Coats Regulatory News (COA)

28 Feb 2008 07:01

Guinness Peat Group PLC28 February 2008 Guinness Peat Group plc The following unaudited consolidated results of Coats Group Limited ("the Group") for the year ended 31December 2007 are released by Guinness Peat Group plc ("GPG") for information only. Richard RussellCompany SecretaryGuinness Peat Group plc 28 February 2008 Contacts:Blake Nixon (UK) 00 44 20 7484 3370Gary Weiss (Australia) 00 61 2 8298 4305Tony Gibbs (New Zealand) 00 64 9 379 8888 Coats Group Limited: unaudited results* for the year ended 31 December 2007 Financial summary 2007 2006 Unaudited Unaudited US$m US$m Revenue 1,681.2 1,615.1 Operating profit before reorganisation, impairment and 158.1 122.4other exceptional items (see note 2) Operating profit 118.8 79.9 Profit before taxation 95.6 57.1 Net profit attributable to equity shareholders 61.8 29.9 Net debt** 335.9 345.7 Net gearing** 63% 76% * see note 1** net debt and net gearing include amounts owed to GPG of $55.0 million (2006 - nil) and areafter the payment of European Commission fines cumulatively totalling $37.7 million (2006 -$7.9 million) • Pre-exceptional operating profit up 29% • Industrial thread pre-exceptional operating profit up 28%, with 12% sales growth in Asia • Crafts pre-exceptional operating profit up 36%, with recovery in North American crafts • Net attributable profit more than doubled to $61.8m Chairman's statement Results Coats made good progress in 2007 in terms of both profits and cash generation.Its competitive position also continued to improve as a result of substantialinvestment in the relocation and upgrading of capacity and product rangerationalisation in both the industrial and crafts businesses. Pre-exceptional operating profit (before reorganisation, impairment and otherexceptional items) grew by 29% to $158.1 million (2006 - $122.4 million). Profitfrom the industrial thread business increased by $29.0 million to $132.6 million(+28%), driven by an improved performance in Europe and strong growth in Asia.Crafts profit improved by $6.7 million to $25.5 million, principally as a resultof a strong recovery in North American profitability. This was partly offset byweakness in the European crafts business, particularly handknittings, whichpushed this business into loss. The results for crafts and industrial over the last four years provide thecontext for the current year's performance. 2007 2006 2005 2004External sales $m Industrial thread & zips 1,087.6 1,030.1 996.2 987.7 Crafts 593.6 585.0 640.5 590.4 Total 1,681.2 1,615.1 1,636.7 1,578.1 Sales growth Industrial thread & zips +6% +3% +1% +1% Crafts +1% -9% +8% +13% Total +4% -1% +4% +5% Pre-exceptional operating profit $m Industrial thread & zips 132.6 103.6 68.5 49.3 Crafts 25.5 18.8 58.0 41.2 Total 158.1 122.4 126.5 90.5 Pre-exceptional operating margin Industrial thread & zips 12% 10% 7% 5% Crafts 4% 3% 9% 7% Total 9% 8% 8% 6% Net earnings attributable to equity shareholders more than doubled to $61.8million, due primarily to the improvement in pre-exceptional operating profit. Cash flow EBITDA (defined as pre-exceptional operating profit before depreciation andamortisation) of $225.6 million was 22% ahead of the previous year's total of$185.5 million. European Commission fines (see below for further details) of$29.8 million (2006 - $7.9 million) were paid in the year, but the net operatingcash flow before reorganisation costs remained strong at $190.7 million (2006 -$172.3 million). Reorganisation spend was $44.6 million (2006 - $54.5 million). Spend on capitalprojects at $68.8m was also lower than in the previous year (2006 - $78.3million). Including the realisation of $25.9 million (2006 - $60.2 million)from the sale of surplus property, reorganisation and capital spend wascomfortably covered by internally generated cash flow. Spending on theacquisition of businesses and minority shareholdings, net of disposals, amountedto $7.8 million (2006 - $7.5 million). Interest and tax paid at $76.2 millionwas broadly in line with last year (2006 - $72.8 