Slide 1: 2016 Full Year results presentation
Coats Group plc 2016 Full Year results presentation 24 February 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 2016 Full Year results presentation Introduction Financial performance Business review Summary and outlook Appendices © Coats Group plc | 2016 full year results presentation | 24 February 2017 Page 3
Slide 4: Introduction
Introduction Rajiv Sharma
Slide 5: New Group Chief Executive Officer – Rajiv Sharma
New Group Chief Executive Officer – Rajiv Sharma Background Coats Group plc Group Chief Executive Officer as of 1 January 2017 CEO Industrial Division since 2010: – Strong track record of sales, profit and cash growth – Product and service innovation in Apparel and Footwear – e.g. eCommerce, sof
Slide 6: Financial highlights for 2016
Financial highlights for 2016 Strong operating performance and improved quality of earnings Organic revenue up 1% on a CER basis, with stronger H2 performance • Up 2% CER including acquisitions Operating profit of $158m, up 14% on an organic basis (16% CER, including acquisitions) • Operating ma
Slide 7: Strategic highlights for 2016
Strategic highlights for 2016 Strategic acquisitions and portfolio refinement Acquired Gotex and Fast React • Both performing well and ahead of management expectations Closure of UK Crafts business Productivity improvements on track Overhead reduction programme delivering as per expectations
Slide 8: Strategy evolution - driving the next phase of growth at Coats
Strategy evolution - driving the next phase of growth at Coats Defending the core whilst building beyond the “stitch line” Leverage digital-focused approach to win customers, increase agility and reduce costs Drive simplification in the business Continuous product and service innovation Driv
Slide 9: Financial performance
Financial performance Simon Boddie
Slide 10: Overview
Overview Reported CER $m unless otherwise stated FY 2016 Organic 2 change change 1 Revenue - reported 1,457 (1)% 2% 1% Operating profit - reported 153 38% - adjusted 3 158 13% 16% 14% EPS (cents) - reported 4.28 NA - adjusted 4 4.91 23% Free cashflow - adjusted 5 78 10% ROCE 6 39% 600bps Dividend pe
Slide 11: Segmental performance
Segmental performance CER 1 Organic 4 2016 2015 1 change % change % Revenue 2 ($m) Industrial 1,221 1,176 4% 2% Crafts Americas 236 256 (8)% (8)% Total 1,457 1,432 2% 1% Operating profit ($m)2,3 Industrial 155 131 18% 16% Crafts Americas 11 15 (26)% (26)% 166 145 UK pension admin (8) (9) Group 158 1
Slide 12: Industrial
Industrial Revenue CER 1 Organic $m 2016 2015 1 4 • Asia: continued solid growth of 3%, driven by growth in majority change % change % of key Apparel and Footwear markets • Americas: (2% decline) continued declines in US consumer Asia 720 700 3% 3% durables and Brazil, offset by solid growth in othe
Slide 13: Crafts Americas
Crafts Americas 1 Revenue 1 CER $m 2016 2015 change FY • North America: down 11% due to declines in US Revenue Handknittings, however an improvement on 23% decline seen in H1 (H2 decline 5%) North America 176 198 (11)% • LatAm: growth of 4%, driven by pricing gains Handknittings and Needlecrafts tra
Slide 14: Income statement
Income statement 2016 2015 $m • Exceptional / acquisition related items: reported reported significantly reduced in the year. 2016 relates Adjusted operating profit 158 140 only to acquisition related items (e.g. earn outs) Exceptional / acquisition related items (5) (28) Operating profit 153 111 •
Slide 15: Cash flow and leverage
Cash flow and leverage $78m free cash flow in 2016 (2015: $71m) – 10% increase driven by $m 2016 2015 higher profitability, controlled working capital, stable capex spend, offset by Adj free cash flow 78 71 higher cash tax Pensions (99) (34) Overall reduction in net cash of $162m principally due
Slide 16: UK pension regulator investigations
UK pension regulator investigations Signed binding Settlement agreements with the Trustees of Coats and Brunel schemes Written assurances received from UK Pensions Regulator (‘TPR’) of cessation of regulatory action on completion Principal terms of the Coats and Brunel Scheme settlements are a
Slide 17: Projected impact of Coats and Brunel settlements
Projected impact of Coats and Brunel settlements Pro forma 31 December 2016 UK IAS19 deficit UK IAS19 pension deficits $m £m reduces to £232m ($286m) 31 December 2016 reported 576 467 Pro forma 31 December 2016 parent group Coats and Brunel lump sum payments (290) (235) cash reduces to £43m ($53
Slide 18: Dividend
