative sources of key raw materials.
Potential changes to international trade regulations are monitored in order
to try and anticipate and mitigate their impact.
The Group has chosen to operate in attractive niche markets within the
technical textile industry, using proprietary technology to manufacture
products which are important determinants of the performance and/or
efficiency of our customers’ final product or process.
Significant resources are dedicated to developing and maintaining strong
relationships with our customers, and to developing new and innovative
products which meet their precise needs.
Innovation pipelines are Business Unit-led and rigorously managed
through a stage-gate process.
The Group’s information technology resources are continuously
monitored and maintained, and safeguards are in place to provide
security for our networks and data. These are backed up by training
programmes for relevant members of staff.
Business continuity measures are in place to minimise the impact of any
disruption to its operations.
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 process controls and proactive maintenance programmes
designed to avoid problems arising. These are supported by regular site
visits from risk management, internal audit staff and the Group HSE
Committee. Crisis response procedures including business continuity/
disaster recovery plans are in place to minimise the impact of any
disruption to its operations. Where appropriate, risks are partially
transferred through insurance programmes.
Employees are recruited and regularly appraised utilising a structured
performance management system. This is directly linked to both rewards
and developmental outcomes. HR policies are in place covering all
aspects of employment across the Group. We are committed to effective
communication and engagement with employees which takes place on a
continuous basis. We utilise our values of; be world class; empower and
perform; embrace the new; collaborate to transform; in the way that we
engage with our people and conduct our business.
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Risk
Movement Mitigating strategy
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.
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 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.
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.
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.
Health and safety
The nature of the Group’s operations
presents risks to the health and safety
of employees, contractors and visitors.
Furthermore, inadequate health and
safety practices could lead to business
disruption, financial penalties or loss
of reputation.
The Group 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.
Group policy aims to naturally hedge transactional foreign exchange risks
by buying and selling in the same currency. Policy in relation to residual risk
ensures treasury activities are focussed on the management of risk with
high quality counterparties; no speculative transactions are undertaken.
The Group uses financial instruments to manage the exposures that
may arise from its business operations as a result of movements in
financial markets.
Regular dialogue takes place with pension fund trustees and the Board
regularly discusses pension fund strategy. The main Group scheme is
closed to new members and to future benefit accrual and assumptions,
including funding rates, are set in line with the actuaries’
recommendations. A medically-underwritten buy-in of certain of the
Group’s pension liabilities was undertaken in December 2015, to reduce
volatility from changing life expectancy.
The Group manages its capital to safeguard its ability to continue as a
going concern, to provide sufficient liquidity to support its operations and
the Board’s strategic plans and to optimise its capital structure. The
Group’s borrowing requirements are regularly reforecast with the objective
to ensure adequate funding is in place to support its operations and
growth plans. Compliance with the covenants associated with these
facilities is closely monitored.
The Group’s policy manuals endeavour to ensure that all applicable legal
and regulatory requirements are met or exceeded in all territories in which
it operates, and ongoing programmes and systems monitor compliance
and provide training for relevant employees.
Product liability risks are managed through stringent quality control
procedures covering review of goods on receipt and prior to despatch
and all manufacturing processes. Insurance cover, judged appropriate for
the nature of the Group’s business and its size, is maintained. The Group
also seeks to minimise risks through its terms and conditions of trading.
The Group’s health and safety strategy aims to embed a strong and
proactive health and safety culture across all aspects of our business.
Health and safety matters are discussed at Group Board and Business
Unit level meetings, and the Group HSE Committee meets regularly to
develop and implement Group health and safety standards and Global
Improvement Programmes, investigate incidents and near misses, and
share best practice through site audits and training programmes.
Performance is monitored against Group-wide health and safety KPIs.
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Corporate & social responsibility
Committed to sustainability working hand-
in-hand with our long-term growth strategy
Corporate & social responsibility (“CSR”) lies at the heart of Low & Bonar’s values,
and we recognise that our stakeholders have rising expectations of both our CSR
commitment and our performance.
Throughout 2016 we have continued to focus significant effort,
resource and capital in our CSR programmes. We remain
committed to reviewing all aspects of our CSR processes and
looking for opportunities to improve them, as by doing so we
are also supporting our long-term strategy.
Cradle to cradle process
Our processes and technology are increasingly supporting our
aims for sustainability.
1. Use of raw
materials
2. Manufacturing
process
Core
values
Be world class
5. Disposal of
our products
3. Waste
management
4. Use of our
products
Empower and perform
Embrace the new
Collaborate to transform
We believe that good CSR programmes add value
to all of our stakeholders in the short, medium and
long term, build pride in the business for those who
work in our Group, and help us to recruit and retain
the best talent.
1. Use of raw materials – We have been able to improve
our raw material usage efficiency and continue to focus
our efforts on the replacement of virgin raw materials with
recycled material where possible.
2. Manufacturing process – The Group is focussed on
optimising energy efficiency and the reduction of process
emissions in its manufacturing processes. This year has seen
significant improvements in our manufacturing processes
with the use of lean and continuous improvement techniques.
3. Waste reduction – The Group is focussed on minimising
waste. In 2016, we have further reduced our waste creation
in our manufacturing processes across all sites by investment
in improved technology. This investment continues into
2017 as a cornerstone of our Project Planet improvement
programme.
4. Use of our products – Sustainability is a core driver in our
innovation processes.
5. Disposal of our products – We recognise the
environmental impact arising from the disposal of our
products. We now have one carpet backing that is
100% recyclable.
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2016 Priorities
2016 Progress
2017 priorities
Ensure the integrated Group
HSE policy statement is
embedded across the new sites
in China and Hungary.
Policy statement fully embedded in all sites.
The Group HSE Policy will be reviewed
and re-issued in 2017.
Commence monthly data
capture and quarterly internal
reporting for environmental
metrics.
List of environmental metrics developed and
agreed to be consistent with Global Reporting
Initiatives (“GRI”) standards. Data capture
progressing.
Further embed monthly and quarterly
data reviews for environmental metrics.
Launch Project Planet at Global
HSE Community meeting.
Project Planet launched at Global HSE
Community meeting. A HSE week focussed
on the environment was held at all sites this
year in October.
Continue to roll-out the project.
Continue with the programme to
expand the use of Environmental
Management Systems ISO
14001 and ISO 50001.
Carry out energy audits at
additional sites.
Three sites in Germany achieved ISO 50001
certification and a number of sites continue to
work towards introducing ISO 14001.
Further sites to achieve ISO 14001
certification.
Energy audits were carried out at a further
five sites. A number of projects have been
completed to reduce energy use, including
both gas and electricity use.
Review audits for further opportunities
to improve. Further capex programmes
developed to reduce energy usage
across a number of sites.
Maintain focus on the
identification of further
opportunities to reduce waste
and recycle materials.
A number of waste reduction projects have
been completed as well as investments to
increase re-use of onsite and offsite waste
streams.
An inventory of all waste reduction
activities carried out at all locations will
be completed to identify cross learning
opportunities across the Group.
Continue to review
eco-efficiency opportunities.
We have continued to seek to develop new
products that have applications to support
global sustainability megatrends.
Continue to review eco-efficiency
opportunities to support our core goals.
The fourth Low & Bonar global
health and safety week will take
place later in 2016.
Successful fourth global health and safety
week event held (focussing on the
environment).
The fifth global health and safety week
event will take place in 2017.
Use health and safety global
improvement programmes (“GIPs”)
to reduce inherent risk and deal
with accident hot spot topics.
Machinery safety programme continued and
GIPs on hand injuries, manual handling and
slip/trip/fall accidents continued to have an
impact. The fire safety improvement
programme has been developed and five
capex programmes are in progress. A
web-based HSE near miss and incident
reporting tool has been created and
embedded across all sites.
A range of further new/updated
health and safety standards will
be issued.
One new health and safety standard has been
issued covering rider-operated trucks (fork-lift
trucks etc.).
A new Lost Time Accidents
(“LTA”) target rate of 200* has
been set.
Unfortunately the LTA rate has not reduced as
targeted and stands at 800* with all
management levels committed to
improvement. Several programmes are in
place to improve performance. The first aid
rate has been reduced and the near miss
reporting has been encouraged and has
increased significantly, allowing more
proactive management of safety to develop.
The effectiveness of these GIPs will be
reviewed this year and new measures
identified if required.
A review will be held of the current
standards and implementation plans
developed where required. Further, new
standards will be developed as required
e.g. permit to work etc.
Cultural development programmes
including “Walk & Talk” and other safety
leadership initiatives to be rolled out.
HSE Annual Improvement plans will be
developed for each site.
Note * based on the number of work related accidents that involved the loss of any time from work (LTAs) per 100,000 employees
Low & Bonar Annual Report and Accounts 2016
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Corporate & social responsibility continued
Environmental management
Environmental management remains a key area of focus, as we recognise the
environmental impact of our use of raw materials, the impact from our manufacturing
processes (including use of energy, water and the generation of waste) and via the
use and disposal of our products.
We continually seek to improve environmental management, and
compliance with environmental regulation is a minimum requirement.
The Group concentrates 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 are being enhanced by
improved reporting metrics and the broader adoption of certified
environmental management systems, as described below.
Greenhouse gas emissions
We report our greenhouse gas (“GHG”) emission footprint covering
all direct and indirect emissions for all relevant Group companies,
expressed as tonnes of CO2 equivalent (CO2(e)), on page 37.
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,
as well as helping to reduce installation/maintenance costs.
We continue to review our environmental management programme,
as well as key performance indicators for environmental
performance. We have introduced environmental near miss
reporting and we continue to review all incidents to develop our
understanding of their cause and potential impact on the Group.
All findings are quickly distributed across all sites for action. We have
also expanded the range of environmental performance metrics
to be measured and reported. They have been reported on
internally during 2016 and conform to the GRI’s G4 guidelines.
The Group Operations function continues to play a key role in
environmental management as each site has impacts that are specific
to its manufacturing processes. All sites have arrangements and
improvement plans in place, and environmental performance metrics
form an integral part of their management information. We seek to
continuously improve the management of our environmental impacts.
An enhanced environmental programme, Project Planet, was
launched in early 2016 and will continue to progress in 2017.
The key elements of the programme which have been
completed include:
¡ completion of energy audits across a number of sites and
the development of programmes of work to address
opportunities arising from these energy audits;
¡ an assessment of our environmental airborne emission
protection systems and the development of improvement
plans to address the findings from these assessments;
¡ the reduction of waste through continuous focus on our
processes and installation of recycling systems; and
¡ a successful manufacturing excellence project which has
been trialled at our Hückelhoven site.
We will be undertaking the following parts of the programme
in 2017:
¡ working towards the improvement of the airborne emissions
protection system at our Fulda site;
¡ completing a number of energy reduction programmes
across our sites; and
¡ continuing to review our airborne emissions and regulatory
compliance across all sites.
Currently, three of our manufacturing sites are certified to the
Environmental Management Systems ISO 14001:2004 and a
number of our sites are working towards achieving certification in
2017. The introduction of ISO 14001:2015 and the HLS reporting
structure has caused us to extend our initial programme of
introduction. In addition, three manufacturing sites have been
successfully certified to ISO 50001:2011 Energy Management
Systems Standard.
BonarEco
We seek to innovate with products that have sustainability at their
core. One of our more unique carpet yarns, BonaEco, is made
from 100% recycled polypropylene yarn. BonaEco provides
the industry with a 100% recycled solution which can be used
throughout a variety of commercial and domestic projects.
The market has gradually been moving towards a more “green”
approach to manufacturing and production and BonaEco was
a logical step in this process. We have also developed a unique
recycling programme which has a dramatic impact on the way
in which polypropylene carpet-backing yarns are produced.
Using a dynamic process, we can recycle our polymer waste by
re-extruding it into pellets. The pellets are then used to produce
BonaEco to our highest standard of quality.
Antimony-free
We are developing antimony-free carpet backings to support our
goals and our customers’ aims for sustainable carpet backings.
Carpet backings
We have developed a new generation of 3D mouldable primary
carpet backings called Colback ProMotive® to give greater
performance and processing capability to our customers, as well
as giving lighter and higher quality car carpets.
Ground management and ground cover materials
The Group has developed a new geotextile with loop pile fabric
to allow easier installation of concrete blocks for erosion control,
reducing the requirement to install traditional rock revetment.
This reduces installation time and improves weathering
performance and durability compared to the traditional solution.
Construction fibres
We have developed a new macro fibre Durus S500®, and
production line, meeting CE requirements for fibre-reinforced
concrete applications which gives improved performance
and uses 20% less fibre content. Overall, the structural
performance of the customers’ product was improved with
reduced material usage.
Energy management and the use of renewable energy
We continually review opportunities to reduce energy use and
review the balance of renewable energy in our energy mix. Since
2005, our two sites in Belgium have been working with an energy
audit organisation established under the framework of the Kyoto
Protocol. They have been screened for their energy consumption
and all significant energy uses were measured separately, enabling
us to take targeted efficiency measures where necessary.
36
Low & Bonar Annual Report and Accounts 2016
In addition, we have continued our energy management
programme and have now completed energy audits at a
number of our sites. As in previous years, these have been
converted into local improvement plans and capital programmes.
Examples include:
¡ Zele
– Steam boiler replaced with an enhanced energy system
– Air conditioning system replaced with a more efficient
system
– Installed energy monitoring systems
¡ Lomnice
– Improved motor control systems for reduced energy
consumption
¡ Extensive Lighting improvements for reduced energy
consumption at:
– Ivanka
– Obernburg
– Fulda
¡ Obernburg
– New oven for reduced energy consumption
Waste management
A waste hierarchy process, which starts with avoiding waste
production through to the re-use and recycling of waste, has been
adopted throughout our operations.
We have reduced the amount of edge waste at a number of our
facilities and are re-using a number of our core tubes and pallets
that were previously discarded.
We have made an investment in Belgium for a recycling unit for
HDPE tubes. This will allow us to recycle the tubes into extrudable
granules for re-use. We have also invested in recycling systems for
the macro and micro-fibre line process to recycle material back
into use.
Across all our sites, we have significantly reduced our waste going
to landfill and improved our recycling and segregation, as well as
reducing production waste by improved manufacturing process
controls.
At Coated Technical Textiles, the recycling of PVC waste is key to
environmental performance, and we are a member and financial
supporter of the key industry programmes. This year we have
recycled over 1,000 tonnes of material in our German operations
by making this a key priority for investment and improvement.
Water
Water usage is not a significant environmental impact for the
Group due to the nature of our manufacturing operations.
However, water usage is tracked and monitored and water
management activities are regularly reviewed. We continue to
invest in technology that allows us to reduce our water usage and
have successfully introduced a number of recirculating systems to
our processes in 2016 to reduce water consumption.
Production environmental emissions
A number of our production processes result in airborne emissions
for which we have all the required regulatory authorisations and
permits. As part of Project Planet these emission points have
been evaluated. This is a major area of work for 2017 with the
planned upgrade of a number of sites’ emission control systems
to reduce our environmental impact, particularly at Fulda and
Hückelhoven. We will be reviewing our environmental airborne
emissions across all our sites during 2017 to confirm our control
measures are effective.
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Greenhouse Gas emissions
Our GHG emissions report, in line with UK mandatory reporting
requirements under the Companies Act 2006 (Strategic and
Directors’ Reports) Regulations 2013, is set out below.
Our total emissions this year are 122,966 tonnes CO2e, a
16% increase compared to last year. This is equivalent to
307.4 tonnes of CO2(e) per £1m of Group revenue.
There have been some significant changes to the Group in the
year; the development of a new site in Hungary early in 2016, the
sale of the artificial grass yarns business in September 2016 and
the first full year of operation of the new Changzhou site in China.
The results of the artificial grass yarns business have been
treated as discontinued operations in the consolidated financial
statements. Therefore, to align the treatment of the GHG
emission reporting with the results for the Group, the emissions
from the disposed business have been excluded in 2016 and
the 2015 results have also been restated to exclude these
emissions. Similarly, the results from our share of the joint
venture, Bonar Natpet LLC, have been treated as discontinued
operations as we make plans to exit the venture. Given this, the
emissions from Bonar Natpet have also been excluded from
2016 and 2015 has similarly been restated.
The increase in the emissions and intensity ratio in the year relate
primarily to the new plant in Hungary, the first full operational
year at the plant in Changzhou and increased levels of output
at a number of our other manufacturing sites.
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, which comprise
direct emissions, such as heating and vehicle fuel, and indirect
emissions such as purchased electricity. The sources of emissions
included in our reporting fall within our consolidated financial
statement. 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 2016 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.
Low & Bonar Group emission data for period 1 December
2014 to 30 November 2016
Tonnes of
CO2(e) 2016
Tonnes of
CO2(e) 2015
Energy emissions
Process emissions
Fugitive emissions
Vehicle related emissions
Total CO2(e)
Intensity ratio per £1m of Group revenue1
120,545
0
1,373
1,048
122,966
307.4
104,165
0
245
1,176
105,586
291.6
1. This is based on the continuing revenue of Low & Bonar for the year
to 30 November. The diverse and complex nature of the Group’s
operations means that a metric based on units of production would
not provide a consistent picture. Similarly, there is no meaningful
relationship between occupied floor area or employee numbers and
the carbon intensity of our operations. We will continue to monitor and
review the appropriateness of the intensity ratio.
37
Corporate & social responsibility continued
Management of Health & Safety
The health and safety of our employees, and others who
may be affected by our operations, remains a key priority.
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 management.
Our LTA's have risen above the 2015 levels despite significant
input, monitoring and attention as well as site infrastructure
improvements. This will therefore continue to be a major focus
for 2017.
The Group-wide health and safety strategy remains in place,
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 our business. The cornerstones
of the strategy are improvement to visible leadership, employee
engagement, risk-based management, accountability and health
and safety competence, with a number of initiatives either started
this year or fully implemented. These include:
¡ in addition to the existing inclusion of Human Resources and
Engineering & Technology representation on the Group
HSE Committee this year, we added Logistics representation.
This committee is key to ensuring we have good employee
engagement across all our business areas, as well as striking
the correct balance between corporate and operational
risk management;
¡ we held our fourth successful global health and safety week,
involving all sites and focussing on the environment;
¡ further development of our HSE resourcing continued in order
to support our ambitious HSE improvement programme. We
have reviewed our HSE structure to ensure it is right-sized and
fit for the Low & Bonar organisational structure. We will
continue this review into 2017;
¡ there has continued to be strong Board and executive
management support for our HSE programmes, with operating
and capital expenditure being approved to deliver changes;
¡ the GIPs have continued on hand injuries, manual handling and
slip/trip/fall accidents, as well as adding a focus on fork-lift
truck safety, which have historically accounted for a significant
number of all of our accidents. The significant improvement in
near miss incident reporting has allowed a greater focus to be
given to these reduction programmes and the reporting of even
the most minor accidents;
¡ the introduction of a global reporting system allowing central
recording of incidents and near miss data has allowed the
further embedding of a broader range of health and safety
metrics and information. This has enabled us to better
understand our risk improvement opportunities. The proactive
“Near Miss” category has now been fully integrated, which
allows us to take advance action on potential risk situations
across all our businesses and improve the HSE culture of our
sites. In the time of the new web-based reporting system being
active, over 1,000 near misses were recorded and acted upon,
taking us to nearly 3,000 for the year. This is a significant
improvement in the number of near misses over last year. This
information allows us to improve our focus on accident and
incident avoidance whilst helping us to move towards our
ambition of implementing a behaviour-based safety programme
across the Group. The publication of learning from our
significant events and high potential near misses continues to
show benefit in risk reduction;
¡ the work on the health and safety standards and directives has
continued and, as stated, new fork-lift truck standards have
been issued this year. The work on new standards will continue
into 2017; 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 regularly.
Fire risk management
Fire risk management has been a major focus for the Group to
ensure the safety of our employees, and audits have now been
completed across all our sites with the aim of reducing our risk
level. In 2016, fire safety audits were carried out at Hückelhoven,
Fulda, Lomnice and Asheville. The audits have allowed us to
undertake and plan systems, procedures, hardware changes/
upgrades and capital expenditure requirements to realise
improvements over the next four years. The fire safety audit
programme will continue across our sites in 2017.
A number of significant projects have either been completed or are
planned for 2017, examples include:
2016 projects completed
¡ Emmen – extensive fire compartmentalisation;
¡ Hückelhoven – fire detection system improvements and
extension for improved lone worker cover; and
¡ Warehouse fire system improvements in Italy.
2017 plans
¡ Asheville – new evacuation and alerting system to be installed;
¡ Emmen – implementation of phase 2 of a fire prevention
road map;
¡ Hückelhoven – improved auto extinguishing systems and
detection; and
¡ Ivanka and Lomnice – further fire system improvements.
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Health and safety performance
In the prior year, we announced a reduction in our LTA target rate
to 200* for 2016. In 2016, we did not achieve this and ended the
year with an LTA rate of 800*. By the middle of 2016 we had
recognised the need to take firm action to manage our levels of
LTAs and a safety stop was initiated at all sites. This involved
stopping every site, giving briefings and engagement events to
make a clear statement that we see HSE as a top priority in the
Group. Following this, we also developed our “Walk and Talk”
programmes and safety leadership programmes. The materials for
these programmes were developed and translated into all of the
languages used in our sites and are currently being rolled out.
Further to these actions, we have developed, and in 2017 are
implementing, annual HSE improvement plans to give a clear focus
for each site. All of these programmes have been endorsed by our
global manufacturing community.
