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Press Releases
28 Jan 03
The Acquisition
The Company is pleased to announce that it has entered into a conditional agreement and other arrangements to acquire the Carpet Tile Division of Gaskell for a total cash consideration of £18 million, subject to adjustment.
The Acquisition of the Carpet Tile Division represents the opportunity to acquire a complementary business with good value creation potential:
* This statement should not be construed as a profit forecast or be interpreted to mean that earnings per Ordinary Share for the current year or future years will necessarily match or exceed the historical published earnings per Ordinary Share.
Due to its size, the Acquisition is conditional upon the approval of Low & Bonar Shareholders. It is also subject, inter alia, to the approval of Gaskell shareholders.
Low & Bonar business review
Low & Bonar PLC’s new Chief Executive Officer has undertaken a business review of the Low & Bonar PLC Group and set the near term objectives for the Company.
The Company also announces that it expects to report profit before tax and exceptional items for the year ended 30 November, 2002 of £7.5 million. The Company expects to declare a final dividend of 1.5 pence per Ordinary Share, making a total dividend for the year of 4.0 pence per Ordinary Share.
Commenting on today’s announcement, Paul Forman, Chief Executive Officer of Low & Bonar PLC said:
"This Acquisition strengthens our position as a European specialist contract flooring supplier – an area which we believe holds good opportunities for the Group. We believe the purchase will enhance our earnings per share, improve our return on sales and also our return on capital. The Carpet Tile Division will benefit from being part of a larger business and from Low & Bonar PLC’s new management team."
Commenting on today’s announcement, Duncan Clegg, Non-executive Chairman of Low & Bonar PLC said:
"Our new Chief Executive Officer’s near term objectives give us greater directional clarity and focus. Good progress has already been made in a short period and the new management team is expected to improve the performance of the Group and capitalise on its market positions."
Enquiries
An analyst presentation will be held at the offices of ABN AMRO, 250 Bishopsgate, London EC2M 4AA at 10.00 a.m. today.
Photographs for the media will be available at Visual Media Online - www.visualmedia.co.uk from midday onwards. Tel: 020 7287 4646
ABN AMRO Corporate Finance Limited and Hoare Govett Limited are acting for Low & Bonar PLC in connection with the acquisition of the Carpet Tile Division and no one else and will not be responsible to any other person for providing the protections offered to customers of ABN AMRO Corporate Finance Limited and Hoare Govett Limited nor for providing advice in relation to the acquisition of the Carpet Tile Division or any other matters referred to in this announcement.
Copies of this announcement are not being, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from the United States of America, Canada, Australia or Japan.
The Company is pleased to announce that it has entered into a conditional agreement and other arrangements to acquire the Carpet Tile Division of Gaskell for a total cash consideration of £18 million, subject to adjustment.
The Acquisition represents an important step in moving the Company forward. The Carpet Tile Division is a leading and well established manufacturer and supplier of carpet floor tiles for offices and other contract sectors in the UK market operating under the Gaskell, Bamber and Modulus brands. The Directors believe that the Acquisition will enhance the position of Low & Bonar PLC’s existing Flooring Division as a European specialist contract flooring supplier. Low & Bonar PLC has also identified expected cost savings arising from the Acquisition on an annualised basis of at least £500,000 within 12 months.
The Company also announces the outcome of the business review undertaken by Paul Forman since his arrival as Chief Executive Officer in late September 2002. This includes an assessment of the strategic position of Low & Bonar PLC’s various businesses and the Company’s near term objectives. The Company also proposes to put in place new management incentive arrangements which are designed to align the interests of the management with those of Shareholders. Details of the incentive arrangements and a proposed new long term incentive plan will be set out in a circular to be posted to Shareholders shortly.
The Company also announces that it expects to report profit before tax and exceptional items for the year ended 30 November, 2002 of £7.5 million. The Company expects to declare a final dividend of 1.5 pence per Ordinary Share, making a total dividend for the year of 4.0 pence per Ordinary Share.
Low & Bonar business review
Since his arrival in late September 2002, Paul Forman has visited most of the operations of the Low & Bonar PLC Group in order to assess Low & Bonar PLC’s key areas of strength and set the near term objectives for the Group. The outcome of this business review is set out below.
(a) Low & Bonar’s businesses and their strategic positions
Low & Bonar’s businesses are involved in the design, conversion and finishing of polymer-based products, predominantly for commercial or public sector customers. Typically the individual businesses produce specialised products and operate in niche markets. Within their chosen markets they are, in many instances, the market leader or second placed player and often have a current or clear potential international dimension. Furthermore the Directors believe that a large number of Low & Bonar’s businesses have good brand awareness amongst their business customer base.
