Coats Group Plc · LSE:COA
Coats — H1 2023 Earnings Presentation
38 slides from Coats's earnings presentation, Aug 1, 2023
Slide 1: Getting Fitter, Ready for the Recovery: 2023 Half Year Results
GETTING FITTER, READY FOR THE RECOVERY 2023 HALF YEAR RESULTS Tuesday 1 August 2023
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
Slide 3: Agenda
AGENDA 01 Highlights 02 Financial Performance 03 Divisional Performance 04 Strategic Update 05 Summary and Outlook 06 Appendices COATS GROUP PLC | 2023 HALF YEAR RESULTS 3
Slide 4: Highlights
HIGHLIGHTS IMPROVING MARGINS, STRONG FREE CASH FLOW, CONTINUING MARKET SHARE GAINS Outperforming the market, reported revenue down 11% Improving margins, up 30bps on H1 2022 on a proforma basis (including acquisitions) Continuing market share gains in Apparel and Footwear; key contract wins in Perfo
Slide 5: Market Context
MARKET CONTEXT INVENTORY PEAKED, NORMALISING THROUGH H2 TOP GLOBAL APPAREL & FOOTWEAR WHAT OUR CUSTOMERS ARE SAYING “ BRANDS INDEXED INVENTORIES Puma: With our continued momentum we are fully 170 Significant on track to normalize our inventory levels and to industry achieve our full-year guidance. 1
Slide 6: Retail Sales Remain Robust
RETAIL SALES REMAIN ROBUST CONSUMER SENTIMENT REMAINS RESILIENT DESPITE SUPPLY CHAIN DESTOCKING Regional Forecast*: Apparel and Footwear Market Size Value Y-o-Y Growth Rate (2023 vs 2022) 3% 9% 11% Source: Euromonitor apparel and footwear markets, 2023 ‘Half Year 10% 8% Update, Market Size Trend’ re
Slide 7: Getting Fitter, Ready for the Recovery
GETTING FITTER, READY FOR THE RECOVERY OUR RESPONSE BAU self-help Programme Pricing power Market (productivity/ Portfolio mix and customer (despite share gains1 procurement improvements wins deflation) benefits) Synergy delivery Tight working Strategic Projects (guidance Disciplined capital and cash
Slide 8: Financial Performance
FINANCIAL PERFORMANCE
Slide 9: Key Financial Highlights
KEY FINANCIAL HIGHLIGHTS Improving margins Pricing/ Strategic Proforma margins up Self-help/ projects further 30bps Inflation ahead of schedule Synergies Pensions Strong free cash flow increased Funding position $52m $15m by end 2023 further improved 1.Estimated. COATS GROUP PLC | 2023 HALF YEAR RES
Slide 10: Key Financial Metrics
KEY FINANCIAL METRICS ACCELERATED SALES AND MARGIN GROWTH H1 2023 H1 2022 Reported change CER1 Organic1 Revenue ($ million) Apparel 354 472 (25%) (20%) (20%) Footwear 184 115 60% 64% (23%) Performance Materials 177 214 (18%) (14%) (14%) Group 715 801 (11%) (6%) (19%) Adj. operating profit ($ million
Slide 11: Update on Pricing, Self-Help and Inflation
UPDATE ON PRICING, SELF-HELP AND INFLATION SIGNIFICANT MARGIN UNDERPINNING DESPITE DEFLATION PRICING POWER CONTINUES $(4m) Raw materials $20m Price/mix Productivity benefits $(5m) Freight $17m (manufacturing and sourcing) $17m Labour & other $8M NET COST INCREASES $37M OFFSET FROM ACTIONS COATS GROU
Slide 12: Group Operating Profit and Margin
GROUP OPERATING PROFIT AND MARGIN STRONG PRICING AND SELF-HELP OFFSETTING INFLATION 15.6% margin ($m) 15.0% margin $37m price and productivity benefits more than 1.Estimated. offsetting $8m inflation COATS GROUP PLC | 2023 HALF YEAR RESULTS 12
Slide 13: Divisional Margins
DIVISIONAL MARGINS IMPROVING PROFORMA MARGINS APPAREL (%) Apparel margins down 80bps YOY to 15.0% 15.7% 14.9% 15.0% – Target margin of 15% achieved despite volume declines – Pricing and procurement initiatives offsetting inflationary pressures H1 22 H2 22 H1 23 – Strategic project benefits and gener
