Half Yearly Report

Low & Bonar PLC

Half Year Results for the six months to 31 May 2012

GOOD TRADING PERFORMANCE, RESILIENT FULL YEAR OUTLOOK

Low & Bonar PLC ("Low & Bonar" or "the Group"), the international performance materials group, today announces its half year results for the six months ended 31 May 2012.

Highlights:

·; Another half year of significant financial progress with PBTA up 22% to £9.6m

·; Underlying sales and operating profit growth were 4% and 9% respectively

·; Building organisational capability whilst sustaining margin improvement

·; Invested £13.4m to accelerate growth

·; Interim dividend increased by 14% to 0.8p per share

·; Resilience to manage macro headwinds and on track for the full year

Martin Flower, Chairman, said:

"These results demonstrate the quality of our business. We expect macroeconomic conditions to remain challenging, particularly in Europe. However, with the benefit of ongoing internal growth initiatives and lower raw material polymer prices, we remain confident that full year results will be in line with expectations."

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

2 Before amortisation and non-recurring items

3 Prior year comparative includes a non-recurring credit of £6.4m relating to the pension scheme

4 Last 12 months' operating profit as a percentage of operating capital employed

 17 July 2012

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Interim Statement

Results highlights

We are pleased to report a good set of results for the six months to 31 May 2012 and the fifth consecutive half year of progress for the Group.

Profit before tax, amortisation and non-recurring items rose 22% to £9.6m. Basic earnings per share before amortisation and non-recurring items increased by 24% to 2.40p.

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

2 Before amortisation and non-recurring items

3 Prior year comparative includes a non-recurring credit of £6.4m relating to the pension scheme

4  Last 12 months' operating profit as a percentage of operating capital employed

Sustaining sales growth

Sales continued to grow in the first half of the year, advancing 4% on a constant-currency basis. Market conditions have become more difficult, particularly in Europe and to lesser extent in Asia. North American activity benefited from the first signs of improvement in the housing market, albeit from a very low base.

Sales in Flooring, Building Products and Civil Engineering, our target growth markets, were strong and continued to benefit from underlying structural growth drivers and internal initiatives. Growth was more subdued in the Industrial and Transport markets and, as anticipated, sales in the Leisure segment remained very weak as the artificial grass market continued to contract. The Group continues to target growth in emerging markets. Whilst there are considerable opportunities in these markets, we have experienced lower civil engineering project spend in North Africa and some delays to Middle Eastern architectural membrane projects during the last six months.

Improved operating margins

Operating margins improved from 6.5% to 6.9% in this half year, although this improvement has been held back by building the Group's organisational capability. The underlying margin improvement reflects the Group's ability to manage sales pricing in challenging raw material polymer markets. Polymer prices remained high and increased strongly throughout the majority of the first half, but have fallen sharply in June and July. This should benefit the Group in the second half of the year.

Investing for future growth

The Group has continued to make investments to accelerate growth, increase capability and create a stronger business. There are three areas of focus: investing in people and organisational change; capital expenditure; and bolt-on acquisitions to expand either the Group's product range or its geographic reach.

Over the last year, we have increased capabilities in sales, marketing, development and health and safety functions, with a consequent increase in the cost base. We have established a group procurement team to leverage our scale and expertise, with the first benefits starting to come through in the half year results. The Group also implemented an organisational change in the first half of the year to merge the two major businesses within the Performance Technical Textiles division, Colbond and Fabrics. The overlaps between these two businesses are significant and together they have greater scope and scale to grow globally. The enlarged business will be organised regionally with global business roles directing overall strategy for our key Civil Engineering, Flooring and Building and Industrial markets. The Group has a huge opportunity to leverage its significant expertise in newly industrialising parts of the world and this organisational change is designed to accelerate our development in these regions and put us on a clear path to globalisation.

We have increased capital investment commitments to achieve capacity and capability extensions, most notably to support our growing US flooring business. We expect full year expenditure to be in the region of £16m. In addition, our Saudi Arabian geotextile joint venture should be operational by the end of the year. This will provide an outstanding platform to access the fast growing civil engineering market in the Middle East region.

On 2 March, the Group announced the acquisition of the business of Xero Flor International GmbH ("Xeroflor") for €5.95m. Xeroflor is an innovative business with a strong position in the fast growing green roofing market. Its core activity is in the design and supply of value-added pre-vegetated mats used in green roof construction in both new and refurbished buildings. The Group already sells a range of components to the green roofing market that are complementary to Xeroflor's designs and the acquisition will significantly improve the Group's access to this attractive niche in the building products market. The combination of Xeroflor's considerable expertise and the Group's scale and reach will support an exciting next phase in the expansion of the business.

