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Low & Bonar PLC (LWB)

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Wednesday 30 January, 2019

Low & Bonar PLC

Proposed Firm Placing and Placing and Open Offer

RNS Number : 5111O
Low & Bonar PLC
30 January 2019
 

NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES OF AMERICA, THE COMMONWEALTH OF AUSTRALIA, ITS TERRITORIES AND POSSESSIONS, CANADA, ISLE OF MAN, JAPAN, THE REPUBLIC OF SOUTH AFRICA, SINGAPORE, THE UNITED ARAB EMIRATES OR ZAMBIA OR ANY OTHER JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NOTHING HEREIN SHALL CONSTITUTE AN OFFERING OF SHARES. NOTHING IN THIS ANNOUNCEMENT SHOULD BE INTERPRETED AS A TERM OR CONDITION OF THE EQUITY ISSUE. ANY DECISION TO PURCHASE, SUBSCRIBE FOR, OTHERWISE ACQUIRE, SELL OR OTHERWISE DISPOSE OF SHARES MUST BE MADE ONLY ON THE BASIS OF THE INFORMATION CONTAINED IN AND INCORPORATED BY REFERENCE INTO THE PROSPECTUS. COPIES OF THE PROSPECTUS WILL SHORTLY BE AVAILABLE FROM THE HEAD OFFICE OF LOW & BONAR PLC AND ON ITS WEBSITE AT WWW.LOWANDBONAR.COM.

 

30 January 2019

 

Low & Bonar PLC

("Low & Bonar", the "Company" or the "Group")

 

Proposed Firm Placing and Placing and Open Offer to raise £54 million

 

Low & Bonar PLC ("Low & Bonar", the "Company" or the "Group"), the international performance materials group, today announces that it proposes to raise gross proceeds of approximately £54 million by way of a fully underwritten Firm Placing and Placing and Open Offer of 359,649,707 New Shares at 15 pence per New Share (the "New Share Issue").

In Low & Bonar's trading update of 14 December 2018, the Board stated that it believed that to support its long-term objectives, including the ability to invest, where necessary, in its operational and commercial improvement initiatives, a stronger balance sheet was required. To that end, the Board confirmed that it was reviewing the Group's capital structure and considering options to reduce the level of net debt, including a potential equity issue. Having reviewed the options available to the Group, the Board has concluded it is in the Company's best interests to raise approximately £54 million in gross proceeds (approximately £50 million in net proceeds) by way of a fully underwritten placing and open offer and firm placing.

Introduction

The Group has experienced a challenging period over recent years, and whilst revenues have increased by 8.0 per cent. (approximately 3 per cent. on an adjusted constant currency basis) from £400.0 million in Financial Year 2016 to £431.9 million in Financial Year 2018, underlying profit before tax ("PBT") has decreased by 42.8 per cent., from £29.2 million to £16.7 million, in the same period. Part of this reduction in profitability has been caused by challenging conditions in certain of the Group's end markets at various times, including a significant rise in raw material costs during Financial Year 2018. However a number of structural factors within the Group have made a significant contribution to this underperformance, including:

·     a failed strategy in the Civil Engineering ("CE") business unit to attempt to grow a large, integrated business through acquisition and investment which has resulted in underlying operating profit from the division reducing from £4.2 million in Financial Year 2016 to £0.1 million in Financial Year 2018, despite substantial investment;

·    recurring production issues in the Coated Technical Textiles ("CTT") business unit which have resulted in underlying operating profit from the division reducing from £8.7 million in Financial Year 2016 to £2.5 million in Financial Year 2018;

·    an overly complex organisational structure which created a loss of accountability, inefficiency in decision-making between functions, lack of focus on the customer and reduced organisational agility;

·     a lack of discipline and customer alignment in innovation which resulted in new product development being too slow and with too narrow a focus;

·    historic under-investment in a number of the Group's manufacturing sites which has reduced production reliability and impacted customer service; and

·     a failure to manage raw material cost volatility in a responsive and effective manner.

In response to this, a number of key strategic initiatives to drive sustainable improvement in the Group's performance and financial position were implemented during Financial Year 2018. Progress has been made in all of these areas, notably strengthening senior management, reducing working capital, implementing cost reductions and simplifying the organisation. Further initiatives will be implemented during Financial Year 2019 and the Board is confident that these actions will build a stronger business and one capable of delivering sustainable growth and attractive, sustainable returns.

Reasons for the New Share Issue

Despite internal initiatives to improve the Group's cash generation throughout Financial Year 2018, which have realised £18 million of improvements in working capital during that period, net debt has remained high as a result of the reduced profits of the Group. This has been exacerbated by the challenging trading environment experienced through Financial Year 2018, including the significant impact of raw material cost increases and volatility in exchange rates.

As  a  result,  at  30  November  2018,  the  Group's  net  debt was £128.5 million, resulting in a net debt to EBITDA ratio of 3.2x, compared to £140.3 million, and a net debt to EBITDA ratio of 2.9x, as at 31 May 2018. In addition, the level of the Group's net debt typically varies during the year and is subject to a number of factors including periodic levels of working capital. In Financial Year 2018, the average net debt of the Group (calculated as the average of the month end net debt position for each month during the year) was £159.4 million, representing an implied net average debt to EBITDA ratio of 4.0x.

The Group's borrowing facilities currently include, inter alia, net debt to EBITDA ratio covenants which are tested semi-annually as at 31 May and 30 November (the "Leverage Covenant"). The Leverage Covenant for the Group requires a ratio of not more than 3.5x at 31 May 2019, after which it reduces to a ratio of not more than 3.0x. The Board believes that the current leverage position severely constrains the Group's ability to deliver the improvement and growth initiatives that underpin its strategic objectives whilst also exposing the Group to financing risk in the event of further volatility in its earnings.

Accordingly, the Board has concluded that it is in the Group's best interests to raise approximately £54 million in gross proceeds (approximately £50 million in net proceeds) by way of a fully underwritten placing and open offer and firm placing in order to enable the Group to reduce its average net indebtedness as well as help it to achieve a target net debt to EBITDA ratio of below 2.0x in the medium-term. The Board believes that this improved capital structure would enable the Group to:

·     reduce its financing risk materially;

·     continue to focus on delivering its strategic initiatives;

·    enhance its operational capability through annual capital expenditure of between £20 million and £25 million, over the next two to three years;

·     allow a successful divestment of the CE business from a position of greater strength; and

·     normalise working capital practices across the Group

The Directors have given careful consideration as to how to structure the proposed issuance of equity and have concluded that a placing and open offer and firm placing is the most suitable option available to the Company and its Shareholders at this time.

Use of proceeds

The Placing and Open Offer and Firm Placing are expected to raise, in aggregate, approximately £54 million in gross proceeds (approximately £50 million in net proceeds). The Board currently intends to use approximately £45 million of the net proceeds to reduce net indebtedness and provide working capital flexibility, and approximately £5 million to fund incremental capital expenditure in Financial Year 2019, which would otherwise have been expected to be incurred in Financial Year 2020.

Strategy

The Board's long-term objective is to establish Low & Bonar as a leading international polymer-based performance materials business focused on its current and adjacent niche markets, characterised by versatile and market-leading technologies and differentiated products. By achieving this, the Board believes that the Group will be capable of delivering, sustainable growth ahead of underlying markets and attractive, sustainable returns.

Core to the Group's value proposition are its proprietary Colback and Enka non-woven textile technologies, which form the basis of the newly-created non-wovens business unit (Colbond) and which have established leading brand positions in niche segments of the automotive, interiors, construction and filtration sectors. Both I&T and B&I have grown consistently in recent years, although the Board believes there is scope to enhance performance in these businesses by leveraging shared marketing, technology and innovation through a structure that puts greater focus on local customers in their target markets.

The CTT business has experienced significant challenges as the result of recurring production issues. However, the resilience of the business unit's revenue over this period reflects the strong fundamental customer proposition and the Board is confident that CTT's margin profile can be returned to high single- digit levels over time.

