TIDMCOA
RNS Number : 5051M
Coats Group PLC
31 July 2017
31 July 2017
Coats Group plc
2017 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 2017.
Highlights
-- Revenue up 5% on a CER basis to $740 million (4% reported).
Strong growth of 7% in Industrial Division across both Apparel and
Footwear (5%), and Performance Materials (18%).
-- Adjusted operating profit up 14% on a CER basis (12%
reported) with Group revenue growth further underpinned by margin
increase across both Industrial (50bps) and Crafts (260bps).
-- Adjusted EPS up 38% to 3.06c (reported EPS of 2.89c) with
higher operating profit, reduction in effective tax rate, and
mark-to-market foreign exchange gains. 19% underlying in
growth.
-- Strong adjusted free cash flow for the last twelve months of
$109 million (June 2016: $84 million). As expected, second half
capital expenditure to increase to $30-40 million ($50-60 million
full year spend).
-- Return on capital employed increased 400bps to 34% (2016:
30%) mainly as a result of higher profitability.
-- Good operational progress on the identified focus areas of
simplification, innovation and enhancing our digital
capabilities.
-- Settlement concluded with all three UK pensions schemes and
Pension Regulator investigations now ceased.
-- The Board has declared an interim dividend of 0.44 US cents
per share payable in November 2017, representing 7% growth (2016
pro-forma 0.41 US cents).
Organic
H1 2016 CER change change
* Denotes a KPI H1 2017 (2) Change (1) (1)
--------------------------------------- ------------ ------------ --------- --------------- -----------
Revenue reported $740m $713m 4% 5% *3%
reported
Operating profit (1) $86m $78m 11%
adjusted
(1) $89m $80m 12% 14% *10%
Basic earnings
per share reported 2.89c 1.90c 52%
adjusted
(1) 3.06c 2.22c *38%
Free cash flow
(last twelve adjusted
months) (1) *$109m $84m 30%
Return on capital employed
(ROCE) (1,3) *34% 30% 400bps
Dividend per share (interim) 0.44c - 7%
1 Non-statutory measures (Alternative Performance Measures) are
reconciled to the nearest corresponding statutory measure in note
14. Organic growth measures the change after adjusting for acquisitions.
Constant exchange rate (CER) figures are 2016 restated at 2017
exchange rates.
2 Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 13)
3 With effect from 1 January 2017 capital employed used in the definition
of ROCE includes intangible assets in relation to recent acquisitions.
ROCE for prior periods have been restated consistent with the
current definition.
Commenting on Coats Half Year 2017 results Rajiv Sharma, Group
Chief Executive, said:
'Coats continued its strong start to the year, with CER sales
growth of 5% and adjusted operating profit growth of 14%, of which
the primary contributor was the Industrial Division. We have
continued to increase our market share in the Apparel and Footwear
segment despite continued mixed demand from clothing retailers
through maintaining our customer-led approach to innovation,
digital solutions and corporate social responsibility. We continue
to leverage our global footprint and customer base in our
Performance Materials business, develop new product solutions for
our customers, and see a good contribution from our Gotex business
which was acquired in 2016. In Crafts, the North American market
remains weak despite recent stabilisation. Our strong cash
generation allows us to service our various stakeholder capital
demands, whilst allowing for increased investment in our existing
asset base which, as previously indicated, is scheduled in the
second half of the year.'
'We will look to build on the strong first half of the year, and
expect to deliver performance in line with management's
expectations for the full year. This is expected to be achieved
through our initiatives to deliver market share gains and
productivity improvements, maintaining a tight control of our cost
base, whilst investing in our growth opportunities.'
Conference call
Coats Management will discuss this report in a webcast /
conference call with analysts and investors at
0900 BST today (31 July 2017). The webcast can be accessed via
www.coats.com/investors/hy17. 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
www.coats.com.
_________________________________________________________________________________________
Enquiry details
Investors Rob Mann Coats Group plc +44 (0)20 8210 5175
Media Richard Mountain / Nick Hasell FTI Consulting +44 (0)20
3727 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 manufacturer and
a major player in the Americas textile crafts market. At home in
some 60 countries, Coats employs 19,000 people across six
continents. Revenues in 2016 were US$1.5bn. Coats' pioneering
history and innovative culture ensure the company continues leading
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
Performance Materials threads and yarns in areas such as automotive
composites and fibre optics; and extending the crafts offer into
new markets and online. Headquartered in the UK, Coats is a FTSE
250 listed company on the London Stock Exchange. To find out more
about Coats visit www.coats.com.
Summary
In the following commentary all references to revenue are on a
CER basis and all references to operating profit are on an adjusted
CER basis, unless otherwise stated (Alternative Performance
Measures are reconciled to the nearest corresponding statutory
measure in note 14).
H1 2016
H1 2017 reported Reported H1 2016 CER (1) Organic
Reported (5) inc/(dec) CER (1) inc/(dec) (4) inc/(dec)
--------------------
$m $m % $m % %
---------------------- ----------- ---------- ----------- --------- ----------- ---------------
Revenue (2)
Industrial 642 609 5% 600 7% 5%
Crafts 98 104 (6)% 106 (8)% (8)%
----------- ---------- ---------
Total 740 713 4% 706 5% 3%
Adjusted operating
profit (2, 3)
Industrial 88 81 8% 79 11% 7%
Crafts 5 3 79% 3 79% 79%
UK pension admin (4) (4) (4)
----------- ---------- ---------
Group 89 80 12% 78 14% 10%
Adjusted operating
margin
Industrial 13.6% 13.3% 40bps 13.2% 50bps 30bps
Crafts 5.3% 2.8% 250bps 2.7% 260bps 260bps
Group 12.1% 11.1% 90bps 11.1% 100bps 80bps
1 2016 figures restated at 2017 exchange rates
2 Includes contributions from bolt-on acquisitions
3 On an adjusted basis which excludes exceptional and
acquisition related items
4 On a CER basis excluding contributions from bolt-on
acquisitions
5 Restated for UK Crafts
Coats generated revenues of $740 million in the first half of
2017, representing 5% CER underlying growth on 2016 ($706 million).
Industrial sales grew at 7%, driven by our share gains in Apparel
and Footwear, product innovation, geographic expansion in
Performance Materials, and the contribution from bolt-on
acquisitions. Organic sales growth in the Industrial Division of 5%
was achieved despite ongoing mixed demand from clothing retailers.
Our growth remained strong in Europe and Asia, and we saw a return
to growth in the US consumer durables markets (which includes, for
example, outdoor recreational products). Crafts sales declined 8%,
largely due to the business disruption caused by the tornado strike
at the main Crafts distribution centre in Albany, Georgia, USA on
22 January 2017.
Group adjusted operating profit increased 14% to $89 million
(2016: $78 million). Industrial adjusted operating profit grew 11%
and margins were up 50 basis points (bps) to 13.6% due to volume
growth, productivity and procurement improvements, and continued
cost control which more than offset continued pricing pressure and
structural inflation in the markets in which we operate. Excluding
acquisitions, Industrial adjusted operating profit grew 7%.
As noted above, the 8% decline in Crafts Americas revenues was
primarily due to the business disruption from the tornado strike in
Albany in January 2017. Despite this decline in revenues, Crafts
Americas operating margins increased significantly in the period to
5.3% (2016: 2.7%). This was partially due to the profit insurance
cover from the tornado, in addition to continued cost savings, and
a reduction in one-off items on the prior period.
The 4% growth in Group sales on a reported basis, which was
lower than the 5% CER growth, reflects the stronger US dollar,
primarily against the Turkish Lira, Mexican Peso, Egyptian Pound,
and Chinese Yuan compared to the first six months in 2016. A number
of key currencies have marginally strengthened against the US
dollar since 31 December 2016 (for example Mexican Peso, Indian
Rupee and Brazilian Real) however there still remains a net
headwind on reported results when compared to CER growth.
Financial summary
Adjusted earnings per share ('EPS') for the first 6 months
increased 38% to 3.06 cents (2016: 2.22 cents). This growth was
driven by higher adjusted operating profits (14% CER growth), a
reduction in tax rate (1% reduction in underlying rate), a $2
million reduction in the pension finance charge (albeit largely
offset by the related decrease in interest income on reduced parent
group cash), and foreign exchange gains of $1 million (2016: $4
million losses), primarily relating to mark-to-market (MTM)
adjustments. Excluding the year-on-year impact of the foreign
exchange gains / losses, underlying EPS growth was 19%. The Company
generated a reported attributable profit from continuing operations
of $40 million compared to $29 million in 2016, primarily due to
the reasons set out above.
