Coats Group Plc · LSE:COA
Coats — H1 2013 Earnings Presentation
52 slides from Coats's earnings presentation, September 2013
Slide 1: GPG Group and Coats plc Half Year ending 30 June 2013
GPG Group and Coats plc Presentation for the Half Year ending 30 June 2013 September 2013
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 Update GPG: – Half Year summary and performance Coats: – Half Year summary and financial performance – Strategy and outlook Appendices: – GPG: Elements of reported profit – GPG: Movement in shareholders’ funds – GPG: Pensions – Coats: Additional background © GPG Group and Coats plc |
Slide 4: Update
Update
Slide 5: Update
Update Progress on value realisation Non-Coats investment portfolio cash generation in the 6 months to 30 June 2013 ‒ £172m (NZ$338m) Cumulative net cash generated since 1 January 2011 ‒ £634m (NZ$1,246m) UK Pensions Regulator (‘tPR’) investigation tPR exploring whether scope to impose a Finan
Slide 6: GPG Half Year summary and performance
GPG Half Year summary and performance
Slide 7: Summary for the period
Summary for the period Shareholders’ funds – £472m (31 December 2012: £434m) Net asset backing per share – 33.5p (NZ$0.66), an increase of 21% in the period – carrying value of Coats – £121m (NZ$238m) Parent Group cash balance at 30 June 2013 – £347m (31 December 2012: £243m). Balance at 23 Au
Slide 8: Simplified balance sheet
Simplified balance sheet 30 Jun 2013 31 Dec 2012 £m £m £m £m Net held for sale assets 74 222 Current asset investments – 9 Total investments, excluding Coats 74 231 Cash 347 243 GPG assets 421 474 GPG pension schemes (58) (74) Other sundry Parent Group net liabilities (12) (14) 351 386 Note: Cash at
Slide 9: Pensions
Pensions Movement in the IAS19 deficits since the 2012 year end driven by 30 Jun 31 Dec increased nominal corporate bond yields, which reduce liabilities, and good asset performance IAS19 deficit 2013 2012 £m £m Real discount rate increases required to eliminate the UK deficit: Coats UK (100) (1
Slide 10: Disinvestments and remaining portfolio (non-Coats)
Disinvestments and remaining portfolio (non-Coats) INVESTMENT PORTFOLIO 23 AUGUST 2013: TOWER Disposals £ million NZ$ million 2011 Disposals 144 283 • GPG holds 33.6%, market value at 23 August 2013 – NZ$120m 2012 Disposals 314 617 • Tower capital return of NZ$119m in April 2013 (GPG share – 2013 Di
Slide 11: Overhead costs
Overhead costs Significant advisory costs re: – Execution of the strategy to realise value and return capital to shareholders; – tPR’s review of the group’s UK pension schemes Staff costs including incentive schemes and redundancies: total £6m (six months to 30 June 2012: £7m; year ended 31 Dece
Slide 12: Half Year summary and financial performance
Half Year summary and financial performance
Slide 13: Half Year summary
Half Year summary Continued improved trading performance despite mixed market conditions Like-for-like half year sales up 4% ‒ both Divisions growing 13% like-for-like improvement in operating profit before exceptionals Underlying operating margins increased from 6.9% to 7.6% 18% increase
Slide 14: Half Year financial performance
Half Year financial performance H1 2013 H1 2012 (restated)1 Before Before $'m exceptional Exceptional exceptional Exceptional items items Total items items Total Revenue 839.7 839.7 819.3 - 819.3 Operating profit / (loss) 63.6 (4.2) 59.4 56.8 (101.1) (44.3) Profit / (loss) before tax 43.1 (4.2) 38.9
Slide 15: Underlying operating performance
