TIDMCOA
RNS Number : 7885H
Coats Group PLC
27 March 2020
27 March 2020
Coats Group plc
Update on trading and impact of Covid-19
Coats Group plc ('Coats,' the 'Company' or the 'Group'), the
world's leading industrial thread manufacturer, today provides an
update on trading and the impact of Covid-19.
In the light of the recent escalation in the Covid-19 outbreak
we are particularly focused on 3 priorities in the immediate
future. These are 1) continuing to ensure the health and safety of
our employees, 2) cash management, and 3) supporting our customers
and maintaining the critical elements of our supply chain.
Current trading and outlook
Sales in the first two months of 2020, aside from the previously
stated $8 million adverse impact on our China business as a result
of Covid-19, were broadly in line with expectations. Since
reporting our Full Year 2019 Results on 5 March we have seen the
global situation escalate within and beyond the industries in which
we operate. This has begun to impact our global demand in March, as
brands and manufacturers started to cancel or defer orders, for
example due to large scale store closures. In addition, as at 26
March, due to enforced government closures, 15 of our around 50
manufacturing sites are currently subject to temporary shutdown.
Indications from those governments are that these sites will return
to production in the coming weeks, however we cannot rule out
further enforced government closures in these and other
geographies.
As a result of this, our Q1 2020 organic revenues will be around
8% down on Q1 2019, with an accelerating organic decline in March,
which is expected to be around 15% down year-on-year. Due to
current uncertainty over the level of demand reduction across the
Group, we are not able at this stage to make accurate forecasts
over Full Year 2020 revenues.
Balance Sheet strength
We entered 2020 with a robust Balance Sheet and generating
significant levels of cash, which place us in a strong position to
manage through this period.
Our committed debt facilities total $575 million across our
Banking and US Private Placement group, with a range of maturities
from late 2022 through to 2027, and at the end of 2019 we had $290
million of headroom available.
At the end of February, this headroom was $230 million, which is
reduced from December 2019 due to the payment of $37 million for
the Pharr High Performance Yarns acquisition in February, and
normal working capital outflows in Q1. Our debt covenants are
two-fold: leverage of no more than 3x EBITDA (0.65x at December
2019) and interest cover of no less than 4x (12.9x at December
2019), which both exclude the impacts of IFRS 16.
Whilst the outlook remains uncertain, we have performed scenario
testing, including a significant decline in sales in Q2 and Q3,
with a gradual improvement in Q4, which equates to a 30% organic
sales decline for the Full Year. In this scenario we still project
to operate within our existing facility headroom and covenants.
Management actions
Despite the uncertain environment, we remain confident in our
ability to navigate our way through these difficult times. We are
taking all necessary actions internally to manage our cost base and
cash resources prudently.
These extensive actions include, but are not limited to,
significantly reducing our 2020 capital expenditure by c.$30
million from $45-55 million to $15-25 million, temporarily flexing
our manufacturing footprint, and reviewing all non-essential
discretionary spend. In addition, the Board and Group Executive
Team will take a 20% reduction in their salary and fees in Q2. We
are also exploring all available government support schemes being
put in place around the world, in relation to Covid-19. On cash
actions, we are focused on managing our working capital, including
heightened credit risk.
Finally, the Board has decided to cancel the proposed 2019 final
dividend which was due to be approved at our
forthcoming AGM in May. The Board will keep the 2020 interim dividend under review.
Conclusion
Despite these uncertain times, the Board remains confident in
the Group's ability to successfully manage through this difficult
period and our actions are the prudent ones to take at this time.
We enter this phase of our 250+ year history in robust shape and as
a market leader with an unrivalled global footprint. Alongside our
enhanced operational agility this leaves us well placed to benefit
from an acceleration in demand when the virus situation is
resolved.
Our next scheduled update to the market will be our
January-April 2020 trading update on 20 May 2020, prior to
our 2020 Annual General Meeting. We will update the market sooner, if required, as events evolve.
Enquiry details
+44 (0)20 8210
Investors Rob Mann Coats Group plc 5175
Richard Mountain / +44 (0)20 3727
Media Nick Hasell FTI Consulting 1374
_________________________________________________________________________________________
This announcement contains inside information for the purposes
of the Market Abuse Regulation.
About Coats Group plc
Coats is the world's leading industrial thread company. At home
in some 50 countries, Coats has a workforce of 17,000 people across
six continents. Revenues in 2019 were US$1.4bn. Coats' pioneering
history and innovative culture ensure the company continues leading
the way around the world. It provides complementary and value added
products, services and software solutions to the apparel and
footwear industries. It applies innovative techniques to develop
high technology Performance Materials threads, yarns and fabrics in
areas such as Transportation, Telecommunications and Energy, and
Personal Protection. Headquartered in the UK, Coats is a FTSE 250
company, a constituent of the FTSE4Good Index Series and a
participant in the UN Global Compact. To find out more about Coats
visit www.coats.com .
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END
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