There was an adjusted free cash inflow of $21 million in the
first half of 2017 which reflects the intra-year working capital
cycle of the business (H1 2016: $11 million outflow), albeit
improved from 2016 due to increased profitability and a lower net
working capital outflow. On a last twelve months' basis, Coats
generated a free cash inflow of $109 million to June 2017 (last
twelve months to June 2016: $84 million), the increase driven by
higher profitability and improvements to days sales and days
payable outstanding. Capital expenditure is anticipated to increase
to c.1.5x depreciation for the full year, with c.$30-40 million
second half capital expenditure spend (H1 capital expenditure $20
million).
The reduction in net cash from $78 million at the end of 2016 to
a net debt position at 30 June 2017 of $261 million primarily
reflects the upfront deficit recovery payments made into the three
UK defined benefit pension schemes following settlement with the
Trustees of those schemes (see below for further detail).
Return on capital employed increased to 34%, from 30% at 30 June
2016, predominantly due to higher operating profits.
UK Pensions Regulator investigations
Further to the previous announcements of 16 December 2016, 17
February 2017, and 26 June 2017 Coats has now signed binding
settlement agreements with the Trustees of all three UK pension
schemes; the UK Coats Pension Plan, the Brunel Holdings Pension
scheme and the Staveley Industries Retirement Benefit Scheme. The
settlements with the three schemes have now all completed, and as a
result the UK Pension Regulator has confirmed that its regulatory
action has ceased in relation to the warning notices that it issued
to the Company in 2013 and 2014.
As a result of the settlements reached with the three schemes,
the total cash Recovery Plan contributions in 2017, including
estimated administration expenses and levies, are expected to be
GBP290 million ($365 million). This comprises GBP270 million ($340
million) upfront payments (which have all been paid in H1) and
GBP20 million ($25 million) annual deficit contributions, including
estimated administration expenses and levies. These cash payments
continue to be excluded from the Group's adjusted Free Cash
Flow.
Operational progress
On 1 January 2017, Rajiv Sharma, previously CEO Industrial
Division, took over as Group Chief Executive. Key focus areas for
driving the next phase of growth at Coats relate to simplification,
innovation and further development of digital capabilities, all of
which are a development of the existing strategy. This enables
Coats to deliver according to its customers' expectations for their
partners to become more responsive and agile businesses with an
increased emphasis on speed, quality, value and corporate
responsibility.
We have made good progress in these focus areas in the period,
and senior recruits have already been hired in a number of
strategic areas such as Composites Innovation, Technology
Solutions, and A&F Marketing. Notable developments include:
-- Simplification: merging of the previously separate Digital
and Technology teams, and the consolidation of previous Management
Board, Industrial and Crafts Leadership Teams into a single body;
the Group Executive Team. In addition, to drive operational
synergies in Latin America the operations of the Industrial and
Crafts businesses are being rationalised.
-- Innovation: creation of a Global Innovation Forum which aims
to build a culture of innovation across all segments of the
business that will enable us to stay at the forefront of the
industry, meet the evolving needs of our customers and further
differentiate us from our competitors.
-- Digital: creation of a Global Data Science team which aims to
identify and understand global trends in order to provide
actionable insights and solutions across the Group. In addition, a
review of technology applications has occurred during H1 with the
majority of local technology applications now turned off in order
to drive a consistent approach to technology use around the
business.
Dividend
Coats has a track record of delivering good levels of free cash
through profitable sales growth, delivering self-help initiatives
and investing in organic growth opportunities. The Board aims to
use this free cash flow to fund its pension schemes, self-finance
bolt-on acquisitions, and make returns to shareholders. Over time,
and as underlying earnings and cash flows increase, the Board
intends to pursue a progressive dividend policy.
The Board has declared an ordinary interim dividend per share of
0.44c (2016: nil), to be paid on 17 November (payment date) to
shareholders on the register on 27 October (record date), with an
ex-date of 26 October. The implied pro-forma interim dividend for
2016 was 0.41c (Full Year 2016 pro-forma dividend 1.25c) and
therefore the proposed interim dividend for 2017 reflects 7%
growth. However, as a result of the UK defined benefit pension
scheme investigations which had not been concluded at this time in
2016, the Group was not in a position to pay an interim dividend
this time last year.
The proposed full year dividend will be announced in February
2018 alongside the Full Year 2017 results.
Outlook
We will look to build on the strong first half of the year, and
expect to deliver performance in line with management's
expectations for the full year. This is expected to be achieved
through our initiatives to deliver market share gains and
productivity improvements, maintaining tight control of our cost
base, whilst investing in our growth opportunities.
We will also continue to focus on cash flow generation, which
will allow for an anticipated c.$30-40 million spend on capital
expenditure in the second half of 2017.
Operating Review
In the following commentary all references to revenue are on a
CER basis and all references to operating profit are on an adjusted
CER basis, unless otherwise stated
Industrial
H1 2017 H1 2016 Reported H1 2016 CER (1) Organic
Reported Reported inc/(dec) CER (1) inc/(dec) (6) inc/(dec)
-----------------------
$m $m % $m % %
----------------------- ---------- ---------- ----------- --------- ----------- ---------------
Revenue (2)
By business
Apparel and Footwear
(3) 507 493 3% 485 5% 4%
Performance Materials
(5) 135 116 16% 114 18% 9%
---------- ---------- ---------
Total 642 609 5% 600 7% 5%
By region
Asia 373 357 4% 357 4% 4%
Americas 130 124 5% 125 3% 3%
EMEA 140 128 9% 117 19% 8%
---------- ---------- ---------
Total 642 609 5% 600 7% 5%
Segment profit
(2,4) 88 81 8% 79 11% 7%
Segment margin
(2,4) 13.6% 13.3% 40bps 13.2% 50bps 30bps
1 2016 figures at 2017 exchange rates
2 Includes contribution from bolt-on acquisitions made during the
period
3 Includes accessories, zips and trims and global services
4 On an adjusted basis which excludes exceptional and acquisition
related items.
5 Previously named Speciality
6 On a CER basis excluding contributions from bolt-on acquisitions
Revenue in Apparel and Footwear (A&F) grew 5% in the first
six months of the year on a CER basis (3% reported). In a pricing
environment that remained challenging, sales growth was driven by
our market share gains as the mixed demand from clothing retailers
and manufacturers continued. Coats' ability to continue to take
market share was assisted 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. Two years after roll out,
Coats' eCommerce platform is now live in 28 countries, used by over
15,000 customers (manufacturers) and accounts for 74% of our total
thread orders. It has also enabled a reduction in back office
headcount. In addition, market share gains were realised through
the launch of innovative new products, for example knitted footwear
uppers for key sportswear brands, and we are actively working on
individual innovation projects with around 25 separate global
brands. We have also commenced development work on a 100% recycled
premium core spun thread, with pilot trials due to be completed in
H2 2017.
Performance Materials revenue grew 18% in the period on a CER
basis (16% reported), including the contribution from Gotex
(acquired in June 2016). Organic growth of 9% was underpinned by
double digit growth in Asia and EMEA, along with an anticipated
return to growth in the US consumer durables market. Emerging
markets continued to deliver good sales growth through geographic
expansion of existing products, such as personal protective
equipment and automotive products, and the leveraging of Coats'
global customer base. The business also continued to grow sales in
new, innovative products, for example the Synergex carbon
commingling technology that optimally combines high strength
materials with a lighter weight low cost fibre.
By region, revenue in Asia grew by 4%, with demand remaining
solid in key A&F markets. In the Americas there was a return to
growth in the period (3%) following the anticipated improvement in
the US consumer durables market and strong performance in certain
key Latin America markets. Sales in EMEA rose 19% (8% organic
growth) which was a continuation of a strong performance in 2016,
double digit growth in certain key A&F markets and strong
performance in Performance Materials.
Industrial operating profit increased 11% to $88 million (2016:
$79 million) and margins increased 50bps on a CER basis to 13.6%.
This reflected good volume growth driving a positive operational
gearing impact, ongoing productivity savings, non-raw material
procurement improvements and close control of costs. These factors
more than offset the challenging pricing environment, rising raw
material input prices during the period (declining in the same
period in 2016) and structural wage and energy inflation that the
Group faces across the many countries in which it operates.