The LTA rate of 800* in 2016 is a great disappointment to the
Group and we are strongly committed to an improvement in this
rate for 2017. Our target rate for 2017 is 400* while we work
towards improving our performance.
Two occupational ill health incidents were reported this year, both
relating to hearing loss.
We remain mindful that there is much room for improvement, and
that accident statistics continue to reveal only part of the story of
successful health and safety management, and that health and
safety culture is key. To support this we are rolling out an employee
health and safety engagement programme as well as focussed
HSE improvement plans for each site.
We continue to maintain our strong working relationship with our
insurance risk surveyors, insurance brokers and underwriters
during the year, and recognise 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. Our brokers are
supporting us in enhancing our risk management approach.
Note * based on the number of work related accidents that involved the loss of
any time from work (LTAs) per 100,000 employees
LTA’s per 100,000 employees
2,000
1,500
1,000
500
0
2012
2013
2014
2015
2016
18 16
186
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LTA’s
Fires
First Aid
High potential near misses
Near misses
3,059
Near misses
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2013
2014
2015
2016
Low & Bonar Annual Report and Accounts 2016
39
Corporate & social responsibility continued
Human Rights & Gender Diversity
Human rights
As we do not believe it is necessary for an understanding of the
development, performance or position of the Group’s business, this
document does not contain detailed information about human rights
issues or the Group’s policies in relation to those matters. However,
the Group 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.
Gender diversity
The Board is mindful, in the context of the current focus on the
value of gender diversity, of the Group’s approach to the diversity
of its management and of the representation of women in senior
roles. We have one female Director and, during the process for
appointment of an additional Non-Executive Director in 2016 a
number of female candidates were considered. We have not set a
specific target for the number of female members of the Board and
will appoint the best candidate available to us for any role.
However, in setting the criteria for selection of candidates, the
Group is conscious that it is possible to discourage inadvertently
the successful candidacy of women and we will bear this in mind
for all future appointments. We have requested our search
consultants to provide female candidates for any future roles.
The Group has an equality and diversity policy under which
Low & Bonar is committed to ensuring that all employees have
an equal chance to contribute and to achieve their potential,
irrespective of any defining feature that may give rise to unfair
discrimination. Using fair, objective and innovative employment
practices, our aim is to ensure that:
¡ all employees and potential employees are treated fairly and
with respect at all stages of their employment; and
¡ all employees have the right to be free from harassment and
bullying of any description, or any other form of unwanted
behaviour, whether based on sex, trans-gender status, marital
status, civil partnership status, pregnancy, race, disability, age,
political or religious belief or sexuality.
We acknowledge the advantages in 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 2016: (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
6
9
1,600
%
86%
100%
75%
Number
of
women
1
0
545
%
14%
0%
25%
Directors
Senior managers1
Employees2
1. The Group has an Executive Leadership Team, comprised of senior
managers leading each Global Business Unit and Group Function.
2. Employees of its consolidated subsidiaries, excluding Bonar Natpet LLC.
Employee involvement
The Group’s 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 regular meetings with employees’
representatives, including a European Works Council.
Employee engagement activities have been particularly focussed
during 2016, aimed at creating a unified business culture
underpinning delivery of the right people, leadership, capabilities
and organisation to fully achieve the Group Strategy and
associated business results. These activities include employee
engagement campaigns related to Low & Bonar’s new brand and
our Group-wide core values.
Our approach to talent management has included the implementation
of a new performance management programme during the year.
Involving an inclusive range of activities designed to differentially
recognise and reward individual and team contributions to the overall
success and strategic direction of the business.
The Group’s employees are invited to participate in share
ownership plans to encourage equity ownership.
Equal opportunities statement
The Group has an equal opportunities policy. It is our stated policy
to treat all workers and job applicants equally and fairly irrespective
of their sex, marital status, civil partnership status, trans-gender
status, sexual orientation, race, colour, nationality, ethnic origin,
national origin, culture, religion, age, or disability (“protected
characteristics” as per the Equality Act 2010).
Discrimination by or against an employee is prohibited, unless
there is a specific legal exemption.
It is our policy to give 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.
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Communities &
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 the Netherlands, support was given to a regional innovation
initiative to educate and make innovation more visible to the
local community where presentations were given to more than
400 participants;
¡ In Germany a group of trainees gave a week of their time for
social projects in hospitals, retirement homes, children’s
centres and animal homes to support the community. During
this week they also raised donations themselves and used
these on other charitable projects;
¡ In the UK, an academic scholarship and prize were provided
to a university for the 2016/17 year, as well as supporting
live assessments, workshops and placement opportunities.
A local football team has also benefited from kit support and
sponsorship;
¡ In the US, a combination of employee pledges and corporate
donations were made to the United Way charities and local
firefighters. We also supported the local community by doing
voluntary community work at the teaching gardens at the local
elementary school as well as on-site health fair events;
¡ In Slovakia, donations were made to a local university, a
church, a physical education project and the local elementary
school parents association; and
¡ In Hungary, we gave donations to a local church to support
children’s summer camps.
Modern Slavery Act statement
At Low & Bonar we recognise that modern slavery is a crime
and a violation of fundamental human rights in all its forms:
slavery, servitude, forced and compulsory labour and human
trafficking. Low & Bonar is committed to acting ethically and
with integrity in all our business dealings and is also committed
to ensuring that there is transparency in our own business and
in our approach to tackling modern slavery throughout our
supply chains. We expect high standards from our contractors,
suppliers and other business partners in relation to these
matters and we are committed to developing and enforcing
proportionate, risk-based systems and controls designed to
ensure that modern slavery is not taking place in our own
business or in our supply chains with our knowledge, and
working to eliminate it if it is.
We recognise that our supply chains are complex and that we
have many suppliers, not all of whom we have a significant or
long-term relationship with. However, as part of our supply chain
management processes, we will seek to:
¡ conduct risk-based analysis to understand if our key
suppliers may operate in areas where attitudes to and
prohibitions against modern slavery do not match our high
expectations;
¡ undertake due diligence with regard to our key suppliers to
monitor their policies with regard to modern slavery;
¡ include in our supply arrangements (wherever practicable)
specific prohibitions against the use of forced, compulsory
or trafficked labour, or anyone held in slavery or servitude or,
where this is not practicable, give to our suppliers a
statement that requires that our supplies are made without
recourse to the use of forced, compulsory or trafficked
labour, or anyone held in slavery or servitude;
¡ set an expectation that our suppliers will hold their own
suppliers to the same high standards; and
¡ where appropriate and practicable, give support to our
suppliers as they address coercive, abusive and exploitative
work practices in their own business and supply chains.
Further information on this matter, together with the
Group’s formal statement published under the UK’s
Modern Slavery Act, can be found on the Group’s website
at www.lowandbonar.com.
Low & Bonar Annual Report and Accounts 2016
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Board of Directors
Martin Flower
Chairman (70)
Appointed to the Board:
January 2007 and appointed
Chairman June 2010.
Brett Simpson
Group Chief Executive (52)
Appointed to the Board:
August 2014.
Experience:
Previously Chief Executive of Coats plc, a company in which he
spent his entire executive career having joined in 1968. Former
Chairman of Croda International Plc, Deputy Chairman of Severn
Trent Plc, Chairman of Alpha Group plc and a non-executive director
of Morgan Advanced Materials plc.
Experience:
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 in Australia, the USA, Hong Kong, Switzerland and China.
Committee membership:
Chairman of the Nomination
Committee and member of the
Remuneration Committee.
External appointments:
None.
Committee membership:
Member of the Nomination and
Risk Oversight Committees.
External appointments:
None.
Mike Holt
Chief Financial Officer (56)
Appointed to the Board:
November 2010.
Steve Hannam
Senior Independent
Non-Executive Director (67)
Appointed to the Board:
September 2002.
Experience:
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.
Experience:
Previously Group Chief Executive of BTP Chemicals plc, former
non-executive director with Clariant AG, Chairman of Aviagen
International Inc., non-executive director of AZ Electronic Materials
Services Limited and Chairman of Devro plc.
Committee membership:
Chairman of the Risk Oversight
Committee.
External appointments:
Non-executive Director of
Schroders Asian Total Return
Investment Company plc.
Committee membership:
Member of the Audit,
Remuneration and Nomination
Committees.
External appointments:
Non-executive director of
McBride plc.
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Kevin Matthews
Non-Executive Director (53)
Appointed to the Board:
April 2015.
Mike Powell
Non-Executive Director (49)
Appointed to the Board:
December 2016.
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Experience:
Former Chief Executive Officer of Isogenica Limited and
non-executive director of Elementis PLC.
Experience:
Former Chief Financial Officer of AZ Electronic Materials plc and
Group Finance Director of Nippon Sheet Glass Co. Limited, having
previously worked for 15 years in a variety of senior finance roles for
Pilkington plc.
Committee membership:
Chairman of the Remuneration
Committee and a member of
the Audit and Nomination
Committees.
External appointments:
Chief Executive Officer of
Revolymer plc.
Committee membership:
Member of the Audit,
Remuneration and Nomination
Committees.
External appointments:
Group Finance Director of BBA
Aviation plc.
Trudy Schoolenberg
Non-Executive Director (58)
John Sheldrick
Non-Executive Director (67)
Appointed to the Board:
May 2013.
Appointed to the Board:
October 2011.
Experience:
Previously Director of Integrated Supply Chain and RD&I for AKZO
Nobel’s Paints Division, former Vice-president of Global Research
and Development at Wärtsilä Oy, having previously worked
for 21 years for Royal Dutch Shell plc.
Committee membership:
Member of the Audit,
Remuneration and Nomination
Committees.
External appointments:
Non-executive director of
COVA and of Spirax-Sarco
Engineering plc.
Experience:
Group Finance Director of Johnson Matthey Plc until his retirement
in 2009. Former non-executive director of Fenner PLC, GKN plc
and API Group Plc.
Committee membership:
Chairman of the Audit
Committee and a member of the
Remuneration and Nomination
Committees.
External appointments:
None.
Low & Bonar Annual Report and Accounts 2016
43
Corporate governance
Martin Flower
Non-Executive
Chairman
Governance overview
The Board
Leadership, strategy; performance review; risks and controls;
values and standards; obligations to shareholders
Audit
Committee
Integrity of financial
reporting and audit
process; maintenance
of internal control and
risk systems.
Remuneration
Committee
Executive Directors
remuneration policy;
oversight of senior
executive remuneration.
Nomination
Committee
Board composition;
succession;
appointments.
This report sets out the work and
operation of the Board and the
framework of governance in place.
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. I am pleased
to 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.
The roles of the Chairman and
Group Chief Executive
My role as Chairman and that of the
Group Chief Executive, Brett Simpson,
are separate and are clearly defined and
documented. I am responsible for leading
the Board and the Group Chief Executive
is responsible for leadership of the
business and implementation of strategy.
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Directors and Directors’ independence
Following the appointment of Mike Powell on 1 December 2016,
the Board comprises a Non-Executive Chairman, five independent
Non-Executive Directors and two Executive Directors, although
John Sheldrick will be retiring as a Director at the Annual General
Meeting to be held on 12 April 2017. The names of the Directors,
together with their biographical details, are set out on pages 42
and 43. 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 our Board
has the appropriate balance of Executive and Non-Executive
Directors and that no individual or small group of individuals can
dominate decision-making.
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.
Since the year end, following a selection process more fully
described in the Nomination Committee report on page 50,
Mike Powell was appointed a 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. 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.
At the time of my appointment as Chairman in June 2010, I was
considered by the Board to be independent. In accordance with the
Code, the continuing test of independence is no longer necessary.
The Board considers that each of the other Non-Executive
Directors is 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
over fourteen years, we continue to view Steve Hannam as
independent in character and judgement. He has relevant
experience in both 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. Given his long tenure, his continued membership of the
Board is considered rigorously and, in accordance with the Code,
he is required to submit himself for re-election to the Board
annually. Although we continue to value his contribution and the
continuity he brings, the Nomination Committee is currently
planning for his succession.
As Senior Independent Non-Executive Director, Steve Hannam is
available to address any shareholder concerns over governance
and other issues which cannot be resolved through the usual
channels of communication with the Chairman, the Group Chief
Executive or the Chief Financial Officer. He acts as a sounding
board for the Chairman, is available to advise and counsel all
Board colleagues and would also deputise for the Chairman in
his absence.
The Non-Executive Directors meet without the Executive Directors
present from time to time.
Professional development and performance evaluation
A personal induction programme is provided for each newly
appointed Director, depending on the experience and needs of
the individual, including information about the Group and the
role of the Board and its committees. This is supplemented by
visits to key locations and meetings with key senior executives.
Directors are encouraged to continually update their skills and
their knowledge of and familiarity with the Group to enable
them to fulfill their role both on the Board and its committees.
All Directors are kept informed of changes in relevant legislation
and regulations and changing financial and commercial risks,
with assistance from the Company’s advisers where appropriate.
I encourage Directors to avail themselves of opportunities to meet
our major shareholders.
I have 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
the ability to devote sufficient time for Board and committee
meetings and any other duties). The Senior Independent Non-
Executive Director chairs an annual meeting of the Non-Executive
Directors to appraise my performance, taking into account the
views of the Executive Directors, and the outcome of those
discussions is conveyed to me by the Senior Independent
Non-Executive Director.
The Board has established a process, led by me, for the annual
evaluation of the performance of the Board and its principal
committees by use of a questionnaire based on the requirements
of the Code. 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.
Information and meetings
The full Board had seven scheduled meetings during the year.
The attendance details of the meetings of the Board and its main
committees are set out below:
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Martin Flower
Brett Simpson
Mike Holt
Steve Hannam
Kevin Matthews
Trudy Schoolenberg
John Sheldrick*
7/7
7/7
7/7
7/7
7/7
7/7
6/7
–
–
–
3/3
3/3
3/3
3/3
9/9
–
–
9/9
9/9
9/9
9/9
5/5
5/5
–
5/5
5/5
5/5
4/5
*
John Sheldrick was unable to attend one Board meeting and one Nomination
Committee meeting due to illness.
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 rolling monthly annual forecasts.
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.
Low & Bonar Annual Report and Accounts 2016
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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, which has been refreshed over the last few years.
Mike Powell, who was appointed a Non-Executive Director
in December 2016, has joined the Audit, Nomination and
Remuneration Committees. He will succeed John Sheldrick as
Chairman of the Audit Committee when he retires at the Annual
General Meeting on 12 April 2017.
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 Chief
Financial Officer, 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 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 2017, 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 Half-Year and Annual Reports and
through information posted on its website. The Company holds
regular meetings throughout the year with major shareholders,
analysts and the financial press, in particular following the
announcements of its half-year and full-year results. Visits for
analysts and large shareholders are also arranged from time to
time to operating units.
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. In addition to
myself, as Chairman of the Board and Nomination Committee,
the Chairmen of the Remuneration and Audit Committees are
available to answer questions, as appropriate, at the Annual
General Meeting.
Martin Flower
Non-Executive Chairman
On behalf of the Board of Directors
1 February 2017
Corporate governance continued
I set the agenda for the Board in discussion with executive
management and the Company Secretary and ensure 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 to present to the Board
on the strategy for and performance of businesses within the
Group. Additionally, the Board meets 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 routine Board meetings.
The Board meets 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.
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 2016, Board meetings were held at the
Group’s manufacturing facilities in Germany and Hungary. The
scheduled Board meetings concentrate on strategy, financial and
business performance. I believe that, to function effectively, all
Directors need appropriate knowledge of the Group and access to
its operations and staff. The Non-Executive Directors are therefore
encouraged 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.
The Company Secretary is responsible for advising the Board on
governance matters and 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
Directors have a duty under the Companies Act 2006 (the “Act”) to
avoid a situation in which they have 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 who 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, membership of which
is set out in each committee report. All of the committees have
written terms of reference, which have been approved by the
Board and are available on the Company’s website 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) the operation of which is described in more detail on
pages 31 to 33.
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Audit Committee Report
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.
John Sheldrick
Chairman of the Audit Committee
The Committee’s terms of reference are available on the
Company’s website.
Audit Committee members
John Sheldrick (Chairman)
Steve Hannam
Kevin Matthews
Mike Powell
Trudy Schoolenberg
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
All the Non-Executive Directors, with the exception of the
Company’s Chairman, serve on the Committee and we welcome
Mike Powell to the Committee, having joined the Board in
December 2016. Collectively, they have the skills and experience
required to fully discharge their duties and I meet the requirements
of recent and relevant financial experience, having been Group
Finance Director of Johnson Matthey Plc from 1995 until my
retirement in 2009.
When I retire as a Non-Executive Director at the Annual General
Meeting on 12 April 2017, Mike Powell will succeed me as
Chairman of the Audit Committee. He also meets the requirements
of recent and relevant financial experience, currently holding the
position of Group Finance Director of BBA Aviation plc and having
held senior financial roles in a number of other companies.
The Company Chairman, Group Chief Executive and Chief
Financial Officer 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 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.
Activities in 2016
The Audit Committee met on three occasions during the year
ended 30 November 2016. 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 were represented at all of the meetings.
The Audit Committee discharged its responsibilities by:
¡ reviewing the Group’s draft financial statements and half-year
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 external 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 Group’s information security arrangements
and cyber security preparedness with advice from
PricewaterhouseCoopers LLP;
¡ 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.
Low & Bonar Annual Report and Accounts 2016
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Audit Committee Report continued
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
Detail
Company response
The recoverable amounts are
calculated using the value in use of
the CGUs which are based on the
net present value of the projected
cash flows for each CGU. The
most significant judgements are
in setting the assumptions for the
calculation of the value in use of
the CGUs, in particular the
achievability of long-term financial
forecasts and macroeconomic
assumptions. Details of the
assumptions used are provided in
Note 11 to the Group financial
statements on pages 98 and 99.
Impairment of
goodwill. The Group
has £82.6m of
goodwill allocated
to its four cash
generating units
(“CGUs”). Goodwill
is recognised on
acquisitions and
represents the
excess of the
fair value of the
consideration paid
over the share of
identifiable assets
acquired and
liabilities assumed.
The carrying value of
goodwill is reviewed
at least annually to
check that it is not
in excess of its
recoverable amount.
Cash flow projections for each CGU were derived from the most
recent budgets approved by the Board, which take into account
current market conditions and the long term average growth for each
of the key markets served by the CGUs. A sensitivity analysis was
performed for each CGU by varying key assumptions whilst holding
other variables constant. The recoverable amounts of all CGUs except
Civil Engineering show significant headroom compared to their
carrying value when reasonably likely changes are made to key
assumptions.
Civil Engineering activity within Europe is expected to remain
challenging. Whilst many Western European countries showed slight
growth in 2016, Eastern European countries experienced significant
reductions in spending. Despite this the operating profits in the CGU
grew by 27.3% on a constant currency basis in 2016. The 2017 budget
for Civil Engineering assumed that whilst there is still some uncertainty
in the outlook for 2017 in Europe, the CGU continues to capitalise on a
successful year to make market share gains and there is continued
investment in organisational capability to leverage market opportunities.
The Audit Committee discussed the assumptions underlying the cash
flow projections with both management and KPMG LLP and also
considered the appropriateness of the discount rates used. Following
discussion on headroom and sensitivity, the Committee was satisfied
that the carrying amounts of goodwill were appropriate.
Analysis to support the going concern statement on page 70
was also reviewed, with the Committee receiving reports from
management and the external auditor on this matter. The
Committee also received reports from management on the viability
statement on page 71.
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
Expolink, 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.
External auditor
The Audit Committee has developed a policy on the supply of
non-audit services by the external auditor to help ensure their
continued objectivity and independence. Following recent changes
in EU legislation, tax compliance services will no longer be
provided after 30 November 2016.
During the year, non-audit fees amounting to £0.2m were incurred,
predominantly for tax consultancy and advisory services. These
services related to foreign advisory work that required a detailed
understanding of the Group and the Committee was satisfied that
provision of these services by KPMG LLP would 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.
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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 2015, a new lead partner
was appointed.
In April 2014, the European Union published its revised Audit
Directive making rotation of external audit firms mandatory for
premium listed companies such as Low & Bonar. Individual
member states have some discretion in the implementation
of this Directive. In the UK, premium listed companies will be
required to put the audit out to tender at least every ten years
and rotate the auditors at least every twenty years. Under
transitional arrangements, this means that Low & Bonar will
need to have replaced KPMG as its external auditor by 2020.
In the light of this legislation and as previously reported, the
Committee has recommended to the Board that the audit should
be put out to tender within the next two years once the Group’s
new ERP (Enterprise Resource Planning) system is operational.
KPMG will not be invited to re-tender given the requirement to
replace them as external auditor by 2020.
The performance and effectiveness of the external auditor were
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.
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 2016 internal audit
programme and the effectiveness of internal audit was reviewed.
The Company has co-sourced its internal audit function with
PricewaterhouseCoopers LLP (“PwC”) since 2014 and the PwC
partner-in-charge is invited to attend Audit Committee meetings.
John Sheldrick
Chairman, Audit Committee
1 February 2017
Low & Bonar Annual Report and Accounts 2016
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Nomination Committee Report
Martin Flower
Chairman of the Nomination Committee
Nomination Committee members
Martin Flower (Chairman)
Steve Hannam
Kevin Matthews
Mike Powell
Trudy Schoolenberg
John Sheldrick
Brett Simpson
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 in 2015, the
Committee had identified the need for the recruitment of a new
Non-Executive Director in 2016 and discussed the appropriate role
specification and time commitment expected. It was agreed that
this should include the requirement for financial, manufacturing
and international experience. 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, including a number of female
candidates, and the best candidates for the role were interviewed
by myself and the Group Chief Executive and our favoured
candidates were also seen by all members of the Board. This
process culminated in the appointment of Mike Powell as a
Non-Executive Director in December 2016. Mike will succeed
John Sheldrick as Chairman of the Audit Committee after the
Annual General Meeting.
