Slide 1: Coats Group plc 2016 Half Year results presentation
Coats Group plc 2016 Half Year results presentation 28 July 2016
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 half year results presentation Overview Financial performance Summary and outlook Appendices © Coats Group plc | 2016 Half Year results presentation Page 3
Slide 4: Overview
Overview
Slide 5: Highlights
Highlights Operations / financials Organic revenue maintained at $718m; lower sales growth in Q2 due to tougher market conditions Adj operating profit up 24% to $77m - Industrial performed well, Americas Crafts increased margins Adj EPS up 24% to 2.08c - higher profitability and lower tax rate
Slide 6: A&F: market share gains, digital conversion but softer demand
A&F: market share gains, digital conversion but softer demand 3% growth to $492m, at constant Increasing digital conversion exchange rates (CER) Making it easier to do business with Coats Driven by volume growth (in challenging price environment) - mostly share gains eCommerce - 18 months af
Slide 7: Speciality: continue to innovate & grow but US market weaker
Speciality: continue to innovate & grow but US market weaker Sales up 3% CER to $115m New market entry - carbon composites Tough comparators (H1’15: 13% growth) and challenging conditions in US consumer Market: shift from metal to textiles durable markets eg outdoor goods, in which Idea: 100
Slide 8: Crafts: cost actions taken to manage tough market conditions
Crafts: cost actions taken to manage tough market conditions Sales1 declined 13% (CER) to $104m Handknitting down 23%1 due to sharp decline in US market (mild winter) and systems issues with a key customer impacted demand Recent improvement in handknitting customer sales Needlecraft sales do
Slide 9: Productivity and procurement improvements and cost focus
Productivity and procurement improvements and cost focus Industrial Manufacturing productivity and sourcing gains: $9m on H1’15 Productivity per employee up 4% Improvements in zip manufacturing KPIs Effluent treatment plant programme continued - installations in Honduras, Shanghai, Vietnam,
Slide 10: Gotex acquisition
Gotex acquisition Market and technological leader in manufacturing innovative, high-performance materials Based in Spain; designs, manufactures and trades range of yarns and tapes for telecoms, energy and oil and gas sectors (2015 sales: €14m) Proprietary technology enables manufacture of coated
Slide 11: Fast React acquisition; building on success of GSD
Fast React acquisition; building on success of GSD Software provider to global textiles industry; another step in enhancing Coats Global Services UK based provider of software solutions and expertise to manufacturers and retailers to improve their operational efficiency (2015 sales: £4m) Enables
Slide 12: Pensions
Pensions Investigations Continuing settlement discussions with Trustees (progress being made) and now also engaging with tPR to attempt a resolution As previously announced committed to retain parent group cash to support Company and schemes - on basis tPR withdraws Warning Notices on three sche
Slide 13: Financial performance
Financial performance EZ ss
Slide 14: Overview
Overview Reported CER $m unless otherwise stated H1 2016 change change 1 Revenue - reported 720 (4)% - organic 2 718 (4)% 0% Operating profit - reported 75 44% - adjusted 3 77 19% 24% EPS (cents) - reported 1.90 NA - adjusted 4 2.08 14% 24% Free cashflow (LTM) - adjusted 5 82 10% ROCE 6 31% 700bps K
Slide 15: Segmental performance
Segmental performance Organic basis H1 2016 H1 2015 CER change Revenue ($m) Industrial 607 589 3% Americas Crafts 104 119 (13)% UK Crafts 7 8 (12)% Total 718 716 0% Operating profit ($m) Industrial 81 64 27% Americas Crafts 3 3 0% UK Crafts (2) (1) NA 81 66 UK pension admin (4) (4) Group 77 62 24% O
Slide 16: Industrial
Industrial Revenue CER $m H1 2016 H1 2015 • Asia up 3% with a strong start to the year in A&F change somewhat offset by softer retailer demand in Q2 Organic revenue • Americas down 1%, solid growth in LatAm A&F Apparel and Footwear 492 477 3% markets offset by US consumer durables slowdown • EMEA up
Slide 17: Crafts
Crafts All figures exclude UK business (closing by end of 2016) CER $m H1 2016 H1 2015 Americas revenue change • North America: down 17% with sharp decline in US Organic revenue handknittings and systems issues at a key customer; recent improvement in handknitting sales Handknittings 49 63 (23)% • L
Slide 18: Group metrics
Group metrics Gross margin % SD&A % revenue • Industrial operational gearing • Lower input prices • Productivity and procurement gains • Overhead reduction programme, following Operating margin % EMEA Crafts disposal in 2015, delivering in line with expectations • Americas Crafts cost actions • Re-i
Slide 19: Income statement
Income statement $m, unless otherwise stated H1 2016 H1 2015 • $52m discontinued operations in H1 2015 Adjusted operating profit 78 65 relates to disposal of EMEA Crafts Exceptional / acquisition related items (3) (13) • Minority interest predominantly related to Operating profit 75 52 Coats’ operat
Slide 20: Exceptional and acquisition related items
Exceptional and acquisition related items $m H1 2016 H1 2015 • UK Crafts expected to close by year end and be treated as discontinued in FY16 UK Crafts costs (1) - results Acquisition related items (2) - • Acquisition-related items include transaction fees, performance based earn-out costs and Reorg