Crafts
H1 2017 H1 2016 Reported H1 2016 CER (2)
Reported Reported(1) inc/(dec) CER (1,2) inc/(dec)
--------------------
$m $m % $m %
-------------------- ---------- ------------- ----------- ----------- -----------
Revenue
By business
Handknittings 47 49 (3)% 49 (4)%
Needlecrafts (3) 51 55 (8)% 57 (11)%
Total 98 104 (6)% 106 (8)%
By region
North America 63 73 (14)% 73 (14)%
Latin America 35 31 15% 33 6%
Total 98 104 (6)% 106 (8)%
Segment profit (4) 5 3 79% 3 79%
Segment margin (4) 5.3% 2.8% 250bps 2.7% 260bps
1 Restated to exclude the results of UK Crafts
2 2016 figures at 2017 exchange rates.
3 Includes other textile craft products such as consumer sewings
and lifestyle fabrics.
4 On an adjusted basis which excludes exceptional and acquisition
related items.
Crafts sales declined 8% on a CER basis (6% reported decline),
largely due to the business disruption caused by the tornado strike
at the main Crafts distribution centre in Albany, Georgia, USA on
22 January 2017. The estimated adverse sales impact from the Albany
tornado was $10 million, however the impact of lost profits and
incremental costs of re-establishing operations in Albany are
expected to be covered by the Group's insurance cover. Following
the softness seen in late 2015 and throughout the majority of 2016,
the US handknitting market has started to stabilise but remains
weak. Revenues in Latin America grew strongly by 6% on a CER basis
(15% reported), with good performance in key handknitting
markets.
Operating margins in the Crafts Division improved significantly
to 5.3% (2016: 2.7%) due partially to the insurance cover from the
tornado, in addition to continued cost savings, and a reduction in
one-off items that were seen in the prior period. The division has
continued to make good progress in the areas of online offerings
and new product launches in the period.
Financial review
Adjusted EPS for the first six months increased 38% to 3.06
cents (2016: 2.22 cents). This was driven by the higher operating
profit, improvements in the underlying tax rate, a lower pension
finance charge (largely offset by decrease in interest income on
reduced parent group cash), and MTM foreign exchange gains (2016:
foreign exchange losses). Excluding the year-on-year impact of the
MTM foreign exchange gains/losses, underlying EPS growth was 19%.
Reported EPS of 2.89 cents compares to 2.11 cents in 2016 (for
continuing operations).
Non-operating results
Net finance costs in the period were $11.2 million,
significantly down from $18.2 million in 2016. There was a
reduction in interest on borrowings from $7.2 million in 2016 to
$6.7 million partly due to fixed interest rate swaps coming to an
end. However, the key drivers of the reduction in net finance costs
in the period was due to $1 million foreign exchange gains mainly
in relation to MTM adjustments (2016: $4 million losses), and a $2
million reduction in the IAS19 pension finance charge following the
injection of parent group cash into the three UK defined benefit
schemes which reduced the net IAS19 liabilities accordingly,
although the latter was largely offset by reduced interest income
on the lower parent group cash balance.
The taxation charge for the first six months of 2017 was $27.2
million (2016: $22.7 million) resulting in a reported tax rate of
36% (2016: 38%). Excluding exceptional and acquisition related
items, and the impact of IAS19 finance charges, the underlying
effective rate on pre-tax profits reduced by 100bps to 33% (2016
full year: 34%). This was driven by a reduction in unrelieved
losses, together with a favourable change in profit mix for the
period.
Profit attributable to minority interests was $8.2 million
(2016: $8.2 million) and was predominantly related to Coats'
operations in Vietnam and Bangladesh (in which it has controlling
interests).
Exceptional and acquisition related items
Net exceptional and acquisition related items before taxation
and discontinued items were $2.7 million in the first six months of
2017. These are related to the amortisation of intangible assets
acquired in the recent acquisitions, and contingent consideration.
In 2016 net exceptional and acquisition related items before
taxation and discontinued items totalled $1.5 million.
There are no further significant developments in relation to the
Lower Passaic River ("LPR") to report. See note 11 for further
details.
Investment
Capital expenditure for the first six months of the year, in
addition to ongoing maintenance requirements, related to new
product development, process improvements, capacity expansion,
health and safety, and environmental spend. The latter, which
includes building effluent treatment plants, helps to ensure that
Coats maintains its strong corporate responsibility credentials in
the industry. Total capital spend for the first six months of the
year amounted to $20 million (2016: $18 million) and was 1.0x times
depreciation and amortisation.
As previously indicated, in order to support our future growth
strategy and reinforce our strong environmental compliance
credentials we have made the decision to increase our capital
expenditure in 2017 to around 1.5 times depreciation for the full
year. This spend is expected to be weighted towards the second half
of the year with a spend of c.$30-40 million in H2.
Cash flow
In the first half of 2017 there was an adjusted free cash inflow
of $21 million, which was an improvement on 2016 (outflow $11
million) due to increased profitability and a lower net working
capital outflow in the period. The low inflow in the first half
reflects Coats' normal free cash flow cycle, whereby the second
half cash inflow significantly exceeds that in the first half.
Adjusted EBITDA (defined as pre-exceptional operating profit
before depreciation and amortisation) for the half was $109 million
(H1 2016: $100 million). Net working capital as a percentage of
sales reduced to 13% (H1 2016: 15%) driven by improvements in days
sales and days purchases outstanding. Interest paid was $6 million,
a $1 million reduction on H1 2016, partly as a result of fixed
rates swaps coming to an end. Tax paid was $28 million, a $3
million reduction from H1 2016, where higher profitability in the
first half of 2017 was offset by a reduction in payments of
withholding taxes on remittance of overseas profits which were
higher in the same period of 2016. On a non-adjusted basis, there
was a free cash outflow of $345 million, compared to $134 million
in H1 2016. The increase was primarily related to $353 million of
payments into the three UK defined benefit pension schemes (H1
2016: $65 million) following settlement with their respective
trustees (including $340 million of upfront payments out of parent
group cash), and was offset by no acquisitions in the period (H1
2016: $35 million).
A key metric for the Company is adjusted free cash flow on a
last twelve months' basis. For the twelve months to 30 June 2017,
Coats generated $109 million. This was ahead of the $78 million
generated for the full year 2016 and the $84 million for the twelve
months to 30 June 2016 driven by the higher profitability, and
improvements in days sales and days purchases outstanding. Capital
expenditure is expected to increase to c.1.5x depreciation for the
full year, with c.$30-40 million second half capital expenditure
spend (H1 capital expenditure $20 million). 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 debt position of $261 million at 30 June
2017 (31 December 2016: net cash $78 million). At 31 December 2016
the net cash position of $78 million included parent group cash of
$343 million and operating business net debt of $265 million.
Following the settlement of the three UK defined benefit pension
schemes the period end parent group cash has now reduced to $2
million, following $340 million up-front payments into those three
schemes, with the remaining amount held for the residual expenses
of the pension investigations.
The Coats operating business had a net debt position of $263
million at the end of H1 2017. This was significantly below 30 June
2016 ($337 million) primarily due to the adjusted free cash flow in
the last twelve months ($109 million), offset by on-going pension
deficit recovery payments now paid out of the operating business
net debt following settlement ($19 million) and shareholder
dividends ($11 million). 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 2017 was 1.3 times EBITDA of
the last twelve months (1.7 times at 30 June 2016).
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 $236 million as at 30 June 2017, down from
$627 million at 31 December 2016.
The deficits in the Group's UK defined benefit schemes, namely
the UK Coats Plan, and Brunel and Staveley schemes, decreased to
$179 million (GBP138 million) from the position at 31 December 2016
($576 million, GBP467 million). The decrease in liabilities in the
period of $397 million primarily consisted of UK upfront settlement
payment of $340 million (GBP270 million), actuarial gains of $69
million (mainly related to asset outperformance) offset by foreign
exchange losses on Sterling liabilities of $18 million.
30 Jun 31 Dec 30 Jun 31 Dec
IAS19 deficit 2017 2016 2017 2016
$m $m GBPm GBPm
Coats Plan 141 467 108 378
Brunel 29 64 23 52
Staveley 9 45 7 37
------- ------- ------- -------
UK defined benefit
schemes 179 576 138 467
------- ------- ------- -------
Other Coats net
employee benefit
obligations 57 51
Total 236 627
------- -------
Pensions Investigations
Further to the previous announcements of 16 December 2016, 17
February 2017, and 26 June 2017 Coats has now signed binding
settlement agreements with the Trustees of all three UK pension
schemes; the UK Coats Pension Plan, the Brunel Holdings Pension
scheme and the Staveley Industries Retirement Benefit Scheme. The
settlements with the three schemes have now all completed, and as a
result the UK Pension Regulator has confirmed that its regulatory
action has ceased in relation to the warning notices issued to the
Company in 2013 and 2014.
