Slide 1: Coats Group plc 2015 half year results presentation
Coats Group plc 2015 half year results presentation 3 August 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 Overview Financial performance Summary and outlook Appendices – Including strategy and pensions © Coats Group plc | 2015 half year results presentation | 3 August 2015 Page 3
Slide 4: Overview
Overview
Slide 5: Financial highlights
Financial highlights Revenue up 4%1; continued double digit sales growth in Speciality Operating profit up 9%2; 15% growth in Industrial Adjusted EPS up 20%; reported EPS negatively impacted by non-operating items Adjusted free cash flow for last twelve months of $50m; $63m for operating bus
Slide 6: Operational highlights
Operational highlights Market share gains in A&F Double digit Speciality Progress within Crafts growth Strong volume growth 5% sales growth in offset challenging pricing Geographic expansion of N. American foundation conditions existing products eg sales handknittings in automotive up ~15% D
Slide 7: Product and service innovation
Product and service innovation Secura Fusible self-locking thread for eCommerce secure button and sequin Launched in 2014; live in 22 markets attachment (5 in 2014, 17 in H1’15), with ~4,400 customers; ~ 30% global adoption rate and 50% in key markets RecLID Teabag Biodegradable fibre used in manufa
Slide 8: Conductive threads: metallized antenna for RFID tag
Conductive threads: metallized antenna for RFID tag Developed metallized thread antenna specifically for use with a revolutionary radio frequency identification (‘RFID’) tag Patented RFID tag includes integrated circuit and partially metallized thread, specifically developed by Coats for CSL (th
Slide 9: Increased productivity
Increased productivity Industrial Manufacturing productivity and sourcing gains: ~$9m y-o-y Inventories held flat y-o-y with sales growth of 6% in H1 Effluent treatment plant projects to be completed by end of 2015 (Shenzhen, Sri Lanka, Germany); others at design stage (Shanghai, Vietnam) Co
Slide 10: Enhanced Global Services offering through M&A
Enhanced Global Services offering through M&A The world's leading colour and textile services expert acquisition • ~$5.5m acquisition of industry Adding services Software tools leader with strong brand • End-to-end • Time and cost • Customers in +60 countries, strong transformative solutions benchma
Slide 11: Role of M&A in delivering future growth
Role of M&A in delivering future growth Profitable sales growth over last five years driven purely by organic growth Now looking to access inorganic growth Comprehensive M&A process in place – from strategy to post merger integration Criteria (includes) Aligned to Speciality, Services (eg GS
Slide 12: Progress in CR and people programmes
Progress in CR and people programmes Corporate Responsibility (CR) People During H1 2015 Since 2013 our Management Capability Development Programme has been Decathlon Bangladesh awarded Coats completed by 425 people from 41 countries their Sustainable Development Award for our performance around
Slide 13: Corporate and other progress during H1 2015
Corporate and other progress during H1 2015 Renamed Coats Group plc in February; established Coats as standalone, listed entity Moved from being investment company with diversified portfolio of assets to global manufacturing business (change in FTSE classification to General Industrials) Creat
Slide 14: Financial performance
Financial performance
Slide 15: Financial summary
Financial summary H1 2015 H1 20141 Before Before Exceptional Exceptional $m exceptional Total exceptional Total items 6 items 6 items items Revenue 748 - 748 775 - 775 Operating profit 65 (13) 52 63 (4) 59 Attributable profit / (loss) 7 (55) (48) 17 (4) 13 EPS (c) - continuing 0.25 1.36 KPIs Industr
Slide 16: Segmental performance
Segmental performance Operating profit and margin 1 YoY 4% H1 2015 H1 2014 YoY% Segment profit ($m) Industrial 66 58 15% Crafts 3 6 (55)% 69 64 YoY 6% Pension admin (4) (4) Group 65 60 9% Operating margin (%) Industrial 10.8% 9.9% 90bps Crafts 2.1% 4.4% (230)bps Group 8.7% 8.3% 40bps YoY (7) % • 9%
Slide 17: Industrial performance
Industrial performance Revenue Industrial performance by region • Asia & Australasia - up 8% with growth across $m H1 2015 H1 2014 2 YoY% most countries. Stronger A&F domestic and export demand and Speciality growth (inc automotive) Revenue (by region) • Americas - 8% increase, strong Speciality sal
Slide 18: Crafts performance
Crafts performance Revenue Crafts performance by region • Declined 7% for ongoing operations $m H1 2015 H1 2014 2 YoY% • Expected decline in fashion handknitting sales more than offset 5% growth in foundation Total 133 142 (7)% handknittings in North America; decline in Needlecrafts sales reflects l
Slide 19: Income statement
Income statement • Adjusted EPS1 up 20% to 1.82c: H1 2015 H1 2014 2 Before Before Exceptional Exceptional $m exceptional Total exceptional Total items 3 items 3 - Gross margin up 40bps due to items items Revenue 748 - 748 775 - 775 reduced material costs (due to lower oil price), productivity and Gr
Slide 20: Exceptional items
Exceptional items • US environmental: includes provision for Excluding tax remedial work on the Lower Passaic River, USA (see slide 23) $m H1 2015 H1 2014 • Reorganisation – Mexican operations: $3m related to reducing footprint from three sites to US environmental (LPR) (7) - two; will increase effi
Slide 21: Finance costs and foreign exchange movements
