Low & Bonar planning to grow at home and abroad
Textile firm aims to improve margins after sale of grass yarns wing
THE chief executive of textile technology group Low & Bonar, which last month sold its grass yarns business, has said the company remains committed to its Dundee facility as he confirmed further investment in China ahead of a predicted re-rating.
The firm has begun work on the second phase of a £50 million manufacturing plan in China after chief executive Brett Simpson said he was “very excited” about what had been achieved since its first plant in the country became operational in April.
Low & Bonar, which was founded in Dundee in 1903, sold its grass yarns production business to the Mattex Group for €27.m in September, after ascertaining the division could not meet a company target of 10 per cent operating margin.
Mr Simpson said removing the grass yarns business – which was largely based in Abu Dhabi but had a small operation in Dundee – presented the Scottish arm of its business with an opportunity.
The business has 50 employees in Dundee working on carpet backings – one of its four areas of focus.
“We’re going to continue to run that business and improve the returns on it. We’ve got an opportunity with grass yarns gone; we can concentrate on [carpet backing] and see how we can improve it,” he said.
The group last year ran an operating margin of 8.3 per cent, and Mr Simpson said the focus was to ensure the company reached that 10 per cent target.
In the six months to May 31, the company grew pre-tax profits by 6.4 per cent to £8.3m on revenue of £180.6m, and analysts have forecast 18 per cent earnings per share (EPS) for Low & Bonar next year, adding that improved visibility on 2017 forecasts will lead to a re-rating.
In China, Mr Simpson said the manufacturing plant in the Yangtze River Delta, will be at 75 per cent of capacity by the end of the year, which has given the company the confidence to invest £22m on a second phase.
The facility manufactures Colback, a highly technical carpet tile backing. It is the first technical textile to be produced in China by a British company and is supplied into the building and automotive industries.
“I’m very excited about what we’ve achieved so far in China,” he said. “We now have a very global platform that supports a strong global mix of customers.”
After launching in April the Chinese plant is ahead of plan.
“We will finish the year 75 per cent utilised and by next year expect our global capacity in Colback to be sold out, hence why we’re already moving ahead to have the additional line in China,” said Mr Simpson.
He added that when the first site was acquired, the group ensured it was large enough to accommodate a second line, which will now make the capital build more efficient.
By the end of 2017, the China plant is expected to deliver sales of £30m.
China was chosen both to enter the local market and because of the number of US customers building assets in the country.
“The increase in return from that set will more than offset the grass yarns business,” said Mr Simpson.
The second phase is set to be complete in 2018.
Mr Simpson said the company’s focus involved improving earnings as it expanded geographically, adding that Brexit would not have any impact on the business.
“If you look at our geographic mix, we’re about 60 per cent in Europe and then we have business in North America and China, and also in the Middle East,” he said.
“It’s really taking that knowledge, experience and capability we have in Europe and leveraging that into new markets.”
‘‘ We’re about 60 per cent in Europe and then we have business in North America and China, and also in the Middle East