As announced in July 2018, the Group is exploring the divestment of its remaining CE business unit in order to allow it to focus on those areas of the business which the Board believes are capable of generating attractive returns on a consistent basis. Following the proposed divestment of the CE business, the Group will be more narrowly focused on those businesses with characteristics that are aligned with its strategic objectives.

The Group has successfully expanded its Colback capabilities by investing £49 million in China in the last five years, building a new facility with 120 million m2 capacity, to serve international customers establishing facilities in the region as well as the fast-growing local market.

In order to achieve its long-term ambition, the Board has a number of key strategic initiatives for 2019 and beyond:

1.    ensure that there is strength in depth across the senior management team;

2.    improve customer focus and alignment through all elements of the organisation;

3.    bring customer-led, rather than technology-led, innovation to the heart of the Group's growth strategy;

4.    transition to a more agile regional structure for the Colbond business, better suited to the Group's size and operating requirements;

5.    establish an optimised, well-invested manufacturing footprint capable of supporting the Group's customer service and returns objectives;

6.    become more efficient in managing raw material cost volatility through better commercial effectiveness and more strategic procurement;

7.    further improve working capital practices with a particular focus on inventory and creditors; and

8.    undertake a comprehensive review of the Group's portfolio and actively explore the disposal of the CE business unit.

The Board believes that delivering on these objectives will create a focused and effective innovation-led business, capable of achieving, in the medium-term:

·     sustainable average annual revenue growth ahead of geographically weighted GDP;

·     improved Group underlying operating margins of 10 per cent.;

·     consistent operational cash generation, representing at least 80 per cent. of annual EBITDA; and

·     strong shareholder returns with dividends at an average of 40 per cent. of profit after tax.

Progress on a number of these initiatives is underway and will accelerate during Financial Year 2019. Given the geographic and technology overlap between the two businesses, Building & Industrial ("B&I") and Interiors & Transportation ("I&T") were merged with effect from December 2018. The combined non-woven business unit will operate with a regional structure covering Europe, APAC and the Americas, which the Board believes will enable a closer relationship with key customers in those locations, clearer accountability of management, faster innovation and a leaner overhead structure. This revised operating structure will enable management to re-align commercial, operational and innovation teams to a more customer-focused approach, supported by strong leadership.

In addition, the Board is reviewing the Group's manufacturing footprint on a site-by-site basis to identify where improvements need to be made together with any capability investment required to deliver this. In particular, the Directors believe that the Group's non-woven operations in Asheville (USA) and its coated textile facilities in Hückelhoven (Germany) and Fulda (Germany) require investment to improve manufacturing capability and performance. As a result, the Directors believe the Group will need to deploy annual capital expenditure of between £20 million and £25 million, over the next three years, compared with an average of approximately £25 million (approximately £16 million excluding the investment in China referred to above) over the last three financial years.

Whilst these key initiatives are being implemented, the Board expects Financial Year 2019 to be one of consolidation, although the anticipated resolution of the historical issues at CTT should result in improved performance in that business. The Board believes that, from Financial Year 2020, the wider benefits of its revised operating structure, improved innovation and manufacturing investments will begin to be realised more fully.

Current trading and prospects

In the early part of the 2019 financial year, cash and profit performance has been in line with expectations.

Colbond volumes reflected lower US Enka sales as expected, following reduced volumes with one important customer in the latter part of 2018, and the Group saw subdued demand in some markets, especially in the lower-margin segments of the Colbond and CTT businesses. Reduced capacity at Lomnice, following the fire in 2018, held back CTT volumes and margins. However, the site has now returned to full production during January. CE is trading in-line with expectations and ahead of prior year at this stage. Raw material prices have reduced slightly during the early part of the year, supporting margins.

The transformation of Low & Bonar to deliver profitable growth is likely to be complex with a number of challenging issues to overcome. The Group needs to rebuild customer confidence in some parts of the Group, resolve legacy production issues, improve customer service levels and exploit the new customer-focused regional structure fully. Coupled with some signs of a macro-economic slowdown, the risk of intensifying competition and a backdrop of raw material volatility, the transformation will need to be managed carefully to ensure the Group unlocks its potential.

With the benefit of the strengthened capital structure and strategic actions underway, the Board is confident of progress during the year.

Key Terms of the New Share Issue

The Company is proposing to raise approximately £54 million (approximately £50 million net of estimated commissions, fees and expenses) by way of a Placing and Open Offer of 327,021,479 New Shares, representing 47.4 per cent. of the enlarged issued share capital of the Company immediately following Admission and a Firm Placing of 32,628,228 New Shares, representing approximately 4.7 per cent. of the enlarged issued share capital of the Company immediately following Admission, each at an Offer Price of 15 pence per New Share. The Directors have given careful consideration as to how to structure the proposed issuance of equity and have concluded that a Placing and Open Offer and Firm Placing is the most suitable option available to the Company and its Shareholders at this time.

Placing and Open Offer

The Offer Price of 15 pence per New Share represents an effective 17.1 per cent. discount to the Closing Price of 18.1 pence on 29 January 2019, being the Business Day prior to the announcement of the Placing and Open Offer and Firm Placing. In setting the Offer Price, the Directors have considered the process by which the New Shares need to be offered to investors to ensure the success of the Placing and Open Offer and Firm Placing and raise a significant level of equity compared to the market capitalisation of the Company. The Directors believe that both the Offer Price and the discount are appropriate.

The Underwriter and Canaccord, as agents for the Company, have made arrangements to conditionally place the Open Offer Shares with institutional investors at the Offer Price. The Open Offer Shares will be subject to clawback to satisfy valid applications by Qualifying Shareholders under the Open Offer. Subject to the waiver or satisfaction of the conditions and the Placing and Open Offer Agreement not being terminated in accordance with its terms, any Open Offer Shares not subscribed for under the Open Offer will be issued to Placees procured by the Underwriter and Canaccord, with the net proceeds of the Placing being retained by the Company.

Open Offer Entitlements

Subject to the terms and conditions set out below (and, in the case of Qualifying Non-CREST Shareholders, in the Application Form), each Qualifying Shareholder is being given an opportunity to apply for Open Offer Shares at the Offer Price (payable in full and free of all expenses) on the following pro rata basis:

106 Open Offer Shares at 15 pence per Open Offer Share for every 107 Existing Shares

held and registered in their name at the Record Date and so on in proportion to any other number of Shares then held, rounded down to the nearest whole number of Open Offer Shares.

Qualifying non-CREST Shareholders will have received an Application Form with the Prospectus which sets out their basic entitlement to Open Offer Shares as shown by the number of Open Offer Entitlements offered to them. Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of their Open Offer Entitlements on 31 January 2019. Qualifying Shareholders with holdings of Existing Shares in both certificated and uncertificated form will be treated as having separate holdings for the purpose of calculating their entitlements under the Open Offer.

Further information on the Open Offer and the terms and conditions on which it is made, including the procedure for application and payment, are set out in "Part III - Terms and Conditions of the Placing and Open Offer and Firm Placing" of the Prospectus and, where relevant, in the Application Form.

Shareholders should be aware that the Open Offer is not a rights issue. As such, Qualifying Non-CREST Shareholders should note that their Application Forms are not negotiable documents and cannot be traded. Qualifying CREST Shareholders should note that, although the Open Offer Entitlements will be admitted to CREST, and be enabled for settlement, the Open Offer Entitlements will not be tradeable or listed and applications in respect of the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. New Shares for which application has not been made under the Open Offer will not be sold in the market for the benefit of those who do not apply under the Open Offer and Qualifying Shareholders who do not apply to take up their entitlements will have no rights nor receive any benefit under the Open Offer. Any New Shares which are not applied for under the Open Offer may be allocated to Placees or, failing which, to the Underwriter subject to the terms and conditions of the Placing and Open Offer Agreement, with the proceeds ultimately accruing for the benefit of the Company.

The attention of Shareholders and any persons (including, without limitation, custodians, nominees and trustees) who have a contractual or other legal obligation to forward the Prospectus or an Application Form into a jurisdiction other than the UK is drawn to paragraph 8 of "Part III - Terms and Conditions of the Placing and Open Offer and Firm Placing", which forms part of the terms and conditions of the Placing and Open Offer and Firm Placing. In particular, Restricted Shareholders will not be sent the Prospectus or the Application Form.