million). Excluding the $55.0 million advance from GPG, the Group succeeded in generatinga $19.0 million (2006 - $25.0 million) increase in cash. Investment, reorganisation and disposals As noted above, the cash investment in new plant and systems amounted to $68.8million (2006 - $78.3 million). Investment in plant and equipment largelyconsisted of additional capacity to meet growth in Asia and productivityimprovements in Europe. Significant investment continues to be made inupgrading IT systems, including the installation of SAP in all Coats unitsthroughout the world. Spend across the Group was 1.0 times (2006 - 1.2 times)depreciation and amortisation. Reorganisation spend was $44.6 million (2006 - $54.5 million). Approximately 75%of this spend in 2007 was directed towards site closures and restructuring inEurope. As noted at the half year, a major restructuring programme is wellunderway in Europe crafts, with the objective of transforming the previousstructure of country-based organisations - each with its own product range -into a more cost-effective pan-European business with a single, harmonisedproduct offer. In the process, key products are being redesigned and new supplychains established so that the new pan-European product ranges will be moreattractive and offer better value than could have been created by individualcountries acting alone. Total numbers employed in the Group fell by 6% to22,428 (2006 - 23,781) at the end of the year and 83% of employees are nowlocated in low-cost markets. Since 2003 the number of employees in high-costcountries has fallen by more than 40%. Reorganisation cash outflows were partlyoffset by proceeds from the sale of properties which had become surplus as aresult of the Group's reorganisation programme. Spending on the acquisition of businesses and minority shareholdings in existingsubsidiaries, net of disposals, amounted to $7.8 million (2006 - $7.5 million).This covers several relatively small transactions, including the acquisition ofFree Spirit, a North American crafts patchwork and quilting fabrics business, aswell as the acquisition of minority interests in Sri Lanka. The Free Spiritacquisition, coupled with the subsequent launch of a wider range of patchworkand quilting fabrics, has opened up new growth opportunities for Coats in apopular and long-established North American crafts activity. European Commission Investigation In September 2007, the European Commission concluded its investigation intoEuropean fasteners - the last part outstanding of its general investigation intothread and haberdashery markets which began in 2001. It imposed fines againstseveral producers, including two fines against the Coats plc Group of €12.2million and €110.3 million. Following legal advice, the Group has determinednot to appeal the €12.2 million fine, which was paid in December 2007. The €110.3 million fine is in respect of the Commission's allegation of a marketsharing agreement in the European haberdashery market. Coats totally rejectsthis allegation. During the investigation, Coats presented the Commission withample evidence which refuted this allegation and demonstrated that in any eventa fine was time-barred. Contrary to its right under the European Convention onHuman Rights, Coats was not permitted to examine the only witness who made thisallegation. Coats is vigorously contesting the Commission's decision in anappeal which has been lodged with the Court of First Instance in Luxembourg. Earlier in September 2007, the Court of First Instance quashed a large number ofthe Commission's factual findings in respect of the €30 million needles fine,levied against Coats in 2004, following its investigation into the Europeanhand-sewing needles market, for want of proof or because of clearmisinterpretation of the evidence by the Commission, and reduced the fine to €20million. A further appeal to the European Court of Justice has now been lodgedin respect of this reduced fine. As stated in previous reports, Coats remains of the view that any anticipatedeventual payment of the