Finance costs and foreign exchange movements • $12m y-o-y increase mainly driven by: $m H1 2015 H1 2014 - $12m FX losses on parent group cash1 driven by movements between GBP, Interest on bank and other borrowings (10) (11) NZD and AUD; this currency exposure has been reduced by denominating Investm
Slide 22: Taxation
Taxation • Reported tax rate of 66%, up from 49% in H1 2014 • Underlying tax rate (UTR)1 decreased 600bps y-o-y to 36% - Change in mix as regions with lower statutory tax rates contributed higher profits - Reduction in unrelieved losses • Tax cash outflow decreased 21% to $25m; outflow due to reduct
Slide 23: Other non-operating items
Other non-operating items US environmental (Lower Passaic River, New Jersey, USA) • As previously reported, US EPA notified Coats, and many other companies, of potential responsibility for certain environmental costs • Coats part of Cooperating Parties Group which submitted remedial investigation an
Slide 24: Discontinued items – EMEA Crafts
Discontinued items – EMEA Crafts • Loss from discontinued operations of $m H1 2015 $52m in H1 2015 related to the EMEA Crafts business Cash to be retained in the business (17) • $6m related to trading loss generated Net working capital (34) during H1 2015 (H1 2014: $6m) Pensions and other provisions
Slide 25: Cash flow and leverage
Cash flow and leverage Cash flow (last twelve months) H1 cash flow and leverage $63m adj FCF from operating business (target at least $50m) $m H1 2015 H1 2014 – Improvement in working capital management and reduced EBITDA 87 85 Crafts sales led to cash inflow Working capital (62) (44) Capital expe
Slide 26: Outlook and summary
Outlook and summary
Slide 27: Summary
Summary Global market leader with robust fundamentals; strong and defendable core Defined growth strategy – Apparel and Footwear: share gains based on innovation in services and products – Speciality: growth through global expansion and innovative new products – Crafts: focus on strong and profi
Slide 28: Improving returns and quality of earnings
Improving returns and quality of earnings Return on capital employed (ROCE)1 – full year ROCE2 – last twelve months 26% 24% 22% 20% 19% 18% 18% 14% 2009 2010 2011 2012 2013 2014 H1 2014 H1 2015 Return on invested capital (ROIC)1 11% 9% 9% 9% 8% 6% Strong improvement trend in key return metrics using
Slide 29: Generating significant free cash flow
Generating significant free cash flow Coats operating business - adjusted FCF ($m) 70 65 63 54 2012 2013 2014 H1 2015 LTM © Coats Group plc | 2015 half year results presentation | 3 August 2015 Page 29
Slide 30: 2015 outlook
2015 outlook • Good operating performance in H1 2015 based on: - market share gains - product and service innovation - reduction in operating costs • Provides solid platform for the remainder of the year • As such, Management expects to deliver a y-o-y improvement in Group pre-exceptional operating
Slide 31: Appendices
Appendices
Slide 32: 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 33: 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 34: 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 35: … 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 © Coats Group plc | 2015 half year results presentation | 3 August 2015 Page 35
Slide 36: … 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 © Coats Group plc
Slide 37: Defined growth strategy to achieve three Market Goals
Defined growth strategy to achieve three Market Goals The leading value The leading added partner to global player in the global apparel Speciality and footwear threads and industries yarns The leading global player in textile crafts …based on a core of world class skills and infrastructure globally
Slide 38: Key differentiators that provide a platform for growth…
Key differentiators that provide a platform for growth… Market positions that are several times bigger than our competition with a comprehensive range of products Global. Expert. Unparalleled physical network of factories Pioneering. (>70 manufacturing facilities across the world), warehouses an
Slide 39: … 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 © Coats Group plc | 2015 half year results presentation
Slide 40: Leading to significant free cash flow generation
Leading to significant free cash flow generation Adjusted free cash flow of Coats Profitable Sales Growth – share gains, new operating business - $m product and service innovation, geographic expansion 70 65 Increased productivity – offsetting inflation 54 Expert pricing management SD&A effi
Slide 41: Pension schemes: income statement and cashflow impact
Pension schemes: income statement and cashflow impact Brunel Staveley Coats UK Coats other Total $m H1’ 15 H1’ 14 H1’ 15 H1’ 14 H1’ 15 H1’ 14 H1’ 15 H1’ 14 H1’ 15 H1’ 14 Service charge - - - - 2 2 4 4 6 6 Administrative expenses 1 1 1 1 3 3 1 1 6 6 Pre-exceptional operating profit 1 1 1 1 5 5 5 5 12
Slide 42: Pension schemes: balance sheet positions
Pension schemes: balance sheet positions Brunel Staveley Coats UK UK schemes 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec 15 14 15 14 15 14 15 14 £m $m $m Equities 32 55 - 86 458 469 Coats Plan (296) (334) Bonds 40 55 85 91 859 914 Brunel (81) (84) Other 38 3 96 4 176 151 Staveley (91) (9
Slide 43: For more information
For more information Jaideep Thatai Head of Investor Relations +44 20 8210 5086 jaideep.thatai@coats.com Coats Group plc www.coats.com Coats Industrial www.coatsindustrial.com Coats Crafts www.makeitcoats.com © Coats Group plc | 2015 half year results presentation | 3 August 2015 Page 43