TIDMCOA
RNS Number : 8193H
Coats Group PLC
01 August 2023
1 August 2023
Coats Group plc
Interim Results 2023
This statement contains inside information
Improving margins, strong free cash flow and continuing market
share gains
Coats Group plc ('Coats,' the 'Company' or the 'Group'), the
world's leading industrial thread and footwear components
manufacturer, announces its unaudited results for the six months
ended 30 June 2023.
Continuing operations H1 2023 H1 2022 H1 2023 vs H1 2022
---------------------------------------- -------- --------
Organic
Reported CER (1) (1)
---------------------------------------- -------- -------- --------- -------- --------
Revenue $715m $801m (11%) (6%) (19%)
Adjusted (1)
Operating profit $107m $125m (14%) (9%) (21%)
Basic earnings per share 3.5c 4.3c (18%)
Free cash flow $52m $30m
Net debt (excl. lease liabilities) $399m $195m
Reported (2)
Operating profit $72m $111m (35)% (31)% (34)%
Basic earnings per share
(4) 1.5c 3.4c (55%)
Net cash generated by operating
activities $53m $20m
Interim dividend per share 0.81c 0.70c
Strategic Highlights
-- Strategic projects delivered a further $21 million of efficiencies,
with 2023 guidance increased from $20 million to $30 million
and overall project savings on track for $70 million by 2024
for $50 million cash cost
-- Delivered $5 million of integration efficiencies from Texon
and Rhenoflex integration in the first half, with full year
run-rate synergies now expected to be $15 million, increased
from $11 million in 2024
-- As a result of strategic actions, increased adjusted operating
margin of 15.0%, up 30bps on H1 2022 on a proforma basis (including
acquisitions)
-- Continued portfolio optimisation activity, with agreement announced
in July 2023 to divest low margin European Zips business
-- New Sustainability Hub opened in Madurai, India to work alongside
Shenzhen, China on driving further innovation in sustainable
materials and supporting recycled and renewable materials transition
-- Further good progress towards deficit cash payment "off trigger"
for UK pension scheme, with potential to increase free cash
flows within short to medium term
Financial Highlights
-- Reported revenue down 11%, including contributions from 2022
Footwear acquisitions
-- Organic revenue 19% lower against strong comparators, adversely
impacted by widespread industry destocking in Apparel and Footwear,
and previously disclosed customer contract insourcing in Performance
Materials
-- Continuing market share gains in both Apparel and Footwear thread
and components, and key contract wins in Performance Materials
-- Resilient operating margins reflect accelerated efficiencies
from strategic projects and from integration of Footwear acquisitions,
together with ongoing pricing benefits, with input costs moderating
in some areas
-- Strong free cash flow of $52 million, despite significantly
lower volumes, as a result of efficiencies and excellent working
capital control. Half year net debt (excluding lease liabilities)
of $399 million, with 1.6x leverage (3) , comfortably within
1-2x target range
-- Interim dividend of 0.81 cents per share, up 15% vs 2022; reflecting
our confidence in delivering progress for the benefit of all
our stakeholders in 2023 and beyond
Outlook
As expected, the first half reflected the continuation of the
widespread industry destocking in Apparel and Footwear, against a
very strong prior year comparator, together with the previously
disclosed customer contract in-sourcing in Performance Materials.
While we have continued to make market share gains and underpin
performance through our actions during the half, we are now
expecting a more gradual improvement in market demand during the
second half . As a result, we continue to expect our full year
trading to be in line with market expectations, albeit towards the
lower end of the analyst forecast range.(5) Further, we remain
confident that due to our actions, and supported by increasing
market volumes, we will achieve our 2024 margin goal of c.17%.
Our leadership positions in industrial threads and footwear
components, wide geographic footprint, strong digital platform and
technical support capabilities, enable us to offer a differentiated
customer proposition. This, when combined by our investment in
innovation and our growing, industry-leading sustainably sourced
and manufactured products, means we are well positioned to grow our
revenue and margin over the longer term, with ongoing strong cash
generation supporting investment in our strategy.
Commenting on the results Rajiv Sharma, Group Chief Executive,
said:
"Coats' trading performance in the first half of 2023 was
against a strong prior year comparator and the backdrop of
widespread industry destocking.
We have continued to make significant progress on our strategic
objective of making Coats a stronger, fitter and more focused
Group. Our clearly-differentiated customer proposition enabled us
to further increase our market share in Apparel and Footwear and
secure key contract wins in Performance Materials. We opened a new
Sustainability Hub in India to develop next-generation materials
for sustainable threads and continued to optimise our portfolio
with an agreement to divest our low-margin European Zips business.
Our financial results demonstrate the effectiveness of our actions
in driving our margin performance and free cash flow.
On our strategic projects, we delivered a further $21 million of
efficiencies in the half and are increasing our 2023 guidance from
$20 million to $30 million, with overall project savings on track
for $70 million by 2024. Additionally, we now expect increased
full-year run-rate synergies from the integration of Texon and
Rhenoflex of $15 million in 2023, up from $11 million in 2024
previously.
Our leadership position in industrial threads and footwear
components, when combined with our investment in innovation and
sustainably-sourced and manufactured products, positions us well to
grow our revenue and margin and deliver ongoing strong cash
generation in line with our strategy."
(1.) Adjusted measures are non-statutory measures (Alternative
Performance Measures). These are reconciled to the nearest
corresponding statutory measure in note 15. Constant Exchange Rate
(CER) metrics are H1 2022 results restated at H1 2023 exchange
rates. Organic figures are on a CER basis and exclude contributions
from Texon and Rhenoflex acquisitions.
(2.) Reported metrics refer to values contained in the IFRS
column of the primary financial statements in either the current or
comparative period.
(3.) Leverage calculated on a proforma and frozen GAAP basis and
therefore excludes the impact of IFRS 16 on both adjusted EBITDA
and net debt and includes a full 12 months of EBITDA for Texon and
Rhenoflex.
(4.) From continuing operations.
(5) Current company compiled analyst forecast range for Group
adjusted operating profit in the year to 31 December 2023 is $240
million to $261 million.
Conference Call
Coats Management will present its interim results in a webcast
at 09.45 BST today (Tuesday, 1 August 2023). The webcast can be
accessed at www.coats.com/en/investors/investors-overview . The
webcast will also be made available for replay on www.coats.com
.
Enquiry details
Julian Wais / Victoria +44 (0)7720 999
Investors Huxster Coats Group plc 764
Richard Mountain / Nick +44 (0)20 3727
Media Hasell FTI Consulting 1374
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About Coats Group plc
Coats is a world leader in thread manufacturing and structural
components for apparel and footwear, as well as an innovative
pioneer in performance materials. These critical solutions are used
to create a wide range of products, including ones that provide
safety and protection for people, data and the environment.
Headquartered in the UK, Coats is a FTSE250 company and a FTSE4Good
Index constituent. Revenue in 2022 was $1.6 billion. Trusted by the
world's leading companies to deliver crucial, innovative, and
sustainable solutions, Coats provides value-adding products
including apparel, accessory and footwear threads, structural
footwear components, fabrics, yarns and software applications.
Customer partners include companies from the apparel, footwear,
automotive, telecoms, personal protection, and outdoor goods
industries. With a proud heritage dating back more than 250 years
and spirit of evolution enabling it to constantly stay ahead of
changing market needs, Coats has operations across some 50
countries with a workforce of 17,000, serving its customers
worldwide. Coats connects talent, textiles, and technology, to make
a better and more sustainable world. Worldwide, there are four
dedicated Coats Innovation Hubs, where experts collaborate with
partners to create the materials and products of tomorrow. It
participates in the UN Global Compact and is committed to Science
Based sustainability targets for 2030 and beyond, with a target of
achieving 'net zero' by
2050. Coats is also committed to achieving its goals in
Diversity, Equity & Inclusion, workplace health & safety,
employee & community wellbeing, and supplier social
performance. To find out more about Coats visit www.coats.com .
Cautionary statement
Certain statements in this interim report are forward-looking.
Although the Group believes that the expectations reflected in
these forward-looking statements are reasonable, we can give no
assurance that these expectations will prove to have been correct.
Because these statements contain risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements. We undertake no obligation to
update any forward-looking statements, whether as a result of new
information, future events or otherwise.
The information contained within this announcement is deemed by
the Company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK
domestic law by virtue of the European Union (Withdrawal) Act 2018.
Upon the publication of this announcement via the Regulatory
Information Service, this inside information is now considered to
be in the public domain. For the purposes of Article 2 of
Commission Implementing Regulation (EU) 2016/1055, the person
responsible for arranging for the release of this announcement on
behalf of Coats Group plc is Jackie Callaway, Chief Financial
Officer.
Group Chief Executive's review
Purpose and Strategy
Coats is the world's leading industrial thread and footwear
components company. Our purpose is to connect talent, textiles and
technology to make a better and more sustainable world. Our
strategy is to accelerate profitable sales growth by leveraging
innovation, sustainability, digital technologies and our global
scale to create world class products and services, delivering value
to our stakeholders.
2023 Interim Results Overview
Introduction
As expected, it has been a challenging first half with reported
revenue down by 11%, including the contribution from the 2022
Footwear acquisitions. This was driven by lower Group organic
revenue of 19%, which was adversely impacted by widespread industry
destocking in Apparel (20% organic decrease) and Footwear (23%
organic decrease) in particular, together with the previously
disclosed customer contract in-sourcing in Performance Materials
(14% organic decrease). This performance also reflects very tough
comparator numbers, around the peak of unprecedented growth from
customer restocking in the prior period, following the lifting of
COVID restrictions. Industry inventory levels are continuing to
moderate. However, the precise timing of the recovery in volumes is
difficult to predict with certainty, although Coats is increasingly
well-positioned to benefit from this.
We have continued to make significant progress against our
strategic objectives, despite the industry headwinds. We further
increased our estimated market share in apparel threads in the half
by around 100 bps (to c.24%). We also estimate an increase in
footwear market share by around 100 bps in threads (to c.28%) and
components (to c.24%), giving a blended c.26% footwear market
share. We are able to increase our market share year-on-year, as
consistently demonstrated, because we are the global leader in
industrial threads and footwear components, offering a
differentiated customer proposition that others cannot replicate.
This includes our global presence, which offers customers
flexibility and responsiveness, as well as our strong digital
platform and technical support capabilities. In addition, our
investment in innovation enables us to bring to market a growing
and industry-leading range of in-demand, sustainably sourced
products. This is complemented by an ongoing programme to make our
own operations demonstrably sustainable, which is driven by
consumers and the requirements of leading, global brands.
We have continued to invest in bringing new sustainable products
to market. In the first half, we opened a new Sustainability Hub in
Madurai, India to sit alongside our recently re-purposed Shenzhen,
China Hub. These Hubs are working together to innovate next
generation materials for sustainable threads. In addition, having
set new shorter term sustainability targets for our own operations
at the last full year results, we are putting in place measures to
reach our targets, with reductions in Scope 1 and Scope 2 emissions
already tracking ahead of the 2030 target trend line.
In the context of the significantly lower sales volumes in the
half, and our continued investments, we are pleased with our
adjusted operating profit performance of $107 million (H1 2022;
$125 million), with an adjusted operating margin of 15.0% (H1 2022:
15.6%). This is only 50bps lower compared to the prior period, and
90bps higher than H2 2022. On a proforma basis operating margins
were up 30bps year-on-year, including the contribution from our
July and August 2022 acquisitions in the first half 2022
performance. This result includes the beneficial impact of our
strategic projects, which commenced in March 2022, and which we
have continued to progress at pace. These self-help measures have
delivered a further $21 million of efficiencies in the half and we
have increased our full year guidance from $20 million to $30
million (in addition to the $20 million of savings delivered in
2022). Overall project savings are on track for $70 million by 2024
. We have also benefited from being able to largely maintain our
2022 pricing, without increasing customer churn. This has been
achieved during a period where we have seen moderating input costs
in some areas, such as raw materials and freight, although wage
inflation, in particular, remains elevated. Customer loyalty
reflects our market differentiation, including the quality of our
products and our high-levels of customer service. Reported
operating profit was $72 million (H1 2022: $111 million).
We remain confident that due to our actions, and supported by
increasing market volumes, we will achieve our 2024 margin goal of
c.17%. In addition we remain on track to deliver our medium term
organic revenue growth CAGR of c.6%
Our Footwear components acquisitions have not been immune from
the significant industry destocking in the half, performing in line
with the Footwear division as a whole. Notwithstanding this, our
rationale for these acquisitions remains intact. Our Footwear
division is now the leading global component and thread supplier to
the highly attractive footwear market, within a fragmented supply
chain. In addition, the division has a strong focus on the faster
growth and premium-priced quality, sports and athleisure brands
with an enhanced portfolio of sustainable products from recycled
and biomaterial sources. Indeed, we are seeing great potential from
the cross-selling of our broad range of complementary products, as
customers look to consolidate their supply chain with a
longstanding and trusted supplier, and there are several long
lead-time opportunities currently in train with leading brands. We
have also delivered $5 million of initial efficiencies from the
integration of Texon and Rhenoflex in the half, also favourably
impacting our operating margin. We now expect to deliver $15
million of run-rate efficiencies by the end of the year, ahead of
our previous $11 million targeted savings by 2024. Our enhanced
portfolio of footwear components and thread means, as previously
announced, that we are reporting these results for the first time
according to three new divisions: Apparel, Footwear and Performance
Materials.
What is also pleasing is that during the half we have generated
positive free cash flow, despite the significant volume headwinds.
We generated adjusted free cash flow of $52 million (H1 2022: $30
million). N et debt (excluding lease liabilities) at 30 June 2023
was $399 million (31 December 2022: $394 million), with proforma
leverage of 1.6x net debt/EBITDA, remaining comfortably within our
target range of 1-2x net debt/EBITDA.
UK Pensions
We continue to make significant positive progress in relation to
the de-risking of our defined benefit UK pension position. Our
aspiration remains, in the medium term, to fully insure the Scheme
and remove it from the Group balance sheet, in a cost effective
manner.
Since we updated in March 2023, where we highlighted the new on
/ off trigger mechanism agreed with the Trustees of the Scheme, we
have seen further improvements in the funding position to a deficit
of GBP25 million (being 99% of the technical deficit valuation). We
have also agreed with the Trustees an amendment to the on / off
trigger mechanism to reflect the latest mortality assumptions. This
has reduced the funding range for the on / off triggers to 98-100%
(previously 99-101%), further increasing the probability of the off
trigger being reached in the near future. This has the potential to
significantly reduce or eliminate the existing levels of cash
contributions made into the Scheme, and thereby increase free cash
flows generated by the Group, within the short to medium term.
Strategic Projects
Building on our long track record of delivering efficiencies, we
have continued to progress our strategic projects, originally
announced in March 2022 at pace. These will optimise our footprint,
manage our cost base lower and deliver operating efficiencies, as
well as mitigate structural labour availability issues in the US.
These projects are beneficial to the Group's margin in a period of
industry-wide headwinds, and position us to deliver growth and
margin enhancement once markets recover.
The scope of these projects was expanded in March 2023, and we
expect to deliver total savings of $70 million by 2024, for a total
cash cost of $50 million. In the half, we delivered a further $21
million of efficiencies and we have increased our guidance for
incremental benefits in the year from $20 million to $30
million.
Optimising the portfolio and footprint and mitigating structural
US labour availability issues
Our initiatives in the US and Mexico are designed to optimise
our footprint, deliver operating efficiencies and mitigate
structural labour availability in the US. Our new, state-of-the-art
facility at Huamantla, Mexico, which opened towards the end of FY
2022, is now fully operational and performing well. This operates
alongside our existing plant at Orizaba, which has received
significant new investment, and these projects have been completed
on-time. As part of the fit-out of these factories, we have
installed new, proprietary technology which reduces the number of
manufacturing processes and lowers energy consumption, while
increasing our flexibility to meet customer needs. In addition, the
build and fit-out of our second new plant at Toluca, Mexico is now
complete, with commissioning expected during the second half.
Improving the overall cost base efficiency
A further focus is on improving the overall cost base efficiency
of the Group, with particular emphasis on our higher cost UK and US
locations. We have been moving a number of our corporate and
overhead activities closer to our operations and customers. The
implementation of this project was accelerated in FY 2022 with all
actions now completed.
Transformation of Asian Operations, focusing on China and
India
The project to transform our Asian operations has a particular
focus on China and India. This project is designed to optimise our
footprint and efficiency in our long-established Indian operations,
while bringing a greater focus to the increasingly important
domestic market in China. Work in both countries has commenced and
is in line with schedule. In India, there have been headcount
reductions, with office and warehouse space being consolidated. In
China, there have also been headcount reductions with lower-margin
zip production in the process of being outsourced to a third party
supplier, with completion expected before the end of the year.
Texon and Rhenoflex
The 2022 acquisitions of Texon and Rhenoflex have increased our
presence in the footwear market and, when combined with our
existing footwear thread business, has made us the global market
leader in the supply of components to the highly attractive
footwear market, within a fragmented supply chain.
Despite the current de-stocking headwinds, our strategic
rationale for buying these businesses remains intact. These include
a strong focus on fast-growth, premium-priced, sports and
athleisure brands, a portfolio of highly-differentiated and
innovative components, as well as predominantly brand-specified
positions which typically last over the production life of the
end-product. In addition, there is an existing focus on innovation
and sustainability, with a leading portfolio of increasingly
in-demand sustainable products, including recycled and plant based
components. The scale and product differentiation we have in this
market, positions us well to add to our leading market share. We
are working on a number of long-lead time opportunities with
prominent brands on footwear products, that are being directly
enabled by our enhanced presence, complementary capabilities and
customer relationships.
