Coats Group Plc · LSE:COA
Coats — Investor Day (May 2018)
66 slides from Coats's investor day presentation, May 21, 2018
Slide 1: Coats Group plc Capital Markets Day
Coats Group plc Capital Markets Day London – 21 May 2018
Slide 2: Agenda
Agenda 14:00 Arrivals / coffee 14:15 Context and priorities Rajiv Sharma, Group CEO Apparel and Footwear Adrian Elliott, President Apparel and Footwear Performance Materials Shantanu Banerjee, Group Head of Innovation Financial overview / approach to acquisitions Simon Boddie, Group CFO 15.30 Coffee
Slide 3: Objectives for the day
Objectives for the day Outline our growth strategy Meet the management team CAPITAL MARKETS DAY – 21 MAY 2018 3
Slide 4: Corporate normalisation process complete
Corporate normalisation process complete Return to De-listing LSE Acquisitions AZX/NZX 2015/16/17 2015 2016 Pension Dividends FTSE 250 USPP settlement 2017 2017 2017 2017 CAPITAL MARKETS DAY – 21 MAY 2018 4
Slide 5: Strong market positions and growth opportunities
Strong market positions and growth opportunities * market shares and sizes Coats’ estimates. ** NA Crafts and Latam Crafts *** Includes A&F thread, Zips, Trims and Services INDUSTRIAL CRAFTS Apparel & Performance Crafts Footwear Materials Americas ** 2017 sales $1,021m*** $276m $213m 20% 10% Coats’
Slide 6: A global business
A global business Sales in 19,000 100+ countries employees Manufacturing in 40,000 30 countries customers 25 nationalities 50 factories in senior management CAPITAL MARKETS DAY – 21 MAY 2018 6
Slide 7: The mega trends impacting our industry
The mega trends impacting our industry – we are well placed EMERGING URBANISATION SUSTAINABILITY MARKETS ONLINE DIGITAL INFLATION RETAIL CAPITAL MARKETS DAY – 21 MAY 2018 7
Slide 8: Our strategy is clear
Our strategy is clear ‘Digital’ GROWTH SPEED AGILITY PRODUCTIVITY SCALE ‘Beyond the stitch line’ SPECIALISATION CAPITAL MARKETS DAY – 21 MAY 2018 8
Slide 9: The four key areas critical to delivering our strategy
The four key areas critical to delivering our strategy CAPITAL MARKETS DAY – 21 MAY 2018 9
Slide 10: Experienced and diverse management team
Experienced and diverse management team >180 years Coats experience Rajiv Sharma Group Chief Executive Simon Boddie Chief Financial Officer Ronan Cox Chief Transformation Officer Massimo Petronio Chief Operating Officer – Global EMEA and LatAm experience Textile industry credentials / respect Keith
Slide 11: Apparel and Footwear: Continuing share gains
Apparel and Footwear Continuing share gains Adrian Elliott, President, Apparel and Footwear
Slide 12: A global leader. Winning with the winners. Embracing change.
A global leader. Winning with the winners. Embracing change. * 2014 – 17 organic CER CAGR Unrivalled customer connections $1bn sales 4,000 brands; 30,000 direct customers with 4% Operational CAGR* scale with global Consistent Compelling, reach share gains in value adding thread products and servic
Slide 13: In a fast-changing environment
In a fast-changing environment Asia consumer / urbanisation Product innovation Volatile retail Digitisation Automation Sustainability CAPITAL MARKETS DAY – 21 MAY 2018 13
Slide 14: Understanding the thread market landscape
Understanding the thread market landscape Size and structure A critical component in a Segmentation Consistent but moderate market growth global, agile industry Economy to premium $$$ 20%* 10-12 regional + Market value* ‘000s Specification local players $4.2bn Open spec Specified 13%* Rich product v
Slide 15: Our customers' priorities are shifting
Our customers’ priorities are shifting Sourcing patterns are changing… …and significant themes have emerged Speed Productivity China for Innovation China Near shoring for speed Quality Duty preference sourcing CR and Sustainability CAPITAL MARKETS DAY – 21 MAY 2018 15
Slide 16: We are the value adding partner
We are the value adding partner. Winning with the winners Unrivalled customer connections Leading product, solutions and technical services Global operational footprint Global brand and trusted reputation CAPITAL MARKETS DAY – 21 MAY 2018 16
Slide 17: Dialling up for continued share gains
Dialling up for continued share gains Sustainability Innovation Capability New Talent Capacities Horizons Powered by Digital CAPITAL MARKETS DAY – 21 MAY 2018 17
Slide 18: New Horizons – adding value through software solutions
New Horizons – adding value through software solutions Capability Market opportunity Our solutions Case study Significant value chain waste Up to 25% of $400bn factory gate prices Highly transactional 20 million+ orders from Brands/Retailers on Market leader in manufacturers production planning (key
