Coats Group plc · LSE:COA
Coats — Investor Day (June 2015)
76 slides from Coats's investor day presentation, Jun 23, 2015
Slide 1: Coats Group plc Capital Markets Day
Coats Group plc Capital Markets Day 23 June 2015
Slide 2: Agenda
Agenda 14:00 Arrivals / coffee 14:30 Introduction Paul Forman, Group Chief Executive Apparel & Footwear Adrian Elliott, President, Global Apparel & Footwear Hizmy Hassen, Chief Digital Officer, Industrial Speciality Shantanu Banerjee, President, Global Speciality & US Operations Andrew Morgan, R&D D
Slide 3: 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 4: Introduction
Introduction
Slide 5: Who we are…
Who we are… World’s leading industrial thread and consumer textile crafts business Industrial Crafts Apparel and Speciality Crafts Footwear (A&F) Apparel and footwear thread High technology threads and Foundation and fashion yarns from performance handknitting products Zips and trims product
Slide 6: Where have we come from
Where have we come from Rich heritage Founded over 250 years ago One of the first truly global firms: started production in India in late 19th century One of founding members of FT30 Fast forward to 2015 Renamed Coats Group plc (formerly GPG plc) Return to LSE on 125th anniversary of listi
Slide 7: Our world is changing…
Our world is changing… Global middle class in 2009 and prediction for 2030 Increasing global demand for apparel and footwear North America Europe Increasing Northern Africa demand for Asia Pacific consumer products with Speciality Central and thread South America Southern Africa Asia-Pacific moving
Slide 8: …and so are the markets we operate in…
…and so are the markets we operate in… Apparel and footwear industry heat map Western C&E Europe Europe North America North East Asia Northern Africa Central America South East Asia South Hot Asia Medium Latin Cool America Southern Australasia Africa Countries in which Coats operates Manufacturing s
Slide 9: …with positive underlying trends set to continue in A&F…
…with positive underlying trends set to continue in A&F… 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) Source: IMF, US Census Bureau © Coats Group plc
Slide 10: … and ongoing growth in the Speciality market
… and ongoing growth in the Speciality market Driven by growing consumer and Speciality universe: ~$30bn1 government demand Immediately addressable market: Pace of urbanisation – key market driver in ~$1.8bn1 developing countries – Consumers upgrade to Speciality products as GDP grows (eg fu
Slide 11: We have the strategic hand of cards to respond
We have the strategic hand of cards to respond Market positions that are several times bigger than our competition with a comprehensive range of products Global. Expert. Unparalleled physical network of factories, Pioneering. warehouses and IT systems Access to the widest range of A&F, Special
Slide 12: Continual product and service innovation
Continual product and service innovation eCommerce Hemseal Makes thread ordering For use in the secure easier and faster than ever hemming of tailored garments Coats Colour Express World’s fastest, most accurate thread sampling service Flamepro For use in personal Services protective equipment Produ
Slide 13: Corporate Responsibility credentials
Corporate Responsibility credentials 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 Source: Kenexa OSHA: (US)
Slide 14: Improved returns and quality of earnings
Improved returns and quality of earnings Return on capital employed (ROCE)1 Profitable Sales Growth – share gains, new product and service innovation, geographic 26% expansion 22% 20% 18% 18% Increased productivity – offsetting inflation 14% Expert pricing management SD&A efficiency programm
Slide 15: Led by an experienced Board
Led by an experienced Board Directors chosen to lead a global industrial manufacturing business Breadth of FTSE 350, geographic, industry Mike Clasper CBE, Chairman Mike Allen, Independent Non-Executive Director Ruth Anderson, Independent Non-Executive Director and functional experience Board
Slide 16: Supports defined growth strategy to achieve three market goals
Supports 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 Today we will focus on how we are delivering these goals
Slide 17: 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 18: Apparel and Footwear
Apparel and Footwear To be the leading value added partner to the global A&F industries
Slide 19: Market overview
Market overview GDP+ growth Consumer demand and retailer inventories Production: highly mobile – West to East, now intra-East End consumption: JUSE1 focused, emerging markets increasingly important Supply chain: highly fragmented ‘World’s largest cottage industry’ Market with robust fund
Slide 20: $1bn One in five million
Apparel and Footwear (A&F) business Apparel thread Footwear $1bn Sportswear thread revenue Outerwear Zips and 43 9 trims thread plants zip factories Denim Sales Global presence in Services +100 countries Ladieswear One in five garments on the planet are >450 million pairs of shoes are made held toge
Slide 21: Continued growth in global apparel demand
Continued growth in global apparel demand Similar trends in global footwear market By volume (bn garments) By value ($tn) NE Asia N America CAGR (%) 11-14 15-18 CAGR (%) 11-14 15-18 NE Asia N America Europe S Asia 4% 3% Europe S Asia 2% 2% forecast forecast RoW 110 RoW 1.67 1.70 106 1.64 103 1.55 1.