The principal commercial terms of the combined three settlements
are:
-- Financial support on the basis of a combined technical
provisions deficit as at April 2015 of GBP582 million ($733
million) to be repaired by:
a) upfront payments totalling GBP329.5 million ($415 million)
from the Company's parent group cash paid directly into the schemes
(inclusive of the agreed Recovery Plan contributions paid to the
Brunel and Staveley schemes since 1 January 2016); and
b) annual deficit contributions totalling GBP17.5 million ($22
million), including estimated administration expenses and levies to
be paid until 2028.
-- Access to sponsor support from Coats for future funding needs
together with a Company guarantee.
As a result of the settlements reached with the three schemes,
the total cash Recovery Plan contributions in 2017, including
estimated administration expenses and levies, are expected to be
GBP290 million ($365 million). This comprises GBP270 million ($340
million) upfront payments (which have all been paid in H1), and
GBP20 million ($25 million) annual deficit contributions, including
estimated administration expenses and levies. These cash payments
continue to be excluded from the Group's adjusted Free Cash
Flow.
Triennial funding valuations
The next triennial funding valuations for the UK Coats, Brunel
and Staveley schemes have an effective date of 31 March 2018. These
valuations will determine the Group's future contribution
requirements and will be met through a new schedule of agreed
contributions. The Group expects this process to have been
completed by 30 June 2019.
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 2017 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 2017 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
Statutory Auditor
London, United Kingdom
31 July 2017
Condensed consolidated financial statements
Condensed consolidated income statement
For the half year ended 30 June 2017
Full
year
Half year 2017 Half year 2016 * 2016
Exceptional Exceptional
Before and Before and
exceptional acquisition exceptional acquisition
and related and related
acquisition items acquisition items
related (note related (note
items 3) Total items 3) Total Total
Note unaudited unaudited unaudited unaudited unaudited unaudited audited
US$m US$m US$m US$m US$m US$m US$m
Continuing
operations
Revenue 740.0 - 740.0 713.2 - 713.2 1,457.3
Cost of sales (451.2) - (451.2) (432.0) - (432.0) (892.3)
------------ ------------ ----------- ------------ ------------- ------------ ---------
Gross profit 288.8 - 288.8 281.2 - 281.2 565.0
Distribution
costs (101.0) - (101.0) (98.7) - (98.7) (197.2)
Administrative
expenses (101.7) (2.7) (104.4) (103.0) (1.5) (104.5) (214.7)
Other operating
income 4 3.1 - 3.1 - - - 0.2
Operating
profit 89.2 (2.7) 86.5 79.5 (1.5) 78.0 153.3
Share of profits
of joint
ventures 0.5 - 0.5 0.4 - 0.4 0.8
Investment
income 5 1.1 - 1.1 2.7 - 2.7 4.3
Finance costs 6 (12.3) - (12.3) (20.9) - (20.9) (35.9)
Profit before
taxation 78.5 (2.7) 75.8 61.7 (1.5) 60.2 122.5
Taxation 7 (27.6) 0.4 (27.2) (22.7) - (22.7) (46.8)
Profit from
continuing
operations 50.9 (2.3) 48.6 39.0 (1.5) 37.5 75.7
Loss from
discontinued
operations 13 - - - (2.0) (1.0) (3.0) (4.5)
Profit for the
period 50.9 (2.3) 48.6 37.0 (2.5) 34.5 71.2
------------ ------------ ----------- ------------ ------------- ------------ ---------
Attributable
to:
----------------- ----- ------------ ------------ ----------- ------------ ------------- ------------ ---------
Equity
shareholders
of the company 42.7 (2.3) 40.4 28.8 (2.5) 26.3 59.3
----------------- ----- ------------ ------------ ----------- ------------ ------------- ------------ ---------
Non-controlling
interests 8.2 - 8.2 8.2 - 8.2 11.9
------------ ------------ ----------- ------------ ------------- ------------ ---------
50.9 (2.3) 48.6 37.0 (2.5) 34.5 71.2
------------ ------------ ----------- ------------ ------------- ------------ ---------
Earnings per ordinary
share (cents) 8
Continuing operations:
Basic 2.89 2.11 4.60
Diluted 2.83 2.11 4.53
Continuing and discontinued
operations:
Basic 2.89 1.90 4.28
Diluted 2.83 1.90 4.22
Adjusted earnings per share 14 (d) 3.06 2.22 4.91
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
Condensed consolidated statement of comprehensive income
For the half year ended 30 June 2017
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
Profit for the period 48.6 34.5 71.2
Items that will not be reclassified
subsequently to profit or loss:
Actuarial gains/(losses) in respect
of retirement benefit schemes 68.8 (143.9) (324.8)
Tax relating to items that will
not be reclassified - - 0.1
---------------- -------------- ---------------
68.8 (143.9) (324.7)
Items that may be reclassified subsequently
to profit or loss:
Losses on cash flow hedges arising
during the period (0.4) (4.0) (0.9)
Transferred to profit or loss on
cash flow hedges 0.3 0.8 1.3
Exchange differences on translation
of foreign operations 0.2 7.0 1.3
0.1 3.8 1.7
Other comprehensive income and expense
for the period 68.9 (140.1) (323.0)
---------------- -------------- ---------------
Net comprehensive income and expense
for the period 117.5 (105.6) (251.8)
---------------- -------------- ---------------
Attributable to:
--------------------------------------------- ---------------- -------------- ---------------
Equity shareholders of the company 109.2 (113.8) (263.0)
---------------------------------------------- ---------------- -------------- ---------------
Non-controlling interests 8.3 8.2 11.2
117.5 (105.6) (251.8)
---------------- -------------- ---------------
Condensed consolidated statement of financial position
At 30 June 2017
30 June 30 June 31 December
2017 2016 2016
unaudited unaudited audited
Note US$m US$m US$m
Non-current assets
Intangible assets 291.1 293.4 291.8
Property, plant and equipment 268.5 267.0 265.9
Investments in joint ventures 10.6 10.6 11.0
Available-for-sale investments 1.2 1.5 1.1
Deferred tax assets 24.5 14.8 18.1
Pension surpluses 49.8 51.1 50.8
Trade and other receivables 17.6 18.9 16.1
------------------- ---------- ------------
663.3 657.3 654.8
Current assets
Inventories 235.4 228.3 205.8
Trade and other receivables 280.7 297.4 248.4
Available-for-sale investments 0.2 0.2 0.2
Pension surpluses 6.7 6.6 6.7
12
Cash and cash equivalents (e) 142.2 534.7 476.5
Non-current assets classified
as held for sale 13 0.2 0.2 0.2
665.4 1,067.4 937.8
Total assets 1,328.7 1,724.7 1,592.6
------------------- ---------- ------------
Current liabilities
Trade and other payables (324.7) (315.6) (310.8)
Current income tax liabilities (9.9) (11.8) (8.9)
Bank overdrafts and other
borrowings (35.8) (14.5) (7.7)
Retirement benefit obligations:
- Funded schemes (16.1) (34.8) (309.6)
- Unfunded schemes (6.2) (6.0) (6.2)
Provisions (14.7) (28.0) (17.1)
(407.4) (410.7) (660.3)
Net current assets 258.0 656.7 277.5
------------------- ---------- ------------
Non-current liabilities
Trade and other payables (17.1) (10.5) (15.8)
Deferred tax liabilities (33.5) (33.8) (31.7)
Borrowings (366.9) (461.1) (390.6)
Retirement benefit obligations:
- Funded schemes (169.1) (436.6) (272.0)
- Unfunded schemes (101.2) (95.5) (96.4)
Provisions (36.0) (35.7) (34.8)
------------------- ---------- ------------
(723.8) (1,073.2) (841.3)
Total liabilities (1,131.2) (1,483.9) (1,501.6)
------------------- ---------- ------------
Net assets 197.5 240.8 91.0
------------------- ---------- ------------
Equity
Share capital 9 87.4 127.0 127.0
Share premium account 5.9 11.6 11.6
Own shares 9 (8.6) (10.5) (10.5)
Translation reserve (42.5) (116.1) (121.1)
Capital reduction reserve 59.8 85.2 85.2
Other reserves 246.6 247.3 250.9
Retained loss (174.8) (128.8) (274.6)
--------------------------------- ----- ------------------- ---------- ------------
Equity shareholders' funds 173.8 215.7 68.5
--------------------------------- ----- ------------------- ---------- ------------
Non-controlling interests 23.7 25.1 22.5
------------------- ---------- ------------
Total equity 197.5 240.8 91.0
------------------- ---------- ------------
Condensed consolidated statement of changes in equity
For the half year ended 30 June 2017
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$m
Balance as at
1 January
2016 127.0 11.6 (7.6) (123.1) 85.2 250.5 (14.3) 329.3 24.7
Net
comprehensive
income and
expense
for the
period - - - 7.0 - (3.2) (117.6) (113.8) 8.2
Dividends - - - - - - - - (7.8)
Purchase of
own
shares - - (2.9) - - - - (2.9) -
Share based
payments - - - - - - 3.1 3.1 -
Balance as at
30
June 2016 127.0 11.6 (10.5) (116.1) 85.2 247.3 (128.8) 215.7 25.1
-------------- -------- -------- -------- ------------ --------- --------- ------------ ------- -----------
Balance as at
1 January
2016 127.0 11.6 (7.6) (123.1) 85.2 250.5 (14.3) 329.3 24.7
Net
comprehensive
income and
expense
for the year - - - 2.0 - 0.4 (265.4) (263.0) 11.2
Dividends - - - - - - - - (13.4)
Purchase of
own
shares - - (2.9) - - - - (2.9) -
Share based
payments - - - - - - 5.1 5.1 -
-------------- -------- -------- -------- ------------ --------- --------- ------------ ------- -----------
Balance as
at
31 December
2016 127.0 11.6 (10.5) (121.1) 85.2 250.9 (274.6) 68.5 22.5
Change in
functional
currency* (39.9) (10.8) 1.8 78.5 (25.4) (4.2) - - -
Net
comprehensive
income and
expense
for the
period - - - 0.1 - (0.1) 109.2 109.2 8.3
Dividends - - - - - - (11.7) (11.7) (7.1)
Issue of
ordinary
shares 0.3 2.2 - - - - - 2.5 -
Movement in
own
shares - 2.9 0.1 - - - (3.1) (0.1) -
Share based
payments - - - - - - 3.8 3.8 -
Deferred tax
on
share schemes - - - - - - 1.6 1.6 -
Balance as at
30
June 2017 87.4 5.9 (8.6) (42.5) 59.8 246.6 (174.8) 173.8 23.7
-------------- -------- -------- -------- ------------ --------- --------- ------------ ------- -----------
* The functional currency of the parent company Coats Group plc
was changed during the six months ended 30 June 2017. See
note 1 for further details.
