Slide 1: GPG Group and Coats plc Results presentation for year ending 31 December 2013
GPG Group and Coats plc Results presentation for year ending 31 December 2013 25 February 2014
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 – Update – Financial performance Coats plc – Summary – Financial performance – Strategy and outlook Appendices © GPG Group and Coats plc | Results presentation for the full year ending 31 December 2013 Page 3
Slide 4: GPG Update and financial performance
GPG Update and financial performance
Slide 5: Update
Update Coats Robust trading results - net profit attributable to GPG of £19 million (US$29 million) (2012: £92m loss (US$146 million loss)) GPG investment portfolio (excluding Coats) Value realisation programme completed – total cash generated since 1 January 2011 – £698m (NZ$1,408m) Pensions
Slide 6: Summary for the period
Summary for the period Shareholders’ funds – £444m (31 December 2012: £434m) – increase due to improved IAS19 employee benefits position (£107m) and Coats’ trading results – partially offset by FX losses (£36m), shareholder returns (£45m) and GPG Parent Group overheads (£44m) Net asset backing p
Slide 7: Simplified balance sheet
Simplified balance sheet 31 Dec 2013 31 Dec 2012 £m £m £m £m Net held for sale assets 1 222 Current asset investments - 9 Total investments, excluding Coats 1 231 Cash 383 243 GPG assets 384 474 GPG Pension Schemes (56) (74) Other sundry Parent Group net liabilities (20) (14) 308 386 Coats Other net
Slide 8: Pensions
Pensions 31 Dec 31 Dec The main driver for reduced IAS19 deficits since last year end is strong IAS19 deficit 2013 2012 investment performance £m £m Coats UK (78) (161) Coats funding has also improved due to the outcome of its second pension increase exchange offer (£5m IAS19 benefit, £7m fundin
Slide 9: Investment portfolio (excluding-Coats)
Investment portfolio (excluding-Coats) Investment portfolio Disposals £m NZ$m GPG completed the asset realisation 2011 Disposals 144 291 programme in September 2013 – on time and on value expectations 2012 Disposals 314 633 Total cash generated in 2013 – £240m 2013 Disposals (NZ$484m) Tower 82 1
Slide 10: Overhead costs
Overhead costs tPR Significant expense incurred in dealing 31 Dec 2013 31 Dec 2012 Overheads with investigations £m £m tPR advisory costs Costs to 31 December 2013 - £9.8m Incurred in year 9.8 - (NZ$19.8m) Provision for future expenditure 8.5 - Decision taken to accrue 2014 costs for Strategy
Slide 11: Coats Summary and 2013 financial performance
Coats Summary and 2013 financial performance
Slide 12: Summary
Summary Despite muted market conditions, 2013 results show growth in sales and profit across both Divisions Illustrates underlying resilience of Coats’ core markets and strong global market positions Continued to generate good levels of free cash flow and ROCE Increasingly robust foundations
Slide 13: Highlights
Highlights Robust trading results despite muted market conditions Revenue of $1,704 million, up 5% like-for-like with both Divisions showing growth Operating profit up 12% like-for-like before exceptional items Attributable profit before exceptional items up $20 million to $37 million Full
Slide 14: Year end financial performance
Year end financial performance 2013 2012 (restated) 1 Before Before Exceptional Exceptional $’m exceptional Total exceptional Total items 2 items 2 items items Revenue 1,704 1,704 1,653 1,653 Operating profit / (loss) 133 (9) 124 121 (132) (11) Profit / (loss) before tax 97 (9) 88 76 (168) (91) Prof
Slide 15: Underlying operating performance
Underlying operating performance Operating profit and margin 1,2 Six months ended Twelve months ended #039;m December 2013 YoY% December 2013 YoY% Operating profit Industrial 56.1 2% 110.7 5% Crafts 13.0 76% 22.0 69% Total 69.1 11% 132.7 12% Operating margin % Industrial 9.3% (40)bps 9.1% (10)bps Craft
Slide 16: Industrial performance
Industrial performance Asia & Australasia Industrial performance by region Strong sales growth across the region #039;m 2013 2012 1,2 YoY% YoY% FY H2 Global apparel and footwear demand from US Revenue and Western Europe remains the growth driver; Asia & Australasia 659 610 8% 8% zips and Speciality
Slide 17: Crafts performance
Crafts performance Americas Crafts performance by region 1,2 YoY% YoY% Strong sales growth driven by higher volumes #039;m 2013 2012 FY H2 within handknitting fashion yarns at major Revenue North American retailers Americas 319 304 5% 7% Softer demand in Latin America EMEA 173 171 1% (3)% Total 492
Slide 18: Income statement
Income statement Attributable profit before exceptional 2013 2012 (restated) 1 Before Before items up $20m due to: #039;m exceptional Exceptional Total exceptional Exceptional Total items items items items Operating profit increased $12m Revenue 1,704 1,704 1,653 1,653 Operating profit / (loss) 133 (
Slide 19: Exceptional items (including reorganisation charges)