The Flooring Division
The Flooring Division is the largest single profit contributor in the Group and trades under the Flotex, Nuway, Coral and Chocflex brands, all of which are well known in the contract flooring market. The Flooring Division’s high performance flooring and entrance system products have established positions in the majority of their chosen commercial and public sector markets. The Flooring Division is well established in Western Europe, has recently enjoyed significant growth in Asia and now sells into over 40 countries worldwide. Growth is expected to come not only from international expansion but also from the development of new product ranges targeted both at existing sectors where the Flooring Division is strong, such as education and healthcare, and at new sectors such as rail, air and automotive. Work on this growth strategy is being accelerated by Mark Sefton, the newly appointed Divisional Managing Director.
The Yarns & Fabrics Division
The Yarns & Fabrics Division (Y&F) incorporates two discrete areas of activity. The first is the manufacture of yarn for the artificial sports surface market and it is the second largest supplier in this market. This market has grown in excess of 15 per cent. per annum in the period since 1997. Y&F’s products are now installed in prestige venues like NFL football stadiums and the practice grounds of a number of Premiership football teams. The second activity is the production of woven and non-woven textiles for the construction, agricultural, horticultural and industrial sectors where it has leading positions in many of its chosen markets. Y&F has diversified internationally, with significant volume growth in 2002 and now sells into over 20 countries worldwide. The Division has benefited from high levels of recent investment in production equipment.
Plastics
Bonar Plastics is a leading independent producer of rotationally moulded plastic products. This process is well suited for low volume production given its low tooling costs. The rotational moulding market has experienced volume growth over the last few years. This business has achieved particularly strong positions through the sale of its proprietary products in areas like chemical intermediate bulk containers and other food handling products, and as an outsourced "custom" moulder in areas like commercial vehicles, industrial hygiene and restaurants. It is increasingly looking to serve growth industries like pharmaceuticals, water treatment and non-fossil energy supply. The Directors believe that it is well placed to benefit from a more global approach to production, R&D, increased international sales and marketing and, potentially, sourcing. However, the Directors also believe that Bonar Plastics has failed in the past to take full advantage of growth opportunities and deliver its earnings potential. A new senior management team has been put in place to address this.
(b) Near term objectives
The business review has concluded that Low & Bonar PLC has a sound strategic base and good potential for revenue growth. However, in recent years the operational performance of Low & Bonar PLC’s divisions has varied significantly and this has been compounded by the slow down of overall activity levels within the Group’s industrial customer bases, leading, in aggregate, to unacceptable levels of financial performance. Hence, the near term objectives are: (i) to improve the operational performance of its current activities via a range of cost reduction measures, especially, but not exclusively, in the plastics division; (ii) to use the Group’s good niche market positions and brands and significant international presence to generate increased organic growth; and (iii) to consider acquisition opportunities with a good strategic fit that will demonstrably deliver value. The Group’s activities are now being more closely monitored against strict performance criteria with the overall aim of raising financial performance and ultimately increasing shareholder value.
Action is being taken to upgrade management capability across Low & Bonar PLC and to improve the profitability of all business units. The recent months have witnessed a strengthening of both the executive and non-executive team and the appointment of two new divisional managing directors. The non-executive directorate has been reinforced by the addition of Steve Hannam, former Chief Executive Officer of BTP plc, and Chris Davies, former Chief Executive Officer of Hampson Industries PLC. A new Group Executive Management has been formed comprising the Chief Executive Officer, the Group Finance Director and the divisional managing directors. Furthermore, the French rotational moulding business, which was the Group’s major underperformer in 2002, now reports directly into the Chief Executive Officer and a plan for addressing the losses in this business is being implemented. This management strengthening process will now be deployed to the next level down with a new internal management assessment programme and additional external recruiting. All these management changes are designed to build a culture that fosters delivery of commitments, to produce a structured ‘pipeline’ of revenue growth initiatives for the future and to ensure greater management strength in depth.
Allied to these changes is an increased responsibility on divisional management to deliver their commitments. The Directors believe that the investment in management, changes to the budget culture and improved controls represent a significant step towards ensuring the delivery of financial commitments and addressing the historical issue of ‘overpromising and underdelivering’.
In addition to these objectives of increasing the operational efficiency of the Group’s activities and generating organic growth, the Company will also seek to make well-chosen acquisitions that have a clear strategic fit and provide an opportunity to strengthen existing business areas and deliver significant cost saving benefits. The Directors would expect such acquisitions to enhance earnings per share and Group returns on sales and capital employed. The Directors believe that the proposed Acquisition of the Carpet Tile Division meets these criteria.*
The Directors expect that the initial benefit of the strategy outlined above will begin to show through in the current financial year. The operating performance in the last three months of 2002 and the first month of 2003 has met the Directors’ expectations.
* This statement should not be construed as a profit forecast or be interpreted to mean that the earnings per Ordinary Share for the current or future years will necessarily match or exceed the historical published earnings per Ordinary Share.
Information on the Carpet Tile Division of Gaskell
The Carpet Tile Division is a leading manufacturer and supplier of carpet floor tiles for offices and other contract sectors in the UK. The Carpet Tile Division markets and supplies its products through two separately branded businesses, Gaskell Carpet Tiles and Modulus Flooring Systems. Gaskell Carpet Tiles is a leading supplier of high performance carpet tiles to the UK office market. Modulus Flooring Systems specialises in the distribution and sale of carpet tiles to corporate customers. Both businesses are supported by UK sales teams that have built strong relationships with key contractors, specifiers, distributors and end users.