remaining fines is adequately covered by existingprovisions. Prospects The consistent progress achieved by the industrial business over the last fouryears has fully vindicated the substantial reorganisation programme during thatperiod. However, given the global downturn, the purchasing power of theconsumer in Western markets is expected to be adversely affected, which willimpact apparel and footwear sales. The global industrial thread market istherefore expected to be relatively flat in 2008. Notwithstanding this, withmajor restructuring projects in Western markets largely complete, Coats will useits more competitive cost base to maintain and in some countries grow its marketshare, in particular within the Asian region. Some improvement is expected in crafts profitability in 2008. In the Europemarket there may be some tapering off of the decline in demand seen since 2005and a move towards a more stable environment. Benefits will begin to flowthrough from the latter part of 2008 onwards from the ongoing restructuring andproduct harmonisation programme, due to a lower cost base and improved supplychains. In North America, it is anticipated that current sales levels andprofitability will be maintained. The Group's programme of relocating and upgrading industrial thread capacity hasbeen successful and has made a substantial contribution to the improvement inindustrial profitability. The downturn in European crafts demand has indicatedthe need for a greater pace of reorganisation in that market. In light of this,total reorganisation costs in 2008 are expected to remain broadly in line with2007. Reorganisation projects will continue to free up for disposal surplusproperties which, in the past, have significantly reduced the net spend. Over the longer term, the Board remains confident that Coats' position in boththe industrial thread and crafts markets will deliver further growthopportunities and increases in shareholder value. Gary WeissChairman28 February 2008 Operating review Industrial Trading PerformanceINDUSTRIAL 2007 *2006 2006 Like-for-like Actual reported like-for-like reported increase / increase / (decrease) (decrease) $m $m $m % % SalesAsia and Rest of World 511.1 467.9 457.8 +9% +12%Europe 269.0 278.6 258.2 -3% +4%Americas 307.5 327.4 314.1 -6% -2%Total sales 1,087.6 1,073.9 1,030.1 +1% +6% Pre-exceptional 132.6 108.5 103.6 +22% +28%operating profit** *2006 like-for-like restates 2006 figures at 2007 exchange rates **Pre reorganisation, impairment, and other exceptional items (see note 2) In the following comments, all comparisons with 2006 are on a like-for-likebasis The Asian industrial business delivered another good performance. This reflectsboth the continued growth in the apparel export market in this region, plus theinvestment made by Coats in additional production capacity and benefits fromCoats relationships with global suppliers and brand owners. Sales and profitsare broadly based across the region. European sales continued to be affected by customer migration from WesternEurope but this was partially offset by growth in Eastern Europe. However, therewas a major recovery in operating profit in Western Europe as a result ofreorganisation and investment in previous years. The Americas continued to be affected by increased penetration of apparelimports from Asia. However, there was further recovery in operating profit as aresult of earlier reorganisation and investment. Crafts Trading Performance 2007 *2006 2006 Like-for-like Actual reported like-for-like reported increase / increase / (decrease) (decrease) $m $m $m % % SalesAsia and Rest of World 64.8 63.8 58.9 +2% +10%Europe 249.1 297.6 267.1 -16% -7%Americas 279.7 272.4 259.0 +3% +8%Total sales 593.6 633.8 585.0 -6% +1% Pre-exceptional 25.5 21.0 18.8 +21% +36%operating profit** *2006 like-for-like restates 2006 figures at 2007 exchange rates and includes anadjustment to reflect the impact of acquisitions **Pre reorganisation, impairment, and other exceptional items (see note 2) In the following comments, all comparisons with 2006 are on a