2021 Half Year Results
- 03 August 2021
3 August 2021 (07.00 BST) Coats Group plc (‘Coats,’ the ‘Company’ or the ‘Group’), the world’s leading industrial thread manufacturer, announces its unaudited results for the six months ended 30 June 2021 (the ‘period’).
- Coats Group plc 2021 Half Year results announcement (PDF)
- Coats Group plc 2021 Half Year results presentation (PDF)
- Listen to the results call with Coats Management
Positive momentum continues;
strong operational performance
|H1 2021||H1 2020||H1 2019||H1 2021 vs H1 2020||H1 2021 vs H1 2019|
|Basic earnings per share||3.1c||0.0c||3.4c|
|Free cash flow||$48m||$(5)m||$21m|
|Net debt (excl. IFRS 16)||$168m||$207m||$210m|
|Basic earnings per share||3.4c||(0.6)c||3.4c|
|Net cash generated by operating activities||$64m||$15m||$34m|
|Interim dividend per share||0.61c||nil||0.55c|
- Continued positive momentum during the first half; organic revenues up 1% vs 2019 and 34% vs 2020, despite recent lockdown impacts in India in May and June which have now ended
- Encouraging momentum and recovery in Apparel and Footwear: core thread business up 2% vs 2019 (41% vs 2020); positive end market sentiment across US, Europe and Asia; sports and athleisure perform well due to ongoing casualisation trend
- Performance Materials organic growth of 4% vs 2019 (19% vs 2020), with all segments performing strongly apart from Personal Protection which continues to be impacted by US labour availability issues
- Adjusted operating profit of $95 million; inflationary pressures offset by pricing actions and self-help productivity programmes
- Adjusted EPS of 3.1c per share: significantly up from 2020 (0.0c) due to the recovery of operating profits towards pre-Covid levels, lower finance charges, and a normalisation of the effective tax rate
- Strong cash generation in the period; net debt (excl. IFRS 16) of $168 million and strong adjusted free cash flow of $48 million; 0.8x leverage4 reflecting our commitment to financial discipline
- Interim dividend of 0.61 cents per share declared
- As stated in a post-close trading update on 14 July, full year 2021 performance is anticipated to be moderately ahead of the Group’s previous expectations.
Commenting on the Half Year Results Rajiv Sharma, Group Chief Executive, said:
‘We are pleased to have seen continued recovery and positive momentum during the first half of the year. We have won some excellent contracts and programmes, across both divisions, as customers prioritise reliability, speed and flexibility. We also launched 12 new products in the first half, generating $11 million of incremental revenue, with a healthy pipeline of opportunities ahead of us. We have continued the advancement of our industry-leading sustainability agenda, with strong demand for our EcoVerde product range and revenue of $43m, which was 5x higher than in the first half of 2020. We are also proud to have launched EcoRegen, a biodegradable thread supporting Coats’ drive towards a circular economy.
‘In the second half of the year we will continue to drive performance by focusing on profitable sales growth, our strong customer relationships, our digital, innovation and sustainability credentials and ongoing pricing and productivity actions.
- Adjusted measures are non-statutory measures (Alternative Performance Measures). These are reconciled to the nearest corresponding statutory measure in note 12. Constant Exchange Rate (CER) are 2020 and 2019 results restated at 2021 exchange rates. Organic vs 2020 on a CER basis includes like-for-like contributions from Pharr HP (post acquisition date of February 2020). Organic vs 2019 on a CER basis includes like-for-like contributions from ThreadSol (post acquisition date of February 2019) and excludes contribution from Pharr HP (acquired in February 2020). Revenue figures are an IFRS measure; however CER and Organic growth rates constitute Alternative Performance Measures.
- Reported refers to values contained in the IFRS column of the primary financial statements in either the current or comparative period.
- All figures on a continuing basis, unless otherwise stated.
- Leverage calculated on a frozen GAAP basis, and therefore excludes the impact of IFRS 16 on both adjusted EBITDA and net debt.
About Coats Group plc
Coats is the world’s leading industrial thread company. At home in some 50 countries, Coats has a workforce of 17,000 people across six continents. Revenues in 2020 were US$1.2bn. Coats’ pioneering history and innovative culture ensure the company continues leading the way around the world. It provides complementary and value added products, services and software solutions to the apparel and footwear industries. It applies innovative techniques to develop high technology Performance Materials threads, yarns and fabrics in areas such as Transportation, Telecommunications and Energy, and Personal Protection. Headquartered in the UK, Coats is a FTSE 250 company, a constituent of the FTSE4Good Index Series, a participant in the UN Global Compact and a member of the Ellen MacArthur Foundation. It has also committed to developing a long-term target to reach net-zero emissions by 2050, the highest level of ambition on climate under the Science Based Target initiative.
Certain statements in this half year 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.
Group Chief Executive’s review
We entered 2021 with a robust balance sheet, with healthy levels of cash generation, and with encouraging trading momentum, which has given us a solid base from which to continue to win the Covid recovery.
2021 half year results overview
We have had a strong start to the year with revenues back above 2019 levels despite ongoing Covid-related lockdowns in some of our key markets such as India. The health and safety of our employees remains our number one priority. We continue to mitigate inflationary pressures through pricing and productivity actions. We have had a number of good customer and programme wins in both Apparel & Footwear “A&F” and Performance Materials “PM” due to the ongoing focus on reliability, speed and flexibility for our customers, as well as our continued focus on innovative new products and our industry-leading sustainability agenda.