Operational performance

Performance Technical Textiles

(Woven and non-woven fabrics, fibres and yarns for use in the civil engineering, flooring, leisure, construction and industrial sectors).

Sales in the division increased by 6% on a constant-currency basis. Operating margins improved to 7.5% from 6.7% last year, with operating profit advancing 17% on a constant-currency basis. This strong performance was achieved without any further improvement in the Yarns business, where lower sales in a contracting artificial grass market were offset by further cost reductions.

Sales continued to develop strongly in the Flooring and Building Products markets. Sales growth in both markets was strong in the USA, supported by a modest recovery in the housing market and the increasing penetration of carpet tiles in contract and residential flooring. We were able to grow our Civil Engineering business despite weakness in European construction markets. Automotive growth slowed, principally due to a cooling of premium brand demand within Asia served by our European customers. The dependence of the artificial grass market on discretionary public funding and the residential housing markets continues to depress demand and sales to this segment were very weak.

Technical Coated Fabrics

(Technical coated fabrics for use in the print, architecture, transport, leisure and industrial sectors).

Sales in the Technical Coated Fabrics division grew by 0.6% on a constant-currency basis, operating margins improved from 8.3% to 8.7% with operating profit advancing 5% on a constant-currency basis.

Overall sales growth was influenced by a stronger focus on margin quality than volume which began in the final quarter of last year. Sales continued to grow strongly in the Building Products market with applications in permanent and semi-permanent architectural membranes developing well. The Trailer market was stable and continues to remain significantly below the 2008 cyclical peak. Sales in the Print and Leisure markets were weaker, influenced by a worsening economic climate in Southern Europe and increased competition from Asia at the commodity end of some product ranges.

The division has significant opportunities to improve performance through targeted growth, operational efficiency gains and service improvements. This is the clear focus and these initiatives are being led by a new leadership team which was installed during the first half of the year.

Increased dividend

The Board is declaring an interim dividend of 0.8 pence per share, an increase of 14% on last year, payable on 27 September 2012 to shareholders registered on 31 August 2012.

Cash flow

Net debt, which is normally higher at the half year, increased to £98.7m from £85.3m in the six months to 31 May. This also reflects our investment in Xeroflor and our Saudi Arabian joint venture, and capital expenditure to support further growth. We expect net debt at the year-end to be at a similar level to last year. In comparison to last year, working capital efficiency was broadly unchanged, the percentage of working capital to revenues being 23%.

Return on capital

The Group's operating return on capital on an annualised basis improved to 16.5% from 14.9% in the first half of last year and represents further progress towards building a bigger business with a return on capital of 17%.

Resilient outlook

These results demonstrate the quality of our business. We expect macroeconomic conditions to remain challenging, particularly in Europe. However, with the benefit of ongoing internal growth initiatives and lower raw material polymer prices, we remain confident that full year results will be in line with expectations.

Finally, it is our pleasure to record our thanks and appreciation of the efforts of all members of the Group, whose commitment, expertise and professionalism have made these results possible

17 July 2012

Forward looking statements

This announcement includes statements that are, or may be deemed to be, "forward looking statements". These forward looking statements can be identified by the use of forward looking terminology, including, but not limited to, the terms "believes", "estimates", "anticipates", "expects", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward looking statements include matters that are not historical facts.

By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and liquidity may differ materially from the impression created by the forward looking statements contained in this announcement. In addition, even if the results of operations, financial condition, and liquidity are consistent with the forward looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to: changes in the competitive framework in which the Group operates and its ability to retain market share; the Group's ability to generate growth or profitable growth; the Group's ability to generate sufficient cash to service its debt; the Group's ability to control its capital expenditure and other costs; significant changes in exchange rates, interest rates and tax rates; significant technological and market changes; future business combinations or dispositions; and general local and global economic, political, business and market conditions. In light of these risks, uncertainties and assumptions, the events described in the forward looking statements in this announcement may not occur.

Other than in accordance with its legal or regulatory obligations, the Group does not undertake any obligation to update or revise publicly any forward looking statement, whether as a result of new information, future events or otherwise.

LOW & BONAR PLC

Condensed Consolidated Income Statement

LOW & BONAR PLC

Condensed Consolidated Balance Sheet

LOW & BONAR PLC

Condensed Consolidated Cash Flow Statement

LOW & BONAR PLC

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Changes in Equity

LOW & BONAR PLC 

Notes on Interim Report 2012

Responsibility Statement

We confirm that to the best of our knowledge:

·; the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and

·; the interim report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

LOW & BONAR PLC

Notes on Interim Report 2012

1. Segmental information for the six months ended 31 May 2012

For the purposes of management reporting to the chief operating decision maker, the Group is organised into two reportable operating divisions - Performance Technical Textiles and Technical Coated Fabrics. Financial information for each operating division is also available in a disaggregated form in line with the identified cash generating units. Segment assets and liabilities include items directly attributable to segments as well as those that can be allocated on a reasonable basis.