Slide 22: Competitive landscape
Competitive landscape Suppliers Competitors • Includes polyester, nylon and cotton • Coats is the global market leader: x3 larger • Diverse supply base • Unparalleled global operational and • Coats purchasing power commercial footprint • Labour inflationary pressures • Manage through productivity, •
Slide 23: …and need to respond to changing industry needs
…and need to respond to changing industry needs Speed First to market, in-season flexibility, colour, sampling, sourcing Productivity Reduce labour exposure, Lean, design to cost Innovation Fabrics, finishes, production technology, consumer experience Quality Differentiation and consumer value throu
Slide 24: Coats Global Services
Coats Global Services Quality Productivity acquisition The world's leading colour and textile services expert • Industry leader with strong brand • Customers in +60 countries, strong Asian presence, $2m revenue Adding services Software tools • Enhances end-to-end OE solution • End to end • Time and
Slide 25: Enhancing customer value through digital
Enhancing customer value through digital Customer Speed Productivity Innovation needs ‘Big ideas’ driving • Removing non-value • Guided transactions online solutions added activities • Intelligent platforms • Easy access to experts for exception management Return on investment for Coats Profitable s
Slide 26: Market leading position within textiles industry
Market leading position within textiles industry Benefits Key information easily accessible Convenience (online and mobile tools for sampling and bulk) Simplification (guiding during product selection eliminating mistakes) Speed (high levels of automation eliminating human touch points) Serv
Slide 27: Coats Opti Express video
Coats Opti Express video © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 27
Slide 28: Delivering operational gains
Delivering operational gains Digital sampling Visits to Industrial Portal (’000s) ~65% of all sampling now digital Enabled 17% y-o-y growth in sampling 80 volumes in 2014, at no incremental cost 60 Supported material market share gains 40 ~70% reduction in sampling lead-time 20 eCommerce (la
Slide 29: A&F summary
A&F summary Market leader GDP+ growth Coats leading in >$3.5bn market; industry industry; customer and through strong, consumer product and defendable, needs service cash generative changing innovation business © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 29
Slide 30: Speciality
Speciality To be the leading global player in Speciality threads and yarns
Slide 31: What is Speciality?
What is Speciality? © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 31
Slide 32: Moving beyond the stitch line
Moving beyond the stitch line Expanding from our traditional segments into value added engineered yarns as we develop competence outside our historic core Unrelated fibres, Value Added filaments or Engineered Yarns processes ~$1,000m Traditional ~$550m Coats level of Emerging competence segments ~$2
Slide 33: Competitor landscape: fragmented across multiple markets
Competitor landscape: fragmented across multiple markets Market size and share by category (approx.) Several end-markets within each category Coats market share No single end-market dominates any one $550m $250m $1,000m category Competitors tend to produce products for one or two end-markets a
Slide 34: Gaining market share by leveraging core global capabilities
Gaining market share by leveraging core global capabilities Leading New innovative technologies brands • Global manufacturing Global Global, footprint customer world class • Centres of excellence relationships asset base © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 34
Slide 35: Leading to double digit sales growth / geographic diversification
Leading to double digit sales growth / geographic diversification Global Speciality sales ($m) Increasing sales in emerging markets Reported basis 235 2011 2014 CAGR: 8% N. America EMEA 174 Asia / LatAm 2010 2011 2012 2013 2014 2014 sales: up 14% and in absolute terms = A&F Extending traditional
Slide 36: Why are we growing our presence in Speciality?