The Committee is currently considering succession planning in
respect of Steve Hannam, the Company’s Senior Independent
Director, who has been a Non-Executive Director for over
fourteen years.
The Board recognises that diversity, including gender diversity, is
important to the Group’s long-term success and the Nomination
Committee considers this when recommending appointments to
the Board.
The Nomination Committee also reviews the training and
development needs for each Director.
Martin Flower
Chairman, Nomination Committee
1 February 2017
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Directors’ Remuneration Report
Annual Statement by the Chair of the Remuneration Committee
For the next phase of our development, it is essential that the
Remuneration Policy rewards successful execution of the Group’s
strategy and remains fit for purpose within the context of risk
management and succession planning. Promoting these factors
has been at the heart of the policy review.
The existing reward framework consists of base salary, pension
and benefits, annual cash bonus and a long-term incentive (“LTIP")
delivered in shares. In broad terms, the Committee considers that
the current remuneration structure has worked well and remains fit
for purpose. It is clear and consistent, with pay outcomes
dependent upon performance linked to our strategic imperatives,
and it ensures a significant proportion of pay is delivered in shares
to provide alignment with investors.
The Committee is not proposing a fundamental change to the
structure of the existing policy. Rather, following the review, the
Committee has determined that several simple amendments to the
policy are appropriate to ensure, primarily, that: (i) incentive plan
metrics remain fully aligned with our strategic key performance
indicators and continue to support the long-term success of the
Company; (ii) the policy is sufficiently flexible, with appropriate
safeguards for shareholders, to remain applicable over the next
policy period; and (iii) the alignment between Executive Directors
and shareholders is further strengthened. The key amendments,
which are described further in the policy report, are as follows:
¡ increased flexibility to change the bonus performance metrics
from year to year to facilitate an appropriate evolution of
measurement;
¡ introduction of a two-year post-vesting holding period for LTIP
awards made from 2017 onwards; and
¡ strengthening of recovery and withholding provisions.
Consultation process
Following the policy review, the Committee wrote to our largest
shareholders, together with key advisory organisations, setting out
the proposed amendments to the Remuneration Policy. I am
pleased to report that we received a high proportion of replies to
our letter and that there was overwhelming support for the
proposed changes. The consultation process was constructive
and a number of shareholders took the opportunity to raise other
points that they felt the Remuneration Committee might consider
now or in the future. Some of these points will be acted upon and
are incorporated in the proposed Remuneration Policy.
Kevin Matthews
Chairman of the Remuneration Committee
Remuneration Committee members
Kevin Matthews (Chairman)
Martin Flower
Steve Hannam
Mike Powell
Trudy Schoolenberg
John Sheldrick
Introduction
I am pleased to present the Directors’ Remuneration Report
for the year ended 30 November 2016. All the Non-Executive
Directors serve on the Remuneration Committee. I chair the
Committee, having succeeded Steve Hannam as Chairman
following the 2016 Annual General Meeting. The Committee
determines the remuneration of the Executive Directors, exercises
oversight of the structure and level of remuneration for senior
executives and makes recommendations in respect of the
Chairman’s remuneration.
Low & Bonar’s Remuneration Policy was approved at the AGM in
2014. A comprehensive review of this policy has been undertaken
in 2016, in advance of seeking approval for a revised policy at
the 2017 AGM, to ensure that it continues to be aligned with
Group strategy and takes into account current and emerging
market practice, including the best practice expectations of
institutional investors.
The revised Directors’ Remuneration Policy (set out on pages 53 to
60) will be put to shareholders for approval in a binding vote at the
AGM on 12 April 2017. If approved, the policy will be effective from
the date of approval by shareholders at the AGM. The Annual
Remuneration Report (set out on pages 61 to 68), which describes
how policy has been implemented in 2016 and how it will be
implemented for the year ahead, along with this Annual Statement,
will be subject to an advisory vote at the AGM.
Low & Bonar Annual Report and Accounts 2016
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Directors’ Remuneration Report continued
2016 overview
Despite making good progress in the year, the profit before tax,
amortisation and non-recurring items (“PBTA”) and return on
capital employed (“ROCE") targets for 2016 were not achieved
and, therefore, no bonus is payable to the Executive Directors
for 2016.
The performance of the business over the period 2014 to 2016 has
also failed to deliver the target EPS growth. As a result, there will
be no vesting of shares under the LTIP awards made in 2014 on
the EPS performance condition (the period for which ended with
the 2016 financial year). TSR performance under the 2014 awards
will be evaluated in March 2017.
Implementation of policy in 2017
The bonus for 2017 will continue to be dependent upon PBTA and
ROCE, with the maximum remaining at 100% of salary. We will be
making further LTIP awards to the Executive Directors in line with
the Remuneration Policy. Awards for the current year will therefore
be at 125% of salary and linked to EPS and TSR targets.
The salaries for the Executive Directors were reviewed in
December 2016. An increase of 2.5% was awarded to the
Executive Directors, which is consistent with average UK salary
increases within the Group. There was no increase in the fees
paid to the Chairman and Non-Executive Directors which were
reviewed at the same time.
Summary
The Committee has considered the proposed changes carefully
and is satisfied that the revised Remuneration Policy continues to
provide incentive opportunity that is fair and market competitive
without encouraging undue risk-taking and will continue to
promote the long-term success of the Company. The operation of
the LTIP with the addition of the two-year post-vesting holding
period will provide improved alignment between the executive
team and shareholders over an extended period; the additional
flexibility in the Policy to allow for alternative bonus metrics to be
selected will ensure they remain aligned to strategic KPIs over the
life of the Policy; and the strengthened recovery and withholding
provisions also provide a further safeguard to shareholders in the
event of a misstatement of results.
The Committee looks forward to your continuing support at the
2017 Annual General Meeting.
Kevin Matthews
Chairman, Remuneration Committee
1 February 2017
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Remuneration Policy
DIRECTORS’ REMUNERATION POLICY
This part of the Directors’ Remuneration Report sets out the remuneration policy for the Group. This revised Directors’ Remuneration
Policy will be put to the shareholders for approval in a binding vote at the AGM on 12 April 2017 which will be the effective date of the
revised policy, if approved. The Committee’s current intention is that the revised policy will operate for the three year period to the AGM
in 2020.
Overview of the Remuneration Policy
The overarching objective of the Policy is to provide competitive pay arrangements which promote the long-term success of the
Company. In order to achieve this objective, the Policy aims 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
Directors’ Remuneration Policy under review to ensure that an appropriate balance between fixed and variable pay is maintained.
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. The Committee regularly interacts with the HR function and senior operational executives.
How the views of shareholders are taken into account
The Committee seeks to engage with its major shareholders when any significant changes to the Remuneration Policy are proposed.
The Remuneration Committee also 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. The Committee closely monitors developments in institutional investor best practice expectations.
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.
3. Long-term performance-related remuneration in the form of share awards.
The policies relating to each of the constituent parts of these main components of the Executive Directors’ remuneration packages are
summarised in the table overleaf.
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Remuneration Policy continued
Changes to Remuneration Policy
As a result of the expiry of the current Remuneration Policy, which was approved by shareholders at the 2014 AGM, the Committee has
undertaken a review of the Policy taking account of the Group’s strategy, market developments, the views of our major shareholders, and
developments in the best practice expectations of institutional investors. The Committee concluded that the overarching structure of the
Policy continues to be fit for purpose but that some simple amendments could be incorporated in order to strengthen the alignment
between executives and shareholders, and to provide the Committee with some more flexibility to ensure performance metrics can be
changed over the policy period in light of the evolution of the strategy.
The proposed key changes to policy include:
¡ increased flexibility for the Committee to be able to change the bonus performance metrics from year to year to facilitate an
appropriate evolution of measurement. Any material change in the metrics used will be communicated to shareholders.
¡ The introduction of a compulsory two-year post-vesting holding period for LTIP awards made from 2017 onwards.
¡ A strengthening of the recovery and withholding provisions to ensure, primarily, that misconduct is incorporated as a trigger.
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, with changes typically effective 1 December.
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 internal reference points, 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.
Executive Directors will normally receive a salary increase broadly in line with the increase
awarded to the general workforce (in the country in which the Director lives, if appropriate) in
percentage of salary terms.
Increases beyond those linked to the workforce (in percentage of salary terms) may be awarded
in certain circumstances 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.
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Benefits
Purpose and link to strategy
To provide competitive benefits in line with market practice.
Operation
Maximum opportunity
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.
Executive Directors are also eligible to participate in all-employee share plans operated by the
Company, in line with prevailing HMRC guidelines (where applicable).
Any reasonable business-related expenses (including tax thereon) can be reimbursed if
determined to be a taxable benefit.
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).
Framework used to assess performance
and for the recovery of sums paid
None.
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 based on performance against a sliding scale of challenging
targets related to the Company’s key performance indicators. The Committee will review the
relevance and suitability of the bonus measures each year, and may change them each year to
ensure there is ongoing 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 and performance against them are provided in the Annual Remuneration Report.
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.
Some guidance on targets for the bonus for each forthcoming year will be set out in the relevant
Annual Remuneration Report, but the specific targets may be considered by the Committee to
be commercially sensitive and may 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 recovery and withholding provisions
in the event of a material misstatement of the Company’s financial results, material misconduct
or if an error is made in assessing the extent to which any target and/or condition was satisfied.
Low & Bonar Annual Report and Accounts 2016
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Remuneration Policy continued
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 award of free shares (i.e. either conditional shares or nil-cost options) is normally granted
annually which vests after three years subject to continued service (save in “good leaver”
circumstances) and the achievement of challenging performance conditions.
A holding period will apply to share awards granted in the financial years ending 30 November
2017 and beyond. The holding period will require the Executive Directors to retain the after tax
value of shares for 24 months from the vesting date.
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 recovery and withholding provisions in the event of a material
misstatement of the Company’s financial results, material misconduct or if an error is made in
assessing the extent to which any target and/or condition was satisfied.
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.
The Committee will monitor progress towards the guideline on an annual basis.
Maximum opportunity
A share ownership guideline of a minimum of 100% of salary applies to the Executive Directors.
Framework used to assess performance
and for the recovery of sums paid
None.
Bonus Plan and LTIP
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 above):
¡ who participates in the plans;
¡ the timing of grant of 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 2013 LTIP and remain outstanding remain eligible to vest based on their original award
terms. With regards to any promotions to the 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 forfeit
on cessation of employment in certain circumstances as outlined in the policy on “Directors’ service contracts and payments for loss
of office”.
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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.
The Committee has flexibility to change the annual bonus plan performance metrics from year to year to facilitate an appropriate
evolution of measurement in line with strategy. In the first year of the Policy, profit will be used as the primary performance metric. Other
metrics based on the Company’s key performance indicators may also be used in order to promote alignment with strategic imperatives
(e.g. the use of ROCE 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).
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.
The targets relating to the annual bonus are considered to be commercially sensitive and will not therefore be disclosed in advance. They
will be disclosed in the Annual Remuneration Report in respect of the years to which they apply along with disclosure of performance
against them and the payments resulting.
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 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.
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.
Low & Bonar Annual Report and Accounts 2016
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Remuneration Policy continued
Reward scenarios
The Policy results in a significant proportion of remuneration received by Executive Directors being dependent on Company
performance. The graph below illustrates how the total pay opportunities for the Executive Directors vary under three different
performance scenarios: below target, on-target and maximum. When reviewing the table, it should be noted that it has been prepared
based on the policy detailed above and ignores, for simplicity, the potential impact of future share price growth.
o
o
o
’
£
1500
1200
900
600
300
0
£1,330
36%
28%
£951
30%
20%
£477
100%
50%
36%
£741
29%
20%
51%
£380
100%
£1,030
35%
28%
37%
LTIP
Annual Bonus
Fixed Pay
Below target
On-target
Group Chief Executive
Maximum
Below target
On-target
Chief Financial Officer
Maximum
Assumptions:
Below target = fixed pay only (base salary, benefits and pension);
On-target = 50% payable of the 2017 annual bonus and 60% vesting of the 2017 LTIP awards (based on the mid-point being achieved
between threshold and maximum performance levels); and
Maximum = 100% payable of the 2017 annual bonus and 100% vesting of the 2017 LTIP awards.
Salary levels (on which other elements of the package are calculated) are based on those applying on 1 December 2016. The value of
taxable benefits is based on the cost of supplying those benefits (as disclosed on page 55) for the year ending 30 November 2016. The
pension value is set at 25% of salary.
The Executive Directors can participate in the SAYE Plan on the same basis as other employees. The value that may be received under
this scheme is subject to tax-approved limits. For simplicity, the value that may be received from participating in this scheme has been
excluded from the graph above.
Amounts have been rounded to the nearest £1,000. Share price growth on vesting of shares under LTIP awards has been ignored for the
purposes of simplicity.
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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.
Depending on the timing and responsibilities of the appointment, it may be necessary to set
different performance measures and targets initially.
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.
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. 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.
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.
The circumstances of the termination (taking into account the individual’s performance and an individual’s duty and opportunity to mitigate
losses) will be taken into account by the Committee when determining amounts payable on or following termination. The Committee’s
normal policy is to reduce compensatory payouts to former Executive Directors where they receive remuneration from other employment
during the notice period. The Committee will consider the circumstances of each leaver on a case by case basis and retain flexibility as to
at which point, and to what extent, payments would be reduced.
Annual bonus may be payable only with respect to the period of the financial year served although it will be pro-rated for time and paid at
the normal pay out date. Different performance conditions may be set for the remainder of the bonus period to reflect the Executive
Director’s specific responsibilities.
Low & Bonar Annual Report and Accounts 2016
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Remuneration Policy continued
Remuneration Policy continued
A bonus is only payable if the relevant Executive 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 includes the ability for payments to be made to Executive Directors on a pro-rata basis if the
Executive 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 Executive 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.
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.
In relation to a termination, the Committee may make payments in relation to any statutory entitlements or payments to settle compromise
claims as necessary. The Committee also retains the discretion to reimburse reasonable legal expenses incurred and to meet any
outplacement costs if deemed necessary. Payment may also be made in respect of accrued benefits, including untaken holiday entitlement.
Non-Executive Directors’ letter 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 of Association.
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 was extended for a further period of three
years from 30 June 2016. 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.
The Committee may provide a Non-Executive Chairman with either a letter of appointment or service contract with up to six months’
notice in writing on either side.
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’ Fees
Purpose and link to strategy
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.
Operation
The fees for the Chairman and the Non-Executive Directors are reviewed every year.
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 Company may repay any reasonable expenses that a Non-Executive Director incurs in
carrying out their duties as a director (including tax thereon).
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.
Maximum opportunity
Framework used to assess performance
and for the recovery of sums paid
None.
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Annual Remuneration Report
ANNUAL REMUNERATION REPORT
This part of the report has been prepared in accordance with part 3 of The Large and Medium Sized Companies & Groups (Accounts
and Reports) (Amendment) Regulations 2013 (the “Regulations”) and Rule 9.8.6R of the Listing Rules. It sets out the implementation of
the Remuneration Policy and discloses the amounts earned relating to the year ended 30 November 2016. The Annual Remuneration
Report will be put to an advisory shareholder vote at the forthcoming Annual General Meeting on 12 April 2017. Those items marked with
an asterix are audited information.
EXECUTIVE DIRECTORS: SINGLE FIGURE REMUNERATION TABLE*
The table below shows the remuneration of the Executive Directors for the year ended 30 November 2016, and the comparative figures
for the year ended 30 November 2015.
Salary (note 1)
Benefits (note 2)
Annual Bonus (note 3)
LTIP Awards (note 4)
Pension (note 5)
Total
2016
£’000
370
282
652
2015
£’000
360
289
649
2016
£’000
2015
£’000
2016
£’000
3
17
20
3
17
20
–
–
–
2015
£’000
216
165
381
2016
£’000
2015
£’000
–
–
–
–
–
–
2016
£’000
93
71
164
2015
£’000
90
69
159
2016
£’000
466
370
836
2015
£’000
669
540
1,209
Brett Simpson
Mike Holt
Total
1.
Salary includes an additional fee of £40,000 per annum paid to Mike Holt from 1 April 2014 to 30 March 2015 in recognition of additional duties assumed by him as
set out in the Annual Report for the year ended 30 November 2014. This resulted in an additional payment of £13,333 in 2015.
2. Benefits are a car allowance (not Brett Simpson) and private health insurance.
3. 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
2015, the metrics used were chosen to be aligned with the Group’s stated medium-term objectives and were set out in more detail in 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 earned against the targets set, and a summary of the targets and weightings applying to each measure
for 2016, is set out below:
Metric
Profiti
ROCE ii
Opportunity (% salary)
Payment (% salary)
70%
30%
0%
0%
i. 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 £27.5m. At the lower limit, a “profit” bonus of 20% of salary was payable. Below the lower
limit, no “profit” element of the bonus was to be paid. At a PBTA of £29.0m (the mid-point), a profit element of the bonus of 45% 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 £30.4m (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.
ii. 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 year ended 30 November 2016
divided by the average of the total sum of fixed assets (property, plant and equipment), inventories, trade debtors, prepayments, trade creditors and accruals at the
end of each month of the period. 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 2016
– lower limit
– mid-point
– upper limit
Period-end return on
capital employed
Bonus entitlement
(as % of salary)
11.1%
11.5%
11.9%
10.0%
20.0%
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 90% of the PBTA target of £29.0m, which was not achieved.
4. The amounts stated for 2015 comprise the value of ordinary shares vesting and being received in that financial year under (a) LTIP awards made in 2012 in relation to the
TSR performance target (but not the EPS performance target) as the performance period in relation to the TSR target ended in that financial year, although no shares
actually vested or were issued in respect of such awards and (b) LTIP awards made in 2013 in relation to the EPS performance target (but not the TSR performance target)
as the performance period in relation to the EPS target ended in that financial year, although no shares actually vested or were issued in respect of such awards.
The amounts stated for 2016 comprise the value of ordinary shares vesting and being received in that financial year under (a) LTIP awards made in 2013 in relation
to the TSR performance target (but not the EPS performance target) as the performance period in relation to the TSR target ended in that financial year, although
no shares actually vested or were issued in respect of such awards and (b) LTIP awards made in 2014 in relation to the EPS performance target (but not the TSR
performance target) as the performance period in relation to the EPS target ended in that financial year, although no shares actually vested or were issued in
respect of such awards.
5.
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.
Low & Bonar Annual Report and Accounts 2016
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Annual Remuneration Report continued
Executive Directors’ Remuneration for 2017
Base salary
The Executive Directors’ base salaries were reviewed in December 2016. The Committee took account of performance as well as
responsibilities, skills and experience when reviewing 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 Executive Directors’ salaries as shown
below with effect from 1 December 2016 in line with an average increase in UK salaries of 2.5%.
Group Chief Executive
Chief Financial Officer
£379,250
£289,050
£370,000
£282,000
Salary as at
1 December
2016
Salary as at
1 December
2015
Increase
2.5%
2.5%
Pensions and Benefits
Executive Directors receive a car allowance (not Brett Simpson), private health insurance, death-in-service cover and a pension
contribution of 25% of salary.
Performance-related bonus
The specific targets relating to the annual bonus for the year ending 30 November 2017 are considered to be commercially sensitive and
will not therefore be disclosed in advance. They will be disclosed in next year’s Annual Remuneration Report, 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 2017, 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
Profit1
ROCE 2
Opportunity
(% salary)
70%
30%
1. Profit before tax, amortisation and non-recurring items, at budgeted exchange rates on a constant basis throughout the year.
2. 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.
In line with the Company’s Remuneration Policy, the bonus targets for the year ending 30 November 2017 will be 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.
Bonus payments are subject to recovery and withholding provisions which would enable the Committee to recover the value overpaid to
an Executive Director in the event of a material misstatement of the Company’s financial results or material misconduct 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 recovery and
withholding provisions would enable the Committee to withhold shares held under outstanding long-term incentive awards, and/or
vested shares subject to any holding period 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 recovery or withholding
cannot be satisfied through the withholding of incentive pay. The recovery and withholding provisions 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.
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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.
12% 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 2016) is 6.19 pence, being our reported adjusted EPS of 6.01 pence 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 the 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. Despite
the reduced EPS target to achieve the upper vesting level, compared to previous years, we believe the targets to be appropriately
challenging given the level of the awards and the difficult low-growth backdrop existing in many of our markets.
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.
A two-year post-vesting holding period will apply to any part of this award that vests. This will require Executive Directors to hold any
shares vesting (after tax) for a period of two years.
The awards will be subject to recovery and withholding 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 2019 in the event of a material
misstatement of the Company’s financial results or material misconduct or if an error is made in assessing the extent to which any target
and/or any other condition imposed on vesting was satisfied. The recovery and withholding provisions will enable the Committee to
withhold shares held under outstanding long-term incentive awards, and/or vested shares subject to a holding period, 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 recovery or withholding cannot be satisfied through the withholding of incentive pay. The recovery
and withholding provisions will operate for a two-year period following the date on which the awards vest.
