TIDMCOA
RNS Number : 4544F
Coats Group PLC
28 July 2016
28 July 2016
Coats Group plc
2016 Half Year results
Coats Group plc ('Coats' or the 'Company'), the world's leading
industrial thread manufacturer, today announces its unaudited
results for the six months ended 30 June 2016.
Highlights(1)
-- Revenue of $718 million maintained; lower sales growth in Q2
due to tougher market conditions
-- Operating profit up 24% to $77 million on an adjusted basis (up 44% reported)
-- Industrial profit growth of 27% delivered by market share gains and cost productivity
-- Americas Crafts margin increased, despite tough market conditions, due to focus on costs
-- Adjusted EPS up 24% to 2.08c with higher operating profit and
reduction in tax rate offset mainly by unrealised losses on foreign
exchange hedges; reported EPS of 1.90c (2015 continuing: 0.25c)
-- Adjusted free cash flow for last twelve months of $82 million
(June 2015: $75 million) primarily due to higher profitability
-- Acquired Gotex and Fast React; last year's acquisition GSD performing well
-- Continuing settlement discussions with Trustees of the three
UK pension schemes and engaging with UK Pensions Regulator to seek
to achieve a resolution of investigations
* Denotes a KPI H1 2016 H1 2015 Change CER
change
(2)
------------------------------- -------- -------- ------- --------
Revenue reported $720m $748m (4)% 1%
organic
(3) $718m $748m (4)% * 0%
Operating profit reported $75m $52m 44% 50%
adjusted
(4) $77m $65m 19% * 24%
Earnings per
share reported 1.90c (3.42)c n/a n/a
adjusted
(5) 2.08c 1.82c 14% * 24%
Free cash flow
(last twelve adjusted
months) (6) * $82m $75m 10%
Return on capital employed * 31% 24% 700bps
(ROCE) (7)
Commenting on Coats first half 2016 results Paul Forman, Group
Chief Executive, said:
'Coats continued to perform well in the first half of 2016 with
operating profit growth of 24%. In challenging market conditions,
which led to lower sales growth in Q2, we continued to take market
share, introduce new and innovative products and drive customer
adoption of our eCommerce platform. We delivered productivity
gains, tightly managed our overheads and greater sales volumes led
to a positive operational gearing effect. We completed the
acquisitions of Gotex and Fast React, both of which have leading
positions in their markets and we are confident they will deliver
strong growth under Coats' ownership. We will build on progress
made during the first half and focus on maintaining our strong cash
flows. However, the tougher market conditions that impacted Q2
sales performance are likely to persist, particularly given
macroeconomic uncertainty. On balance we therefore maintain our
previous 2016 guidance.'
Conference call
Coats Management will discuss this report in a webcast /
conference call with analysts and investors at
0900 BST today (28 July 2016). The webcast can be accessed via
www.coats.com/investors/hy16. The conference call can be accessed
by dialling +44 (0)20 3059 8125 and using participant code 'Coats'.
The webcast will also be made available in archive form on
coats.com.
1 All revenue and profit figures in highlights on an organic, constant
exchange rate (see footnote 2) basis, unless otherwise stated
2 On a constant exchange rate (CER) basis restates H1 2015 figures
at H1 2016 exchange rates.
3 Excludes contribution from acquisitions made during the period
(see note 14).
4 Excludes contribution from acquisitions made during the period,
and before exceptional and acquisition related items.
5 Excludes exceptional costs, acquisition related items and foreign
exchange gains/losses on parent group cash balance (see note 14).
6 Adjusted for exceptional and discontinued items, acquisition costs,
purchase of own shares for Employee Benefits Trust and UK pension
recovery payments (see note 14).
7 Pre-exceptional operating profit for the last twelve months divided
by capital employed on 30 June 2016 (see note 14).
_______________________________________________________________________________________
Enquiry details
Coats Group +44 (0)20 8210
Investors Jaideep Thatai plc 5086
+44 (0)20 3727
Media Richard Mountain / Nick Hasell FTI Consulting 1374
_________________________________________________________________________________________
About Coats Group plc
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, Coats employs 19,000 people across six
continents. Revenues in 2015 were US$1.5bn. Coats' pioneering
history and innovative culture ensure the company leads the way
around the world: providing complementary and value added products
and services to the apparel and footwear industries; applying
innovative techniques to develop high technology Speciality threads
and yarns in areas such as automotive and fibre optics; and
extending the crafts offer into new markets and online.
Headquartered in the UK, Coats has a premium listing on the London
Stock Exchange. To find out more about Coats visit
www.coats.com.
Summary
In the following commentary all comparisons with H1 2015 are on
a CER basis, all references to revenue are on an organic basis and
all references to operating profit are on an adjusted basis, unless
otherwise stated.
H1 2016 H1 2015 H1 2015 Change CER
change
----------------------
CER(1)
-----------------
$m $m $m % %
----------------- ---------------- ---------------- ---------------- --------------- ---------
Organic revenue
(2)
Industrial 607.0 615.0 589.3 (1)% 3%
Crafts 110.9 133.1 126.9 (17)% (13)%
---------------- ---------------- ----------------
Total 717.9 748.1 716.2 (4)% 0%
Operating profit
(3)
Industrial 80.6 66.3 63.7 22% 27%
Crafts 0.8 2.8 2.4 (71)% (67)%
UK pension admin (4.1) (4.3) (4.0)
---------------- ---------------- ----------------
Group 77.3 64.8 62.1 19% 24%
Operating margin
(3)
Industrial 13.3% 10.8% 10.8% 250bps 250bps
Crafts 0.7% 2.1% 1.9% (140)bps (120)bps
Group 10.8% 8.7% 8.7% 210bps 210bps
1 H1 2015 CER restates H1 2015 figures at H1 2016 exchange rates.
2 Excludes contribution from acquisitions made during the period.
3 On an adjusted basis which excludes contribution from acquisitions
made during the period, exceptional and acquisition related items.
Coats generated revenues of $718 million in the first half of
2016, similar to H1 2015 ($716 million). Industrial sales grew 3%
driven by share gains in Apparel and Footwear and product
innovation and geographic expansion in Speciality, although growth
was moderated by lower sales in Q2 due to softer demand from
clothing retailers and manufacturers in US consumer durable
markets. Crafts sales fell 13% due to a sharp contraction in the US
handknitting market predominantly caused by a mild North American
winter.
Adjusted operating profit increased 24% to $77.3 million (H1
2015: $62.1 million). Industrial profit grew 27% and margins were
up 250 basis points (bps) to 13.3% due to volume growth, lower
input prices and productivity and procurement improvements and
tight cost control. The 67% decline in Crafts profit was primarily
due to lower US handknittings sales and losses made in the UK
business, which will close by the end of the year. Craft Americas
margins increased 40bps to 3.0%, despite lower volumes, due to
tight cost control. The overhead reduction programme, initiated in
2015, continued to deliver in line with management expectations,
although some savings are being reinvested to support growth.
Performance on a reported basis was impacted by the relative
strength of the US Dollar compared to H1 2015. As the Company
reports in US Dollars and given that its global footprint generates
significant revenues and expenses in a number of other currencies,
a translational currency impact can arise. The main currency impact
during the period was the Dollar against the Brazilian Real, Indian
Rupee and Mexican Peso, with a relatively smaller impact on
operating profit compared to revenues.
Financial summary
Adjusted earnings per share ('EPS') on a CER basis increased 24%
to 2.08 cents (H1 2015: 1.68 cents) with higher operating profits
and a reduction in the tax rate offset mainly by unrealised losses
on forward foreign exchange contracts due to the depreciation of
Sterling following the EU Referendum. The Company generated a
reported attributable profit of $26.3 million compared to $3.6
million in H1 2015 (from continuing operations), in which there was
a higher level of exceptional costs and foreign exchange losses on
parent group cash.
There was an adjusted free cash outflow of $14.6 million in the
first half of 2016 which reflects the normal intra-year working
capital cycle of the business (H1 2015: $22.9 million outflow). The
reduction in net cash from
$241 million at the end of 2015 to $59 million at 30 June 2016
was also due to pensions deficit repair payments to the Staveley
and Brunel schemes, the lower US dollar value of Sterling
denominated parent group cash (committed to supporting Sterling
pension liabilities) and $35 million spent on acquisitions. On a
last twelve months' basis, Coats generated an adjusted free cash
inflow of $82.2 million to June 2016, an increase on the twelve
months to June 2015 ($75.0 million) due primarily to higher
profitability. Return on capital employed increased to 31%, from
24% at 30 June 2015, also due to higher profits.
UK Pensions Regulator investigations
Coats continues its settlement discussions, which commenced
earlier this year, with the Trustees of the Company's three UK
pension schemes and has now also met with the UK Pensions Regulator
('tPR') to seek to achieve a resolution of the ongoing
investigations.
As previously announced, Coats has committed to retain the
parent group cash within the Group to support the Company and
schemes. This would be on the basis of tPR withdrawing the Warning
Notices on the three schemes, thereby ending the investigations.
There are active discussions as to the support structure provided
by the parent group cash and the level of annual deficit recovery
payments. If a settlement cannot be reached and the investigation
process continues, Coats believes any hearing is unlikely before
the fourth quarter of 2016 at the earliest. See page 9 for further
details.
Strategic progress
In June, Coats announced the acquisitions of Gotex and Fast
React Systems for an initial consideration of $28 million and $7
million respectively. Gotex designs and manufactures high-tech
industrial yarns and tapes used to protect, reinforce and insulate
cables and pipes in the global telecommunications, energy and oil
and gas sectors. Gotex's market leading fibreglass technology and
products will complement Coats' existing fibre optic product range,
while Coats will support Gotex in further expanding into
high-growth markets. Fast React is a provider of software solutions
and expertise to manufacturers and retailers in the global apparel
and footwear industries. This will enable Coats Global Services to
offer an even wider range of operational improvement tools to
customers and follows the successful acquisition of GSD in 2015,
which has delivered double digit sales growth by leveraging Coats
global reach and strong customer relationships. See page 6 for more
details.