At the time of acquisition, we said we would deliver an initial
$11 million of annualised cost efficiencies from the integration of
the combined business in 2024. These efficiencies principally
relate to the consolidation of duplicated roles and back-office
functions and the delivery of procurement efficiencies. In the
first half, we delivered $5 million of efficiencies, and now expect
to deliver $15 million of run-rate efficiencies in the full year,
ahead of our original plan.
Our planning for the next phase of integration is under way,
which will comprise a consolidation of the division's footprint,
and we expect to announce these plans at the full year 2023
results. We have already consolidated our operations in Vietnam,
bringing together our existing footwear threads operations with our
state-of-the-art footwear components sites, part of the Texon and
Rhenoflex acquisitions. The integrated Vietnamese business is 100%
owned by Coats and now provides a single point of contact for
footwear thread and component customers, innovative new production
technologies and efficiency benefits.
Looking beyond current market conditions, we are well-positioned
in attractive footwear markets with significant, long term growth
characteristics. Having now owned the footwear component businesses
for around a year, we are also increasingly confident that there is
significant opportunity for long-lead revenue synergies and further
market share gains, as well as significantly greater cost
efficiencies than initially planned.
Focusing on Attractive Markets
Our strategy is to drive profitable sales growth with a focus on
attractive markets. This includes optimising our portfolio and
footprint and divesting businesses in less attractive markets,
where there is a lower margin opportunity. Consistent with this, we
have pursued a programme of divestments and business exits in prior
periods, as well as the previously announced divestment of our
smaller business operations in Mauritius and Madagascar in January
2023.
Continuing this progress, in July 2023 we announced an agreement
to divest our low margin European Zips business for a cash
consideration of around $1 million after typical debt-like items
and the transaction is expected to complete in Q3 2023. In the year
ended 31 December 2022, the business generated revenue of around
$50 million with adjusted operating margins well below the Group
average.
Strategic Enablers: Innovation, Sustainability and Digital
Our strategic enablers are Innovation, Sustainability and
Digital and these underpin our strategy to accelerate profitable
sales growth whilst delivering sustainable value to our
stakeholders. We have progressed our enablers in the half, as
follows:
Innovation
We innovate to deliver differentiated, highly-engineered
products with a focus on driving profitable growth. Much of our
innovation is closely linked to sustainability, a key driver in our
markets. Sustainability impacts our markets in a number of
different ways, including through the increased adoption of
products made from recycled or bio-materials, more efficient
production techniques, increasingly lightweight and more protective
products as well as technologies that enable the end-of-life
recycling of products. We innovate according to long term
technology roadmaps and in close collaboration with customers.
All our divisions contribute to the pipeline of new and
innovative products, with a few highlights as follows:
-- Following launch towards the end of 2022, our EcoCycle product,
a water dissolvable concept which enables easy and low-cost
separation of textile and non-textile products in end-of-life
garments, has been developed for specific application to denim
garments;
-- We have a number of projects underway to develop next-generation
materials for garments, including the use of recycled and bio-materials;
-- Using Rhenoprint, (TM) a market-leading process that generates
zero waste in the manufacture of structural components, we have
been able to launch a footwear toe puff which, for the first
time, contains recycled material. In addition, using the same
process, we have started to produce footwear heel counters with
a significantly greater recycled material element;
-- Our Ecostrobe chemical and water-free process has enabled us
to launch our first fully recycled polyester footwear insole.
This differentiated product has now gone into production for
initial customers;
-- Within our Personal Protection business, we have launched a
line of Signal Lucence Pro trims, with early customer interest.
This high visibility tape, which is integrated in protective
clothing for firefighters, has three levels of visibility, offering
fluorescent, reflective and glow-in-the-dark attributes. This
combination in one product is an industry first, enhancing wearer
safety;
-- In addition, we have launched our first dark grey line of reflective
tape for protective clothing. The tape meets all safety regulations,
as well as being more integrated into protective clothing in
a way that traditional silver-coloured trims are not. This meets
a growing demand from larger companies for smart, as well as
compliant employee protective workwear.
Sustainability
Part of our company purpose is to make a better and more
sustainable world, enabling us to help people and the planet. This
focus also helps us to differentiate our offerings, making us a
supplier of choice in the rapidly growing market for sustainable
apparel and footwear products. Also, by using less resources and
being more efficient, this reduces our costs, facilitating greater
headroom for investment, including further innovation and
sustainability applications.
Our long term commitment is to be Net Zero by 2050, initially by
achieving our existing 2030 SBTi goals, which are to reduce our
scope 1 and 2 emissions by over 46%, with scope 3 reduced by 33%
over the same time frame. We also aim to have 70% of our global
energy consumption from renewables by 2030, with no Coats products
to be made from new, oil-extracted materials. We will adopt a
circularity approach, creating products and packaging solutions
that enable recycling and reuse, within our own operations and
across the wider garment industry. We have made particularly good
progress with our scope 1 and 2 emission reduction targets, being
ahead of the 2030 target trend-line. Progress against other SBTi
goals is on track to meet our 2030 goals.
In March 2023, we announced new medium-term sustainability
targets with an FY 2022 baseline. The targets have continued our
focus on people, water, emissions and waste reduction, as well as
product innovation and materials transition. During the period, we
have started to focus on implementing the measures that will enable
us to achieve these new 2026 targets, as part of our Net Zero
journey.
Despite the widespread industry destocking in the first half, we
have continued to increase sales of our range of 100% recycled
products, where we are the clear global market leader. Revenue from
our recycled products increased in the period by 15% on a CER basis
to $70 million, offsetting market headwinds, as customers continue
their transition to sustainable materials.
In line with GHG Protocols for reducing CO2e emissions, we are
changing our disclosure from reporting recycled sales revenue to a
materials transition approach, based on the volume of primary raw
materials that we purchase. This will expand the scope of our
disclosure beyond our premium range of sewing threads, covering
many more sustainable end-use categories for sewing thread, as well
as footwear component materials for the first time, with the
revised disclosure implemented from FY23. Our target is to
transition to 60% of sustainable primary raw materials by 2026.
In March 2023, as part of a previously announced $10 million
investment over five years to help accelerate achievement of Coats
ambitious sustainability targets, we opened our new Sustainability
Hub in Madurai, India. This sits alongside our recently re-purposed
Shenzhen, China Hub. The Hubs are working together to innovate next
generation materials for sustainable threads for apparel, footwear
and performance materials applications, supporting the transition
to recycled and renewable materials . From the same sustainable
investment fund, we are also introducing innovative water-free,
dyeing technology into a number of our manufacturing facilities in
the second half of the year, as well as those of certain
collaborating brands.
Digital
Enhancing our global digital infrastructure and capability is a
key piece of our strategy, and a differentiator in our markets. It
delivers key customer service benefits and embeds relationships, as
well as bringing greater efficiency and flexibility to our
operations.
During the half, we continued to expand usage of our digital
customer ecosystem, ShopCoats, following enhancements made in the
prior year. ShopCoats offers customers efficiency and business
improvements through its automated bulk and sample ordering and
status management capabilities. We have also continued our critical
focus on data protection and security by rolling-out a number of IT
system initiatives across our global operations.
As well as adopting digital technology within our own operations
and connecting these with our customers' systems, Coats Digital,
part of Apparel, sells software to third party customers, with a
recurring theme of making operations more efficient, including
using less resources.
Dividend
Notwithstanding, the widespread destocking in the half, we have
generated good levels of free cash flow and continue to have a
strong Balance Sheet. We are well-positioned in our markets and
seeing continued market share gains, with further growth and margin
opportunities as the market stabilises. With these factors in mind,
the Board has decided to pay an interim dividend of 0.81 cents per
share, a 15% increase on the prior year. The interim dividend will
be paid on 15 November 2023 to ordinary shareholders on the
register at 20 October 2023, with an ex-dividend date of 19 October
2023.
The Board will continue to review the level of dividend payment
to shareholders, on the basis of the performance of the business
and its longer term potential, including margin and earnings
progression, as well as cash generation.
Operating Review
Organic
H1 2022 Inc / CER (1) (3) inc
H1 2023 H1 2022 CER (1) (dec) inc / (dec) / (dec)
------------------------------ -------- -------- --------- --------- ------------- ---------
Continuing operations $m $m $m % % %
------------------------------ -------- -------- --------- --------- ------------- ---------
Revenue
By division
Apparel 354 472 444 (25%) (20%) (20%)
Footwear 184 115 113 60% 64% (23%)
Performance Materials 177 214 205 (18%) (14%) (14%)
-------- -------- ---------
Total 715 801 762 (11%) (6%) (19%)
By region
Asia 398 475 459 (16%) (13%) (21%)
Americas 133 172 170 (23%) (22%) (23%)
EMEA 185 154 133 20% 39% (6%)
-------- -------- ---------
Total 715 801 762 (11%) (6%) (19%)
Adjusted operating
profit (2)
By division
Apparel 53 74 70 (29%) (24%) (24%)
Footwear 38 33 32 17% 19% (24%)
Performance Materials 16 18 16 (9%) - -
-------- -------- ---------
Total adjusted operating
profit 107 125 118 (14%) (9%) (21%)
Exceptional and acquisition
related items (35) (13)
--------
Operating profit 72 111
Adjusted operating
margin (2)
By division
Apparel 15.0% 15.7% 15.7% (80bps) (70bps) (70bps)
Footwear 20.8% 28.5% 28.6% (770bps) (780bps) (40bps)
Performance Materials 9.1% 8.2% 7.8% 90bps 130bps 130bps
-------- -------- ---------
Total 15.0% 15.6% 15.5% (50bps) (50bps) (30bps)
1 Constant Exchange Rate (CER) are 2022 results restated at 2023
exchange rates.
2 On an adjusted basis which excludes exceptional and acquisition-related
items.
3 Organic on a CER basis excluding contributions from the Texon
and Rhenoflex acquisitions
2023 Interim Operating Results Overview
Group revenue of $715 million decreased 11% on a reported basis,
6% on a CER basis (including the initial impact of the Texon and
Rhenoflex acquisitions), and decreased 19% on an organic basis. The
organic revenue decline, against a very strong prior year
comparator, reflects the continuation of the widespread industry
destocking in Apparel and Footwear, together with previously
disclosed customer contract in-sourcing in Performance
Materials.
Group adjusted operating profit of $107 million decreased 9% on
a CER basis (H1 2022: $125 million reported), with operating
margins down 50bps to 15.0% (2022: 15.6%). On a proforma basis,
including acquisitions for the first half of year, margins were up
30bps year on year. The year-on-year reductions in operating profit
primarily reflect the impact of lower volumes due to market
conditions. This was partially offset by largely maintained
pricing, with some input cost deflation and the ongoing benefits
from strategic projects and integration synergies. On a reported
basis operating profit was $72 million (H1 2022: $111 million),
after $35 million of strategic project costs, asset write downs as
a result of the announced disposal of EMEA Zips and
acquisition-related items.
Adjusted earnings per share ('EPS') decreased by 18% to 3.5
cents (2022: 4.3 cents) largely as a result of the reduction in
operating profits, with some offset from a continued reduction in
our effective tax rate. Reported EPS of 1.5 cents (H1 2022: 3.4
cents) was 55% lower, including the impact of exceptional and
acquisition related items.
Revised Divisional Reporting from 1 January 2023
As a result of the acquisitions of Texon and Rhenoflex, our new
organisational and reporting structure, effective 1 January 2023,
is comprised of three divisions: Apparel, Footwear and Performance
Materials. The new Footwear division consists of the existing Coats
footwear thread business (formerly part of A&F), and the
acquired footwear components businesses, Texon and Rhenoflex.
As announced at our 2022 Capital Markets Day, the medium-term
sales growth CAGR for the new operating divisions are anticipated
to be 3-4% for Apparel, c.8% for Footwear, and 6-9% for Performance
Materials, resulting in medium-term Group growth of c.6%. The goal
for the Group 2024 adjusted operating margin is c.17%, comprising
15-16% for Apparel, >20% for Footwear, and 13-14% for
Performance Materials.
Apparel
Coats is the global market leader in supplying premium sewing
thread to the Apparel industries. We are the trusted value-adding
partner, providing critical supply chain components and services,
and our portfolio of world-class products and services exist to
serve the needs and requirements of our customers and brand
owners.
Revenue of $354 million (H1 2022: $444 million) was down 20% on
a CER basis (25% reported). As anticipated, revenue was lower
year-on-year, against a very strong prior year comparator, and
reflected the continuation of the widespread industry destocking,
after a surge of post-COVID-19 inventory restocking in H1 2022, as
well as buffer buying in the face of supply chain disruption.
Despite challenging market conditions, our Apparel business
benefited from market share gains, with an increase in our
estimated market share by around 100bps to c24%. We were also able
to largely maintain pricing and leverage the moderating input costs
in some areas. We continue to be very well-positioned in our
markets, as the global partner of choice for our customers, with
market-leading product ranges and customer service and a clear
leadership position in innovation and sustainability.
Our proactive procurement strategy has put us in a good position
to benefit from raw material price moderation. The focus on
material transition to recycled products has helped to scale our
recycled product offering and minimise the cost premium associated
with these products. This, alongside our agile supply chain
network, has enabled us to help our customers and brands achieve
their sustainability goals, helping us take market share and
maintain prices despite price moderation in certain areas.
With market conditions expected to gradually improve in the
second half, our strong market position, global presence,
differentiation and focus on leading brands provide further
opportunities for growth and share gains.
Apparel thread revenue decreased by 17%, Zips and Trims
decreased by 44%, with Coats Digital 20% lower as a result of
reduced customer investment.
Adjusted operating profit of $53 million (H1 2022: $70 million)
decreased 24% vs the prior year on a CER basis. Adjusted operating
margin was 70bps lower at 15.0% on a CER basis (H1 2022: 15.7%).
Savings from self-help actions, including the strategic projects,
partially offset the adverse impact from lower sales volumes.
Footwear
We are the trusted partner to the footwear industry, shaping the
future of footwear for better performance through sustainable and
innovative solutions. The combination of Coats, Texon and Rhenoflex
makes us a global champion with a portfolio of highly engineered
products with strong brand component specification, primarily
targeted at the attractive athleisure, performance, and sports
markets.
Despite continued industry destocking, Footwear benefited from
market share gains. We increased our estimated market share by
around 100bps to a blended c.26% (with footwear threads at an
estimated c.28% and structural components at an estimated c.24%).
There was solid pricing, even as some input costs began to
moderate. We are realising the benefits of the acquisitions of
Texon and Rhenoflex with commercial opportunities being pursued. In
challenging market conditions, our leading position globally has
allowed us to leverage the strength of our customer relationships
and market leading product ranges.
Footwear revenue increased 64% to $184 million (H1 2022: $113
million) on a CER basis (60% reported), including the Texon and
Rhenoflex acquisitions, which were acquired in July and August 2022
respectively. This was against a very strong prior year comparator
and included an adverse impact from the continuation of widespread
industry destocking that commenced in Q4 2022. Excluding the
contribution from Texon and Rhenoflex, organic revenue decreased by
23%. There was a similar year-on-year percentage decrease in
structural components revenue.
Despite the market headwinds, we continued to deliver share
gains and programme wins, reflecting our position as a trusted
partner with our global accounts programme, in which we dedicate
resources to key brands and retailers.
The athleisure, performance and sports markets within Footwear
continue to be attractive. Supplier consolidation and nearshoring,
including de-risking from China, are becoming prominent trends,
with brands placing increasing emphasis on sustainability and
innovation. With market conditions expected to gradually improve in
the second half, these important, longer-term trends provide
Footwear with further opportunities for growth and share gain.
Adjusted operating profit was $38 million with reported margins
down 770bps to 20.8% with significantly lower sales volumes and the
dilutive impact of the acquisitions . These acquisitions remain on
track to be accretive for the Group, post synergies. On a proforma
basis, including the July and August 2022 acquisitions in H1 2022,
margins were up 220bps year on year. This is as a result of strong
commercial delivery in a difficult market environment, pricing
benefits largely being maintained in the context of some lower
input costs, the delivery of acquisition synergies and general cost
discipline. Acquisition integration has so far focused on
commercial and general & administrative costs, as well as on
procurement. These activities are proceeding well and we now expect
full year synergies and efficiencies to be ahead of previous
expectations.
Performance Materials ('PM')
We are experts in the design and supply of a diverse range of
technical products that serve a variety of strategic end use
markets. Building on over 250 years of leadership in thread, we
incorporate specific design features to provide highly engineered
solutions for our customers. The division operates across Personal
Protection, Composites and Performance Threads. Personal Protection
offers multi-hazard industrial applications for industrial, energy,
firefighting and military wear. Composites provides products and
solutions for fibre optic cables and oil & gas piping sectors
and light weighting solutions for automotive components.
Performance Threads has applications in a range of sewn products
including safety-critical automotive airbags and seat belts,
outdoor goods, household products like bedding and furniture,
hygiene-sensitive consumer goods like feminine hygiene products and
tea bags.
The Group discloses PM in three sub-segments: Personal
Protection (39% of H1 2023 divisional revenue), Composites (20% of
H1 2023 divisional revenue) and Performance Thread (41% of H1 2023
divisional revenue). The medium-term growth rates expected for each
sub-segment are high single digits for Personal Protection, low
double-digits for Composites, and global GDP growth for Performance
Threads. The overall medium-term growth target for the division is
a mid-high single digit growth CAGR (6-9%).