Slide 19: Winning share through innovation
Winning share through innovation Innovation CAPITAL MARKETS DAY – 21 MAY 2018 19
Slide 20: Leading in sustainability
Leading in sustainability Sustainability * In last 5 years Restricted Water/kilo substances Down 26% * Renewables c.30% Energy/kilo Effluent treatment of total energy Down 20% * investment Recycled products CAPITAL MARKETS DAY – 21 MAY 2018 20
Slide 21: Summary – end on a high
summary– end on a high InInsummary Winning with Global Unrivalled the winners. leader differentiation Embracing change Strategy that Dialling up is working – for continued growing and share gains delivering CAPITAL MARKETS DAY – 21 MAY 2018 21
Slide 22: Performance Materials: Achieving scale in hi-tech sectors
Performance Materials Achieving scale in hi-tech sectors Shantanu Banerjee, Group Head of Innovation
Slide 23: Performance Materials – our markets
Performance Materials – our markets * Market sizes are Coats’ estimates of addressable markets Traditional sewing thread: 50% of 2017 revenues Hi-tech engineered yarns: 50% of 2017 revenues c.30% c.4% High Addressable growth Addressable market size markets market size Flat markets $0.5bn* $2.7bn* Ou
Slide 24: Hi-tech sectors driving the growth
Hi-tech sectors driving the growth – an evolution of our traditional base Significant opportunities in hi-tech sectors – innovating new technologies and aligning to macro trends 2012 2017 • Natural extension of core competencies Hi-tech Hi-tech sectors 50% – Blending technology sectors 30% – Chemist
Slide 25: 4 clear strategic avenues to drive future growth
4 clear strategic avenues to drive future growth 1 Globalisation of existing products 2 New sector growth in Personal Protection and Telecommunications Expand beyond the core by creating value through innovation and 3 New technologies in Composites and Conductive best-in-class service 4 Bolt-on acqu
Slide 26: Globalising products in Performance Materials
Globalising products in Performance Materials * CER organic sales growth (excl M&A) +11% EMEA sales CAGR 2012-17 * +13% Asia sales CAGR 2012-17 * Geographic market entry through M&A (Gotex) New Gotex plant in India New Innovation Hubs in Turkey and China CAPITAL MARKETS DAY – 21 MAY 2018 26
Slide 27: Personal protection – building a $90m Flamepro business
Personal protection – how we built a $90m Flamepro business in 6 yrs * Market sizes are Coats’ estimates • $350m addressable market * • ‘Beyond the stitch line’ • Protection with comfort trend • Digital blend innovation – desktop design capability in front of the customer • Flamepro brand: Scientifi
Slide 28: Telecommunication cables – small player to market leader
Telecommunication cables – small player to a market leader in 3 years • Growing market – connectivity trend • Market need: ‘Dry’ cables with no gel • Water-swellable chemistry innovation • Ultrabloc protects cables from rain/salt water • Successful organic entry • Acquisition of Gotex ($14m p.a.) in
Slide 29: New technologies: Composites – the big prize
New technologies: Composites – the big prize * Market sizes are Coats’ estimates • $1.7bn estimated addressable market * • Metal replacement by carbon textile fibre • Synergex Lattice tailored fibre technology • Talent acquired for engineering design capability • OEM Part development: automotive, oi
Slide 30: New technologies: Conductive
New technologies: Conductive – where textile meets electronics • Next-gen technology trend • Precision design of conductive circuits in smart apparel • Conductance, insulation, sew, wash CAPITAL MARKETS DAY – 21 MAY 2018 30
Slide 31: Innovation – central underpinning for growth
Innovation – central underpinning for growth and differentiation Innovation plan 3 Innovation Hubs • Global Innovation Forum • Digital • University partnerships • Recruit ‘A’ team new • Supplier innovation talent • Technology knowledge • New product sharing development targets CAPITAL MARKETS DAY –
Slide 32: Financial overview / approach to acquisitions
Delivering today Transforming for tomorrow Financial overview / approach to acquisitions Simon Boddie, Group CFO
Slide 33: Latest trading update (16 May)
Latest trading update (16 May) • +5% Group sales growth at CER Year-on-year sales performance (January to April) Reported CER Organic • Driven by Industrial division +6%: • Apparel and Footwear +3% (thread +4%) Industrial 9% 6% 3% Apparel & Footwear 6% 3% 3% • Performance Materials +19%; Performance