Following on from the disposal of the EMEA Crafts business last
year, Coats is to close its loss-making UK Crafts operations which
is anticipated by the end of 2016. See page 7 for more details.
EU referendum
Earlier this year, Coats undertook a risk analysis of the UK
voting to leave the European Union. As a global industrial
manufacturing company with no manufacturing facilities and minimal
sales in the UK, Coats was of the view that there would be a
limited direct adverse impact on the Group. Following the outcome
of the vote, although too early to provide a definitive assessment
given the lack of certainty on the future relationship between the
UK and EU, the Company maintains this view. Indirect factors have
impacted the Company in these results, namely the effect of lower
discount rates on the accounting valuation of pension liabilities
and the depreciation of Sterling on unrealised losses on foreign
exchange hedging. In the near and longer term there may be other
impacts, notably macroeconomic uncertainty, and, as such, Coats
will continue to monitor the situation through its risk management
framework. See page 9 for more details.
Corporate changes
On 24 June, the Company de-listed from the New Zealand and
Australian stock exchanges and now has a single listing on the
London Stock Exchange. Simon Boddie has recently joined the Company
as Chief Financial Officer and Executive Director and in October
Fran Philips will join as a Non-Executive Director.
Outlook
Coats will look to build on the performance of the first half of
2016 in which it continued to gain market share and deliver
productivity and procurement improvements. However, the challenging
market conditions that impacted Q2 sales performance are likely to
persist into the second half, particularly given macroeconomic
uncertainty. Therefore, on balance, expectations for the year
remain unchanged: to deliver modest year-on-year growth in Group
adjusted operating profit for continuing operations, with
improvements to non-operating items further benefiting adjusted
EPS.
Operating Review
In the following commentary all comparisons with H1 2015 are on
a CER basis, all references to revenue are on an organic basis and
all references to operating profit are on an adjusted basis, unless
otherwise stated.
Industrial
On organic basis H1 2016 H1 2015 H1 2015 Change CER
change
----------------------
CER(1)
------------------
$m $m $m % %
------------------ ----------------- ----------------- ----------------- --------------- --------
Revenue (2)
By business
Apparel and Footwear
(3) 492.5 498.7 477.5 (1)% 3%
Speciality 114.6 116.3 111.8 (1)% 3%
----------------- ----------------- -----------------
Total 607.0 615.0 589.3 (1)% 3%
By region
Asia 357.5 356.9 347.2 0% 3%
Americas 123.6 136.7 125.4 (10)% (1)%
EMEA 125.9 121.4 116.7 4% 8%
----------------- ----------------- -----------------
Total 607.0 615.0 589.3 (1)% 3%
Segment profit
(4) 80.6 66.3 63.7 22% 27%
Segment margin
(4) 13.3% 10.8% 10.8% 250bps 250bps
1 H1 2015 CER restates H1 2015 figures at H1 2016 exchange rates.
2 Excludes contribution from acquisitions made during the period.
3 Includes accessories, zips and trims and global services.
4 On an adjusted basis which excludes contribution from acquisitions
made during the period, exceptional and acquisition related
items.
Revenue in Apparel and Footwear (A&F) grew 3%. In a
challenging pricing environment this was driven by volume growth,
of which the majority was through market share gains as underlying
market growth was adversely impacted by softer retailer demand in
the second quarter especially. Coats' ability to continue to take
market share was driven by several factors including deepening its
relationships with retailers and brand owners through its global
accounts programme, and with manufacturers, through the increasing
adoption of digital services. Eighteen months after the Company
rolled out an eCommerce platform it is now live in over 25
countries, used by over 10,000 customers (manufacturers) and
accounts for over 60% of total thread orders. It has also enabled a
reduction in back office headcount.
Speciality revenue grew 3% despite tough comparators (13% growth
in H1 2015) and challenging market conditions in US consumer
durable markets, such as outdoor goods, where destocking was
prevalent. Emerging markets continued to deliver good sales growth
through geographic expansion of existing products, such as
furniture and upholstery. The business also continued to grow sales
in new, innovative products, for example in the fibre optics
sector, and entered new end-markets such as carbon composites.
By region, revenue in Asia increased 3% with a strong start to
the year in A&F somewhat offset by softer demand from retailers
in Q2. In the Americas revenues were marginally down with solid
growth in A&F sales in Latin American markets such as Mexico
and Colombia offset by the slowdown in some US consumer durable
markets. Sales in EMEA rose 8%, following a challenging 2015, with
growth in key A&F markets, improved performance in zips and
good performance in Speciality.
Industrial operating profit increased 27% to $80.6 million (H1
2015: $63.7 million) and margins increased 250bps to 13.3%. This
reflected good volume growth, leading to a positive operational
gearing impact, a reduction in material costs due to the lower
average oil price compared to H1 2015 and ongoing productivity and
non-raw material procurement improvements. These factors more than
offset the challenging pricing environment and the structural wage
and energy inflation that the Company faces across the many
countries in which it operates.
Acquisitions
In June, Coats completed the acquisition of Gotex, a company
that designs, manufactures and trades a range of innovative, high
performance industrial textiles to serve industries such as
telecommunications (fibre optic cables), energy and oil and gas.
Based near Barcelona, Spain, Gotex is a market leader in coated
fibreglass yarns with proprietary technology that enables
manufacture at significantly higher speeds than conventional
technology. This will complement Coats' aramid product range and
strengthen Coats' presence in fibre optics. Coats will support
Gotex in further expanding into high-growth markets by leveraging
Coats' unrivalled geographic footprint, breadth of global customer
relationships and strong corporate brand. In 2015, Gotex generated
sales of approximately EUR14 million. The initial consideration was
US$28 million, with a further payment of up to US$4 million after a
two-year period, contingent on Gotex achieving certain performance
targets.
In May, Coats acquired Fast React, a UK based provider of
software solutions and expertise to manufacturers and retailers in
the apparel and footwear industries to improve their operational
efficiency. The business generated revenues of approximately GBP4
million in 2015. The initial consideration was US$7 million, with
further payments of up to US$4 million over a three-year period,
contingent on Fast React achieving certain performance targets. The
transaction enables Coats Global Services to offer an even wider
range of productivity improvement tools to customers and follows
the acquisition of GSD in May 2015. GSD has performed well under
Coats ownership and delivered double digit sales growth in H1 2016
by leveraging Coats global reach and strong customer
relationships.
Crafts
H1 2016 H1 2015 H1 2015 Change CER
change
---------------------
CER(1)
---------------------
$m $m $m % %
--------------------- -------- -------- -------- --------- ---------
Organic revenue
(2)
Handknittings 52.8 68.9 67.2 (23)% (21)%
Needlecrafts (3) 58.1 64.2 59.7 (10)% (3)%
-------- -------- --------
Total 110.9 133.1 126.9 (17)% (13)%
Segment profit
(4) 0.8 2.8 2.4 (71)% (67)%
Segment margin
(4) 0.7% 2.1% 1.9% (140)bps (120)bps
Americas (excluding
UK)
Revenue 104.1 125.0 119.2 (17)% (13)%
Profit 3.1 3.4 3.1 (9)% 0%
Margin 3.0% 2.7% 2.6% 30bps 40bps
1 H1 2015 CER restates H1 2015 figures at H1 2016 exchange rates.
2 Excludes contribution from acquisitions made during the period.
3 Includes other textile craft products such as consumer sewings
and lifestyle fabrics.
4 On an adjusted basis which excludes contribution from acquisitions
made during the period, exceptional and acquisition related items.
Americas Crafts (excluding UK) revenues declined 13% to $104
million in the first half of 2016 (H1 2015: $119 million).
Handknitting sales declined 23% due to a sharp decline in the US
handknitting market. Based on feedback from Coats major customers
the mild North American winter was a contributing factor, while
systems issues at a key customer also negatively impacted demand.
However, there has been an improvement in handknitting sales levels
in the last couple of months. Revenue in Needlecrafts decreased 1%
but with continued growth in Coats' lifestyle fabrics sales during
the period. Overall revenues in Latin America were broadly stable,
with lower volumes due to challenging market conditions largely
offset by product and country mix benefits.
Overall, Crafts profit for the period (including the UK) fell to
$0.8 million (H1 2015: $2.4 million). Despite the decline in sales,
profit in Americas Crafts for the period was maintained at $3.1
million (H1 2015: $3.1 million) and margins increased 40bps to
3.0%. This was achieved by taking cost actions, such as reducing
discretionary spend and tightly controlling overheads, which will
remain a focus throughout 2016. Margins are expected to improve in
H2 2016 due to the anticipated improvement in market conditions,
ongoing focus on costs and traditionally greater weighting of sales
in the second half of the year.
UK Crafts
Following on from the disposal of the EMEA Crafts business last
year, Coats is to close its loss-making UK Crafts operations. It is
anticipated that the business will cease operations by the end of
2016 and be treated as a discontinued item in the full year 2016
results. In H1 2016 the business generated revenues of $7 million
and an operating loss of $2 million. The closure will have no
impact on the ongoing Americas Crafts business.
Financial review
Overhead reduction programme
As previously reported following the disposal of EMEA Crafts in
July 2015, Coats reviewed elements of its cost base to establish
the appropriate cost structure for a smaller and less complex
Group. As a result, $14.1 million of restructuring costs were
recognised in 2015. The programme continued to deliver in line with
management expectations during the first half of 2016, with
incremental savings of $3-4 million in addition to the $4 million
delivered in 2015. Some savings will continue to be realised in H2
2016 and H1 2017, although as the Company continues to grow some of
these savings will be reinvested to support growth plans.
Exceptional and acquisition related items
There were $2.5 million of exceptional and acquisition related
costs which related to the upcoming closure of UK Crafts, Gotex and
Fast React transaction costs and the amortisation of intangible
assets acquired. In H1 2015 exceptional costs totalled $12.5
million and mainly related to the consolidation of Coats' Mexican
operations, the initial provision for the overhead reduction
programme and a provision for remedial work on the Lower Passaic
River ('LPR'), New Jersey, USA. There are no updates to provide on
LPR in this report (see note 10).