Unallocated items comprise mainly cash and cash equivalents, interest-bearing loans and borrowings, derivative assets and liabilities, post employment benefits, taxation balances and corporate assets and liabilities. Intra-segment sales are not material.

Segmental information for the six months ended 31 May 2011

Segmental information for the year ended 30 November 2011

Geographical information

Revenues arising in the UK, which is the parent company's country of domicile, were £11.8m (six months ended 31 May 2011: £10.2m; year ended 30 November 2011: £22.1m). The net book value of non-current assets located in the UK at 31 May 2012 was £3.3m (31 May 2011: £3.8m; 30 November 2011: £3.4m). More than 10% of the Group's revenues arose in Germany. The net book value of non-current assets located in Germany at 31 May 2012 was £87.0m (31 May 2011: £96.0m; 30 November 2011: £92.8m) and revenues arising in Germany in the period to 31 May 2012 were £31.7m (six months ended 31 May 2011: £33.1m; year ended 30 November 2011: £70.4m).

2. General information

Low & Bonar PLC is a company domiciled and incorporated in Scotland. The interim condensed consolidated financial statements (the 'interim financial statements') of the Company as at and for the six months ended 31 May 2012 comprise the Company and its subsidiaries (together the 'Group') and the Group's interests in its associates. The consolidated financial statements of the Group as at and for the year ended 30 November 2011 are available on request from the Company's head office or from the Group's website at www.lowandbonar.com.

3. Basis of preparation

The interim financial statements are prepared in accordance with IAS 34, 'Interim Financial Reporting', as endorsed and adopted for use in the European Union. This interim condensed consolidated financial information has not been audited or reviewed by the Group's auditors in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. The information has been prepared on the basis of accounting policies consistent with those applied in the consolidated financial statements for the year ended 30 November 2011, except as noted below.

The Group has adopted the Amendments to IFRS 7 'Financial Instruments: Disclosures', which requires additional disclosures concerning specific types of assets which are transferred but not de-recognised, the Amendments to IAS 12 'Income Taxes', which relate to deferred tax on investment property revaluations, and the Revised IAS 2 'Related Party Disclosures', which simplifies the definition of 'related party' and refines the definitions concerning related parties to government organisations, none of which have had a significant effect on the reported results or financial position of the Group.

The interim financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the Group as at and for the year ended 30 November 2011.

The comparative figures for the financial year ended 30 November 2011 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

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 valuation to fair value of certain financial instruments.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

Except as described below, in preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation were the same as those applied to the consolidated financial statements as at and for the year ended 30 November 2011.

There have been no related party transactions or changes in related party transactions described in the latest annual report that could have a material effect on the financial position or performance of the Group in the first six months of the financial year.

The Group's business has a slight seasonal bias towards the second half of the financial year due to higher levels of infrastructure and civil engineering spend in the Northern hemisphere summer period.

This interim report was approved by the Board of Directors on 17 July 2012.

4. Taxation

Taxation on the operating profit after interest has been provided at a rate of 27% for the six months ended 31 May 2012 which is the estimated rate of tax for the full year (six months ended 31 May 2011: 29%; year ended 30 November 2011: 25%).

5. Dividend

The Board has declared an interim ordinary dividend of 0.8p per share payable on 27 September 2012 to Ordinary Shareholders on the register of members at close of business on 31 August 2012. In accordance with IAS 10 "Events after the Balance Sheet Date", this dividend has not been reflected in the interim accounts. During the period a final dividend of 1.4p was paid to Ordinary Shareholders in respect of the financial year ended 30 November 2011.

6. Earnings per share

Basic earnings per share and earnings per share before amortisation and non-recurring items are based on the weighted average number of Ordinary Shares in issue during the half year. The calculation of fully-diluted earnings per share is based on the weighted average number of Ordinary Shares in issue plus the dilutive effect of outstanding share options and the Low & Bonar 2003 Long-Term Incentive Plan (the '2003 LTIP') awards (to the extent to which performance criteria had been achieved at 31 May 2012).

No shares were issued during the period (six months ended 31 May 2011: no shares issued; year ended 30 November 2011: 20,501 ordinary shares issued).

The weighted average number of Ordinary Shares and diluted weighted average number of Ordinary Shares are set out below.