Condensed consolidated cash flow statement
For the half year ended 30 June 2017
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
Note US$m US$m US$m
Cash (outflow)/inflow from operating
activities
Net cash (outflow)/inflow from 12
operations (a) (277.5) (31.7) 79.4
Interest paid (5.9) (7.1) (14.0)
Taxation paid (27.6) (30.7) (57.9)
---------------- ----------------- -----------------
Net cash (absorbed in)/generated
by operating activities (311.0) (69.5) 7.5
---------------- ----------------- -----------------
Cash outflow from investing activities
12
Investment income (b) 1.3 2.4 4.0
Net capital expenditure and financial 12
investment (c) (19.7) (16.4) (38.7)
12
Acquisitions and disposals (d) - (39.9) (40.4)
Net cash absorbed in investing
activities (18.4) (53.9) (75.1)
---------------- ----------------- -----------------
Cash (outflow)/inflow from financing
activities
Purchase of own shares - (2.9) (2.9)
Receipts from exercise of share
options 2.5 - 0.2
Dividends paid to equity shareholders (11.4) - -
Dividends paid to non-controlling
interests (7.1) (7.8) (13.4)
Net increase in debt and finance
leasing 3.8 74.7 3.3
---------------- ----------------- -----------------
Net cash (absorbed in)/generated
by financing activities (12.2) 64.0 (12.8)
---------------- ----------------- -----------------
Net decrease in cash and cash
equivalents (341.6) (59.4) (80.4)
Net cash and cash equivalents
at beginning of the period 470.3 631.4 631.4
Foreign exchange gains/(losses)
on cash and cash equivalents 9.1 (45.6) (80.7)
---------------- ----------------- -----------------
Net cash and cash equivalents 12
at end of the period (e) 137.8 526.4 470.3
---------------- ----------------- -----------------
Reconciliation of net cash flow
to movement in net (debt)/cash
Net decrease in cash and cash
equivalents (341.6) (59.4) (80.4)
Net increase in debt and lease
financing (3.8) (74.7) (3.3)
---------------- ----------------- -----------------
Change in net cash resulting
from cash flows 14
(Free cash flow) (e) (345.4) (134.1) (83.7)
Other non-cash movements (1.0) (0.8) (1.6)
Foreign exchange movements 7.7 (46.6) (77.1)
---------------- ----------------- -----------------
Decrease in net cash (338.7) (181.5) (162.4)
Net cash at start of period 78.2 240.6 240.6
---------------- ----------------- -----------------
12
Net (debt)/cash at end of period (e) (260.5) 59.1 78.2
---------------- ----------------- -----------------
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 2017 have been reviewed but have not been
audited. The condensed consolidated financial statements for the
equivalent period in 2016 were also reviewed but not audited.
The information for the year ended 31 December 2016 does not
constitute statutory accounts (as defined in section 434 of the
Companies Act 2006). The financial information for the year ended
31 December 2016 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 other than the
following new and revised standards that were effective as of 1
January 2017:
-- Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
-- Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative
-- Annual Improvements to IFRS Standards 2014-2016 Cycle -
Amendments to IFRS 12 Disclosure of Interests in Other Entities
The adoption of these standards has not had a material impact on
the financial statements of the Group.
Change in functional currency
In February 2017 the Company signed binding settlement
agreements with the Trustees of the Coats UK Pension Plan and
Brunel Holdings Pension Scheme. On 28 February 2017 agreed cash
payments of GBP200.0 million and GBP34.5 million were made into the
Coats UK Pension Plan and Brunel Holdings Pension Scheme
respectively. The Company has received written assurances from the
UK Pensions Regulator that its regulatory action has ceased in
relation to these two schemes under the Warning Notices that it
issued to the Company in 2013 and 2014.
Following the events noted above, it was determined that the
functional currency of Coats Group plc had changed from Great
Britain pounds sterling ('Sterling') to United States dollars
('USD'), effective 1 March 2017. In accordance with IAS 21 this
change has been accounted for prospectively from this date. To give
effect to the change in functional currency, the assets,
liabilities and equity of Coats Group plc in Sterling at 1 March
2017 were converted into USD at an exchange rate of
US$1:GBP0.8078.
Share capital and other equity amounts of Coats Group plc
reported in the Group's condensed consolidated statement of
financial position were previously presented in USD converted from
Sterling using historical rates of exchange. Exchange differences
have therefore arisen between the historical USD/Sterling exchange
rates and the exchange rate used for conversion from Sterling to
USD at 1 March 2017. These exchange differences are reported in the
condensed consolidated statement of changes in equity.
The presentation currency of the Group is USD and remains
unchanged.
Discontinued operations
Following on from the disposal of the EMEA Crafts business in
2015, Coats closed its loss-making UK Crafts operations during the
second half of 2016. The results of the UK Crafts business for the
year ended 31 December 2016 were reported as a discontinued
operation in the statutory accounts of the Group for that year. The
results for the six months ended 30 June 2016 have been restated to
reflect the UK Crafts business as a discontinued operation in the
condensed consolidated income statement. Note 13 provides details
on the results of the UK Crafts business.
Going concern
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; 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
2017 2016 2016
------------ ---------------- ------ ------ ---------
Average Sterling 0.79 0.70 0.74
Euro 0.92 0.90 0.90
Brazilian Real 3.18 3.70 3.48
Indian Rupee 65.69 67.17 67.16
----------------------------- ------ ------ ---------
Period end Sterling 0.77 0.75 0.81
Euro 0.88 0.90 0.95
Brazilian Real 3.31 3.21 3.25
Indian Rupee 64.62 67.52 67.92
2. Operating segments
The Group has two reportable segments: Industrial and Crafts.