The Carpet Tile Division’s manufacturing operation, Bamber Carpets, is located in Bamber Bridge, Lancashire, and is a leading UK manufacturer of high performance carpet tiles and tufted carpet cloth, for use primarily in commercial markets. Bamber Carpets provides an integrated manufacturing service from design through to supply and distribution with high quality design, tufting and tiling equipment. The majority of Bamber Carpets’ products are currently sold to Gaskell Carpet Tiles and Modulus Flooring Systems with the balance sold to third party manufacturers and distributors. Bamber Carpets is able to produce small and large batch sizes cost effectively to short response times which the Directors believe gives it a competitive edge over the larger bulk tile manufacturers.
Turnover, operating profit and profit before tax for the Carpet Tile Division for the year ended 31 December, 2001 was £28.7 million, £4.0 million and £4.2 million respectively. As at 31 December, 2001 the Carpet Tile Division had net assets of £10.6 million. The net assets to be acquired as part of the Acquisition would have been £9.4 million as at 31 December, 2001. Details of the current trading and prospects of the Carpet Tile Division are set out below.
Background to and benefits of the Acquisition
Against the background of the near term objectives for the Group outlined above, the Carpet Tile Division offers the opportunity to acquire a leading business in its field with a good strategic fit and the potential for significant cost savings. The Flooring Division is the strongest and most financially stable of Low & Bonar’s businesses and the most consistent performer in relation to return on sales and return on capital employed.
The Directors believe that the Acquisition will enhance the position of Low & Bonar’s Flooring Division as a European specialist flooring supplier. The Directors expect the complementary geographic and product fit of the Carpet Tile Division to provide selling opportunities between both existing businesses. In particular, the Carpet Tile Division is strong in the UK office sector whereas the Flooring Division is strong internationally in a wider range of commercial markets. The enlarged Flooring Division will also be better placed to provide a multi-product offering to corporate and public sector customers and to meet the potential demand from international customers for supply in a number of countries. The Directors believe the enlarged Flooring Division will also benefit from increased scale and combined expertise in the areas of design, marketing and new product development.
The Directors believe that cost savings on an annualised basis of at least £500,000 can be achieved within 12 months. These are expected to come predominantly from the removal of duplication of overheads and purchasing benefits. Longer term manufacturing cost benefits may well exist but have not been quantified at this stage. The one-off costs associated with achieving this are expected to be approximately £500,000.
The Acquisition is expected to enhance earnings per share, Group return on sales and Group return on capital employed (in each case before exceptional items and goodwill)*. Furthermore, immediately following the Acquisition the Enlarged Group will continue to have a strong balance sheet.
* This statement should not be construed as a profit forecast or be interpreted to mean that earnings per Ordinary Share for the current or future years will necessarily match or exceed the historical published earnings per Ordinary Share.
Principal terms of the Acquisition and funding
Subject to the terms and conditions of the Sale and Purchase Agreement and other arrangements, Low & Bonar PLC will acquire the business and substantially all of the assets and will assume certain liabilities of the Carpet Tile Division for a total cash consideration of £18 million, subject to adjustment (of which £17 million will be payable to Gaskell on Completion and £1 million will be deferred consideration paid into a retention fund at Completion). The £1 million deferred consideration is subject to downward adjustment in the event that the audited operating profit for the Carpet Tile Division for the year ended 31 December, 2002 is less than £2.7 million. The consideration is also subject to downward adjustment based on a balance sheet of certain agreed assets and liabilities acquired by Low & Bonar PLC drawn up at the date of Completion.
The business will be transferred on a cash and debt (other than certain finance lease agreements) free basis and excluding any outstanding intra-group balances between the Gaskell Group. Certain predominantly trade liabilities of the Carpet Tile Division will be assumed by the Low & Bonar PLC Group with other liabilities (including all pension, taxation and litigation liabilites) in general staying within the Gaskell Group. Low & Bonar PLC will also acquire the trade debtors of the Carpet Tile Division other than those owed by the Gaskell Group. Completion of the Acquisition is subject to certain conditions, including the Acquisition having been approved by the shareholders of Low & Bonar PLC and Gaskell. Gaskell shareholders who hold approximately 25.1 per cent. of the issued share capital of Gaskell have given irrevocable undertakings to vote in favour of the Acquisition.
The consideration for the Acquisition will be paid from existing resources and facilities available to the Group.