PM revenue declined 14% to $177 million in H1 2023 (H1 2022:
$205 million) on an organic and CER basis (18% on a reported
basis), with Personal Protection decreasing by 22%, Composites
decreasing by 9% and Performance Threads lower by 7% (all on an
organic basis). The largest factor driving the decrease was the
in-sourcing of production by a large US customer in personal
protection, which resulted in $20 million lower revenue from the
customer compared to H1 2022. There was also destocking at some US
telecommunication customers in Composites, and from customers in a
number of Household and Recreation markets. Underlying PM sales
remained strong underpinned by share gains in European
telecommunications, strong automotive sales and strong reflective
trims sales.
Within this, there were significant new customer share wins
across all PM sub-segments. These included gains at two large US
Personal Protection manufacturers and a global agreement with a
large cable manufacturer in the Composites subsegment. Within
Performance Threads there were gains at two large automotive safety
component customers and at a global feminine hygiene product
manufacturer.
Adjusted operating profit was unchanged on an organic and CER
basis at $16 million (H1 2022: $16 million) despite the lower sales
volumes. Adjusted operating margins were up on an organic and CER
basis by 130 bps to 9.1% (H1 2022: 7.8%) due to the contribution of
strategic project savings, recovery in EMEA margins (following a
temporary supply issue last year), and self-help actions . PM
margins in the half also included c.$2 million of duplicate running
costs in relation to the US / Mexico plant transitions. Excluding
these costs, PM margins would have been a further 130bps higher at
10.4%.
Geographical Performance
In line with divisional performance, there was a significant
revenue decline on a CER organic basis in all geographic regions,
due to the market headwinds previously mentioned.
Our Asia revenue, 56% (H1 2022: 59%) of Group, decreased 13% CER
to $398 million (2022: $459 million), which included an 8%
contribution from the acquisitions made in H2 2022. All key Asian
markets were impacted by the large scale industry destocking in the
Apparel and Footwear divisions.
Our Americas revenue, 19% (H1 2022: 21%) of Group, decreased 22%
CER to $133 million (2022: $170 million). All key markets were
impacted by the challenging market conditions in H1 2023, although
with comparatively more solid performances in Colombia and Mexico.
The US was also impacted by customer insourcing of a significant PM
contract in H2 2022.
In EMEA, 26% (2022: 19%) of Group, revenue increased 39% CER to
$185 million (2022: $133 million), which included a 45%
contribution from the Texon and Rhenoflex acquisitions, and as a
result organic revenues declined 6%. Excluding acquisitions,
performance was driven by positive momentum in PM in
telecommunication composites and transportation, as fibre optic
sales remained robust in EMEA. Organic revenue growth also
benefited from the weakening Turkish Lira, as we continued to price
largely in US Dollars.
Financial Review
Revenue
Group revenue decreased 11% on a reported basis and 6% on a CER
basis. On an organic basis revenue decreased 19%, which excludes
the Texon and Rhenoflex acquisitions. All commentary below is on an
organic basis unless otherwise stated.
Operating Profit
At a Group level, adjusted operating profit decreased from $125
million in 2022 to $107 million (including acquisitions) and
adjusted operating margins decreased 50bps to 15.0%. The table sets
out the movement in adjusted operating profit during the
period.
Margin
$m %
H1 2022 adjusted operating profit 125 15.6%
----- -------
Volumes impact (direct and indirect) (82)
----- -------
Price/mix 20
----- -------
Raw material deflation 4
----- -------
Freight deflation 5
----- -------
Other cost inflation (e.g. labour, energy) (17)
----- -------
Productivity benefits (manufacturing
and sourcing) 17
----- -------
Strategic projects savings 21
----- -------
Other SD&A savings 8
----- -------
Others (e.g. FX) (7)
----- -------
Contribution from Texon and Rhenoflex
acquisitions (excluding synergies) 9
----- -------
Texon and Rhenoflex synergies 5
----- -------
H1 2023 adjusted operating profit 107 15.0%
----- -------
Exceptional and acquisition related items (35)
----- -------
H1 2023 reported operating profit 72
----- -------
In the first half, there were significant volume headwinds as a
result of industry destocking in the Apparel and Footwear
businesses, as well as the adverse impact of the customer contract
in-sourcing in Performance Materials, and very strong prior year
comparators. From the second half of 2022, as anticipated, we saw a
slow-down in demand due to widespread industry destocking in both
Apparel and Footwear. The direct and indirect volume impact of
this, together with the very strong H1 2022 comparators, resulted
in significant direct and indirect volume headwinds.
Our proactive approach to pricing during 2021 and 2022 when
inflationary pressures accelerated at unprecedented levels, has
meant that we have continued to see pricing gains in the half. We
have started to see an easing of key raw material input and freight
costs during the latter part of 2022, and this has continued into
the first half. The favourable impact from this has acted as a
significant partial offset to some of the volume impacts seen in
the period.
Selling, Distribution and Administration (SD&A) costs are
below last year, despite the ongoing inflationary impacts in some
areas, as we controlled our costs in challenging market conditions.
We have also benefited from a further $21 million of efficiency
savings (total savings to date are $41 million, including $20
million delivered in 2022), in relation to our strategic projects
announced in early 2022, with the savings accelerated. Since these
projects began, we have increased the total efficiencies we expect
to deliver by 2024 to $70 million (from $50 million) through
expanding the scope of the projects, with a focus on our Asian
operations in India and China.
Our 2022 acquisitions, Texon and Rhenoflex, delivered an $14
million post-acquisition contribution to adjusted operating profit
in the half, including $5 million of synergy benefits. These
acquisitions have experienced similar destocking headwinds as the
wider Apparel and Footwear businesses. However, we have delivered
integration synergies to further underpin performance and now
expect total run-rate synergies of $15 million to be delivered by
the end of the year (original expectations of $11 million in
2024).
The Group's adjusted operating margins decreased by 50bps to
15.0% on a CER basis (H1 2022: 15.5%), reflecting the impact of the
year-on-year volume declines with significant offset from other,
controllable factors. On a proforma basis, including acquisitions
for the first half of 2022, operating margins were up 30bps
year-on-year.
On a reported basis, Group operating profit, including
exceptional and acquisition-related items, decreased to $72 million
(H1 2022: $111 million). A breakdown of these items is provided
below. Exceptional and acquisition-related items are not allocated
to divisions and, as such, the divisional profitability referred to
above is on an adjusted basis.
Foreign exchange
The Group reports in US Dollars and translational currency
impacts can arise, as its global footprint generates significant
revenue and expenses in a number of other currencies. In the half,
this was a headwind of 5% on revenue and adjusted operating profit.
These adverse translation impacts were primarily due to the
previous adoption of hyperinflation accounting in Turkey which saw
significant depreciation towards the end of the half. In addition
year-on-year depreciation in Indian and Chinese currencies
contributed to the headwind, primarily relating to depreciation
during H1 2022. At latest exchange rates, we expect a c.1-2%
translation headwind for revenue and adjusted operating profit for
the full year (excluding any future hyperinflation impact in
Turkey, which cannot be forecasted with accuracy).
Non-operating Results
Adjusted earnings per share ('EPS') decreased by 18% to 3.5
cents (H1 2022: 4.3 cents) driven by lower adjusted operating
profit, which reduced from $125 million to $107 million. Interest
costs remain well controlled, despite rising interest rates and
increased debt, due to the funding of the acquisitions in H2 2022.
Reported EPS of 1.5 cents (H1 2022: 3.4 cents) was 55% lower, after
exceptional and acquisition related items.
The decrease in adjusted profit before tax was primarily due to
the $17 million decrease in adjusted operating profit. This was
partially offset by the net finance charge, which was $1 million
lower year-on-year.
Net finance costs decreased to $14 million (pre-exceptional) (H1
2022: $15 million). The key drivers of this were:
-- An increase in interest on bank borrowings due to increasing
interest rates on the floating elements of debt of $3 million;
-- $7 million additional interest on the $240 million acquisition
facility taken out in July 2022 to fund the Texon acquisition.
Offsetting these increases, there was:
-- A $6 million favourable movement on foreign exchange, largely
as a result of Sterling strengthening during the period, where
we hedge a number of costs and cash flows, including scheduled
UK pension contributions;
-- A $3 million decrease in interest on pension scheme liabilities,
as a result of an IAS19 pension surplus at 31 December 2022;
-- A $1 million credit due to the indexation of non-current assets
in Turkey as a result of the adoption of hyperinflation accounting.
The adjusted taxation charge for the period was $26 million (H1
2022: $33 million). Excluding the impact of exceptional and
acquisition-related items, the effective tax rate on pre-tax profit
was 29% (H1 2022: 30%). The reported tax rate was 39% (H1 2022:
34%), after exceptional and acquisition related items.
Profit attributable to minority interests is predominantly
related to Coats' operations in Vietnam and Bangladesh, in which it
has controlling interests. These operate in primarily Apparel and
Footwear markets exposed to the wider industry destocking cycles in
the half. As a result, profit attributable to minority interests
decreased to $12 million (H1 2022: $15 million).
Exceptional and Acquisition-related Items
Net exceptional and acquisition-related items before taxation
were $35 million (H1 2022: $13 million). These include strategic
project costs of $6 million (net of a $6 million property profit),
$17 million of asset write downs and costs from the EMEA Zips
disposal, and other acquisition-related items of $11 million.
Strategic project costs of $6 million relate to the strategic
initiatives commenced during 2022; and primarily consist of
severance costs of $7 million, legal / advisor / closure costs of
$3 million, non-cash impairments of $2 million, offset by a profit
of $6 million from the sale of property. These costs have supported
the acceleration of project benefits, with $21 million of
incremental adjusted operating profit delivered in the period (with
$41 million incremental savings on the projects in total to
date).
$1 million of costs have been incurred in relation to the
delivery of acquisition synergies which, as mentioned above, are
now delivering ahead of expectations, with $5 million of savings in
the half.
The agreement to dispose of the EMEA Zips business, announced in
July 2023, has resulted in the reclassification of this business as
Held for Sale as at 30 June. As a result of this, and related to
the expected proceeds of the transaction, asset write downs of $13
million have been incurred, in addition to $4 million of
transaction related costs. We expect this transaction to complete
during Q3 of this year.
Other acquisition-related items of $11 million consisted of the
amortisation charges from the newly recognised intangible assets
from the Texon and Rhenoflex acquisitions and the amortisation of
intangible assets acquired in previous acquisitions.
Cash flow
The Group delivered $52 million (H1 2022: $30 million) of
adjusted free cash flow in the half. Free cash flow is measured
before annual pension deficit recovery payments, acquisitions,
disposals and dividends, and excludes exceptional items.
On a last twelve months (LTM) basis, which smooths in year
working capital cycles, adjusted free cash flow was $136 million,
reflecting our focus on cash generation through the destocking
cycle.
Adjusted free cash flow performance was strong, particularly
when our normal cash flow cycle results in the majority of cash
being generated in the second half of the year. We have managed net
working capital closely during the industry destocking cycle, with
a focus on our inventory levels while not compromising on service
levels. We continued our disciplined approach to payables and
receivables management through the half.
Capital expenditure was $12 million (H1 2022: $16 million), as
we continued to maintain a selective approach to investing in
growth opportunities, as well as in strategic projects. We
anticipate 2023 full year capital expenditure to be in the $30-40
million range, as we continue to invest in support of our growth
strategy, in productivity and in our environmental performance,
although this level of investment is dependent on the demand
recovery profile in H2.
Minority dividends of $12 million (H1 2022: $8 million) were
paid, as cash was repatriated from those relevant overseas entities
to the Group. Tax paid was $23 million (H1 2022: $28 million),
reflective of lower profitability year on year. Interest paid was
$17 million (H1 2022: $11 million) reflective or higher interest
rates and the Texon acquisition debt taken out in H2 2022.
The Group delivered an overall free cash outflow of $2 million
(H1 2022: $49 million outflow). This primarily reflects the
adjusted free cash inflow of $52 million, offset by:
-- UK deficit repair payments (including administrative expenses) of $17 million;
-- Dividend payments of $28 million;
-- Exceptional and acquisition related payments, mainly relating
to strategic projects of $8 million.
Net debt (excluding lease liabilities) at 30 June 2023 was $399
million (31 December 2022: $394 million). Including lease
liabilities, net debt was $492 million (31 December 2022: $500
million).
Pensions and other post-employment benefits
The pre-tax surplus for the Group's retirement and other
post-employment defined benefit liabilities (UK and other Group
schemes), on an IAS 19 financial reporting basis, was $79 million
at 30 June 2023, which was $37 million higher than 31 December 2022
($42 million surplus). This increase was primarily due to movements
on the UK scheme.
The Coats UK Pension Scheme, which is a key constituent of the
Group defined benefit liabilities, had a pre-tax surplus on an IAS
19 basis at 30 June 2023 of $152 million (31 December 2022: $117
million). The increase in the surplus during the period of $34
million predominantly relates to actuarial gains net of tax of $9
million. This is from an increased discount rate due to
significantly higher corporate bond yields reducing liabilities,
but was partially offset by asset losses due to the high degree of
hedging in place in the portfolio. There were also employer
contributions (excluding administrative expenses) of $14
million.
UK funding update
We continue to maintain strong and collaborative relations with
the Scheme Trustees around strategic planning and have established
a joint working group between the Company and Trustees to review
further opportunities for de-risking the scheme, beyond the
significant positive progress that has already taken place. This
included the successful partial buy-in transaction with Aviva,
representing full insurance of the benefits of c.20% of the scheme
liabilities in December 2022.
The Aviva buy-in is consistent with Coats' medium term
aspiration of fully insuring the Scheme and removing it from the
Group balance sheet, in a cost effective manner.
When the Technical Provisions (funding) deficit for the Scheme
was last formally assessed at 31 March 2021, as part of the
triennial valuation cycle, it showed a GBP193 million deficit. As a
result of this valuation, future contributions were maintained at
the previously agreed levels of GBP22 million ($27 million) per
annum (indexing) up until 2028, which was expected to result in the
pay-down of the deficit slightly earlier than originally planned.
The Group agreed to continue to pay the Scheme administrative
expenses and levies of around $5 million per annum.
Updates since then indicate that the funding deficit has fallen
significantly and is now approaching fully funded on a technical
provisions basis with an estimated deficit of GBP25 million (being
99% of the technical deficit valuation). This significant
improvement has been due to employer contributions, favourable
movements in the market (increasing discount rates) and the
de-risking actions that we and the Trustees have taken, for example
the buy-in transaction referred to above.
As a result of this significantly improved funding position in
early 2023, and reflective of the collaborative working
relationship with the Trustees, we have agreed a mechanism to
switch off / switch on the regular cash contributions to the scheme
based on monthly estimates of the latest funding position. As such,
if the scheme remains in surplus for two consecutive months cash
contributions will cease entirely until any trigger on the downside
(i.e. a return to deficit) has been hit. At this point,
contributions on a pre-agreed basis would resume.
Since the initial agreement of this mechanism earlier this year,
which set a range of 99-101% funded for the on/off triggers, we
have worked with the trustees to reflect the latest views on
mortality assumptions. This has reduced the funding range for the
on/off triggers to 98-100%, further increasing the chances of the
off trigger being reached in the near future. This has the
potential to significantly reduce or eliminate the existing levels
of contributions made into the Scheme, and thereby increase free
cash flows generated by the Group, within the short to medium
term.
Balance sheet and liquidity
Group net debt (excluding lease liabilities) at 30 June 2023 was
$399 million ($492 million including lease liabilities), in line
with 31 December 2022 ($394 million). This reflects disciplined
cash management as noted above, offset by the acquisition-related
items, ongoing pension deficit repair payments, shareholder
dividends and exceptional cash costs in relation to strategic
projects.
The Texon acquisition, which was completed in July 2022, was
funded by a $240 million temporary acquisition facility. As
previously announced, in January 2023, we refinanced this
acquisition facility via the US Private Placement (USPP) market
with $250 million of notes split between 5 and 7 years tenor at
highly competitive interest rates (between 5.3% and 5.4%). This
maintains our total committed debt facilities at $835 million with
well diversified source and tenor; being $360 million revolving
credit facility, $225 million of original USPP notes (2024 and 2027
tenors), as well as the new $250 million of USPP notes (2028 and
2030 tenors). The committed headroom on our banking facilities was
approximately $305 million at 30 June 2023.
At 30 June 2023, our proforma leverage ratio (net debt to
EBITDA; both excluding lease liabilities) was 1.6x and remains well
within our 3x covenant limit, and towards the middle of our target
leverage range of 1-2x. There was also significant headroom on our
interest cover covenant at 30 June 2023 which was 9.5x, with a
covenant limit of 4x. The covenants are tested twice annually in
June and December and monitored throughout the year.
Going concern
On the basis of current financial projections and the facilities
available, the Directors are satisfied that the Group has
sufficient resources to continue in operation for a period of 12
months from the date of this report to 31 July 2024, and,
accordingly, consider it appropriate to adopt the going concern
basis in preparing the financial statements. Further details of our
going concern assessment, financial scenarios and conclusions are
set out in note 1.
INDEPENT REVIEW REPORT TO COATS GROUP PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023 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 the
related notes 1 to 22. 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.