Underlying operating performance Total revenue Operating profit and margin 850 Six months ended Six months ended 1,3 $'m June 2013 YoY% June 2012 800 YoY YoY YoY YoY YoY 2 750 4% Operating profit 9% 3% 1% 4% 804 807 810 837 840 Industrial 54.6 8% 50.6 700 H1 2011 H2 2011 H1 2012 H2 2012 H1 2013 Craf
Slide 16: Industrial performance
Industrial performance Asia and Australasia Industrial performance by region H1 H1 Strong sales growth in first half $'m 2013 2012 1,3 YoY% Global apparel and footwear demand from Revenue US and Western Europe is growth driver Asia and Australasia 326 302 8% EMEA 139 134 4% EMEA Americas 142 149
Slide 17: Crafts performance
Crafts performance EMEA Crafts performance by region H1 H1 Handknittings remain key growth driver $'m 2013 2012 1,3 YoY% No material sales loss from reorganisation Revenue activity in H1 EMEA 82 77 7% Remains loss making but $4.6m lower Americas 151 148 2% Total 233 225 4% than H1 2012 Operati
Slide 18: Income statement
Income statement Before exceptional retained 1 H1 2013 H1 2012 profit up $2m Before Before exceptional Exceptional exceptional Exceptional Underlying operating $'m items items Total items items Total performance improvement has Revenue 840 - 840 819 - 819 been eroded by higher tax Operating prof
Slide 19: Exceptionals
Exceptionals Reorganisation activity Reorganisation activity by Division before tax H1 H1 Major reorganisation activity is now broadly $'m 2013 2012 complete Industrial 11.5 6.3 $15m charge primarily reflecting the optimisation Crafts 1.3 4.9 of manufacturing footprint in EMEA Industrial Corpora
Slide 20: Taxation
Taxation 1 IAS 19 accounting standard H1 2013 H1 2012 $m Tax PBT % Tax PBT % change has increased the Effective Tax Rate (‘ETR’) by 19% As reported (27.5) 38.9 71% (19.4) (100.3) (19) % Higher underlying ETR of 42% Reorganisation (0.3) 14.7 (0.4) 11.2 reflects changes in the Other exceptionals -
Slide 21: Retirement and other post-employment defined benefit liabilities
Retirement and other post-employment defined benefit liabilities As at As at As at Reached in-principle agreement with Trustees. 30.06.12 31.12.12 30.06.13 $'m restated restated Remains subject to bank approval and tPR UK funded scheme (152) (233) (262) submission US funded defined scheme 36 35 37
Slide 22: Cash flow and leverage
Cash flow and leverage Reported free cash flow is down $26m in H1 2013 Cash flow and leverage Adjusting for $25m assignment of receivable to H1 H1 GPG in H1 2012, free cash flow is in line with 2012 $'m 2013 2012 1 Underlying movements include: EBITDA 89 84 Working capital (48) (29) – Disposal
Slide 23: Strategy and outlook
Strategy and outlook
Slide 24: Five elements to our value
Five elements to our value 5. Experienced 1. Global leader management Experienced and robust Global leader and management business model robust model 4.Cash Cash generative; generative 2. Organic margin and margin growth Organic enhancement enhancement growth Well 3. invested Well invested asset bas
Slide 25: Three times larger than next competitor
Three times larger than next competitor Global thread sales, by competitor, 2012* ($m) 1,200 1,000 800 $m 600 400 200 0 Coats A&E1 Amann2 Vardhman Gutermann Fujix Gruschwitz Textilwerke Global competitors AG 1. A&E estimate based on 9 months actual sales 2011 2. 2010 data. Note: Converted from local
Slide 26: GDP correlation
GDP correlation Strong link between clothing retail sales and GDP growth. For the US, clothing retail sales growth is approximately 1.8 times GDP growth Over a 10 year USA - GDP vs. CRS period 8% 6% 4% 2% %∆ CRS 0% -4% -3% -2% -1% -2% 0% 1% 2% 3% 4% 5% -4% -6% -8% %∆ GDP y = 1.8487x - 0.0014 R² = 0.