Both segments include 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 2017:
Industrial Crafts Total
US$m US$m US$m
------------------------------------------- ------------ ------------- -------------
Revenue 641.9 98.1 740.0
------------ ------------- -------------
Segment profit 87.6 5.2 92.8
------------ -------------
UK pension scheme administrative expenses (3.6)
-------------
Operating profit before exceptional and
acquisition related items 89.2
Exceptional and acquisition related items (2.7)
Operating profit 86.5
Share of profit of joint ventures 0.5
Investment income 1.1
Finance costs (12.3)
-------------
Profit before taxation from continuing
operations 75.8
-------------
Six months ended 30 June 2016:
Total
Industrial Crafts* *
US$m US$m US$m
------------------------------------------- ------------ -------------- --------------
Revenue 609.1 104.1 713.2
------------ -------------- --------------
Segment profit 80.9 2.7 83.6
------------ --------------
UK pension scheme administrative expenses (4.1)
--------------
Operating profit before exceptional and
acquisition related items 79.5
Exceptional and acquisition related items (1.5)
Operating profit 78.0
Share of profit of joint ventures 0.4
Investment income 2.7
Finance costs (20.9)
--------------
Profit before taxation from continuing
operations 60.2
--------------
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
Year ended 31 December 2016:
Industrial Crafts Total
US$m US$m US$m
------------------------------------------- ------------ ------------- -------------
Revenue 1,221.2 236.1 1,457.3
------------ ------------- -------------
Segment profit 154.7 10.8 165.5
------------ -------------
UK pension scheme administrative expenses (7.6)
-------------
Operating profit before exceptional and
acquisition related items 157.9
Exceptional and acquisition related items (4.6)
Operating profit 153.3
Share of profit of joint ventures 0.8
Investment income 4.3
Finance costs (35.9)
-------------
Profit before taxation from continuing
operations 122.5
-------------
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
There were no exceptional items from continuing operations
during the six months ended 30 June 2017 (six months ended 30 June
2016: $nil*; year ended 31 December 2016: $nil).
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
Acquisition related items
Acquisition related items are set out below:
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
---------------------------------------- ---------- -------------- --------------
Acquisition related items:
Administrative expenses:
Acquisition transaction costs - 1.0 0.9
Contingent consideration 1.7 0.3 2.4
Amortisation of acquired intangibles 1.0 0.2 1.3
---------- -------------- --------------
Total acquisition related items before
taxation 2.7 1.5 4.6
========== ============== ==============
4. 4. Other operating income
On 22 January 2017, the main distribution centre for the US
Crafts business in Albany, Georgia suffered significant damage
following a tornado strike, including one building which housed
sourced products for yarns, threads and crafting implements. The
decision had been taken to close the centre at the time and there
were no injuries to Coats' personnel. Buildings in the distribution
centre were leased and temporary alternative facilities are
currently being used.
The tornado resulted in inventory with an original cost of $12.0
million being damaged. This amount has been written off and the
charge included in cost of sales for the six months ended 30 June
2017. The Group's insurance policies covered the loss of inventory
in full and a corresponding insurance recovery of $12.0 million has
been recognised in cost of sales.
Although sales were adversely impacted, lost profits as well as
incremental costs of re-establishing operations are included in the
Group's business interruption insurance cover. The amount of
insurance recovery recognised in excess of inventory write offs and
incremental costs of re-establishing operations for the six months
ended 30 June 2017 is $3.1 million and has been included within
other operating income.
5. Investment income
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
------------------------------------------ ----------- ------------- ----------
Interest receivable on Parent Group cash
* 0.1 1.4 2.2
Other interest receivable and similar
income 0.8 1.0 1.6
Income from other investments 0.2 0.3 0.5
----------- ------------- ----------
1.1 2.7 4.3
=========== ============= ==========
* Cash relating to the realisation of investments previously
held by Coats Group plc.
6. Finance costs
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------- ----------- ------------- ----------
Interest on bank and other borrowings 6.7 7.2 14.4
Net interest on pension scheme assets
and liabilities 5.1 7.1 13.6
Other finance costs including unrealised
gains and losses on foreign exchange contracts 0.5 6.6 7.9
----------- ------------- ----------
12.3 20.9 35.9
=========== ============= ==========
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
7. Taxation
The taxation charges for the six months ended 30 June 2017 and
30 June 2016 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 2017 the tax credit in respect
of exceptional and acquisition related items was $0.4 million (30
June 2016: $nil). For the year ended 31 December 2016 the tax
credit in respect of exceptional and acquisition related items was
$0.4 million.
8. Earnings per share
The calculation of basic earnings per ordinary share from
continuing operations is based on the profit from continuing
operations attributable to equity shareholders and the weighted
average number of ordinary shares in issue during the period,
excluding shares held by the Employee Benefit Trust but including
shares under share incentive schemes which are not contingently
issuable.
The calculation of basic earnings per ordinary share from
continuing and discontinued operations is based on the profit
attributable to equity shareholders. The weighted average number of
ordinary shares used for the calculation of basic earnings per
ordinary share from continuing and discontinued operations is the
same as that used for basic earnings per ordinary share from
continuing operations.
For diluted earnings per ordinary share, the weighted average
number of ordinary shares in issue is adjusted to include all
potential dilutive ordinary shares. The Group has two classes of
dilutive potential ordinary shares: those share options granted to
employees where the exercise price is less than the average market
price of the Company's ordinary shares during the period and those
long-term incentive plan awards for which the performance criteria
would have been satisfied if the end of the reporting period were
the end of the contingency period.
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------- ----------- ------------- ----------
Profit from continuing operations attributable
to equity shareholders 40.4 29.3 63.8
Profit from continuing and discontinued
operations attributable to equity shareholders 40.4 26.3 59.3
----------- ------------- ----------
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
Number Number Number
of shares of shares of shares
m m m
-------------------------------------------- ----------- ------------- -----------
Weighted average number of ordinary shares
in issue for basic earnings per share 1,398.0 1,383.6 1,386.6
Adjustment for share options and LTIP
awards 27.2 - 20.5
----------- ------------- -----------
Weighted average number of ordinary shares
in issue for diluted earnings per share 1,425.2 1,383.6 1,407.1
----------- ------------- -----------
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
cents cents cents
------------------------------------- ----------- ------------- ----------
Continuing operations:
Basic earnings per ordinary share 2.89 2.11 4.60
Diluted earnings per ordinary share 2.83 2.11 4.53
----------- ------------- ----------
Continuing and discontinued operations:
Basic earnings per ordinary share 2.89 1.90 4.28
Diluted earnings per ordinary share 2.83 1.90 4.22
----- ----- -----
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
9. Issued share capital
During the six months ended 30 June 2017 the Company issued
4,830,338 Ordinary Shares of 5p each (six months ended 30 June
2016: nil; year ended 31 December 2016: nil) following the exercise
of share options as set out below:
Number of Shares US$m
At 1 January 2017 1,407,612,282 127.0
Issue of ordinary shares 4,830,338 0.3
Change in functional currency (see note
1) - (39.9)
------------------- -------
At 30 June 2017 1,412,442,620 87.4
=================== =======
The own shares reserve of $8.6 million at 30 June 2017 (31
December 2016: $10.5 million; 30 June 2016: $10.5 million)
represents the cost of shares in Coats Group plc purchased in the
market and held by an Employee Benefit Trust to satisfy awards
under the Group's share based incentive plans. The number of shares
held by the Employee Benefit Trust at 30 June 2017 was 21,080,933
(31 December 2016: 25,746,861; 30 June 2016: 25,900,080).
10. Dividends
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
-------------------------------------- ----------- ------------- ----------
2016 final dividend paid - 0.84 cents
per share 11.7 - -
=========== ============= ==========
The directors have declared an ordinary interim dividend per
share of 0.44 cents (30 June 2016: nil) to be paid on 17 November
2017 to shareholders on the register on 27 October 2017. In line
with the requirements of IAS 10 Events after the Reporting Period,
these condensed consolidated financial statements do not reflect
this interim dividend payable.
11. 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 52 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 has entered into an administrative order on consent ('AOC')
with Occidental Chemical Corporation ('OCC'), which 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. Maxus Energy
Corporation ('Maxus'), which provided an indemnity to OCC, filed
for bankruptcy protection in June 2016, but OCC is expected to pay
its share of the remedial costs even if Maxus obtains some degree
of protection in the bankruptcy proceeding, and objections have
been filed opposing such protection. 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 March 2017, EPA notified 20 parties not associated with the
disposal or release of any contaminants of concern as being
eligible for early cash out settlements. As expected, EPA did not
identify CC as one of the 20 parties. At the same time, EPA also
announced its intention to separately identify those parties
responsible for the discharge of dioxins, furans or polychlorinated
biphenyls, being the most significant risk drivers, in a
forthcoming letter. Parties that are neither offered an early cash
out settlement nor associated with the primary risk drivers will be
invited to participate in an allocation process to determine their
eligibility for a separate cash out settlement. CC has previously
indicated to EPA that it is not responsible for the primary risk
drivers.
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 estimated share of de minimis 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 2017, $3.7 million of this provision had been utilised. The
remaining provision at 30 June 2017, taking into account insurance
reimbursement, was $12.1 million. The process concerning the LPR
continues to evolve and these estimates are subject to change based
upon the scope of the remedy selected by EPA, the share of remedial
costs to be paid by the major polluters on the river, and the share
of remaining remedial costs apportioned among CC and other
companies.