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 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
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
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.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
Luton
31 July 2023
Condensed consolidated financial statements
Condensed consolidated income statement
For the half year ended 30 June 2023
Half year 2023 Half year 2022
Full
year
2022
Before Exceptional Before Exceptional
exceptional and exceptional and
and acquisition and acquisition
acquisition related acquisition related
related items related items
items (note Total items (note Total Total
unaudited 3) unaudited unaudited 3) unaudited audited
Note unaudited unaudited
US$m US$m US$m US$m US$m US$m US$m
Continuing
operations
Revenue 715.1 - 715.1 801.5 - 801.5 1,583.8
Cost of sales (478.6) (8.7) (487.3) (540.0) - (540.0) (1,097.0)
------------ ------------ ----------- ------------ ------------- ----------- ----------
Gross profit 236.5 (8.7) 227.8 261.5 - 261.5 486.8
Distribution
costs (62.3) - (62.3) (62.5) - (62.5) (129.9)
Administrative
expenses (66.8) (15.1) (81.9) (74.3) (13.3) (87.6) (177.1)
Other operating
expenses - (17.2) (17.2) - - - -
Other operating
income - 5.7 5.7 - - - 1.2
Operating profit 107.4 (35.3) 72.1 124.7 (13.3) 111.4 181.0
Share of profit
of
joint ventures 0.7 - 0.7 0.7 - 0.7 1.1
Finance income 4 2.1 - 2.1 0.2 - 0.2 2.6
Finance costs 5 (15.9) - (15.9) (15.5) - (15.5) (33.4)
Profit before
taxation 94.3 (35.3) 59.0 110.1 (13.3) 96.8 151.3
Taxation 6 (26.2) 3.2 (23.0) (33.1) 0.5 (32.6) (56.4)
------------ ------------ ----------- ------------ ------------- ----------- ----------
Profit from
continuing
operations 68.1 (32.1) 36.0 77.0 (12.8) 64.2 94.9
Loss from
discontinued
operations 14 - - - (3.7) (83.6) (87.3) (87.6)
Profit/(loss)
for
the period 68.1 (32.1) 36.0 73.3 (96.4) (23.1) 7.3
Attributable
to:
----------------- ----- ------------ ------------ ----------- ------------ ------------- ----------- ----------
Equity
shareholders
of the company 56.5 (31.8) 24.7 58.6 (96.3) (37.7) (14.7)
----------------- ----- ------------ ------------ ----------- ------------ ------------- ----------- ----------
Non-controlling
interests 11.6 (0.3) 11.3 14.7 (0.1) 14.6 22.0
------------ ------------ ----------- ------------ ------------- ----------- ----------
68.1 (32.1) 36.0 73.3 (96.4) (23.1) 7.3
------------ ------------ ----------- ------------ ------------- ----------- ----------
Earnings/(loss)
per share
(cents) 7
Continuing
operations:
Basic 1.54 3.40 4.80
Diluted 1.53 3.39 4.77
Continuing and
discontinued
operations:
Basic 1.54 (2.58) (0.98)
Diluted 1.53 (2.58) (0.97)
Adjusted
earnings 15
per share (d) 3.52 4.27 8.17
Condensed consolidated statement of comprehensive income
For the half year ended 30 June 2023
Restated* Restated*
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
Profit/(loss) for the period 36.0 (23.1) 7.3
Items that will not be reclassified
subsequently to profit or loss:
Remeasurements of defined benefit
schemes (note 16) 8.8 96.7 29.7
Tax relating to items that will
not be reclassified - - (1.4)
---------------- ---------------- ---------------
8.8 96.7 28.3
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations 0.8 (25.9) (27.2)
Items reclassified to profit or
loss:
Exchange differences transferred
to income statement on sale of business
(note 14) - 15.0 15.0
Other comprehensive income and
expense for the period 9.6 85.8 16.1
---------------- ---------------- ---------------
Net comprehensive income and expense
for the period 45.6 62.7 23.4
---------------- ---------------- ---------------
Attributable to:
------------------------------------------ ---------------- ---------------- ---------------
Equity shareholders of the company 34.9 48.7 2.1
------------------------------------------- ---------------- ---------------- ---------------
Non-controlling interests 10.7 14.0 21.3
45.6 62.7 23.4
---------------- ---------------- ---------------
* Pension surplus amounts at 31 December 2022 and 30 June 2022
for the Coats UK Pension Scheme have been restated to reflect a
change in measurement as further described in note 1. There is no
impact on either profits or cash flows for the respective
periods.
Condensed consolidated statement of financial position
At 30 June 2023
Restated* Restated*
30 June 30 June 31 December
2023 2022 2022
unaudited unaudited audited
Note US$m US$m US$m
Non-current assets
Goodwill 125.6 24.4 124.7
Other intangible assets 480.5 254.4 488.7
Property, plant and equipment 239.9 231.7 256.3
Right-of-use assets 82.2 80.7 96.5
Investments in joint ventures 13.8 12.7 13.1
Other equity investments 5.7 5.9 5.9
Deferred tax assets 22.0 20.6 24.4
Pension surpluses 16 166.3 215.6 159.5
Trade and other receivables 21.4 14.6 20.2
-------------------- ---------- -------------
1,157.4 860.6 1,189.3
Current assets
Inventories 193.5 245.4 211.4
Trade and other receivables 294.1 301.2 286.3
Other investments - 0.1 -
Pension surpluses 16 2.0 5.2 2.0
11
Cash and cash equivalents (g) 128.1 140.4 172.4
Assets of disposal group
and non-current assets
classified as held for
sale 13 11.0 - -
628.7 692.3 672.1
Total assets 1,786.1 1,552.9 1,861.4
-------------------- ---------- -------------
Current liabilities
Trade and other payables (274.4) (328.2) (278.4)
Income tax liabilities (31.4) (19.8) (20.2)
Bank overdrafts and other 11
borrowings (g) (3.7) (4.2) (16.7)
Lease liabilities (17.3) (17.1) (19.0)
Retirement benefit obligations:
- Funded schemes 16 (0.2) (31.6) (27.6)
- Unfunded schemes 16 (6.2) (5.6) (5.0)
Provisions (12.4) (10.6) (18.2)
Liabilities of disposal
group classified as held
for sale 13 (10.6) - -
(356.2) (417.1) (385.1)
Net current assets 272.5 275.2 287.0
-------------------- ---------- -------------
Non-current liabilities
Trade and other payables (4.7) (4.9) (5.6)
Income tax liabilities (22.4) (19.3) (20.7)
Deferred tax liabilities (59.0) (8.9) (65.3)
11
Borrowings (g) (523.7) (331.3) (550.1)
Lease liabilities (75.6) (71.5) (86.4)
Retirement benefit obligations:
- Funded schemes 16 (3.3) (4.2) (3.3)
- Unfunded schemes 16 (79.3) (84.5) (83.4)
Provisions (20.3) (23.7) (25.4)
-------------------- ---------- -------------
(788.3) (548.3) (840.2)
Total liabilities (1,144.5) (965.4) (1,225.3)
-------------------- ---------- -------------
Net assets 641.6 587.5 636.1
-------------------- ---------- -------------
Equity
Share capital 8 99.0 90.1 99.0
Share premium account 111.4 10.5 111.4
Own shares 8 (0.1) (0.3) (0.1)
Translation reserve (115.2) (115.4) (116.6)
Capital reduction reserve 59.8 59.8 59.8
Other reserves 246.3 246.3 246.3
Retained profit 207.8 258.9 202.2
--------------------------------- ----- -------------------- ---------- -------------
Equity shareholders'
funds 609.0 549.9 602.0
--------------------------------- ----- -------------------- ---------- -------------
Non-controlling interests 32.6 37.6 34.1
-------------------- ---------- -------------
Total equity 641.6 587.5 636.1
-------------------- ---------- -------------
* Pension surplus amounts at 31 December 2022 and 30 June 2022
for the Coats UK Pension Scheme have been restated to reflect a
change in measurement as further described in note 1. There is no
impact on either profits or cash flows for the respective
periods.
Condensed consolidated statement of changes in equity
For the half year ended 30 June 2023
Share Capital Non-
Share premium Own Translation reduction Other Retained controlling Total
capital account shares reserve reserve reserves profit Total interests equity
US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m
Balance as at
1
January 2022
as
originally
reported
(audited) 90.1 10.5 (0.5) (105.7) 59.8 246.3 252.5 553.0 31.1 584.1
Restatement in
respect
of prior
period* - - - 0.6 - - (38.4) (37.8) - (37.8)
-------- -------- -------- ------------ ---------- --------- ----------- -------- ------------ --------
Balance as at
1 January
2022 as
restated 90.1 10.5 (0.5) (105.1) 59.8 246.3 214.1 515.2 31.1 546.3
(Loss)/profit
for
the period - - - - - - (37.7) (37.7) 14.6 (23.1)
Other
comprehensive
income and
expense
for the
period - - - (10.3) - - 96.7 86.4 (0.6) 85.8
Application of
IAS
29 (note 1) - - - - - - 5.3 5.3 - 5.3
Dividends - - - - - - (21.8) (21.8) (7.5) (29.3)
Purchase of
own
shares by
Employee
Benefit Trust - - (1.8) - - - - (1.8) - (1.8)
Movement in
own
shares - - 2.0 - - - (1.7) 0.3 - 0.3
Share based
payments - - - - - - 3.7 3.7 - 3.7
Deferred tax
on
share schemes - - - - - - 0.3 0.3 - 0.3
Balance as at
30 June 2022*
(unaudited) 90.1 10.5 (0.3) (115.4) 59.8 246.3 258.9 549.9 37.6 587.5
-------------- -------- -------- -------- ------------ ---------- --------- ----------- -------- ------------ --------
Balance as at
1
January 2022
as
originally
reported
(audited) 90.1 10.5 (0.5) (105.7) 59.8 246.3 252.5 553.0 31.1 584.1
Restatement in
respect
of prior
period* - - - 0.6 - - (38.4) (37.8) - (37.8)
-------- -------- -------- ------------ ---------- --------- ----------- -------- ------------ --------
Balance as at
1 January
2022 as
restated 90.1 10.5 (0.5) (105.1) 59.8 246.3 214.1 515.2 31.1 546.3
(Loss)/profit
for
the year - - - - - - (14.7) (14.7) 22.0 7.3
Other
comprehensive
income and
expense
for the year - - - (11.5) - - 28.3 16.8 (0.7) 16.1
Application of
IAS
29 (note 1) - - - - - - 5.0 5.0 - 5.0
Dividends - - - - - - (32.9) (32.9) (18.3) (51.2)
Issue of
ordinary
shares 8.9 100.9 - - - - - 109.8 - 109.8
Purchase of
own
shares by
Employee
Benefit Trust - - (2.1) - - - - (2.1) - (2.1)
Movement in
own
shares - - 2.5 - - - (2.5) - - -
Share based
payments - - - - - - 4.6 4.6 - 4.6
Deferred tax
on
share schemes - - - - - - 0.3 0.3 - 0.3
Balance as
at
31 December
2022*
(audited) 99.0 111.4 (0.1) (116.6) 59.8 246.3 202.2 602.0 34.1 636.1
Profit for the
period - - - - - - 24.7 24.7 11.3 36.0
Other
comprehensive
income and
expense
for the
period - - - 1.4 - - 8.8 10.2 (0.6) 9.6
Dividends - - - - - - (27.6) (27.6) (12.2) (39.8)
Purchase of
own
shares by
Employee
Benefit Trust - - (3.1) - - - - (3.1) - (3.1)
Movement in
own
shares - - 3.1 - - - (3.0) 0.1 - 0.1
Share based
payments - - - - - - 2.7 2.7 - 2.7
Balance as at
30 June 2023
(unaudited) 99.0 111.4 (0.1) (115.2) 59.8 246.3 207.8 609.0 32.6 641.6
-------------- -------- -------- -------- ------------ ---------- --------- ----------- -------- ------------ --------
* Pension surplus amounts at 31 December 2022, 30 June 2022 and
31 December 2021 for the Coats UK Pension Scheme have been restated
to reflect a change in measurement as further described in note 1.
There is no impact on either profits or cash flows for the
respective periods.
Condensed consolidated cash flow statement
For the half year ended 30 June 2023
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
Note US$m US$m US$m
Cash inflow from operating
activities
11
Cash generated from operations (a) 92.2 58.7 176.5
11
Interest paid (b) (16.9) (10.8) (25.5)
11
Taxation paid (c) (22.1) (27.7) (54.6)
---------------- ---------------- ---------------
Net cash generated by operating
activities 53.2 20.2 96.4
---------------- ---------------- ---------------
Cash outflow from investing
activities
11
Investment income (d) - - 0.5
Net capital expenditure and 11
financial investment (e) (4.3) (15.4) (31.6)
11
Acquisitions of businesses (f) - - (271.2)
11
Disposal of businesses (f) 0.9 (13.5) (17.0)
Net cash absorbed in investing
activities (3.4) (28.9) (319.3)
---------------- ---------------- ---------------
Cash (outflow)/inflow from
financing activities
Issue of ordinary shares 8 - - 109.8
Purchase of own shares by Employee
Benefit Trust (3.1) (1.7) (2.1)
Dividends paid to equity shareholders (27.5) (21.8) (33.0)
Dividends paid to non-controlling
interests (12.2) (7.5) (18.3)
Payment of lease liabilities (9.2) (9.3) (18.1)
Borrowings settled on completion
of acquisitions 12 - - (62.5)
(Repayment)/drawdown of term 11
loan acquisition facility (g) (240.0) - 240.0
11
Issue of senior notes (g) 248.6 - -
Net (decrease)/increase in
other borrowings (37.1) 98.5 79.2
---------------- ---------------- ---------------
Net cash (absorbed in)/generated
from financing activities (80.5) 58.2 295.0
---------------- ---------------- ---------------
Net (decrease)/increase in
cash and cash equivalents (30.7) 49.5 72.1
Net cash and cash equivalents
at beginning of the period 157.7 90.8 90.8
Foreign exchange losses on
cash and cash equivalents (2.6) (2.6) (5.2)
---------------- ---------------- ---------------
Net cash and cash equivalents 11
at end of the period (g) 124.4 137.7 157.7
---------------- ---------------- ---------------
Reconciliation of net cash
flow to movement in net debt
Net (decrease)/increase in
cash and cash equivalents (30.7) 49.5 72.1
Repayment/(drawdown) of term 11
loan acquisition facility (g) 240.0 - (240.0)
11
Issue of senior notes (g) (248.6) - -
Net decrease/(increase) in
other borrowings 37.1 (98.5) (79.2)
---------------- ---------------- ---------------
Change in net debt resulting
from cash flows 15
(Free cash flow) (e) (2.2) (49.0) (247.1)
Net movement in lease liabilities
during the period 10.7 5.5 (13.0)
Movement in fair value hedges (0.1) 3.6 5.2
Other non-cash movements (0.7) (0.5) (1.0)
Foreign exchange (losses)/gains (0.1) 2.8 2.2
---------------- ---------------- ---------------
Decrease/(increase) in net
debt 7.6 (37.6) (253.7)
Net debt at start of period (499.8) (246.1) (246.1)
---------------- ---------------- ---------------
11
Net debt at end of period (g) (492.2) (283.7) (499.8)
---------------- ---------------- ---------------
Notes to the condensed consolidated financial statements
For the half year ended 30 June 2023
1. Basis of preparation
These condensed consolidated financial statements should be read
in conjunction with the annual financial statements of the Group
for the year ended 31 December 2022, which were prepared in
accordance with United Kingdom adopted international accounting
standards in conformity with the requirements of the Companies Act
2006, and complied with the disclosure requirements of the Listing
Rules of the United Kingdom Financial Conduct Authority ('FCA').
The condensed consolidated financial statements for the six months
ended 30 June 2023 included in this half-yearly financial report
have been prepared in accordance with International Accounting
Standard 34: Interim Financial Reporting as adopted for use in the
United Kingdom, and the requirements of the Disclosure and
Transparency Rules (DTR) of the FCA as applicable to interim
financial reporting.
The condensed consolidated financial statements for the six
months ended 30 June 2023 have been reviewed but have not been
audited. The condensed consolidated financial statements for the
equivalent period in 2022 were also reviewed but not audited. The
condensed consolidated financial statements represent a 'condensed
set of financial statements' as referred to in the DTR issued by
the FCA. Accordingly, they do not include all of the information
required for a full annual financial report and are to be read in
conjunction with the Group's financial statements for the year
ended 31 December 2022, which were prepared in accordance with
United Kingdom international accounting standards in conformity
with the requirements of the Companies Act 2006. The information
for the year ended 31 December 2022 does not constitute statutory
accounts (as defined in section 434 of the Companies Act 2006). The
financial information for the year ended 31 December 2022 is
derived from the statutory accounts for that year, which have been
filed with the Registrar of Companies. The audit report on the
statutory accounts for the year ended 31 December 2022 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
changes to operating segments (as detailed in note 2) and the
following new and revised standards, amendments and improvements to
existing standards that were effective as of 1 January 2023:
-- Classification of Liabilities as Current or Non-current (Amendments to IAS 1);
-- IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts;
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
-- Definition of Accounting Estimates (Amendments to IAS 8); and
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The adoption of these standards and amendments has not had a
material impact on the financial statements of the Group. In July
2023 the United Kingdom Endorsement Board adopted the Amendments to
IAS 12 - International Rax Reform: Pillar Two Model Rules (see note
6).
The preparation of condensed consolidated financial information,
in conformity with generally accepted accounting principles,
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
condensed consolidated financial information, and the reported
amounts of revenues and expenses during the reporting period.