Low & Bonar Annual Report and Accounts 2016
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Annual Remuneration Report continued
Long-term Incentive Plan – Awards granted during the year
Awards under the LTIP by award of nil-cost options were made to each of Brett Simpson and Mike Holt on 4 February 2016 on the
following basis:
Brett Simpson
Mike Holt
Basis of
award
granted
Share price at
date of grant
Number of
shares
awarded
Face value of
award
125% of salary
63.25p
731,225
£462,500
125% of salary
63.25p
557,312
£352,500
% of face
value which
vests at
threshold
20%
20%
Details of the performance conditions attaching to these awards are set out beneath the table below.
Other share-based incentives
Executive Directors are eligible to participate in the SAYE Plan on the same terms as any other eligible employee.
EXECUTIVE DIRECTORS SHARE PLAN INTERESTS*
The table below sets out the Executive Directors’ interests in the LTIP and SAYE Plan. Awards under the SAYE Plan are not subject to any
performance conditions (other than continued employment as at the vesting date). The LTIP awards are subject to performance
conditions, details of which are set out in the Remuneration Policy and the notes accompanying the table.
Awards held at
1 December
2015
Granted
during year
Exercised/
vested
during year
Lapsed/
forfeited
during year
Awards held at
30 November
2016
Exercise
price
(pence)
Normal
vesting/
exercise date
Award date
Brett Simpson
LTIP
LTIP
LTIP
SAYE
Mike Holt
LTIP
LTIP
LTIP
LTIP
SAYE
SAYE
26/08/2014
06/02/2015
04/02/2016
542,168
796,460
–
1,338,628
–
–
731,225
09/04/2015
36,885
–
–
–
–
557,312
09/04/2013
03/03/2014
06/02/2015
04/02/2016
20/04/2011
09/04/2015
437,710
364,810
608,850
–
1,411,370
36,039
18,442
54,481
–
–
–
–
–
–
–
–
–
–
–
–
437,710
–
–
–
542,168
796,460
731,225
2,069,853
– 03/03/2017
– 06/02/2018
– 04/02/2019
36,885
48.8 01/06/2018
–
364,810
608,850
557,312
1,530,972
–
18,442
18,442
– 09/04/2016
– 03/03/2017
– 06/02/2018
– 04/02/2019
42.8 01/06/2016
48.8 01/06/2018
–
–
36,039
–
–
–
Under LTIP awards, 50% of the LTIP shares are subject to an EPS growth target and 50% to a relative TSR target measured against the constituents of the FTSE Small
Cap Index. Under the TSR target, 20% of shares vest for median performance, rising on a straight-line basis to full vesting for upper quartile performance. Under the
EPS target, 20% of shares vest at the minimum target with full vesting at the maximum target and the percentage of shares vesting for performance between the
minimum and maximum target rising on a straight-line basis. The measurement periods for both performance criteria and the EPS targets in respect of the awards
above are as follows:
EPS
TSR
Date of grant
Measurement period ended
Minimum/maximum
Measurement period ended
Minimum/maximum
09/04/13
03/03/14
26/08/14
06/02/15
04/02/16
30/11/15
30/11/16
30/11/16
30/11/17
30/11/18
7.50p / 9.30p
7.42p / 9.23p
7.42p / 9.23p
6.85p / 8.52p
6.93p / 8.13p
08/04/16
02/03/17
02/03/17
05/02/18
03/02/19
Median/Upper quartile
Median/Upper quartile
Median/Upper quartile
Median/Upper quartile
Median/Upper quartile
Brett Simpson and Mike Holt did not participate in and therefore did not receive an award of shares under the SAYE Plan in 2016.
The market price of a share at 30 November 2016 was 67.0p and the range during the year to 30 November 2016 was 55.0p to 71.5p.
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Low & Bonar Annual Report and Accounts 2016
Payments to past directors
No payments were made to past directors during the year.
Payments for loss of office
No payments were made for loss of office to any past directors during the year.
Relative importance of spend on pay
The table below shows the total employee costs compared with dividends declared.
– Employee costs
– Dividends declared in respect of the year
2016
2015
% change
£94.2m
£9.9m
£84.3m
£9.1m
12%
9%
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TOTAL SHAREHOLDER RETURN
The following graph shows the total shareholder return performance of the Company’s Ordinary Shares for the eight years ended 30
November 2016 relative to the FTSE Small Cap Index, of which the Company has been a constituent member throughout the period.
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300
250
200
150
100
50
0
FTSE Small Cap Index
Low & Bonar
30-Nov-08
30-Nov-09
30-Nov-10
30-Nov-11
30-Nov-12
30-Nov-13
30-Nov-14
30-Nov-15
30-Nov-16
Total shareholders return – Source: Datastream (Thomson Reuters)
This graph shows the value, on 30 November 2016, 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.
Group Chief Executive remuneration history
The table below shows the remuneration of the Group Chief Executive during each of the past eight 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 (%)3
465,654
0%
0%
668,727
60%
0%
623,586
0%
20.9%
1,064,510
0%
72%
1,308,727
79.3%
98.7%
803,309
81%
50%
710,067
100%
0%
479,922
0%
0%
2016
2015
20141
2013
2012
2011
2010
20092
1.
2.
In 2014, the Group had two Chief Executives: 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.
In 2009, the Group had two Chief Executives: Paul Forman, until 3 September 2009, and Steve Good, from 3 September 2009. The total remuneration for 2009
represents those amounts paid to Mr Forman (£382,800) until 31 October 2009 (the date on which he ceased to be a Director) and those amounts paid to Mr Good
(£97,122) from 3 September 2009 to the end of that year.
3. The LTIP awards are included in relation to any financial year on the same basis as those set out on page 64.
Low & Bonar Annual Report and Accounts 2016
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Annual Remuneration Report continued
Remuneration for the Group Chief Executive compared with other employees
The table below shows the percentage change 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 considers this 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.
Group Chief Executive (£)
– salary
– benefits
– bonus
Average per employee1 (£)
– salary
– benefits
– bonus
2016
2015
% change
370,000
3,154
0
360,000
2,727
216,000
44,991
1,241
1,516
46,912
1,091
6,843
2.8%
15.7%
–
-4.1%
13.8%
-77.9%
1. The Group operates from four locations in the UK: its head office in London and facilities for Interiors & Transportation, Civil Engineering and Coated Technical
Textiles. The average is a weighted-average across those four locations.
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.
Under Brett Simpson’s service contract, the Company may make a payment in lieu of notice and 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, he 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.
The service contract for Mike Holt 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.
Mike Holt is currently a Non-Executive Director of Schroders Asian Total Return Investment Company plc, in respect of which he retains
the fee payable of £28,500 per annum. The Executive Directors hold no other remunerated external appointments.
Non-Executive Directors’ letters of appointment
The term of appointment for the Company’s Non-Executive Directors are as follows:
Martin Flower1
Steve Hannam
Kevin Matthews
Mike Powell
Trudy Schoolenberg
John Sheldrick
Original
appointment date
Commencement date
of current term
Unexpired term at
31 January 2017
1 January 2007
1 September 2002
1 April 2015
1 December 2016
1 May 2013
1 October 2011
30 June 2016
1 September 2016
1 April 2015
1 December 2016
1 May 2016
1 October 2014
29 months
7 months
14 months
34 months
27 months
8 months
1. Martin Flower has a service contract with the Company dated 12 February 2010 (see page 60 for further details).
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NON-EXECUTIVE DIRECTORS’ FEES*
Martin Flower
Steve Hannam1
Kevin Matthews2/3
Trudy Schoolenberg
John Sheldrick4
Fees
2016
£000
136
42
45
40
47
2015
£000
136
47
27
40
47
1. Steve Hannam received a fee of £7,000 per annum for his Chairmanship of the Remuneration Committee until 31 March 2016 (which is included in the number in
the table).
2. Kevin Matthews became a Director on 1 April 2015 and the information in this report in respect of the year ended 30 November 2015 relates only to the period from
that date.
3. Kevin Matthews received a fee of £7,000 per annum for his Chairmanship of the Remuneration Committee from 1 April 2016 (which is included in the number in the
table).
4. John Sheldrick received a fee of £7,000 per annum for his Chairmanship of the Audit Committee (which is included in the number in the table).
Non-Executive Directors’ Remuneration for the year ending 30 November 2017
Fees for the year ending 30 November 2017 (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.
DIRECTORS’ SHAREHOLDINGS*
The tables below show the beneficial interests in the Ordinary Shares of the Company held by Directors who were in office during the
year ended 30 November 2016. For Executive Directors, the table also shows share ownership compared with the share ownership
guidelines (full details of which can be found in the Remuneration Policy on pages 53 to 60) based on the share price of 67.0p on
30 November 2016.
Guideline on share
ownership as a %
of salary
Actual beneficial
share ownership as
a % of salary
Guideline met
Outstanding LTIP
awards
Outstanding
options
100%
100%
32%
127%
No
Yes
2,069,853
1,530,972
36,885
18,442
Executive Directors
Brett Simpson
Mike Holt
Non-Executive Directors
Martin Flower
Steve Hannam
Kevin Matthews
Trudy Schoolenberg
John Sheldrick
30 November
2016
175,000
532,437
30 November
2016
556,912
348,232
24,389
72,462
76,993
During the period 1 December 2016 to 1 February 2017, 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 2016 or
at 1 February 2017, save as set out above and on the table on page 64.
Low & Bonar Annual Report and Accounts 2016
67
Annual Remuneration Report continued
The Remuneration Committee
The Committee currently comprises all the Non-Executive Directors of the Company as listed on page 51. The attendance of each
Director at meetings during the year is shown on page 45. 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 Company Secretary is the Secretary to the Committee.
The Group Chief Executive, the Chief Financial Officer and the Group Director of Human Resources 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 Chief Financial Officer, the Group Director of
Human Resources and the Company Secretary provide advice to the Committee on matters relating to the Remuneration Policy and
Company practices.
The Committee’s remit is set out in its terms of reference, a copy of which is available on the Company’s website.
Advisers
The following advisers provided services to the Committee during the year:
¡ New Bridge Street (an Aon plc company) was appointed by the Committee as advisers and provided advice on reward structures and
levels and aspects of the Company’s future remuneration policy. New Bridge Street is a member of the Remuneration Consultants
Group and complies with their code of conduct. New Bridge Street also provides advice to the Company in respect of executive
remuneration and Non-Executive Directors’ fees, but no other Aon companies provide services to the Company. The fees paid to
New Bridge Street for advice to the Committee during the year ended 30 November 2016, which were charged on their standard
terms, were £50,315 (excluding VAT) (2015: £39,094, excluding VAT).
¡ Freshfields Bruckhaus Deringer LLP and Squire Patton Boggs LLP provided advice in respect of matters of legal compliance. Each of
Freshfields Bruckhaus Deringer LLP and Squire Patton Boggs LLP provides legal advice to the Company on matters other than
remuneration on a regular and continuing basis.
The Committee regularly reviews relationships with external advisers and remains satisfied that all advice received during the year was
objective and independent.
AGM statement of shareholder voting
At the 2014 AGM, the Remuneration Policy received the following votes from shareholders:
No. of shares
255,985,610
Votes for
Votes against
Total votes cast
Votes withheld
% of shares voted
No. of shares
% of shares voted
% of issued share capital
No. of shares
99.4
1,642,039
0.6
78.9
92,227
At last year’s AGM, the Directors’ Remuneration Report received the following votes from shareholders:
No. of shares
244,446,711
Votes for
Votes against
Total votes cast
Votes withheld
% of shares voted
No. of shares
% of shares voted
% of issued share capital
No. of shares
99.5
1,198,168
0.5
74.7
77,956
Kevin Matthews
Chairman, Remuneration Committee
On behalf of the Board of Directors
1 February 2017
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Directors’ Report
The Directors present their report and the accounts of the
Company and the Group for the year ended 30 November 2016.
Strategic Report
The Directors have presented their Strategic Report on pages 1 to
41, 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, an 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
1 February 2017.
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 37 and forms part of this report.
Directors
The Directors of the Company are shown on pages 42 and 43.
They all held office throughout the financial year under review, with
the exception of Mike Powell who was appointed a Non-Executive
Director on 1 December 2016.
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 in place throughout the year.
Re-election of Directors
Mike Powell was appointed since the previous Annual General
Meeting and, in accordance with the Company’s Articles of
Association, offers himself for election. His appointment is for a
period of three years commencing on 1 December 2016.
Having been a Director for over nine years, Steve Hannam retires
in accordance with the UK Corporate Governance Code and offers
himself for re-election. 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 2016 for a term of one year up to
31 August 2017. The Board continues to believe that it benefits
substantially from Mr Hannam’s experience and expertise. Further
details regarding Mr Hannam’s re-election are set out on page 45.
In addition, although directors of companies which are not FTSE
350 companies are not subject to annual election by shareholders,
all the other directors, with the exception of John Sheldrick, are also
submitting themselves for re-election at the forthcoming Annual
General Meeting.
The Chairman confirms to shareholders that, following formal
evaluation, the performance of each of the Directors continues to
be effective and to demonstrate commitment to the role.
Results and dividends
The Group’s consolidated profit for the year attributable to equity
holders of the Company was £13.9m (2015: £5.7m).
Directors’ interests
Directors’ interests in shares and debentures of the Company are
shown on page 67.
The Company paid an interim dividend for the year ended
30 November 2016 of 1.0 pence per share on 22 September 2016
to Ordinary Shareholders whose names appeared in the register at
the close of business on 26 August 2016. The Directors
recommend that a final dividend of 2.00p (2015: 1.80p) be paid on
13 April 2017 to Ordinary Shareholders on the register at close of
business on 17 March 2017.
Dividends
Interim
Final
Total
2016
2015
% Increase
1.00p
2.00p
3.00p
0.98p
1.80p
2.78p
2.0%
11.1%
7.9%
Substantial interests
As at 30 November 2016, the following interests in voting rights
over the issued share capital of the Company had been notified in
accordance with Rule 5 of the UKLA’s Disclosure Guidance and
Transparency Rules.
Low & Bonar Annual Report and Accounts 2016
69
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 £10,966,164.80, which
represented approximately two-thirds 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 £5,483,082.40 (approximately one-third
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 £10,966,164.80; or
2. in any other case, up to a maximum nominal amount of
£1,644,924.70, which represented approximately 10% of the
Company’s issued Ordinary Shares (excluding treasury shares)
as at the date the authority was granted.
Annual General Meeting
The Annual General Meeting will be held at The Royal Institution,
21 Albemarle Street, London, W1S 4BS on Wednesday
12 April 2017, commencing at 11.00am. 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.
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.
Directors’ Report continued
No. of
Ordinary
Shares
% of total
voting
rights
JO Hambro Capital Management Limited
AXA Investment Managers S.A.
Schroders plc
Unicorn Asset Management Limited
Sterling Strategic Value Fund S.A.
Luxempart SA
Prudential plc
Henderson Global Investors
Aberforth Partners LLP
33,791,468
32,895,112
30,463,499
21,432,965
19,067,000
17,249,145
15,819,478
14,389,576
12,834,094
10.26
9.99
9.25
6.51
5.79
5.24
4.80
4.37
3.90
On 13 December 2016, Sterling Strategic Value Fund S.A. notified
the Company that it had increased its shareholding to 21,262,070
shares representing 6.46% of the total voting rights and, on
3 January 2017, further notified the Company that it no longer had
a notifiable interest. On 3 January 2017, Notz, Stucki Europe S.A.
notified the Company that it had acquired an interest in 22,562,070
shares representing 6.85% of the total voting rights. No other
changes to the table above have been disclosed to the Company
between 30 November 2016 and 1 February 2017.
Ordinary Share capital
The Company’s issued share capital as at 30 November 2016
consisted of 329,298,026 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, 329,298,026. Further details of the
Company’s issued share capital at 30 November 2016 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 24 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 2016, the trust held 26,752 Ordinary Shares
(2015: 26,752 Ordinary Shares). During the year, the Company
issued a total of 314,549 Ordinary Shares 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 £0.428 to £0.588 pence per share
according to the terms of the options and awards.
As at 1 February 2017, being the latest practicable date before
publication of this report, there were 329,346,110 Ordinary Shares
in issue.
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 forthcoming
Annual General Meeting as those existing authorities will expire.
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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 105 to 111.
Significant agreements
The Group’s principal banking facilities may become repayable
upon a change of control of the Company.
Information to the auditor
Each Director who held office at the date of this Directors’ Report
has confirmed that, so far as he or she is aware, there is no
relevant audit information of which the Company’s auditor is
unaware, and that he or she has taken all steps that he or she
ought to have taken as a Director to make himself or herself 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
position and performance, business model and strategy.
By order of the Board
Stuart Haydon
Company Secretary
1 February 2017
Viability statement
The Directors have assessed the viability of the Group over a five-year
period, taking into account the Group’s position at 30 November 2016
and the potential impacts of the principal risks over the review period.
A period of five years has been chosen for the purposes of the
viability statement, as this is in line with the Group’s strategic
planning process, which is updated annually and during which
capital investment plans and market and product development
initiatives are considered and used to model the Group’s
performance and financial ratios, including funding requirements
and maintaining adequate headroom on its loan covenants. In
making the assessment, the Directors have taken account of the
maturity of the Group’s current debt funding and its ability to raise
new finance in most market conditions.
Whilst each principal risk has a potential impact, enhanced stress
testing was carried out on two severe but plausible scenarios;
a prolonged economic downturn, and a loss of premium pricing
position of a significant portion of the Group’s product portfolio.
The Group’s operating model is structured to provide resilience to
adverse trading conditions; including a diverse customer, supplier,
geographical and market base, an ability to flex its cost base, the
capability to maintain its margins in times of oil price volatility, and
to control its capital investment requirements.
Based on this assessment and the results of the enhanced stress
testing, and on the assumption that the principal risks are
managed or mitigated in the ways disclosed, the Directors confirm
that they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over
the period to 30 November 2021.
Internal controls
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 their
review, the Directors have regard to what controls in their 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.
Low & Bonar Annual Report and Accounts 2016
71
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
Group Chief Executive
1 February 2017
Mike Holt
Chief Financial Officer
1 February 2017
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.
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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 2016 set out on pages 75 to 120.
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 2016 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 risks of material misstatement that had the greatest effect on
our audit were as follows (unchanged from 2015):
Recoverability of goodwill £82.6m (2015: £69.6m)
Risk vs 2015: Unchanged
Refer to page 48 (Audit Committee Report), pages 84 and 85
(accounting policy) and pages 98 and 99 (financial disclosures)
The risk – The Group has significant goodwill allocated to its four
(2015: four of its five) cash generating units (‘CGUs’). In the light of
challenging trading conditions in the Civil Engineering CGU and
production issues in the Coated Technical Textiles CGU, there is
a risk that the carrying value of goodwill may be in excess of its
recoverable amount and an impairment may arise. The estimation
of recoverable amount is complex and significant judgement is
required in making some of the estimates, specifically cash flow
projections, discount rates and short term growth rates. Due to
the inherent uncertainty involved in forecasting and discounting
future cash flows, this is the key judgemental area that our audit
was concentrated on.
Our response – Our procedures included testing the controls
relating to the preparation and approval of the Group’s budget
upon which the forecasts are based. We critically assessed the
budgets including considering the historical accuracy of the
budgeting process and the reflection of actual and anticipated
trading conditions in the forecasts. 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 growth rates used in the impairment testing, we
compared the Group’s assumptions to externally derived data for
inputs such as OECD country GDP forecasts. In respect of the
Civil Engineering CGU we also compared growth rates used to the
forecast impact of capital and operational investments made by
the Group over the last 12 months.
We utilised our own internal valuation specialist to assist us in
assessing the applicable discount rates. We applied sensitivities to
the budgets for the financial year to 30 November 2017, medium
and long term growth rates and the discount rate. In particular we
applied rigorous sensitivities to the Civil Engineering and Coated
Technical Textiles CGU forecasts by increasing the discount rate,
reducing the budgeted profits and reducing the future growth
rates. This was performed in order to reflect the risks of under-
performance and forecasting risk resulting in the need for an
impairment. We calculated a range of discount rates, performance
shortfalls and growth rates where the recoverable amount of
assets equalled the net book value and considered this as part of
our sensitivity analysis. In addition, 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
Materiality for the Group financial statements as a whole was set at
£2,600,000, determined with reference to a benchmark of Group
profit before tax, normalised by removing the effect of non-recurring
items and averaging profit over the last three years for the Coated
Technical Textiles CGU due to current year production issues, of
£30,300,000, of which it represents 8.6%. The Group team
performed procedures on the items excluded from normalised
group profit before tax. The benchmark has been changed this year
to reflect industry consensus, compared to the comparative year,
where the materiality for the group financial statements as a whole,
set at £2,600,000, was determined with reference to a benchmark
of Group revenue, of which it represented 0.7%.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £75,000 (2015: £75,000), in
addition to other identified misstatements that warranted reporting
on qualitative grounds.
Of the Group’s 43 (2015: 45) reporting components we subjected
ten (2015: ten) to audits for Group reporting purposes and three
(2015: four) to specified risk-focussed 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 Group’s results and balances.
The components within the scope of our work accounted for the
following percentages of the Group’s results:
Number of
components
(2015)
Group
revenue
(2015)
Total profits
and losses
that make up
group profit
before tax
(2015)
Group total
assets
(2015)
10 (10) 72% (69%) 75% (73%) 64% (70%)
3 (4)
6% (9%)
9% (6%)
11% (8%)
Audits for Group
reporting
purposes
Specified
risk-focussed
audit
procedures
Total
13 (14) 78% (78%) 84% (79%) 75% (78%)
The remaining 22% (2015: 22%) of total Group revenue, 16%
(2015: 21%) of total profits and losses that make up Group profit
before tax and 25% (2015: 22%) of total Group assets is represented
by 30 (2015: 31) reporting components, none of which individually
represented more than 3% (2015: 3%) of total Group revenue, 3%
(2015: 5%) of total profits and losses that make up Group profit
before tax or 3% (2015: 4%) of total Group assets. For the
remaining components, we performed analysis at a disaggregated
Group level to re-examine our assessment that there were no
significant risks of material misstatement within these.
