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Low & Bonar revenues rise in Q1 but hint that margins are being squeezed spooks investors

The materials maker, which issued a profit warning in December, saw revenues rise in the opening three months of 2018, but said cost increases and an “unfavourable” product mix had a negative impact
L&B also revealed it has appointed Simon Webb as its new chief financial officer

Fittingly on Friday the 13th, performance materials maker Low & Bonar PLC (LON:LWB) spooked investors after hinting that margins are continuing to be squeezed.

The £185mln company – which issued a profit warning at the end of 2017 following a difficult few months – repeated once again that market conditions in Europe and the USA remain “challenging”.

Costs increasing, “unfavourable” product mix​

It added that raw material cost increases also had a “negative impact” in the first quarter of the year. Although it is trying to pass these through to its customers, Low & Bonar conceded the benefits would likely not be realised until the second half of the year.

Group revenues actually rose during the quarter thanks to a strong showing in its Building & Industrial and Interiors & Transportation businesses, but it caveated that by noting a “slightly unfavourable” product mix – another hint that margins remain pressured.

There was some good news for investors: full-year expectations were left unchanged, although Low & Bonar expects the results to be strongly weighted towards the second half.

Turnaround actions now being implemented​

After December’s profit warning, which coincided with the departure of its then-chief executive Brett Simpson, Low & Bonar kicked off an internal review which it has started to act upon.

A new management team was recently brought in to lead the civil engineering business, tasked with improving the division’s performance.

One of the first things it did was to oversee the closure of the Ivanka site, which stopped production at the end of March and is now being sold off.

As for the Enkamat business, that has been transferred to the Building & Industrial arm, although it will take “some time to be fully integrated”.

“Confident” right actions are being taken​

Outside of that division, Low & Bonar has also been working on solving the production consistency issues in its Coated Technical Textiles business.

More generally, actions to strengthen the balance sheet and reduce costs are underway, it said.

“The board is confident that it is taking the right actions to improve performance and create a strong long-term growth platform for the group,” concluded this morning’s statement.

Investors weren’t so sure it seemed, with the stock losing 5.9% to 53p immediately after the opening bell in London.

New CFO appointed​

In a separate announcement, Low & Bonar confirmed Simon Webb has been appointed as chief financial officer and will take up his new role at the end of the month.

“Simon has strong financial, commercial and operational experience of relevance to his new role at Low & Bonar,” said chairman Martin Flower.

“We are delighted to welcome him to the Board, and we look forward to working with him as we drive forward our strategy of ongoing operational improvement and profitable growth.”

Webb will report to group chief executive Philip de Klerk, who himself only joined last month.

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