Low & Bonar PLC profit estimate and dividend
The Company announced today that it expects to report profit before tax and exceptional items for the Group for the year ended 30 November, 2002 of £7.5 million. In light of the Company’s near term objectives and the estimated profit before tax and exceptional items for the Group for 2002, the Directors believe that it is appropriate for the Company to adopt a changed dividend policy. As such, the Company expects to declare a final dividend of 1.5 pence per Ordinary Share making a total dividend for the year ended 30 November, 2002 of 4.0 pence per Ordinary Share. Going forward, Low & Bonar PLC intends to adopt a progressive dividend policy with dividends increasing in line with underlying earnings growth, although over the next few years the Company will also look to gradually restore dividend cover to over 2 times. The full preliminary results for the Group for the year ended 30 November, 2002 are expected to be announced on 13 February, 2003.
Current trading and prospects for the Enlarged Group
Low & Bonar PLC
As stated at the time of the interim results announced on 9 July, 2002, demand has been subdued in the majority of the Group’s major markets in 2002 and the first two months of the new financial year have continued this trend. The Group has, however, carried out a substantial amount of work to achieve a cost base that is commensurate with this level of demand. Looking ahead, while there will continue to be uncertainties in the underlying demand in most of the Group’s major markets, the Directors expect to achieve operational improvement and look to increase revenue growth potential wherever possible through increased new product introduction, geographic expansion and additional service provision.
The Carpet Tile Division of Gaskell
The Carpet Tile Division principally serves the UK commercial flooring market and in the first quarter of 2002 it saw a significant fall in trading levels following a decline in contract orders towards the end of the previous year. The latter part of the year, however, saw an improvement in performance and the Carpet Tile Division has commenced 2003 with a stronger order book than in the similar period of 2002, albeit that trading levels are still materially below historical levels.
The Enlarged Group
The Directors believe that the combination of the Carpet Tile Division with Low & Bonar PLC’s Flooring Division will strengthen Low & Bonar PLC’s product offering and lead to significant cost savings. This, together with the operational improvements already achieved, make the Directors confident that the Enlarged Group is now in a position to make progress in the years ahead.
Shareholder approval
The Acquisition and the proposed new long term incentive plan are conditional on approval by Low & Bonar Shareholders.
A circular describing the Acquisition and the new management incentive arrangements and containing a notice convening an extraordinary general meeting of Low & Bonar PLC for the purpose of seeking the approval of Low & Bonar’s Shareholders, will be posted to Shareholders shortly.
Enquiries
An analyst presentation will be held at the offices of ABN AMRO, 250 Bishopsgate, London EC2M 4AA at 10.00 a.m. today.
Photographs for the media will be available at Visual Media Online – www.visualmedia.co.uk from midday onwards. Tel: 020 7287 4646
ABN AMRO Corporate Finance Limited and Hoare Govett Limited are acting for Low & Bonar PLC in connection with the acquisition of the Carpet Tile Division and no one else and will not be responsible to any other person for providing the protections offered to customers of ABN AMRO Corporate Finance Limited and Hoare Govett Limited nor for providing advice in relation to the acquisition of the Carpet Tile Division or any other matters referred to in this announcement.
Copies of this announcement are not being, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from the United States of America, Canada, Australia or Japan.
In this press release, the following expressions shall have the following meanings, unless the context otherwise requires:
Low & Bonar PLC Proposed Acquisition of the Carpet Tile Division of Gaskell plc and Outcome of Low & Bonar Business Review
The Acquisition
The Company is pleased to announce that it has entered into a conditional agreement and other arrangements to acquire the Carpet Tile Division of Gaskell for a total cash consideration of £18 million, subject to adjustment.
The Acquisition of the Carpet Tile Division represents the opportunity to acquire a complementary business with good value creation potential:
- The Carpet Tile Division is a leading manufacturer and supplier of carpet floor tiles for offices and other contract sectors in the UK market
- The Carpet Tile Division is a profitable and cash generative business
- The existing Flooring Division of Low & Bonar PLC is the strongest and most financially stable business in the Group. The Directors believe that the proposed Acquisition will enhance the position of the Flooring Division as a European specialist contract flooring supplier and is a complementary fit by product, customer and geography
- The Directors believe that the Enlarged Group will be able to generate cost savings on an annualised basis of at least £500,000 within 12 months
- The Directors believe that the Acquisition will enhance earnings per share, Group return on sales and Group return on capital employed (in each case before exceptional items and goodwill)*. Furthermore, immediately following the Acquisition the Enlarged Group will continue to have a strong balance sheet
* This statement should not be construed as a profit forecast or be interpreted to mean that earnings per Ordinary Share for the current year or future years will necessarily match or exceed the historical published earnings per Ordinary Share.
Due to its size, the Acquisition is conditional upon the approval of Low & Bonar Shareholders. It is also subject, inter alia, to the approval of Gaskell shareholders.
Low & Bonar business review
Low & Bonar PLC’s new Chief Executive Officer has undertaken a business review of the Low & Bonar PLC Group and set the near term objectives for the Company.
