Low & Bonar's profits rise as it seeks to offload Bonar Natpet joint venture

Performance materials manufacturer Low & Bonar said its profits increased in the first half of the financial year and are in line with expectations as it seeks to offload its Bonar Natpet joint venture.

On a constant currency basis profit before tax, amortisation and non-recurring items from continuing operations rose by 1% to £10.6m for the six months to 31 May compared to the same period a year ago.

Revenues from continuing operations increased by 2.4% to £180.6m while operating profits increased by 2.3% to £13.3m. The company attributed the growth to robust profits and margin progression in its Building & Industrial, Civil Engineering and Interior & Transportation businesses.

Low & Bonar said it acquired an amortisation of its intangible assets of £1.9m down from £2.1m in 2015. During the six months till the end of May, the company incurred £200,000 non-recurring costs in relation to the construction of the new Colback manufacturing factory in Changzhou, China and £200,000 in relation to the UK pension scheme.

The company said the performance in China was “pleasing” as sales of Colback produced in Changzhou was £4m in the first four months of production, which was ahead of plan.

Cash outflow into working capital was £26m from £13m in 2015 in the six months to May 2016. The company said this is higher than normal and reflects the ramp-up in its new facility in Changzhou, stock build in grass yarns and some production and scheduling issues at its Lokeren site.

A further £14.3m was spent on capital expenditure. The sale of the grass yarns business, which was announced on Monday, is expected to reduce net debt by about £22m in the second half.

The joint Bonar Natpet venture with Saudi Arabia's National Petrochemical Industry made a loss of £1.2m and with discontinued operations it reported a loss of £600,000 for the first half. Low & Bonar said market conditions in the Gulf Cooperation Council (GCC) region in the Middle East was difficult, and activity levels were low.

The Dundee based company said they are considering disposing of Bonar Natpet and negotiations with interested parties are ongoing and is expected to be completed in the next 12 months.

The company also said they had agreed terms for re-financing a €45m private placement loan note which will be repayable on 2 September. It will be replaced on maturity with a new loan note for €60m with an eight year average term at a lower fixed coupon rate of 2.57%, which would save the company about £1m per year in interest costs.

Chairman Martin Flower said: "The group has continued to execute its strategy, with the start of production in China, the exit from grass yarns and the work to find a solution for Bonar Natpet.

“At the same time we are starting to realise the benefits of the reorganised business structure and leadership. Taking into account various factors affecting the group, we remain confident of meeting the board's expectations for the full year."

The dividend was raised to 1.0p from 0.98p.