The Placing and Open Offer is conditional upon, among other things:

a.    Shareholder approval of the Resolutions at the General Meeting;

b.    the Placing and Open Offer Agreement having become or been declared unconditional in all respects and the Placing and Open Offer Agreement not having been terminated by the Underwriter in accordance with its terms prior to Admission; and

c.     Admission occurring not later than 8.00 a.m. on 20 February 2019 (or such later time or date as the Company and the Underwriter may agree, being not later than 8:00 a.m. on 27 February 2019).

Accordingly, if any such conditions are not satisfied or, if applicable, waived, the Placing and Open Offer will not proceed and any Open Offer Entitlements admitted to CREST will thereafter be disabled and application monies will be returned to applicants (at the applicant's risk) without interest as soon as possible.

Shareholders who do not, or are not permitted to, acquire the New Shares will be diluted by 47.4.1 per cent. following the Placing and Open Offer and Firm Placing (assuming no options granted under the Share Schemes are exercised between 28 January 2019 (being the latest practicable date prior to the publication of the prospectus) and the New Share Issue).

The results of the Placing and Open Offer are expected to be announced on or around 19 February 2019.

Firm Placing

The Company is proposing to issue 32,628,228 New Shares pursuant to the Firm Placing. The Firm Placed Shares are not to be offered first to Shareholders generally. The Firm Placed Shares represent 9.9 per cent. of the Shares in issue as at 28 January 2019 (being the latest practicable date prior to publication of the Prospectus) and are not subject to clawback under, nor do they form part of, the Open Offer. The Firm Placing is expected to raise approximately £4.9 million gross proceeds.

Shareholders who take up their pro rata Open Offer Entitlement in full will suffer 4.7 per cent. dilution to their interests in the Company as a result of the Firm Placing (assuming no options granted under the Share Schemes are exercised between 28 January 2019 (being the latest practicable date prior to the publication of the Prospectus) and the New Share Issue).

The Firm Placing is subject to the same conditions and termination rights which apply to the Placing and Open Offer.

If Admission does not take place on or before 8.00 a.m. on 20 February 2019 (or such later date as the Company and the Underwriter may agree, not being later than 8.00 a.m. on 27 February 2019), the Firm Placing will not proceed and subscription monies will be refunded to Firm Placees by cheque or CREST payment, as appropriate (at the Firm Placees' risk).

Timetable

Record Date for entitlements under the Open Offer

close of business on 28 January 2019

Announcement of the Placing and Open Offer and Firm Placing

7.00 a.m. on 30 January 2019

Publication of the Prospectus, Application Forms (to Qualifying non-CREST shareholders only) and Proxy Forms

30 January 2019

Ex entitlement date for the Open Offer

30 January 2019

Open Offer Entitlements enabled in CREST and credited to stock accounts of Qualifying CREST Shareholders in CREST

31 January 2019

Publication of Notices of the Open Offer in the Edinburgh Gazette and London Gazette

1 February 2019

Recommended latest time for requesting withdrawal of

Open Offer Entitlements from CREST(4)

4.30 p.m. on 12 February 2019

Latest time and date for depositing Open Offer Entitlements into CREST(5)

3.00 p.m. on 13 February 2019

Latest time and date for splitting of Application Forms (to satisfy bona fide market claims only)

3.00 p.m. on 14 February 2019

Latest time and date for receipt of Forms of Proxy or electronic proxy appointments

11.00 a.m. on 15 February 2019

Latest time and date for receipt of completed Application Forms and payment in full under the Open Offer or settlement of relevant CREST instruction (as appropriate)

11.00 a.m. on 18 February 2019

Announcement of the results of the Placing and Open Offer through a Regulatory Information Service

19 February 2019

General Meeting

11.00 a.m. on 19 February 2019

Results of General Meeting announced through a Regulatory Information Service

19 February 2019

Admission and commencement of dealings in the New

Shares

By 8.00 a.m. on 20 February 2019

CREST Members' accounts credited in respect of New Shares in uncertificated form

By 8.00 a.m. on 20 February 2019

Expected dispatch of definitive share certificates for New Shares in certificated form

Within 14 days of Admission

 

Prospectus

The Prospectus containing full details of the Placing and Open Offer and Firm Placing is expected to be made available on Low & Bonar's website (http://www.lowandbonar.com/) later today.

The Prospectus will be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/nsm following publication.

The preceding summary should be read in conjunction with the full text of the following announcement and its appendices, together with the Prospectus. Capitalised terms used in this announcement shall have the meanings set out in the Appendix.

 

Rothschild & Co is acting as the Financial Adviser to Low & Bonar.

The Placing and Open Offer and Firm Placing is fully underwritten by Peel Hunt LLP.

For further information, please contact:

Low & Bonar PLC

Philip de Klerk (Group CEO)

Ian Ashton (Group CFO)

 

020 7535 3180

Peel Hunt LLP (Sponsor, Broker, Sole Bookrunner to Low & Bonar)

Alastair Rae

Mike Bell

Charlie Batten

Ed Allsopp

 

020 7418 8900

Canaccord Genuity Limited (Co-Lead Manager to Low & Bonar)

Bobbie Hilliam (Corporate Broking)

Alex Aylen (Sales)

 

0207 523 8000

Rothschild & Co (Financial Adviser to Low & Bonar)

Stuart Vincent

William Marshall

 

020 7280 5000

Instinctif Partners

Matthew Smallwood

Rosie Driscoll

 

020 7457 2020

Notes:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation ("MAR") EU no.596/2014. Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

IMPORTANT NOTICE:

This announcement has been issued by and is the sole responsibility of the Company. This announcement is not a prospectus but an advertisement and investors should not acquire any Shares referred to in this announcement except on the basis of the information contained in the Prospectus to be published by the Company in connection with the New Share Issue. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its accuracy or completeness. The information in this announcement is subject to change.

Copies of the Prospectus when published will be available from the head office of the Company and on the Company's website at www.lowandbonar.com provided that the Prospectus is not, subject to certain exceptions, available (through the website or otherwise) to Shareholders in the United States of America or any other Excluded Territory. Neither the content of Low & Bonar's website nor any website accessible by hyperlinks on Low & Bonar's website is incorporated in, or forms part of, this announcement. The Prospectus provides further details of the Shares being offered pursuant to the New Share Issue.

This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for Shares in any jurisdiction. No offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for New Shares will be made in any jurisdiction in which such an offer or solicitation is unlawful. The information contained in this announcement is not for release, publication or distribution to persons in the United States or any other Excluded Territory, and should not be distributed, forwarded to or transmitted in or into any jurisdiction, where to do so might constitute a violation of local securities laws or regulations.

This announcement is not an offer of securities for sale in the United States. The Shares and the Application Forms have not been and will not be registered under the Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of the Shares in the United States.

The distribution of this announcement into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, this announcement, the Prospectus (once published) and the Application Forms (once printed) should not be distributed, forwarded to or transmitted in or into the United States or any other Excluded Territory.

This announcement does not constitute a recommendation concerning any investor's options with respect to the New Share Issue. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "will", "may", "should", "would", "could", "is confident", or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this announcement and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Low & Bonar's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are: increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approvals for engineering or price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment and research and development projects.

Neither the Company nor the Banks are under any obligation to update or revise publicly any forward-looking statement contained within this announcement, whether as a result of new information, future events or otherwise, other than in accordance with their legal or regulatory obligations (including under the Listing Rules, the Disclosure Guidance and Transparency Rules and the Prospectus Rules).

Notice to all investors

Each of Peel Hunt LLP ("Peel Hunt"), Canaccord Genuity Limited ("Canaccord") and N M Rothschild & Sons Limited ("Rothschild & Co", and together with Peel Hunt and Canaccord, the "Banks") are authorised and regulated by the FCA in the United Kingdom, are acting exclusively for the Company and no one else in connection with the New Share Issue and will not regard any other person (whether or not a recipient of this document) as a client in relation to the New Share Issue and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients nor for giving advice in relation to the New Share Issue or any transaction or arrangement referred to in the attached document.