Slide 34: A track record of delivery
A track record of delivery: improving earnings and consistent cash flows Operating profit $m EPS (c) Free cash flow $m 35% 35% 11.5% 33% 10.8% 9.5% 25% 7.9% 174 6.4 158 140 4.9 122 4.0 3.0 88 74 78 87 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 Operating Profit Operating Margin % Fre
Slide 35: Margin improvement opportunity versus peers
Coats has a margin improvement opportunity via SG&A when benchmarked to peers GM % c15% c40% 38% ? SG&A % c35% c10% 27% The opportunity EBIT % c5% c15% 11.5% Bottom of Top the pack Coats metrics based on 2017 financials Peer group based on sample of public quoted UK/ European industrial businesses p
Slide 36: Opportunities to drive sales growth and increase margins
Opportunities to drive sales growth and increase margins further We have built strong foundations And have a clear future path in last 4 years to deliver growth • A&F** +4% • Continued A&F share gains Sales +2% • PM ** +6% • Achieve scale in high growth hi-tech PM CAGR** • Crafts - 8% • Stabilise /
Slide 37: Targeted strategic focus areas for acquisitions
Targeted strategic focus areas for acquisitions 2015 - 2017 Going forward 2017 Performance • Performance Materials – build scale in Materials targeted hi-tech industry sectors ~$42m 2016 • Global Services – position Coats Coats Global ~$14m; Services as a technology leader in the ~$5.5m; +35%* +30%*
Slide 38: A disciplined approach to executing transactions
A disciplined approach to executing transactions A well defined set of financial and non-financial criteria to identify appropriate acquisition targets Strategic considerations Financial criteria • Prioritise companies with technology, IP • Defined valuation metrics (eg multiples) or unique capabili
Slide 39: M&A case study – a successful integration strategy
M&A case study – a successful integration strategy Gotex – the Coats era • Turned a growing business into a high growth business (>30% post-acq sales growth) • Geographical expansion – new sales regions, new India line • M&A business case being delivered • Mutual benefits of technological expertise
Slide 40: Break
Delivering today Transforming for tomorrow Break
Slide 41: Break-out sessions
Break-out sessions 15:30 ESG / SRI Andrew Morgan Head of Corporate Responsibility Our approach to innovation / Patrick Shantanu Banerjee Yarn Mill acquisition Group Head of Innovation Electronic thread sampling – create Hizmy Hassen your own sample Chief Digital and Technology Officer Coffee also av
Slide 42: Connecting for Growth
Connecting for Growth Ronan Cox, Chief Transformation Officer Hizmy Hassen, Chief Digital and Technology Officer Michael Schofer, Chief Supply Chain Officer
Slide 43: A constantly changing world
A constantly changing world CAPITAL MARKETS DAY – 21 MAY 2018 43
Slide 44: Connecting for growth – why, and why now
Connecting for growth – why, and why now… Consumers We are … and now are repositioning is the right changing to improve time for us to the industry further change We must act • Speed / agility • Productivity • Corporate normalisation complete with or before • Innovation • Compliance • Proven ability
Slide 45: Coats in 2020
Coats in 2020 More integrated Fitter for purpose and leaner organisation Speed/agility processes Productivity Innovation Compliance Culture of People more greater empowered Sustainability speed and and aligned simplification Generating cost savings to drive next phase of our growth CAPITAL MARKETS D
Slide 46: Connecting for Growth – the financials
Connecting for Growth – the financials Total operating cost savings Reinvestments in growth $10m pa, Delivering $25m pa by 2020 in the areas of innovation, (mainly SG&A) digital and people $15m pa, $30m after reinvestments, by 2020 over 2 years +100bps to EBIT% (exceptional reorg.) Net operating cos
Slide 47: Simplification – faster, more efficient, better service
Simplification – faster, more efficient, better service 2017 – progress made From April 2018… …leading to greater… 1. Simplified senior 45+ Speed/agility management structure – countries Evolved Globally Group Executive Team business integrated Service 2. Commenced integration models for functions o
Slide 48: Simplification – scalable management clusters
Simplification – 10 scalable management clusters Previously Now 45+ India Vietnam China Bangladesh countries LatAm LatAm North EMEA South North America Crafts NA Services 10 clusters CAPITAL MARKETS DAY – 21 MAY 2018 48
Slide 49: Digital – underpinning Connecting for Growth