- The Directors believe that the three activities of the Low & Bonar PLC Group have a sound strategic base, based on good niche market positions and brands and significant international presence
- The Directors believe that the operational performance of the existing Low & Bonar business has considerable scope for improvement; a range of cost reduction activities has commenced
- Stronger budgeting and performance management disciplines have also been introduced
- Organic and acquisition led growth opportunities have been identified and are being actively pursued. The Directors believe that revenue growth potential exists through increased new product introduction, geographic expansion and additional service level provision.
The Company also announces that it expects to report profit before tax and exceptional items for the year ended 30 November, 2002 of £7.5 million. The Company expects to declare a final dividend of 1.5 pence per Ordinary Share, making a total dividend for the year of 4.0 pence per Ordinary Share.
Commenting on today’s announcement, Paul Forman, Chief Executive Officer of Low & Bonar PLC said:
"This Acquisition strengthens our position as a European specialist contract flooring supplier – an area which we believe holds good opportunities for the Group. We believe the purchase will enhance our earnings per share, improve our return on sales and also our return on capital. The Carpet Tile Division will benefit from being part of a larger business and from Low & Bonar PLC’s new management team."
Commenting on today’s announcement, Duncan Clegg, Non-executive Chairman of Low & Bonar PLC said:
"Our new Chief Executive Officer’s near term objectives give us greater directional clarity and focus. Good progress has already been made in a short period and the new management team is expected to improve the performance of the Group and capitalise on its market positions."
Enquiries
| Duncan Clegg | Low & Bonar PLC | 020 7307 0500 |
| Paul Forman | ||
| Mark Crossley | ABN AMRO Corporate Finance Limited | 020 7678 8000 |
| Will Coleman | Hoare Govett Limited | 020 7678 8000 |
| Alex Carter | ||
| Tim Spratt | Financial Dynamics | 020 7831 3113 |
| Michelle Morton |
An analyst presentation will be held at the offices of ABN AMRO, 250 Bishopsgate, London EC2M 4AA at 10.00 a.m. today.
Photographs for the media will be available at Visual Media Online - www.visualmedia.co.uk from midday onwards. Tel: 020 7287 4646
ABN AMRO Corporate Finance Limited and Hoare Govett Limited are acting for Low & Bonar PLC in connection with the acquisition of the Carpet Tile Division and no one else and will not be responsible to any other person for providing the protections offered to customers of ABN AMRO Corporate Finance Limited and Hoare Govett Limited nor for providing advice in relation to the acquisition of the Carpet Tile Division or any other matters referred to in this announcement.
Copies of this announcement are not being, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from the United States of America, Canada, Australia or Japan.
Low & Bonar PLC
Proposed Acquisition of the Carpet Tile Division of Gaskell plc
and
outcome of Low & Bonar business review
Proposed Acquisition of the Carpet Tile Division of Gaskell plc
and
outcome of Low & Bonar business review
The Company is pleased to announce that it has entered into a conditional agreement and other arrangements to acquire the Carpet Tile Division of Gaskell for a total cash consideration of £18 million, subject to adjustment.
The Acquisition represents an important step in moving the Company forward. The Carpet Tile Division is a leading and well established manufacturer and supplier of carpet floor tiles for offices and other contract sectors in the UK market operating under the Gaskell, Bamber and Modulus brands. The Directors believe that the Acquisition will enhance the position of Low & Bonar PLC’s existing Flooring Division as a European specialist contract flooring supplier. Low & Bonar PLC has also identified expected cost savings arising from the Acquisition on an annualised basis of at least £500,000 within 12 months.
The Company also announces the outcome of the business review undertaken by Paul Forman since his arrival as Chief Executive Officer in late September 2002. This includes an assessment of the strategic position of Low & Bonar PLC’s various businesses and the Company’s near term objectives. The Company also proposes to put in place new management incentive arrangements which are designed to align the interests of the management with those of Shareholders. Details of the incentive arrangements and a proposed new long term incentive plan will be set out in a circular to be posted to Shareholders shortly.
The Company also announces that it expects to report profit before tax and exceptional items for the year ended 30 November, 2002 of £7.5 million. The Company expects to declare a final dividend of 1.5 pence per Ordinary Share, making a total dividend for the year of 4.0 pence per Ordinary Share.
Low & Bonar business review
Since his arrival in late September 2002, Paul Forman has visited most of the operations of the Low & Bonar PLC Group in order to assess Low & Bonar PLC’s key areas of strength and set the near term objectives for the Group. The outcome of this business review is set out below.
(a) Low & Bonar’s businesses and their strategic positions
Low & Bonar’s businesses are involved in the design, conversion and finishing of polymer-based products, predominantly for commercial or public sector customers. Typically the individual businesses produce specialised products and operate in niche markets. Within their chosen markets they are, in many instances, the market leader or second placed player and often have a current or clear potential international dimension. Furthermore the Directors believe that a large number of Low & Bonar’s businesses have good brand awareness amongst their business customer base.