Slide 14: Income Statement
INCOME STATEMENT INTERIM DIVIDENDS INCREASED BY 15% DEMONSTRATING BOARD'S CONFIDENCE Exceptional / acquisition related items $m H1 20232 H1 20222 – Strategic projects - $6m (net of $6m property profit) Adjusted operating profit 107 125 – Acquisition related items - $11m Exceptional / acquisition rel
Slide 15: Cash Flow and Leverage
CASH FLOW AND LEVERAGE STRONG CASH GENERATION UNDERPINNED BY WORKING CAPITAL FOCUS H1 2023 CASHFLOW ($m) $m H1 2023 H1 2022 Adjusted free cash flow 52 30 Pensions (17) (23) Exceptional and acquisitions (8) (10) Disposals and discontinued operations 1 (23) Working Minority Dividends paid to equity sh
Slide 16: Pensions
PENSIONS FUNDING AND DE-RISKING UPDATE Technical deficit has decreased significantly – potential to switch off contributions in near term Pension Deficit (£m) 300 252 250 Technical deficit stands at £25m at 30 June 2023 193 200 150 100 50 25 Funding level now 99% at 30 June 2023 – line of sight to o
Slide 17: Reinvesting to Compound Growth
REINVESTING TO COMPOUND GROWTH CAPITAL ALLOCATION Acquisitions Paying a Reinvesting in Supporting in line with progressive organic growth pensions disciplined dividend strategy WHILST MAINTAINING A STRONG BALANCE SHEET (TARGET LEVERAGE RATIO OF 1-2X NET DEBT EBITDA) COATS GROUP PLC | 2023 HALF YEAR
Slide 18: 2023 Modelling Guidance
2023 MODELLING GUIDANCE Area Guidance Continued moderation in raw materials and freight inflation from 2022 highs, with prices trending to 2019 levels. Energy prices now stabilised. Continued levels of inflation on the remainder of our cost base e.g. labour. Inflation In line with past track record
Slide 19: Divisional Performance
DIVISIONAL PERFORMANCE
Slide 20: Growth Drivers and Targets
STRUCTURED FOR GROWTH THREE NEW DIVISIONS FROM 1 JANUARY 2023 Apparel Footwear Performance Materials Revenue1 50% 25% 25% Revenue growth2 c.6% 3-4% c.8% 6-9%4 TARGETS EBIT margin3 c.17% 15-16% >20% 13-14% Global mkt leader World’s leading industrial Global mkt leader Engineered yarns, (c.24%5) in st
Slide 21: Apparel: H1 Performance
APPAREL: H1 PERFORMANCE OUTPERFORMING THE MARKET Sales Trend A Resilient Performance Half-year Absolute Sales 1 Sales outpacing market by ~10 percentage points 450 Millions (USD) 400 Market share gains vs global and local players Destocking 350 Winning with the winners strategy bearing fruit 300 250
Slide 22: Footwear: H1 Performance
FOOTWEAR: H1 PERFORMANCE MARKET SHARE GAINS AND SOLID PRICING Sales Trend Strong Customer Relationships Half-year Absolute Sales 1 Nike preferred partner status for structural components 250.0 Proweave – 5 programme wins Millions (USD) 200.0 Destocking $4m incremental sales expected from new structu
Slide 23: Performance Materials: H1 Performance
PERFORMANCE MATERIALS: H1 PERFORMANCE CONTINUING MARGIN IMPROVEMENT Self-help Delivering Margin Continuing Sales Trend Improvement Customer Wins / Share Gains Half-year Absolute Sales1 Adjusted Operating Profit Margin Personal Protection: 250 Share gains from two large Protective Clothing 140 13-14%
Slide 24: Strategic Update
STRATEGIC UPDATE
Slide 25: Sustainability; a Key Commercial Differentiator
SUSTAINABILITY; A KEY COMMERCIAL DIFFERENTIATOR THE NEXT CHAPTER Broadening Range of Industry-Leading New Medium Term Sustainability Targets Sustainable Products Energy Materials Water Waste People Recycled products Natural Fibres Circularity and programmes Accelerating Material Transition – EcoVerd
Slide 26: Sustainable Materials Transition
