Coats Group plc · LSE:COA
Coats — H1 2020 Earnings Presentation
38 slides from Coats's earnings presentation, Aug 13, 2020
Slide 1: 2020 half year results presentation
2020 half year results presentation Strong cash performance Demand trend improving through Q2 Thursday 13 August 2020
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 2020 half year results presentation Introduction Financial performance Business review and outlook © Coats Group plc | 2020 half year results presentation | 13 August 2020 Page 3
Slide 4: Introduction: strong cash performance; demand trend improving through Q2
Introduction: strong cash performance; demand trend improving through Q2 Demand Proactive trend response to improving COVID July sales down 18%* Winning Attention customers now Pharr HP via speed / focused on acquisition agility / winning the reliability recovery © Coats Group plc | 2020 half year r
Slide 5: Our three group priorities during Covid-19
Our three group priorities during Covid-19 Our people Supporting customers Cash / suppliers management Covid prevention at sites Focus on collections / managing overdues Offering quality and reliability Providing PPE / enforcing social Reduced CAPEX – selective investments distancing / in-
Slide 6: Financial performance
Financial performance Simon Boddie
Slide 7: Overview
Overview Reported CER $m unless otherwise stated H1 2020 H1 2019 Organic 1 change change 1 Revenue 536 705 (24)% (21)% (26)% Operating profit 2 34 102 (67)% (66)% (66)% Operating margin % 6.4% 14.5% (810 bps) (820 bps) (780 bps) EPS (cents) 2 0.0 3.4c Free cash flow 3 (5) 21 Leverage 1.3x 0.9x ROCE
Slide 8: Operating review: COVID volume impact on margins
Operating review: COVID volume impact on margins Revenue CER 1 Organic 1 $m H1 2020 H1 2019 change % change % Group 26% organic decline – 8% decline in Q1 due to China COVID impact; 45% down in Q2; encouraging June Asia 283 388 (27)% (27)% exit rate (down 25%) Asia 27% decline – severe lockdown
Slide 9: Segmental overview
Segmental overview CER 1 Organic 4 H1 2020 H1 2019 1 Organic revenue declines across both change % change % segments due to COVID-19 impacts Revenue 2 ($m) Apparel and footwear down 29%: impacted Apparel and footwear 372 523 (29)% (29)% marginally more due to severe lockdown Performance material
Slide 10: Income Statement
Income Statement • Exceptional / acquisition related items: primarily relate $m H1 2020 H1 2019 reported reported to non-cash COVID-19 impairments; some offset from Adjusted operating profit 34 102 profits on sale of property • Finance costs higher in the period primarily due to Exceptional / acquis
Slide 11: Cash flow and leverage
Cash flow and leverage $5m adj. free cash outflow: marginally below 2019; COVID-19 volume $m H1 2020 H1 2019 impact on EBITDA underpinned by tight control of NWC and lower Capex Adj free cash flow (5) 21 spend Pensions (9) (12) Discontinued (0) 30 Working capital flat y-o-y at 13% of sales Acqui
Slide 12: 2020 net debt quarterly trends
2020 net debt quarterly trends Q1 Q2 H2 • Likely some increase in net debt Net debt 207 and leverage: (excl. IFRS16) • Q3 collections lower (Q2 Covid-19 lockdown impacts $m sales) 150 • Deferral of certain Q2 payments Dec-19 Jun-20 • Improving GM% as sales recover • Normal Q1 working • Some NWC unwi
Slide 13: Key takeaways: demand improving during Q2
Key takeaways Successfully Demand Strong cash flexing cost improving performance base during Q2 Headroom Balance Sheet remains well placed for comfortable recovery 1.3x leverage $270m headroom © Coats Group plc | 2020 half year results presentation | 13 August 2020 Page 13
Slide 14: Business review
Business review Rajiv Sharma
Slide 15: A summary of the year so far
A summary of the year so far COVID-19: Large scale global Lockdown restrictions Signs of gradual China event lockdowns commence beginning to ease recovery Encouraging start to Brands / retailers April sales down 58% Improving trend through the year cancelling orders Q2 (June exit rate: 25%)
Slide 16: Our response to COVID: quick and decisive action
Our response to COVID: quick and decisive action Short-term actions balanced across stakeholders to underpin long-term success Cash actions Cost actions FY20 Capex down 70% to c.$15m Flexing manufacturing footprint to manage lower volumes Cancellation of 2019 final dividend; no interim dividen
Slide 17: Apparel and Footwear
Apparel and Footwear Customers migrating to trusted and dependable partners in times of uncertainty 29% revenue decline due to COVID-19 Brand / retailer orders significantly impacted from March and during Q2 due to global lockdowns Demand improving throughout Q2; stronger recovery in: – Sporti
Slide 18: Performance Materials
Performance Materials Robust performance in Personal Protection Sales up 2% in the period; 19% organic decline COVID end-market themes: – Personal protection relatively resilient; fire protection and PPE – Telecoms and Energy; temporary pause on 5G roll out until 2021, and onshore energy dampene
Slide 19: Playing a responsible and leading role in the healthcare PPE industry
Playing a responsible and leading role in the healthcare PPE industry Accelerating industry trends Responsible action needed by industry leaders; aligned to our business DNA 60 million feet of thread donated for the manufacture of millions of facemasks Underpinned by the acceleration of the di
Slide 20: Unwavering customer focus: a trusted and dependable partner
Unwavering customer focus: a trusted and dependable partner Quality and reliability Innovation Premium thread provider Creating tailored solutions to solve Global footprint – supports customer problems customer supply chain shifts Three Innovation Hubs fully Largest footprint – reducing le