like-for-likebasis Crafts sales in Europe were principally affected by reduced demand forhandknittings, although all crafts categories were down in an exceptionally weakretail environment for crafts products. With a relatively high fixed-cost base,the reduction in sales pushed the business into loss. The major restructuring isin its second year and will lower the cost base, improve productivity anddeliver a harmonised pan-European product offer by 2008/9. Crafts results in the Americas benefited from a more stable handknittings marketin North America and the absence of mark-downs and other one-off charges whichaffected 2006. In total, sales of handknittings were slightly down on last yearas recovery in North America was offset by decline in South America. Theacquisition of Free Spirit was successfully completed and contributed to salesgrowth in patchwork and quilting fabrics. Investment income and finance costs Finance costs, net of investment income, were $25.4 million (2006 - $24.9million). Net interest payable, after including $2.4 million (2006 - $2.7million) of interest receivable shown in investment income, was up $5.0m from$37.0 million in 2006 to $42.0 million in 2007, largely due to $2.9 millionadditional amortisation of 2004 facility fee charges, given that key bankfacilities are expected to be refinanced in 2008 well before they mature inMarch 2009. The net return on pension scheme assets and liabilities increasedby $7.4 million to $23.1 million. Tax The tax charge of $43.2 million (2006 - $26.3 million) represents a rate of 45%(2006 - 46%) on pre-tax profit of $95.6 million (2006 - $57.1 million).Excluding prior year charges of $1.7 million (2006 - $7.5 million credits), thetax rate was 43% for 2007 compared to 59% in the previous year. The Group hassignificant losses available to reduce future tax payments once profitability,in particular in Europe, improves. Profit from discontinued operations The $14.6 million (2006 - $3.2 million) profit from discontinued operationslargely relates to the sale of UK property. Pension and other post-employment benefits The Group operates a defined benefit plan in the UK and there is a similararrangement in the USA. The UK scheme shows a recoverable surplus of $21.9million (2006 - $22.9 million) and the USA scheme shows a recoverable surplus of$35.0 million (2006 - $36.9 million). These surpluses are predominantlyincluded in non-current assets. Employer contribution holidays for theseschemes continue to be taken based on actuarial advice. There are various pension and leaving indemnity arrangements in other countries(primarily in Europe) where the Group operates. The vast majority of theseschemes, in line with local market practice, are not funded but are provided inthe Group accounts and are predominantly included in current and non-currentliabilities. Balance sheet In the year $55.0 million was received from GPG, largely offsetting the $56.7million of bank debt repaid. Of this sum, $29.8 million was utilised in makingpayments in respect of the European Commission fines. Coats expects torefinance its main bank facilities in 2008 and the $55.0 million will be repaidto GPG as part of this. Net debt (including this advance) was slightly reduced to $335.9 million (2006 -$345.7 million), notwithstanding the payment of the fines. Net gearing(including this advance) was 63% (2006 - 76%). Equity shareholders' funds increased from $434.5 million to $517.8 million,reflecting the $61.8 million net attributable profit plus net gains of $21.5million taken directly to reserves, largely in respect of exchange differencesarising on the translation of operations with functional currencies other thanthe US dollar. Minority interests fell by $1.1 million to $18.4 million largelyas a result of acquisitions. Consolidated income statement (unaudited) 2007 2006 Unaudited UnauditedFor the year ended 31 December 2007 Notes US$m US$m Continuing operationsRevenue 1,681.2 1,615.1 Cost of sales (1,086.8) (1,084.8) Gross profit 594.4 530.3 Distribution costs (303.7) (299.9)Administrative