Slide 21: Finance costs
Finance costs Operating items $m H1 2016 H1 2015 • $3m lower interest partly due to fixed rate swaps Operating items coming to an end - Interest on bank and other borrowings (7) (10) • H1’15 investment income primarily relates to compensation from historic financing arrangement - Investment income f
Slide 22: Tax
Tax • Reported tax rate 40% (H1 2015: 66%) • Underlying tax rate1 (UTR) reduced 200bps to 34% - Reduction in unrelieved losses - Reduction in withholding tax suffered - Favourable change in profit mix • Improvement in UTR benefits EPS and free cash flow 1 Excludes exceptional and acquisition related
Slide 23: Cash flow and leverage
Cash flow and leverage $m H1 2016 H1 2015 $15m adjusted free cash outflow in H1 2016 (improvement on H1’15: $23m outflow) - reflects normal intra-year working capital EBITDA 98 87 cycle of business Working capital (55) (62) Capital expenditure (18) (18) Reduction in net cash additionally impacte
Slide 24: Outlook and summary
+ + + + Outlook and summary + +
Slide 25: Summary
Summary Global market leader with robust fundamentals; strong and defendable core Supported by key differentiators - world class asset base, product and service (including digital) innovation, highly engaged workforce and corporate responsibility Defined growth strategy and market goals Deli
Slide 26: Record of delivering improving earnings and returns
Record of delivering improving earnings and returns Adjusted EPS Return on capital employed At actual exchange rate 2.08 31% 1.82 24% 1.52 19% H1 2014 H1 2015 H1 2016 H1 2014 H1 2015 H1 2016 Before exceptional items and foreign exchange gains/losses on parent group cash balance. H1 2013 excludes EME
Slide 27: Outlook
Outlook EU referendum • Too early to provide a definitive assessment of potential impact • Of the view that there would be a limited direct adverse impact on the Group • Indirect factors (lower discount rates and Sterling depreciation) have impacted results; in near and longer term may be other impa
Slide 28: Appendices
Appendices
Slide 29: Who we are
Who we are Coats is the world’s leading industrial thread manufacturer and a major player in the Americas textile crafts market. At home in more than 60 countries, employing 19,000 people across six continents. • Group revenues of US$1.5bn in 2015 • World’s leading thread producer for the apparel &
Slide 30: 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 consistent with robust growth fundamentals 4. 2. Global Experienced presence Leadership, people management and Key differentiators and systems
Slide 31: Global market leader
Global market leader Facts about Coats More than Each year we make enough thread to go into over 100 million 8 billion car airbags are made using Coat’s thread every year Every month we produce enough thread to stretch all the way round the Sun – pairs of jeans – that’s one for every person on the p
Slide 32: Servicing global markets and customers
Servicing global markets and customers End use Industrial Crafts applications customers products include A&F Products and brands include Speciality © Coats Group plc | 2016 Half Year results presentation Page 32
Slide 33: Stable underlying trends
Stable underlying trends 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) CRS: Clothing Retail Sales Source: IMF, US Census Bureau © Coats Group plc | 201
Slide 34: 2018 Market goals
2018 Market goals The leading value added partner to The leading the apparel, global player in footwear and Speciality accessories threads and industries yarns The leading textile crafts partner / inspiration source in chosen markets © Coats Group plc | 2016 Half Year results presentation Page 34
Slide 35: Cost base
Cost base Materials: raw materials (polyester, nylon, cotton) Pre-exceptional costs – H1 2016 and intermediates (grey thread); direct materials (dyes, cones) and bought-in finished goods (craft Depreciation products) 2% Labour (mfg): ongoing inflationary pressures in the locations in which we op
Slide 36: Safe and engaged workforce
Safe and engaged workforce Employee engagement Recordable incident rate Global top 10% Coats global recordable incident rate vs OSHA average* 83% (3 month average) 81% 80% 77% OSHA 72% 12% reduction yoy Industry norm Coats 2011 2012 2013 2014 2015 * Occupational Safety and Health Administration, age
Slide 37: Pension schemes: income statement and cashflow impact
Pension schemes: income statement and cashflow impact Brunel Staveley Coats UK Coats other Total $m H1 16 H1 15 H1 16 H1 15 H1 16 H1 15 H1 16 H1 15 H1 16 H1 15 Service charge - - - 2 2 4 4 6 6 Administrative expenses 1 1 1 1 1 3 3 1 1 6 6 Operating profit impact 1 1 1 1 5 5 5 5 12 12 Finance charge
Slide 38: Pension schemes: balance sheet positions
Pension schemes: balance sheet positions Brunel Staveley Coats UK RoW schemes Total 30 June 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 $m Assets 153 173 296 284 1,962 2,344 Liabilities (223) (254) (326) (375) (2,327) (2,640) Net deficit (70) (81) (30) (91) (365) (296) Unrecognised asset - - -
Slide 39: For more information
For more information Jaideep Thatai Head of Investor Relations +44 20 8210 5086 jaideep.thatai@coats.com www.coats.com © Coats Group plc | 2016 Half Year results presentation Page 39