Coats Group Plc · LSE:COA
Coats — FY2015 Earnings Presentation
41 slides from Coats's earnings presentation, Feb 25, 2016
Slide 1: 2015 full year results presentation
Coats Group plc 2015 full year results presentation 25 February 2016
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 2015 full year results presentation Overview Financial performance Summary and outlook Appendices © Coats Group plc | 2015 full year results presentation | 25 February 2016 Page 3
Slide 4: Overview
Overview
Slide 5: Highlights
Highlights Strong operating performance and improved quality of earnings Pre-exceptional operating profit up 19% LFL (constant currency); operating margins up 130bps Adjusted EPS up 38% LFL; reported loss due to discontinued items Adjusted free cash flow of $74m (2014: $88m) Return on capita
Slide 6: A&F: strong volume growth and digital innovation
A&F: strong volume growth and digital innovation Increased volumes Digital innovation Share gains and underlying market growth Enhanced customer service and productivity Sales up 5% to $979m eCommerce Strong volume growth offset challenging Rolled out Q1’15; now live in 25 pricing conditions mar
Slide 7: Speciality: geographic expansion and new product innovation
Speciality: geographic expansion and new product innovation Geographic expansion Sales up 8% LFL to $233m driven by urbanisation in developing economies Total sales impacted by slowdown in global oil and gas sector (we supply components for thermoplastic pipes and protective wear) Automotive Bed
Slide 8: Our approach to new product development
Our approach to new product development Thread is not a commodity Pioneering history and expertise Proven track record of delivering innovative, high valued added products Use virtual network of commercial and academic partners In-house R&D capabilities embedded at sites; supported by smal
Slide 9: Crafts: refocused and stabilised
Crafts: refocused and stabilised As expected overall sales down y-o-y due to lower demand for fashion handknitting products Double digit growth in expanding North American lifestyle fabrics business 6% growth in Latin American foundation handknittings Red Heart awarded prestigious Women’s Ch
Slide 10: Increased productivity and procurement improvements
Increased productivity and procurement improvements Industrial Manufacturing productivity and non-raw material sourcing gains: >$15m y-o-y Effluent treatment plant projects completed in Shenzhen, Sri Lanka, Germany; remains focus area in 2016 (Shanghai, Vietnam, India, Bangladesh) Continuing t
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 Looking to access inorganic growth In May’15 completed first acquisition in >10 years: GSD, a services business, for $5.5m Comprehensive M&A process in place – from strategy t
Slide 12: Safe and engaged workforce
Safe and engaged workforce Employee engagement Recordable incident rate Global top 10% Coats global recordable incident rate vs OSHA average* 83% (3 month average) 81% 80% 77% OSHA 72% 12% reduction yoy Industry norm Coats 2011 2012 2013 2014 2015 1. Occupational Safety and Health Administration, ag
Slide 13: Pensions
Pensions Investigations Initiated settlement discussions with Trustees of three pension schemes Coats committed to retain $505m (£342m) parent group cash to support Company and schemes and not return to shareholders, on basis of tPR withdrawing Warning Notices, thereby ending investigations, and
Slide 14: Normalising as a UK plc: progress during 2015
Normalising as a UK plc: progress during 2015 In February renamed Coats Group plc, establishing Coats as standalone listed entity Created single Board with Director changes, including appointment of Execs and SID, to lead a UK headquartered, global industrial manufacturing business In November
Slide 15: Financial performance
Financial performance
Slide 16: Overview
Overview Reported Like-for-like $m FY 2015 Change 1 change 1,2 Revenue 1,490 (5)% 3% Operating profit - reported 118 14% - adjusted 3 139 13% 19% EPS (cents) - reported (3.30) NA - reported 2.09 (30)% continuing - adjusted 4 3.96 28% 38% ROCE 5 33% 900bps Free cashflow - adjusted 6 74 (16)% KPI 1 Re
Slide 17: Underlying operating performance
Underlying operating performance Operating profit and margin Full year H2 H2 YoY 2015 YoY% 2015 YoY% 5% Operating profit ($m) Industrial 135 20% 69 26% Crafts 14 14% 12 84% 150 80 H2 YoY 3% UK pension admin (10) (6) Group 139 19% 75 32% Operating margin (%) Industrial 11.1% 130bps 11.5% 190bps Craft
Slide 18: Industrial
Industrial Revenue $m 2015 2014 YoY% FY YoY% H2 • A&F up 5% - strong volume growth from share Revenue (by category) gains; challenging pricing in deflationary environment Apparel and Footwear 979 934 5% 5% Speciality 233 216 8% 3% • Speciality up 8% - geographic expansion of existing products and ne
Slide 19: Crafts
Crafts $m 2015 2014 YoY% FY YoY% H2 Revenue Revenue (by category) • Down 6% y-o-y, with smaller decline during H2 Needlecrafts 127 131 (3)% (2)% • Reduction in handknittings driven by expected H1 decline in fashion products sales in North Handknittings 150 164 (9)% (8)% America following peak in 201
Slide 20: Income statement
Income statement 2015 2014 Adjusted EPS up 28% to 3.96c at Before Before Exceptional Exceptional actual currency (up 38% LFL): $m exceptional items items Total exceptional items items Total Revenue 1,490 - 1,490 1,561 - 1,561 • Gross margin up 120bps due to lower input prices, productivity and non-r
Slide 21: Exceptional items
Exceptional items • Mexican operations: $3m reorganisation $m 2015 2014 charge related to footprint consolidation from three sites to two to increase efficiency and Reorganisation - Mexico (3) - reduce operational costs; sale of closed site $6m Property disposal - Mexico 9 - generated $9m gain, lead