The Flooring Division
The Flooring Division is the largest single profit contributor in the Group and trades under the Flotex, Nuway, Coral and Chocflex brands, all of which are well known in the contract flooring market. The Flooring Division’s high performance flooring and entrance system products have established positions in the majority of their chosen commercial and public sector markets. The Flooring Division is well established in Western Europe, has recently enjoyed significant growth in Asia and now sells into over 40 countries worldwide. Growth is expected to come not only from international expansion but also from the development of new product ranges targeted both at existing sectors where the Flooring Division is strong, such as education and healthcare, and at new sectors such as rail, air and automotive. Work on this growth strategy is being accelerated by Mark Sefton, the newly appointed Divisional Managing Director.
The Yarns & Fabrics Division
The Yarns & Fabrics Division (Y&F) incorporates two discrete areas of activity. The first is the manufacture of yarn for the artificial sports surface market and it is the second largest supplier in this market. This market has grown in excess of 15 per cent. per annum in the period since 1997. Y&F’s products are now installed in prestige venues like NFL football stadiums and the practice grounds of a number of Premiership football teams. The second activity is the production of woven and non-woven textiles for the construction, agricultural, horticultural and industrial sectors where it has leading positions in many of its chosen markets. Y&F has diversified internationally, with significant volume growth in 2002 and now sells into over 20 countries worldwide. The Division has benefited from high levels of recent investment in production equipment.
Plastics
Bonar Plastics is a leading independent producer of rotationally moulded plastic products. This process is well suited for low volume production given its low tooling costs. The rotational moulding market has experienced volume growth over the last few years. This business has achieved particularly strong positions through the sale of its proprietary products in areas like chemical intermediate bulk containers and other food handling products, and as an outsourced "custom" moulder in areas like commercial vehicles, industrial hygiene and restaurants. It is increasingly looking to serve growth industries like pharmaceuticals, water treatment and non-fossil energy supply. The Directors believe that it is well placed to benefit from a more global approach to production, R&D, increased international sales and marketing and, potentially, sourcing. However, the Directors also believe that Bonar Plastics has failed in the past to take full advantage of growth opportunities and deliver its earnings potential. A new senior management team has been put in place to address this.
(b) Near term objectives
The business review has concluded that Low & Bonar PLC has a sound strategic base and good potential for revenue growth. However, in recent years the operational performance of Low & Bonar PLC’s divisions has varied significantly and this has been compounded by the slow down of overall activity levels within the Group’s industrial customer bases, leading, in aggregate, to unacceptable levels of financial performance. Hence, the near term objectives are: (i) to improve the operational performance of its current activities via a range of cost reduction measures, especially, but not exclusively, in the plastics division; (ii) to use the Group’s good niche market positions and brands and significant international presence to generate increased organic growth; and (iii) to consider acquisition opportunities with a good strategic fit that will demonstrably deliver value. The Group’s activities are now being more closely monitored against strict performance criteria with the overall aim of raising financial performance and ultimately increasing shareholder value.
Action is being taken to upgrade management capability across Low & Bonar PLC and to improve the profitability of all business units. The recent months have witnessed a strengthening of both the executive and non-executive team and the appointment of two new divisional managing directors. The non-executive directorate has been reinforced by the addition of Steve Hannam, former Chief Executive Officer of BTP plc, and Chris Davies, former Chief Executive Officer of Hampson Industries PLC. A new Group Executive Management has been formed comprising the Chief Executive Officer, the Group Finance Director and the divisional managing directors. Furthermore, the French rotational moulding business, which was the Group’s major underperformer in 2002, now reports directly into the Chief Executive Officer and a plan for addressing the losses in this business is being implemented. This management strengthening process will now be deployed to the next level down with a new internal management assessment programme and additional external recruiting. All these management changes are designed to build a culture that fosters delivery of commitments, to produce a structured ‘pipeline’ of revenue growth initiatives for the future and to ensure greater management strength in depth.
Allied to these changes is an increased responsibility on divisional management to deliver their commitments. The Directors believe that the investment in management, changes to the budget culture and improved controls represent a significant step towards ensuring the delivery of financial commitments and addressing the historical issue of ‘overpromising and underdelivering’.
In addition to these objectives of increasing the operational efficiency of the Group’s activities and generating organic growth, the Company will also seek to make well-chosen acquisitions that have a clear strategic fit and provide an opportunity to strengthen existing business areas and deliver significant cost saving benefits. The Directors would expect such acquisitions to enhance earnings per share and Group returns on sales and capital employed. The Directors believe that the proposed Acquisition of the Carpet Tile Division meets these criteria.*
The Directors expect that the initial benefit of the strategy outlined above will begin to show through in the current financial year. The operating performance in the last three months of 2002 and the first month of 2003 has met the Directors’ expectations.
* This statement should not be construed as a profit forecast or be interpreted to mean that the earnings per Ordinary Share for the current or future years will necessarily match or exceed the historical published earnings per Ordinary Share.