expenses (179.6) (176.4)Other operating income 7.7 25.9 Operating profit 2 118.8 79.9 Share of profits of joint ventures 2.2 2.1 Investment income 2.6 4.4 Finance costs 3 (28.0) (29.3) Profit before taxation 95.6 57.1 Taxation 4 (43.2) (26.3) Profit from continuing operations 52.4 30.8 Discontinued operationsProfit from discontinued operations 14.6 3.2 Profit for the year 67.0 34.0 Attributable to: EQUITY SHAREHOLDERS OF THE COMPANY 61.8 29.9Minority interests 5.2 4.1 67.0 34.0 Consolidated balance sheet (unaudited) 2007 2006 Unaudited UnauditedAt 31 December 2007 Notes US$m US$mNon-current assetsIntangible assets 270.6 260.9Property, plant and equipment 520.7 510.8Investments in joint ventures 16.1 16.2Available-for-sale investments 4.0 4.9Deferred tax assets 13.9 9.5Pension surpluses 63.7 61.3Trade and other receivables 23.1 27.6 912.1 891.2 Current assetsInventories 347.4 307.6Trade and other receivables 337.1 308.5Available-for-sale investments 0.2 0.2Cash and cash equivalents 7 84.6 76.4 769.3 692.7 Non-current assets classified as held for sale 2.5 4.8 Total Assets 1,683.9 1,588.7 Current liabilitiesAmounts owed to parent undertaking (55.0) -Trade and other payables (373.4) (328.3)Current income tax liabilities (11.4) (10.6)Bank overdrafts and other borrowings (104.6) (127.9)Provisions (162.2) (167.1) (706.6) (633.9) Net current assets 62.7 58.8 Non-current liabilitiesTrade and other payables (20.4) (25.9)Deferred tax liabilities (17.3) (10.7)Borrowings (260.9) (294.2)Retirement benefit obligations: Funded schemes (1.8) (1.0) Unfunded schemes (101.6) (112.4)Provisions (39.1) (56.6) (441.1) (500.8) Total liabilities (1,147.7) (1,134.7) Net assets 536.2 454.0 EquityShare capital 4.2 4.2Share premium account 412.1 412.1Hedging and translation reserve 44.4 17.0Retained profit 57.1 1.2EQUITY SHAREHOLDERS' FUNDS 5 517.8 434.5Minority interests 5 18.4 19.5Total equity 5 536.2 454.0 Consolidated cash flow statement (unaudited) 2007 2006 Unaudited UnauditedFor the year ended 31 December 2007 Notes US$m US$mCash inflow/(outflow) from operating activitiesNet cash inflow generated by operations 6 146.1 117.8Interest paid (40.4) (37.0)Taxation paid (35.8) (35.8)Net cash generated from operating activities 69.9 45.0 Cash inflow/(outflow) from investing activitiesDividends received from associates and joint ventures 2.3 2.3Acquisition of property, plant and equipment and intangible assets (68.8) (78.3)Disposal of property, plant and equipment and intangible assets 25.9 60.2Acquisition of financial investments - (0.9)Disposal of financial investments 0.2 8.6Acquisition of subsidiaries (9.8) (10.7)Disposal of subsidiaries 2.0 3.2Net cash absorbed in investing activities (48.2) (15.6) Cash (outflow)/inflow from financing activitiesDividends paid to minority interests (2.7) (4.4)Amounts received from parent undertaking 55.0 -Decrease in debt and lease financing (56.7) (33.3)Net cash absorbed in financing activities (4.4) (37.7) Net increase/(decrease) in cash and cash equivalents 17.3 (8.3)Net cash and cash equivalents at beginning of the year 50.1 57.1Foreign exchange gains on cash and cash equivalents 0.8 1.3Net cash and cash equivalents at end of the year 7 68.2 50.1 Reconciliation of net cash flow to movement in net debtNet increase/(decrease) in cash and cash equivalents 17.3 (8.3)Cash outflow from change in debt and lease financing 56.7 33.3Change in net debt resulting from cash flows 74.0 25.0New finance leases - (0.3)Other (6.8) (3.9)Foreign exchange (2.4) (3.2)Decrease in net debt 64.8 17.6Net debt at start of year (345.7) (363.3)Net debt at end of year 7 (280.9) (345.7) Consolidated statement of recognised income and expense (unaudited) 2007 2006 Unaudited UnauditedFor the year ended 31 December 2007 Notes US$m US$m (Losses)/gains on cash flow hedges (3.7) 2.2Exchange differences on translation of foreign operations 34.4 17.0Actuarial losses in respect of retirement benefit schemes (4.7) (9.4)Tax on items taken directly to equity (1.1) (0.6)Net income recognised directly in equity 24.9 9.2Profit for the