Slide 22: Finance costs and foreign exchange movements
Finance costs and foreign exchange movements Operational $m 2015 2014 • $3m reduction in interest due to lower cost of local Operational items financing and end of fixed interest rate swaps - Interest on bank and other borrowings (17) (20) • $3m increase in investment income primarily - Investment i
Slide 23: Taxation
Taxation $m 2015 2014 Tax PBT % Tax PBT % • Reported tax rate 53% • Underlying tax rate (UTR)1 reduced by 600bps to As reported (46) 87 53% (45) 97 47% 35% - Change in mix as regions with lower statutory Exceptional items (0) 22 (0) 20 tax rates contributed higher profits JV impairment - 1 - - FX lo
Slide 24: Non-operating items
Non-operating items Pension deficits • On IAS19 accounting basis $469m at FY’15, down from $584m at UK schemes IAS19 deficits (Dec’15) FY’14 and $526m at end H1’15 Staveley £59m • Deficits in three UK schemes decreased to $423m (£286m) from Brunel £48m $509m (£326m) at FY’14 Coats £179m • Primarily
Slide 25: Discontinued - EMEA Crafts
Discontinued - EMEA Crafts • Loss of $76m in related to sale of $m 2015 H1 H2 loss-making EMEA Crafts business Trading loss (13) (6) (7) • $13m related to trading loss generated for the year (2014: $7m pre-exceptional loss) Cash retained in the business 1 (17) (17) - • Loss on disposal of $56m inclu
Slide 26: Cash flow and leverage
Cash flow and leverage $74m adjusted FCF (2014: $88m) Measurement basis changed from 2014 to exclude pensions recovery payments Net working capital (NWC) outflow due to revised supplier payment approach and increased trading activity (moderated by improved inventory management) More than offse
Slide 27: Outlook and summary
Outlook and summary
Slide 28: Summary
Summary Global market leader with robust fundamentals; strong and defendable core Defined growth strategy and updated market goals Supported by key differentiators - world class asset base, product and service (including digital) innovation, highly engaged workforce and corporate responsibilit
Slide 29: Record of delivering improving earnings and returns
Record of delivering improving earnings and returns Adjusted EPS (actual currency) Return on capital employed 33% 3.96 3.08 24% 20% 2.17 2013 2014 2015 2013 2014 2015 Before exceptional items and foreign exchange gains/losses on parent group cash balance. 2013 excludes Pre-exceptional operating prof
Slide 30: 2016 outlook
2016 outlook • Strong performance in 2015 supported by market share gains, product innovation, lower input prices, productivity and procurement gains • Put the business on a solid footing for the year ahead • Will realise incremental savings from overhead reduction programme • However to grow we nee
Slide 31: Appendices
Appendices
Slide 32: Who we are
Who we are Coats is the world’s leading industrial thread manufacturer and a major player in the Americas textile crafts market. At home in more than 60 countries, employing 19,000 people across six continents. • Group revenues of US$1.5bn in 2015 • World’s leading thread producer for the apparel &
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. 2. Global Experienced presence Leadership, people management and Key differentiators and systems
Slide 34: Global market leader
Global market leader Each year we More than Coats is the Our Speciality make enough Every performance 2nd thread to go into 450m month threads can withstand 8bn pairs pairs of we produce enough thread largest temperatures as shoes are supplier of high as of jeans – one made every to stretch to the z
Slide 35: Markets and global customers
Markets and global customers Industrial Apparel and Footwear Speciality End uses include Customers include End uses include Customers include Crafts End uses include Brands include © Coats Group plc | 2015 full year results presentation | 25 February 2016 Page 35
Slide 36: Stable underlying trends
Stable underlying trends Strong link between clothing retail sales and GDP growth. For the US, clothing retail sales growth is approximately 1.6 times GDP growth US GDP growth vs consumer retail sales growth (2000-2015) CRS: Clothing Retail Sales Source: IMF, US Census Bureau © Coats Group plc | 201
Slide 37: 2018 Market goals
2018 Market goals Updated our 2015 market goals… The leading value added partner to The leading the apparel, global player in footwear and Speciality accessories threads and industries yarns The leading textile crafts partner / inspiration source …demonstrates continuity in chosen markets and validi
Slide 38: Cost base
Cost base Materials: raw materials (polyester, nylon, Pre-exceptional costs – 2015 cotton) and intermediates (grey thread); direct materials (dyes, cones) and bought-in finished Depreciation goods (craft products) 3% Labour (mfg): ongoing inflationary pressures in the locations in which we opera
Slide 39: Pension schemes: income statement and cashflow impact
Pension schemes: income statement and cashflow impact Brunel Staveley Coats UK Coats other Total $m 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Service charge - - - - 4 4 8 9 13 13 Administrative expenses 1 2 2 2 2 7 5 1 1 11 9 Pre-exceptional operating profit impact 2 2 2 2 11 9 9 10 24 22 Ex
Slide 40: Pension schemes: balance sheet positions
Pension schemes: balance sheet positions Brunel Staveley Coats UK RoW schemes Total 31 Dec 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 $m Assets 162 176 253 282 2,138 2,388 235 274 2,787 3,121 Liabilities (233) (260) (339) (372) (2,402) (2,722) (274) (324) (3249) (3,679) Net deficit (72) (84)
Slide 41: 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 Group plc | 2015 full year results presentation | 25 February 2016 Page 41