Non-operating results
Net finance costs in the period were $18.3 million, down from
$23.0 million in H1 2015. There was a reduction in interest on
borrowings from $9.5 million to $7.3 million in H1 2016 partly due
to fixed interest rate swaps coming to an end. There was
approximately $4 million of unrealised losses on forward foreign
exchange contracts primarily due to the depreciation of Sterling
following the EU Referendum. With the movement of all the parent
cash group (committed to support the Company's pension schemes) to
Pound Sterling from New Zealand, Australian and US Dollars in H2
2015, interest income on the balance declined to $1.4 million in
the first half of 2016 (H1 2015: $3.0 million). This move also
negated the foreign exchange exposure, which led to a significant
loss in H1 2015 ($12.3 million). IAS19 pensions interest charges
reduced from $8.6 million to $7.1 million as a function of the
lower pensions accounting deficit at the end of 2015.
The taxation charge for H1 2016 was $22.7 million (H1 2015:
$20.2 million) resulting in a reported tax rate of 40% (H1 2015:
66%). Excluding exceptional and acquisition related items, the
impact of IAS19 finance charges and foreign exchange gains/losses
on the parent group cash balance, the underlying effective rate on
pre-tax profits reduced 200bps to 34% (H1 2015: 36%). This was
driven by a reduction in unrelieved losses and withholding tax
suffered, together with a favourable change in profit mix for the
period.
Profit attributable to minority interests increased to $8.2
million (H1 2015: $6.6 million) and is predominantly related to
Coats' operations in Vietnam and Bangladesh (in which it has
controlling interests).
Adjusted EPS increased 24%, on a CER basis, to 2.08 cents (H1
2015: 1.68 cents) and 14% on an actual currency basis. The higher
operating profit and improvements in the underlying tax rate were
mainly offset by the unrealised loss on forward foreign exchange
contracts. Reported EPS of 1.90 cents compares to 0.25 cents in H1
2015 for continuing operations; last year's result was impacted by
a higher level of exceptional costs and foreign exchange losses on
the parent group cash (there was a reported loss per share of 3.42
cents in H1 2015 due to a loss on discontinued items related to the
EMEA Crafts business).
Investment
Capital expenditure during the half, in addition to ongoing
maintenance requirements, focused on new product/process
development, capacity expansion and environmental spend. The
latter, which includes building effluent treatment plants, helps
ensure Coats maintains its leading corporate responsibility
credentials in the industry. Total capital spend amounted to $17.5
million (H1 2015: $18.1 million) and was 0.9 times depreciation, in
line with previous guidance.
Cash flow
In the first half of 2016 there was an adjusted free cash
outflow of $14.6 million, an improvement on performance in H1 2015
($22.9 million outflow), primarily due to higher profitability. The
outflow reflects Coats' normal free cash flow cycle, whereby the
second half cash inflow significantly exceeds that in the first
half. EBITDA (defined as pre-exceptional operating profit before
depreciation and amortisation) for the half was
$98.0 million (H1 2015: $86.7 million). Net working capital as a
percentage of sales was maintained at 15%. Interest paid was $7.1
million, a $1.7 million reduction on H1 2015 (from continuing
operations), partly as a result of fixed rates swaps coming to an
end. Tax paid was $30.7 million, an increase of $5.9 million on H1
2015, due to higher profitability in the first half of 2016 and
timing of payments of withholding taxes on remittance of overseas
profits. On a non-adjusted basis, there was a free cash outflow of
$134.1 million, compared to $64.7 million in H1 2015. The increase
was primarily related to $35.4 million spent on acquisitions (H1
2015: $5.5 million on GSD) and $55 million of pension recovery
payments made to the Brunel and Staveley schemes.
A key metric for the Company is adjusted free cash flow on a
last twelve months' basis. For the twelve months to 30 June 2016,
Coats generated $82.2 million. This improvement on the $73.9
million generated for the full year 2015 and $75.0 million for the
twelve months to 30 June 2015 was due to higher profitability. This
measure is before annual pension recovery payments, acquisitions
and dividends, and excludes exceptional items such as tPR
investigations.
Balance sheet
The Company had a net cash position of $59 million at 30 June
2016 (31 December 2015: $241 million). This included parent group
cash, held in Sterling and committed to support the Group's three
UK pension schemes (Sterling liabilities) of $396 million (GBP298
million), compared to $505 million (GBP342 million) at the end of
2015. The reduction was primarily due to $55 million (GBP38
million) of pensions recovery payments made to the Brunel and
Staveley schemes and, in Dollar terms, due to the depreciation of
Sterling following the EU Referendum, although there is no real
impact as the cash is matched to the Sterling denominated
liabilities.
The Coats operating business had a net debt position of $337
million at the end of H1 2016, see note 11f, an increase of $73
million from 31 December 2015 ($264 million) primary due to the
adjusted free cash outflow in the half and acquisition spend. An
important metric for the operating business is the leverage ratio
of net debt (excluding parent group cash) to EBITDA. Net debt at 30
June 2015 was 1.7 times EBITDA of the last twelve months (1.9 times
at 30 June 2015).
Pensions and other post-employment benefits
The net obligation for the Group's retirement and other
post-employment defined benefit liabilities, on an IAS19 financial
reporting basis, was $515 million as at 30 June 2016, up from $469
million at 31 December 2015. The deficits in the Group's UK defined
benefit schemes, namely the Coats Plan, Brunel and Staveley
schemes, increased to $465 million (GBP349 million) from the
position at 31 December 2015 ($423 million, GBP286 million). This
was primarily due to an increase in liabilities largely driven by a
70bps decrease in the discount rate to 2.90% (derived using a yield
curve approach, based on Sterling AA corporate bonds), while the
inflation rate only fell slightly to 2.80% (based on a market
implied long term rate). Approximately half of the fall in the
discount rate followed the result of the EU Referendum vote on June
23. In US Dollar terms the increase in deficits was partially
offset by the depreciation of Sterling following of the EU
Referendum. The reduction in the Staveley deficit was due to the
GBP34 million payment made as part of the deficit repair plan
agreed earlier this year.
IAS19 deficit 30 Jun 31 Dec 30 Jun 31 Dec
2016 2015 2016 2015
$m $m GBPm GBPm
Coats Plan 365 264 274 179
Brunel 70 72 53 48
Staveley 30 87 22 59
------- ------- ------- -------
UK defined benefit
schemes 465 423 349 286
------- ------- ------- -------
Other Coats net
employee benefit
obligations 50 46
Total 515 469
------- -------
Pensions
Investigations
As mentioned earlier in the report, Coats continues settlement
discussions with the Trustees of the Brunel, Staveley and Coats UK
pension schemes. The Company initiated the process earlier in the
year and discussions have been constructive and progress is being
made. Agreement to any settlement will also be required from tPR.
To that end Coats is not only actively engaging with the Trustees
but also now with tPR.
Earlier this year, Coats committed to all parties to retain the
entire parent group cash balance within the Group to support the
schemes. The cash balance is the proceeds generated from Guinness
Peat Group's ('GPG's'), as the Company was known at the time, asset
realisation programme between 2011-2013 when it sold its share in
approximately 50 businesses leaving Coats as the only remaining
operating business. GPG's Directors had envisaged returning the
proceeds of the programme to shareholders, and distributions were
made in the form of capital returns and share buybacks between 2011
and the first quarter of 2013. However, GPG's Directors decided to
stop returns in the second quarter of 2013 when tPR began its
investigations, initially into the Coats UK and Brunel schemes in
April 2013 and then later that year into the Staveley scheme.
As previously stated, any settlement agreement would be based on
a number of principles and conditions. These include tPR
withdrawing the Warning Notices on the schemes, thereby ending the
investigations, and for Coats to have the ability to commence the
payment of normal course dividends to its shareholders and have
sufficient cash to invest in growth opportunities. At this stage
the level of annual deficit recovery payments to meet any Technical
Provisions deficit remaining, after the support provided by the
parent group cash, is not certain. If a settlement cannot be
reached and the investigation process continues, Coats believes any
hearing is unlikely before the fourth quarter of 2016 at the
earliest.
Triennial funding valuations
As previously announced, the 2013 triennial funding valuations
for the Brunel and Staveley schemes have been agreed. The April
2015 valuation for the Coats scheme is ongoing and is currently
anticipated to be agreed alongside any settlement agreement of the
pension investigation.
EU referendum
As highlighted on page 4 of this report, although too early to
provide a definitive assessment, the Company is of the view that
there would be limited direct adverse impacts on the Group.
Indirect factors have already impacted Coats and may continue to do
so in the near and longer term, notably macroeconomic uncertainty.
However, the Company does not believe there have been any changes
to its principal risks and uncertainties outlined in the 2015
Annual Report as a result.
As outlined elsewhere in this report, there have been three main
immediate impacts of the vote which have negatively affected the H1
2016 results. To manage currency risk the Company's policy is to
use forward foreign currency contracts. The sharp decline in
Sterling against the US Dollar led to much of the $4 million of
unrealised losses on these contracts which impacted reported EPS.
Secondly, the parent group cash balance held in Sterling, and
intended to support the Group's three UK pension schemes, reduced
in US Dollar terms, although there is no real impact as the cash is
matched to the Sterling denominated liabilities. The third impact
was the material increase in the IAS19 deficits of the Group's
three UK defined benefit schemes due to the significant decline in
discount rates.
In the medium to longer term as a global market leader, with a
strong and defendable core business supplying components to the
Apparel and Footwear industry, Coats is relatively well placed to
operate in periods of macroeconomic uncertainty. Also as the
Company reports in US Dollars and has a Sterling cost base, a
persistently lower GBP to USD rate may give rise to a positive
translational currency impact.
