Slide 1: Coats Group plc 2017 Half Year results presentation
Coats Group plc 2017 Half Year results presentation 31 July 2017
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 2017 Half Year results presentation Overview Financial performance Summary and outlook Appendices © Coats Group plc | 2017 half year results presentation | 31 July 2017 Page 3
Slide 4: Overview
Overview Rajiv Sharma
Slide 5: Highlights
Highlights Strong financial performance and good strategic progress Revenue up 5% on a CER basis to $740m (4% reported): – Strong growth of 7% in Industrial Division driven by share gains in Apparel and Footwear, and 18% growth in Performance Materials Adjusted operating profit up 14% to $89m th
Slide 6: Strategy evolution: driving the next phase of growth at Coats
Strategy evolution: driving the next phase of growth at Coats Key focus areas of Simplification, Innovation and building Digital capabilities SIMPLIFICATION INNOVATION DIGITAL Operational synergies Global Innovation Continued eCommerce between Crafts and Forum roll-out – up to 15,000 Industria
Slide 7: Apparel and Footwear: meeting the needs of our customers
Apparel and Footwear: meeting the needs of our customers 5% sales growth, despite mixed market Digital offerings conditions eCommerce - Live in 28 Solid 4% organic growth, driven by key countries, 74% of orders. New online payment module markets across EMEA and Asia launched >90% thread sampling
Slide 8: Performance Materials: a global approach to innovation
Performance Materials: a global approach to innovation • Performance Materials revenue grew 18% to $135m, including acquisitions • Strong organic growth of 9% following improvement in US consumer durables market (2016 3% organic growth) • Strategy is to build scale and accelerate growth opportunitie
Slide 9: Acquisitions: building a track record of delivery
Acquisitions: building a track record of delivery The Group completed three acquisitions in 2015/16 across the areas of Apparel and Footwear and Performance Materials Acquisitions have all performed ahead of expectations – benefiting from leveraging the Coats global footprint and customer relati
Slide 10: Crafts: improved margins following market stabilisation
Crafts: improved margins following market stabilisation Sales declined 8%, which was mainly impacted by Albany tornado in January ($10m impact): • Handknitting down 4% • Needlecraft sales down 11% Market conditions in NA Crafts stabilising but overall remain weak Actions taken to establish alt
Slide 11: Financial performance
Financial performance Simon Boddie
Slide 12: Overview
Overview Reported CER $m unless otherwise stated H1 2017 Organic 2 increase change 1 Revenue - reported 740 4% 5% 3% Operating profit - reported 86 11% - adjusted 3 89 12% 14% 10% EPS (cents) - reported 2.89 52% - adjusted 4 3.06 38% Free cashflow - adjusted 5 109 30% ROCE 6 34% 400bps Interim Divid
Slide 13: Segmental performance
Segmental performance CER 1 Organic 4 H1 2017 H1 2016 5 change % change % Revenue 2 ($m) Industrial 642 600 7% 5% Crafts Americas 98 106 (8)% (8)% Total 740 706 5% 3% Operating profit ($m) 2,3 Industrial 88 79 11% 7% Crafts Americas 5 3 79% 79% 93 82 UK pension admin (4) (4) Group 89 78 14% 10% Oper
Slide 14: Industrial
Industrial Revenue CER 1 Organic 4 $m H1 2017 H1 2016 change % change % • Asia: continued solid growth of 4%, driven by growth in majority of key Apparel and Footwear markets (e.g. Vietnam / China) Asia 373 357 4% 4% • Americas: return to 3% growth in 2016 following Americas 130 125 3% 3% marginal d
Slide 15: Crafts Americas
Crafts Americas Revenue CER 1 $m H1 2017 H1 2016 change • North America: down 14% due to the impact of the Albany tornado in January 2017 (c.$10m), however Revenue underlying market conditions starting to stabilise but (14)% North America 63 73 remain weak • LatAm: growth of 6%, driven by strong per
Slide 16: Income statement
Income statement • Exceptional / acquisition related items: $m H1 2017 H1 2016 reported reported relates only to acquisition related items Adjusted operating profit 89 80 • Finance costs: significantly down on prior Exceptional / acquisition related items (3) (2) year due to: Operating profit 86 78
Slide 17: Cash flow and leverage
Cash flow and leverage $m H1 2017 H1 2016 $21m adjusted free cash inflow in H1 2017 (2016 $11m outflow) EBITDA 109 100 FCF weighted to H2 due to normal working capital cycles Working capital (37) (53) Capital expenditure (20) (18) $109m LTM free cash flow at June 2017 (June 2016: $84m) - highe
Slide 18: UK pension regulator investigations
UK pension regulator investigations Completed settlement agreements with the Balance Sheet 30 Jun 31 Dec Trustees of all 3 UK defined benefit $m 2017 2016 pension schemes and Regulatory action Parent Group Cash 2 343 has ceased UK IAS19 deficits (179) (576) Up-front settlement payments of $340m
Slide 19: Summary and outlook
Summary and outlook Rajiv Sharma
Slide 20: Summary
Summary Good operational progress in the areas of simplification, innovation and enhancing our digital capabilities Corporate normalisation process complete following completion of pensions investigations with all three UK schemes 5% revenue growth driven by Industrial division, despite mixed