Although these estimates are based on management's best knowledge
of the amount, event or actions, actual results may ultimately
differ from those estimates. In preparing the condensed
consolidated financial statements, the critical accounting
judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the
same as those applied to the consolidated financial statements for
the year ended 31 December 2022.
Sensitivities regarding the discount rate and inflation
assumptions used to measure the liabilities of the UK pension
scheme are set out in note 16.
Prior period restatement of pension surplus
Pension surplus amounts at 31 December 2022 and 30 June 2022 for
the Coats UK Pension Scheme have been restated to reflect a change
in measurement as set out in note 16. There is no impact on either
profits or cash flows for the respective periods.
Discontinued operations
On 26 May 2022 the Group completed the sale of its business in
Brazil and Argentina to Reelpar SA, an entity backed by a Sao Paulo
Private Equity Firm. The results of the Brazil and Argentina
business for the six months ended 30 June 2022 and year ended 31
December 2022 were presented as a discontinued operation for those
periods in the condensed consolidated income statement. Note 14
provides further details of the sale.
Going concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for a period of 12 months from
the date of this report to 31 July 2024. Accordingly, they continue
to adopt the going concern basis in preparing the condensed
consolidated financial statements.
In assessing the Group's going concern position, the Directors
have considered a number of factors, including the current balance
sheet position and available liquidity, the current trading
performance as set out in the 2023 Interim Results Overview section
of the Group Chief Executive's Review on pages 4 to 5, the
principal and emerging risks which could impact the performance of
the Group and compliance with borrowing covenants.
In order to assess the going concern status of the Group,
management has prepared:
-- A base case scenario, aligned to the latest Group forecast for
2023 as well as the Group's updated Medium Term Plan for 2024;
-- A severe but plausible downside scenario, assumes that the global
economic environment is depressed over the assessment period, resulting
in trading performance similar to that seen in the past 12 months;
and
-- A reverse stress test flexing sales to determine what circumstance
would be required to either reduce headroom to nil on committed
borrowing facilities or breach borrowing covenants, whichever occurred
first.
As more fully described in the Outlook section on page 2, the
Directors expect a gradual improvement in market conditions from
the second half of 2023 onwards. The severe but plausible downside
scenario includes further management actions that would be deployed
if required (for example further reduction in costs).
The reverse stress test noted an implausible decrease in trading
performance would be required compared to both management's budget
and historic performance. The test also includes further
controllable management actions that could be deployed if required.
The outcome of the reverse stress test was that the leverage
covenant would be breached. However, at the breaking point in the
test the Group still maintained sufficient liquidity on committed
borrowing facilities. The Directors consider the likelihood of the
condition in the reverse stress test occurring to be remote on the
basis that the Group has not experienced such a decline
historically.
Liquidity headroom
As at 30 June 2023 the Group's net debt (excluding IFRS 16
leases) was $399.3 million (31 December 2022: $394.4 million). The
Group's committed debt facilities total $835 million across both
its Banking and US Private Placement group, with a range of
maturities from December 2024 through to 2030, none of which are
within the going concern period. As of 30 June 2023 the Group has
around $305 million of headroom against these committed banking
facilities.
In all three scenarios liquidity headroom exists throughout the
assessment period.
Covenant testing
The Group's committed borrowing facilities are subject to
ongoing covenant testing. Covenants are measured twice a year, at
full year and half year and are measured under frozen accounting
standards and therefore exclude the effects of IFRS 16. The
financial covenants under the borrowing agreements are for leverage
(net debt / EBITDA) less than 3.0 and interest cover (EBITDA /
interest charge) to be in excess of 4.0.
All banking covenants tests were met at 30 June 2023, with
leverage of 1.6x and interest cover of 9.5x. The base case forecast
indicates that banking covenants will be met throughout the
assessment period. Under the severe but plausible downside scenario
covenant compliance is still projected to be achieved throughout
the assessment period.
Conclusion
In conclusion, after reviewing the base case, the severe but
plausible downside scenario and considering the remote likelihood
of the scenario in the reverse stress test occurring, the Directors
have formed the judgement that, at the time of approving the
condensed consolidated financial statements, there are no material
uncertainties that cast doubt on the Group's going concern status
and that it is appropriate to prepare the condensed consolidated
financial statements on the going concern basis for the period from
the date of this report to 31 July 2024.
Principal exchange rates
The principal exchange rates (to the US dollar) used are as
follows:
June June December
2023 2022 2022
------------ ------------------ ------ ------ ---------
Average Sterling 0.81 0.77 0.81
Euro 0.93 0.92 0.95
Chinese Renminbi 6.93 6.48 6.73
Indian Rupee 82.16 76.22 78.59
Turkish Lira * 19.94 14.86 16.57
------------------------------- ------ ------ ---------
Period end Sterling 0.79 0.82 0.83
Euro 0.92 0.95 0.93
Chinese Renminbi 7.25 6.70 6.90
Indian Rupee 82.09 78.95 82.72
Turkish Lira 26.05 16.69 18.69
* Cumulative inflation rates over a three-year period exceeded
100% in Turkey in May 2022 and since then Turkey is considered as
hyperinflationary. As a result, IAS 29 "Financial Reporting in
Hyperinflationary Economies" was applied for the first time for the
year ended 31 December 2022. Estimates were made in applying IAS 29
for the first time for the six months ended 30 June 2022. In
accordance with IAS 29, the financial statements of the Company's
subsidiary in Turkey are translated into the Group's US Dollar
presentational currency at period end exchange rates. Monetary
assets and liabilities are not restated. All non-monetary items
recorded at historical rates are restated for the change in
purchasing power caused by inflation from the date of initial
recognition to period end balance sheet dates. The income statement
of the Company's subsidiary in Turkey is adjusted for inflation
during the reporting period. The translation adjustment resulting
from the initial application of IAS 29 of $5.0 million was
recognised in equity in the year ended 31 December 2022 (30 June
2022: $5.3 million). A net monetary gain of $1.2 million has been
recognised within finance income in the six months ended 30 June
2023 on non-monetary items held in Turkish Lira (year ended 31
December 2022: $1.9 million). The inflation rate used is the
consumer price index published by the Turkish Statistical
Institute, TurkStat. The movement in the price index for the six
months ended 30 June 2023 was 20% (year ended 31 December 2022:
64%).
2. Segmental analysis
Operating segments are components of the Group's business
activities about which separate financial information is available
that is evaluated regularly by the chief operating decision maker
(the Group Executive Team).
Following the acquisitions of Texon and Rhenoflex in July and
August 2022 respectively, effective 1 January 2023 the Group's new
organisational structure and reporting structure consists of three
divisions: Apparel, Footwear and Performance Materials (year ended
31 December 2022: two divisions Apparel & Footwear and
Performance Materials).
The Group's customers are grouped into three segments Apparel,
Footwear and Performance Materials which have distinct different
strategies and differing customer/end-use market profiles. The new
Footwear Division consists of the footwear thread business and the
acquired structural components businesses, Texon and Rhenoflex.
From 1 January 2023, this is the basis on which financial
information is reported internally to the chief operating decision
maker (CODM) for the purpose of allocating resources between
segments and assessing their performance.
As a result of the above, the reportable segments were changed
in 2023 to Apparel, Footwear and Performance Materials and
comparative information for the six months ended 30 June 2022 and
the year ended 31 December 2022 has been restated on a consistent
basis. Previously the reportable segments for the six months ended
30 June 2022 and year ended 31 December 2022 comprised Apparel
& Footwear and Performance Materials.
Segment revenue and results
Performance
Apparel Footwear Materials Total
unaudited unaudited unaudited unaudited
Six months ended 30 June 2023 US$m US$m US$m US$m
---------------------------------------- ------------ ------------ ------------- --------------
Continuing operations
Revenue 354.3 184.2 176.6 715.1
------------ ------------ ------------- --------------
Segment profit 53.0 38.3 16.1 107.4
------------ ------------ -------------
Exceptional and acquisition related
items (note 3) (35.3)
Operating profit 72.1
Share of profits of joint ventures 0.7
Finance income 2.1
Finance costs (15.9)
--------------
Profit before taxation from continuing
operations 59.0
--------------
Segment revenue and results
Performance
Apparel Footwear Materials Total
unaudited unaudited unaudited unaudited
Six months ended 30 June 2022 (restated) US$m US$m US$m US$m
------------------------------------------ ------------ ------------ ------------- --------------
Continuing operations
Revenue 471.9 115.2 214.4 801.5
------------ ------------ ------------- --------------
Segment profit 74.2 32.8 17.7 124.7
------------ ------------ -------------
Exceptional and acquisition related
items (note 3) (13.3)
Operating profit 111.4
Share of profits of joint ventures 0.7
Finance income 0.2
Finance costs (15.5)
--------------
Profit before taxation from continuing
operations 96.8
--------------
Segment revenue and results
Performance
Apparel Footwear Materials Total
audited audited audited audited
Year ended 31 December 2022 (restated) US$m US$m US$m US$m
---------------------------------------- ---------- ----------- ------------- ------------
Continuing operations
Revenue 863.7 299.7 420.4 1,583.8
---------- ----------- ------------- ------------
Segment profit 132.6 68.2 34.1 234.9
---------- ----------- -------------
Exceptional and acquisition related
items (note 3) (53.9)
Operating profit 181.0
Share of profits of joint ventures 1.1
Finance income 2.6
Finance costs (33.4)
------------
Profit before taxation from continuing
operations 151.3
------------
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis. Cost
of sales and other operating costs not directly attributable to a
segment are allocated to segments on an aggregated basis.
Exceptional and acquisition related items are not allocated to
segments to align to the reporting provided to the chief operating
decision maker. In addition no measures of total assets and total
liabilities are reported for each reportable segment as such
amounts are not regularly provided to the chief operating decision
maker.
Disaggregation of revenue
The following table shows revenue disaggregated by primary
geographical markets with a reconciliation of the disaggregated
revenue with the Group's reportable segments.
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
---------------------------- ----------- ------------- ----------
Continuing operations
Primary geographic markets
Asia 397.6 475.4 911.8
Americas 132.7 171.9 340.6
EMEA 184.8 154.2 331.4
----------- ------------- ----------
Total 715.1 801.5 1,583.8
=========== ============= ==========
Continuing operations
Apparel 354.3 471.9 863.7
Footwear 184.2 115.2 299.7
Performance Materials 176.6 214.4 420.4
------ ------ --------
Total 715.1 801.5 1,583.8
====== ====== ========
Timing of revenue recognition
Goods transferred at a point in time 710.8 795.9 1,573.6
Software solutions services transferred
over time 4.3 5.6 10.2
------ ------ --------
Total 715.1 801.5 1,583.8
====== ====== ========
The software solutions business is included in the Apparel
segment. The Group had no revenue from a single customer which
accounts for more than 10% of the Group's revenue.
3. Exceptional and acquisition related items
The Group's consolidated income statement format is presented
both before and after exceptional and acquisition related items.
Adjusted results exclude exceptional and acquisition related items
on a consistent basis with the previous reporting period to provide
valuable additional information for users of the financial
statements in understanding the Group's performance and reflects
how the performance of the business is managed and measured on a
day-to-day basis. Further details on alternative performance
measures are set out in note 15.
Exceptional items may include significant restructuring
associated with a business or property disposal, litigation costs
and settlements, profit or loss on disposal of businesses, profit
or loss on disposal of property, plant and equipment, non-actuarial
gains or losses arising from significant one off changes to defined
benefit pension obligations, regulatory investigation costs and
impairment of assets.
Acquisition related items include amortisation of acquired
intangible assets, acquisition transaction costs, contingent
consideration linked to employment and adjustments to contingent
consideration.
Judgement is used by the Group in assessing the particular
items, which by virtue of their scale and nature, should be
presented in the income statement and disclosed in the related
notes as exceptional items. In determining whether an event or
transaction is exceptional, materiality is a key consideration and
qualitative factors, such as frequency or predictability of
occurrence, are also considered. This is consistent with the way
financial performance is measured by management and reported to the
Board.
Total exceptional and acquisition related items charged to
operating profit for the six months ended 30 June 2023 was $35.3
million (six months ended 30 June 2022: $13.3 million; year ended
31 December 2022: $55.0 million).
This comprises exceptional items for the six months ended 30
June 2023 of $24.4 million (six months ended 30 June 2022: $9.8
million; year ended 31 December 2022: $31.2 million) and
acquisition related items for the six months ended 30 June 2023 of
$10.9 million (six months ended 30 June 2022: $3.5 million; year
ended 31 December 2022: $23.8 million).
Taxation in respect of exceptional and acquisition related items
is set out in note 6.
Exceptional items
Exceptional items charged/(credited) to operating profit are set
out below:
Half
year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
-------------------------------------------------- ---------- ------------- -------------
Exceptional items:
Strategic project costs:
* Cost of sales 8.7 - 9.9
* Distribution costs - - 3.8
* Administrative costs 3.1 9.8 18.7
---------- ------------- -------------
11.8 9.8 32.4
Profit on sale of property and businesses:
* Other operating income (5.7) - (1.2)
---------- ------------- -------------
6.1 9.8 31.2
Costs from integration of Footwear acquisitions:
* Administrative costs 1.1 - -
Divestment of European Zips - impairment
loss:
* Other operating expenses 17.2 - -
Total exceptional items charged to operating
profit from continuing operations 24.4 9.8 31.2
========== ============= =============
Strategic project costs
At the end of 2021 the Group commenced a strategic project to
improve margins by optimising the portfolio and footprint,
improving the overall cost base efficiency, and mitigating
structural labour availability issues in the US.
During the six months ended 30 June 2023 the build and fit-out
of a second new plant, at Toluca in Mexico was completed. The
project to transform the Group's Asian operations has a particular
focus on China and India and is designed to optimise the footprint
and efficiency in the Group's long-established Indian operations,
while bringing a greater focus to the increasingly important
domestic market in China. Work in both countries commenced during
the six months ended 30 June 2023. In India, there have been
headcount reductions, with office and warehouse space being
consolidated. In China, there have also been headcount reductions
with lower-margin zip production in the process of being outsourced
to a third party supplier.
During the year ended 31 December 2022 a new facility was
established in Huamantla, Mexico, manufacturing processes were
transferred from the US and a legacy facility in the US was exited.
In EMEA thread operations in Romania were consolidated in a
purpose-built logistics facility and warehouses in Poland and
Hungary were exited. Corporate and overhead activities in the UK
and US were moved closer to the Group's operations and
customers.
As a result of these activities, exceptional restructuring costs
totalling $11.8 million were incurred during the six months ended
30 June 2023 (six months ended 30 June 2022: $9.8 million; year
ended 31 December 2022: $32.4 million) which included:
- severance and related employee costs of $6.9 million (six months
ended 30 June 2022: $7.3 million; year ended 31 December 2022:
$22.5 million);
- non-cash impairment charges of tangible fixed assets, right-of-use
assets and inventories of $1.5 million (six months ended 30 June
2022: $2.1 million; year ended 31 December 2022: $4.7 million);
and
- legal, advisers, closure and related costs of $3.4 million (six
months ended 30 June 2022: $0.4 million; year ended 31 December
2022: $5.2 million).
Profit on sale of property and businesses
During the six months ended 30 June 2023 profit from the sale of
land and buildings as part of the above strategic project was $5.6
million (six months ended 30 June 2022: $nil; year ended 31
December 2022: $1.2 million).
In addition the Group completed the sale of its businesses in
Mauritius and Madagascar in January 2023 for a cash consideration
of $1.5 million resulting in a profit on disposal of $0.1 million.
The net assets disposed totalled $1.4 million comprising property,
plant and equipment of $0.1 million, inventories of $0.6 million,
debtors of $0.6 million, cash of $0.6 million and current
liabilities of $0.5 million.
Costs from integration of Footwear acquisitions
During the six months ended 30 June 2023 severance costs of $1.1
million were incurred from the integration of the Texon and
Rhenoflex businesses, which were acquired in July 2022 and August
2022 respectively. This principally relates to the elimination of
duplicated roles and from the consolidation of back-office
activities.
Divestment of European Zips - impairment loss
On 30 June 2023 the Group entered into an agreement to sell its
European Zips business. The sale is conditional on a limited number
of conditions usual for this type of transaction and is expected to
complete in the third quarter of 2023. The European Zips business
is included in the Apparel segment. An exit from the European Zips
business is in line with Coats' strategic initiative to optimise
the Group's portfolio and footprint, and improve the overall cost
base efficiency.
The assets and liabilities at 30 June 2023 of the European Zips
business have been reclassified as a disposal group held for sale.
As at the date of reclassification of the European Zips disposal
group to held for sale on 30 June 2023, the fair value less cost to
sell was less than the carrying amounts. The impairment loss
arising on measurement to fair value less costs to sell was $17.2
million and includes expected transaction and completion costs (see
note 13 for further details).
Acquisition related items
Acquisition related items are set out below:
Half
year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
-------------------------------------------- ---------- -------------- --------------
Acquisition related items:
Administrative expenses:
Acquisition transaction costs - 1.9 11.9
Amortisation of acquired intangible assets 10.9 1.6 10.8
---------- -------------- --------------
10.9 3.5 22.7
Finance costs:
Acquisition transaction costs - - 1.1
Total acquisition related items charged
to profit before taxation 10.9 3.5 23.8
========== ============== ==============
Acquisition transaction costs in the year ended 31 December 2022
charged to administrative expenses include transaction costs
relating to the acquisitions of Texon and Rhenoflex (see note
12).