Information on the Carpet Tile Division of Gaskell
The Carpet Tile Division is a leading manufacturer and supplier of carpet floor tiles for offices and other contract sectors in the UK. The Carpet Tile Division markets and supplies its products through two separately branded businesses, Gaskell Carpet Tiles and Modulus Flooring Systems. Gaskell Carpet Tiles is a leading supplier of high performance carpet tiles to the UK office market. Modulus Flooring Systems specialises in the distribution and sale of carpet tiles to corporate customers. Both businesses are supported by UK sales teams that have built strong relationships with key contractors, specifiers, distributors and end users.
The Carpet Tile Division’s manufacturing operation, Bamber Carpets, is located in Bamber Bridge, Lancashire, and is a leading UK manufacturer of high performance carpet tiles and tufted carpet cloth, for use primarily in commercial markets. Bamber Carpets provides an integrated manufacturing service from design through to supply and distribution with high quality design, tufting and tiling equipment. The majority of Bamber Carpets’ products are currently sold to Gaskell Carpet Tiles and Modulus Flooring Systems with the balance sold to third party manufacturers and distributors. Bamber Carpets is able to produce small and large batch sizes cost effectively to short response times which the Directors believe gives it a competitive edge over the larger bulk tile manufacturers.
Turnover, operating profit and profit before tax for the Carpet Tile Division for the year ended 31 December, 2001 was £28.7 million, £4.0 million and £4.2 million respectively. As at 31 December, 2001 the Carpet Tile Division had net assets of £10.6 million. The net assets to be acquired as part of the Acquisition would have been £9.4 million as at 31 December, 2001. Details of the current trading and prospects of the Carpet Tile Division are set out below.
Background to and benefits of the Acquisition
Against the background of the near term objectives for the Group outlined above, the Carpet Tile Division offers the opportunity to acquire a leading business in its field with a good strategic fit and the potential for significant cost savings. The Flooring Division is the strongest and most financially stable of Low & Bonar’s businesses and the most consistent performer in relation to return on sales and return on capital employed.
The Directors believe that the Acquisition will enhance the position of Low & Bonar’s Flooring Division as a European specialist flooring supplier. The Directors expect the complementary geographic and product fit of the Carpet Tile Division to provide selling opportunities between both existing businesses. In particular, the Carpet Tile Division is strong in the UK office sector whereas the Flooring Division is strong internationally in a wider range of commercial markets. The enlarged Flooring Division will also be better placed to provide a multi-product offering to corporate and public sector customers and to meet the potential demand from international customers for supply in a number of countries. The Directors believe the enlarged Flooring Division will also benefit from increased scale and combined expertise in the areas of design, marketing and new product development.
The Directors believe that cost savings on an annualised basis of at least £500,000 can be achieved within 12 months. These are expected to come predominantly from the removal of duplication of overheads and purchasing benefits. Longer term manufacturing cost benefits may well exist but have not been quantified at this stage. The one-off costs associated with achieving this are expected to be approximately £500,000.
The Acquisition is expected to enhance earnings per share, Group return on sales and Group return on capital employed (in each case before exceptional items and goodwill)*. Furthermore, immediately following the Acquisition the Enlarged Group will continue to have a strong balance sheet.
* This statement should not be construed as a profit forecast or be interpreted to mean that earnings per Ordinary Share for the current or future years will necessarily match or exceed the historical published earnings per Ordinary Share.
Principal terms of the Acquisition and funding
Subject to the terms and conditions of the Sale and Purchase Agreement and other arrangements, Low & Bonar PLC will acquire the business and substantially all of the assets and will assume certain liabilities of the Carpet Tile Division for a total cash consideration of £18 million, subject to adjustment (of which £17 million will be payable to Gaskell on Completion and £1 million will be deferred consideration paid into a retention fund at Completion). The £1 million deferred consideration is subject to downward adjustment in the event that the audited operating profit for the Carpet Tile Division for the year ended 31 December, 2002 is less than £2.7 million. The consideration is also subject to downward adjustment based on a balance sheet of certain agreed assets and liabilities acquired by Low & Bonar PLC drawn up at the date of Completion.
The business will be transferred on a cash and debt (other than certain finance lease agreements) free basis and excluding any outstanding intra-group balances between the Gaskell Group. Certain predominantly trade liabilities of the Carpet Tile Division will be assumed by the Low & Bonar PLC Group with other liabilities (including all pension, taxation and litigation liabilites) in general staying within the Gaskell Group. Low & Bonar PLC will also acquire the trade debtors of the Carpet Tile Division other than those owed by the Gaskell Group. Completion of the Acquisition is subject to certain conditions, including the Acquisition having been approved by the shareholders of Low & Bonar PLC and Gaskell. Gaskell shareholders who hold approximately 25.1 per cent. of the issued share capital of Gaskell have given irrevocable undertakings to vote in favour of the Acquisition.
The consideration for the Acquisition will be paid from existing resources and facilities available to the Group.
