Slide 1: Coats Group plc 2017 Full Year results presentation
Coats Group plc 2017 Full Year results presentation 27 February 2018
Slide 2: Disclaimer
Disclaimer Restricted distribution This presentation is not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction (the ‘Restricted J
Slide 3: Agenda
Agenda 2017 Full Year results presentation 2017 highlights Business review Connecting for Growth Financial performance Outlook and summary © Coats Group plc | 2017 full year results presentation | 27 February 2018 Page 3
Slide 4: 2017 highlights: strong foundations set for our next phase of growth
2017 highlights: strong foundations set for our next phase of growth Financial highlights Revenues up 4% - momentum and share gains in A&F and double digit growth in hi-tech Performance Materials Operating profits up 11% alongside margin expansion of 70bps Strong underlying EPS and free cash f
Slide 5: Business review
Business review Rajiv Sharma © Coats Group plc | 2017 full year results presentation | 27 February 2018 Page 5
Slide 6: Apparel and Footwear: customer value proposition driving momentum
Apparel and Footwear: customer value proposition driving momentum Digital solutions 5% organic revenue growth eCommerce – over 81% of Gaining momentum (H2: 6% growth) orders (c.19,000 customers). despite mixed market conditions New online payment module launched – live in 11 key markets, improvi
Slide 7: Performance Materials: double digit hi-tech growth
Performance Materials: double digit hi-tech growth • Performance Materials sales grew 12% to $276m, including acquisitions • Underpinned by 18% organic growth in hi-tech end uses (e.g. wire and cable / engineered performance yarns); hi-tech now 50% of PM sales • Organic growth of 7%; improvement in
Slide 8: Patrick Yarn Mill acquisition: innovative technologies and a sustainability focus
Patrick Yarn Mill acquisition: innovative technologies and a sustainability focus High performance engineered yarns; e.g. cut- resistant and flame retardant yarns Innovative new spinning technologies (10 patents acquired) – Patrick Yarn Mill to become Coats’ global centre for high performance sp
Slide 9: Crafts: a streamlined and refocused NA business
Crafts: a streamlined and refocused NA business Sales decline of 11%; – Albany tornado (largest warehouse destroyed), – continued weak NA trading conditions, – and introduction of own-label products at major customer New leadership team, progress on key strategic focus areas; consumer marketing,
Slide 10: Connecting for Growth
Connecting for Growth Rajiv Sharma © Coats Group plc | 2017 full year results presentation | 27 February 2018 Page 10
Slide 11: Consumers are driving the change in the industry
Consumers are driving the change in the industry Adidas Under Armour VF Corp Amazon “Speed Factory” “Digitalisation” 2021 growth plan Penetrating the US apparel market: A game-changing Aims to revolutionise In response to fast • 8% projected share concept for the the industry: to changing markets it
Slide 12: Driving change from a position of strength
Driving change from a position of strength To do this we … And now is Consumers are must reposition the right time for changing the the organisation us to change industry to … • Strong financial platform - • Build speed / agility earnings, margin and cash • Innovation growth • Sustainability • Alrea
Slide 13: Connecting for Growth: transformation into an organisation that is lean, fit and fast
Connecting for Growth: transformation into an organisation that is lean, fit and fast 2018 2020 • 45+ country • 10 clusters SPEED / AGILITY units • Global integrated • Generalists > support functions Specialists • Specialists > Simplification • Long tail of Generalists INNOVATION operations • 1/3 re
Slide 14: Connecting for Growth: expected savings and cost to achieve
Connecting for Growth: expected savings and cost to achieve Total operating cost savings Reinvestments in growth $10m p.a., in the areas of Delivering $25m by 2020 innovation, digital and talent Net operating cost savings Total costs to achieve $15m, after $30m over 2 years reinvestments, by 2020 (e
Slide 15: Financial performance
Financial performance Simon Boddie © Coats Group plc | 2017 full year results presentation | 27 February 2018 Page 15
Slide 16: Overview
Overview CER 2 $m unless otherwise stated FY 2017 Change 1 Organic change Revenue 1,510 4% 4% 3% 3 Operating profit 174 10% 11% 9% 3 EPS (cents) 6.4 30% 4 Free cash flow 87 12% 5 ROCE 35% - Dividend per share 1.44c 15% KPI 1 On a constant exchange rate (CER) restates 2016 figures at 2017 exchange ra
Slide 17: Segmental performance
Segmental performance CER 1 Organic 4 2017 2016 1 change % change % Revenue 2 ($m) Industrial 1,297 1,218 6% 5% Crafts Americas 213 239 (11)% (11)% Total 1,510 1,457 4% 3% Operating profit ($m)2,3 Industrial 173 153 13% 11% Crafts Americas 7 11 (34)% (34)% 180 164 UK pension admin (6) (7) Group 174
Slide 18: Industrial
Industrial Revenue CER 1 Organic 4 $m 2017 2016 1 • Asia: strong momentum with growth of 6%; driven by change % change % majority of key A&F markets (e.g. Vietnam, China and Indonesia). Strong growth in China domestic market (9%) Asia 764 724 6% 6% • Americas: return to marginal growth in the year o
Slide 19: Crafts Americas
Crafts Americas Revenue CER 1 $m 2017 2016 1 • North America: down 15% due to the impact of the change FY Albany tornado (January 2017), continued tough Revenue market conditions, and the introduction of own-label handknitting products at a major customer North America 149 176 (15)% • LatAm: 1% grow