INDEPENT REVIEW REPORT TO COATS GROUP PLC
We have been engaged by Coats Group plc (the 'Company') to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2016 which
comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the
condensed consolidated statement of financial position, the
condensed consolidated statement of changes in equity, the
condensed consolidated cash flow statement and related notes 1 to
20. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of Coats
Group plc are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2016 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
28 July 2016
Condensed consolidated financial statements
Condensed consolidated income statement
For the half year ended 30 June 2016
Half year 2016 Half year 2015
Full
year
2015
Before Exceptional Before Exceptional
exceptional and exceptional and
and acquisition and acquisition
acquisition related acquisition related
related items related items
items (note Total items (note Total Total
unaudited 3) unaudited unaudited 3) unaudited audited
Note unaudited unaudited
US$m US$m US$m US$m US$m US$m US$m
Continuing
operations
Revenue 720.0 - 720.0 748.1 - 748.1 1,489.5
Cost of sales (437.3) - (437.3) (468.4) (9.2) (477.6) (946.6)
------------ ------------ ----------- ------------ ------------ ----------- ----------
Gross profit 282.7 - 282.7 279.7 (9.2) 270.5 542.9
Distribution
costs (101.1) (0.8) (101.9) (103.5) - (103.5) (202.9)
Administrative
expenses (104.0) (1.7) (105.7) (111.9) (3.3) (115.2) (238.9)
Other operating
income - - - 0.5 - 0.5 9.9
Operating
profit 77.6 (2.5) 75.1 64.8 (12.5) 52.3 111.0
Share of profits
of joint
ventures 0.4 - 0.4 1.1 - 1.1 -
Investment
income 4 2.7 - 2.7 7.9 - 7.9 10.5
Finance costs 5 (21.0) - (21.0) (30.9) - (30.9) (41.7)
Profit before
taxation 59.7 (2.5) 57.2 42.9 (12.5) 30.4 79.8
Taxation 6 (22.7) - (22.7) (23.1) 2.9 (20.2) (43.7)
Profit from
continuing
operations 37.0 (2.5) 34.5 19.8 (9.6) 10.2 36.1
Loss from
discontinued
operations 13 - - - (6.2) (45.5) (51.7) (75.5)
Profit/(loss)
for
the period 37.0 (2.5) 34.5 13.6 (55.1) (41.5) (39.4)
------------ ------------ ----------- ------------ ------------ ----------- ----------
Attributable
to:
----------------- ----- ------------ ------------ ----------- ------------ ------------ ----------- ----------
EQUITY
SHAREHOLDERS
OF THE COMPANY 28.8 (2.5) 26.3 7.0 (55.1) (48.1) (50.6)
----------------- ----- ------------ ------------ ----------- ------------ ------------ ----------- ----------
Non-controlling
interests 8.2 - 8.2 6.6 - 6.6 11.2
------------ ------------ ----------- ------------ ------------ ----------- ----------
37.0 (2.5) 34.5 13.6 (55.1) (41.5) (39.4)
------------ ------------ ----------- ------------ ------------ ----------- ----------
Earnings per ordinary
share
from continuing operations:
Basic and diluted
(cents) 7 1.90 0.25 1.78
Earnings/(loss)
per ordinary
share from continuing
and
discontinued operations:
Basic and diluted
(cents) 7 1.90 (3.42) (3.61)
Adjusted earnings
per share
(cents) 14(b) 2.08 1.82 3.96
Condensed consolidated statement of comprehensive income
For the half year ended 30 June 2016
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
Profit/(loss) for the period 34.5 (41.5) (39.4)
Items that will not be reclassified
subsequently to profit or loss:
Actuarial (losses)/gains in respect
of retirement benefit schemes (143.9) 48.9 67.2
Tax relating to items that will
not be reclassified - - (3.4)
---------- ---------- ----------
(143.9) 48.9 63.8
Items that may be reclassified subsequently
to profit or loss:
Losses on cash flow hedges arising
during the period (4.0) (0.8) (1.7)
Transferred to profit or loss on
cash flow hedges 0.8 1.6 3.0
Exchange differences on translation
of foreign operations 7.0 (29.8) (66.2)
Exchange differences transferred
to profit or loss on sale of businesses - - 7.5
Exchange differences transferred
to profit or loss on sale of investment - (0.5) (0.5)
3.8 (29.5) (57.9)
Other comprehensive income and expense
for the period (140.1) 19.4 5.9
---------- ---------- ----------
Net comprehensive income and expense
for the period (105.6) (22.1) (33.5)
---------- ---------- ----------
Attributable to:
--------------------------------------------- ---------- ---------- ----------
EQUITY HOLDERS OF THE COMPANY (113.8) (28.4) (44.0)
---------------------------------------------- ---------- ---------- ----------
Non-controlling interests 8.2 6.3 10.5
(105.6) (22.1) (33.5)
---------- ---------- ----------
Condensed consolidated statement of financial position
At 30 June 2016
30 June 30 June 31 December
2016 2015 2015
unaudited unaudited audited
Note US$m US$m US$m
Non-current assets
Intangible assets 293.4 260.4 261.2
Property, plant and equipment 267.0 280.0 273.0
Investments in joint ventures 10.6 12.9 10.8
Available-for-sale investments 1.5 1.4 1.5
Deferred tax assets 14.8 14.0 12.5
Pension surpluses 51.1 49.2 52.5
Trade and other receivables 18.9 17.2 16.4
---------- ---------- ------------
657.3 635.1 627.9
Current assets
Inventories 228.3 230.3 204.0
Trade and other receivables 297.4 316.0 261.9
Available-for-sale investments 0.2 0.2 0.2
Pension surpluses 6.6 5.6 6.6
Cash and cash equivalents 11(f) 534.7 679.8 649.9
Assets of disposal group
and non-current assets
classified as held for
sale 13 0.2 59.1 -
1,067.4 1,291.0 1,122.6
Total assets 1,724.7 1,926.1 1,750.5
---------- ---------- ------------
Current liabilities
Trade and other payables (315.6) (322.6) (320.7)
Current income tax liabilities (11.8) (11.9) (12.5)
Bank overdrafts and other
borrowings (14.5) (8.8) (20.2)
Retirement benefit obligations:
- Funded schemes (34.8) (27.8) (33.9)
- Unfunded schemes (6.0) (7.1) (6.2)
Provisions (28.0) (33.3) (44.4)
Liabilities of disposal
group classified as held
for sale 13 - (77.2) -
(410.7) (488.7) (437.9)
Net current assets 656.7 802.3 684.7
---------- ---------- ------------
Non-current liabilities
Trade and other payables (10.5) (11.9) (12.4)
Deferred tax liabilities (33.8) (38.9) (33.0)
Borrowings (461.1) (439.5) (389.1)
Retirement benefit obligations:
- Funded schemes (436.6) (444.9) (394.1)
- Unfunded schemes (95.5) (100.8) (94.2)
Provisions (35.7) (30.5) (35.8)
---------- ---------- ------------
(1,073.2) (1,066.5) (958.6)
Total liabilities (1,483.9) (1,555.2) (1,396.5)
---------- ---------- ------------
Net assets 240.8 370.9 354.0
---------- ---------- ------------
Equity
Share capital 8 127.0 127.0 127.0
Share premium account 11.6 11.6 11.6
Own shares 8 (10.5) (1.9) (7.6)
Translation reserve (116.1) (94.6) (123.1)
Capital reduction reserve 85.2 85.2 85.2
Other reserves 247.3 250.0 250.5
Retained loss (128.8) (28.5) (14.3)
--------------------------------- ------ ---------- ---------- ------------
EQUITY SHAREHOLDERS' FUNDS 215.7 348.8 329.3
--------------------------------- ------ ---------- ---------- ------------
Non-controlling interests 25.1 22.1 24.7
---------- ---------- ------------
Total equity 240.8 370.9 354.0
---------- ---------- ------------
Condensed consolidated statement of changes in equity
For the half year ended 30 June 2016
Share Capital Non-
Share premium Own Translation reduction Other Retained controlling
capital account shares reserve reserve reserves loss Total interests
US$m US$m US$m US$m US$m US$m US$m US$m US$m
Balance as at
1 January
2015 127.0 11.6 - (64.6) 85.2 249.2 (32.1) 376.3 24.3
Net
comprehensive
income and
expense
for the
period - - - (30.0) - 0.8 0.8 (28.4) 6.3
Dividends - - - - - - - - (8.5)
Purchase of
own
shares - - (1.9) - - - - (1.9) -
Share based
payments - - - - - - 2.8 2.8 -
Balance as at
30
June 2015 127.0 11.6 (1.9) (94.6) 85.2 250.0 (28.5) 348.8 22.1
-------------- --------- -------- -------- ------------ --------- ---------- ---------- ------- -----------
Balance as at
1 January
2015 127.0 11.6 - (64.6) 85.2 249.2 (32.1) 376.3 24.3
Net
comprehensive
income and
expense
for the year - - - (58.5) - 1.3 13.2 (44.0) 10.5
Dividends - - - - - - - - (10.1)
Purchase of
own
shares - - (7.6) - - - - (7.6) -
Share based
payments - - - - - - 4.6 4.6 -
-------------- --------- -------- -------- ------------ --------- ---------- ---------- ------- -----------
Balance as
at
31 December
2015 127.0 11.6 (7.6) (123.1) 85.2 250.5 (14.3) 329.3 24.7
Net
comprehensive
income and
expense
for the
period - - - 7.0 - (3.2) (117.6) (113.8) 8.2
Dividends - - - - - - - - (7.8)
Purchase of
own
shares - - (2.9) - - - - (2.9) -
Share based
payments - - - - - - 3.1 3.1 -
Balance as at
30
June 2016 127.0 11.6 (10.5) (116.1) 85.2 247.3 (128.8) 215.7 25.1
-------------- --------- -------- -------- ------------ --------- ---------- ---------- ------- -----------
Condensed consolidated cash flow statement
For the half year ended 30 June 2016
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
Note US$m US$m US$m
Cash (outflow)/inflow from
operating activities
Net cash (outflow)/inflow from 11
operations (a) (31.7) (6.2) 108.9
Interest paid (7.1) (8.8) (15.3)
11
Taxation paid (b) (30.7) (24.8) (49.3)
---------- ---------- ----------
Net cash (absorbed in)/generated
by operating activities (69.5) (39.8) 44.3
---------- ---------- ----------
Cash outflow from investing
activities
11
Investment income (c) 2.4 8.5 10.0
Net capital expenditure and 11
financial investment (d) (16.4) (17.5) (31.9)
11
Acquisitions and disposals (e) (39.9) (5.5) (26.1)
Net cash absorbed in investing
activities (53.9) (14.5) (48.0)
---------- ---------- ----------
Cash inflow/(outflow) from
financing activities
Purchase of own shares (2.9) (1.9) (7.6)
Dividends paid to non-controlling
interests (7.8) (8.5) (10.1)
Net increase in debt and finance
leasing 74.7 55.3 1.3
---------- ---------- ----------
Net cash generated by/(absorbed
in) financing activities 64.0 44.9 (16.4)
---------- ---------- ----------
Net decrease in cash and cash
equivalents (59.4) (9.4) (20.1)
Net cash and cash equivalents
at beginning of the period 631.4 710.4 710.4
Foreign exchange losses on
cash and cash equivalents (45.6) (22.0) (58.9)
---------- ---------- ----------
Net cash and cash equivalents 11
at end of the period (f) 526.4 679.0 631.4
---------- ---------- ----------
Reconciliation of net cash
flow to movement in net cash
Net decrease in cash and cash
equivalents (59.4) (9.4) (20.1)
Net increase in debt and lease
financing (74.7) (55.3) (1.3)
---------- ---------- ----------
Change in net cash resulting
from cash flows
(Free cash flow) (134.1) (64.7) (21.4)
Other non-cash movements (0.8) (2.2) (3.1)
Foreign exchange losses (46.6) (19.7) (55.8)
---------- ---------- ----------
Decrease in net cash (181.5) (86.6) (80.3)
Net cash at start of period 240.6 320.9 320.9
---------- ---------- ----------
11
Net cash at end of period (f) 59.1 234.3 240.6
---------- ---------- ----------
Notes to the condensed consolidated financial statements
For the half year ended 30 June 2016
1. Basis of preparation
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The condensed consolidated
financial statements included in this half-yearly financial report
have been prepared in accordance with International Accounting
Standard 34: Interim Financial Reporting, as adopted by the
European Union, and comply with the disclosure requirements of the
Listing Rules of the UK Financial Services Authority.