Low & Bonar Annual Report and Accounts 2016
73
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 ranged from
£182,000 to £1,950,000 (2015: £170,000 to £1,950,000), having
regard to the mix of size and risk profile of the Group across the
components. The work on six (2015: six) components was
performed by component auditors and the remainder by the
Group audit team.
The Group audit team visited component locations in Germany
and Belgium and reviewed the work of the component auditor in
those locations; in 2015 the Group audit team visited component
locations in the Netherlands and Germany and met with the
component auditor of the USA. Telephone meetings were also
held with these components and the components in the United
Kingdom and the Netherlands (2015: components in Belgium),
including participation in completion meetings by telephone.
Telephone meetings were held with other components during the
year as necessary. 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 the Directors’
Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
¡ the information given in the Corporate Governance Statement
set out on pages 44 to 46 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 on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
¡ the directors’ statement of the Viability Statement on page 71,
concerning the principal risks, their management, and,
based on that, the directors’ assessment and expectations
of the group’s continuing in operation over the five years to
30 November 2021; or
¡ the disclosures in the Significant Accounting Policies section
of the financial statements concerning the use of the going
concern basis of accounting.
6 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 position and performance,
business model and strategy; or
¡ the Financial reporting and significant areas of judgement
section of 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’ statements, set out on pages 70 and 71, in
relation to going concern and longer-term viability; and
¡ the part of the Corporate Governance Statement on pages
44 to 46 relating to the company’s compliance with the eleven
provisions of the 2014 UK Corporate Governance Code
specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement
set out on page 72, 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.
Anthony Hambleton (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
St Nicholas House
Park Row
Nottingham
NG1 6FQ
1 February 2017
74
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Consolidated Income Statement
for the year ended 30 November
2016
Before
amortisation
and non-
recurring
items
Amortisation
and non-
recurring
items
(Note 5)
£m
–
(3.3)
–
–
–
(3.3)
0.6
(2.7)
(2.7)
(3.7)
(6.4)
(6.4)
–
(6.4)
Note
1
1
6
6
2
7
29
27
10
£m
400.0
34.7
0.2
(5.7)
(5.5)
29.2
(8.8)
20.4
20.4
0.5
20.9
20.3
0.6
20.9
6.01p
5.95p
0.14p
0.14p
6.15p
6.09p
2015
Amortisation
and non-
recurring
items
(Note 5)
(restated)
£m
–
(6.0)
–
–
–
(6.0)
1.4
(4.6)
(4.6)
(8.2)
(12.8)
(12.8)
–
(12.8)
Before
amortisation
and non-
recurring
items
(restated)
£m
362.1
31.8
0.1
(4.5)
(4.4)
27.4
(7.6)
19.8
19.8
(0.8)
19.0
18.5
0.5
19.0
Total
£m
400.0
31.4
0.2
(5.7)
(5.5)
25.9
(8.2)
17.7
17.7
(3.2)
14.5
13.9
0.6
14.5
5.20p
5.15p
5.86p
5.75p
(0.98p)
(0.97p)
(0.25p)
(0.24p)
4.22p
4.18p
5.61p
5.51p
Total
(restated)
£m
362.1
25.8
0.1
(4.5)
(4.4)
21.4
(6.2)
15.2
15.2
(9.0)
6.2
5.7
0.5
6.2
4.47p
4.39p
(2.74p)
(2.69p)
1.73p
1.70p
Revenue
Operating profit/(loss)
Financial income
Financial expense
Net financing costs
Profit/(loss) before taxation
Taxation
Profit/(loss) after taxation
Profit/(loss) for the year from continuing
operations
Profit/(loss) 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
Low & Bonar Annual Report and Accounts 2016
75
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
Exchange differences recycled from reserves
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
Note
4
4
27
2016
£m
14.5
(11.8)
0.3
36.7
(1.7)
23.5
38.0
37.4
0.6
38.0
2015
£m
6.2
2.2
–
(17.8)
–
(15.6)
(9.4)
(10.1)
0.7
(9.4)
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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 associates
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
Liabilities directly associated with assets classified as held for sale
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
Note
11
12
13
14
15
16
21
18
4
17
18
20
20
19
19
22
20
29
20
21
4
23
24
25
26
27
Group
Company
2016
£m
82.6
22.2
150.3
–
–
0.5
5.6
–
–
261.2
97.5
79.1
26.3
–
2015
£m
69.6
20.3
132.0
–
–
0.5
4.4
–
5.2
232.0
82.6
71.1
33.9
–
202.9
187.6
0.1
4.4
84.4
–
–
1.3
90.2
112.7
373.9
137.2
19.1
15.0
0.2
171.5
202.4
47.4
74.4
(26.0)
100.2
196.0
6.4
202.4
31.5
5.7
77.0
0.1
0.1
–
114.4
73.2
305.2
104.5
17.2
9.9
1.6
133.2
172.0
47.4
74.2
(61.0)
105.3
165.9
6.1
172.0
2016
£m
–
–
0.6
93.2
–
–
–
39.9
–
2015
£m
–
–
0.2
93.6
–
–
–
22.3
5.2
133.7
121.3
–
152.4
1.4
–
153.8
1.3
–
19.2
–
–
–
20.5
133.3
267.0
48.4
–
2.2
–
50.6
–
149.0
5.3
–
154.3
34.0
–
26.4
–
0.1
–
60.5
93.8
215.1
66.4
–
–
–
66.4
216.4
148.7
47.4
74.4
–
94.6
216.4
–
216.4
47.4
74.2
–
27.1
148.7
–
148.7
The consolidated financial statements on pages 75 to 120 were approved by the Board on 1 February 2017 and signed on its behalf by:
Brett Simpson
1 February 2017
Mike Holt
1 February 2017
Registered number: SC008349
Low & Bonar Annual Report and Accounts 2016
77
Consolidated Cash Flow Statement
for the year ended 30 November
Profit for the year from continuing operations
Loss 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
Loss on disposal of the grass yarns business
Impairment of investment in joint venture
Non-cash pension charges
(Increase)/decrease in inventories
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
Decrease in provisions
Gain 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
Proceeds from the disposal of the grass yarns business
Acquisition of property, plant and equipment
Intangible assets purchased
Dividends paid to non-controlling interests
Net cash outflow from investing activities
Drawdown of borrowings
Repayment of borrowings
Movement in cash flow hedges
Proceeds of share issues to employees
Equity dividends paid
Net cash (outflow)/inflow from financing activities
Net cash (outflow)/inflow
Cash and cash equivalents at start of year
Foreign exchange differences
Cash and cash equivalents at end of year
Note
28
2016
£m
17.7
(3.2)
14.5
15.8
5.2
8.2
5.5
1.3
1.3
–
1.0
(14.7)
1.7
(2.0)
(0.1)
(0.1)
0.9
38.5
0.1
(5.0)
(10.8)
(4.6)
18.2
21.7
(18.9)
(3.3)
(0.3)
(0.8)
17.8
(37.9)
0.1
0.2
(9.2)
(29.0)
(11.6)
33.9
4.0
26.3
2015
(restated)
£m
15.2
(9.0)
6.2
12.4
5.2
6.2
4.4
1.8
–
8.2
1.1
2.8
(6.4)
(2.3)
(0.4)
–
0.6
39.8
–
(4.5)
(7.5)
(4.5)
23.3
–
(33.0)
(0.7)
(1.0)
(34.7)
28.8
–
–
0.3
(9.0)
20.1
8.7
25.8
(0.6)
33.9
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Company Cash Flow Statement
for the year ended 30 November
Profit for the year
Adjustments for:
Depreciation
Income tax credit
Provision for investment impairment
Loss on disposal – non-current assets
Net financing income
Non-cash pension charges
(Increase)/decrease in receivables
(Decrease)/increase in payables
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 property, plant and equipment
Net cash outflow from investing activities
Proceeds of share issues to employees
Repayment of borrowings
Equity dividends paid
Net cash outflow from financing activities
Net cash (outflow)/inflow
Cash and cash equivalents at start of year
Foreign exchange differences
Cash and cash equivalents at end of year
Note
8
28
2016
£m
86.9
0.1
–
0.4
0.1
(1.8)
0.5
(20.9)
(6.7)
0.9
59.5
5.3
(4.3)
–
(4.0)
56.5
(0.7)
(0.7)
0.2
(50.6)
(9.2)
(59.6)
(3.8)
5.3
(0.1)
1.4
2015
£m
11.2
–
–
–
–
(0.9)
0.8
2.2
4.3
0.6
18.2
5.8
(4.0)
–
(3.8)
16.2
–
–
0.3
(5.8)
(9.0)
(14.5)
1.7
3.6
–
5.3
Low & Bonar Annual Report and Accounts 2016
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Consolidated Statement of Changes in Equity
for the year ended 30 November
Share
premium
£m
Translation
reserve
£m
Retained
earnings
£m
Equity
attributable
to equity
holders of
the parent
£m
Non-
controlling
interest
£m
At 30 November 2014
Total comprehensive income for the year
Dividends paid to Ordinary Shareholders
Dividends paid to Non-Controlling Interests
Shares issued
Share-based payment
Net increase/(decrease) for the year
Share
capital
£m
47.3
–
–
–
0.1
–
0.1
74.0
–
–
–
0.2
–
0.2
At 30 November 2015
47.4
74.2
Total comprehensive income for the year
Dividends paid to Ordinary Shareholders
Dividends paid to Non-Controlling Interests
Disposal of equity participation in subsidiary
Shares issued
Share-based payment
Net increase/(decrease) for the year
–
–
–
–
–
–
–
–
–
–
–
0.2
–
0.2
(43.0)
(18.0)
–
–
–
–
(18.0)
(61.0)
35.0
–
–
–
–
–
35.0
105.8
184.1
7.9
(9.0)
–
–
0.6
(0.5)
105.3
2.4
(9.2)
–
0.8
–
0.9
(5.1)
(10.1)
(9.0)
–
0.3
0.6
(18.2)
165.9
37.4
(9.2)
–
0.8
0.2
0.9
30.1
At 30 November 2016
47.4
74.4
(26.0)
100.2
196.0
Total
equity
£m
190.5
(9.4)
(9.0)
(1.0)
0.3
0.6
(18.5)
172.0
38.0
(9.2)
(0.3)
0.8
0.2
0.9
30.4
202.4
6.4
0.7
–
(1.0)
–
–
(0.3)
6.1
0.6
–
(0.3)
–
–
–
0.3
6.4
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Company Statement of Changes in Equity
for the year ended 30 November
At 30 November 2014
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 2015
Profit for the year
Actuarial loss on defined benefit pension scheme
Dividends paid to Ordinary Shareholders
Shares issued
Share-based payment
Net increase for the year
At 30 November 2016
Share
capital
£m
47.3
Share
premium
£m
74.0
–
–
–
0.1
–
0.1
–
–
–
0.2
–
0.2
47.4
74.2
–
–
–
–
–
–
–
–
–
0.2
–
0.2
47.4
74.4
Retained
earnings
£m
22.4
11.2
1.9
(9.0)
–
0.6
4.7
27.1
86.9
(11.1)
(9.2)
–
0.9
67.5
94.6
Total
equity
£m
143.7
11.2
1.9
(9.0)
0.3
0.6
5.0
148.7
86.9
(11.1)
(9.2)
0.2
0.9
67.7
216.4
Low & Bonar Annual Report and Accounts 2016
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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 One Connaught Place, London,
W2 2ET.
The consolidated financial statements of the Company for the year
ended 30 November 2016 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 financial information for the comparative periods has been
restated to present the results of our artificial grass yarns business
and our joint venture interest in Bonar Natpet LLC within
discontinued operations.
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 41. 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 30 to 33 provides further details of
the key risks affecting the Group and Company.
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. 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
financial statements are those that were effective at 30 November
2016. 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:
¡ Amendments to IAS 19 – Defined Benefit Plans: Employee
Contributions
¡ Annual Improvements to IFRSs – 2010-2012 Cycle
¡ Annual Improvements to IFRSs – 2011-2013 Cycle
(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 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.
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Low & Bonar Annual Report and Accounts 2016
(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).
Low & Bonar Annual Report and Accounts 2016
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.
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.
(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.
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.
The Group tests effectiveness on a prospective and retrospective
basis to ensure compliance with IAS 39.
(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.
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Significant Accounting Policies continued
(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.
The estimated useful lives for significant classes of assets are
as follows:
– property
– plant and equipment
10–50 years
3–15 years
For other assets, the useful economic lives are:
– fixtures and fittings
– computer hardware
– tooling
– motor vehicles
3–7 years
2–5 years
1–5 years
3–5 years
(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.
Goodwill is stated at deemed cost less any accumulated
impairment losses (see accounting policy K).
(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
(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 Cash Flow Statement.
(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
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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: 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 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.
(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.
Low & Bonar Annual Report and Accounts 2016
85
Significant Accounting Policies continued
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
finance charges and the 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 in respect of defined
benefit pension assets and liabilities, 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
includes 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.
(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 and investment in its
joint venture. Impairment tests have been undertaken with respect
to goodwill and intangible assets (Notes 11, 12 and 15) 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.
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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 £11.1m – £12.5m (2015: £11.2m – £12.5m) respectively.
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 24, 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.
¡ Annual Improvements to IFRSs – 2012-2014 Cycle
¡ Amendment to IAS 7: Disclosure initiative – not yet endorsed by
the EU
¡ Amendment to IAS 12: Recognition of Deferred Tax Assets for
Unrealised Losses – not yet endorsed by the EU
¡ Amendments to IAS 16 and IAS 38: Clarification of Acceptable
Methods of Depreciation and Amortisation
¡ Amendments to IAS 16 and IAS 41: Agriculture: Bearer Plants
¡ Amendments to IAS 27: Equity Method in Separate Financial
Statements
¡ Clarifications to 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 16 Leases
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.
(Y) Non-GAAP measures
The following non-GAAP measures have been used in the
financial statements:
¡ Profit before tax, amortisation and non-recurring items
¡ Operating profit before amortisation and non-recurring items
¡ Operating margin before amortisation and non-recurring items
¡ Basic EPS before amortisation and non-recurring items
Management uses these terms as it believes they allow a better
understanding of underlying business performance and are
consistent with its communication with investors.
(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.
(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 2016 (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 July 2014)
¡ IFRS 14: Regulatory Deferral Accounts
¡ IFRS 15: Revenue from Contracts with Customers
¡ IFRS 16: Leases – not yet endorsed by the EU
¡ Amendments to IAS1: Disclosure initiative
¡ Amendments to IFRS 2: Classification and measurement of
Share-based Payment Transactions – not yet endorsed by
the EU
¡ Amendments to IFRS 4: Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts – not yet endorsed by the EU
¡ Amendments to IFRS 10, IFRS 12 and IAS 28: Investment
Entities – Applying the Consolidation Exception
¡ Amendments to IFRS 11: Accounting for Acquisitions of
Interests in Joint Operations
Low & Bonar Annual Report and Accounts 2016
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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 previously split
into five reportable business units: Building & Industrial, Civil Engineering, Coated Technical Textiles, Interiors & Transportation and
Sport & Leisure. Due to the disposal of the artificial grass yarns business (disclosed as discontinued operations), the remaining
continuing interests within the Sport & Leisure segment have now been included within the Interiors & Transportation segment due to the
similar nature of the products provided. The Group’s reportable segments have also been restated to reflect the discontinued operations
noted in the period and the change in operating segments. Segment assets and liabilities include items directly attributable to segments
as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly cash and cash equivalents, interest-
bearing loans, borrowings, investments in joint ventures and associates, post-employment benefits and corporate assets and expenses.
Inter-segment sales are not material.
Revenue from external customers
Building & Industrial
Civil Engineering
Coated Technical Textiles
Interiors & Transportation
Revenue for the period
Operating profit/(loss)
Building & Industrial
Civil Engineering
Coated Technical Textiles
Interiors & Transportation
Unallocated central
Operating profit
Financial income
Financial expense
Net financing costs
Profit before taxation
Taxation
Profit for the year – continuing operations
Loss for the year – discontinued operations
Profit for the year
2016
£m
73.4
90.8
129.8
106.0
400.0
2015
(restated)
£m
61.7
85.4
120.4
94.6
362.1
Before amortisation and
non-recurring items
After amortisation and
non-recurring items
2016
£m
10.9
4.2
8.7
17.1
(6.2)
34.7
2015
(restated)
£m
8.4
3.1
12.8
13.4
(5.9)
31.8
2016
£m
10.8
3.7
5.9
17.6
(6.6)
31.4
0.2
(5.7)
(5.5)
25.9
(8.2)
17.7
(3.2)
14.5
2015
(restated)
£m
7.8
2.0
10.3
12.1
(6.4)
25.8
0.1
(4.5)
(4.4)
21.4
(6.2)
15.2
(9.0)
6.2
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Segment information – Constant currency analyses
Constant currency analyses retranslate prior period results at the current period’s rates of exchange. Management believe this allows a
better understanding of underlying business performance.
Revenue
Building & Industrial
Civil Engineering
Coated Technical Textiles
Interiors & Transportation
Revenue for the period
PBTA
Building & Industrial
Civil Engineering
Coated Technical Textiles
Interiors & Transportation
Unallocated Central
Operating profit before amortisation and non-recurring items
Net financing costs
PBTA before non-recurring items and discontinued operations
2015
(reported)
(restated)
£m
61.7
85.4
120.4
94.6
362.1
8.4
3.1
12.8
13.4
(5.9)
31.8
(4.4)
27.4
2016
£m
73.4
90.8
129.8
106.0
400.0
10.9
4.2
8.7
17.1
(6.2)
34.7
(5.5)
29.2
Period on
period
change
%
+19.0%
+6.3%
+7.8%
+12.1%
+10.5%
+29.8%
+35.5%
-32.0%
+27.6%
+5.1%
+9.1%
+25.0%
+6.6%
2015
(constant
currency)
(restated)
£m
69.0
94.5
133.0
104.2
400.7
9.4
3.3
14.0
14.9
(5.9)
35.7
(4.9)
30.8
Segment assets, liabilities, other information
2016
Reportable segment assets
Investment in joint venture
Investment in associates
Cash and cash equivalents
Post-employment benefits
Other unallocated assets
Total Group assets
Reportable segment liabilities
Loans and borrowings
Derivative liabilities
Post-employment benefits
Other unallocated liabilities
Total Group liabilities
Building &
Industrial
£m
Civil
Engineering
£m
Coated
Technical
Textiles
£m
Interiors &
Transportation
£m
Unallocated
Central
£m
64.2
83.4
145.7
127.0
–
(17.2)
(17.7)
(24.2)
(25.4)
–
Other information
Additions to property, plant and equipment
Additions to intangible assets and goodwill
Depreciation
Amortisation of acquired intangible assets
Non-recurring items – continuing operations
1.6
1.0
2.6
0.5
(0.4)
4.6
1.0
2.6
0.5
–
2.2
0.2
3.3
2.8
–
9.4
1.1
7.1
0.2
(0.7)
0.7
–
0.2
–
0.4
Period on
period
change
%
+6.4%
-3.9%
-2.4%
+1.7%
-0.2%
+16.0%
+27.3%
-37.9%
+14.8%
+5.1%
-2.8%
+12.2%
-5.2%
Total
£m
420.3
–
0.5
26.3
–
17.0
464.1
(84.5)
(137.3)
–
(15.0)
(24.9)
(261.7)
18.5
3.3
15.8
4.0
(0.7)
Low & Bonar Annual Report and Accounts 2016
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Notes to the Accounts continued
1. Segmental information continued
2015
Reportable segment assets
Investment in joint venture
Investment in associates
Cash and cash equivalents
Post-employment benefits
Other unallocated assets
Total Group assets
Reportable segment liabilities
Loans and borrowings
Derivative liabilities
Post-employment benefits
Other unallocated liabilities
Total Group liabilities
Building &
Industrial
Civil
Engineering
£m
53.1
£m
69.1
Coated
Technical
Textiles
£m
125.9
Interiors &
Transportation
(restated)
£m
125.6
Unallocated
Central
£m
–
(14.1)
(15.9)
(17.5)
(26.4)
–
Other information
Additions to property, plant and equipment
Additions to intangible assets and goodwill
Depreciation
Amortisation of acquired intangible assets
Non-recurring items – continuing operations
2.6
0.3
2.2
0.5
0.1
7.5
0.1
2.2
0.9
0.2
3.2
0.1
3.0
2.5
–
19.8
0.2
5.0
0.2
1.1
0.1
–
–
–
0.5
Total
£m
373.7
–
0.5
33.9
5.2
6.3
419.6
(73.9)
(136.0)
(0.1)
(9.9)
(27.7)
(247.6)
33.2
0.7
12.4
4.1
1.9
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:
External revenue by
location of customers
Non-current assets by
location of assets*
Western Europe
Eastern Europe
North America
Middle East
Asia
Rest of the World
Total
2016
£m
219.2
36.0
89.2
12.4
32.5
10.7
400.0
2016
%
54.8
9.0
22.3
3.1
8.1
2.7
100.0
2015
(restated)
£m
200.7
33.6
79.3
12.9
25.9
9.7
362.1
2015
(restated)
%
55.4
9.3
21.9
3.6
7.1
2.7
2016
£m
176.7
17.4
26.2
0.1
35.2
–
100.0
255.6
2015
£m
158.3
13.7
24.7
8.1
27.2
–
232.0
Revenues arising in the UK, which is the parent Company’s country of domicile, were £15.6m (2015 (restated): £20.0m). The net book
value of non-current assets located in the UK at 30 November 2016 was £2.1m (2015: £6.4m). 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 2016 was
£76.1m (2015: £66.6m) and revenues in the year to 30 November 2016 were £69.5m (2015: £55.6m).