SUSTAINABLE MATERIALS TRANSITION PRIMARY LEVER FOR SCOPE 3 EMISSIONS REDUCTION 2022 Sustainable Materials: Sustainability Classification of Coats Materials Baseline 26% Non-sustainable Synthetic polymer derived from virgin oil based raw materials Sustainable Materials: 2026 Target Sustainable 60% Sy
Slide 27: New Innovation Hub Video
NEW INNOVATION HUB VIDEO COATS GROUP PLC | 2023 HALF YEAR RESULTS 27
Slide 28: Optimisation of the Footprint
OPTIMISATION OF THE FOOTPRINT UK Germany Estonia Poland Ukraine Russia US (Hendersonville) Hungary US (Sevier) Spain Romania US (McAdenville) Italy China Turkey Mexico (Orizaba and Huamantla) Vietnam Mexico (Toluca) Brazil Indonesia FY22: Divestment/Closure Madagascar and Argentina South Africa FY22
Slide 29: Strategic Projects Delivering Faster Than Expected
STRATEGIC PROJECTS DELIVERING FASTER THAN EXPECTED POSITIONING FOR GROWTH AND MARGIN ENHANCEMENT AS MARKETS RECOVER Delivering Accelerated Financial Progress On track to deliver $70m in FY 2024 Will deliver $50m by end of 2023 ($20m 2022 and $30m 2023) Transformation of Asian operations, focusing on
Slide 30: Summary and Outlook
SUMMARY AND OUTLOOK
Slide 31: Highlights
HIGHLIGHTS IMPROVING MARGINS, STRONG FREE CASH FLOW, CONTINUING MARKET SHARE GAINS Outperforming the market, reported revenue down 11% Improving margins, up 30bps on H1 2022 on a proforma basis (including acquisitions) Continuing market share gains in Apparel and Footwear; key contract wins in Perfo
Slide 32: Outlook
OUTLOOK IN LINE WITH MARKET EXPECTATIONS While we have continued to make As a result, we continue to expect We remain confident that due to market share gains and underpin our full year trading to be in line our actions, and supported by performance through our actions during the half, we are now wi
Slide 33: The Q&A Session Will Begin Shortly
If you would like to ask a question, please dial THE Q&A United Kingdom +44 800 358 1035 SESSION United Kingdom (local) +44 20 4587 0498 WILL BEGIN United States United States (local) +1 855 979 6654 +1 646 664 1960 SHORTLY All other locations +44 20 3936 2999 Participant access code 716565 COATS GR
Slide 34: Appendices
APPENDICES
Slide 35: Apparel Overview
APPAREL OVERVIEW GLOBAL LEADER IN APPAREL THREAD WITHIN A FRAGMENTED MARKET Leading Market Share Strong Market Positioning (% of Coats revenue) c.241% Long tail of other, Premium smaller players2 Mid-market #2 and 3 competitors2 Value Real Competitive Advantage Well-Positioned for Key Market Trends
Slide 36: Footwear Overview
FOOTWEAR OVERVIEW GLOBAL LEADER IN FOOTWEAR THREAD AND STRUCTURAL COMPONENTS Leading Market Share Sole-source Positions Specified for Life of Product Threads Structural Components c.28%1 c.24%1 International sports brand specified3 Other c.80% Long tail of other, smaller players2 Other large players
Slide 37: Performance Materials Overview
PERFORMANCE MATERIALS OVERVIEW BUILDING PRESENCE IN THREE ATTRACTIVE MARKET SUB-SEGMENTS Personal Protection Composites Performance Thread Global adoption of safety standards 5G / cloud computing / data centres GDP+ growth KEY DRIVERS Requirements for enhanced protection Drilling: on-shore / offshor
Slide 38: 2026 Sustainability Targets
2026 SUSTAINABILITY TARGETS 2022 2026 PILLAR METRIC BASELINE TARGET ENERGY Reduction in Scope 1&2 212 kTonnes 22% reduction MATERIALS Recycled or bio materials 26% 60% Increase in Water WATER 25% 33% increase Recycling Rate Waste to Landfill 1,959 tonnes 0 WASTE ZDHC compliance 92% 100% GPTW coverag