The directors consider that the calculation of earnings per share before amortisation and non-recurring items gives a more meaningful indication of the Group's underlying performance. For the six months ended 31 May 2012, this figure was 2.40p per share (six months ended 31 May 2011: 1.93p; year ended 30 November 2011: 5.97p).

7. Amortisation and non-recurring items

Current year

During the period the Group incurred £0.1m of start-up costs in respect of its joint venture in Saudi Arabia.

The Group incurred £0.2m of costs in the period in connection with the acquisition of the trade and assets of Xero Flor International GmbH (see note 10).

Prior year

An actuarial gain of £4.9m was credited to the income statement as a past service credit in the year ended 30 November 2011 following the guidance set out in UITF 48, as a result of the announcement by the UK Government on 8 July 2010 of their intention to use CPI instead of RPI to calculate statutory minimum increases in both deferred pensions and pensions in payment. The Group's UK defined benefit scheme was closed to future accrual during the year ended 30 November 2011, resulting in a non-recurring curtailment credit to the income statement of £1.1m. At 31 May 2011 the effect of the change in pension indexation legislation and the curtailment gain were reported as non-recurring credits of £5.4m and £1.3m respectively: these figures had been computed prior to the completion of the triennial valuation of the UK scheme at 31 March 2011 and were therefore revised at the year-end.

In November 2011 the EU's General Court agreed a 25% reduction in the €12.24m fine imposed on the Company and its subsidiary Bonar Technical Fabrics NV by the European Commission in 2005 for infringing Article 81 of the European Community Treaty in connection with a cartel relating to industrial bags, a market the Group exited in 1997 following the sale of its Belgian packaging business. The reimbursement, including interest and net of associated legal costs, totalled £2.2m and was shown as a non-recurring item within discontinued operations in the year to 30 November 2011. The reimbursement was received in December 2011.

8. Pensions and other post employment assets and liabilities

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 the schemes are held separately from those of the Group.

The movement in the Group's UK and overseas defined benefit schemes' deficits in the six months ended 31 May 2012 is summarised below.

The actuarial loss in the period in respect of the UK schemes arose largely due to a reduction in the discount rate, as a result of lower bond yields.

9. Reconciliation of net cash flow to movement in net debt

10. Business combination

On 1 March 2012 the Group acquired the trade and assets of Xero Flor International GmbH ("Xeroflor"), an innovative business with a strong position in the fast growing green roofing market, on a cash-free debt-free basis for a cash consideration of €6.0m (£5.0m). Costs of £0.2m relating to the acquisition have been charged to non-recurring items. Results of the acquired business are included within the results of the Performance Technical Textiles segment.

The acquired business contributed £0.9m to the Group's consolidated revenue for the period and increased the Group's consolidated profit before interest, tax, amortisation and non-recurring items for the period by £0.2m. Had the business been owned by the Group for the entire period, the contribution to the Group's consolidated revenue and consolidated profit before interest, tax, amortisation and non-recurring items would have been £1.5m and £0.4m respectively.

The provisional fair values of the identifiable assets and liabilities acquired are as follows:

The intangible assets acquired were independently valued at the acquisition date. The goodwill arising on acquisition is attributable to the operating and commercial synergies that can be generated from the integration of Xeroflor into the Group.

The fair values ascribed to the assets and liabilities above are provisional. Should new information be obtained within one year of the acquisition date about facts and circumstances that existed at the acquisition date which would necessitate adjustments to the above amounts or the recognition of additional liabilities that existed at the acquisition date, then the acquisition accounting will be revised.

11. Risks and uncertainties

The Board has considered the principal risks and uncertainties affecting the Group in the second half of the year. The Group has in place processes for identifying, evaluating and managing key risks. The principal risks and uncertainties, together with the approach to their mitigation, are discussed in the Business Review on pages 24 and 25 of the 2011 Annual Report, which is available on the Group's website at www.lowandbonar.com, remain relevant and there are no significant changes. In summary, the Group's principal risks and uncertainties are:

The Directors have reviewed the Group's medium-term forecasts along with possible changes in trading performance arising from these uncertainties to determine whether the Group's committed banking facilities are sufficient to support its projected liquidity requirements and whether the forecast earnings are sufficient to meet the covenants associated with its facilities. The Directors believe that the Group's current committed borrowing facilities, which comprise a €130m revolving loan facility maturing in February 2015 and a €45m private placement note maturing in September 2016 are sufficient to support the current requirements of the Group, and that the Group will continue to operate within the associated covenants.

After making enquiries, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future, and have continued to adopt the going concern basis in preparing the interim financial statements.