* Non-current assets exclude those relating to non-current assets held for sale
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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 gain
Gain 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 (2015: £0.6m).
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 people employed by the Company during the year was 21 (2015: 19).
The aggregate staff costs were:
Wages and salaries
Social security costs
Pension costs
2016
£m
368.6
262.2
37.5
44.8
5.1
(0.7)
2015
(restated)
£m
336.3
231.7
30.2
40.0
4.2
1.9
94.2
84.3
178.1
0.3
(0.1)
15.8
5.2
(0.6)
0.1
3.5
1.9
2016
£m
0.1
0.4
–
0.2
–
167.3
0.3
(0.1)
12.4
5.2
(1.3)
–
3.6
1.9
2015
£m
0.1
0.3
0.1
0.1
–
Group
2016
1,590
292
281
2,163
2015
1,521
295
261
2,077
Group
2016
£m
75.3
15.5
3.4
94.2
2015
£m
68.0
13.0
3.3
84.3
Low & Bonar Annual Report and Accounts 2016
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Notes to the Accounts continued
3. Staff numbers and costs continued
Wages and salaries
Social security costs
Pension costs
Company
2016
£m
3.1
0.4
0.2
3.7
2015
£m
3.3
0.4
0.2
3.9
The Directors of the Company are listed on pages 42 and 43.
The increase in Group staff costs is due to 2.2% average wage inflation, an increase in the average number of people employed and
foreign exchange effects.
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 £2.5m (2015: £2.4m).
(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 scheme is subject to the regulatory requirements that apply to registered UK pension schemes, and a Trustee board is responsible
for ensuring it is operated in a manner compliant with the relevant regulations. The weighted duration of the expected benefit payments
from the scheme is around 15 years.
The net income statement charge for the year ended 30 November 2016 for the UK pension scheme was £0.3m (2015: £0.7m).
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 Scheme is held by the Company and all of the UK disclosures relate to the
Company and the Group.
Following the 2014 valuation of the UK Scheme, the Company agreed a schedule of contributions with the Trustee of the Scheme under
which the Company pays contributions of £3.3m by 30 June 2014 and then £3.8m per annum by no later than 30 June each year until
2021 and a final payment of £0.5m by 30 June 2022. The Company is required to make further contributions to the UK scheme if the
Group’s net cash inflow before distributions exceeds certain agreed levels provided that the total contributions payable in any one year
are no more than £4.0m in 2015, £4.2m in 2016 and £4.3m thereafter and the total contributions payable under the revised schedule do
not exceed £30.4m.
In applying IAS 19, the Company has considered the requirements of IFRIC 14 and whether the Company has an “unconditional right” to
a refund of surplus either (a) during the life of the Scheme (i.e. a refund of surplus whilst the Scheme is ongoing); or (b) assuming the
gradual settlement of the Scheme liabilities over time until all members have left the Scheme (e.g. on the death of the last beneficiary); or
assuming the full settlement of the Scheme liabilities in a single event (e.g. on winding-up). The Company has concluded that it has an
effective unconditional right to a refund of surplus in the circumstances set out in (a) and (b) above and has also concluded that it has the
right to surplus assets if the Scheme is in run-off until there are no members remaining, and on these grounds IFRIC 14 does not require
an adjustment to the net pension liability.
On 3 December 2015, the Group completed a medically-underwritten buy-in of £34m of UK Scheme liabilities, to reduce the Scheme’s
exposure to interest rate, inflation and mortality risks and to provide a more effective liability and cash flow match. Following this, the
Company has agreed with the Trustee of the Scheme to establish a revised schedule of contributions for the Scheme to increase the
amount of the annual contributions payable above by £175,000 per annum. The buy-in policy provides an exact match to the benefits of
the members covered, and is valued as equal to the present value of the defined benefit obligation for those members.
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 by
actions taken to reduce investment risk, including the purchase of a buy-in policy during the year. Regular dialogue also takes place with
the Scheme Trustee, and the Board regularly discusses pension fund strategy.
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(ii) Non-UK
Defined benefit schemes are held in Germany, Belgium and the United States. 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.
(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 judgement
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 inter-dependency 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 Inflation)
Health care cost trend – immediate
Health care cost trend – ultimate
UK schemes
Non-UK schemes
Weighted average
assumptions
2016
%
2.80
–
3.10
2.20
–
–
2015
%
3.50
–
2.90
2.00
–
–
2016
%
2.75
2.25
1.80
2.00
6.60
4.50
2015
%
3.25
2.25
1.80
2.00
7.00
4.50
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 21.6 years and a female member for a further 23.7 years (2015: male – 21.5 years, female – 23.6 years).
They also assume that a UK Scheme male member currently aged 45, will survive a further 43.4 years and a female member for a
further 45.6 years (2015: male – 43.3 years, female – 45.5 years). Management consider 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 (liability)/asset recognised in the balance sheet
UK schemes
Non-UK schemes
Total
2016
£m
188.2
(190.4)
(2.2)
2015
£m
178.1
(172.9)
5.2
2016
£m
11.8
(24.6)
(12.8)
2015
£m
9.9
(19.8)
(9.9)
2016
£m
200.0
(215.0)
(15.0)
2015
£m
188.0
(192.7)
(4.7)
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 (income)/cost
Administration costs
UK schemes
Non-UK schemes
Total
2016
£m
–
(0.2)
0.5
0.3
2015
£m
–
(0.1)
0.8
0.7
2016
£m
0.4
0.3
–
0.7
2015
£m
0.3
0.3
–
0.6
2016
£m
0.4
0.1
0.5
1.0
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 scheme assets less interest on scheme assets
Associated deferred tax
Group
Company
2016
£m
(11.8)
(23.8)
0.3
2.0
9.7
0.3
2015
£m
2.2
(0.9)
–
1.3
1.8
–
2016
£m
(11.1)
(22.7)
–
1.9
9.7
–
2015
£m
0.3
0.2
0.8
1.3
2015
£m
1.9
(1.3)
–
1.4
1.8
–
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Notes to the Accounts continued
4. Post-employment benefits continued
(iv) Financial impact of schemes continued
The changes in the net assets/(liabilities) recognised in the balance sheet are as follows:
Opening balance sheet asset/(liability)
Amount recognised in income statement
Amount recognised in other comprehensive income
Contributions paid
Exchange gain
Closing balance sheet (liability)/asset
UK schemes
Non-UK schemes
Total
2016
£m
5.2
(0.3)
(11.1)
4.0
–
(2.2)
2015
£m
0.2
(0.7)
1.9
3.8
–
5.2
2016
£m
(9.9)
(0.7)
(0.7)
0.6
(2.1)
(12.8)
2015
£m
(11.0)
(0.7)
0.3
0.7
0.8
(9.9)
2016
£m
(4.7)
(1.0)
(11.8)
4.6
(2.1)
(15.0)
Changes in the present value of the defined benefit obligation are as follows:
Opening defined benefit obligation
Current service cost
Interest cost
Actuarial loss/(gain) due to:
– Changes in financial assumptions
– Changes in demographic assumptions
– Experience adjustments on obligations
Benefits paid
Exchange adjustments
UK schemes
Non-UK schemes
Total
2016
£m
172.9
–
5.9
20.8
22.7
–
(1.9)
(9.2)
–
2015
£m
176.3
–
6.1
(0.1)
1.3
–
(1.4)
(9.4)
–
2016
£m
19.8
0.4
0.7
0.7
1.1
(0.3)
(0.1)
(0.9)
3.9
2015
£m
21.0
0.3
0.7
(0.3)
(0.4)
–
0.1
(1.0)
(0.9)
2016
£m
192.7
0.4
6.6
21.5
23.8
(0.3)
(2.0)
(10.1)
3.9
2015
£m
(10.8)
(1.4)
2.2
4.5
0.8
(4.7)
2015
£m
197.3
0.3
6.8
(0.4)
0.9
–
(1.3)
(10.4)
(0.9)
Closing defined benefit obligation
190.4
172.9
24.6
19.8
215.0
192.7
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
2016
£m
178.1
6.1
9.7
(0.5)
4.0
(9.2)
–
188.2
2015
£m
176.5
6.2
1.8
(0.8)
3.8
(9.4)
–
178.1
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
Insurance policy
Cash and other
2016
£m
9.9
0.4
–
–
0.6
(0.9)
1.8
11.8
2016
£m
23.7
–
44.6
28.5
20.4
36.4
34.6
2015
£m
10.0
0.4
–
–
0.7
(1.0)
(0.2)
9.9
2016
%
13
–
24
15
11
19
18
2016
£m
188.0
6.5
9.7
(0.5)
4.6
(10.1)
1.8
200.0
2015
£m
33.7
–
73.5
37.3
19.4
–
14.2
2015
£m
186.5
6.6
1.8
(0.8)
4.5
(10.4)
(0.2)
188.0
2015
%
19
–
41
21
11
–
8
188.2
100
178.1
100
The assets are invested in quoted pooled funds, apart from the insurance policy of £36.4m and £44.6m 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, providing a hedge against nominal rate liabilities.
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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
2016
£m
5.1
6.0
0.1
0.6
11.8
2016
%
43
51
1
5
100
2015
£m
4.6
5.1
0.1
0.1
9.9
2015
%
47
51
1
1
100
A sensitivity analysis of significant assumption on the UK scheme at 30 November is as follows:
Change in assumptions
Discount rate
Inflation and pension increases
Life expectancy
Decrease/(increase) in obligation (£m)
2016
2015
-0.5%pa +0.5%pa
-0.5%pa
+0.5%pa
(12.5)
7.2
11.1
(7.4)
(12.5)
6.9
11.2
(7.3)
-1 year
6.3
+1 year
(6.3)
-1 year
7.0
+1 year
(7.1)
Consistent with the previous year’s figures, these sensitivities have been calculated to show the movement in the defined benefit
obligation in isolation, taking into account the effects of the obligation on the matching annuity policy, and assume no other changes in
market conditions at the accounting date.
5. Amortisation and non-recurring items
During the year the Group recognised significant non-recurring items and amortisation of acquired intangible assets as detailed below:
Amounts charged/(credited) to operating profit
China factory start-up costs
Reorganisation costs
Pension administration costs
Pension buy-in costs
Profit from land sale
Acquisition-related costs
Total non-recurring items
Amortisation of acquired intangible assets
Total charge to operating profit
Tax credit in the year
Total charge to discontinued operations
Total charge to profit for the period
2016
£m
–
–
0.1
0.2
(1.1)
0.1
(0.7)
4.0
3.3
(0.6)
3.7
6.4
2015
£m
1.1
0.4
0.2
0.2
–
–
1.9
4.1
6.0
(1.4)
8.2
12.8
Total charge to operating profit
The Group recorded a profit of £1.1m on the sale of unused land at our North American manufacturing site in Asheville.
The Group also incurred £0.1m (2015: £0.2m) of non-recurring pension administration costs relating to its UK defined benefit scheme. A
further £0.2m (2015: £0.2m) of professional fees were incurred in respect of the medically-underwritten buy-in of £34m of UK pension
scheme liabilities, which completed on 3 December 2015.
During the prior year, construction and start-up costs relating to the Group’s construction of a new manufacturing facility in Changzhou,
China, totalled £1.1m and reorganisation costs of £0.4m were incurred in the integration of the Group’s operations into a single global
business.
Total charge to discontinued operations
The Group recorded £3.7m in discontinued operations consisting of a loss on disposal before tax of £2.2m, an associated tax credit on
the loss on disposal of £0.9m, redundancy costs of £0.7m, transaction costs of £0.5m, claims costs of £0.8m and £0.4m write off of
intangible assets linked to the disposed business.
In the prior year, the Group impaired the carrying value of its investment in, and loan to, its joint venture Bonar Natpet LLC, resulting in a
charge of £8.2m.
Low & Bonar Annual Report and Accounts 2016
95
Notes to the Accounts continued
6. Financial income and financial expense
Financial income
Interest income
Financial expense
Interest on bank overdrafts and loans
Amortisation of bank arrangement fees
Net interest on pension scheme net liabilities
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 charge in the income statement from continuing operations
Tax from discontinued operations
Tax on disposal of grass yarns business
Total tax charge in the income statement
The amount of deferred tax income relating to changes in tax rates is £nil (2015: £nil).
2016
£m
0.2
0.2
(5.2)
(0.4)
(0.1)
(5.7)
2015
£m
0.1
0.1
(3.9)
(0.4)
(0.2)
(4.5)
2016
£m
2015
£m
–
–
10.2
(0.3)
9.9
(1.7)
8.2
–
(0.9)
7.3
–
–
8.5
(0.1)
8.4
(2.2)
6.2
–
–
6.2
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 20.00% (2015: 20.33%) to the profit before tax are as follows:
Profit before tax from continuing operations
Loss before tax from discontinued operations
Profit before tax from total operations
Tax charge at 20.00% (2015: 20.33%)
Expenses not deductible and income not taxable
Higher tax rates on overseas earnings
Current tax losses not utilised
Tax losses 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
2016
£m
25.9
(4.1)
21.8
4.4
1.0
3.5
0.3
(1.8)
0.2
(0.3)
7.3
2016
£m
0.3
0.3
2015
(restated)
£m
21.4
(9.0)
12.4
2.5
(0.3)
2.5
2.1
–
(0.5)
(0.1)
6.2
2015
£m
–
–
A 1% reduction in the main rate of UK corporation tax from 20% to 19% will take effect from 1 April 2017. A further reduction from 19% to
17% will take effect from 1 April 2020. Given that the Group does not expect to pay corporation tax in the UK in the foreseeable future,
this change is not considered to have any material impact on the Group.
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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 £86.9m (2015: £11.2m).
9. Dividends
Amounts recognised as distributions to equity shareholders in the year were as follows:
Final dividend for the year ended 30 November 2015 – 1.80 pence per share (2014: 1.75 pence per share)
Interim dividend for the year ended 30 November 2016 – 1.00 pence per share (2015: 0.98 pence per share)
2016
£m
5.9
3.3
9.2
2015
£m
5.8
3.2
9.0
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The Directors have proposed a final dividend in respect of the financial year ended 30 November 2016 of 2.00 pence per share which
will absorb an estimated £6.6m of shareholders’ funds. This has not been provided for in these accounts because the dividend was
proposed after the year end. If it is approved by shareholders at the Annual General Meeting of the Company on 12 April 2017, it will be
paid on 13 April 2017 to Ordinary Shareholders who are on the register of members at close of business on 17 March 2017.
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During the year the Board declared a final dividend on Ordinary Shares in relation to the year ended 30 November 2015 of 1.80 pence
per share, which was paid to Ordinary Shareholders on the register of members at close of business on 18 March 2016.
The Directors declared an interim dividend on Ordinary Shares in relation to the year ended 30 November 2016 of 1.00 pence per share,
which was paid to Ordinary Shareholders on the register of members at close of business on 26 August 2016.
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
2016
Weighted
average
number of
shares
(millions)
Earnings
£m
Per share
amount
Pence
Earnings
(restated)
£m
2015
Weighted
average
number of
shares
(millions)
Per share
amount
(restated)
Pence
17.1
328.984
5.20
14.7
328.116
4.47
–
3.330
–
6.230
Diluted earnings per share
17.1
332.314
5.15
14.7
334.346
4.39
Statutory – discontinued operations
Basic earnings per share
Earnings attributable to Ordinary Shareholders
Effect of dilutive items
Share-based payment
(3.2)
328.984
(0.98)
(9.0)
328.116
(2.74)
–
3.330
–
6.230
Diluted earnings per share
(3.2)
332.314
(0.97)
(9.0)
334.346
(2.69)
Statutory – total operations
Basic earnings per share
Earnings attributable to Ordinary Shareholders
Effect of dilutive items
Share-based payment
13.9
328.984
4.22
5.7
328.116
1.73
–
3.330
–
6.230
Diluted earnings per share
13.9
332.314
4.18
5.7
334.346
1.70
Before amortisation and non-recurring items –
continuing operations
Basic earnings per share
Earnings attributable to Ordinary Shareholders
Effect of dilutive items
Share-based payment
19.8
328.984
6.01
19.3
328.116
5.86
–
3.330
–
6.230
Diluted earnings per share
19.8
332.314
5.95
19.3
334.346
5.75
Low & Bonar Annual Report and Accounts 2016
97
Notes to the Accounts continued
11. Goodwill
Cost
At 1 December
Disposal of the grass yarns business
Exchange adjustments
At 30 November
Accumulated impairment losses
At 1 December
Disposal of the grass yarns business
Impairment loss recognised
At 30 November
Net book value at 30 November
Group
2016
£m
78.0
(8.4)
13.0
82.6
8.4
(8.4)
–
–
2015
£m
86.4
–
(8.4)
78.0
8.4
–
–
8.4
82.6
69.6
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. During the year, the artificial grass yarns business was disposed of and the associated goodwill was also
disposed of. A summary of the carrying value presented at CGU level is shown below:
Cash generating unit
Building & Industrial
Civil Engineering
Coated Technical Textiles
Interiors & Transportation
At 30 November
Group
2016
Net book
value
£m
2015
Net book
value
£m
10.9
19.0
37.6
15.1
82.6
9.0
17.0
31.1
12.5
69.6
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 approved by the Board, which take into account
current market conditions and the 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.
Long-term growth rates
The value in use calculations assume terminal growth rates of 2% (2015: 2%) 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 were calculated separately for each CGU and were 11.4% in each case (2015: 12.4% to 12.8%)
and were used to calculate value in use for each CGU, reflecting management’s views of the individual risks and rewards associated with
each CGU.
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Sensitivity
Whilst management believe that the assumptions used in impairment testing are realistic, it is possible that variations in key assumptions
could affect the recoverable amounts. Accordingly a sensitivity analysis has been performed by varying key assumptions whilst holding
other variables constant.
The recoverable amounts of all CGUs except Civil Engineering show significant headroom compared to their carrying value when
reasonably likely changes are made to key assumptions.
Civil Engineering activity within Europe is expected to remain challenging. Whilst many Western European countries showed slight
growth in 2016, Eastern European countries experienced significant reductions in spending. Despite this, the operating profits in the
CGU grew by 27.3% on a constant currency basis. The 2017 budget for Civil Engineering, which has been used in preparing the cash
flow projections in the impairment review, assumed that whilst there is still some uncertainty in the outlook for 2017 in Europe, the CGU
continues to capitalise on a successful year to make market share gains and there is continued investment in organisational capability to
leverage market opportunities.
A summary of the Civil Engineering CGU’s sensitivity to changes in the key assumptions, setting out the required changes in cash flow,
growth rate and discount rate beyond which an impairment would be triggered, is shown below:
Civil Engineering
Cash flow Long-term growth rates
Discount rate
Sensitivity
(decrease)
Current
assumption
Sensitivity
(rate)
Current
assumption
Sensitivity
(rate)
11%
2%
0.7%
11.4%
12.6%
Goodwill
2016
£m
19.0
Low & Bonar Annual Report and Accounts 2016
99
Notes to the Accounts continued
12. Intangible assets
Group
Cost
At 30 November 2014
Exchange adjustment
Additions
At 30 November 2015
Exchange adjustment
Additions
Disposal of the grass yarns
business
At 30 November 2016
Aggregate amortisation
At 30 November 2014
Exchange adjustment
Charge for the year
At 30 November 2015
Exchange adjustment
Charge for the year
Disposal of the grass yarns
business
At 30 November 2016
Net book value
At 30 November 2016
At 30 November 2015
At 30 November 2014
Computer
software
£m
Research
and
development
£m
Order
backlog
£m
Customer
relationships
£m
Marketing
related
£m
Technology
based
£m
Non-
compete
agreements
£m
3.9
(0.4)
–
3.5
0.8
2.8
–
7.1
2.6
(0.4)
0.4
2.6
0.6
0.4
–
3.6
3.5
0.9
1.3
5.2
(0.7)
0.7
5.2
1.2
0.5
(0.4)
6.5
2.0
(0.2)
0.7
2.5
0.6
0.8
–
3.9
2.6
2.7
3.2
0.4
–
–
0.4
0.1
–
(0.1)
0.4
0.3
–
–
0.3
0.1
–
(0.1)
0.3
0.1
0.1
0.1
32.7
14.0
20.2
(3.4)
–
29.3
5.3
–
(1.3)
33.3
19.8
(2.1)
2.2
19.9
3.4
2.0
(1.3)
24.0
9.3
9.4
12.9
(1.7)
–
12.3
2.6
–
–
14.9
(2.2)
–
18.0
3.4
–
(1.8)
19.6
7.4
16.5
(0.9)
1.0
7.5
1.6
1.0
–
10.1
4.8
4.8
6.6
(1.8)
0.9
15.6
2.9
1.0
(1.8)
17.7
1.9
2.4
3.7
1.2
(0.1)
–
1.1
0.2
–
(0.7)
0.6
1.2
(0.1)
–
1.1
0.2
–
(0.7)
0.6
–
–
–
Total
£m
77.6
(8.5)
0.7
69.8
13.6
3.3
(4.3)
82.4
49.8
(5.5)
5.2
49.5
9.4
5.2
(3.9)
60.2
22.2
20.3
27.8
Notes
1 Research and development assets relate to expenditure incurred in the course of research where findings may be applied to a plan or design for the production of
new or substantially improved products and processes.