Adjusted operating profit came in at $95 million for the first half. Adjusted operating profit margin of 13.0% was slightly down on pre-Covid 2019 levels primarily due to the expected dilutive impact of the Pharr acquisition in 2020, the ongoing labour disruption in the wider US business, and the recent India lockdown impacts. Earnings recovery has been strong, and only slightly below pre-Covid levels as operating profit recovery has been supported by a normalisation of our tax rate and lower interest charges. In April we announced the successful completion of a three year $360 million ESG-linked bank refinancing. Net debt (excl. IFRS 16) at the end of the period stands at $168 million, giving 0.8x leverage which is slightly below the lower end of our target leverage range of 1-2x.
Strategic enablers: Digital, Innovation and Sustainability
Our strategic enablers of Digital, Innovation and Sustainability underpin our strategy and give us a competitive advantage.
Covid highlighted the critical need for digital adoption in the industries we serve. During the first half we continued to use digital technology to deliver value creation for our customers in a Covid-affected world. We enhanced our digital customer ecosystem, through which customers can, for example, use automated bulk and sample ordering and status management. We are developing our new TechConnect app to support customers with value-adding technical support in product development, production and quality assurance. We are onboarding key accounts through system integration, refreshing our front end order system and using Dynamics CRM to further professionalise our sales and customer service systems. These developments deliver speed, agility and ease of use benefits to our customers, allowing us to earn greater market share and customer loyalty.
We continued to create innovative new solutions for our customers, with 12 new products launched in the first half of the year, across both A&F and PM, delivering incremental revenues of $11.4 million so far. Examples within A&F include a reflective tape with unique phosphorescent technology which charges up in under ten minutes and glows for over 8 hours. We have also launched new products in our zips and trims ranges, generating early customer wins and stronger medium-term potential. In PM, the largest selling innovation was a new Flamepro product with lighter weight, higher performance and improved strength and protection qualities. Our innovation pipeline to deliver further incremental revenues in the future remains strong and we will continue to accelerate our innovation credentials and solutions in order to deliver tailored solutions to meet customers’ design requirements.
A key part of our company purpose is to make a better and more sustainable world. We have made good progress across all our Sustainability targets during the first half, with some particular highlights. One of our sustainability targets is to have external social certifications, such as Great Place to Work, across all our key sites, with over 80% of our employees in certified sites by 2022. During the first half we added certification for India, China and Sri Lanka. As at the end of June, 44% of our employees are covered by the Great Place to Work certification, up from 6% at the end of 2020. During the first half we also re-launched our global engagement surveys and were delighted to achieve a 90% participation rate, significantly above benchmark. Results of the engagement score also showed a highly engaged workforce, at 83%, again significantly above the benchmark of 74%. Demand for our EcoVerde product range (100% recycled threads) continued to increase at pace and revenues in the first half were up strongly to $42.5 million (FY2020 $37 million), with an expected doubling of EcoVerde revenues for the full year vs 2020, and on track for our 2024 target for all our premium polyester threads to be made from 100% recycled material.
During the first half we also developed and launched EcoRegen, a biodegradable thread made from 100% lyocell, a renewable fibre derived from wood pulp sourced from sustainably managed forests. This eco-friendly regenerated fibre is fully biodegradable and compostable due to its cellulosic origin and is suitable for a wide range of apparel applications to accommodate multiple customer needs. The launch of EcoRegen is part of Coats’ Eco Journey roadmap to produce innovative sustainable products which supports our drive towards a circular economy. Two further new products will be launched soon: EcoCycle, a range of water dissolvable thread that facilitates garment recycling and end to end circularity; and Eco-B, a recycled polyester thread incorporating an additive which reduces synthetic fibre accumulation in landfills and microfibre pollution in oceans. With the launch of these new sustainable threads we are developing products that allow our customers to design garments with a clear end-of-life strategy built into them.
Lastly, we are particularly pleased with the progress made during the first half on our target to reduce the amount of water used per kilogramme of thread by 40% by 2022, against our 2018 baseline. During the first half of 2021 we achieved an overall 15% reduction vs a 6% reduction at the end of 2020.
As previously reported, Mike Clasper retired as Chairman and from the Board of Coats after nearly eight years with the Company, at the conclusion of the Annual General Meeting that took place on 19 May 2021. The company would like to thank Mike for his commitment and service, overseeing a time of unprecedented corporate transformation including the merger of the Guinness Peat Group and Coats plc Boards, delisting from the Australian and New Zealand Stock Exchanges, re-listing as Coats Group plc on the London Stock Exchange and entry to the FTSE 250. Mike was succeeded as Chairman by David Gosnell who has been an Independent Non-Executive Director of Coats for 6 years.
The Board is mindful of the importance of income to shareholders and, as a result of the strength of the Group’s balance sheet, the continued encouraging recovery out of the Covid pandemic, and its confidence in the strategy and outlook for the Group, it is pleased to declare an ordinary interim dividend of 0.61 cents per share (2020 interim dividend: nil). The interim dividend will be paid on 16 November 2021 to ordinary shareholders on the register at 22 October 2021, with an ex-dividend date of 21 October 2021. The proposed full year dividend will be announced in March 2022 alongside the Full Year 2021 results.
In the second half of the year we will continue to drive performance by focusing on profitable sales growth, our strong customer relationships, our digital, innovation and sustainability credentials and ongoing pricing and productivity actions.
The company issued a post-close trading update on 14 July which stated that performance for the full year 2021 was anticipated to be moderately ahead of its previous expectations.