Low & Bonar PLC profit estimate and dividend
The Company announced today that it expects to report profit before tax and exceptional items for the Group for the year ended 30 November, 2002 of £7.5 million. In light of the Company’s near term objectives and the estimated profit before tax and exceptional items for the Group for 2002, the Directors believe that it is appropriate for the Company to adopt a changed dividend policy. As such, the Company expects to declare a final dividend of 1.5 pence per Ordinary Share making a total dividend for the year ended 30 November, 2002 of 4.0 pence per Ordinary Share. Going forward, Low & Bonar PLC intends to adopt a progressive dividend policy with dividends increasing in line with underlying earnings growth, although over the next few years the Company will also look to gradually restore dividend cover to over 2 times. The full preliminary results for the Group for the year ended 30 November, 2002 are expected to be announced on 13 February, 2003.
Current trading and prospects for the Enlarged Group
Low & Bonar PLC
As stated at the time of the interim results announced on 9 July, 2002, demand has been subdued in the majority of the Group’s major markets in 2002 and the first two months of the new financial year have continued this trend. The Group has, however, carried out a substantial amount of work to achieve a cost base that is commensurate with this level of demand. Looking ahead, while there will continue to be uncertainties in the underlying demand in most of the Group’s major markets, the Directors expect to achieve operational improvement and look to increase revenue growth potential wherever possible through increased new product introduction, geographic expansion and additional service provision.
The Carpet Tile Division of Gaskell
The Carpet Tile Division principally serves the UK commercial flooring market and in the first quarter of 2002 it saw a significant fall in trading levels following a decline in contract orders towards the end of the previous year. The latter part of the year, however, saw an improvement in performance and the Carpet Tile Division has commenced 2003 with a stronger order book than in the similar period of 2002, albeit that trading levels are still materially below historical levels.
The Enlarged Group
The Directors believe that the combination of the Carpet Tile Division with Low & Bonar PLC’s Flooring Division will strengthen Low & Bonar PLC’s product offering and lead to significant cost savings. This, together with the operational improvements already achieved, make the Directors confident that the Enlarged Group is now in a position to make progress in the years ahead.
Shareholder approval
The Acquisition and the proposed new long term incentive plan are conditional on approval by Low & Bonar Shareholders.
A circular describing the Acquisition and the new management incentive arrangements and containing a notice convening an extraordinary general meeting of Low & Bonar PLC for the purpose of seeking the approval of Low & Bonar’s Shareholders, will be posted to Shareholders shortly.
- Ends -
Enquiries
| Duncan Clegg | Low & Bonar PLC | 020 7307 0500 |
| Paul Forman | ||
| Mark Crossley | ABN AMRO Corporate Finance Limited | 020 7678 8000 |
| Will Coleman | Hoare Govett Limited | 020 7678 8000 |
| Alex Carter | ||
| Tim Spratt | Financial Dynamics | 020 7831 3113 |
| Michelle Morton |
An analyst presentation will be held at the offices of ABN AMRO, 250 Bishopsgate, London EC2M 4AA at 10.00 a.m. today.
Photographs for the media will be available at Visual Media Online – www.visualmedia.co.uk from midday onwards. Tel: 020 7287 4646
ABN AMRO Corporate Finance Limited and Hoare Govett Limited are acting for Low & Bonar PLC in connection with the acquisition of the Carpet Tile Division and no one else and will not be responsible to any other person for providing the protections offered to customers of ABN AMRO Corporate Finance Limited and Hoare Govett Limited nor for providing advice in relation to the acquisition of the Carpet Tile Division or any other matters referred to in this announcement.
Copies of this announcement are not being, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from the United States of America, Canada, Australia or Japan.
Definitions
In this press release, the following expressions shall have the following meanings, unless the context otherwise requires:
"Acquisition" | the proposed acquisition by Low & Bonar PLC of certain assets, liabilities and the business of the Carpet Tile Division pursuant to the terms of the Sale and Purchase Agreement and certain other arrangements and connected agreements |
"Bamber Carpets" | Bamber Carpets Limited |
"Carpet Tile Division" | the business, assets and liabilities of Bamber Carpets, Gaskell Carpet Tiles and Modulus Flooring Systems |
"Completion" | the completion of the Sale and Purchase Agreement and certain other arrangements |
"Directors" | the directors of Low & Bonar PLC |
"Enlarged Group" | the Low & Bonar PLC Group as enlarged following the Acquisition |
"Flooring Division" | the Group's existing Flooring Division |
"Gaskell" | Gaskell plc |
"Gaskell Carpet Tiles" | Gaskell Carpet Tiles Limited |
"Gaskell Group" | Gaskell and its subsidiary undertakings |
"Low & Bonar PLC" or "Company" | Low & Bonar PLC |
"Group" | Low & Bonar PLC and its subsidiary undertakings |
"Modulus Flooring Systems" | Modulus Flooring Systems Limited |
"Ordinary Shares" | ordinary shares of 50 pence each in the share capital of Low & Bonar |
"Sale and Purchase Agreement" | the sale and purchase agreement dated 27 January, 2003 between Low & Bonar PLC and Gaskell in relation to the Acquisition |
"Shareholders" | holders of Ordinary Shares |