The condensed consolidated financial statements for the six
months ended 30 June 2016 have been reviewed but have not been
audited. The condensed consolidated financial statements for the
equivalent period in 2015 were also reviewed but not audited.
The information for the year ended 31 December 2015 does not
constitute statutory accounts (as defined in section 434 of the
Companies Act 2006). The financial information for the year ended
31 December 2015 is derived from the statutory accounts for that
year, which have been filed with the Registrar of Companies. The
audit report on those accounts was not qualified, did not draw
attention to any matters by way of emphasis and did not contain
statements under Sections 498(2) or 498(3) of the Companies Act
2006.
The same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's latest annual audited
financial statements, and are expected to be applied in the annual
audited financial statements for the current year.
Going concern
At 30 June 2016 the Group had cash totalling $535 million (30
June 2015: $680 million; 31 December 2015: $650 million). The Group
also has various actual and contingent liabilities. The Board
expects to be able to meet these obligations from existing
resources. Further information on the net cash position of the
Group is provided in note 11(f).
Giving due consideration to the nature of the Group's business
and taking account of the following matters: the financing
facilities available to the Group; the Group's foreign currency
exposures; the potential requirement to provide financial support
to the Group's UK pension schemes; and also taking into
consideration the cash flow forecasts prepared by the Group and the
sensitivity analysis associated therewith, the directors consider
that the Company and the Group are going concerns and this
financial information is prepared on that basis.
Principal exchange rates
The principal exchange rates (to the US dollar) used are as
follows:
June June December
2016 2015 2015
------------ ---------------- ------ ------ ---------
Average Sterling 0.70 0.66 0.65
Euro 0.90 0.90 0.90
Brazilian Real 3.70 2.97 3.34
Indian Rupee 67.17 62.80 64.12
----------------------------- ------ ------ ---------
Period end Sterling 0.75 0.64 0.68
Euro 0.90 0.90 0.92
Brazilian Real 3.21 3.10 3.96
Indian Rupee 67.52 63.59 66.15
2. Operating segments
The Group has two reportable segments: Industrial and Crafts.
Both segments includes businesses with similar operating and market
characteristics. These segments are consistent with the internal
reporting as reviewed by the Coats Group plc Board (the 'Chief
Operating Decision Maker').
Segment revenue and results
Six months ended 30 June 2016:
Industrial Crafts Total
US$m US$m US$m
------------------------------------------- ----------- ------- -------
Revenue 609.1 110.9 720.0
----------- ------- -------
Segment profit 80.9 0.8 81.7
----------- -------
UK pension scheme administrative expenses (4.1)
-------
Operating profit before exceptional and
acquisition related items 77.6
Exceptional and acquisition related items (2.5)
Operating profit 75.1
Share of profit of joint ventures 0.4
Investment income 2.7
Finance costs (21.0)
-------
Profit before taxation from continuing
operations 57.2
-------
Excluding acquisitions in the six months ended 30 June 2016,
segment profit for Industrial was $80.6 million and operating
profit before exceptional and acquisition related items for the
Group was $77.3 million.
Six months ended 30 June 2015:
Industrial Crafts Total
US$m US$m US$m
------------------------------------------- ----------- ------- -------
Revenue 615.0 133.1 748.1
----------- ------- -------
Segment profit 66.3 2.8 69.1
----------- -------
UK pension scheme administrative expenses (4.3)
-------
Operating profit before exceptional and
acquisition related items 64.8
Exceptional and acquisition related items (12.5)
Operating profit 52.3
Share of profit of joint ventures 1.1
Investment income 7.9
Finance costs (30.9)
-------
Profit before taxation from continuing
operations 30.4
-------
Year ended 31 December 2015:
Industrial Crafts Total
US$m US$m US$m
------------------------------------------- ----------- ------- --------
Revenue 1,212.5 277.0 1,489.5
----------- ------- --------
Segment profit 135.2 14.4 149.6
----------- -------
UK pension scheme administrative expenses (10.2)
--------
Operating profit before exceptional and
acquisition related items 139.4
Exceptional and acquisition related items (28.4)
Operating profit 111.0
Share of profit of joint ventures -
Investment income 10.5
Finance costs (41.7)
--------
Profit before taxation from continuing
operations 79.8
--------
3. Exceptional and acquisition related items
The Group's consolidated income statement format includes
results both before and after exceptional and acquisition related
items. This is consistent with the way financial performance is
measured by management and reported to the Board.
Exceptional items
Exceptional items are set out below:
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------- ---------- ---------- ----------
Exceptional items:
Cost of sales:
US environmental costs - 6.5 13.2
Reorganisation costs - Mexico - 2.7 3.3
- 9.2 16.5
Distribution costs:
Closure costs - UK Crafts 0.8 - -
Administrative expenses:
Closure costs - UK Crafts 0.2 - -
Capital incentive plan charge - 0.7 1.3
UK Pensions Regulator ('tPR') investigation
costs - - 5.7
Reorganisation costs - overhead reduction
programme - 2.6 14.1
1.0 3.3 21.1
Other operating income:
Profit on the sale of property - - (9.2)
Share of profits of joint ventures:
Loss on disposal of joint venture - - 1.5
Total exceptional items before taxation 1.0 12.5 29.9
========== ========== ==========
Following on from the disposal of the EMEA Crafts business in
2015, Coats is to close its loss-making UK Crafts operations. A
provision for the expected costs of closure of $1.0 million has
been included as an exceptional charge for the six months ended 30
June 2016. It is anticipated that the business will cease
operations by the end of 2016 and be treated as a discontinued item
in the full year 2016 results.
Net exceptional costs before taxation in 2015 were as
follows:
- costs related to the consolidation of Coats' Mexican
operations from three sites to two were $3.3 million (30 June 2015:
$2.7 million). The gain on disposal of the property in Mexico was
$9.2 million (30 June 2015: $nil) thereby generating an overall
positive contribution of $5.9 million;
- with the sale of EMEA Crafts, Coats undertook a review of
elements of its cost base, including costs previously allocated to
that business, to establish the appropriate cost structure for a
smaller and less complex Group. Costs incurred on this overhead
reduction programme in the year ended 31 December 2015 were $14.1
million (six months ended 30 June 2015: $2.6 million);
- US environmental costs were $13.2 million (30 June 2015: $6.5
million) which included a provision for the remedial work on the
Lower Passaic River, New Jersey, USA (see note 10 for further
details);
- the Group provided for an additional $5.7 million (30 June
2015: $nil) in relation to the expected costs of the ongoing UK
Pensions Regulator ('tPR') investigations;
- a loss on disposal of $1.5 million (30 June 2015: $nil) was
recognised on the sale of Coats' share in a Philippines joint
venture; and
- other exceptional costs of $1.3 million (30 June 2015: $0.7
million) related to the capital incentive plan.
Judgement is used by the Group in assessing the particular
items, which by virtue of their scale and nature, should be
presented in the income statement and disclosed in the related
notes as exceptional items. In determining whether an event or
transaction is exceptional, quantitative as well as qualitative
factors such as frequency or predictability of occurrence are
considered.
Acquisition related items
Acquisition related items are set out below:
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
---------------------------------------------- ---------- ---------- ----------
Acquisition related items:
Administrative expenses:
Acquisition transaction costs 1.0 - -
Contingent consideration linked to employment 0.3 - -
Amortisation of acquired intangibles 0.2 - -
---------- ---------- ----------
Total acquisition related items before 1.5 - -
taxation
========== ========== ==========
During the six months ended 30 June 2016, the Group completed
the acquisitions of Gotex S.A. and Fast React Systems Limited (see
note 12 for further details).