Slide 21: Outlook
Outlook We have seen an improving sales trend in recent, albeit low-season, months with organic sales declines reducing to 25% in June and 18% in July. As we look to the remainder of the second half we are mindful of the ongoing wider macro- economic uncertainty caused by COVID-19 and the import
Slide 22: Focus now on winning the recovery
Focus now on winning the recovery Improving demand trend despite continued uncertainty Flexing supply chain to deliver speed, agility and reliability In a crisis, customers depend on trusted and Acceleration of existing trends: dependable partners like digital, sustainability Coats that offer: and n
Slide 23: Appendices
Appendices
Slide 24: Financial guidance
Financial guidance Area Guidance Capital expenditure • c.$15m in 2020 Foreign exchange • 2.5% translation headwind (reported vs CER) in H1 • Based on 30/6/20 rates, similar translation headwind expected for full year 2020 • Primary FX rates to consider (local operations reporting their books in thes
Slide 25: Corporate timeline: a rich heritage
Corporate timeline: a rich heritage Coats is a company with more than 250 years of history London Stock 1750s 1812 1826 1890 Exchange 1891 James and Patrick Clark Clark’s sewing thread James Coats establishes first Coats’ initial share offering takes began work in Paisley, Scotland placed on the mar
Slide 26: Coats today: the world's leading industrial thread manufacturer
Coats today: the world’s leading industrial thread manufacturer A lean and focused B2B business Apparel and Performance Customers include Materials Customers include Footwear (A&F) Apparel, footwear and High technology threads accessories thread and yarns for a variety of Zips and trims produc
Slide 27: Apparel and Footwear: $1bn business and global market leader
Apparel and Footwear: $1bn business and global market leader Apparel and Footwear Threads Coats Digital Zips and Trims c.2% c.$100m 2019: 21% Estimated +1% Coats share: (2011: 17%) Large opportunity - $400bn factory gate prices Increase margins and 2019 Coats c.$900m cash sales: $1bn+ addressable ma
Slide 28: Apparel and Footwear: a global leader – winning with the winners
Apparel and Footwear: a global leader – winning with the winners Unrivalled customer connections $1bn sales 4,000 brands 30,000 direct Operational scale with with 4% customers global CAGR* reach → Consistent Compelling, share gains in value adding thread products and services threads, engineered yar
Slide 29: Understanding the thread market landscape
Understanding the thread market landscape Size and structure A critical component in a Segmentation Consistent but moderate market global, agile industry Economy to premium growth $$$ 21%* 10-12 regional + Market value* ‘000s Specification local players $4.2bn # 2 and 3 Open spec Specified players 1
Slide 30: Software solutions – a clear opportunity to add value for our partners
Software solutions – a clear opportunity to add value for our partners Market opportunity Our solutions Case study Significant value chain waste Up to 25% of $400bn factory gate prices Market leader in Highly transactional production planning 20 million+ orders from Brands/Retailers on (key to servi
Slide 31: Performance Materials: five attractive and different end-use segments
Performance Materials: five attractive and different end-use segments Building scale and presence Household and Other Industrial Personal Protection Telecoms and Energy Transportation Recreation Applications Includes Personal Protection Telecoms Trims and safety critical Bedding & Quilting Tea Bags
Slide 32: Acquisitions: building a strong track record
Acquisitions: building a strong track record May 2015 May 2016 June 2016 December 2017 February 2019 February 2020 Six deals now completed in chosen focus areas of Coats Digital and Performance Materials – business cases on track $120m total consideration delivering (pro-forma) incremental annua
Slide 33: Sustainability: significant commercial differentiator – on track for 2022 targets
Sustainability: significant commercial differentiator – on track for 2022 targets “We expect our partners to have clear goals and targets in this space. Coats is doing a great job” Coats customer 2022 targets This is the right thing to do – aligned to Coats’ 2019: foundations in place to deliver
Slide 34: Our key production steps
Our key production steps © Coats Group plc | 2020 half year results presentation | 13 August 2020 Page 34
Slide 35: Proven resilience to macro shocks: the Global Financial Crisis case study
Proven resilience to macro shocks: the Global Financial Crisis case study Our industry was not immune in the GFC – however, after an immediate de-stocking there was a rapid bounce back – reflecting the nature of the fundamentally critical products we supply (eg clothing and footwear) – Coats came ou
Slide 36: Cost base
Cost base Full year 2019 pre-exceptional costs Materials: raw materials (polyester, nylon, cotton) and intermediates (grey thread); direct materials (dyes, cones) and bought-in finished goods (craft products) Labour (mfg): ongoing inflationary pressures in the locations in which we operate Ene
Slide 37: Dividend and capital allocation
Dividend and capital allocation The Group aims to use the free cash flow it generates to balance its various capital demands Whilst maintaining its strong Balance Sheet position (target leverage 1-2x) We have adopted a progressive dividend policy where we aim to grow dividends along with under
Slide 38: For more information
For more information Rob Mann Head of Investor Relations +44 20 8210 5175 rob.mann@coats.com