Apart from the responsibilities and liabilities, if any, which may be imposed on the Banks by the FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, none of the Banks, nor any of their respective affiliates, directors, officers, employees or advisers, accepts any responsibility whatsoever for, or makes any representation or warranty, express or implied, as to, the contents of this document, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, by the Company, the Directors or any other person, in connection with the Company or the Shares or the New Share Issue and nothing contained in this document is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. The Banks and each of their respective affiliates each accordingly disclaims all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of this document or any such statement. No representation or warranty express or implied, is made by any of the Banks or any of their respective affiliates as to the accuracy, completeness or sufficiency of the information set out in the attached document.

No person has been authorised to give any information or to make any representations other than those contained in this announcement, the Prospectus and the Application Forms, and, if given or made, such information or representations must not be relied on as having been authorised by Low & Bonar or Peel Hunt, Canaccord and Rothschild. Subject to the Listing Rules, the Prospectus Rules and the Transparency Rules of the Financial Conduct Authority and the Disclosure Requirements (as such term is defined in the Listing Rules), the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of Low & Bonar since the date of this announcement or that the information in it is correct as at any subsequent date.

 

Peel Hunt and Canaccord and their respective affiliates, acting as investors for their own accounts, may, in accordance with applicable legal and regulatory provisions, engage in transactions in relation to the Shares and/or related instruments for their own account for the purpose of hedging their underwriting exposure or otherwise. Accordingly, references in the Prospectus to the Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by, Peel Hunt, Canaccord and any of their respective affiliates acting as investors for their own accounts. Except as required by applicable law or regulation, Peel Hunt and Canaccord do not propose to make any public disclosure in relation to such transactions

 

 

 

 

Low & Bonar PLC

("Low & Bonar", the "Company" or the "Group")

 

Proposed Placing and Open Offer of 327,021,479 New Shares and Firm Placing of 32,628,228 New Shares at 15 pence per New Share and Notice of General Meeting

Introduction

Low & Bonar's board of directors (the "Board") has determined that the current capital structure of the Group is unable to support its strategic objectives. Consequently, the Board has today announced its intention to raise approximately £54 million in gross proceeds (approximately £50 million in net proceeds) by way of a fully-underwritten placing and open offer and firm placing.

The purpose of the Prospectus is to explain the background to, and reasons for, the Placing and Open Offer and Firm Placing and the use of proceeds, and to summarise the terms and conditions of the Placing and Open Offer and Firm Placing. The Board believes the Placing and Open Offer and Firm Placing to be in the best interests of Shareholders as a whole and the Prospectus will explain why the Board unanimously recommends that Shareholders should vote in favour of the Resolutions, as each Director has committed to do so in respect of his or her own legal and beneficial holdings of Shares.

The Placing and Open Offer and Firm Placing are fully underwritten by the Underwriter, subject to the terms of the Placing and Open Offer Agreement.

Background to and reasons for the Placing and Open Offer and Firm Placing

Summary

Low & Bonar is a well-established international business whose principal activities are in the international manufacturing and supply of performance materials commonly referred to as technical textiles. The global technical textiles industry comprises, inter alia, fibres, yarns, woven fabrics and non-woven fabrics serving diverse markets such as the civil engineering, automotive, construction, industrial and healthcare markets.

The Group has experienced a challenging period over recent years, and whilst revenues have increased by 8.0 per cent., from £400.0 million in Financial Year 2016 to £431.9 million in Financial Year 2018, underlying profit before tax ("PBT") has decreased by 42.8 per cent., from £29.2 million to £16.7 million, in the same period. Part of this reduction in profitability has been caused by challenging conditions in certain of the Group's end markets at various times, including a significant rise in raw material costs during Financial Year 2018. However a number of structural factors within the Group have made a significant contribution to this underperformance, including:

·     a failed strategy in the Civil Engineering ("CE") business unit to grow a large, integrated business through acquisition and investment which has resulted in underlying operating profit from the division reducing from £4.2 million in Financial Year 2016 to £0.1 million in Financial Year 2018;

·     recurring production issues in the Coated Technical Textiles ("CTT") business unit which have resulted in underlying operating profit from the division reducing from £8.7 million in Financial Year 2016 to £2.5 million in Financial Year 2018;

·     an overly complex organisational structure which created a loss of accountability, inefficiency in decision-making between functions, lack of focus on the customer and reduced organisational agility;

·     a lack of discipline and customer alignment in innovation which resulted in new product development being too slow and with too narrow a focus;

·     historic under-investment in a number of the Group's manufacturing sites which has reduced production reliability and impacted customer service; and

·     a failure to manage raw material cost volatility in a responsive and effective manner.

On 31 January 2018, the Company announced the appointment of Philip de Klerk as Group Chief Executive Officer and he, together with the Board, took action to address these issues during Financial Year 2018. Substantial progress has now been made in identifying and resolving the root causes of the problems in CTT and quality is returning to acceptable levels, albeit at lower production rates. A review of the CE business, initiated in October 2017, has resulted in a significant restructuring of the operations, culminating in the decision to divest the business, which was announced in July 2018, and sale processes are in progress. On 11 September 2018, I was appointed as Chairman of the Group and Ian Ashton joined the Board as Group Chief Financial Officer on 10 December 2018.

As of December 2018, a simpler regional structure with responsibilities for cash and profit and loss was introduced for B&I and I&T, which have been merged and regionalised, with a clear accountability framework, improving focus on key customer-facing operational metrics, such as on-time in-full delivery and quality, and a unified central team to ensure the sharing of best practices and technology. A major enterprise resources planning ("ERP") system implementation has only been partially completed and roll out has been restricted to the Colback and Enka businesses. Focus is now on operational improvement and making best use of the deployed system.

Alongside the deterioration in profitability, the level of the Group's net indebtedness has risen substantially over the last four years, largely due to a substantial ongoing capital investment requirement and poor working capital discipline, with net debt at 30 November 2018 of £128.5 million, having been £88.0 million at 30 November 2014. As a result, the ratio of the Group's net debt to EBITDA has increased from 1.9x at 30 November 2014 to 3.2x at 30 November 2018. The Board believes that the limited headroom this position leaves against the Group's net debt to EBITDA ratio covenant in the Existing Financing Arrangements will severely constrain the Group's ability to deliver the business and operational improvement actions necessary, whilst also exposing the Group to significant financing risk given the potential volatility in its earnings.

Strategy

The Board's long-term objective is to establish Low & Bonar as a leading international polymer-based performance materials business focused on its current and adjacent niche markets, characterised by versatile and market-leading technologies and differentiated products. By achieving this, the Board believes that the Group will be capable of delivering, sustainable growth ahead of underlying markets and attractive, sustainable returns.

Core to the Group's value proposition are its proprietary Colback and Enka non-woven textile technologies, which form the basis of the newly-created non-wovens business unit (Colbond) and which have established leading brand positions in niche segments of the automotive, interiors, construction and filtration sectors. Both I&T and B&I have grown consistently in recent years, although the Board believes there is scope to enhance performance in these businesses by leveraging shared marketing, technology and innovation through a structure that puts greater focus on local customers in their target markets.

 The CTT business has experienced significant challenges as the result of recurring production issues. However, the resilience of the business unit's revenue over this period reflects the strong fundamental customer proposition and the Board is confident that CTT's margin profile can be returned to high single- digit levels over time.

As announced in July 2018, the Group is exploring the divestment of its remaining CE business unit in order to allow it to focus on those areas of the business which the Board believes are capable of generating attractive returns on a consistent basis. Following the proposed divestment of the CE business, the Group will be more narrowly focused on those businesses with characteristics that are aligned with its strategic objectives.

The Group has successfully expanded its Colback capabilities by investing £49 million in China in the last five years, building a new facility with 120 million m2 capacity, to serve international customers establishing facilities in the region as well as the fast-growing local market.