4. Investment income
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
------------------------------------------ ----------- ----------- ----------
Interest receivable on Parent Group cash
* 1.4 3.0 4.9
Other interest receivable and similar
income 1.0 4.5 4.9
Income from other investments 0.3 0.4 0.7
----------- ----------- ----------
2.7 7.9 10.5
=========== =========== ==========
* Cash relating to the realisation of investments previously
held by Coats Group plc.
5. Finance costs
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------- ----------- ----------- ----------
Interest on bank and other borrowings 7.3 9.5 16.8
Net interest on pension scheme assets
and liabilities 7.1 8.6 17.1
Foreign exchange losses on Parent Group
cash * - 12.3 3.2
Other finance costs including unrealised
gains and losses on foreign exchange contracts 6.6 0.5 4.6
----------- ----------- ----------
21.0 30.9 41.7
=========== =========== ==========
* Cash relating to the realisation of investments previously
held by Coats Group plc.
6. Taxation
The taxation charges for the six months ended 30 June 2016 and
30 June 2015 are based on the estimated effective tax rate for the
full year, including the effect of prior period tax
adjustments.
For the six months ended 30 June 2016 the tax credit in respect
of exceptional items was $nil (30 June 2015: $2.9 million). For the
year ended 31 December 2015 the tax credit in respect of
exceptional items was $2.5 million.
7. Earnings per share
The calculation of basic earnings per Ordinary Share from
continuing operations is based on the profit from continuing
operations attributable to equity shareholders of the parent and
the weighted average number of Ordinary Shares in issue during the
six months ended 30 June 2016 of 1,383,560,539 (six months ended 30
June 2015: 1,406,285,528; year ended 31 December 2015:
1,400,765,325), which excludes shares held by the Employee Benefit
Trust.
The calculation of basic earnings/(loss) per Ordinary Share from
continuing and discontinued operations is based on the
profit/(loss) attributable to equity shareholders of the parent.
The weighted average number of Ordinary Shares used for the
calculation of basic earnings/(loss) per Ordinary Share from
continuing and discontinued operations is the same as that used for
basic earnings per Ordinary Share from continuing operations.
For the calculation of diluted earnings/(loss) per Ordinary
Share, the weighted average number of Ordinary Shares in issue is
adjusted, where appropriate, to assume conversion of all dilutive
potential Ordinary Shares, being share based awards granted to
employees.
8. Issued share capital
There were no changes in issued share capital during the six
months ended 30 June 2016.
Number of
Shares US$m
At 1 January 2016 and at 30 June 2016 1,407,612,282 127.0
-------------- -------
The own shares reserve of $10.5 million at 30 June 2016 (31
December 2015: $7.6 million; 30 June 2015: $1.9 million) represents
the cost of shares in Coats Group plc purchased in the market and
held by an Employee Benefit Trust to satisfy awards under the
Group's share based incentive plans. The number of shares held by
the Employee Benefit Trust at 30 June 2016 was 25,900,080 (31
December 2015: 17,625,636; 30 June 2015: 4,671,378).
9. Dividends
No dividend was paid during the period or approved in respect of
the period (31 December 2015: $nil; 30 June 2015: $nil).
10. US environmental matters
As noted in previous reports, the US Environmental Protection
Agency ('EPA') has notified Coats & Clark, Inc. ('CC') that CC
is a 'potentially responsible party' ('PRP') under the US Superfund
law for investigation and remediation costs at the 17-mile Lower
Passaic River Study Area ('LPR') in New Jersey in respect of
alleged operations of a predecessor's former facilities in that
area prior to 1950. Approximately 55 PRPs are currently members of
a cooperating parties group ('CPG') of companies, formed to fund
and conduct a remedial investigation and feasibility study of the
area. CC joined the CPG in 2011.
CC has analysed its predecessor's operating history prior to
1950, when it left the LPR, and has concluded that it was not
responsible for the contaminants and environmental damage that are
the primary focus of the EPA process. CC also believes that there
are many parties that will participate in the LPR's remediation
that are not currently funding the study of the river, including
those that are the most responsible for its contamination.
In April 2014, the EPA released a Focused Feasibility Study and
Proposed Plan (FFS) for the lower 8 miles of the LPR. The FFS
analyses a series of remedial alternatives.
In March 2015, CC and other companies submitted a petition to
EPA, asserting that they are de minimis parties and seeking a
meeting to commence settlement discussions.
In March 2016 EPA issued a Record of Decision selecting a remedy
for the lower 8 miles of the LPR pursuant to the FFS at an
estimated cost of $1.38 billion on a net present value basis. The
EPA's Record of Decision did not include a remedial decision for
the upper 9 miles of the LPR. The EPA may consider the CPG's
proposed remedial alternative for the upper 9 miles, or it may
select a different remedy. Discussions with EPA regarding the
nature and timing of such a decision are ongoing.
EPA is currently engaged in negotiations with one party that has
been identified as being responsible for the most significant
contamination in the river concerning the design of the selected
remedy for the lower eight miles of the LPR. While the ultimate
costs of the remedial design and the nal remedy are expected to be
shared among hundreds of parties, including many who are not
currently in the CPG, the allocation of remedial costs among those
parties has not yet been determined.
In 2015 a provision of $9.0 million was recorded for remediation
costs for the entire 17 miles of the LPR. This provision was based
on CC's estimate of its de minimis share of costs for EPA's
selected remedy for the lower 8 miles of the LPR and the remedy
proposed by the CPG for the upper 9 miles. A separate provision of
$6.8 million was recorded for associated legal and professional
costs in defence of CC's position. Both of these charges to the
income statement were net of insurance reimbursements and were
stated on a net present value basis. As at 30 June 2016, $2.1
million of this provision had been utilised.
The process concerning the LPR continues to evolve and these
estimates are subject to change based upon the scope of the remedy
selected by EPA, the share of remedial costs to be paid by the
major polluters on the river, and the share of remaining remedial
costs apportioned among CC and other companies. The total charge to
the income statement, net of insurance reimbursements, for the six
months ended 30 June 2016 was $nil (six months ended 30 June 2015:
$6.0 million; year ended 31 December 2015: $12.8 million).
Coats believes that CC's predecessor did not generate any of the
contaminants which are driving the current and anticipated remedial
actions in the LPR, that it has valid legal defences which are
based on its own analysis of the relevant facts, that it is a de
minimis party, and that additional parties not currently in the CPG
will be responsible for a signi cant share of the ultimate costs of
remediation. However, as this matter evolves, CC could record
additional provisions and such provisions could increase materially
based on further decisions by EPA, negotiations among the parties,
and other future events.
11. Notes to the condensed consolidated cash flow statement
a) Reconciliation of operating profit to net cash (outflow)/inflow from operations
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
---------------------------------------------- ----------- ----------- ----------
Operating profit 75.1 52.3 111.0
Depreciation 16.2 18.0 34.6
Amortisation of intangible assets 4.2 3.9 9.0
Reorganisation costs (see note 3) - 5.3 17.4
Exceptional profit on sale of property
(see note 3) - - (9.2)
Other operating exceptional and acquisition
related items (see note 3) 2.5 7.2 20.2
----------- ----------- ----------
Operating profit before exceptional
and acquisition related items, depreciation
and amortisation (EBITDA) 98.0 86.7 183.0
(Increase)/decrease in inventories (18.1) (11.9) 2.9
Increase in debtors (25.7) (41.0) (11.5)
Decrease in creditors (11.0) (8.8) (6.6)
Provision and pension movements (76.3) (19.7) (47.4)
Currency and other non-cash movements 1.4 (1.2) 3.2
Discontinued operations - (10.3) (14.7)
----------- ----------- ----------
Net cash (outflow)/inflow from operations (31.7) (6.2) 108.9
=========== =========== ==========
b) Taxation paid
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
------------------------- ----------- ----------- ----------
Overseas tax paid (30.7) (25.0) (49.3)
Discontinued operations - 0.2 -
----------- ----------- ----------
(30.7) (24.8) (49.3)
=========== =========== ==========
c) Investment income
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
---------------------------------------- ----------- ----------- ----------
Interest and other income 1.4 6.7 8.2
Dividends received from joint ventures 1.0 1.8 1.8
2.4 8.5 10.0
=========== =========== ==========
d) Capital expenditure and financial investment
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
---------------------------------------------- ----------- ----------- ----------
Acquisition of property, plant and equipment
and intangible assets (17.5) (18.1) (44.3)
Disposal of available-for-sale investments - 0.3 0.1
Disposal of property, plant and equipment 1.1 0.7 12.9
Discontinued operations - (0.4) (0.6)
----------- ----------- ----------
(16.4) (17.5) (31.9)
=========== =========== ==========
e) Acquisitions and disposals
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
----------------------------------------- ----------- ----------- ----------
Acquisition of businesses (35.4) (5.5) (5.5)
Investment in joint venture (0.4) - -
Net receipts from sale of joint venture - - 1.1
Discontinued operations (note 13) (4.1) - (21.7)
----------- ----------- ----------
(39.9) (5.5) (26.1)
=========== =========== ==========
f) Summary of net cash
30 June 30 June 31 December
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
---------------------------------------- ----------- ----------- ------------
Parent group cash and cash equivalents
* 396.0 552.4 504.6
Other group cash and cash equivalents 138.7 127.4 145.3
----------- ----------- ------------
Total cash and cash equivalents 534.7 679.8 649.9
Bank overdrafts (8.3) (3.6) (18.5)
----------- ----------- ------------
Net cash and cash equivalents 526.4 676.2 631.4
Other borrowings (467.3) (444.7) (390.8)
Total net cash (excluding net cash and
cash equivalents
held for sale) 59.1 231.5 240.6
Net cash and cash equivalents held for - 2.8 -
sale
----------- ----------- ------------
Total net cash 59.1 234.3 240.6
=========== =========== ============
Total net cash and cash equivalents including net cash and cash
equivalents held for sale was $526.4 million at 30 June 2016 (31
December 2015: $631.4 million; 30 June 2015: $679.0 million).
Excluding Parent group cash, net debt at 30 June 2016 was $336.9
million (31 December 2015: $264.0 million, 30 June 2015: $318.1
million).
* Cash relating to the realisation of investments previously
held by Coats Group plc.
