Low & Bonar produces specialist performance materials for a variety of end markets by combining polymers with specialty additives and pigments. From FY19 Building & Industrial and Interiors & Transportation will be combined as the Colbond division.
Many of the subsector trends from the end of FY18 have continued into FY19. The 20 May update referenced softness in its automotive and flooring demand while European roofing markets remain competitive. Progress with previously highlighted internal manufacturing issues at Coated Technical Textiles (CTT) is not yet translating to improved sales. At group level, we lowered FY19 PBT expectations by around half, taking a more conservative view on the rate of recovery thereafter. Allowing for reduced capex and dividend outflows, re-setting our estimates did not have a material impact on net debt. The proposed disposal of Construction Fibres (for £5.6m; announced 3 June, due to complete around 1 July) is the first step in exiting Civil Engineering activities; the P&L impact is broadly neutral and brings our expected year-end net debt down to c £88m (or c 2.7x our FY19e EBITDA). An end H119 update reiterated management expectations of a small PBT for this period and also that the company has operated within net debt:EBITDA and interest cover covenants.
Key strategic medium-term financial targets are revenue growth 1-2% above regional weighted GDP, 10% operating margins, a 12%+ return on capital employed and an average dividend payout equal to 40% of PAT.