2 Customer relationships consist of customer lists, customer contracts and relationships and non-contractual customer relationships.
3 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.
4 Technology-based intangible assets relate to innovations and technological advances and include patented and unpatented technology, databases and
trade secrets.
5 Non-compete agreements prohibit a seller from competing with the purchaser of a business.
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Total
£m
0.4
–
–
–
–
0.4
–
0.7
–
(0.3)
–
0.8
0.2
–
–
–
–
0.2
–
0.1
–
(0.1)
–
0.2
0.6
0.2
0.2
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
50.8
220.6
13.0
284.4
0.4
Cost
At 30 November 2014
Exchange adjustment
Additions
Reclassifications
Disposals
At 30 November 2015
Exchange adjustment
Additions
Reclassifications
Disposals
Disposal of the grass yarns
business
At 30 November 2016
Accumulated depreciation
At 30 November 2014
Exchange adjustment
Charge for the year
Reclassifications
Disposals
At 30 November 2015
Exchange adjustment
Charge for the year
Reclassifications
Disposals
Disposal of the grass yarns
business
(4.9)
0.5
0.1
–
(16.6)
6.2
2.5
(1.1)
46.5
211.6
10.2
1.3
9.5
(0.3)
–
67.2
40.7
10.1
26.3
(2.4)
(14.7)
271.6
19.0
146.1
(1.9)
1.3
–
–
(12.5)
11.1
–
(1.1)
18.4
143.6
3.9
1.4
(0.2)
(0.2)
–
27.2
14.4
(0.9)
(2.1)
(6.4)
(1.0)
26.5
(2.6)
–
35.9
4.3
7.1
(36.7)
–
(22.5)
33.2
–
(1.1)
294.0
55.2
18.5
(0.9)
(2.7)
–
(14.7)
10.6
349.4
–
–
–
–
0.4
–
0.7
–
(0.3)
–
0.8
–
–
–
–
–
–
–
–
–
–
–
–
165.1
0.2
(14.4)
12.4
–
(1.1)
162.0
31.1
15.8
(1.1)
(2.3)
(6.4)
199.1
150.3
132.0
119.3
–
–
–
–
0.2
–
0.1
–
(0.1)
–
0.2
0.6
0.2
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 30 November 2016
23.3
175.8
Net book value
At 30 November 2016
At 30 November 2015
At 30 November 2014
43.9
28.1
31.8
95.8
68.0
74.5
10.6
35.9
13.0
The carrying value of freehold land not depreciated at 30 November 2016 was £4.2m (2015: £3.5m). Committed capital expenditure at
30 November 2016 totalled £16.6m (2015: £3.6m).
Low & Bonar Annual Report and Accounts 2016
101
Notes to the Accounts continued
14. Investment in subsidiaries
Cost at 1 December and 30 November
Provision for impairment at 1 December and 30 November
Net book value at 1 December and 30 November
Company
2016
£m
2015
£m
103.5
103.5
(10.3)
93.2
(9.9)
93.6
During the year, £0.4m (2015: £nil) was provided in respect of shares held in a dormant entity. The subsidiary undertakings are shown
within Note 35.
15. Investment in joint venture
Cost
At 1 December
Equity investment in joint venture
Share of retained loss
Exchange adjustment
At 30 November
Impairment provision
At 1 December
Impairment of investment in joint venture
At 30 November
Net book value at 30 November
Group
2016
£m
3.0
–
–
–
3.0
(3.0)
–
(3.0)
2015
£m
3.6
1.1
(1.8)
0.1
3.0
–
(3.0)
(3.0)
–
–
During the prior year the carrying value of the Group’s investment in its joint venture was reviewed in the light of continuing losses, driven
by a reduction in infrastructure spend in the Middle East, and the resulting over-capacity in the market. This calculation compared the
estimated value in use of the Group’s investment – based on the entity’s projected cash flows, discounted using a pre-tax discount rate
of 12.3% to calculate its net present value – to its carrying value in the accounts, resulting in an impairment charge of £3.0m. In addition,
£5.2m was provided against loans receivable from the joint venture.
The Group’s share of the assets, liabilities, income and expenses of its joint venture is shown below:
Total assets
Total liabilities
Net assets
Group share of net assets
Total revenue
Total loss for the year
Group share of loss for the year
2016
£m
42.7
(35.7)
7.0
3.5
16.2
(2.6)
(1.3)
2015
£m
37.8
(31.9)
5.9
3.0
12.4
(3.6)
(1.8)
The £1.3m loss for the year has been provided within Liabilities held for sale (see Note 29) pending the conclusion of negotiations with
interested parties on the disposal of the Group’s investment. The difference between the Group’s share of net assets of £3.5m and the
provision of £1.3m represents prior year impairments, foreign exchange movements and capitalisation of losses. The joint venture is
shown within Note 35.
16. Investment in associates
Cost and net book value
At 1 December
Share of retained profit
Dividends received
At 30 November
Group
2016
£m
0.5
0.1
(0.1)
0.5
2015
£m
0.5
–
–
0.5
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The Group’s share of the assets, liabilities, income and expenses of its associated undertakings is shown below:
Total assets
Total liabilities
Net assets
Group share of net assets
Total revenue
Total profit for the year
Group share of profit for the year
The associates are shown within Note 35.
17. Inventories
Raw materials
Work in progress
Finished goods
2016
£m
1.4
(0.2)
1.2
0.5
3.3
0.3
0.1
Group
2016
£m
23.5
17.1
56.9
97.5
2015
£m
1.1
–
1.1
0.5
3.1
0.2
–
2015
£m
20.6
14.1
47.9
82.6
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.
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
2016
£m
64.9
(1.5)
63.4
10.5
5.2
79.1
2015
£m
65.3
(2.4)
62.9
4.9
3.3
71.1
Company
2016
£m
2015
£m
39.9
22.3
151.5
0.5
0.4
152.4
148.2
0.4
0.4
149.0
Included within the Group’s other receivables is £nil (2015: £nil) 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.
Low & Bonar Annual Report and Accounts 2016
103
Notes to the Accounts continued
18. Trade and other receivables continued
Impairment losses
The age profile of gross trade receivables at the balance sheet date was:
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
Exchange adjustments
Group
2016
£m
53.8
4.7
2.4
4.0
64.9
Group
2016
£m
(2.4)
(0.5)
0.2
1.6
(0.4)
(1.5)
2015
£m
52.9
5.8
2.9
3.7
65.3
2015
£m
(2.8)
(0.2)
–
0.1
0.5
(2.4)
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
Group
2016
£m
–
–
(0.1)
(1.4)
(1.5)
2015
£m
–
–
(0.1)
(2.3)
(2.4)
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 2016 was £1.5m (2015: £2.4m).
Management believe that this provision is adequate to cover the risk of bad debts and exposure to credit risk. At 30 November 2016,
70.5% (2015: 68.9%) of trade receivables were insured.
19. Trade and other payables
Current
Trade payables
Other taxes and social security
Other payables
Accruals
Current tax liabilities
Group
2016
£m
57.6
2.1
7.0
17.7
84.4
4.4
88.8
2015
£m
52.4
2.2
7.5
14.9
77.0
5.7
82.7
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Current
Amounts owed to subsidiaries
Other taxes and social security
Other payables
Accruals
Current tax liabilities
Company
2016
£m
16.8
0.2
1.5
0.7
19.2
–
19.2
2015
£m
18.2
0.1
6.3
1.8
26.4
–
26.4
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Included within the Group’s and Company’s other payables is £nil (2015: £5.3m) 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 2016.
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.
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
2016
£m
Book value
2016
£m
Fair value
2015
£m
Book value
2015
£m
Fair value
2016
£m
Book value
2016
£m
Fair value
2015
£m
Book value
2015
£m
26.3
73.9
(89.0)
–
(0.1)
(0.4)
0.9
(86.8)
(51.6)
26.3
73.9
(89.0)
–
(0.1)
(0.4)
0.9
(86.8)
(50.9)
(126.8)
(126.1)
33.9
67.8
(84.3)
(0.1)
–
(0.4)
1.2
(105.2)
(32.0)
(119.1)
33.9
67.8
(84.3)
(0.1)
–
(0.4)
1.2
(105.2)
(31.6)
(118.7)
1.4
191.9
(19.2)
–
(1.3)
(0.4)
0.7
(48.7)
–
1.4
191.9
(19.2)
–
(1.3)
(0.4)
0.7
(48.7)
–
124.4
124.4
5.3
170.9
(26.4)
(0.1)
(2.3)
(0.4)
1.2
(67.3)
(32.0)
48.9
5.3
170.9
(26.4)
(0.1)
(2.3)
(0.4)
1.2
(67.3)
(31.6)
49.3
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.
Low & Bonar Annual Report and Accounts 2016
105
Notes to the Accounts continued
20. Financial assets, liabilities, derivatives and financial risk management continued
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
The Group’s borrowing facilities at 30 November 2016 totalled €246m (£208m) (2015: €232.5m (£163.1m)), 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 1.0% to 2.0% 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;
¡ a €60m senior loan note raised by private placement with Pricoa Capital Group Limited; this funding is unsecured and is scheduled
for repayment between September 2022 and September 2026 in even tranches, and bears interest at a fixed rate of 2.57% per
annum for the term of the loan; and
¡ RMB150m of unsecured revolving and term loan facilities, maturing in June 2020, arranged in July 2015 to finance the construction of
the Group’s manufacturing facility in Changzhou, China.
The Group’s objectives when managing capital are:
¡ to safeguard the Group’s ability to continue as a going concern, so that it may 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 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.
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
5.9% €45m Senior Note due 2016
Borrowings falling due after more than one year
Bank loans and overdrafts
2.57% €60m Senior Note due 2022-2026
Other borrowings
– Preference shares
All of the Company’s and Group’s borrowings are unsecured.
Group
2016
£m
111.0
202.4
313.4
2015
£m
102.1
172.0
274.1
Group
Company
2016
£m
2.2
5.8
7.8
10.5
26.3
2015
£m
–
16.3
5.9
11.7
33.9
2016
£m
0.8
–
0.6
–
1.4
Group
Company
2016
£m
0.1
–
0.1
86.1
50.7
0.4
2015
£m
–
31.5
31.5
104.1
–
0.4
137.2
104.5
2016
£m
1.3
–
1.3
48.0
–
0.4
48.4
2015
£m
–
–
–
5.3
5.3
2015
£m
2.5
31.5
34.0
66.0
–
0.4
66.4
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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:
Non-derivative financial liabilities:
Multicurrency revolving facility
– Sterling
– Euro
– US Dollar
2.57% €60m Senior Note due 2022-2026
RMB150m facility
Bank overdraft – Euro
Preference shares
Prepaid arrangement fees
Trade and other payables
Derivative financial liabilities:
Forward exchange contracts used for hedging
– Outflow
Non-derivative financial liabilities:
Multicurrency revolving facility
– Sterling
– Euro
– US Dollar
5.9% €45m Senior Note due 2016
RMB 150m facility
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 2016
2.3
1.5
2.3
2.6
5.6
1.5
5.8
–
(59.7)
(14.9)
(50.9)
(12.2)
(0.1)
(0.4)
0.9
–
(62.1)
(16.1)
(60.7)
(14.7)
(0.1)
(0.4)
–
–
(0.9)
(0.3)
(1.3)
(0.7)
(0.1)
–
–
(137.3)
(89.0)
(154.1)
(89.0)
(3.3)
(88.8)
–
(0.9)
(0.3)
(1.3)
(0.7)
–
–
–
(3.2)
(0.2)
–
(60.3)
(15.5)
(3.9)
(13.3)
–
–
–
(93.0)
–
–
–
–
(54.2)
–
–
(0.4)
–
(54.6)
–
–
–
–
–
–
–
(226.3)
(243.1)
(92.1)
(3.4)
(93.0)
(54.6)
Effective
rate
%
Carrying
amount
£m
Contractual
cash flows
£m
<1 year
£m
1–2 years
£m
2–5 years
£m
>5 years
£m
Group 2015
2.1
1.6
1.8
5.9
5.6
5.8
(34.0)
(48.5)
(12.3)
(31.6)
(10.4)
(0.4)
1.2
(136.0)
(84.3)
(36.7)
(51.4)
(13.1)
(33.2)
(13.0)
(0.4)
–
(147.8)
(84.3)
(0.7)
(0.8)
(0.2)
(33.2)
(0.6)
–
–
(35.5)
(82.7)
(0.7)
(0.8)
(0.2)
–
(0.6)
–
–
(2.3)
(1.6)
(35.3)
(49.8)
(12.7)
–
(11.8)
–
–
(109.6)
–
(0.1)
(0.1)
(0.1)
–
–
(220.4)
(232.2)
(118.3)
(3.9)
(109.6)
–
–
–
–
(0.4)
–
(0.4)
–
–
(0.4)
Low & Bonar Annual Report and Accounts 2016
107
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:
Multicurrency revolving facility
– Sterling
– Euro
– US Dollar
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:
Multicurrency 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 2016
2.3
1.5
2.3
2.5
2.5
2.5
5.8
–
(33.8)
(14.9)
–
(1.3)
–
(0.4)
0.7
(49.7)
(19.2)
–
(35.1)
(16.1)
–
(1.3)
–
(0.4)
–
(52.9)
(19.2)
–
(0.5)
(0.3)
–
(1.3)
–
–
–
–
(0.5)
(0.3)
–
(34.1)
(15.5)
–
–
–
–
–
–
–
–
–
–
(2.1)
(19.2)
(0.8)
–
(49.6)
–
–
–
–
–
–
(68.9)
(72.1)
(21.3)
(0.8)
(49.6)
–
–
–
–
–
–
(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 2015
2.1
1.6
1.8
5.9
2.4
1.9
2.1
5.8
(34.0)
(21.0)
(12.3)
(31.6)
(0.8)
(1.1)
(0.4)
(0.4)
1.2
(36.7)
(22.2)
(13.1)
(33.2)
(0.8)
(1.1)
(0.4)
(0.4)
–
(100.4)
(26.4)
(107.9)
(26.4)
(0.1)
(0.1)
(126.9)
(134.4)
(0.7)
(0.3)
(0.2)
(33.2)
(0.8)
(1.1)
(0.4)
–
–
(36.7)
(26.4)
(0.1)
(63.2)
(0.7)
(0.3)
(0.2)
–
–
–
–
–
–
(1.2)
–
–
(1.2)
(35.3)
(21.6)
(12.7)
–
–
–
–
–
–
(69.6)
–
–
(69.6)
–
–
–
–
–
–
–
(0.4)
–
(0.4)
–
–
(0.4)
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Foreign exchange risk
(a) Translational
The Group has significant net assets based outside of the UK, predominantly in the Eurozone, the US and China, with further amounts
held in the Czech Republic and the Middle East. 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’s borrowing under its
RMB150m facilities acts as a natural balance sheet hedge against the Group’s investments in China. 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 2015 retranslated using 2016 average exchange rates
would have been £3.4m higher.
(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:
Carrying and fair value amount 2016
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
–
–
–
–
–
–
Forward exchange contracts
Carrying and fair value amount 2015
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
5.3
The gains and losses on ineffective portions of such derivatives are recognised immediately in the income statement. During the year to
30 November 2016, an amount of £nil (2015: £nil) was recognised due to hedge ineffectiveness. The amount recognised in equity in the
year in respect of hedges was a loss of £nil (2015: £nil).
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:
2016
2015
Euro/Saudi Riyal
Currency
million
Average
exchange
rate
–
–
Currency
million
29.9
Average
exchange
rate
4.03
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
2016
2015
Currency
million
Average
exchange
rate
–
–
Average
rate
2016
1.23
1.37
33.31
384.22
9.02
Average
rate
2015
1.37
1.53
37.53
425.15
9.60
Currency
million
29.9
Year end
rate
2016
1.18
1.25
31.87
368.84
8.61
Average
exchange
rate
4.03
Year end
rate
2015
1.43
1.51
38.54
443.05
9.63
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109
Notes to the Accounts continued
20. Financial assets, liabilities, derivatives and financial risk management continued
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:
2016
2015
US Dollar
Euro
Czech Crown
Chinese Yuan
Profit
£m
(1.0)
(0.3)
(0.2)
(0.2)
Equity
£m
(1.7)
(6.4)
(1.0)
(3.4)
Profit
£m
(1.1)
(0.2)
(0.3)
(0.1)
Equity
£m
(1.9)
(5.2)
(0.9)
(2.5)
A 10% weakening of Sterling against the above currencies as at 30 November 2016 and 2015 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.
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
2016
£m
–
73.9
26.3
2015
£m
–
67.8
33.9
100.2
101.7
2016
£m
–
191.9
1.4
193.3
2015
£m
–
170.9
5.3
176.2
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 2016 and 2015 were on a floating rate basis, apart from
preference debt with an average coupon rate of 5.75% and in the current year the €60m Senior Note due 2022-2026 which bears interest
at 2.57% and in the prior year the €45m Senior Note due 2016 which bore interest at 5.9% 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 1.0% and 2.0%, and cash deposits and bank overdrafts which bear interest at market rates; and borrowings under
the Group’s RMB150m facility, which bear interest at rates set by reference to local base rate.
110
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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:
Group
Company
Fixed rate
Net debt
Financial instruments
Total fixed rate
Floating rate
Net debt
Financial instruments
Total floating rate
2016
£m
(51.1)
–
(51.1)
(59.9)
–
(59.9)
2015
£m
(31.9)
–
(31.9)
(70.2)
(0.1)
(70.3)
Total interest-bearing net debt and financial instruments
(111.0)
(102.2)
2016
£m
(0.4)
–
(0.4)
(47.9)
–
(47.9)
(48.3)
2015
£m
(31.9)
–
(31.9)
(63.2)
(0.1)
(63.3)
(95.2)
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 £0.7m (2015: £0.5m). The impact on the profit
or loss for the period would have been to increase or decrease profit by £1.0m (2015: £0.7m). 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
Tax losses
Other
Tax assets/(liabilities)
Unrecognised deferred tax assets:
Tax losses
Retirement benefit liabilities
Employee share schemes
Accelerated tax depreciation
2016
2015
Assets
£m
Liabilities
£m
Net assets/
(liabilities)
£m
Assets
£m
Liabilities
£m
Net assets/
(liabilities)
£m
–
3.1
–
1.1
1.4
5.6
(4.2)
–
(13.6)
–
(1.3)
(19.1)
(4.2)
3.1
(13.6)
1.1
0.1
(13.5)
–
2.2
–
1.0
1.2
4.4
(4.4)
–
(12.2)
–
(0.6)
(17.2)
2016
£m
25.2
1.5
0.7
0.4
27.8
(4.4)
2.2
(12.2)
1.0
0.6
(12.8)
2015
£m
27.0
–
1.4
0.9
29.3
Tax losses include an amount of £6.5m (2015: £6.9m) in respect of capital losses. The tax losses have no expiry date.
Movement in deferred tax during the year ended 30 November 2016:
Intangible assets
Retirement benefit liabilities
Accelerated tax depreciation
Tax losses
Other
Recognised
in other
comprehensive
income
£m
Balance
1 Dec 2015
£m
Recognised
in income
£m
Exchange
adjustments
£m
Balance
30 Nov 2016
£m
(4.4)
2.2
(12.2)
1.0
0.6
(12.8)
–
0.3
–
–
–
0.3
1.0
(0.1)
1.1
–
(0.3)
1.7
(0.8)
0.7
(2.5)
0.1
(0.2)
(2.7)
(4.2)
3.1
(13.6)
1.1
0.1
(13.5)
Low & Bonar Annual Report and Accounts 2016
111
Notes to the Accounts continued
21. Deferred taxation continued
Group continued
Movement in deferred tax during the year ended 30 November 2015:
Intangible assets
Retirement benefit liabilities
Accelerated tax depreciation
Tax losses
Other
Recognised
in other
comprehensive
income
£m
Balance
1 Dec 2014
£m
Recognised
in income
£m
Exchange
adjustments
£m
Balance
30 Nov 2015
£m
(6.1)
2.3
(13.2)
–
0.6
(16.4)
–
–
–
–
–
–
1.0
–
0.5
1.0
(0.3)
2.2
0.7
(0.1)
0.5
–
0.3
1.4
(4.4)
2.2
(12.2)
1.0
0.6
(12.8)
The Group has recognised deferred tax assets of £5.6m (2015: £4.4m) 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 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
2016
£m
13.3
1.5
0.4
15.2
2015
£m
15.3
–
1.4
16.7
Tax losses include an amount of £4.4m (2015: £4.6m) in respect of capital losses. The tax losses have no expiry date. There are no timing
differences arising in respect of the deferred tax liabilities which have not been recognised.