Slide 21: Outlook
Outlook We will look to build on the strong first half of the year, and expect to deliver performance in line with management’s expectations for the full year This is expected to be achieved through our initiatives to deliver market share gains and productivity improvements, maintaining tight co
Slide 22: Appendices
Appendices
Slide 23: World's leading industrial thread manufacturer and major player in Americas textile crafts
World’s leading industrial thread manufacturer and major player in Americas textile crafts Industrial Crafts Apparel and Performance Crafts Footwear (A&F) Materials Americas Apparel, footwear and High technology threads Foundation and fashion accessories thread and yarns from handknitting Zi
Slide 24: Markets and global customers
Markets and global customers INDUSTRIAL Apparel and Footwear Performance Materials End uses include Customers include End uses include Customers include CRAFTS End uses include Brands include © Coats Group plc | 2017 half year results presentation | 31 July 2017 Page 24
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: Record of delivering improving earnings and consistent cashflows
Record of delivering improving earnings and consistent cashflows CER1 sales growth Adj. Operating margins 2 5% 12.1% 10.8% 9.5% 3% 7.9% 2% 2% FY 2014 FY 2015 FY 2016 HY2017 FY 2014 FY 2015 FY 2016 HY2017 Adjusted EPS 2 (c) LTM Adjusted FCF 2 ($m) (6 months) 4.91 109 3.96 88 74 78 3.08 3.06 FY 2014 F
Slide 27: Apparel and Footwear: a growing, but stable underlying sector
Apparel and Footwear: a growing, but stable underlying sector • Strong link between clothing retail sales and GDP growth. • For the US, apparel, footwear and accessories retail sales growth is approximately 1.4 times GDP growth US GDP growth vs apparel / footwear / accessories retail sales growth (2
Slide 28: Apparel and Footwear: Leading the response to changing industry needs
Apparel and Footwear: Leading the response to changing industry needs The consumer is pushing brands, retailers and manufacturers to focus on… First to market, in-season flexibility, Speed colour, sampling, sourcing Coats portfolio of world class products and services: Reduce labour exposure, Lean,
Slide 29: Performance Materials: Moving beyond the stitch line
Performance Materials: Moving beyond the stitch line • Developing high technology • Developing products competencies beyond • Recruiting new innovation traditional core talent • Expanding into new market sectors like • Enhancing R&D capabilities personal protection, fiber • Process innovation (eg En
Slide 30: Global market leader
Global market leader © Coats Group plc | 2017 half year results presentation | 31 July 2017 Page 30
Slide 31: Our investment case – a strategy that is working
Our investment case – a strategy that is working Defendable business with high Increasing share through: returns on capital and track record of - deep customer insight delivering good levels of free cash to: 5 1 - corporate responsibility - invest in organic growth Track-record of Market leader in -
Slide 32: Safe and engaged workforce
Safe and engaged workforce Employee engagement Recordable incident rate Global top 10% Coats global recordable incident rate vs OSHA average* (3 month average) 83% 83% 81% 80% 77% OSHA Industry norm Coats 2012 2013 2014 2015 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 * Occupational
Slide 33: Cost base
Cost base Pre-exceptional costs – 2016 Materials: raw materials (polyester, nylon, 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 34: Capital allocation policy and dividend
Capital allocation policy and dividend 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 wit
Slide 35: Finance costs and foreign exchange movements
Finance costs and foreign exchange movements Operating items • Interest on bank and other borrowings marginally down on 2016 due to a reduction in fixed rate swaps • Other items significantly reduced primarily due to $4m MTM foreign exchange losses in 2016 ($1m gains in 2017) Parent group • Interest
Slide 36: Pension schemes: income statement and cash flow impact
Pension schemes: income statement and cash flow impact 1. Administrative expenses of Brunel, Staveley and Coats UK plan equate to UK Pension admin charge in segmental operating profit split on slide 13 2. As per pensions recovery payments line in adjusted FCF to change in net cash reconciliation tab
Slide 37: Pension schemes: balance sheet positions
Pension schemes: balance sheet positions 1. Assumption derived using a yield curve approach, based on Sterling AA corporate bonds 2. Assumption based on a market implied long-term rate of inflation 3. As at 30 June 2017: assumes an immediate increase across all points on the yield curve and includes
Slide 38: For more information
For more information Rob Mann Head of Investor Relations +44 20 8210 5175 rob.mann@coats.com Coats Group plc www.coats.com © Coats Group plc | 2017 half year results presentation | 31 July 2017 Page 38