Exceptional items (including reorganisation charges) Exceptional items (pre-tax) #039;m 2013 2012 Property gains relate to disposals in Peru ($18m) EC fine (incl. interest) - 120 and Portugal ($2m) Reorganisation 23 40 US antitrust litigation settlement paid in July 2013 and approved in Jan 2014 Ot
Slide 20: Taxation
Taxation $m 2013 2012 2 Reported tax rate at 58% - 2012 Tax PBT % Tax PBT % rate impacted by EC fine As reported (51) 88 58% (45) (91) (49)% Underlying tax rate1 reduced by 6% y-o-y to 49%, primarily Reorganisation (1) 23 (1) 40 reflecting reduced losses in Other exceptionals - (1) (3) 5 EMEA Pr
Slide 21: Retirement and other post-employment defined benefit liabilities
Retirement and other post-employment defined benefit liabilities As at As at UK IAS 19 deficit $133m less than 2012: 31.12.12 #039;m 31.12.13 restated – Better than expected asset returns of $144m UK funded scheme (129) (262) US funded defined scheme 47 37 – Marginally higher liabilities due to highe
Slide 22: Cash flow and leverage
Cash flow and leverage Cash flow 2013 cash flow bridge $54m adjusted free cash outflow (2012: $65m) Improved working capital control generated cash inflow; NWC / sales fell to 15% Capex at 0.8x depreciation1 Taxation outflow now in line with P&L charge Other includes payments of dividends
Slide 23: Coats Strategy and outlook
Coats | 7 Strategy and outlook 2
Slide 24: 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 Experienced consistent Global leader with robust management growth fundamentals and robust model Cash 4. generative Experienced 2. Defined Lea
Slide 25: Global market leader…
Global market leader… Coats Coats is Thousands of 1 in 5 produces operations 100million garments enough yarn 3 times take place car airbags are around the made using world are held to knit larger than the every Coats’ thread together using 70million next largest thread day every year Coats’ thread s
Slide 26: … servicing several markets and global customers…
… servicing several markets and global customers… End applications Industrial customers Crafts products include include include © GPG Group and Coats plc | Results presentation for the full year ending 31 December 2013 Page 26
Slide 27: … with robust underlying market dynamics
… with robust underlying market dynamics Strong link between clothing retail sales and GDP growth. For the US, clothing retail sales growth is approximately 1.8 times GDP growth US GDP growth vs consumer retail sales growth (2000-2013) CRS: Clothing Retail Sales Source: IMF, US Census Bureau Strong
Slide 28: 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 footwear threads and and apparel yarns industries The leading global player in textile crafts …based on a core of world class skills and inf
Slide 29: … targets known markets and builds upon core business
… targets known markets and builds upon core business • Market share growth: product and digital innovation, global customer The leading relationships and leading service levels, unique footprint in high growth value added sourcing markets, leading CR credentials partner to the global FW&A industrie
Slide 30: Strategy supported by a global, world class asset base…
Strategy supported by a global, world class asset base… • Well invested asset base: in harvesting phase of investment cycle • Restructured manufacturing footprint: reduced number of plants in Countries in which Coats operates higher cost Europe and North America Manufacturing sites Truly global foot
Slide 31: … key differentiators providing a platform for growth…
… key differentiators providing a platform for growth… Flamepro For use in personal protective equipment Coats Protect Ultrabloc World’s first anti- microbial thread Product Blocks water from seeping into fibre optic cables innovation ‘Make it Coats’ portal Service enhancements Corporate Colour Expr
Slide 32: … and a highly engaged and safe workforce
… and a highly engaged and safe workforce Global employee engagement survey results Global recordable accident rate Upper quartile performance 80% 77% 72% Industry norm 66% Consistently better than the OSHA average 2010 2011 2012 2013 © GPG Group and Coats plc | Results presentation for the full yea
Slide 33: Growth underpinned by margin improvement actions
Growth underpinned by margin improvement actions Global Increased Reorganisation Central Improved centralised employee activity cost growth product purchasing productivity substantially control mix across • Lean Six completed, focus Industrial Sigma in 2013 • Information • EMEA Technology • Latin Am
Slide 34: Leading to revenue and operating profit growth…
Leading to revenue and operating profit growth… Group revenue - $m Group operating profit - $m (pre-exceptional) 1,704 2009 - 2013 2009 - 2013 133 4.9% CAGR 8.5% CAGR 96 1,408 2009 2013 2009 2013* * 2013 includes an additional $7m pension administrative expenses charge due to an accounting rule chan
Slide 35: … free cash generation and reduced leverage