Acquisition transaction costs charged to finance costs during
the year ended 31 December 2022 of $1.1 million related to the
$240.0 million term loan acquisition facility used to finance the
acquisition of Texon (see note 12).
Acquisition transaction costs and amortisation of intangible
assets acquired through business combinations are not included
within adjusted operating profit and adjusted earnings per share.
These costs are acquisition related and management consider them to
be capital in nature and are not included in profitability measures
by which management assess the performance of the Group.
Excluding amortisation of intangible assets acquired through
business combinations and recognised in accordance with IFRS 3
"Business Combinations" from adjusted results also ensures that the
performance of the Group's acquired businesses is presented
consistently with its organically grown businesses. It should be
noted that the use of acquired intangible assets contributed to the
Group's results for the periods presented and will contribute to
the Group's results in future periods as well. Amortisation of
acquired intangible assets will recur in future periods.
Amortisation of software is included within adjusted results as
management consider these costs to be part of the trading
performance of the business.
The Group has made acquisitions in prior years with earn outs to
allow part of the consideration to be based on the future
performance of the businesses acquired and to lock in key
management. Where consideration paid or contingent consideration
payable in the future is employment linked, it is treated as an
expense and part of statutory results. However, all consideration
of this type is excluded from adjusted operating profit and
adjusted earnings per share, as in management's view, these items
are part of the capital transaction.
4. Finance income
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
----------------------------------------------- ----------- ------------- ----------
Income from investments - - 0.1
Net monetary gain arising from hyperinflation
accounting (see note 1) 1.2 - 1.9
Other interest receivable and similar
income 0.9 0.2 0.6
2.1 0.2 2.6
=========== ============= ==========
5. Finance costs
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------- ----------- ------------- ----------
Interest on bank and other borrowings 15.5 5.7 18.9
Interest expense on lease liabilities 2.9 2.5 4.9
Net interest on pension scheme assets
and liabilities (2.7) 0.3 0.5
Other finance costs including unrealised
gains and losses on foreign exchange contracts 0.2 7.0 9.1
----------- ------------- ----------
15.9 15.5 33.4
=========== ============= ==========
Other finance costs for the year ended 31 December 2022 included
acquisition related transaction costs of $1.1 million incurred in
connection with the $240.0 million term loan acquisition facility
used to finance the acquisition of Texon (six months ended 30 June
2023 and 30 June 2022: $nil) (see note 3).
6. Taxation
The taxation charge for the six months ended 30 June 2023 and 30
June 2022 are based on the estimated effective tax rate for the
full year, including the effect of prior period tax adjustments.
The tax charge for the six months ended 30 June 2023 was $23.0
million (six months ended 30 June 2022: $32.6 million; year ended
31 December 2022: $56.4 million).
For the six months ended 30 June 2023 the tax credit in respect
of exceptional and acquisition related items was $3.2 million (six
months ended 30 June 2022: $0.5 million; year ended 31 December
2022: $3.7 million) which compromised the following amounts:
- Exceptional tax credits of $1.2 million for the six months ended
30 June 2023 (six months ended 30 June 2022: $0.5 million; year
ended 31 December 2022: $2.2 million) in connection with the
strategic project set out in note 3;
- An exceptional tax charge of $0.2 million for the six month ended
30 June 2023 (six months ended 30 June 2022: $nil; year ended
31 December 2022: $0.2 million) in connection with the sale of
land and buildings (see note 3); and
- An exceptional tax credit for the six months ended 30 June 2023
of $2.2 million relating to the unwinding of tax liabilities
on the amortisation of intangible assets acquired as a result
of the acquisitions of Texon and Rhenoflex (refer to note 12)
(six month ended 30 June 2022 $nil; year ended 31 December 2022:
$1.7 million).
A deferred tax liability is recognised in respect of the Coats
brand intangible asset. An equivalent deferred tax asset is also
recognised in respect of tax attributes in the same jurisdiction,
which would be utilised against the taxable profit arising on the
reversal of the taxable temporary difference. As a result there is
no gross amounts of deferred tax liabilities or deferred tax assets
included in the condensed statement of financial position in
respect of this. Determining the time period over which the taxable
temporary difference in respect of the brand will reverse is
judgmental, but for the purpose of deferred tax asset recognition
the Group takes the view that any future impairments or
amortisation of the brand will take place over an extended period
of time.
International Tax Reform: Pillar Two Model Rules (Amendments to
IAS 12)
On 20 December 2021, the Organisation for Economic Co-operation
and Development ("OECD") published its proposals in relation to
Global Anti-Base Erosion Rules, which provide for an
internationally co-ordinated system of taxation to ensure that
large multinational groups pay a minimum level of corporate income
tax in countries where they operate. On March 2023, the UK
government introduced legislation in Finance (No. 2) Bill 2022-23
to implement Pillar 2 of the OECD/G20 inclusive framework which was
substantively enacted on 20 June 2023. The new rules are expected
to take effect from 2024 onwards.
Coats has applied the International Accounting Standards Board
("IASBs") amendments to IAS 12 Income Taxes in respect of Pillar
Two which gives companies a temporary mandatory exception from
accounting for deferred taxes arising from the OECD Pillar Two
model rules. There remains uncertainty with respect to the detailed
operation of the rules and their impact. Further details and
guidance are due in the course of 2023. Coats will continue to
monitor the development and future implementation of these
rules.
7. Earnings/(loss) 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/(loss) per ordinary share from
continuing and discontinued operations is based on the
profit/(loss) 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 to the extent that this does not
dilute a loss. The Group has two classes of dilutive potential
ordinary shares: those shares relating to awards under the Group
Deferred Bonus Plan which have been awarded but not yet reached the
end of the three year retention period and those long-term
incentive plan awards for which the performance criteria would have
been satisfied if the end of the reporting period was the end of
the contingency period.
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------- ----------- ------------- ----------
Profit from continuing operations attributable
to equity shareholders 24.7 49.6 72.9
Profit/(loss) from continuing and discontinued
operations attributable to equity shareholders 24.7 (37.7) (14.7)
----------- ------------- ----------
Half year Half year Full year
2023 2022 2022
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 1,605.2 1,459.6 1,516.0
Adjustment for share options and LTIP
awards 10.5 4.1 9.3
----------- ------------- -----------
Weighted average number of ordinary shares
in issue for diluted earnings per share 1,615.7 1,463.7 1,525.3
----------- ------------- -----------
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
cents cents cents
------------------------------------- ----------- ------------- ----------
Continuing operations:
Basic earnings per ordinary share 1.54 3.40 4.80
Diluted earnings per ordinary share 1.53 3.39 4.77
----------- ------------- ----------
Continuing and discontinued operations:
Basic earnings/(loss) per ordinary share 1.54 (2.58) (0.98)
Diluted earnings/(loss) per ordinary share 1.53 (2.58) (0.97)
----- ------- -------
8. Issued share capital
At 30 June 2023 the share capital of the Company comprised
1,597,810,385 Ordinary Shares of 5p each (31 December 2022:
1,597,810,385; 30 June 2022: 1,452,570,385).
During the six months ended 30 June 2023 and 30 June 2022 the
Company did not issue any Ordinary Shares. During the year ended 31
December 2022 the Company issued 145,240,000 Ordinary Shares of 5p
each to fund the acquisition of Rhenoflex GmbH in August 2022. The
par value of the shares issued was $8.9 million and the proceeds
raised net of costs were $109.8 million.
The own shares reserve of $0.1 million at 30 June 2023 (31
December 2022: $0.1 million; 30 June 2022: $0.3 million) represents
the cost of shares in Coats Group plc purchased in the market and
held by an Employee Benefit Trust to satisfy awards under the
Group's share based incentive plans. The number of shares held by
the Employee Benefit Trust at 30 June 2023 was 150,000 (31 December
2022: 805,501; 30 June 2022: 1,023,230).
9. Dividends
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
----------------------------------------- ----------- ------------- ----------
2022 final dividend paid - 1.73 cents
per share 27.6 - -
2022 interim dividend paid - 0.70 cents
per share - - 11.1
2021 final dividend paid - 1.50 cents
per share - 21.8 21.8
27.6 21.8 32.9
=========== ============= ==========
The directors have declared an ordinary interim dividend per
share of 0.81 cents (30 June 2022: 0.70 cents) to be paid on 15
November 2023 to shareholders on the register on 20 October 2023.
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.
10. US environmental matters
As noted in previous reports, in December 2009, the US
Environmental Protection Agency ('EPA') 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. Over 100 PRPs have been
identified by EPA. In 2011, CC joined a cooperating parties group
('CPG') of companies formed to fund and conduct a remedial
investigation and feasibility study of the area.
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,
including those that are the most responsible for its
contamination.
In March 2016, EPA issued a Record of Decision selecting a
remedy for the lower 8 miles of the LPR at an estimated cost of
$1.38 billion on a net present value basis. In September 2021, EPA
issued a Record of Decision selecting an interim remedy for the
upper 9 miles of the LPR (involving targeted removal of
contaminants and ongoing monitoring to assess whether additional
contaminant removal would be necessary), at an estimated cost of
$441 million on a net present value basis.
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 8 miles of the LPR.
Maxus Energy Corporation ('Maxus'), which provided an indemnity
to OCC that covered the LPR, has been granted Chapter 11 bankruptcy
protection, but OCC remains responsible for its remedial
obligations even in the absence of Maxus' indemnity. The approved
bankruptcy plan created a liquidating trust to pursue potential
claims against Maxus' parent entity, YPF SA, and potentially
others, which could result in additional funding for the LPR
remedy.
While the ultimate costs of the remedial design and the final
remedy for the full 17-mile LPR are expected to be shared among
more than a hundred parties, including many who are not currently
in the CPG, the allocation of remedial costs among those parties in
a settlement or court ruling has not yet been finally
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. EPA invited approximately 80
other parties, including CC, to participate in an allocation
process to determine their respective allocation shares and
potential eligibility for future cash out settlements. In the
allocation, CC presented factual and scientific evidence that it is
not responsible for the discharge of dioxins, furans or PCBs - the
contaminants that are driving the remediation of the LPR - and that
it is a de minimis or even smaller de micromis party. The
allocation process concluded in December 2020. The EPA-appointed
allocator determined that CC is in the lowest tier (Tier 5) of
allocation parties, and is responsible for only a de micromis share
of remedial costs.
On 30 June 2018, OCC filed a lawsuit against approximately 120
defendants, including CC, seeking recovery of past environmental
costs and contribution toward future environmental costs. OCC
released claims for certain past costs from 41 of the defendants,
including CC, and is not seeking recovery of those past costs from
CC. OCC's lawsuit seeks resolution of many of the same issues
addressed in the EPA sponsored allocation process, and does not
alter CC's defences or CC's continued belief that it is a de
micromis party.
In 2015, a provision totalling $15.8 million was recorded for
remediation costs for the entire 17 miles of the LPR and the
estimated associated legal and professional costs in defence of
CC's position. The provision for remediation costs was based on
CC's estimated share of de minimis costs for (a) EPA's selected
remedy for the lower 8 miles of the LPR and (b) the remedy for the
upper 9 miles proposed by the CPG, which was later substantively
adopted by the EPA. This charge to the income statement was net of
insurance reimbursements and was stated on a net present value
basis. During the year ended 31 December 2018, an additional
provision of $8.0 million was recorded as an exceptional item to
cover legal and professional fees. The Group will continue to
mitigate additional costs as far as possible through insurance and
other avenues.
At 30 June 2023, the remaining provision, taking into account
insurance reimbursement, was $8.5 million (31 December 2022: $9.2
million). The process concerning the LPR continues to evolve and
these estimates are subject to change based upon legal defence
costs associated with the EPA process and OCC's lawsuit, 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.
In 2022, CC and other parties entered into a settlement with EPA
in which the settling parties agreed to pay $150 million toward
remediation of the full 17-mile LPR in exchange for a release for
those matters addressed in the settlement. CC's share of the
cash-out settlement is consistent with a de micromis share of total
remedial costs for the full 17-mile LPR. EPA has indicated it will
seek the balance of LPR remedial costs from OCC and a small number
of other parties that EPA has determined were not eligible to
participate in a cash-out settlement. These other parties (and not
the cash-out parties) would be responsible for remedial costs
over-runs. The settlement does not address claims for natural
resource damages by federal natural resource trustees. The Group
believes that CC's share, if any, of such costs would be de
micromis.
In late 2022, the cash-out settlement for the full 17-mile LPR
was lodged with the court by the Department of Justice (DOJ) on
behalf of EPA. Court approval is necessary for the settlement to go
into effect, and OCC has indicated that it will oppose such
approval. The Group expects that DOJ and EPA will assert that the
settlement is just and reasonable and that it should be approved by
the court, and courts have generally deferred to EPA's judgment on
such matters. However, it is nonetheless possible that the court
may not approve the settlement. It is also possible that the court
may approve the settlement but permit OCC's litigation against the
settling parties to continue in whole or in part. Because of these
continued uncertainties, the Group is maintaining its current
provision for the LPR for the present time.
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 the
EPA-appointed allocator correctly concluded that it has a de
micromis share of the total remediation costs, and that OCC and
other parties will be responsible for a significant share of the
ultimate costs of remediation. As this matter evolves, the
provision may be reduced if the settlement is approved by the court
and if the court bars further litigation against CC and other
settling parties.
It is nonetheless still possible that additional provisions
could be recorded and that such provisions could increase
materially based on further decisions by the court, negotiations
among the parties and other future events.
Following the sale of the North America Crafts business,
including CC, announced on 22 January 2019, Coats North America
Consolidated Inc. (the seller) retains the control and
responsibility for the eventual outcome of the ongoing LPR
environmental matters, including the rights to the related
insurance reimbursements.
11. Notes to the condensed consolidated cash flow statement
a) Reconciliation of operating profit to net cash inflow from
operations
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------------------------------- ----------- ------------- ----------
Operating profit (1) 72.1 111.4 181.0
Depreciation of owned property, plant
and equipment 14.0 13.0 26.5
Depreciation of right-of-use assets 10.0 9.9 19.4
Amortisation of intangible assets 11.8 2.4 12.6
Impairment loss on divestment of European
Zips business (note 13) 17.2 - -
Profit on disposal of property, plant
and equipment (5.9) - (1.1)
Decrease/(increase) in inventories 2.4 (25.9) 43.6
(Increase)/decrease in debtors (17.6) (37.2) 10.4
Increase/(decrease) in creditors 8.2 7.2 (76.2)
Provision and pension movements (22.7) (23.8) (41.6)
Foreign exchange and other non-cash
movements 3.2 9.7 9.9
Discontinued operations (0.5) (8.0) (8.0)
----------- ------------- ----------
Cash generated from operations 92.2 58.7 176.5
=========== ============= ==========
(1) Refer to the condensed consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations .
b) Interest paid
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------------- ----------- ------------- ----------
Interest paid (16.9) (10.1) (24.8)
Discontinued operations - (0.7) (0.7)
----------- ------------- ----------
(16.9) (10.8) (25.5)
=========== ============= ==========
c) Taxation paid
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------- ----------- ------------- ----------
Overseas tax paid (22.1) (27.7) (54.6)
=========== ============= ==========
d) Investment income
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
---------------------------------------- ------------ ------------ ----------
Dividends received from joint ventures - - 0.5
============ ============ ==========
e) Capital expenditure and financial investment
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------- ----------- ------------- ----------
Purchase of property, plant and equipment
and intangible assets (11.9) (15.3) (33.8)
Sale/(purchase) of other equity investments 0.3 - (0.1)
Disposal of property, plant and equipment 7.3 0.4 2.8
Discontinued operations - (0.5) (0.5)
(4.3) (15.4) (31.6)
=========== ============= ==========
f) Acquisitions and disposals of businesses
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------------------------- ----------- ----------- ----------
Acquisition of businesses (note 12) - - (271.2)
Disposal of businesses 0.9 (13.5) (17.0)
----------- ----------- ----------
0.9 (13.5) (288.2)
=========== =========== ==========
g) Net debt
A summary of net debt is set out below:
30 June 30 June 31 December
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
-------------------------------------- ----------- ----------- ------------
Cash and cash equivalents 128.1 140.4 172.4
Bank overdrafts (3.7) (2.7) (14.7)
----------- ----------- ------------
Net cash and cash equivalents 124.4 137.7 157.7
Other borrowings (523.7) (332.8) (552.1)
----------- ----------- ------------
Net debt excluding lease liabilities (399.3) (195.1) (394.4)
Lease liabilities (92.9) (88.6) (105.4)
Total net debt (492.2) (283.7) (499.8)
=========== =========== ============
In February 2023, the Group completed the refinancing of the
Texon acquisition term loan of $240 million, which had been fully
drawn down in July 2022, via the US Private Placement (USPP) market
with $250 million of notes. $150 million 5.26% Series A Senior
Notes are due on 16 February 2028 and $100 million 5.37% Series B
Senior Notes are due on 16 February 2030. The cash inflow from the
USPP issuance was $248.6 million, net of fees.
For financial covenant purposes, the Group's leverage is
calculated on the basis of net debt without IFRS 16 lease
liabilities and at the Coats Group Finance Company Limited level.
Net debt excluding IFRS 16 lease liabilities at the Coats Group
Finance Company Limited level at 30 June 2023 for covenant purposes
was $406.2 million (30 June 2022: $199.6 million; 31 December 2022:
$399.9 million).