12. Acquisitions
In June 2016, the Group acquired 100% of the voting equity of
Gotex S.A. ('Gotex'), a company based in Spain that designs,
manufactures and trades a range of innovative, high performance
industrial textiles to serve industries such as telecommunications
(fibre optic cables), energy and oil and gas. Gotex is a market
leader in coated fibreglass yarns with a proprietary technology
that enables manufacturing at significantly higher speeds than
conventional technology. This will complement Coats' aramid product
range and strengthen Coats' presence in fibre optics. Coats will
support Gotex in further expanding into high-growth markets by
leveraging Coats' geographic footprint, breadth of global customer
relationships and strong corporate brand.
In May 2016, the Group acquired 100% of the voting equity of
Fast React Systems Limited ('Fast React'), a UK based provider of
software solutions and expertise to manufacturers and retailers in
the apparel and footwear industries to improve their operational
efficiency. The transaction enables Coats Global Services to offer
an even wider range of productivity improvement tools to customers
and follows the acquisition of GSD in May 2015.
The consideration transferred net of cash and cash equivalents
acquired for Gotex and Fast React was $27.9 million and $7.1
million respectively.
In addition to the consideration paid there is a contingent
consideration payable up to EUR2.0 million ($2.2 million) for
Gotex. The consideration payable is determined by the revenue and
gross margin achieved in the year ended 31 December 2017. The
provision at 30 June 2016 of $2.2 million represents the fair value
of the estimated payable based on current expectations of
performance.
Contingent deferred consideration amounts are also payable that
have been treated as remuneration. For these amounts to be paid, in
addition to financial targets being met, certain employees must
also remain with the Group. Amounts are therefore charged to the
income statement over the period of service they relate to. For
Gotex up to EUR2 million is payable covering the service period of
two years from acquisition. For Fast React up to GBP3 million is
payable dependent on the performance over a three year period to 31
March 2019 as well as continued service of certain employees. The
charge to the income statement for the six months ended 30 June
2016 was $0.3 million (see note 3).
The provisional fair values of the identifiable assets and
liabilities of Gotex and Fast React as at the date of acquisition
were as follows:
Provisional Provisional
fair value fair value
recognised recognised
on on
acquisition acquisition
of of Provisional
Gotex Fast React Total
US$m US$m US$m
---------------------------------------- ------------- ------------- ------------
Assets
Intangible assets - 4.5 4.5
Property, plant and equipment 0.9 0.1 1.0
Inventories 3.1 - 3.1
Trade and other receivables 4.4 4.2 8.6
Cash and cash equivalents 2.4 4.0 6.4
------------- ------------- ------------
10.8 12.8 23.6
Liabilities
Trade and other payables (3.1) (5.5) (8.6)
Deferred tax liabilities (0.1) (0.8) (0.9)
------------- ------------- ------------
Total identifiable net assets acquired
at fair value 7.6 6.5 14.1
Goodwill recognised on acquisition
(provisional) 24.9 4.6 29.5
------------- ------------- ------------
32.5 11.1 43.6
============= ============= ============
Purchase consideration paid 30.3 11.1 41.4
Contingent purchase consideration
estimated to be paid 2.2 - 2.2
------------- ------------- ------------
Total consideration 32.5 11.1 43.6
============= ============= ============
In the provisional accounting, adjustments are made to the book
values of the net assets of the companies acquired to reflect their
provisional fair values to the Group. Previously unrecognised
assets and liabilities at acquisition are included and accounting
policies are aligned with those of the Group where appropriate. Due
to their contractual dates, the fair value of receivables acquired
(shown above) approximate to the gross contractual amounts
receivable. The amount of gross contractual receivables not
expected to be recovered is immaterial. There are no material
contingent liabilities recognised in accordance with paragraph 23
of IFRS 3 (revised).
The fair value of identified net assets of Fast React include
customer related intangibles of $2.3 million, brands and trade
names of $0.9 million and technology related intangibles of $1.3
million. Goodwill arising from the acquisition has been
provisionally valued at $4.6 million. This goodwill represents:
- the technical expertise of the acquired workforce;
- the opportunity to leverage this expertise across the Coats
Global Services business; and
- the ability to exploit the Group's existing customer base.
Given the date of the acquisition of Gotex, it has not been
practicable to complete the valuation of the assets and liabilities
acquired, including any intangible assets. Therefore, as permitted
by IFRS 3, the excess of the consideration over the provisional net
assets acquired has all been provisionally allocated to goodwill
amounting to $24.9 million.
None of the goodwill arising on the acquisitions is expected to
be deductible for tax purposes.
From the date of acquisition, Gotex contributed $1.5 million to
revenues and $0.3 million to the profit before tax from continuing
operations of the Group. Fast React contributed $0.6 million to
revenues and $nil million to the profit before tax from continuing
operations of the Group.
If the acquisitions had taken place at the beginning of the
year, it is estimated that revenue from continuing operations for
the six months ended 30 June 2016 would have been $8.9 million for
Gotex and $3.1 million for Fast React and the profit from
continuing operations for the six months ended 30 June 2016 would
have been $1.5 million for Gotex and $0.3 million for Fast React,
based on unaudited management accounts.
Transaction costs relating to the acquisitions of Gotex and Fast
React totalling $1.0 million have been expensed and are included in
administrative expenses in the condensed consolidated income
statement (see note 3). Transaction costs paid in the six months
ended 30 June 2016 were $0.4 million and are included in cash flows
absorbed in investing activities in the condensed consolidated cash
flow statement.
The gross and net carrying amount of goodwill at 1 January 2016
was $5.5 million. During the six months ended 30 June 2016 there
has been provisional goodwill recognised on acquisitions during the
period of $29.5 million and adjustments to previously recognised
provisional goodwill of $0.4 million offset by foreign currency
translation differences of $1.4 million resulting in the gross and
net carrying amount of goodwill at 30 June 2016 of $34.0
million.
13. Discontinued operations and assets held for sale
On 31 July 2015 the Group completed the sale of its EMEA Crafts
business to the Aurelius Group. The results of discontinued
operations are presented below. All amounts relate to EMEA Crafts
other than where stated.
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
----------------------------------------- ------------ ----------- ----------
Revenue - 42.1 47.8
Cost of sales - (20.2) (23.6)
------------ ----------- ----------
Gross profit - 21.9 24.2
Distribution costs - (22.3) (25.5)
Administrative expenses - (5.7) (11.2)
------------ ----------- ----------
Operating loss - (6.1) (12.5)
Investment income - - 0.1
Finance costs - (0.1) (0.3)
------------ ----------- ----------
Loss before taxation - (6.2) (12.7)
Tax on loss - - -
------------ ----------- ----------
Loss for the period - (6.2) (12.7)
Loss on disposal - - (55.8)
Exchange loss transferred to profit
or loss on disposal - - (7.5)
Loss arising on measurement to fair - (46.0) -
value less cost to sell
Exchange gain transferred to profit
or loss on sale of legacy investment - 0.5 0.5
------------ ----------- ----------
Total loss from discontinued operations - (51.7) (75.5)
------------ ----------- ----------
The loss per ordinary share from discontinued operations is as
follows:
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
Cents Cents Cents
------------------------------------------- ------------ ----------- ----------
Loss per ordinary share from discontinued
operations:
Basic and diluted - (3.68) (5.39)
The table below sets out the cash flows from discontinued
operations:
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------- ----------- ----------- ----------
Net cash outflow from operating activities - (10.1) (14.7)
Net cash outflow from investing activities (4.1) (0.4) (22.3)
Net cash flows from discontinued operations (4.1) (10.5) (37.0)
=========== =========== ==========
Assets held for sale
The assets and liabilities classified as held for sale consist
of the following:
30 June 30 June 31 December
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ ----------- ----------- ------------
Assets of disposal group classified - 58.5 -
as held for sale
Non-current assets classified as held
for sale 0.2 0.6 -
----------- ----------- ------------
Total assets of disposal group and non-current
assets classified as held for sale 0.2 59.1 -
Liabilities of disposal group classified - (77.2) -
as held for sale
----------- ----------- ------------
Total net assets classified as held
for sale 0.2 (18.1) -
----------- ----------- ------------
The non-current assets held for sale are property, plant and
equipment of $0.2 million (30 June 2015: $0.6 million, 31 December
2015: $nil).
At 30 June 2015 assets and liabilities of the disposal group
classified as held for sale all related to EMEA Crafts.
14. Non-GAAP financial measures
The non-GAAP financial measures included in this report provide
supplementary information to assist with the understanding of the
Group's financial results and with the evaluation of operating
performance for all periods presented. Non-GAAP amounts, however,
are not a measure of financial performance under IFRS and should
not be considered as a substitute for measures determined in
accordance with GAAP. A reconciliation of non-GAAP financial
measures to the most directly comparable GAAP financial measures is
included below. The non-GAAP measures set out below are key
performance indicators (KPIs) and have been chosen by the Board to
measure the Group's progress, development and ongoing performance.
Further details of the Group's KPIs are set out on page 27 of the
2015 Annual Report.
a) Organic revenue
Organic revenue is revenue from continuing operations excluding
revenue from acquisitions made in the current period as set out
below:
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
--------------------------------------- ----------- ----------- ----------
Revenue from continuing operations 720.0 748.1 1,489.5
Revenue from acquisitions made in the (2.1) - -
six months ended
30 June 2016
Organic revenue 717.9 748.1 1,489.5
=========== =========== ==========
b) Adjusted earnings per share
The calculation of adjusted earnings per share is based on the
profit from continuing operations attributable to equity
shareholders before exceptional and acquisition related items and
foreign exchange gains and losses arising on cash relating to the
realisation of investments previously held by Coats Group plc as
set out below:
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ -------------- -------------- --------------
Profit from continuing operations 34.5 10.2 36.1
Non-controlling interests (8.2) (6.6) (11.2)
-------------- -------------- --------------
Profit from continuing operations attributable
to equity shareholders 26.3 3.6 24.9
Exceptional and acquisition related items
(note 3) 2.5 12.5 29.9
Foreign exchange losses on Parent group
cash * - 12.3 3.2
Tax credit in respect of exceptional and
acquisition related items - (2.9) (2.5)
Adjusted profit from continuing operations 28.8 25.5 55.5
-------------- -------------- --------------
Weighted average number of Ordinary Shares 1,383,560,539 1,406,285,528 1,400,765,325
-------------- -------------- --------------
Adjusted earnings per share (cents) 2.08 1.82 3.96
============== ============== ==============
* Cash relating to the realisation of investments previously
held by Coats Group plc.