… free cash generation and reduced leverage Cashflow from normal operating activities 1 Leverage ratio (Net debt / EBITDA) ($m) Impact of $175m 2.1 EC fine 1.8 1.3 1.2 172 185 150 118 2010 2011 2012 2013 2010 2011 2012 2013 Free cash flow • Core business generates strong cash returns ($m) • Focus on
Slide 36: Summary
Summary • Global market leader with robust fundamentals; strong and defendable core • Defined growth strategy − FW&A: market share growth and Global Services offering − Speciality: focus on existing segments and sector and geographic growth − Crafts: marketing opportunities in b2b and b2c, regional
Slide 37: 2014 outlook
2014 outlook Consumer demand • Broadly positive picture in Asia • Expect moderate growth in demand in North America and Europe • Relatively flat situation in Latin America, especially Brazil Inflation • Raw material costs expected to trend marginally upwards • Payroll and other inflationary pressure
Slide 38: Appendices
Appendices GPG: Elements of reported profit and pensions Coats: Speciality threads and pension schemes
Slide 39: GPG: Elements of reported profit
GPG: Elements of reported profit 31 Dec 2013 31 Dec 2012 * £m £m £m £m Continuing activity Coats - Profit after tax before exceptionals 24 13 - EC fine and interest - (76) - Other exceptional items (5) (27) 19 (90) Parent Group - Overheads (44) (23) - Foreign exchange gains/(losses) 1 (2) - Other in
Slide 40: GPG: Detailed pensions analysis
GPG: Detailed pensions analysis Summary of GPG defined benefit pension schemes under IAS19 as at 31 December 2013 Coats GPG UK US Other Total Staveley Brunel Group £m £m £m £m £m £m £m Funded schemes Assets - Equities 575.8 44.7 7.5 628.0 91.5 59.9 779.4 - Bonds / debt instruments 764.0 85.0 9.6 858
Slide 41: GPG: Detailed pensions analysis
GPG: Detailed pensions analysis IAS 19 - 2013 Coats GPG UK US Other Total Staveley Brunel Group £m £m £m £m £m £m £m Opening position 1 January 2013 (161.1) 23.0 (69.2) (207.3) (36.4) (37.7) (281.4) Included in Coats’ operating profit are Income Statement (pre tax) pension charges of Current service
Slide 42: Coats: Definition of Speciality
Coats: Definition of Speciality High technology thread or yarn made from performance materials for non-apparel/non-footwear end uses Speciality products categorised into three segments ‘Value Added ‘Traditional’ ‘Emerging’ Engineered Yarns (VAEY)’ Existing products and good Recently developed produc
Slide 43: Coats: $1.8bn addressable Speciality market identified
Coats: $1.8bn addressable Speciality market identified Driven by consumer and government demand – ‘GDP+’ growth ‘Speciality universe’ c. $30bn Unrelated fibres, filaments or processes $1.8bn addressable market identified Expanding into emerging markets and VAEY as Coats Current Speciality thread mar
Slide 44: Coats: Traditional Speciality products
Coats: Traditional Speciality products Coats Speciality product range Neophil Threads for automotive air bags, seat belts and seat trim Dabond Threads for outdoor boat covers and sails Traditional segment © GPG Group and Coats plc | Results presentation for the full year ending 31 December 2013 Page
Slide 45: Coats: New technologies in Speciality
Coats: New technologies in Speciality Coats Speciality product range Ultrabloc Water-swellable engineered yarn that blocks water from seeping into fibre optic cables Emerging segment © GPG Group and Coats plc | Results presentation for the full year ending 31 December 2013 Page 45
Slide 46: Coats: New market entry in Speciality
Coats: New market entry in Speciality Coats Speciality product range Flame-Pro High performance flame retardant weaving and knitting yarns VAEY segment © GPG Group and Coats plc | Results presentation for the full year ending 31 December 2013 Page 46
Slide 47: Coats: Speciality innovations
Coats: Speciality innovations Customer-led innovations to meet new needs P-Aramid yarn for synthetic gas pipes Coated and precision wound p-Aramid for use in braided reinforcement for composite pipe construction Fiberglass strength member Coated fiberglass yarns for linear impact strength elements i
Slide 48: Coats: Speciality summary
Coats: Speciality summary Strong market presence within $1.8bn market space – Coats is the leader in the current Speciality market and an emerging presence in VAEY – Good returns on capital; ‘sticky’ business with high switching costs Significant organic and inorganic growth potential – Leveragi
Slide 49: Coats pension schemes: income statement & cashflow impact
Coats pension schemes: income statement & cashflow impact #039;m UK Funded scheme US Funded Scheme RoW Total 2013 2012 2013 2012 2013 2012 2013 2012 Service charge 4 4 4 3 4 5 12 12 Administrative expenses 6 5 1 1 - - 7 6 Pre-exceptional operating profit impact 10 9 5 4 4 5 19* 18 Exceptional past serv
Slide 50: Further information
Further information Coats plc For more www.coats.com information Coats Industrial www.coatsindustrial.com Coats Crafts www.makeitcoats.com © GPG Group and Coats plc | Results presentation for the full year ending 31 December 2013 Page 50