In order to achieve its long-term ambition, the Board has a number of key strategic initiatives for 2019 and beyond:

1.    ensure that there is strength in depth across the senior management team;

2.    improve customer focus and alignment through all elements of the organisation;

3.    bring customer-led, rather than technology-led, innovation to the heart of the Group's growth strategy;

4.    transition to a more agile regional structure for the Colbond business, better suited to the Group's size and operating requirements;

5.    establish an optimised, well-invested manufacturing footprint capable of supporting the Group's customer service and returns objectives;

6.    become more efficient in managing raw material cost volatility through better commercial effectiveness and more strategic procurement;

7.    further improve working capital practices with a particular focus on inventory and creditors; and

8.    undertake a comprehensive review of the Group's portfolio and actively explore the disposal of the CE business unit.

The Board believes that delivering on these objectives will create a focused and effective innovation- led business, capable of achieving, in the medium-term:

·     sustainable average annual revenue growth ahead of geographically weighted GDP;

·     improved Group underlying operating margins of 10 per cent.;

·     consistent operational cash generation, representing at least 80 per cent. of annual EBITDA; and

·     strong shareholder returns with dividends at an average of 40 per cent. of profit after tax.

Progress on a number of these initiatives is underway and will accelerate during Financial Year 2019. Given the geographic and technology overlap between the two businesses, Building & Industrial ("B&I") and Interiors & Transportation ("I&T") were merged with effect from December 2018. The combined non-woven business unit will operate with a regional structure covering Europe, APAC and the Americas, which the Board believes will enable a closer relationship with key customers in those locations, clearer accountability of management, faster innovation and a leaner overhead structure. This revised operating structure will enable management to re-align commercial, operational and innovation teams to a more customer-focused approach, supported by strong leadership.

In addition, the Board is reviewing the Group's manufacturing footprint on a site-by-site basis to identify where improvements need to be made together with any capability investment required to deliver this. In particular, the Directors believe that the Group's non-woven operations in Asheville (USA) and its coated textile facilities in Hückelhoven (Germany) and Fulda (Germany) require investment to improve manufacturing capability and performance. As a result, the Directors believe the Group will need to deploy annual capital expenditure of between £20 million and £25 million, over the next three years, compared with an average of approximately £25 million (approximately £16 million excluding the investment in China referred to above) over the last three financial years.

Whilst these key initiatives are being implemented, the Board expects Financial Year 2019 to be one of consolidation, although the anticipated resolution of the historical issues at CTT should result in improved performance in that business. The Board believes that, from Financial Year 2020, the wider benefits of its revised operating structure, improved innovation and manufacturing investments will begin to be realised more fully.

Reasons for the Placing and Open Offer and Firm Placing

Despite internal initiatives to improve the Group's cash generation throughout Financial Year 2018, which have realised £18 million of improvements in working capital during that period, net debt has remained high as a result of the reduced profits of the Group. This has been exacerbated by the challenging trading environment experienced through 2018, including the significant impact of raw materials cost increases and volatility in exchange rates.

As a result, at 30 November 2018, the Group's net debt was £128.5 million, resulting in a net debt to EBITDA ratio of 3.2x, compared to £140.3 million, and a net debt to EBITDA ratio of 2.9x, as at 31 May 2018. In addition, the level of the Group's net debt typically varies during the year and is subject to a number of factors including periodic levels of working capital. In Financial Year 2018, the average net debt of the Group (calculated as the average of the month end net debt position for each month during the year) was £159.4 million, representing an implied net average debt to EBITDA ratio of 4.0x.

The Group's borrowing facilities currently include, inter alia, net debt to EBITDA ratio covenants which are tested semi-annually as at 31 May and 30 November, (the "Leverage Covenant"). The Leverage Covenant for the Group requires a ratio of not more than 3.5x at 31 May 2019 after which it reduces to a ratio of not more than 3.0x. The Board believes that the current leverage position severely constrains the Group's ability to deliver the improvement and growth initiatives that underpin its strategic objectives whilst also exposing the Group to financing risk in the event of further volatility in its earnings.

Accordingly, the Board has concluded that it is in the Group's best interests to raise approximately £54 million in gross proceeds (approximately £50 million in net proceeds) by way of a fully underwritten placing and open offer and firm placing in order to enable the Group to reduce its average net indebtedness as well as help it to achieve a target net debt to EBITDA ratio of below 2.0x in the medium-term. The Board believes that this improved capital structure would enable the Group to:

·     reduce its financing risk materially;

·     continue to focus on delivering its strategic initiatives;

·     enhance its operational capability through annual capital expenditure of between £20 million and £25 million, over the next two to three years;

·     allow a successful divestment of the CE business from a positon of greater strength; and

·     normalise working capital practices across the Group.

Use of proceeds

The Placing and Open Offer and Firm Placing are expected to raise, in aggregate, approximately £54 million in gross proceeds (approximately £50 million in net proceeds). The Board currently intends to use approximately £45 million of the net proceeds to reduce net indebtedness and provide working capital flexibility, and approximately £5 million to fund incremental capital expenditure in Financial Year 2019 which would otherwise have been expected to be incurred in Financial Year 2020.

Financial impact of the Placing and Open Offer and Firm Placing

Had the Placing and Open Offer and Firm Placing taken place so that the net proceeds were accounted for as at 30 November 2018, the effect would have been an increase in cash and cash equivalents of £50 million.

Your attention is also drawn to "Part VII - Unaudited Pro Forma Financial Information" of the Prospectus which contains an unaudited pro forma statement of net assets which illustrates the effect of the New Share Issue on the Group's net assets and borrowings as at 30 November 2018 as if the New Share Issue had occurred at that date. This information has been prepared for illustrative purposes only.

Risk factors and further information

Shareholders should consider fully and carefully the risk factors associated with Low & Bonar, as set out in the Prospectus.

Shareholders should read the whole of the Prospectus and not rely solely on the information set out in this announcement.

Terms of the Placing and Open Offer and Firm Placing and of the New Shares

The Company is proposing to raise approximately £54 million (approximately £50 million net of estimated commissions, fees and expenses) by way of a Placing and Open Offer of 327,021,479 New Shares, representing 47.4 per cent. of the enlarged issued share capital of the Company immediately following Admission and a Firm Placing of 32,628,228 New Shares, representing 47.4 per cent. of the enlarged issued share capital of the Company immediately following Admission, each at an Offer Price of 15 pence per New Share. The Directors have given careful consideration as to how to structure the proposed issuance of equity and have concluded that a Placing and Open Offer and Firm Placing is the most suitable option available to the Company and its Shareholders at this time.

Placing and Open Offer

The Offer Price of 15 pence per New Share represents an effective 17.1 per cent. discount to the Closing Price of 18.1 pence on 29 January 2019, being the Business Day prior to the announcement of the Placing and Open Offer and Firm Placing. In setting the Offer Price, the Directors have considered the process by which the New Shares need to be offered to investors to ensure the success of the Placing and Open Offer and Firm Placing and raise a significant level of equity compared to the market capitalisation of the Company. The Directors believe that both the Offer Price and the discount are appropriate.

The Underwriter and Canaccord, as agents for the Company, have made arrangements to conditionally place the Open Offer Shares with institutional investors at the Offer Price. The Open Offer Shares will be subject to clawback to satisfy valid applications by Qualifying Shareholders under the Open Offer. Subject to the waiver or satisfaction of the conditions and the Placing and Open Offer Agreement not being terminated in accordance with its terms, any Open Offer Shares not subscribed for under the Open Offer will be issued to Placees procured by the Underwriter and Canaccord, with the net proceeds of the Placing being retained by the Company.

Open Offer Entitlements

Subject to the terms and conditions set out below (and, in the case of Qualifying Non-CREST Shareholders, in the Application Form), each Qualifying Shareholder is being given an opportunity to apply for Open Offer Shares at the Offer Price (payable in full and free of all expenses) on the following pro rata basis:

106 Open Offer Shares at 15 pence per Open Offer Share for every 107 Existing Shares

held and registered in their name at the Record Date and so on in proportion to any other number of Shares then held, rounded down to the nearest whole number of Open Offer Shares.

