Slide 1: GPG Group and Coats plc Results presentation for year ended 31 December 2014
GPG Group and Coats plc Results presentation for year ended 31 December 2014 26 February 2015
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 GPG – Highlights – Corporate changes, pensions and overheads Coats – Overview – Financial performance – Summary and outlook Appendices – Coats strategy – Pensions © GPG Group and Coats plc | Results presentation for year ended 31 December 2014 Page 3
Slide 4: GPG
GPG
Slide 5: GPG highlights
GPG highlights Corporate changes Company to be renamed Coats Group plc Coats - a world class, manufacturing business - returning to market under own name in in the 125th anniversary year of first listing on London Stock Exchange Single Board of Directors to lead the Coats business, rather than
Slide 6: Company name and Board changes
Company name and Board changes Establishes Coats as standalone, listed entity Company becomes focused, global manufacturing business with market leading positions; moves on from being investment company with diversified portfolio of assets Renaming to Coats Group plc expected to become effecti
Slide 7: Pensions and overheads
Pensions and overheads Pensions IAS19 deficit increased to £375m (31 Dec 2013: £178m): main driver was increase in liabilities as decrease in discount rate more than offset decrease in inflation rate Triennial valuations: Coats Plan due to start Apr 2015; Brunel and Staveley ongoing, timing impa
Slide 8: Coats Overview
Coats Overview
Slide 9: Overview
Overview Delivered good profit and free cash flow growth Net attributable profit, before exceptional items, up 21%, to $45m Adjusted free cash flow of $70m Continued margin improvement in Industrial Executing growth strategy 14% revenue growth in Speciality driven by global expansion and new
Slide 10: Delivering Profitable Sales Growth…
Delivering Profitable Sales Growth… Geographic Innovative products Digital services Balanced Industrial growth Sales of engineered eCommerce: live in 15 across regions performance threads, markets and with >2,000 including Flamepro (aramids customers; orders fulfilled at Double digit Industr
Slide 11: … and increased productivity
… and increased productivity Return on capital employed increased to 26% (2013: 22%); primarily driven by sustainable improvement in Industrial inventory and debtor management Industrial manufacturing productivity and sourcing gains: $15m y-o-y Mix of incremental improvements and capital inves
Slide 12: Americas Crafts: market and key achievements
Americas Crafts: market and key achievements Products Market position Market leader in most textile Crafts categories in North America Expanding position in smaller Latin American market Digital Core brands >20m visitors across Americas Crafts digital platforms 13% increase in visits to Red
Slide 13: Sale of EMEA Crafts business
Sale of EMEA Crafts business Transaction Financials Announced sale to Aurelius Group on 19 2014 revenues: $124.9m2 Feb 2015 2014 pre-exceptional operating loss: $9.8m2 Follows strategy review of business 31 Dec 2014 net tangible assets (NTA), after impairment: $35m2 Sale better positions
Slide 14: Improving returns and quality of earnings
Improving returns and quality of earnings Return on capital employed (ROCE)1 Profitable Sales Growth – share gains, new 26% product and service innovation, geographic 20% 22% expansion 18% 18% 14% Increased productivity – offsetting inflation Expert pricing management 2009 2010 2011 2012 2013
Slide 15: Coats Financial performance
Coats Financial performance
Slide 16: Financial performance
Financial performance Before Before Exceptional Exceptional $m exceptional Total exceptional Total items 1 items 1 items items Revenue 1,686 - 1,686 1,704 - 1,704 Operating profit 131 (24) 107 133 (9) 124 Profit before tax 100 (24) 76 97 (9) 88 Profit after tax 55 (24) 31 45 (8) 37 Attributable prof
Slide 17: Underlying operating performance
Underlying operating performance Revenue Operating profit and margin 1 H2 2014 YoY% FY 2014 YoY% H2 YoY 0% Operating profit ($m) Industrial 62 12% 128 18% Crafts 4 (70)% 3 (87)% Group 66 (4)% 131 0% Operating margin (%) Industrial 9.9% 60 bps 10.3% 110 bps H2 YoY 4% Crafts 1.7% (350) bps 0.6% (390)
Slide 18: Industrial performance