The components of net debt and movements during the periods are
set out below:
Series
A and Total Cash
Series financing at bank
B Senior Bank Lease activity Bank and Net
Notes loans liabilities liabilities overdrafts in hand debt
US$m US$m US$m US$m US$m US$m US$m
-------------------------- ----------- -------- -------------- -------------- ------------- ---------- --------
At 1 January 2022
(audited) (227.5) (10.4) (99.0) (336.9) (16.4) 107.2 (246.1)
Financing cash flows - (98.5) 9.3 (89.2) - - (89.2)
Other cash flows - - 2.5 2.5 13.7 35.8 52.0
Non-cash movements 3.6 (0.5) (6.3) (3.2) - - (3.2)
Foreign exchange - 0.5 4.9 5.4 - (2.6) 2.8
----------- -------- -------------- -------------- ------------- ---------- --------
At 30 June 2022
(unaudited) (223.9) (108.9) (88.6) (421.4) (2.7) 140.4 (283.7)
----------- -------- -------------- -------------- ------------- ---------- --------
At 1 January 2022
(audited) (227.5) (10.4) (99.0) (336.9) (16.4) 107.2 (246.1)
Financing cash flows - (256.7) 18.1 (238.6) - - (238.6)
Other cash flows - - 4.9 4.9 1.7 70.4 77.0
Acquisition of
subsidiaries
(note 12) - (62.5) - (62.5) - - (62.5)
Non-cash movements 5.2 (1.0) (36.0) (31.8) - - (31.8)
Foreign exchange - 0.8 6.6 7.4 - (5.2) 2.2
At 31 December 2022
(audited) (222.3) (329.8) (105.4) (657.5) (14.7) 172.4 (499.8)
Financing cash flows (248.6) 277.1 9.2 37.7 - - 37.7
Other cash flows - - 2.9 2.9 11.0 (41.7) (27.8)
Non-cash movements (0.1) (0.7) (1.4) (2.2) - - (2.2)
Foreign exchange - 0.7 1.8 2.5 - (2.6) (0.1)
----------- -------- -------------- -------------- ------------- ---------- --------
At 30 June 2023
(unaudited) (471.0) (52.7) (92.9) (616.6) (3.7) 128.1 (492.2)
=========== ======== ============== ============== ============= ========== ========
The non-cash movement during the six months ended 30 June 2023
of $0.1 million (six months ended 30 June 2022: $3.6 million; year
ended 31 December 2022: $5.2 million) within Series A and Series B
Senior Notes represents the movement in the fair value adjustment
to the nominal amount outstanding and relates to interest rate
swaps which are accounted for as fair value hedges.
12. Acquisitions
The Group completed two acquisitions during the year ended 31
December 2022 obtaining control of both Texon and Rhenoflex,
leading manufacturers of structural footwear components supplying
the world's leading footwear brands. Both have operations in Asia
and Europe and are complementary additions to Coats' existing
footwear business with opportunities to leverage existing
footprints and combine expertise in the attractive athleisure
footwear market.
-- On 20 July 2022, the Group acquired the entire share capital
of Torque Group International Fortune Limited ('Texon') for
$211.0 million. On completion, the Group immediately settled
all Texon's external bank debt of $24.4 million such that the
total cash outflow was $235.4 million.
-- On 23 August 2022, the Group also purchased the entire share
capital of Rhenoflex GmbH ('Rhenoflex') for $81.5 million. On
completion, the Group immediately settled all of Rhenoflex's
external bank debt of $38.1 million such that the total cash
outflow was $119.6 million.
The Texon transaction was funded through a $240.0 million term
loan acquisition facility, which was refinanced in February 2023
(see note 11), and the Rhenoflex transaction was predominately
financed through an equity raise of $109.8 million net of
costs.
These acquisitions were accounted for as business combinations
using the acquisition method in accordance with IFRS 3 'Business
Combinations.' For each acquisition, a provisional assessment of
the fair values of identified assets acquired and liabilities
assumed had been undertaken during the year ended 31 December 2022
with assistance provided by external valuation specialists.
The assessment of the fair value of assets and liabilities
acquired was completed during the six months ended 30 June 2023
within twelve months of the acquisition dates. No changes were
necessary during the six months ended 30 June 2023 to the
provisional fair values recognised in the year ended 31 December
2022.
Goodwill and intangible assets acquired for Texon and Rhenoflex
totalled $338.7 million.
The purchase consideration was paid in cash with the amounts
included in the statement of consolidated cash flows for the year
ended 31 December 2022 as follows:
Texon Rhenoflex Total
US$m US$m US$m
----------------------------------------- ------- ---------- -------
Purchase consideration paid to previous
owners 211.0 81.5 292.5
Cash and cash equivalents acquired (16.8) (4.5) (21.3)
------- ---------- -------
Acquisition of businesses - investing
cash flows 194.2 77.0 271.2
External bank borrowings settled
on completion - financing cash flows 24.4 38.1 62.5
------- ---------- -------
Total cash out flow on respective
acquisition dates 218.6 115.1 333.7
======= ========== =======
The repayment of the external bank borrowings of Texon and
Rhenoflex on the respective completion dates of the acquisitions
was presented as financing cash flows.
The total cash outflow for the acquisitions of Texon and
Rhenoflex in the year ended 31 December 2022 was $346.0 million
(see note 15(e)) comprising the total cash outflow on the
respective acquisition dates of $333.7 million plus transaction
costs paid of $12.3 million.
13. Assets and liabilities of disposal group classified as held for sale
Divestment of European Zips
On 30 June 2023 the Group entered into an agreement to sell its
European Zips business to Aequita, a German family office, for an
expected consideration of approximately $1 million after the
deduction of typical debt-like items. The consideration is payable
in cash on completion subject to customary adjustments. The sale is
conditional on a limited number of conditions usual for this type
of transaction and is expected to complete in the third quarter of
2023. The European Zips business is included in the Apparel
segment.
An exit from the European Zips is in line with Coats' strategic
initiatives, announced in March 2022, to optimise the Group's
portfolio and footprint, and improve the overall cost base
efficiency.
The assets and liabilities at 30 June 2023 of the European Zips
business have been reclassified as a disposal group held for sale.
Assets and liabilities classified as held for sale consist of the
following:
30 June 30 June 31 December
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------- ----------- ----------- ------------
Assets of the disposal group classified
as held for sale 7.5 - -
Other non-current assets classified
as held for sale (1) 3.5 - -
----------- ----------- ------------
Total assets of the disposal group and
non-current assets classified as held
for sale 11.0 - -
Liabilities of the disposal group classified
as held for sale (10.6) - -
Total net assets classified as held
for sale 0.4 - -
=========== =========== ============
(1) The other non-current assets held for sale of $3.5 million
are property, plant and equipment that do not relate to European
Zips.
The major classes of assets and liabilities held for sale
relating to European Zips at 30 June 2023 are as follows:
30 June
2023
US$m
Property, plant and equipment -
Right-of-use assets -
Inventories -
Trade and other receivables 7.4
Cash and cash equivalents 0.1
Total assets of the disposal group
classified as held for sale 7.5
------------------------------------------- --------
Trade and other payables 10.6
Total liabilities of the disposal group
classified as held for sale 10.6
------------------------------------------- --------
As at the date of reclassification of the European Zips disposal
group to held for sale on 30 June 2023, the fair value less cost to
sell was less than the carrying amounts. The impairment loss
arising on measurement to fair value less costs to sell was $17.2
million which has been included as an exceptional charge in other
operating expenses within continuing operations in the income
statement for the six months ended 30 June 2023 and includes
expected transaction and completion costs.
The impairment loss of $17.2 million arising on measurement to
fair value less costs to sell has been applied to reduce the
carrying amounts of property plant and equipment by $2.3 million to
$nil, right-of-use assets by $0.9 million to $nil, inventories by
$9.3 million to $nil and trade and other receivables by $0.7
million to $7.4 million with additional liabilities and costs of
$4.0 million being recognised.
The loss on disposal that will be recognised as an exceptional
charge on completion of the transaction will also include
historical foreign exchange gains and losses previously recognised
in equity which at 30 June 2023 amounted to a cumulative loss of
$6.4 million.
14. Discontinued operations
Sale of Brazil and Argentina
On 10 May 2022 the Group announced the agreement to sell its
business in Brazil and Argentina to Reelpar SA, an entity backed by
a Sao Paulo Private Equity Firm. The sale was completed on 26 May
2022, the date which control passed to the acquirer. Under the
terms of the disposal, the Group paid $15.0 million to Reelpar S.A.
to support restructuring of the business. During the five years
following the completion date earn-out payments are payable to the
Group in the event that certain operational cash flow targets are
met by the Brazil and Argentina business. No earn-out payments have
been recognised by the Group as at 30 June 2023 (31 December 2022:
$nil; 30 June 2022: $nil).
a) Discontinued operations
The results of the discontinued operations are presented
below:
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
----------------------------------------- ------------ -------------- ----------
Revenue - 26.3 26.3
Cost of sales - (22.6) (22.6)
------------ -------------- ----------
Gross profit - 3.7 3.7
Distribution costs - (3.8) (3.8)
Administrative expenses - (3.3) (3.3)
Operating loss - (3.4) (3.4)
Finance costs - (0.3) (0.3)
Loss before taxation - (3.7) (3.7)
Taxation - - -
------------ -------------- ----------
Loss from discontinued operations for
the period - (3.7) (3.7)
Loss on disposal (note 14(b)) - (68.6) (68.9)
Exchange loss transferred to income
statement on disposal - (15.0) (15.0)
Total loss from discontinued operations - (87.3) (87.6)
============ ============== ==========
Revenue reported above for the six months ended 30 June 2022 and
year ended 31 December 2022 included inter-company sales of $1.6
million. External revenue of the Brazil and Argentina business for
the six months ended 30 June 2022 and year ended 31 December 2022
was $24.7 million.
Exceptional items - discontinued operations
Exceptional items charged to loss from discontinued operations
are set out below:
Half
year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
----------------------------------------------- ---------- ------------- --------------
Loss on disposal (note 14(b)) - (68.6) (68.9)
Exchange loss transferred to income statement
on disposal - (15.0) (15.0)
Total exceptional items - discontinued
operations - (83.6) (83.9)
========== ============= ==============
Loss per ordinary share from discontinued operations
The loss per ordinary share from discontinued operations is as
follows:
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
cents cents cents
------------------------------------------- ------------ -------------- ----------
Loss per ordinary share from discontinued
operations:
Loss per ordinary share - (5.98) (5.78)
Diluted loss per ordinary share - (5.97) (5.74)
------------ -------------- ----------
Cash flows from discontinued operations
The table below sets out the cash flows from discontinued
operations:
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------- ----------- -------------- ----------
Net cash outflow from operating activities (0.5) (8.7) (8.7)
Net cash outflow from investing activities - (0.5) (0.5)
Net cash flows from discontinued operations (0.5) (9.2) (9.2)
=========== ============== ==========
b) Loss on disposal
Net assets disposed in May 2022 relating to the Brazil and
Argentina business amounted to $49.4 million. The exceptional loss
on disposal included in the results of discontinued operations for
the year ended 31 December 2022 was $68.9 million.
The consideration paid on the date of disposal in May 2022 was
$15.0 million and net of cash and cash equivalents and bank
overdrafts disposed was $13.2 million. Disposal costs of $3.8
million were paid in the year ended 31 December 2022 (six months
ended 30 June 2022: $0.3 million) and as a result the cash outflow
in the year ended 31 December 2022 on the sale of the Brazil and
Argentina business was $17.0 million (six months ended 30 June
2022: $13.5 million).
15. Alternative performance measures
This half year financial report contains both statutory measures
and alternative performance measures which are presented on a
consistent basis with the previous reporting period and, in
management's view, provide additional useful information to users
of the accounts of how the Group's business is managed and measured
on a day-to-day basis.
The Group's alternative performance measures and key performance
indicators are aligned to the Group's strategy and together are
used to measure the performance of the business. A number of these
measures form the basis of performance measures for remuneration
incentive schemes.
Alternative performance measures 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. Alternative performance measures,
however, are not a measure of financial performance under
International Financial Reporting Standards ('IFRS') as adopted by
the United Kingdom Endorsement Board and should not be considered
as a substitute for measures determined in accordance with IFRS. As
the Group's alternative performance measures are not defined terms
under IFRS they may therefore not be comparable with similarly
titled measures reported by other companies.
More information on the Group's alternative performance measures
and key performance indicators, 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 2022.
A reconciliation of alternative performance measures to the most
directly comparable measures reported in accordance with IFRS is
provided below.
a) Organic growth on a constant exchange rate (CER) basis
Organic growth measures the change in revenue and operating
profit before exceptional and acquisition related items 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. The principal exchange rates used are set out in note 1.
Organic revenue growth on a CER basis measures the ability of
the Group to grow sales by operating in selected geographies and
segments and offering differentiated cost competitive products and
services.
Adjusted organic operating profit growth on a CER basis measures
the profitability progression of the Group.
Adjusted operating profit is calculated by adding back
exceptional and acquisition related items (see note 3 for further
details).
Half year Half year
2023 2022
unaudited unaudited %
Revenue US$m US$m Decline
------------------------------------ ----------- --------------- --------
Revenue from continuing operations 715.1 801.5 (11%)
Constant currency adjustment - (39.2)
----------- --------------- --------
Revenue on a CER basis 715.1 762.3 (6%)
Revenue from acquisitions (1) (97.4) -
----------- --------------- --------
Organic revenue on a CER basis 617.7 762.3 (19%)
=========== =============== ========
Half year Half year
2023 2022
unaudited unaudited %
Operating profit US$m US$m Decline
--------------------------------------------- ----------- ------------ --------
Operating profit from continuing operations
(2) 72.1 111.4 (35%)
Exceptional and acquisition related
items (note 3) 35.3 13.3
----------- ------------ --------
Adjusted operating profit from continuing
operations 107.4 124.7 (14%)
Constant currency adjustment - (6.7)
----------- ------------ --------
Adjusted operating profit on a CER
basis 107.4 118.0 (9%)
Operating profit from acquisitions (1) (13.8) -
----------- ------------ --------
Organic adjusted operating profit on
a CER basis 93.6 118.0 (21%)
=========== ============ ========
(1) Revenue and operating profit from acquisitions of $97.4
million and $13.8 million respectively relates to Texon and
Rhenoflex for the six months ended 30 June 2023. Texon was acquired
in July 2022 and Rhenoflex was acquired in August 2022.
(2) Refer to the condensed consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations .
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance
measure to show the operating performance of the Group excluding
the effects of depreciation of owned fixed assets and right-of-use
assets, amortisation and impairments and excluding exceptional and
acquisition related items.
Operating profit before exceptional and acquisition related
items and before depreciation of owned fixed assets and
right-of-use assets and amortisation (Adjusted EBITDA) is set out
below:
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ ----------- ------------ -----------------
Profit before taxation from continuing
operations 59.0 96.8 151.3
Share of profit of joint ventures (0.7) (0.7) (1.1)
Finance income (note 4) (2.1) (0.2) (2.6)
Finance costs (note 5) 15.9 15.5 33.4
----------- ------------ -----------------
Operating profit from continuing operations
(1) 72.1 111.4 181.0
Exceptional and acquisition related items
(note 3) 35.3 13.3 53.9
----------- ------------ -----------------
Adjusted operating profit from continuing
operations 107.4 124.7 234.9
Depreciation of owned property, plant
and equipment 14.0 13.0 26.5
Amortisation of intangible assets 0.9 0.8 1.8
----------- ------------ -----------------
Adjusted EBITDA including IFRS 16 depreciation
of right-of-use assets (Pre-IFRS 16 basis) 122.3 138.5 263.2
Depreciation of right-of-use assets 10.0 9.9 19.4
----------- ------------ -----------------
Adjusted EBITDA 132.3 148.4 282.6
=========== ============ =================
(1) Refer to the condensed consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations .
Adjusted EBITDA on a last twelve months basis to 30 June 2023
was $266.5 million (30 June 2022: $273.2 million).
Adjusted EBITDA on a last twelve months basis to 30 June 2023 of
$266.5 million is the adjusted EBITDA for the six months ended 30
June 2023 of $132.3 million plus the adjusted EBITDA for the year
ended 31 December 2022 of $282.6 million less the adjusted EBITDA
for the six months ended 30 June 2022 of $148.4 million.
Net debt including lease liabilities under IFRS 16 was $492.2
million at 30 June 2023 (31 December 2022: $499.8 million; 30 June
2022: $283.7 million). This gives a leverage ratio of net debt
including lease liabilities to Adjusted EBITDA at 30 June 2023 of
1.8 (31 December 2022: 1.8; 30 June 2022: 1.0).
On a pre-IFRS 16 basis adjusted EBITDA on a last twelve months
basis to 30 June 2023 was $247.0 million (30 June 2022: $253.6
million).
Net debt excluding lease liabilities under IFRS 16 was $399.3
million at 30 June 2023 (31 December 2022: $394.4 million; 30 June
2022: $195.1 million). This gives a leverage ratio on a pre-IFRS 16
basis at 30 June 2023 of 1.6 (31 December 2022: 1.5; 30 June 2022:
0.8).
The Group's proforma leverage on a pre-IFRS 16 basis at 30 June
2023 is 1.6 (31 December 2022: 1.4) after adjusting EBITDA to
include Texon and Rhenoflex as if the acquisitions had taken effect
at the beginning of the twelve month period.
For the definition and calculation of net debt including and
excluding lease liabilities see note 11(g).
c) Adjusted effective tax rate
The adjusted effective tax rate removes the tax impact of
exceptional and acquisition related items and net interest on
pension scheme assets and liabilities to arrive at a tax rate based
on the adjusted profit before taxation.