Why are we growing our presence in Speciality? High technology products that guarantee performance and safety No extensive distribution or ex-stock service required; mainly made-to-order Differentiated offer stock to meet sharply High ROCE and defined customer ‘sticky’ business… needs Relatively low
Slide 37: Innovating up the technology chain
Innovating up the technology chain Customer-led innovation to create new value chains Speciality MRG, Extrusion, RTP Carbon composites Aramids Smart conductive Femcare Fibre optics Automotive Tea bag Furniture Tyre cord Technology Outdoor Bedding Footwear Apparel 1980 1995 2000 2010 2015 2018 Timeli
Slide 38: Strategy to continue growing Speciality
Strategy to continue growing Speciality Share penetration New market R&D entry innovation (inc M&A) Talent New Manufacturing technologies excellence ‘deep dive’ Digital marketing © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 38
Slide 39: Protecting fibre optic cables with Coats Ultrabloc
Protecting fibre optic cables with Coats Ultrabloc Water swellable yarn that protects delicate fibre optic cables against damaging effects of rain and salt water Eliminates need to use gel inside tubes allowing for totally dry fibre optic cables Benefits: weighs less, makes installation and re
Slide 40: Reinforced thermoplastic pipes in oil and gas
Reinforced thermoplastic pipes in oil and gas Coated and precision wound para-aramid for use in braided reinforcement for composite pipes Benefits: corrosion resistant, faster installation time, less disruption above Sales increased from ground, re-usable, lower maintenance $1m to $4m in 2014 ©
Slide 41: Product development – carbon composites
Product development – carbon composites Including thermoplastic carbon composite prepregs for automotive Can we talk about conductive or composite? Or commercially sensitive © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 41
Slide 42: Speciality summary
Speciality summary $1.8bn Coats addressable High ROCE consistently market; produce and ‘sticky’ delivering wide range of business; double digit products across innovation organic growth; multiple is key potential for end-markets M&A © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 42
Slide 43: Questions and break
Questions and break
Slide 44: Crafts
Crafts The leading global player in textile crafts
Slide 45: Introduction
Introduction © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 45
Slide 46: Our products
Our products Handknitting • Foundation and fashion yarns • Supported by inspiration programmes • High quality range and large Fashion yarns Foundation yarns colour selection Needlecrafting • Consumer sewing threads and zips • Premium lifestyle fabrics • Embroidery threads Embroidery Zips Lifestyle S
Slide 47: Where and what we produce
Where and what we produce ~$300m sales; ~5% operating margin Cash generative ~1,500 employees In process of completing sale of EMEA Crafts North America % sales Make % Buy % Handknitting 65% 70% 30% North America 3 Crafts plants (Georgia) Needlecraft 25% 45% 55% 2 distribution centres Fabric
Slide 48: Market leader in ~$1.8bn Americas textile crafting industry
Market leader in ~$1.8bn Americas textile crafting industry Coats 15% Market leader in handknittings A Leading positions in needlecrafting markets in 7% which we operate (eg consumer sewings) North Market size B America Other ~$1,400m 6% Recent entry into fabrics market; opportunity to C 59% 5
Slide 49: Market leading position in North America
Market leading position in North America Number one or two in each category we operate; Core brands focused channel and product portfolio – Red Heart, leading North American yarn brand – Coats, number one thread brand Serve small number of major retailers – Dedicated key account teams for top th
Slide 50: Smaller but expanding presence in Latin America
Smaller but expanding presence in Latin America Market overview Coats expanding market position Market size ~$400m1 Brazil is main market but presence in other countries (eg Mexico, Argentina Wider range of customers than US (including and Columbia) wholesalers) but consolidation being driven
Slide 51: Growing the Americas business through digital inspiration
Growing the Americas business through digital inspiration Working with the Direct customer biggest designers engagement Inspire Enhance customers digital offer and consumers Digital Award winning Focused inspiration Build and Americas grow strong brands Expertise and team brands experience to lead a
Slide 52: Digital – establishing direct relationships with our consumers
Digital – establishing direct relationships with our consumers >20m visitors across Americas Crafts digital platforms 13% increase in visits to RedHeart.com in 2014 2,500 free patterns to inspire all consumers – 25 free patterns downloaded every minute YouTube videos viewed ~10m times 400,
Slide 53: eCommerce – from inspiration to sales
eCommerce – from inspiration to sales RedHeart.com now with e-commerce… inspiration just one click away from product purchase Instant feedback Analytics help refine consumer experience Can also buy our products using customers’ online platforms Can better help our customers in their own e-
Slide 54: Crafts summary
Crafts summary Americas Crafts Market leading Digital is an inherently positions and inspiration will profitable, cash top brands drive future generative in ~$1.8bn growth business Americas market © Coats Group plc 2015 | Capital Markets Day | 23 June 2015 Page 54