Qualifying non-CREST Shareholders will have received an Application Form with the Prospectus which sets out their basic entitlement to Open Offer Shares as shown by the number of Open Offer Entitlements offered to them. Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of their Open Offer Entitlements on 31 January 2019. Qualifying Shareholders with holdings of Existing Shares in both certificated and uncertificated form will be treated as having separate holdings for the purpose of calculating their entitlements under the Open Offer.

Further information on the Open Offer and the terms and conditions on which it is made, including the procedure for application and payment, are set out in "Part III - Terms and Conditions of the Placing and Open Offer and Firm Placing" of the Prospectus and, where relevant, in the Application Form.

Shareholders should be aware that the Open Offer is not a rights issue. As such, Qualifying Non-CREST Shareholders should note that their Application Forms are not negotiable documents and cannot be traded. Qualifying CREST Shareholders should note that, although the Open Offer Entitlements will be admitted to CREST, and be enabled for settlement, the Open Offer Entitlements will not be tradeable or listed and applications in respect of the Open Offer may only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. New Shares for which application has not been made under the Open Offer will not be sold in the market for the benefit of those who do not apply under the Open Offer and Qualifying Shareholders who do not apply to take up their entitlements will have no rights nor receive any benefit under the Open Offer. Any New Shares which are not applied for under the Open Offer may be allocated to Placees or, failing which, to the Underwriter subject to the terms and conditions of the Placing and Open Offer Agreement, with the proceeds ultimately accruing for the benefit of the Company.

The attention of Shareholders and any persons (including, without limitation, custodians, nominees and trustees) who have a contractual or other legal obligation to forward the Prospectus or an Application Form into a jurisdiction other than the UK is drawn to paragraph 8 of "Part III - Terms and Conditions of the Placing and Open Offer and Firm Placing", which forms part of the terms and conditions of the Placing and Open Offer and Firm Placing. In particular, Restricted Shareholders will not be sent the Prospectus or the Application Form.

The Placing and Open Offer is conditional upon, among other things:

a.    Shareholder approval of the Resolutions at the General Meeting;

b.    the Placing and Open Offer Agreement having become or been declared unconditional in all respects and the Placing and Open Offer Agreement not having been terminated by the Underwriter in accordance with its terms prior to Admission; and

c.     Admission occurring not later than 8.00 a.m. on 20 February 2019 (or such later time or date as the Company and the Underwriter may agree, being not later than 27 February 2019).

Accordingly, if any such conditions are not satisfied or, if applicable, waived, the Placing and Open Offer will not proceed and any Open Offer Entitlements admitted to CREST will thereafter be disabled and application monies will be returned to applicants (at the applicant's risk) without interest as soon as possible.

Shareholders who do not, or are not permitted to, acquire the New Shares will be diluted by 47.4 per cent. following the Placing and Open Offer and Firm Placing (assuming no options granted under the Share Schemes are exercised between 28 January 2019 (being the latest practicable date prior to the publication of the Prospectus) and the New Share Issue).

The results of the Placing and Open Offer are expected to be announced on or around 19 February 2019.

Firm Placing

The Company is proposing to issue 32,628,228 New Shares pursuant to the Firm Placing. The Firm Placed Shares are not to be offered first to Shareholders generally. The Firm Placed Shares represent 9.9 per cent. of the Shares in issue as at 28 January 2019 (being the latest practicable date prior to publication of the Prospectus) and are not subject to clawback under, nor do they form part of, the Open Offer. The Firm Placing is expected to raise approximately £4.9 million gross proceeds.

Shareholders who take up their pro rata Open Offer Entitlement in full will suffer 4.7 per cent. dilution to their interests in the Company as a result of the Firm Placing (assuming no options granted under the Share Schemes are exercised between 28 January 2019 (being the latest practicable date prior to the publication of the Prospectus) and the New Share Issue).

The Firm Placing is subject to the same conditions and termination rights which apply to the Placing and Open Offer.

If Admission does not take place on or before 8.00 a.m. on 20 February 2019 (or such later date as the Company and the Underwriter may agree, not being later than 8.00 a.m. on 27 February 2019), the Firm Placing will not proceed and subscription monies will be refunded to Firm Placees by cheque or CREST payment, as appropriate (at the Firm Placees' risk).

Admission

The New Shares issued pursuant to the Placing and Open Offer and Firm Placing will rank pari passu in all respects with the Existing Shares and rank in full for all other dividends and other distributions declared in respect of the ordinary share capital of the Company after the date of issue of the New Shares. For the avoidance of doubt, the New Shares will not qualify for the final dividend for Financial Year 2018 payable to Shareholders on the Company's register as at or about 15 February 2019 (subject to approval of such dividend at the Company's Annual General Meeting on 5 April 2019) as that record date falls before the date upon which the New Shares will be issued.

Applications will be made to the FCA and to the London Stock Exchange for the New Shares to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange's main market for listed securities. It is expected that Admission will become effective and that dealings in the New Shares will commence by 8.00 a.m. on 20 February 2019 (whereupon an announcement will be made by the Company to a Regulatory Information Service).

Smaller related party transactions

Each of Sterling Strategic Value Fund SA SICAV-RAIF, Aberforth Partners LLP and J O Hambro Capital Management are related parties to the Company, as defined in the Listing Rules (the "Related Party Shareholders"). The Related Party Shareholders are each subscribing for shares in the Firm Placing as follows:

·     Sterling Strategic Value Fund SA SICAV-RAIF is subscribing for 5,641,376 Firm Placed Shares at the Offer Price

·     Aberforth Partners LLP is subscribing for 5,350,654 Firm Placed Shares at the Offer Price

·     J O Hambro Capital Management is subscribing for 3,466,879 Firm Placed Shares at the Offer Price

The subscription for the Firm Placed Shares set out above, by each of the Related Party Shareholders, constitute smaller related party transactions for the purposes of paragraph 11.1.10 of the Listing Rules.

Intentions of the Directors

The Directors, who hold in aggregate 650,149 Existing Shares, representing 0.2 per cent. of Low & Bonar's existing issued ordinary share capital as at 28 January 2019 (being the last practicable date prior to the publication of the Prospectus), each have committed by entering into irrevocable undertakings, to vote their Existing Shares in favour of the Resolutions (in each case, save for Ian Ashton and Mike Powell, who do not hold legal title to any Existing Shares, as described in paragraph 6 of "Part IX - Additional Information". Where their Shares are held in trust or with nominees, such Directors intend to recommend that such Open Offer Shares be applied for in full.

Information relating to Low & Bonar

Low & Bonar is a global manufacturer and supplier of advanced, high-performance materials created from polymer-based yarns and fibres which are used in a wide range of demanding applications, covering building and industrial, civil engineering, interior and transportation applications and broad markets for technical coated fabrics. The Directors believe that the Group's high-quality range of performance materials, the strength and versatility of its core technologies, and its ability to develop solutions to meet the demands of its customers have secured it a strong position in many niche applications within its target markets. The Group aims to further align its manufacturing, technology and product development to its sales and marketing functions to ensure the Group can respond quickly and efficiently to enable its customers to provide world-leading products and solutions.

Current trading and prospects in respect of Low & Bonar

In the early part of the financial year, cash and profit performance has been in line with expectations.

Colbond volumes reflected lower US Enka sales as expected, following reduced volumes with one important customer in the latter part of 2018 and the Group saw subdued demand in some markets, especially in the lower-margin segments of the Colbond and CTT businesses. Reduced capacity at Lomnice, following the fire in 2018, held back CTT volumes and margins. However the site has now returned to full production during January. CE is trading in-line with expectations and ahead of prior year at this stage. Raw material prices have reduced slightly during the early part of the year, supporting margins.

The transformation of Low & Bonar to deliver profitable growth is likely to be complex with a number of challenging issues to overcome. We need to rebuild customer confidence in some parts of the Group, resolve legacy production issues, improve customer service levels and exploit the new customer-focused regional structure fully. Coupled with some signs of a macro-economic slowdown, the risk of intensifying competition and a backdrop of raw material volatility, the transformation will need to be managed carefully to ensure we unlock the Group's full potential.