Slide 20: Income statement
Income statement • Acquisition-related items: contingent 2017 2016 $m consideration ($4m), intangible amortisation reported reported ($2m) Adjusted operating profit 174 158 • Exceptional item: JV closure costs ($3m) Acquisition related items (7) (5) • Finance costs: significantly down on prior year
Slide 21: Cash flow and leverage
Cash flow and leverage $m 2017 2016 $87m adjusted free cash flow in the year; 12% growth on 2016 ($78m) Adjusted free cash flow 87 78 Pensions (373) (99) Improvement in cash generation driven by increased profitability, Discontinued (1) (9) effectively controlled net working capital, and lower e
Slide 22: Refinancing, US tax reforms and pensions
Refinancing, US tax reforms and pensions Refinancing • Successful completion, in December 2017, of $225m debut issue in US private placement market • Simultaneously agreed a new $350m 5 year syndicated bank facility (mainly comprising existing lenders); giving total debt facilities of $575m (previou
Slide 23: Record of delivering improving earnings and consistent cash flows
Record of delivering improving earnings and consistent cash flows CER 1 sales growth Adj. Operating margins 2 Adjusted EPS 2 (c) LTM Adjusted FCF 2 ($m) 1 Revenue growth in 2014 excludes EMEA crafts (disposed of in 2015). 2015-2016 excludes both EMEA Crafts and UK Crafts (discontinued in 2016). CER
Slide 24: Outlook and summary
Outlook and summary Rajiv Sharma © Coats Group plc | 2017 full year results presentation | 27 February 2018 Page 24
Slide 25: Outlook
Outlook We enter 2018 in a strong position, with continued momentum in our Apparel and Footwear and hi-tech Performance Materials businesses Whilst market conditions in our North American Crafts business are expected to remain challenging, our new management team has commenced implementation of
Slide 26: Summary
Summary Strong momentum in Apparel and Footwear driven by share gains Innovation driving hi-tech Performance Materials growth Double-digit profit and cash growth Continued margin progression as our overall value proposition continues to resonate with our customers Strong foundations set to
Slide 27: Appendices
Appendices
Slide 28: World's leading industrial thread manufacturer and major player in Americas textile crafts
World’s leading industrial thread manufacturer and major player in Americas textile crafts Industrial Crafts Apparel and Performance Crafts Footwear (A&F) Materials Americas Apparel, footwear and High technology threads Foundation and fashion accessories thread and yarns from handknitting Zi
Slide 29: Markets and global customers
Markets and global customers INDUSTRIAL Apparel and Footwear Performance Materials End uses include Customers include End uses include Customers include CRAFTS End uses include Brands include © Coats Group plc | 2017 full year results presentation | 27 February 2018 Page 29
Slide 30: Corporate timeline: a rich heritage
Corporate timeline: a rich heritage Coats is a company with more than 250 years of history London Stock 1750s 1812 1826 1890 Exchange 1891 James and Patrick Clark Clark’s sewing thread James Coats establishes first Coats’ initial share offering takes began work in Paisley, Scotland placed on the mar
Slide 31: Our investment case
Our investment case Defendable business with high Increasing share through: returns on capital and track record of - deep customer insight delivering good levels of free cash to: 5 1 - corporate responsibility - invest in organic growth Track-record of Market leader in - value adding services such -
Slide 32: 2017 Cost base
2017 Cost base Pre-exceptional costs Materials: raw materials (polyester, nylon, cotton) and intermediates (grey thread); direct materials (dyes, cones) and bought-in finished Depreciation goods (craft products) 3% Labour (mfg): ongoing inflationary pressures in Administrative the locations in w
Slide 33: Corporate Responsibility is at the heart of our business
Corporate Responsibility is at the heart of our business A focussed corporate responsibility strategy to identify the highest materiality issues to our Group, factoring in all stakeholders. For example: H&S and employment Environmental footprint Use of natural resources conditions • Renewable ener
Slide 34: Dividend and capital allocation
Dividend and capital allocation The Group aims to use the free cash flow it generates to balance its various capital demands Whilst maintaining its strong Balance Sheet position (target leverage 1-2x) We have adopted a progressive dividend policy where we aim to grow dividends along with under
Slide 35: Pension schemes: income statement and cashflow impact
Pension schemes: income statement and cashflow impact Brunel Staveley Coats UK UK Total Coats other Total $m 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Service charge - - - - - 2 - 2 8 7 8 9 Administrative expenses 1 1 1 1 2 4 5 6 8 1 1 8 9 Operating profit impact 1 1 1 2 2 5 6 9 9
Slide 36: Pension schemes: balance sheet positions
Pension schemes: balance sheet positions Brunel Staveley Coats UK Other Total Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 $m Assets 221 157 359 274 2,417 1,886 255 241 3,253 2,559 Liabilities (251) (222) (357) (319) (2,495) (2,353) (285) (275) (3,389) (3
Slide 37: For more information
For more information Rob Mann Head of Investor Relations +44 20 8210 5175 rob.mann@coats.com Coats Group plc www.coats.com © Coats Group plc | 2017 full year results presentation | 27 February 2018 Page 37