Industrial performance Revenue $m 2014 2013 2 YoY% FY YoY% H2 Asia & Australasia Revenue (by region) • Growth across the region; key drivers were apparel and footwear in Vietnam and India and Speciality (outdoor and Asia & Australasia 680 652 4% 3% sporting goods) Americas Americas 289 274 5% 7% S
Slide 19: Crafts performance
Crafts performance Revenue $m 2014 2013 2 YoY% FY YoY% H2 Americas • N. America impacted by decline in fashion handknittings following Revenue (by region) 2013 demand peak; excluding this product range sales grew 3% Americas 296 312 (5)% (6)% • Latin American y-o-y growth in Handknittings continued
Slide 20: Income statement
Income statement Attributable profit before exceptional $m Before exceptional Exceptional Total Before exceptional Exceptional Total items 1 items 1 items up $8m (21%): items items Revenue 1,686 - 1,686 1,704 - 1,704 • Operating profit decrease ($2m) Operating profit 131 (24) 107 133 (9) 124 • Lower
Slide 21: Exceptional items
Exceptional items • $19m impairment of property, plant and equipment and intangible assets in EMEA Crafts $m 2014 2013 • No exceptional reorganisation charges incurred in Reorganisation - (22) 2014 (in line with guidance) tPR (4) - • Operating profit includes ~$8m of reorganisation related costs tha
Slide 22: Taxation
Taxation • Reported tax rate of 60% $m 2014 2013 Tax PBT % Tax PBT % - Marginal increase y-o-y due to higher level of exceptional items (no tax relief) As reported (46) 76 60% (51) 88 58% • Underlying tax rate1 reduced by 500bps y-o-y to 42%, primarily reflecting: Exceptional items - 24 - 9 - change
Slide 23: Retirement and other post-employment defined benefit liabilities
Retirement and other post-employment defined benefit liabilities UK IAS19 deficit increased by $205m from year Balance sheet ($m) As at As at 31 Dec 14 31 Dec 13 end 2013 (up $94m since end of Q3 2014) due UK funded scheme to increase in liabilities: Equities 730 954 Bonds 1,424 1,265 – largely du
Slide 24: Cash flow and leverage
Cash flow and leverage Cash flow Cash flow bridge Adjusted free cash flow up 30% y-o-y Working capital inflow due to improvements in Industrial inventory and debtor management, and reduced Crafts sales Capex at x1.0 depreciation1; y-o-y increase in spend driven by investment in IT and digital
Slide 25: Successfully refinanced debt facility
Successfully refinanced debt facility $760m syndicated bank facility successfully Key terms and features replaced with new $680m revolving facility Size $680m Facility oversubscribed Maturity (date) 5 years (Feb 2020) Margin reduced by ~25bps Margin structure Margin dependent on financial leve
Slide 26: Coats Outlook and summary
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Slide 27: 2015 outlook
2015 outlook Consumer demand • Mixed regional picture expected to continue: broadly positive in Asia, solid growth in North America, Europe dependent on underlying macroeconomic situation and relatively flat situation in Latin America Industrial • In deflationary environment, more challenging to off
Slide 28: Summary
Summary • Global market leader with robust fundamentals; strong and defendable core • Defined growth strategy − Apparel and Footwear: share gains based on innovation in services and products − Speciality: growth through global expansion and new products − Crafts: focus on strong and profitable Ameri
Slide 29: Appendices
Appendices Coats strategy GPG pensions, investigations and overheads Coats pension schemes
Slide 30: Who we are
Who we are With a rich heritage dating back to the 1750s, Coats is the world’s leading industrial thread and consumer textile crafts business employing ~20,000 employees in over 70 countries across six continents • Group revenues of US$1.7bn in 2014 • World’s leading industrial thread producer • Lea
Slide 31: Five elements to our value
Five elements to our value Focus on sales, earnings and Strong and defendable free cash flow 5. Cash 1. Global core business growth generative; market leader consistent with robust growth fundamentals 4. Experienced 2. Defined Leadership, people and systems to management growth Targeting known deliv
Slide 32: Global market leader…