With the benefit of the strengthened capital structure and strategic actions underway, the Board is confident of progress during the year.

Dividends and dividend policy

On 30 January 2019, the Board announced its intention to recommend a final dividend of 0.37 pence per Share. The final dividend, which is subject to the approval of Shareholders at the Company's Annual General Meeting, will be paid on 10 April 2019 to Shareholders on the register at the close of business on 15 February 2019. An interim dividend of 1.05 pence per Share was paid to Shareholders on 21 September 2018. The total dividend for Financial Year 2018 will therefore be 1.42 pence per Share, assuming approval of the relevant resolution by shareholders at the Annual General Meeting.

For the avoidance of doubt, the record date of the dividend payable by the Company in April 2019 is 15 February 2019 and will thus fall before the date of issue of the New Shares, which will therefore not be entitled to that dividend.

Importance of vote

Your attention is again drawn to the fact that the Placing and Open Offer and Firm Placing is conditional and dependent upon, amongst other things, the Resolutions being passed at the General Meeting.

Shareholders are asked to vote in favour of the Resolutions at the General Meeting in order for the Placing and Open Offer and Firm Placing to proceed. The Directors believe that the successful completion of the Placing and Open Offer and Firm Placing will significantly strengthen the Group's balance sheet and provide it with the capacity to continue to invest in support of its strategic objectives, for the benefit of Shareholders.

If the Resolutions are not passed, the Placing and Open Offer and Firm Placing will not proceed and the Company will not receive the net proceeds of the Placing and Open Offer and Firm Placing. If this scenario occurs, the Directors have concluded that, under a reasonable base case scenario, the Group would not breach the covenants in its Existing Financing Arrangements as at the next covenant test date (with respect to the 12 months ending on 31 May 2019) or subsequent semi-annual covenant test dates.

However, if the risks assumed in a reasonable worst case scenario were realised, it is highly likely that the Group would breach its Leverage Covenant at the next test date on 31 May 2019. In such circumstances, without further action on the Group's part to obtain amendments or waivers from the Lenders under its Existing Financing Arrangements, the Lenders would have the right to demand accelerated repayment of substantially all of the Group's outstanding financial indebtedness, which is currently estimated to be up to £177 million (based on 30 November 2018 drawings), subject to amounts then drawn and exchange and interest rates. In such circumstances, the Directors do not expect that the Group would have the funds immediately available to repay such amounts at that time. If it is unable to do so, absent further action, the Group could become insolvent and may be required to cease trading, and Shareholders could lose all or part of the value of their investment in the Company. Therefore, whilst the Company is of the opinion that, taking into account the underwritten portion of the net proceeds of the Placing and Open Offer and Firm Placing and the facilities available to the Group, the Group has sufficient working capital for its present requirements, that is for at least 12 months from the date of publication of the prospectus, it is highly likely under a reasonable worst case scenario that this might not be the case if the Resolutions are not passed and the Placing and Open Offer and Firm Placing do not proceed.

If the Placing and Open Offer and Firm Placing do not proceed and the Directors anticipate that a covenant breach would be likely to occur, the Group expects that it would put in place an action plan that would involve approaching its Lenders to seek to renegotiate the terms of its Existing Financing Arrangements and to secure amendments and/or waivers from them. In such circumstances, there can be no assurance that the Group will be able to obtain such amendments to or waivers from the Group's Existing Financing Arrangements at all or without significant cost to the Group in the form of additional fees payable, including make-whole payments for refinanced indebtedness, amendment fees, increased interest payments or additional restrictions on its business. In addition, following any such amendment (depending on the terms of such amendment or waiver), without the full net proceeds of the Placing and Open Offer and Firm Placing and assuming the reasonable worst case scenario were to come to pass, the Group may nevertheless breach its covenants as at the test date on 30 November 2019 and subsequent test dates. Further, as a result of any such amendments or waivers, the Group's operational and commercial flexibility may be limited by the terms of such amendments or waivers and the Group may find it increasingly challenging and costly to refinance its Existing Financing Arrangements as they fall due.

In addition to seeking amendments or waiver to the terms of its Existing Financing Arrangements, the Group may also seek to reduce discretionary capital and development expenditures and/or dispose of certain assets so as to provide sufficient headroom under the Group's Existing Financing Arrangements to prevent a covenant breach. Whilst the Directors believe it may be possible to reduce its discretionary capital and development expenditure, this action alone is unlikely to reduce net indebtedness sufficiently to avoid a breach of the Group's Leverage Covenant at the testing date of 31 May 2019, or subsequent testing date of 30 November 2019, in the event that the risks assumed in a reasonable worst case scenario were realised. Furthermore, the Directors believe that reducing discretionary capital expenditure could have an adverse effect on the Group's ability to achieve its strategic objectives and on its earnings and profitability. The Group has initiated a process to divest its CE business unit and it may be possible to secure a disposal of this business, or its assets, prior to the Leverage Covenant testing date of 31 May 2019. However, there can be no guarantee that the Directors would be able to dispose of the CE business, or its assets, at a price which they believe is reflective of its or their full value or that, in those circumstances, such lower value which may be capable of being realised within an acceptable time would be sufficient to avoid a breach of the Leverage Covenant at the testing date of 31 May 2019, or subsequent testing date of 30 November 2019, in the event that the risks assumed in a reasonable worst case scenario were realised. The Directors believe that they may be able to secure a disposal of other of the Group's assets; however, it is unlikely that this would be achievable prior to the Leverage Covenant testing date of 31 May 2019, other than on terms that the Directors believe would be significantly disadvantageous to the Group. In such circumstances, whilst the value capable of being realised in an acceptable time may be sufficient to avoid a breach of the Leverage Covenant at the testing date of 31 May 2019, in the event that the risks assumed in a reasonable worst case scenario were realised, it may be at a level that the Directors believe does not reflect the full value of the relevant assets. Furthermore, the disposal of assets other than those of the CE business unit would be likely to restrict the Group's future growth opportunities as well as having an adverse effect on its earnings.

The Directors do not believe that any of these alternatives to the Placing and Open Offer and Firm Placing would maximise shareholder value. In addition, as these alternatives would require the participation, agreement or approval of external parties, they may not be successful.

There can be no assurance that a reasonable worst case scenario will be avoided and, if it is not, that the alternative actions outlined above would be capable of implementation in the time available and/or would ultimately be successful and, accordingly, the Directors believe that the successful completion of the Placing and Open Offer and Firm Placing is in the best interest of the Shareholders as a whole.

As such, it is very important that Shareholders vote in favour of each of the Resolutions at the General Meeting so that, assuming that the other conditions to the Placing and Open Offer and Firm Placing are satisfied, the Placing and Open Offer and Firm Placing can proceed.

Recommendation

The Board believes the Placing and Open Offer and Firm Placing will promote the success of Low & Bonar and is in the best interests of its Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors each have committed to do so in respect of their own holdings (save for Ian Ashton and Mike Powell who do not hold legal title to any Existing Shares), amounting to 650,149 Existing Shares (representing approximately 0.2 per cent. of Low & Bonar's existing issued ordinary share capital as at 28 January 2019 (being the latest practicable date prior to the publication of this document).