Coats believes that CC's predecessor did not generate any of the
contaminants which are driving the current and anticipated remedial
actions in the LPR, that it has valid legal defences which are
based on its own analysis of the relevant facts, that it is a de
minimis party, and that additional parties not currently in the CPG
will be responsible for a signi cant share of the ultimate costs of
remediation. However, as this matter evolves, CC could record
additional provisions and such provisions could increase materially
based on further decisions by EPA, negotiations among the parties,
and other future events.
12. 12. Notes to the condensed consolidated cash flow statement
a) Reconciliation of operating profit to net cash (outflow)/inflow from operations
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
---------------------------------------------- ----------- ------------- ----------
Operating profit 86.5 78.0 153.3
Depreciation 15.2 16.1 31.9
Amortisation of intangible assets 4.9 4.2 8.8
Acquisition related items (see note
3) 2.7 1.5 4.6
----------- ------------- ----------
Operating profit before exceptional
and acquisition related items, depreciation
and amortisation (Adjusted EBITDA) 109.3 99.8 198.6
Increase in inventories (25.1) (17.7) (3.7)
(Increase)/decrease in debtors (30.4) (27.7) 5.9
Increase/(decrease) in creditors 18.9 (7.5) (5.7)
Provision and pension movements (353.2) (76.0) (113.3)
Currency and other non-cash movements 3.5 1.3 2.5
Discontinued operations (0.5) (3.9) (4.9)
----------- ------------- ----------
Net cash (outflow)/inflow from operations (277.5) (31.7) 79.4
=========== ============= ==========
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
b) Investment income
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
---------------------------------------- ----------- ----------- ----------
Interest and other income 0.2 1.4 3.0
Dividends received from joint ventures 1.1 1.0 1.0
1.3 2.4 4.0
=========== =========== ==========
c) Capital expenditure and financial investment
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
----------------------------------------------- ----------- ----------- ----------
Acquisition of property, plant and equipment
and intangible assets (19.8) (17.5) (40.1)
Acquisition of available-for-sale investments (0.1) - -
Disposal of available-for-sale investments - - 0.3
Disposal of property, plant and equipment 0.2 1.1 1.1
(19.7) (16.4) (38.7)
=========== =========== ==========
d) Acquisitions and disposals
Half year Half year Full year
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
----------------------------------- ------------ ----------- ----------
Acquisition of businesses - (35.4) (36.3)
Investment in joint venture - (0.4) (0.4)
Discontinued operations (note 13) - (4.1) (3.7)
------------ ----------- ----------
- (39.9) (40.4)
================================================ =========== ==========
e) Summary of net (debt)/cash
30 June 30 June 31 December
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
---------------------------------------- ----------- ----------- ------------
Parent group cash and cash equivalents
* 2.1 396.0 343.1
Other cash and cash equivalents 140.1 138.7 133.4
----------- ----------- ------------
Total cash and cash equivalents 142.2 534.7 476.5
Bank overdrafts (4.4) (8.3) (6.2)
----------- ----------- ------------
Net cash and cash equivalents 137.8 526.4 470.3
Other borrowings (398.3) (467.3) (392.1)
Total net (debt)/cash (260.5) 59.1 78.2
=========== =========== ============
* Parent group cash and cash equivalents at 31 December 2016 and
30 June 2016 related to the realisation of investments previously
held by Coats Group plc. During the six months ended 30 June 2017,
upfront pension payments were made into the UK Coats Pension Plan,
the Brunel Holdings Pension scheme and the Staveley Industries
Retirement Benefit Scheme out of Parent group cash following the
signing of binding settlement agreements with the Trustees of the
schemes.
13. 13. Discontinued operations and assets held for sale
Following on from the disposal of the EMEA Craft business in
2015, Coats closed its loss-making UK Crafts operations with the
business ceasing operations during the second half of 2016. The
results of the UK Crafts business for the year ended 31 December
2016 were reported as a discontinued operation and amounts for the
six month ended 30 June 2016 have been restated to reflect the UK
Crafts business as a discontinued operation.
The results of the discontinued UK Crafts business are presented
below.
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
----------------------------------- ------------ -------------- ----------
Revenue - 6.8 8.8
Cost of sales - (5.3) (6.7)
------------ -------------- ----------
Gross profit - 1.5 2.1
Distribution costs - (3.2) (3.8)
Administrative expenses - (1.2) (2.8)
------------ -------------- ----------
Operating loss - (2.9) (4.5)
Finance costs - (0.1) -
------------ -------------- ----------
Loss before taxation - (3.0) (4.5)
Tax on loss - - -
------------ -------------- ----------
Loss from discontinued operations - (3.0) (4.5)
------------ -------------- ----------
The UK Crafts results for the six months ended 30 June 2016
included exceptional closure related costs of $1.0 million (year
ended 31 December 2016: $1.2 million).
The loss per ordinary share from discontinued operations is as
follows:
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
Cents Cents Cents
------------------------------------------- ------------ -------------- ----------
Loss per ordinary share from discontinued
operations:
Basic and diluted - (0.21) (0.32)
------------ -------------- ----------
The table below sets out the cash flows from discontinued
operations:
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------- ----------- -------------- ----------
Net cash outflow from operating activities (0.5) (3.9) (4.9)
Net cash outflow from investing activities - (4.1) (3.7)
Net cash flows from discontinued operations (0.5) (8.0) (8.6)
=========== ============== ==========
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
Assets held for sale
The non-current assets held for sale are property, plant and
equipment of $0.2 million (31 December 2016: $0.2 million, 30 June
2016: $0.2 million).
14. Alternative performance measures
Alternative performance measures included in this report are
non-GAAP (Generally Accepted Accounting Practice) measures and
provide supplementary information to assist with the understanding
of the Group's financial results and with the evaluation of
operating performance for all the periods presented. Non-GAAP
amounts, however, are not a measure of financial performance under
IFRS and should not be considered as a substitute for measures
determined in accordance with GAAP. A reconciliation of non-GAAP
financial measures to the most directly comparable GAAP financial
measures is included below. The non-GAAP measures set out below are
key performance indicators (KPIs) and have been chosen by the Board
to measure the Group's progress, development and ongoing
performance. Further details on KPIs, including explanations as to
why they are used, are set out in Coats Group plc's Annual Report
and Accounts for the year ended 31 December 2016 on pages 14 and
15.
a) Organic growth on a constant exchange rate (CER) basis
Organic growth measures the change in revenue and operating
profit after adjusting for acquisitions. The effect of acquisitions
is equalised by:
-- removing from the year of acquisition, their revenue and operating profit; and
-- in the following year, removing the revenue and operating
profit for the number of months equivalent to the pre-acquisition
period in the prior year.
The effects of currency changes are removed through restating
prior year revenue and operating profit at current period exchange
rates.
Half year Half year
2017 2016 *
unaudited unaudited
Revenue US$m US$m % Growth
------------------------------------ ----------- ------------- ---------
Revenue from continuing operations 740.0 713.2 4%
Constant currency adjustment - (7.1)
----------- ------------- ---------
Revenue on a CER basis 740.0 706.1 5%
Revenue from acquisitions (13.1) -
Organic revenue on a CER basis 726.9 706.1 3%
=========== ============= =========
Half year Half year
2017 2016 *
unaudited unaudited
Operating profit US$m US$m % Growth
------------------------------------------------ ----------- ------------- ---------
Operating profit from continuing operations(1) 86.5 78.0 11%
Exceptional and acquisition related
items (note 3) 2.7 1.5
----------- ------------- ---------
Adjusted operating profit from continuing
operations 89.2 79.5 12%
Constant currency adjustment - (1.1)
----------- ------------- ---------
Operating profit on a CER basis 89.2 78.4 14%
Operating profit from acquisitions (3.0) -
Organic operating profit on a CER basis 86.2 78.4 10%
=========== ============= =========
(1) Refer to the condensed consolidated income statement for a
reconciliation of profit before taxation to operating profit.
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
b) Pre-exceptional operating profit before depreciation and
amortisation (Adjusted EBITDA)
Adjusted EBITDA for the six months ended 30 June 2017 was $109.3
million (six months ended 30 June 2016: $99.8 million*; year ended
31 December 2016: $198.6 million). Adjusted EBITDA on a last twelve
months basis to 30 June 2017 was $208.1 million (30 June 2016:
$196.2 million*). Net debt for the Coats operating business
(excluding Parent Group cash) at 30 June 2017 was $262.6 million
(30 June 2016: $336.9 million, 31 December 2016: $264.9 million).