A significant proportion of the Group's net interest on pension
scheme assets and liabilities relates to UK pension plans for which
there is no related current or deferred tax credit or charge
recorded in the income statement. The Group's net interest on
pension scheme assets and liabilities is adjusted in arriving at
the adjusted effective tax rate shown below and, in management's
view, were this not adjusted would distort the alternative
performance measure. This is consistent with how the Group monitors
and manages the effective tax rate.
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
-------------------------------------------- ----------- ------------ -----------------
Profit before taxation from continuing
operations 59.0 96.8 151.3
Exceptional and acquisition related items
(note 3) 35.3 13.3 55.0
Net interest on pension scheme assets
and liabilities (note 5) (2.7) 0.3 0.5
----------- ------------ -----------------
Adjusted profit before taxation from
continuing operations 91.6 110.4 206.8
----------- ------------ -----------------
Taxation charge from continuing operations 23.0 32.6 56.4
Tax credit in respect of exceptional and
acquisition related items 3.2 0.5 3.7
Tax credit in respect of net interest
on pension scheme assets and liabilities 0.3 0.3 0.5
Adjusted taxation charge from continuing
operations 26.5 33.4 60.6
----------- ------------ -----------------
Adjusted effective tax rate 29% 30% 29%
=========== ============ =================
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. Adjusted earnings per share growth measures the
progression of the benefits generated for shareholders.
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ -------------- --------------- -----------------
Profit from continuing operations 36.0 64.2 94.9
Non-controlling interests (11.3) (14.6) (22.0)
-------------- --------------- -----------------
Profit from continuing operations attributable
to equity shareholders 24.7 49.6 72.9
Exceptional and acquisition related items
net of non-controlling
interests (note 3) 35.0 13.2 54.7
Tax credit in respect of exceptional and
acquisition related items (3.2) (0.5) (3.7)
Adjusted profit from continuing operations 56.5 62.3 123.9
-------------- --------------- -----------------
Weighted average number of Ordinary Shares 1,605,222,055 1,459,603,959 1,515,999,205
-------------- --------------- -----------------
Adjusted earnings per share 3.52 4.27 8.17
-------------- --------------- -----------------
The weighted average number of Ordinary Shares used for the
calculation of adjusted earnings per share is the same as that used
for basic earnings per Ordinary Share from continuing operations
(see note 7).
e) Adjusted free cash flow
Net cash generated by operating activities, a GAAP measure,
reconciles to changes in net debt resulting from cash flows (free
cash flow) as set out in the consolidated cash flow statement. A
reconciliation of free cash flow to adjusted free cash flow is set
out below.
Consistent with previous periods, adjusted free cash flow is
defined as cash generated from continuing activities less capital
expenditure, interest, tax, dividends to non-controlling interests
and other items, and excluding exceptional and discontinued items,
acquisitions, purchase of own shares by the Employee Benefit Trust
and payments to the UK pension scheme.
Adjusted free cash flow measures the Group's cash generation
that is available to service shareholder dividends, pension
obligations and acquisitions.
Half year Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
----------------------------------------------- ----------- --------------- -----------------
Change in net debt resulting from cash
flows (free cash flow) (2.2) (49.0) (247.1)
Acquisition of businesses (note 12) - - 346.0
Disposal of businesses (0.9) 13.5 17.0
Net cash outflow from discontinued operations 0.5 9.2 9.2
Payments to UK pension scheme 16.7 22.8 42.7
Net cash flows in respect of exceptional
and acquisition
related items 7.7 10.1 22.5
Issue of ordinary shares (note 8) - - (109.8)
Purchase of own shares by Employee Benefit
Trust 3.1 1.8 2.1
Dividends paid to equity shareholders 27.5 21.8 33.0
Tax inflow in respect of adjusted cash
flow items - - (1.4)
Adjusted free cash flow 52.4 30.2 114.2
=========== =============== =================
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 adjusted for full year impact of acquisitions
divided by period end capital employed as set out below. ROCE
measures the ability of the Group's assets to deliver returns.
30 June Half year Full year
2023 2022 2022
unaudited unaudited audited
US$m US$m US$m
----------------------------------------------- ----------- --------------- ------------------
Operating profit from continuing operations
before exceptional and acquisition related
items on a last twelve months' basis
adjusted for the full twelve months
impact of acquistions (1) 218.1 225.3 250.9
Non-current assets
Acquired intangible assets 358.7 32.7 366.6
Property, plant and equipment 239.9 231.7 256.3
Right-of-use assets 82.2 80.7 96.5
Trade and other receivables 21.4 14.6 20.2
Current assets
Inventories 193.5 245.4 211.4
Trade and other receivables 294.1 301.2 286.3
Current liabilities
Trade and other payables (274.4) (328.2) (278.4)
Lease liabilities (17.3) (17.1) (19.0)
Non-current liabilities
Trade and other payables (4.8) (4.9) (5.6)
Lease liabilities (75.6) (71.5) (86.4)
----------- --------------- ------------------
Capital employed 817.7 484.6 847.9
----------- --------------- ------------------
ROCE 27% 46% 30%
----------- --------------- ------------------
(1) Operating profit from continuing operations before
exceptional and acquisition related items on a last twelve months
basis to 30 June 2023 and to 31 December 2022 has been adjusted to
include Texon and Rhenoflex as if the acquisitions had taken effect
at the beginning of the twelve month period. Including full twelve
months pro forma results, rather than the actual consolidated
results of these acquired businesses, better reflects the return
from the capital position at the period end. Therefore this
provides reliable and more relevant information on the financial
performance of the Group to a user of the financial statements.
Refer to the condensed consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations.
16. Retirement and other post-employment benefit arrangements
The net surplus for the Group's retirement and other
post-employment defined benefit arrangements (UK and other Group
schemes), on an IAS 19 basis, was $79.3 million as at 30 June 2023
(31 December 2022: $42.2 million; 30 June 2022: $94.9 million). The
increase in the net surplus during the six months ended 30 June
2023 is primarily due to movements on the UK scheme.
The Coats UK Pension Scheme, which is a key constituent of the
Group defined benefit liabilities, had a surplus on an IAS 19 basis
at 30 June 2023 of $151.9 million (31 December 2022: $117.5
million; 30 June 2022: $174.1 million). The increase in the surplus
during the six months ended 30 June 2023 of $34.4 million
predominantly relates to actuarial gains net of tax of $8.8 million
(higher discount rate due to significantly higher corporate bond
yields offset to some extent by asset losses due to the high degree
of hedging in place in the portfolio), employer contributions
(excluding administrative expenses) of $13.9 million and foreign
exchange translation movements.
Sensitivities regarding the discount rate and inflation
assumptions used to measure the liabilities of the Coats UK Pension
Scheme, along with the impact they would have on the scheme
liabilities, are set out below. Interrelationships between
assumptions might exist and the analysis below does not take the
effect of these interrelationships into account:
30 June 30 June 31 December
2023 2022 2022
+0.25% -0.25% +0.25% -0.25% +0.25% -0.25%
US$m US$m US$m US$m US$m US$m
----------- ------- ---------- ------- ---------- ------- ------------
Discount
rate (47.0) 49.5 (64.5) 66.2 (51.4) 53.9
Inflation
rate 27.9 (26.7) 41.3 (51.3) 28.0 (30.1)
----------- ------- ---------- ------- ---------- ------- ------------
An increase of 1.0% in the discount rate would result in the
Coats UK Pension Scheme liabilities decreasing by $176.6 million
(31 December 2022: $192.3 million; 30 June 2022: $238.0 million). A
decrease of 1.0% in the discount rate would result in the Coats UK
Pension Scheme liabilities increasing by $213.4 million (31
December 2022: $232.2 million; 30 June 2022: $289.4 million). The
above sensitivity analysis (on a IAS 19 basis) is pre-tax and
considers the impact on the scheme liabilities only and excludes
any impacts on scheme assets from changes in discount and inflation
rates. As noted in the 2022 Annual Report, the Coats UK Pension
Scheme is hedged against interest rate and inflation rate movements
(currently over 90% hedged). Therefore on a Technical Provision
basis, to the extent there is a change in the scheme liabilities
due to movements in discount and inflation rates there would be
offsetting impacts from the scheme assets due to the hedging in
place. If members of the Coats UK Pension Scheme live one year
longer the scheme liabilities will increase by $57.2 million (31
December 2022: $59.8 million; 30 June 2022: $81.1 million).
During the six months ended 30 June 2023, the Group agreed a
mechanism to switch off / switch on the regular cash contributions
to the Coats UK Pension Scheme based on monthly estimates of the
latest funding position. As such, if the Scheme remains in surplus
for a consecutive number of months cash contributions will cease
entirely until any trigger on the downside (i.e., a return to
deficit) has been hit. At this point, contributions on a pre-agreed
basis would resume. The Coats UK Pension Scheme surplus on an IAS
19 basis at 30 June 2023 of $151.9 million has been reported on the
condensed consolidated statement of financial position in
non-current assets and no amounts are now reported in current
liabilities (31 December 2022: $27.4 million; 30 June 2022 $31.4
million).
Prior period restatement of pension surplus
The Coats UK Pension Scheme accounting surplus under IAS 19 has
been recognised on the basis that the future economic benefits are
unconditionally available to the Group, which is assumed to be via
a refund. As at 30 June 2023 the Group determined that the
accounting surplus should be recognised after deducting a 35%
withholding tax, which would be levied prior to the future
refunding of any surplus and would be payable by the Trustees of
the Scheme. The pension surplus has been presented on a net basis
at 30 June 2023. The Coats UK Pension scheme also had an accounting
surplus under IAS 19 at 31 December 2022, 30 June 2022 and 31
December 2021 but as originally reported the accounting surplus was
not recognised after deducting the 35% withholding tax. Prior
period amounts of the pension surplus included in the condensed
consolidated statement of financial position at these dates have
been restated to recognise the 35% withholding tax and present the
accounting surplus on a net basis consistent with the accounting
treatment at 30 June 2023. In addition amounts for remeasurements
of defined benefit schemes and the foreign currency Great Britain
pound sterling translation impact included in the condensed
consolidated statement of comprehensive income have also been
restated. There has been no impact on either the Group's profits or
cash flows for the respective periods as a result of this
remeasurement.
Amounts as of 30 June 2022 and for the six months ended 30 June
2022 and as of 31 December 2022 and for the year ended 31 December
2022 have been restated as set out below:
As reported Adjustment As restated
US$m US$m US$m
------------------------------------------- ------------ ----------- ------------
Condensed consolidated statement of
financial position
30 June 2022
Non-current assets:
Pension surpluses 309.3 (93.7) 215.6
Total assets 1,646.6 (93.7) 1,552.9
Net assets and total equity 681.2 (93.7) 587.5
31 December 2022
Non-current assets:
Pension surpluses 222.7 (63.2) 159.5
Total assets 1,924.6 (63.2) 1,861.4
Net assets and total equity 699.3 (63.2) 636.1
31 December 2021
Total equity 584.1 (37.8) 546.3
Condensed consolidated statement of
comprehensive income
Six months ended 30 June 2022
Remeasurements of defined benefit schemes 160.4 (63.7) 96.7
Exchange differences on translation
of foreign operations (33.7) 7.8 (25.9)
Net comprehensive income and expense
for the period 118.6 (55.9) 62.7
Year ended 31 December 2022
Remeasurements of defined benefit schemes 59.8 (30.1) 29.7
Exchange differences on translation
of foreign operations (31.9) 4.7 (27.2)
Net comprehensive income and expense
for the year 48.8 (25.4) 23.4
17. Fair value of assets and liabilities
As at 30 June 2023 there were no significant differences between
the book value and fair value (as determined by market value) of
the Group's financial assets and liabilities.
The following tables provide an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable:
- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
- Level 2 fair value measurements are those derived from inputs
other than quoted prices that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
- Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that
are not observable market data (unobservable inputs).
Financial assets measured at fair value
Level Level Level
Total 1 2 3
30 June 2023 US$m US$m US$m US$m
----------------------------------- ------ ------ ------ ------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 2.2 - 2.2 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Other investments 5.7 0.7 - 5.0
Total 7.9 0.7 2.2 5.0
------ ------ ------ ------
Level Level Level
Total 1 2 3
30 June 2022 US$m US$m US$m US$m
----------------------------------- ------ ------ ------ ------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 1.9 - 1.9 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Other investments 5.9 0.9 - 5.0
Total 7.8 0.9 1.9 5.0
------ ------ ------ ------
Level Level Level
Total 1 2 3
31 December 2022 US$m US$m US$m US$m
----------------------------------- ------ ------ ------ ------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 1.6 - 1.6 -
Financial assets measured at
fair value through the statement
of comprehensive income:
Other investments 5.9 0.9 - 5.0
Total 7.5 0.9 1.6 5.0
------ ------ ------ ------
Financial liabilities measured at fair value
Level Level Level
Total 1 2 3
30 June 2023 US$m US$m US$m US$m
---------------------------------------- -------- ------ -------- ------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (3.7) - (3.7) -
Derivatives designated as effective
hedging instruments (2.9) - (2.9) -
Total (6.6) - (6.6) -
-------- ------ -------- ------
Level Level Level
Total 1 2 3
30 June 2022 US$m US$m US$m US$m
---------------------------------------- -------- ------ -------- ------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (8.1) - (8.1) -
Derivatives designated as effective
hedging
instruments (1.5) - (1.5) -
Total (9.6) - (9.6) -
-------- ------ -------- ------
Level Level Level
Total 1 2 3
31 December 2022 US$m US$m US$m US$m
---------------------------------------- -------- ------ -------- ------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (5.9) - (5.9) -
Derivatives designated as effective
hedging
instruments (3.1) - (3.1) -
Total (9.0) - (9.0) -
-------- ------ -------- ------
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. There
were no changes in the Group's valuation processes, valuation
techniques, and types of inputs used in the fair value measurements
during the six months ended 30 June 2023.
18. Post balance sheet events
There have been no events between the balance sheet date, and
the date on which the condensed consolidated financial statements
were approved by the Board, which would require adjustment to the
condensed consolidated financial statements or any additional
disclosures.
19. 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 2022 and these are expected to stay the
same for the remainder of 2023. These principal risks and
uncertainties are as follows:
Strategic risks
1. M&A programme ambition risk in light of the Group's increasing
ambition in the scale of its acquisition programme and its ability
to source, satisfactorily acquire and integrate suitable targets
2. Risk of ever-increasing customer product and sustainability expectations
and continuing ability to meet and exceed those expectations
3. Risk of failure to attract, retain and develop diverse and inclusive
set of talent and capability given business changes, growth in
new areas and labour availability challenges
External risks
4. Economic and geopolitical risk arising from significant macroeconomic
and demand uncertainty - across both key Asian and developed markets
- including risk to free trade conventions - as well as global
inflationary pressures and ongoing geopolitical developments
5. Cyber risk - risk of cyber incidents leading to corruption of
applications, critical IT infrastructure, compromised networks,
operational technology and/or loss of data
6. Climate change risk arising from either (i) the impact of failing
to sufficiently address the need to decarbonise the Company's
operations and reduce emissions, leading principally to commercial
and reputational risks and the financial risk of emissions taxes
or other legislative changes, or (ii) the physical impact of climate
change on the Company's operations and business model, and that
of its customers in the textile supply chain
7. Risk of supplier non-performance, unavailability and/or price
increases of raw materials, labour and freight and/or logistical
challenges causing major disruption to Coats' supply chain
8. Environmental non-performance risk given changing standards, increasing
scrutiny, customer and investor demands and expectations and scale
of Group's own self-imposed standards and ambitions, creating
commercial, financial and reputational risks as well as opportunities
Operational risks
9. Health and Safety risk - risk of (i) safety incident(s) leading
to injury or fatality involving our employees or other interested
parties such as contractors, visitors, onsite suppliers etc along
with potential resulting prosecution, financial costs, business
disruption and/or reputational damage; and/ or (ii) physical and
mental health issues, including as a result of the pandemic, impacting
wellbeing, engagement, productivity and talent retention
10. Bribery and anti-competitive behaviour risk - risk of breach of
anticorruption law or competition law, resulting in material fine
and/or reputational damage
Legacy risks
11. Lower Passaic River legacy environmental matter
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 2022 on pages 42 to 49, a
copy of which is available on the Group's website, www.coats.com
.
The risk trends in relation to the above listed risks are
considered to be the same as those detailed in Coats Group plc's
Annual Report and Accounts for the year ended 31 December 2022.
20. Related party transactions
There have been no related party transactions or changes in
related party transactions described in the 2022 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.
21. Directors
The following persons were directors of Coats Group plc during
the half year ended 30 June 2023 and up to the date of this
report:
D Gosnell OBE
R Sharma
N Bull
J Callaway
H Lawrence (Resigned 31 March 2023)
H Lu
S Murray
F Philip
J Sigurdsson
22. Publication
This statement will be available at the registered office of the
Company, The Pavilions, Bridgwater Road, Bristol, BS13 8FD, United
Kingdom. A copy will also be displayed on the Company's website,
www.coats.com.
DIRECTORS' RESPONSIBILITIES STATEMENT
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in
accordance with UK adopted 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 21 to the
Condensed Consolidated Financial Statements.
By order of the Board,
D Gosnell
Chair
31 July 2023
United Kingdom
--------------------------------------------- --------------
The Pavilions, Bridgwater Road, Bristol, Tel: 0208 210
England, BS13 8FD 5000
Registered in England and Wales No. 103548
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