Slide 27: Sales growth from 2009 to 2012
Sales growth from 2009 to 2012 H1 2013: Reported 4% like-for-like sales growth 4 Revenue 09-12 – Industrial1, 2 Revenue 09-12 – Crafts2, 3 1400 350 309 1200 1,166 1,173 300 288 281 274 1,086 1000 937 250 800 200 $m $m 600 150 400 100 200 50 0 0 2009 2010 2011 2012 2009 2010 2011 2012 1. In line with
Slide 28: Market stability and incremental share growth
Market stability and incremental share growth Market share increase in key segments and core markets delivered over last three years Market share (%) 26 27 25 21 21 21 22 20 19 18 16 16 Apparel Footwear Speciality Crafts & Accessories 2010 2011 2012 Source: Internal market analysis © GPG Group and C
Slide 29: Supportive market fundamentals
Supportive market fundamentals Speciality Brand Volume Advisory Textile Crafts thread and yarn relationships demand services trends • Very large • Want speed • Footwear and • Growing need • Growth in Asia current and reliability apparel in footwear for textile addressable demand and apparel crafts •
Slide 30: Innovation pipeline and partnerships
Innovation pipeline and partnerships Gaining market share Partnerships through product and Fulcrum – commercial service innovations agreement with a world leader in innovative Coats Colour Express – world’s nanotechnology for enhanced fastest, most accurate web based colour sampling service comp
Slide 31: Global manufacturing footprint
Global manufacturing footprint Coats has a truly global footprint with more than 70 manufacturing facilities across the world Countries in which Coats operates Manufacturing sites © GPG Group and Coats plc | Presentation for the Half Year ending 30 June 2013 Page 31
Slide 32: Margin improvement actions
Margin improvement actions Global Increased Successful Central Improved centralised employee reorganisation cost growth product purchasing productivity programmes control mix across • Lean Six • EMEA Industrial Sigma • Latin America • Information Technology © GPG Group and Coats plc | Presentation f
Slide 33: Cash generative profitable growth
Cash generative profitable growth 2009-12 CAGR Like for like sales1 Net Working Capex below sales growth of growth of Capital as % sales depreciation, driven by 5% pa and 4% in H1 2013 reduced operating profit from 17.6%: 2011 historic growth of to 17.1%: 20122 investment 10% pa Planned Robust capit
Slide 34: Global employee engagement
Global employee engagement Upper quartile performance Employee Employee Employee Employee Engagement Survey Engagement Survey Engagement Survey Engagement Survey 2010 2011 2012 Norm (Kenexa) 66% 72% 77% 69% Employee Employee Employee Employee Engagement Index Engagement Index Engagement Index Engage
Slide 35: Our three Market Goals
Our three Market Goals The Coats of 2015… 1 2 The leading The leading global player global player in speciality in textile threads and crafts yarns The leading 3 value added partner to the apparel and footwear …based on a core of industries world class skills and infrastructure in the enabling units
Slide 36: Prospects for H2 2013
Prospects for H2 2013 • Modest economic growth expected to • Raw material costs trending marginally continue in North America; Asia growth upwards; payroll and other inflationary should continue, albeit at a slightly slower pressures likely to remain high in our pace; EMEA likely to be subdued, alth
Slide 37: Appendices
Appendices GPG: Elements of reported profit, Movement in shareholders’ funds, Pensions Coats: Additional background
Slide 38: GPG appendix: Elements of reported profit
GPG appendix: Elements of reported profit 30 June 2013 30 June 2012*,** 31 Dec 2012* £m £m Continuing activity Coats - Attributable profit before 7 7 13 exceptionals - EC fine and interest - (76) (76) - Other exceptional items (3) (9) (27) 4 (78) (90) Parent Group - Overheads (15) (13) (23) - Foreig
Slide 39: GPG appendix: Movement in shareholders' funds
GPG appendix: Movement in shareholders’ funds £m £m Opening shareholders' funds 434 Shareholder returns – Share buyback (45) Profit for the period 28 Movements in unrealised gains reserve Net gains realised in the period (recycled through the Income Statement) (12) Net unrealised movements on AFS in