Dividend A strong track record of delivering good levels of free cash through profitable sales growth, delivering self-help initiatives and investing in organic growth opportunities Free cash flow will be used appropriately to fund its pension schemes, self- finance bolt-on acquisitions, and mak
Slide 19: Business review
Business review Rajiv Sharma
Slide 20: Apparel and Footwear: delivering market share gains at enhanced margins
Apparel and Footwear: delivering market share gains at enhanced margins Underlying market demand conditions eCommerce challenging throughout 2016. Live in over 25 countries and used by > 3% growth to $975m, at CER. 2% organic 12,000 customers growth. > 70% of total orders 85% thread sampling thr
Slide 21: 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 22: Performance Materials: Value through innovation and best-in-class service
Performance Materials: Value through innovation and best-in-class service • Performance Materials1 revenue grew 9% to $246m, including acquisitions. • Organic growth 3% impacted by US market decline. Sales growth outside USA 18% (incl. Gotex). • Strategy is to build scale and drive accelerated growt
Slide 23: 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 24: Crafts: Maintaining leadership position despite tough market conditions
Crafts: Maintaining leadership position despite tough market conditions Sales declined 8% in tough market: Leading market position in all categories we • Handknitting down 13% with H2 improvement choose to compete. • Needlecraft sales down 1% Ongoing focussed investment in Digital Cost actio
Slide 25: Summary and outlook
Summary and outlook Rajiv Sharma
Slide 26: 2016 Summary
2016 Summary Operating profit of $158m up 16% through sales growth, margin enhancement and productivity improvements Free cash flow of $78m up 10% through increased profitability and controlled net working capital Reinstatement of dividend with pro forma 1.25c per share Successfully executed
Slide 27: 2017 outlook
2017 outlook We enter 2017 on a solid footing however remain cautious about market conditions. We expect to continue to deliver growth in line with management’s expectations through our initiatives to deliver market share gains, productivity improvements and tight cost control. Growth is likely to b
Slide 28: Themes for the future
Themes for the future • Future strategy will be an evolution of the current strategy that is proven to be working • Continue to take the business from the Industrial Age to the Digital Age • Defending the core whilst continuing to build beyond the “stitch line” • This will be focussed around the key
Slide 29: Appendices
Appendices
Slide 30: 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 31: 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 | 2016 full year results presentation | 24 February 2017 Page 31
Slide 32: Global market leader
Global market leader © Coats Group plc | 2016 full year results presentation | 24 February 2017 Page 32
Slide 33: 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 34: 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, clothing retail sales growth is approximately 1.6 times GDP growth US GDP growth vs consumer retail sales growth (2000-2015) US GDP growth Consumer retail sales gro
Slide 35: 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 36: 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 37: Finance costs and foreign exchange movements
Finance costs and foreign exchange movements Operating items • $3m lower interest partly due to fixed rate swaps coming to an end • $4m lower investment income primarily relates to $3m compensation received in 2015 from historic state- financing arrangement • Other includes ~$5m unrealised losses on
Slide 38: Taxation
Taxation • Reported tax rate 38% (2015: 54%) • Underlying tax rate1 (UTR) reduced 100bps to 34% - Reduction in unrelieved losses - Favourable change in profit mix • Improvement in UTR benefits EPS 2 1 Excludes exceptional and acquisition related items, IAS19 finance charges and FX gains/losses on pa
Slide 39: 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 11 2. As per pensions recovery payments line in adjusted FCF to change in net cash reconciliation tab
Slide 40: Pension schemes: balance sheet positions
Pension schemes: balance sheet positions Brunel Staveley Coats UK RoW schemes Total 31 Dec 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 $m Assets 157 162 274 253 1,886 2,138 241 235 2,559 2,787 Liabilities (222) (233) (319) (339) (2,353) (2,402) (275) (274) (3,169) (3,249) Net deficit (64) (72)
Slide 41: 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 | 2016 full year results presentation | 24 February 2017 Page 41