year 67.0 34.0Transferred to profit or loss on cash flow hedges (3.3) (2.8)Total recognised income and expense for the year 5 88.6 40.4 Attributable to:EQUITY SHAREHOLDERS OF THE COMPANY 83.3 36.6Minority interests 5.3 3.8 88.6 40.4 Notes 1 Basis of preparation Coats Group Limited is incorporated in the British Virgin Islands. It does not prepare consolidated statutory accounts and therefore the financial information contained in this announcement does not constitute full financial statements and has not been, and will not be, audited. The financial information for the year ended 31 December 2007 has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards ("IFRS") endorsed by the European Union and the accounting policies adopted have been consistently applied to the financial information presented for the year end 31 December 2006. Coats Group Limited follows the accounting policies of its ultimate parent company, Guinness Peat Group plc. The principal exchange rates (to the US dollar) used are as follows: 2007 2006 Average Sterling 0.50 0.54 Euro 0.73 0.79 Year end Sterling 0.50 0.51 Euro 0.68 0.76 2 Operating profit is stated after charging/(crediting): 2007 2006 Unaudited Unaudited US$m US$m Exceptional items: Reorganisation costs and impairment of property, plant and equipment 40.0 51.6 Profit on the sale of property (7.1) (21.3) Foreign exchange losses 6.4 12.2 Total 39.3 42.5 3 Finance costs 2007 2006 Unaudited Unaudited US$m US$m Interest on bank and other borrowings 44.4 39.7 Net return on pension scheme assets and liabilities (23.1) (15.7) Other 6.7 5.3 Total 28.0 29.3 4 Taxation 2007 2006 Unaudited Unaudited US$m US$m UK taxation based on profit for the year: Corporation tax at 30% 7.6 23.0 Double taxation relief (7.6) (23.0) Total UK taxation - - Overseas taxation: Current taxation 42.3 39.2 Deferred taxation (0.8) (5.4) 41.5 33.8 Prior year adjustments: Current taxation - (5.9) Deferred taxation 1.7 (1.6) 1.7 (7.5) 43.2 26.3 5 Reconciliation of equity Equity Minority Total shareholders' interest equity funds Unaudited Unaudited Unaudited US$m US$m US$m At 1 January 2007 434.5 19.5 454.0 Total recognised income and expense for the year 83.3 5.3 88.6 Dividends paid - (2.6) (2.6) Other - (3.8) (3.8) At 31 December 2007 517.8 18.4 536.2 6 Reconciliation of operating profit to net cash inflow generated by operations 2007 2006 Unaudited Unaudited US$m US$m Operating profit 118.8 79.9 Depreciation 59.3 55.8 Amortisation of intangible assets (computer software) 8.2 7.3 Reorganisation costs and impairment (see note 2) 40.0 51.6 Other exceptional items (see note 2) (0.7) (9.1) Increase in inventories (22.5) (6.1) (Increase)/decrease in debtors (14.6) 9.8 Increase/(decrease) in creditors 40.1 (9.5) Provision movements (46.2) (14.7) Other non-cash movements 8.3 7.3 Net cash inflow from normal operating activities 190.7 172.3 Net cash outflow in respect of reorganisation costs and other exceptional (44.6) (54.5) items Net cash inflow generated by operations 146.1 117.8 7 Net debt 2007 2006 Unaudited Unaudited US$m US$m Cash and cash equivalents 84.6 76.4 Bank overdrafts (16.4) (26.3) Net cash and cash equivalents 68.2 50.1 Other borrowings (349.1) (395.8) Total net debt (280.9) (345.7) 8 Balance sheet consolidated by Guinness Peat Group plc (unaudited) The balance sheet consolidated by Guinness Peat Group plc (GPG) as at 31 December 2007 differs from that disclosed as follows: Coats Coats Group Included in Limited GPG Group US$:GBP at GPG fair value Consolidated Limited 0.5025 adjustments balance sheet Unaudited Unaudited Unaudited Unaudited US$m £m £m £m Intangible assets 270.6 135 14 149 Other non-current assets 641.5 322 - 322 Current assets 769.3 387 - 387 Non-current assets classified as held for 2.5 1 - 1 sale Total assets 1,683.9 845 14 859 Current liabilities (706.6) (355) - (355) Non-current liabilities (441.1) (222) - (222) Minority interests (18.4) (9) - (9) Equity shareholders' funds 517.8 259 14 273 This information is provided by RNS The company news service from the London Stock Exchange