The weighted average number of Ordinary Shares used for the
calculation of adjusted earnings per share is the same as that used
for basic earnings per Ordinary Share from continuing operations
(see note 7).
Adjusted earnings per share for the six months ended 30 June
2015 on a constant exchange rate basis (restates 2015 figures at
2016 exchange rates) is 1.68 cents and is calculated on a basis
consistent with the above. Adjusted profit from continuing
operations on a constant exchange rate basis for the six months
ended 30 June 2015 was $23.6 million. The weighted average number
of Ordinary Shares used for the calculation of adjusted earnings
per share for the six months ended 30 June 2015 on a constant
exchange rate basis is 1,406,285,528 being the weighted average
number of Ordinary Shares for the six months ended 30 June
2015.
c) Adjusted free cash flow
A reconciliation of the change in net cash resulting from cash
flows (free cash flow), the most comparable GAAP measure, to
adjusted free cash flow is set out below:
Half year Half year Full year
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ ----------- ----------- ----------
Change in net cash resulting from cash
flows (free cash flow) (134.1) (64.7) (21.4)
Acquisition of businesses (note 12) 35.4 5.5 5.5
Net cash flows from discontinued operations
(note 13) 4.1 10.5 37.0
Net cash outflow in respect of reorganisation
costs 6.7 3.0 10.4
Net cash inflow from property disposals - - (9.9)
UK Pensions Regulator ('tPR') investigation
costs 2.3 6.3 8.9
Payments to UK pension schemes 64.9 11.7 33.8
Net cash flows in respect of other exceptional
items 3.3 2.9 1.3
Purchase of own shares by Employee Benefit
Trust 2.9 1.9 7.6
Tax (inflow)/outflow in respect of adjusted
cash flow items (0.1) - 0.7
----------- ----------- ----------
Adjusted free cash flow (14.6) (22.9) 73.9
=========== =========== ==========
Comparative amounts for the six months ended 30 June 2015 have
been reported on a basis consistent with amounts presented for the
six months ended 30 June 2016 and for the year ended 31 December
2015.
Adjusted free cash flow on a last twelve months' basis to 30
June 2016 was $82.2 million (30 June 2015: $75.0 million).
d) Return on capital employed
Return on capital employed ('ROCE') is defined as operating
profit before exceptional and acquisition related items on a last
twelve months' basis divided by period end capital employed as set
out below:
30 June 30 June 31 December
2016 2015 2015
unaudited unaudited audited
US$m US$m US$m
------------------------------------------- ----------- ----------- ------------
Operating profit before exceptional
and acquisition related items on a last
twelve months' basis 152.2 125.2 139.4
Non-current assets
Property, plant and equipment 267.0 280.0 273.0
Trade and other receivables 18.9 17.2 16.4
Current assets
Inventories 228.3 230.3 204.0
Trade and other receivables 297.4 316.0 261.9
Current liabilities
Trade and other payables (315.6) (322.6) (320.7)
Non-current liabilities
Trade and other payables (10.5) (11.9) (12.4)
----------- ----------- ------------
Capital employed 485.5 509.0 422.2
----------- ----------- ------------
ROCE 31% 24% 33%
----------- ----------- ------------
15. Fair value of assets and liabilities
As at 30 June 2016 there were no significant differences between
the book value and fair value (as determined by market value) of
the Group's financial assets and liabilities.
The following tables provide an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable:
- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
- Level 2 fair value measurements are those derived from inputs
other than quoted prices that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not observable market data (unobservable inputs).
Financial assets measured at fair value
Total Level 1 Level 2 Level 3
30 June 2016 US$m US$m US$m US$m
--------------------------------------------- ------ -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 2.5 - 2.5 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Equity investments 1.7 - - 1.7
Derivatives designated as effective - - - -
hedging instruments
------ -------- -------- --------
Total 4.2 - 2.5 1.7
------ -------- -------- --------
Total Level 1 Level 2 Level 3
30 June 2015 US$m US$m US$m US$m
--------------------------------------------- ------ -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 4.5 - 4.5 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Equity investments 1.7 - - 1.7
Bonds 1.4 1.4 - -
Derivatives designated as effective
hedging instruments 0.3 - 0.3 -
------ -------- -------- --------
Total 7.9 1.4 4.8 1.7
------ -------- -------- --------
Total Level 1 Level 2 Level 3
31 December 2015 US$m US$m US$m US$m
--------------------------------------------- ------ -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 3.1 - 3.1 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Equity investments 1.7 - - 1.7
Derivatives designated as effective
hedging instruments 0.3 - 0.3 -
------ -------- -------- --------
Total 5.1 - 3.4 1.7
------ -------- -------- --------
Financial liabilities measured at fair value
Total Level 1 Level 2 Level 3
30 June 2016 US$m US$m US$m US$m
----------------------------------------------- ------- -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (7.9) - (7.9) -
Financial liabilities measured
at fair value through the statement
of comprehensive income:
Derivatives designated as effective
hedging instruments (3.2) - (3.2) -
------- -------- -------- --------
Total (11.1) - (11.1) -
------- -------- -------- --------
Total Level 1 Level 2 Level 3
30 June 2015 US$m US$m US$m US$m
----------------------------------------------- ------ -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (2.7) - (2.7) -
Financial liabilities measured
at fair value through the statement
of comprehensive income:
Derivatives designated as effective
hedging instruments (0.8) - (0.8) -
------ -------- -------- --------
Total (3.5) - (3.5) -
------ -------- -------- --------
Total Level 1 Level 2 Level 3
31 December 2015 US$m US$m US$m US$m
----------------------------------------------- ------ -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (4.2) - (4.2) -
Financial liabilities measured
at fair value through the statement
of comprehensive income
Derivatives designated as effective
hedging instruments (0.3) - (0.3) -
------ -------- -------- --------
Total (4.5) - (4.5) -
------ -------- -------- --------
Level 1 financial instruments are valued based on quoted bid
prices in an active market. Level 2 financial instruments are
measured by discounted cash flow. For interest rates swaps future
cash flows are estimated based on forward interest rates (from
observable yield curves at the end of the reporting period) and
contract interest rates, discounted at a rate that reflects the
credit risk of the various counterparties. For foreign exchange
contracts future cash flows are estimated based on forward exchange
rates (from observable forward exchange rates at the end of the
reporting period) and contract forward rates, discounted at a rate
that reflects the credit risk of the various counterparties. For
equity instruments that are classified as level 3 financial
instruments the carrying value approximates to fair value.
16. Principal risks and uncertainties
There have been no changes to the principal risks and
uncertainties compared to those outlined on pages 30 to 33 of the
2015 Annual Report, comprising:
High impact operational risks - risks inherent in the Group's
ongoing commercial operations and geographical footprint, which, if
not effectively managed would be liable to cause significant
commercial disruption. The principal high impact operational risks
are product liability, environmental non-performance, failure of
critical infrastructure, data controls and security and bribery and
anti-competitive behaviour.
Material legacy risks - risks relating to the Group's past
operations and activities, including through historical mergers and
acquisitions, which could create material financial exposure for
the Group in its current form. The principal material legacy risks
are pensions investigation and pension scheme deficit funding and
legacy environmental risks.
Risks to strategy delivery - risks that could adversely impact
the Group's ability to achieve its defined strategic objectives.
The principal risks to strategy delivery are mergers and
acquisitions (M&A) programme - execution and integration,
appropriate capability development, joint ventures/minority
shareholder relationships, supply and supplier risk and emergence
of disruptive competitor behaviour in core markets.
Although too early to provide a definitive assessment of the
impact of the UK voting to leave the European Union, the Company is
of the view that there would be limited direct adverse impacts on
the Group. Indirect factors have already impacted Coats and may
continue to do so in the near and longer term, notably
macroeconomic uncertainty (see page 9 for further details).
17. Seasonality
The Group's revenues and profits have not historically been
subject to significant seasonal trends. The working capital cycle
of Coats' business means that cash inflow trends have historically
been weighted towards the second half of the financial year.
18. Related party transactions
There have been no related party transactions or changes in
related party transactions described in the 2015 Annual Report that
could have a material effect on the financial position or
performance of the Group in the first six months of the financial
year.
19. Directors
The following persons were, except where noted, directors of
Coats Group plc during the half year ended 30 June 2016 and up to
the date of this report:
M Clasper CBE
M N Allen
R Anderson
S Boddie (Appointed 4 July 2016)
N Bull
P Forman
D Gosnell
R Howes (Resigned 6 April 2016)
A Rosling CBE
R Sharma
F Philips will be appointed as a Non-Executive Director in
October 2016.
20. Publication
This statement will be available at the registered office of the
Company, 1 The Square, Stockley Park, Uxbridge, Middlesex, UB11
1TD. A copy will also be displayed on the Company's website on
www.coats.com.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.28R (disclosure of related parties'
transactions and changes therein).
The Directors of Coats Group plc are listed in Note 19 to the
Condensed Consolidated Financial Statements.
By order of the Board,
On behalf of the Board
M Clasper
Chairman
28 July 2016
United Kingdom
------------------------------------------- -------------
1 The Square, Stockley Park, Uxbridge, Tel: 020 210
UB11 1TD 5000
Registered in England No. 103548
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UBAKRNNABUAR
(END) Dow Jones Newswires
July 28, 2016 02:01 ET (06:01 GMT)
Coats (LSE:COA)
Historical Stock Chart
From Apr 2024 to May 2024
Coats (LSE:COA)
Historical Stock Chart
From May 2023 to May 2024