 

 

DEFINITIONS

"Admission"

admission of the New Shares to (a) the premium listing segment of the Official List, and (b) trading on the London Stock Exchange's main market for listed securities

"AGM" or "Annual General Meeting"

the Annual General Meeting of the Company

"Application Form"

the personalised application form on which Qualifying Non-CREST Shareholders may apply for New Shares under the Open Offer

"Articles"

the articles of association of the Company which are described in paragraph 4 of "Part IX - Additional Information" of the Prospectus

"Low & Bonar Final Results"

the final results prepared by the Company for the relevant period

"B&I"

the Building & Industrial business unit

"Board"

the board of directors, from time to time, of the Company

"Business Days"

a day (other than a Saturday or Sunday) on which banks are open for general business in London

"Canaccord"

Canaccord Genuity Limited

"CCSS"

the CREST Courier and Sorting Service established by Euroclear to facilitate, amongst other things, the deposit and withdrawal of securities

"certificated" or "in certificated form"

a share or other security which is not in uncertificated form (that is, not in CREST)

"Chairman"

the chairman of the Company

"CE"

the Civil Engineering business unit

"Co-lead Manager"

Canaccord

"Company" or "Low & Bonar"

Low & Bonar PLC, a public limited company incorporated under the laws of Scotland under the Companies (Consolidation) Act 1908

"CREST"

the relevant system (as defined in the CREST Regulations) for the paperless settlement of trades in listed securities in the United Kingdom, of which Euroclear Limited is the operator (as defined in the CREST Regulations)

"CREST Manual"

the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure, CREST Glossary of Terms and CREST Terms and Conditions (all as defined in the CREST Glossary of Terms promulgated by Euroclear on 15 July 1996 and as amended since)

"CREST member"

a person who has been admitted by Euroclear as a system‑member (as defined in the CREST Regulations)

"CREST Regulations"

the Uncertificated Securities Regulations 2001 (SI 2001/3755)

"CREST sponsor"

a CREST participant admitted to CREST as a CREST sponsor

"CREST sponsored member"

a CREST member admitted to CREST as a sponsored member

"CTT"

the Coated Technical Textiles business unit

"Directors" or "Board"

the Executive Directors and Non‑Executive Directors of the Company as at the date of the Prospectus

"EBITDA"

underlying profit before interest, tax, depreciation and amortisation

"EU"

European Union

"Euroclear"

Euroclear UK & Ireland Limited

"Excluded Territories"

the United States, the Commonwealth of Australia, its territories and possessions, Canada, Isle of Man, Japan, the Republic of South Africa, Singapore, the United Arab Emirates and Zambia

"Executive Directors"

the executive directors of the Company as at the date of the Prospectus

"Existing Financing Arrangements"

the (i) €165m revolving credit facility made available to the Group by the Facility Agreement Lenders, and (ii) €60 million private placement loan notes held by The Prudential Insurance Company of America and Internationale Kapitalanlagegesellschaft mbH Prudential Private Placement Investors, L.P

"Existing Shares"

the existing Shares in issue immediately preceding the issue of the New Shares

"Ex‑Entitlement Date"

the date on which the Existing Shares are marked ex-entitlement, being 30 January 2019

"Facility Agreement"

€165 million revolving credit facility agreement dated 16 May 2018 between the Company and certain of its subsidiary undertakings with the Facility Agreement Lenders

"Facility Agreement Lenders"

HSBC Bank PLC, ING Bank N.V., Citibank N.A., the Governor and Company of the Bank of Ireland and Comerica Bank

"Financial Advisers"

Rothschild & Co

"Financial Conduct Authority" or "FCA"

the Financial Conduct Authority acting in its capacity as the competent authority for the purposes of Part VI of the FSMA

"Financial Year"

the twelve month period ended 30 November

"Firm Placees"

any persons who have agreed or shall agree to subscribe for Firm Placed Shares pursuant to the Firm Placing

"Firm Placed Shares"

in aggregate, 32,628,228 New Shares which the Company is proposing to allot and issue pursuant to the Firm Placing

"Firm Placing" 

the subscription by the Firm Placees for the Firm Placed Shares

"Form of Proxy"

the form of proxy for use at the General Meeting which accompanies the Prospectus

"FSMA"

the Financial Services and Markets Act 2000, as amended

"General Meeting"

the general meeting of the Company to be held at 11.00 a.m. on 19 February 2019, notice of which is set out at the end of the prospectus

"Group" or "Low & Bonar"

the Company and its subsidiary undertakings and, where the context requires, its associated undertakings

"I&T"

the Interiors & Transportation business unit

"IFRS"

International Financial Reporting Standards, as adopted by the EU

"ISIN"

International Securities Identification Number

"Lenders"

the Facility Agreement Lenders and The Prudential Insurance Company of America and Internationale Kapitalanlagegesellschaft mbH Prudential Private Placement Investors, L.P

"Listing Rules"

the listing rules of the FCA

"London Stock Exchange"

London Stock Exchange plc

"New Share Issue"

the issue of the New Shares in connection with the Placing and Open Offer and Firm Placing

"New Shares"

the 327,021,479 new Shares which the Company will allot and issue pursuant to the Placing and Open Offer and the 32,628,228 new Shares which the Company will allot and issue pursuant to the Firm Placing,

"Official List"

the Official List of the FCA

"Offer Price"

15 pence per Share

"Open Offer"

the conditional invitation to Qualifying Shareholders to subscribe for the Open Offer Shares at the Offer Price on the terms and subject to the conditions set out in the Prospectus and, in the case of Qualifying Non-CREST Shareholders only, the Application Form

"Open Offer Entitlements"

entitlements to subscribe for the Open Offer Shares, allocated to a Qualifying Shareholder pursuant to the Open Offer

"Open Offer Shares"

the 327,021,479 new ordinary shares for which Qualifying Shareholders are being invited to apply to be issued pursuant to the terms of the Open Offer

"Overseas Shareholders"

Shareholders with registered addresses in, or who are citizens, residents or nationals of jurisdictions outside the United Kingdom

"PBT"

profit before amortisation and tax

"Peel Hunt"

Peel Hunt LLP

"Placing"

the conditional placing, by the Underwriter, as agent of and on behalf of the Company, of the Placing Shares subject to clawback pursuant to the Open Offer, on the terms and subject to the conditions contained in the Placing and Open Offer Agreement

"Placing and Open Offer Agreement"

the placing and underwriting arrangements relating to the Placing and Open Offer and Firm Placing entered into today between the Company and the Banks

"PRA"

Prudential Regulation Authority

"Prospectus"

the combined prospectus and circular to be issued by the Company in respect of the Placing and Open Offer and Firm Placing, together with any supplements or amendments thereto

"Qualifying CREST Shareholders"

Qualifying Shareholders holding Shares in uncertificated form

"Qualifying non‑CREST Shareholders"

Qualifying Shareholders holding Shares in certificated form

"Qualifying Shareholders"

Shareholders on the register of members of the Company on the Record Date with the exclusion of persons, subject to certain exceptions, with a registered address or located or resident in the United States or any Excluded Territory

"Record Date"

close of business on 28 January 2019

"Resolutions"

the ordinary resolutions to be proposed at the General Meeting to (i) provide the Directors with the necessary authority and power to allot 359,649,707 New Shares to undertake the Placing and Open Offer and Firm Placing, to apply until the conclusion of the Annual General Meeting of the Company to be held in 2019 and (ii) to approve the issue of the New Shares on the terms set out in the Prospectus at a price of 15p per share, representing a discount of greater than 10 per cent. to the middle market price of the Existing Shares as at 29 January 2019

"Restricted Shareholder"

Subject to certain exceptions, Shareholders who have registered address in, who are incorporated in, registered in or otherwise resident or located in, the United States or any other Excluded Territory

"Rothschild & Co"

N M Rothschild & Sons Limited

"Securities Act"

the United States Securities Act of 1933, as amended

"Shareholders"

holders of Shares

"Shares"

ordinary shares of five pence each in the capital of the Company having the rights set out in the Articles as described in paragraph 4 of "Part IX - Additional Information" of the prospectus

"Sponsor"

Peel Hunt

"UK" or "United Kingdom"

the United Kingdom of Great Britain and Northern Ireland

"uncertificated" or "in uncertificated form"

recorded on the register of members as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST

"Underwriter"

Peel Hunt

"United States" or "US"

the United States of America, its territories and possessions, any state of the United States and the District of Columbia

 

All references to "pounds", "pounds sterling", "sterling", "£", "pence", "penny" and "p" are to the lawful currency of the United Kingdom.

All references to "Euros", "€" and "c" are to the lawful currency of the member states of the European Union that adopt a single currency in accordance with the Treaty establishing the European Community as amended by the Treaty on European Union.

All references to "US dollars" and "$" are to the lawful currency of the United States.

All references in this announcement to times are, unless the context otherwise appears, references to the time in London, United Kingdom.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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