Slide 40: GPG appendix: Pensions
GPG appendix: Pensions IAS 19 AMENDMENTS The accounting standard dealing with employee benefits (IAS19) has been revised and adopted from 1 January 2013, with retrospective application:- 6 months to 6 months to Year to 30 June 30 June 31 December 2013 2012 2012 £m £m £m Increase in operating expen
Slide 41: GPG appendix: Pensions – detailed analysis
GPG appendix: Pensions – detailed analysis IAS 19 roll forward - 2013 Coats GPG UK US Other Total Staveley Brunel Group £m £m £m £m £m £m £m Included in Coats’ EBITDA current service cost Opening position 1 January 2013 (161.1) 23.0 (69.2) (207.3) (36.4) (37.7) (281.4) £6.7m. Income Statement (pre t
Slide 42: GPG appendix: Pensions – detailed analysis
GPG appendix: Pensions – detailed analysis Appendix 2: Detailed Pensions Analysis Summary of GPG defined benefit pension schemes under IAS19 as at 30 June 2013 GPG Coats Staveley Brunel UK £m £m £m UK funded schemes Assets - Equities 86.8 58.3 549.2 - Bonds 88.2 43.0 735.8 - Other 9.4 16.4 164.5 - T
Slide 43: Coats – overview
Coats – overview • No. 1 in sewing thread – largest global manufacturer with +20% market share • No. 1 in textile crafts – largest global player in the market • No. 2 in global zips – second largest supplier to global brands • A global leader in speciality engineered yarns Coats is the world’s leadi
Slide 44: Coats facts
Coats facts • 1 in 5 garments around the world are held together using Coats’ thread • 75 million car airbags are made using Coats’ thread every year • Coats produces enough yarn to knit 65 million scarves a year • Coats produces enough thread to reach around the Equator every 11 minutes • 300 milli
Slide 45: Geographical reach
Geographical reach Coats is ‘at home’ in most countries across the world, with more than 20,000 employees across six continents and over 70 manufacturing facilities Countries in which Coats operates Manufacturing sites © GPG Group and Coats plc | Presentation for the Half Year ending 30 June 2013 Pa
Slide 46: Heritage
Heritage Coats is a company with more than 250 years of history 1750s 1812 1826 1896 1986 1990s 2000 2004 James & Clark’s James Merged with Acquired by M&A to strengthen Strategic review: Acquisition Patrick sewing Coats Clark family Vantona Viyella: thread position and non-core by GPG Clark begin t
Slide 47: Vision, goals and principles
Vision, goals and principles Goals that will help us • Profitable sales growth Coats vision achieve our vision • Increased productivity We will be the world leader in • Positive teamwork value added engineered yarns and threads for industrial and Principles – the way we • Freedom to operate behave a
Slide 48: Coats Industrial
Coats Industrial Coats Industrial Division provides thread, yarn and zips for industrial customers in apparel, footwear and speciality markets Industrial 2012 sales: $1.2bn • Apparel • Footwear • Zips • Speciality • Other - Automotive - Embroidery - Bedding and furniture - Trims 10 Key Segments - Wi
Slide 49: Coats Crafts
Coats Crafts Coats provides consumer textile crafts and reaches end-consumers via retailers in a number of Crafts segments Crafts 2012 sales: $0.5bn • Handknitting Crafts brands include: • Consumer sewing • Embroidery • Haberdashery • Crochet • Lifestyle fabrics • Kits • Zips • Other - Kite flying t
Slide 50: Corporate Responsibility (CR) at Coats
Corporate Responsibility (CR) at Coats We have developed seven strategic themes to focus our CR programme throughout Coats Seven strategic CR themes © GPG Group and Coats plc | Presentation for the Half Year ending 30 June 2013 Page 50
Slide 51: Health and safety record
Health and safety record Smoothed (quarterly) global recordable accident rate v OSHA average (US textile mills) shows a positive performance OSHA average recordable accident index for textile mills (USA) Coats smoothed recordable accident index (Period: January 2006 – March 2013) © GPG Group and Coa
Slide 52: Further information
Further information Coats plc For more www.coats.com information: Coats Industrial www.coatsindustrial.com Coats Crafts www.coatscrafts.com © GPG Group and Coats plc | Presentation for the Half Year ending 30 June 2013 Page 52