22. Provisions
Current
At 30 November 2014
Created in the year
Utilised in the year
Exchange difference
At 30 November 2015
Created in the year
Utilised in the year
Exchange difference
At 30 November 2016
23. Other payables
Non-current
Other payables
Non-current
Amounts owed to subsidiaries
Restructuring
£m
0.5
–
(0.4)
–
0.1
–
(0.1)
–
–
2015
£m
1.6
2015
£m
–
Group
2016
£m
0.2
Company
2016
£m
–
112
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24. Share capital
Allotted, called up and fully paid
At 1 December
328,983,477 (2015: 327,813,741) Ordinary Shares at 5 pence each
154,571,152 Deferred Shares at 20 pence each
314,549 Ordinary Shares (2015: 1,169,736) issued under share option plans and
long-term incentive plan
At 30 November
329,298,026 (2015: 328,983,477) Ordinary Shares of 5 pence each
154,571,152 Deferred Shares of 20 pence each
Group and Company 2016 Group and Company 2015
Ordinary
Shares
£m
Deferred
Shares
£m
Ordinary
Shares
£m
Deferred
Shares
£m
16.5
–
–
30.9
16.4
–
–
30.9
–
–
0.1
–
16.5
–
–
30.9
16.5
–
–
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.
Ordinary Share Capital
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) 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.
Low & Bonar Annual Report and Accounts 2016
113
Notes to the Accounts continued
24. Share capital continued
Ordinary Share Capital continued
The Company operates an employee benefit trust to hold shares in relation to satisfying awards made under certain employee share
schemes. At 30 November 2016, the trust held 26,752 Ordinary Shares (2015: 26,752 Ordinary Shares).
Shares issued during the year
During the year ended 30 November 2016, 314,549 shares (2015: 846,482 shares) were issued to employees who exercised share
options. No shares (2015: 323,254) were issued pursuant to awards made under the LTIP granted in 2013.
Preference Shares
Allotted, called up and fully paid
100,000 (2015: 100,000) 6% first cumulative preference stock of £1.00 each
100,000 (2015: 100,000) 6% second cumulative preference stock of £1.00 each
200,000 (2015: 200,000) 5.5% third cumulative preference stock of £1.00 each
Group and Company
2016
£m
0.1
0.1
0.2
0.4
2015
£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’ Remuneration Report on pages 51 to 68. 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 3.2 million Ordinary Shares outstanding at
30 November 2016 (2015: 3.9 million Ordinary Shares). The number of options outstanding which were granted in the last financial year
was 0.9 million (2015: 1.6 million).
Details of the options included in the IFRS 2 charge are as follows:
Year of grant
Share options
2006
2011
2011
2012
2013
2013
2014
2014
2015
2015
2016
2016
Phantom share options
2006
Total
Average
fair value
in pence
27.23
22.17
22.16
19.31
18.55
20.29
22.37
21.89
14.20
13.47
12.59
11.84
Exercise
price
in pence
108.18
42.80
42.80
51.20
58.80
58.80
68.80
68.80
48.80
48.80
49.00
49.00
Exercise period
1 Dec 2015
Granted
Exercised
Forfeited
30 Nov 2016
Ordinary Shares of 5p each
2009 to 2016
2014 to 2016
2014 to 2016
2015 to 2017
2016 to 2018
2016 to 2018
2017 to 2019
2017 to 2019
2018 to 2020
2018 to 2020
2019 to 2021
2019 to 2021
442,126
38,922
36,688
20,944
135,435
620,144
118,421
571,818
795,153
801,291
–
–
–
–
–
–
–
–
–
–
–
–
405,528
565,248
–
(38,922)
–
(1,468)
(19,897)
(215,671)
–
–
–
(36,014)
–
(2,577)
(442,126)
–
(36,688)
(9,689)
(14,284)
(173,876)
(29,823)
(116,290)
(101,309)
(102,543)
(26,448)
(28,354)
–
–
–
9,787
101,254
230,597
88,598
455,528
693,844
662,734
379,080
534,317
2.93
108.18
2009 to 2016
336,836
–
–
(336,836)
–
3,917,778
970,776
(314,549)
(1,418,266) 3,155,739
The weighted average exercise price of share options outstanding at 30 November 2016 was 53.37p (2015: 66.80p). The weighted average
exercise prices of share options granted, exercised and forfeited in the year to 30 November 2016 were 49.00p, 55.56p and 87.00p,
respectively (2015: 48.80p, 31.37p and 64.99p, respectively). 0.1 million share options were exercisable at 30 November 2016 (2015: 0.8 million).
The fair values of share options granted in the year to 30 November 2016 ranged from 11.84p to 13.33p (2015: 13.47p to 14.92p) and
were derived using the Black-Scholes model. The assumed future volatility ranged from 26.61% to 30.34% (2015: 36% to 38%), the
dividend yield was 4.48% (2015: 4.6%), the expected term ranged from 3.4 years to 5.4 years (2015: 3.4 years to 5.4 years) and the
risk-free rate ranged from 0.39% to 0.77% (2015: 0.9% to 1.3%).
The average share price in the year ended 30 November 2016 was 62.70p (2015: 63.19p).
114
Low & Bonar Annual Report and Accounts 2016
Long-term incentive plan awards
Under the provisions of the long-term incentive plans there were awards for a total of 8.7 million Ordinary Shares outstanding at
30 November 2016 (2015: 7.5 million Ordinary Shares). The number of awards outstanding which were granted in the last financial year
was 3.4 million (2015: 3.6 million).
Details of the awards included in the IFRS 2 charge are shown below:
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Year of grant
2013
2014
2014
2015
2015
2015
2016
2016
Total
Average
fair value
in pence
53.07
75.48
66.05
48.27
50.62
62.24
54.36
51.54
55.36
Award
price
in pence
70.50
89.75
82.00
57.25
59.50
71.00
63.50
63.50
66.70
Vesting period
1 Dec 2015
Awarded
Exercised
Forfeited
30 Nov 2016
Ordinary Shares of 5p each
–
2013 to 2016 1,848,967
–
2014 to 2017 1,489,349
–
2014 to 2017
542,168
–
2015 to 2018 3,251,089
–
76,965
2015 to 2018
–
270,383
2015 to 2018
–
2016 to 2018
138,848
– 3,305,096
2016 to 2019
–
– (1,848,967)
–
–
–
–
–
–
–
–
(145,482) 1,343,867
542,168
(187,683) 3,063,406
76,965
270,383
138,848
(40,000) 3,265,096
–
–
–
7,478,921 3,443,944
– (2,222,132) 8,700,733
None of the instruments awarded under the Group’s long-term incentive plans were exercisable at 30 November 2016 (2015: nil). The fair values
of awards made in the year to 30 November 2016 ranged from 39.58p to 63.50p (2015: 39.29p to 71.00p) and were derived using the Black-
Scholes or Stochastic models. The assumed future volatility ranged from 32.36% to 33.54% (2015: 34.5% to 34.9%) the dividend yield was 0%
(2015: 0%), the expected term was 2 to 3 years (2015: 3 years) and the risk-free rate ranged from 0.38% to 0.52% (2015: 0.66% to 0.97%).
The total amount charged to the Consolidated Income Statement in respect of share-based payments was £0.9m (2015: £0.6m).
Liabilities in respect of cash-settled share-based payments were not material at either 30 November 2016 or 30 November 2015.
25. Share premium account
At 1 December
Premium on Ordinary Shares issued during the year
At 30 November
26. Translation reserve
At 1 December
Adjustments on translation of net assets and results of overseas subsidiaries, net of hedging
Exchange differences recycled from reserves
At 30 November
27. Non-controlling interest
At 1 December
Share of profit after taxation
Dividends
Exchange adjustment
At 30 November
Group and Company
2016
£m
74.2
0.2
74.4
Group
2016
£m
(61.0)
36.7
(1.7)
(26.0)
Group
2016
£m
6.1
0.6
(0.3)
–
6.4
2015
£m
74.0
0.2
74.2
2015
£m
(43.0)
(18.0)
–
(61.0)
2015
£m
6.4
0.5
(1.0)
0.2
6.1
Low & Bonar Annual Report and Accounts 2016
115
Notes to the Accounts continued
28. Reconciliation of net cash flow movement to movement in net debt
For the year ended 30 November
Net (decrease)/increase 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
For the year ended 30 November
Net (decrease)/increase 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
2016
£m
2015
£m
(11.6)
20.1
(0.4)
(17.0)
(8.9)
(102.1)
(111.0)
Company
2016
£m
(3.8)
50.6
(0.4)
0.4
46.8
(95.1)
(48.3)
8.7
(28.8)
(0.2)
6.2
(14.1)
(88.0)
(102.1)
2015
£m
1.7
5.8
(0.4)
0.4
7.5
(102.6)
(95.1)
29. Discontinued operations
On 4 July 2016, the Board announced the disposal of the Group’s artificial grass yarns business (previously comprising the majority of its
Sport & Leisure global business unit). The disposal completed on 1 September 2016 and the prior period income statement has been
restated accordingly.
In addition to this, the Board are pursuing the disposal of the Group’s interest in the joint venture, Bonar Natpet LLC and negotiations are
well under way with our partner, Natpet. Therefore the Group’s interest in the joint venture has been classified as a disposal group held
for sale and presented separately in the balance sheet. The interest in the joint venture was previously presented separately on the face
of the income statement and balance sheet.
The results of the discontinued operations, which have been included in the Consolidated Income Statement, were as follows.
Revenue
Expenses
(Loss)/profit before tax
Attributable tax expense
Loss on disposal of grass yarns (Note 30)
Tax on loss on disposal of grass yarns
Net (loss)/profit from the disposal of the grass yarns business
Share of results from Bonar Natpet LLC
Impairment of investment in Bonar Natpet LLC
Net loss attributable to discontinued operations (attributable to owners of the Company)
Group
2016
£m
22.3
(22.9)
(0.6)
–
(2.2)
0.9
(1.9)
(1.3)
–
(3.2)
2015
£m
33.7
(32.7)
1.0
–
–
–
1.0
(1.8)
(8.2)
(9.0)
During the year ended 30 November 2016, the discontinued businesses contributed £(3.6m) (2015: £(0.5m)) to the Group’s net operating
cash flows and paid £nil (2015: £0.7m) in respect of investing activities and financing activities. Liabilities held for sale at 30 November 2016
represent the provision created for the Group’s share of the result for the year from Bonar Natpet LLC (Note 15).
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30. Disposal of the grass yarns business
Consideration received in cash and cash equivalents
Deferred consideration
Foreign exchange differences recycled from reserves
Analysis of assets and liabilities over which control was lost
Trade receivables
Prepayments and other debtors
Inventories
Equity participation in subsidiary
Property, plant and equipment
Payables
Net assets disposed of
Loss on disposal
2016
£m
21.7
4.3
1.7
8.3
0.7
16.0
0.8
8.3
(4.2)
29.9
(2.2)
The loss on disposal is included in the loss for the year from discontinued operations (Note 29).
Net cash inflow on disposal of the business comprises only the consideration received. The deferred consideration will be settled by
cash by the purchaser during 2017 and is included within Other receivables.
31. Operating lease commitments
At 30 November, the Group had total non-cancellable commitments under operating leases as follows:
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
Group
Company
2016
£m
1.7
1.3
1.0
0.3
4.3
4.2
2.7
6.2
4.1
17.2
2015
£m
1.3
1.0
1.2
1.2
4.7
4.3
4.0
7.9
14.8
31.0
2016
£m
2015
£m
–
–
–
–
–
0.4
0.4
0.8
–
1.6
–
–
–
–
–
0.1
–
–
–
0.1
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 2016, an accrual of £nil (2015: £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 2016, £11.2m of guarantees were outstanding (2015: £nil). At 30 November 2016, the Company had guaranteed
SAR 36.3m (£7.7m) (2015: SAR 38.3m (£6.8m)) of debt obligations of its joint venture Bonar Natpet LLC.
Low & Bonar Annual Report and Accounts 2016
117
Notes to the Accounts continued
33. Related party transactions
At 30 November 2016, the Group held a trade receivable of £0.1m (2015: £nil) and a trade payable of £0.2m (2015: £nil) due from/to
Bonar Natpet LLC, a joint venture, and both the Group and Company held a liability of £nil (2015: £5.3m) to National Petrochemical
Industrial Company (Natpet), the Group’s joint venture partner in Bonar Natpet LLC.
At 30 November 2016, the Group was owed £0.2m (2015: £0.2m) by the Low & Bonar Group Retirement Benefit Scheme.
The Company provides debt finance to various operating subsidiaries. A total of £191.4m was outstanding at 30 November 2016
(2015: £170.5m). The Company also borrows surplus funds from its subsidiaries. At 30 November 2016, the total amount payable to
subsidiaries was £16.8m (2015: £18.2m). The Company received income in respect of management services provided to its subsidiaries
totalling £6.4m (2015: £5.3m). The Company received interest income from related parties totalling £5.9m (2015: £5.2m) and accrued
interest payable to related parties of £0.2m (2015: £0.1m). The Company received dividend income from its subsidiaries of £77.9m
(2015: £16.0m).
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
2016
Number
11
£m
2.3
0.4
–
–
2.7
2015
Number
14
£m
3.3
0.4
–
0.5
4.2
Key personnel comprise two Executive Directors (2015: two) and nine other members of the Executive Leadership Team (2015: eight) and
no (2015: four) former members of the Executive Leadership team.
The aggregate amount of Directors’ remuneration was £0.8m (2015: £1.2m) and the aggregate gain made by the Directors on the
exercise of share options was £nil (2015: £nil). The cash paid into defined contribution schemes was £0.2m (2015: £0.2m) and two
Directors were members of defined contribution schemes (2015: two). Full details of Directors’ emoluments, pension benefits and
interests in the shares of the Company are set out in the Directors’ Remuneration Report on pages 51 to 68.
34. Post Balance Sheet event
On 17 January 2017, Low & Bonar acquired 100% of the share capital of Walflor Industries Inc., a company registered in Washington
State, USA, on a debt-free, cash-free basis for an initial consideration of $3.6m and a contingent consideration of up to $0.9m in cash
based on the commercial performance of the business in the 12 months following acquisition. The contingent consideration has been
fair-valued upon acquisition at $0.6m. The company produces rainscreens and acoustic mats and the acquisition significantly
strengthens our customer relationships in the US building products market and provides a West Coast platform for further growth.
The provisional fair value of the net assets acquired is $0.7m, of which $0.6m relates to property, plant and equipment acquired.
However, due to the limited time available between the acquisition and the approval of the financial statements, the Group has not yet
completed its assessment of the fair value of separately identifiable intangible assets.
118
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35. Group companies
Subsidiary undertakings
Building & Industrial/Civil Engineering/Interiors &
Transportation
Low & Bonar NV
Yihua Bonar Yarns & Fabrics Co. Ltd
Low & Bonar Hull Limited
Low & Bonar Hungary Kft
Low & Bonar BV
Low & Bonar Production GmbH
Low & Bonar Germany GmbH and Co. KG
Low & Bonar Paris SARL
Low & Bonar Inc
Bonar Xeroflor GmbH
XF Technologies BV
Low & Bonar Slovakia a.s
Low & Bonar (Shanghai) Trading Company Limited
Bonar High Performance Materials (Changzhou) Co. Ltd
Low & Bonar Dundee Limited
Bonar Xirion NV
Bonar Technical Yarns Inc
Bonar Yarns BV
Coated Technical Textiles
Low & Bonar Logistics GmbH
Low & Bonar GmbH
Low & Bonar Romania S.R.L.
Low & Bonar Oldham Ltd
Low & Bonar Italy S.r.l.
Low & Bonar Lyon SARL
Low & Bonar Martinsville Inc
Low & Bonar Czech s.r.o.
Low & Bonar Poland Sp. Z o.o.
Low & Bonar Turkey Teknik Tekstil Ticaret Limited Sirketi
Low & Bonar Latvia s.i.a.
Low & Bonar Middle East Trading LLC
Low & Bonar Technical Textiles OOO
Mehler Texnologies India Private Limited
Low & Bonar Brasil Têxtil E Participações Ltda
Holding companies
Bonar International Holdings Limited
Bonar International Sarl
LCM Construction Products Ltd
Low & Bonar Technical Textiles Holding BV
Colbond Holding BV
Low & Bonar Verwaltungs GmbH
Colbond (Nederland) BV
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
Non-woven fabrics
Woven fabrics
Woven fabrics
Specialist yarns
Specialist yarns
Specialist yarns
Specialist yarns
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
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Belgium
People’s Republic of China
England and Wales
Hungary
100.0
60.0
100.0
100.0
The Netherlands
100.0
Germany
100.0
Germany
100.0
France
100.0
USA
Germany
The Netherlands
Slovakia
People’s Republic of China
People’s Republic of China
Scotland
Belgium
USA
The Netherlands
Germany
Germany
Romania
England and Wales
Italy
France
USA
Czech Republic
Poland
Turkey
Latvia
UAE
Russia
India
Brazil
Scotland
Luxembourg
England and Wales
The Netherlands
The Netherlands
Germany
The Netherlands
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
Low & Bonar Annual Report and Accounts 2016
119
Notes to the Accounts continued
35. Group companies continued
Subsidiary undertakings
Dormant companies
A.G. Scott Textiles Limited
Bamber Carpets Limited
Bonar Nuway Limited
Bonar Offshore Canada Inc
Bonar Pack Centre Limited
Bonar Plastics Limited
Bonar Rotaform Limited
Bonar Silver Limited
Bonar Systems Limited
Bonar Ventures Limited
Bryanston 955 Limited
Cole Group PLC
Cupa Engineering Co Limited
Gaskell Carpet Tiles Limited
Goldtide Limited
Leisurewear Africa Limited
Lobex Limited
Lobo Nominees Limited
Low & Bonar Pension Scheme (1986) Trustee Limited
Low & Bonar Pension Trustees Limited
Low & Bonar UK Limited
Modulus Flooring Systems Limited
Nuway Manufacturing Co. Limited
Placell Limited
Platinum Prestige Limited
R.H.Cole Investments Limited
Rotaform Plastics Limited
Waddington Cartons Ltd
Joint venture
Bonar Natpet LLC
Associated undertakings
CPW GmbH
Enka Water Control Corporation
Principal product areas
Country
%
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Scotland
England and Wales
England and Wales
Canada
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Scotland
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
Scotland
Scotland
Scotland
Scotland
Scotland
Scotland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
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
Dormant
Germany
USA
33.3
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 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.
120
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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)
Reconciliation to statutory measures
Continuing operations
Operating profit before amortisation and non-recurring items
Amortisation
Non-recurring items
Operating profit (statutory)
Profit before tax, amortisation and non-recurring items
Amortisation
Non-recurring items
Profit before tax (statutory)
Capital Structure
Net debt
Total equity
Total
2016
£m
400.0
22.3
422.3
2015
(restated)
£m
362.1
33.7
395.8
34.7
1.8
36.5
31.4
(0.6)
30.8
29.2
0.5
29.7
25.9
(4.1)
21.8
34.7
(4.0)
0.7
31.4
29.2
(4.0)
0.7
25.9
31.8
1.0
32.8
25.8
(7.2)
18.6
27.4
(0.8)
26.6
21.4
(9.0)
12.4
31.8
(4.1)
(1.9)
25.8
27.4
(4.1)
(1.9)
21.4
2014
£m
410.6
–
410.6
31.7
–
31.7
23.2
–
23.2
25.2
–
25.2
16.7
–
16.7
31.7
(5.2)
(3.3)
23.2
25.2
(5.2)
(3.3)
16.7
2013
(restated)
£m
403.1
–
403.1
31.4
–
31.4
23.4
–
23.4
25.3
–
25.3
16.7
–
16.7
31.4
(5.6)
(2.4)
23.4
25.3
(5.6)
(3.0)
16.7
2012
£m
380.5
–
380.5
30.5
–
30.5
12.1
–
12.1
24.5
–
24.5
6.1
–
6.1
30.5
(5.8)
(12.6)
12.1
24.5
(5.8)
(12.6)
6.1
111.0
202.4
313.4
102.1
172.0
274.1
88.0
148.7
236.7
86.8
193.1
279.9
82.6
141.9
224.5
Per Ordinary Share
Basic earnings per share (including discontinued operations) (pence)
Dividends declared per share (pence)
4.22
3.0
1.73
2.8
3.76
2.7
3.74
2.6
0.47
2.4
2013 results were restated for the implementation of IAS19 Employee Benefits (Revised). Earlier years’ results have not been restated.
2015 results were restated for the disposal of the grass yarns business. Earlier years’ results have not been restated.
Low & Bonar Annual Report and Accounts 2016
121
Advisers and Financial Calendar
Company Secretary
Stuart Haydon
Registered Office
Whitehall House
33 Yeaman Shore
Dundee
DD1 4BJ
Head Office
One Connaught Place
London
W2 2ET
Telephone: 020 7535 3180
Website: www.lowandbonar.com
Registered number: SC008349
Advisers
Registrar
Computershare Investor Services PLC
Leven House
10 Lochside Place
Edinburgh Park
Edinburgh
EH12 9DF
Telephone: 0370 702 0003
Auditor
KPMG LLP
Solicitors
Freshfields Bruckhaus Deringer LLP
Squire Patton Boggs LLP
Principal bankers
Barclays Bank PLC
Comerica Bank
HSBC
ING Bank NV
KBC Bank NV
Santander
The Royal Bank of Scotland Plc
Corporate finance advisers
NM Rothschild & Sons Limited
Brokers
Peel Hunt LLP
Financial Calendar
Annual General Meeting
Announcements for results for the year
ending 30 November 2017
Half year
Full year
Final dividend payment for the year
ended 30 November 2016
Ordinary Shares
First, second and third cumulative
preference stock
12 April 2017
July 2017
February 2018
13 April 2017
1 March 2017 and
1 September 2017
122
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Notes
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Notes
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2
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1
6
One Connaught Place
London W2 2ET
Telephone: 020 7535 3180
www.lowandbonar.com