Slide 55: Financials
Financials
Slide 56: Coats Group plc structure
Coats Group plc structure Staveley and Coats plc Group Cash Brunel pension (operating schemes business) At 31 Dec 2014: At 31 Dec 2014: 20142: ~$1.7bn revenue, $45m $586m1 (£375m) IAS19 deficit $175m1 attributable profit, $70m FCF (£112m) At 31 Dec 2014: Costs of administering IAS19 deficit on Coats
Slide 57: Recap of recent financial performance
Recap of recent financial performance Attributable profit – $m (pre-exceptional) 2014 financial performance KPIs Industrial Crafts Group 45 Sales growth1 5% (9)% 1% 37 Operating profit growth2 18% (88)% - 17 Attributable profit growth3 21% Adjusted free cash flow4 $70m 2012 2013 2014 (1) On a like-f
Slide 58: 2015 trading performance
2015 trading performance Year-on-year sales performance (January to April) Trading was in line with management expectations, up 3% LFL1 LFL1 Reported 3% decline in group sales on sales sales reported currency basis reflected Group 3% (3)% strengthening of US dollar Speciality business continue
Slide 59: Revenue base
Revenue base Group revenue – 2014 Geographically diversified Discontinued Industrial (A&F): main markets are India, EMEA 25% China and Vietnam EMEA (C) Industrial (Speciality): main markets are US 9% and Turkey EMEA (I) Crafts (continuing business): US and Brazil 16% Asia & Customer diversific
Slide 60: Cost base
Cost base Cost of sales Pre-exceptional costs – 2014 * Materials - raw materials (eg polyester, nylon, cotton), intermediates (grey thread), direct materials (eg dyes, cones) and bought-in finished goods (eg craft products) Operating costs Labour (mfg) – ongoing inflationary pressures Administra
Slide 61: Segmental performance
Segmental performance Industrial* Crafts* 1,300 Revenue ($m) Operating Margin (%) 11.0% Revenue ($m) Operating margin (%) 600 10.0% 1,250 10.3% 10.5% Higher margins in Americas Crafts 9.0% 500 10.0% 8.0% 1,200 479 492 442 7.0% 9.5% 400 1,150 9.1% 9.1% 6.0% 9.0% 300 5.0% 1,100 1,243 1,212 8.5% 4.5% 4
Slide 62: Financing
Financing Refinanced debt facility (February 2015) Key terms and features Facility oversubscribed Size $680m Margin reduced by ~25bps Maturity (date) 5 years (Feb 2020) Margin structure Margin dependent on financial leverage Changed group of international banks – better reflects Coats’ global
Slide 63: Tax
Tax Historically operated with very high tax rate Underlying tax rate – No tax relief on exceptional costs and 55% pension charges – Losses cannot be relieved against profits 47% 42% – Withholding tax on global remittances In 2013/14 launched global tax review to identify tax inefficiencies In
Slide 64: Cash flow
Cash flow 2014 cash flow bridge* * For Coats plc (Coats Group Limited) Free cash flow in excess of $50m All pension cash payments included in adjusted FCF Other includes provisions and payments of dividends to minorities 41 (47) (22) $m 179 (53) 2 (18) (9) 70 72 EBITDA Working Capex Interest T
Slide 65: Capital expenditure and working capital
Capital expenditure and working capital * For Coats plc (Coats Group Limited) Capital discipline Focus on working capital initiatives Capital expenditure ($m)* Industrial NWC % sales* Crafts 19.0% 51 47 17.6% 17.1% 39 15.1% 37 36 11.5% 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 1.0 0.9 0.7 0.
Slide 66: Financial reporting changes
Financial reporting changes Previously reported GPG plc in GBP (some items also NZD) and Coats Group Limited in USD As of the HY 2015 results, Coats Group plc: – Single income statement, balance sheet and cash flow statement – USD reporting currency (will also show UK pensions data in GBP) – Pri
Slide 67: Pensions
Pensions UK Defined Benefit schemes Coats IAS19 deficit at end 2014: $586m (£375m) £m Staveley Brunel Coats UK other 1 (end 2013: $297m, £178m)2 IAS19 liability (Dec 2014) 239 167 1,748 208 – Increase in liabilities; decrease in discount rate3 > fall in inflation rate4 214 215 – Adoption of revise
Slide 68: UK Pensions Regulator investigations (tPR) – a recap
UK Pensions Regulator investigations (tPR) – a recap Company moving on: continue to engage with investigations balancing the interests of stakeholders During investigations unable to make returns to shareholders Warning Notices (WN) received on two legacy GPG UK defined benefit schemes, Brunel
Slide 69: Lower Passaic River
Lower Passaic River In April 2015 a Cooperating Parties Group, which includes Coats and Clark Inc., a subsidiary of the Coats Group plc, submitted a remedial investigation and feasibility study (‘RI/FS’) to the US Environmental Protection Agency proposing remedial action for the Lower Passaic Rive
Slide 70: Outlook and summary
Outlook and summary
Slide 71: 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 72: Maintain 2015 outlook
Maintain 2015 outlook Made good start to year; on track to at least deliver management expectations… … as outlined in FY14 results (February 2015) Mixed regional picture expected to continue: Asia, broadly positive; North America, solid growth; Europe, macroeconomic dependent; and Latin America, r
Slide 73: Looking ahead
Looking ahead Increase pace of product and service development and acquisitions – GSD acquisition, launch of Opti Express and Signal thread all in one week Continue to ‘normalise’ as a UK listed, global manufacturing company Focus on diversity and inclusion – Culturally diverse; focus on gende
Slide 74: 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 75: 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 76: Questions
Questions