This gives a leverage ratio of net debt to Adjusted EBITDA of 1.3
(30 June 2016: 1.7, 31 December 2016: 1.3). Refer to notes 12(a)
and 12(e) for definitions and calculations of Adjusted EBITDA and
net debt.
c) Underlying effective tax rate
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
------------------------------------------- ----------- ------------- ----------
Profit before taxation 75.8 60.2 122.5
Exceptional and acquisition related items
(note 3) 2.7 1.5 4.6
Net interest on pension scheme assets
and liabilities (note 6) 5.1 7.1 13.6
----------- ------------- ----------
Underlying profit before taxation 83.6 68.8 140.7
----------- ------------- ----------
Taxation 27.2 22.7 46.8
Tax credit in respect of exceptional and
acquisition related items 0.4 - 0.4
Underlying taxation charge 27.6 22.7 47.2
----------- ------------- ----------
Underlying effective tax rate 33% 33% 34%
=========== ============= ==========
d) 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 as
set out below:
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ -------------- -------------- --------------
Profit from continuing operations 48.6 37.5 75.7
Non-controlling interests (8.2) (8.2) (11.9)
-------------- -------------- --------------
Profit from continuing operations attributable
to equity shareholders 40.4 29.3 63.8
Exceptional and acquisition related items
(note 3) 2.7 1.5 4.6
Tax credit in respect of exceptional and
acquisition related items (0.4) - (0.4)
Adjusted profit from continuing operations 42.7 30.8 68.0
-------------- -------------- --------------
Weighted average number of Ordinary Shares 1,397,982,741 1,383,560,539 1,386,628,130
-------------- -------------- --------------
Adjusted earnings per share (cents) 3.06 2.22 4.91
-------------- -------------- --------------
Adjusted earnings per share (growth %) 38%
==============
The weighted average number of Ordinary Shares used for the
calculation of adjusted earnings per share is the same as that used
for basic earnings per Ordinary Share from continuing operations
(see note 8).
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
e) Adjusted free cash flow
A reconciliation of the change in net cash resulting from cash
flows (free cash flow), the most comparable GAAP measure, to
adjusted free cash flow is set out below:
Half year Half year Full year
2017 2016 * 2016
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ ----------- ------------- ----------
Change in net cash resulting from cash
flows (free cash flow) (345.4) (134.1) (83.7)
Acquisition of businesses (note 12(d)) - 35.4 36.3
Net cash flows from discontinued operations
(note 13) 0.5 8.0 8.6
Net cash outflow in respect of reorganisation
costs 0.2 6.7 8.0
UK Pensions Regulator ('tPR') investigation
costs 2.0 2.3 3.7
Payments to UK pension schemes 352.7 64.9 99.1
Net cash flows in respect of other exceptional
and acquisition
related items 1.7 3.3 4.2
Purchase of own shares by Employee Benefit
Trust - 2.9 2.9
Receipts from exercise of share options (2.5) - (0.2)
Dividends paid to equity shareholders 11.4 - -
Tax inflow in respect of adjusted cash
flow items (0.1) (0.1) (0.8)
----------- ------------- ----------
Adjusted free cash flow 20.5 (10.7) 78.1
=========== ============= ==========
Adjusted free cash flow on a last twelve months' basis to 30
June 2017 was $109.3 million (30 June 2016: $84.0 million).
* Restated to reflect the results of the UK Crafts business as a
discontinued operation (see note 1).
f) Return on capital employed
Return on capital employed ('ROCE') is defined as operating
profit before exceptional and acquisition related items on a last
twelve months' basis divided by period end capital employed as set
out below.
30 June 30 June 31 December
2017 2016 2016
unaudited unaudited audited
US$m US$m US$m
------------------------------------------- ----------- ----------- ------------
Operating profit before exceptional
and acquisition related items on a last
twelve months' basis 167.6 154.3 157.9
Non-current assets
Acquired intangible assets (*) 39.8 37.7 37.9
Property, plant and equipment 268.5 267.0 265.9
Trade and other receivables 17.6 18.9 16.1
Current assets
Inventories 235.4 226.8 205.8
Trade and other receivables 280.7 295.7 248.4
Current liabilities
Trade and other payables (324.7) (313.7) (310.8)
Non-current liabilities
Trade and other payables (17.1) (10.5) (15.8)
----------- ----------- ------------
Capital employed 500.2 521.9 447.5
----------- ----------- ------------
ROCE 34% 30%* 35%*
----------- ----------- ------------
The amounts shown above for current assets and current
liabilities at 30 June 2016 have been restated to exclude the
discontinued UK Crafts business.
(*) With effect from 1 January 2017 capital employed used in the
definition of ROCE includes intangible assets acquired in
connection with the acquisitions of GSD, Fast React and Gotex. ROCE
for prior periods have been restated consistent with the current
period definition. This change has been made to better measure the
ability of the Group's assets to deliver returns including
intangible assets acquired through acquisitions of businesses by
Coats.
15. Fair value of assets and liabilities
As at 30 June 2017 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).
Total Level 1 Level 2 Level 3
30 June 2017 US$m US$m US$m US$m
-------------------------------------------- ------ -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Forward foreign exchange contracts 1.8 - 1.8 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Equity investments 1.4 - - 1.4
Interest rate swap contracts
designated as effective hedging
instruments 0.3 - 0.3 -
------ -------- -------- --------
Total 3.5 - 2.1 1.4
------ -------- -------- --------
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:
Forward foreign exchange contracts 2.5 - 2.5 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Equity investments 1.7 - - 1.7
Total 4.2 - 2.5 1.7
------ -------- -------- --------
Total Level 1 Level 2 Level 3
31 December 2016 US$m US$m US$m US$m
-------------------------------------------- ------ -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Forward foreign currency contracts 3.1 - 3.1 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Equity investments 1.3 - - 1.3
Interest rate swap contracts
designated as effective hedging
instruments 0.5 - 0.5 -
------ -------- -------- --------
Total 4.9 - 3.6 1.3
------ -------- -------- --------
Total Level 1 Level 2 Level 3
30 June 2017 US$m US$m US$m US$m
-------------------------------------------- ------ -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Forward foreign currency contracts (1.9) - (1.9) -
Total (1.9) - (1.9) -
------ -------- -------- --------
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:
Forward foreign currency contracts (7.9) - (7.9) -
Financial liabilities measured
at fair value through the statement
of comprehensive income:
Interest rate swap contracts
designated as effective hedging
instruments (3.2) - (3.2) -
------- -------- -------- --------
Total (11.1) - (11.1) -
------- -------- -------- --------
Total Level 1 Level 2 Level 3
31 December 2016 US$m US$m US$m US$m
-------------------------------------------- ------ -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Forward foreign currency contracts (8.7) - (8.7) -
Total (8.7) - (8.7) -
------ -------- -------- --------
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
The principal risks and uncertainties which may have an impact
on the Group's operations, performance or future prospects remain
those detailed in Coats Group plc's Annual Report and Accounts for
the year ended 31 December 2016. These principal risks and
uncertainties are as follows:
High impact operational risks
-- Product liability
-- Environmental non-performance
-- Failure of critical infrastructure
-- Data controls and security
-- Bribery and anti-competitive behaviour
Material legacy risks
-- Pension scheme deficit funding *
-- Legacy environmental risks
Risks to strategy delivery
-- Appropriate capability development
-- Emergence of disruptive competitor behaviour in core markets
-- Economic risk
More information on these principal risks and uncertainties
together with an explanation of the Group's approach to risk
management is set out in Coats Group plc's Annual Report and
Accounts for the year ended 31 December 2016 on pages 20 to 24, a
copy of which is available on the Group's website,
www.coats.com.
* In relation to the material legacy risks, the Coats Group plc
Annual Report and Accounts for the year ended 31 December 2016
noted that the UK Pensions Regulator's investigation in relation to
the Staveley scheme could lead to a Financial Support Direction
being imposed on the Group. As announced on 26 June 2017, the Group
signed a binding settlement agreement with the Staveley scheme and,
as a result, the UK Pensions Regulator confirmed that its
regulatory action has ceased in relation to the Staveley
scheme.
17. Seasonality
The Group's revenues and profits have not historically been
subject to significant seasonal trends. The working capital cycle
of the Group 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 2016 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 directors of Coats Group plc during
the half year ended 30 June 2017 and up to the date of this
report:
M Clasper CBE
R Sharma
M N Allen
R Anderson
S Boddie
N Bull
D Gosnell
F Philip
A Rosling CBE
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,
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,
M Clasper
Chairman
31 July 2017
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
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