Global market leader… In 2014 Coats Every Thousands of More than 1 in 5 produced operations garments enough flame 3 hours take place 100million around the Coats makes world is held retardant enough thread every car airbags are thread to sew made using together using to go to the day Coats’ thread Co
Slide 33: … servicing several markets and global customers…
… servicing several markets and global customers… Industrial End use applications include Customers include Crafts End uses include Brands include © GPG Group and Coats plc | Results presentation for year ended 31 December 2014 Page 33
Slide 34: … and stable underlying trends
… and stable underlying trends Strong link between clothing retail sales and GDP growth. For the US, clothing retail sales growth is approximately 1.7 times GDP growth US GDP growth vs consumer retail sales growth (2000-2014) CRS: Clothing Retail Sales Source: IMF, US Census Bureau © GPG Group and C
Slide 35: Defined growth strategy to achieve three Market Goals
Defined growth strategy to achieve three Market Goals The Coats of 2015… The leading The leading value added global player in partner to the Speciality global apparel threads and and footwear yarns industries The leading global player in textile crafts …based on a core of world class skills and infr
Slide 36: Strategy supported by a global, world class asset base…
Strategy supported by a global, world class asset base… • Well invested asset base • Restructured manufacturing footprint: reduced number of plants in higher cost Europe and North America Countries in which Coats operates Manufacturing sites Truly global footprint with more than 70 manufacturing fac
Slide 37: … key differentiators providing a platform for growth…
… key differentiators providing a platform for growth… Flamepro For use in personal protective equipment Hemseal Glasmo SM VO For use in the secure Glass fibre strength hemming of tailored garments Product engineered yarn used in telecommunication cables innovation eCommerce Service enhancements Cor
Slide 38: … and a highly engaged and safe workforce
… and a highly engaged and safe workforce Global employee engagement survey results Global recordable accident rate 90th percentile performance 81% 80% 77% 72% Industry norm 66% Consistently better than the OSHA average 2010 2011 2012 2013 2014 © GPG Group and Coats plc | Results presentation for ye
Slide 39: Leading to attributable profit growth and significant free cash flow
Leading to attributable profit growth and significant free cash flow Attributable profit - $m Adjusted free cash flow - $m (pre-exceptional) 45 70 65 37 54 17 2012 2013 2014 2012 2013 2014 © GPG Group and Coats plc | Results presentation for year ended 31 December 2014 Page 39
Slide 40: GPG overhead costs
GPG overhead costs Reduced overhead costs, excluding foreign exchange, by 56% to £18m Overheads (£m) H2 2014 2014 2013 Company continued to focus on minimising costs at Group level Pension related (3) (4) (2) expenses1 FX gains partly driven by strengthening USD vs GBP tPR Staff costs (0) (2)
Slide 41: Pensions overview
Pensions overview Main driver for increase in IAS19 deficit since end of 2013 was UK Pensions Regular (tPR) investigations increase in liabilities; largely due to 115bps decrease in discount rate, Overall: moving on with running Company – new Board and which more than offset 35bps decrease in in
Slide 42: GPG: IAS19 positions
GPG: IAS19 positions Coats GPG £m Group UK US Other Total Staveley Brunel Opening position 1 January 2014 (78.0) 28.4 (72.8) (122.4) (28.0) (27.8) (178.2) Included in Income Statement (pre tax) Coats’ operating profit are 2014 Current service cost (2.5) (1.8) (3.5) (7.8) - - (7.8) pension charges Ad
Slide 43: Coats pension schemes: income statement and cashflow impact
Coats pension schemes: income statement and cashflow impact UK funded scheme US funded Scheme RoW Total $m 2014 2013 2014 2013 2014 2013 2014 2013 Service charge 4 4 3 4 6 4 13 12 Administrative expenses 5 6 1 1 - - 6 7 Pre-exceptional operating profit impact 9 10 4 5 6 4 19* 19 Exceptional past ser
Slide 44: Further information
Further information For more Jaideep Thatai information Head of Investor Relations +44 20 8210 5086 / +44 7827 882 405 jaideep.thatai@coats.com GPG plc Coats plc www.gpgplc.com www.coats.com Coats Industrial www.coatsindustrial.com Coats Crafts www.makeitcoats.com © GPG Group and Coats plc | Results