Digital – underpinning Connecting for Growth Connecting Coats and providing a market leading online customer service experience Customer-led Market leading Digitising Suppliers Lean SG&A Data Innovation Customer the connected through analytics through smart experience simplification technology end-t
Slide 50: Digital solutions – delivering speed, flexibility, customer service
Digital solutions – delivering speed, flexibility, customer service Our current solutions 95% of all sampling Digitising the colour requests sampling digitised supply chain Optical Online payments recognition 83% of orders through eComm (20,000 customers) CAPITAL MARKETS DAY – 21 MAY 2018 50
Slide 51: Technology foundations are largely in place
Technology foundations are largely in place to deliver this Industry 4.0 Specialised Digital 2.0 SAP R/3 Connected SG&A Warehousing & Supplier managing core factory specialised Coats.com Distribution Portal transactions & Coats dye systems applications house system Single Data Lake Artificial intell
Slide 52: Factory of the Future
‘Factory of the Future’… a compelling vision Priorities for delivery in our factory of the future 1 2 3 4 5 Excellence Speed Increased Higher Lower in H&S and and agility productivity service levels cost compliance Health & Safety our #1 Priority Fully integrated supply chain with end-to-end transpa
Slide 53: Connecting Coats – a supply chain for growth
‘Connecting Coats’… a Supply Chain for growth VISION SUPPLIER CUSTOMER End to end supply chain transparency TOMORROW BUILD FOR CONNECT AUTOMATE COMPLY DEFEND THE CORE PROCUREMENT NEW CAPABILITY SUSTAINABILITY DELIVER TODAY CAPITAL MARKETS DAY – 21 MAY 2018 53
Slide 54: Dyeing process digitisation – the reason to believe
Dyeing process digitisation – the reason to believe From Art… …to Science • A state-of-the-art colour management system connecting 43 dye houses globally • Data driven approach • Centralised monitoring by global expert team • Connected each machine to one plant system • Productivity increases of 20%
Slide 55: Intelligent dashboard demonstration
Intelligent dashboard demonstration CAPITAL MARKETS DAY – 21 MAY 2018 55
Slide 56: Connecting for Growth: In summary
Connecting for Growth: In summary We are Complements Our industry strong gross already margins with is changing changing in leaner SG&A response costs $30m re- Delivering Digital Unlocking investments in improved connectivity innovation, value from the customer across the digital and wealth of data
Slide 57: Our people – making it happen
Our people – making it happen Simon Youngs, Head of Talent and Learning
Slide 58: Our people
Our people People at Coats Externally recognised 83% employee c.19,000 engagement employees (Top 10% of companies (IBM)) In some 50+ countries 25 nationalities Proud. Engaged. represented Committed. Ethical. in top 275 Talented. leaders CAPITAL MARKETS DAY – 21 MAY 2018 58
Slide 59: A fast changing world – employees' demands are increasing
A fast changing world – employees’ demands are increasing Digital Learning Culture Agility Talent acquisition: Careers and learning: The employee experience: Organising for speed, Cognitive recruitment Real-time, all the time Culture and engagement agility and adaptability Leadership Every day perfo
Slide 60: How we will win
How we will win Retaining our Enhancing our best people Developing new Being change- Employing ‘Glocal’ culture and while acquiring capabilities focused and agile ways of working mindset specialist talent Buy it. Build it. Borrow it. CAPITAL MARKETS DAY – 21 MAY 2018 60
Slide 61: In summary
In summary Engaged Team Speed & Agility Winning Mindset CAPITAL MARKETS DAY – 21 MAY 2018 61
Slide 62: Summary
Delivering today Transforming for tomorrow Summary Rajiv Sharma, Group CEO
Slide 63: Our investment highlights
Our investment highlights Market leader in Leading player in Refocused Apparel and Footwear Performance Materials Americas Crafts Consistently gaining share through: Opportunity to grow in fragmented, • Leading consumer brands, • deep customer insight high growth market through strong market positio
Slide 64: Key takeaway… changing from a position of strength
Key takeaway… changing from a position of strength Future Clear Global scale mega growth - industry trend strategy leader positive Emphasis on Strong simplification, management digitisation, team innovation and acquisitions CAPITAL MARKETS DAY – 21 MAY 2018 64
Slide 65: Questions
Delivering today Transforming for tomorrow
Slide 66: Delivering today, transforming for tomorrow
Delivering today Transforming for tomorrow