Coats Group Plc Regulatory News (COA)

27 March 2020

Coats Group plc

Update on trading and impact of Covid-19

Coats Group plc ('Coats,' the 'Company' or the 'Group'), the world's leading industrial thread manufacturer, today provides an update on trading and the impact of Covid-19.

In the light of the recent escalation in the Covid-19 outbreak we are particularly focused on 3 priorities in the immediate future. These are 1) continuing to ensure the health and safety of our employees, 2) cash management, and 3) supporting our customers and maintaining the critical elements of our supply chain.

Current trading and outlook

Sales in the first two months of 2020, aside from the previously stated $8 million adverse impact on our China business as a result of Covid-19, were broadly in line with expectations. Since reporting our Full Year 2019 Results on 5 March we have seen the global situation escalate within and beyond the industries in which we operate. This has begun to impact our global demand in March, as brands and manufacturers started to cancel or defer orders, for example due to large scale store closures. In addition, as at 26 March, due to enforced government closures, 15 of our around 50 manufacturing sites are currently subject to temporary shutdown. Indications from those governments are that these sites will return to production in the coming weeks, however we cannot rule out further enforced government closures in these and other geographies.

As a result of this, our Q1 2020 organic revenues will be around 8% down on Q1 2019, with an accelerating organic decline in March, which is expected to be around 15% down year-on-year. Due to current uncertainty over the level of demand reduction across the Group, we are not able at this stage to make accurate forecasts over Full Year 2020 revenues.

Balance Sheet strength

We entered 2020 with a robust Balance Sheet and generating significant levels of cash, which place us in a strong position to manage through this period.

Our committed debt facilities total $575 million across our Banking and US Private Placement group, with a range of maturities from late 2022 through to 2027, and at the end of 2019 we had $290 million of headroom available.

At the end of February, this headroom was $230 million, which is reduced from December 2019 due to the payment of $37 million for the Pharr High Performance Yarns acquisition in February, and normal working capital outflows in Q1. Our debt covenants are two-fold: leverage of no more than 3x EBITDA (0.65x at December 2019) and interest cover of no less than 4x (12.9x at December 2019), which both exclude the impacts of IFRS 16.

Whilst the outlook remains uncertain, we have performed scenario testing, including a significant decline in sales in Q2 and Q3, with a gradual improvement in Q4, which equates to a 30% organic sales decline for the Full Year. In this scenario we still project to operate within our existing facility headroom and covenants.

Management actions

Despite the uncertain environment, we remain confident in our ability to navigate our way through these difficult times. We are taking all necessary actions internally to manage our cost base and cash resources prudently.

These extensive actions include, but are not limited to, significantly reducing our 2020 capital expenditure by c.$30 million from $45-55 million to $15-25 million, temporarily flexing our manufacturing footprint, and reviewing all non-essential discretionary spend. In addition, the Board and Group Executive Team will take a 20% reduction in their salary and fees in Q2. We are also exploring all available government support schemes being put in place around the world, in relation to Covid-19. On cash actions, we are focused on managing our working capital, including heightened credit risk.

Finally, the Board has decided to cancel the proposed 2019 final dividend which was due to be approved at our forthcoming AGM in May. The Board will keep the 2020 interim dividend under review.

Conclusion

Despite these uncertain times, the Board remains confident in the Group's ability to successfully manage through this difficult period and our actions are the prudent ones to take at this time. We enter this phase of our 250+ year history in robust shape and as a market leader with an unrivalled global footprint. Alongside our enhanced operational agility this leaves us well placed to benefit from an acceleration in demand when the virus situation is resolved.

Our next scheduled update to the market will be our January-April 2020 trading update on 20 May 2020, prior to our 2020 Annual General Meeting. We will update the market sooner, if required, as events evolve.

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This announcement contains inside information for the purposes of the Market Abuse Regulation.

About Coats Group plc

Coats is the world's leading industrial thread company. At home in some 50 countries, Coats has a workforce of 17,000 people across six continents. Revenues in 2019 were US$1.4bn. Coats' pioneering history and innovative culture ensure the company continues leading the way around the world. It provides complementary and value added products, services and software solutions to the apparel and footwear industries. It applies innovative techniques to develop high technology Performance Materials threads, yarns and fabrics in areas such as Transportation, Telecommunications and Energy, and Personal Protection. Headquartered in the UK, Coats is a FTSE 250 company, a constituent of the FTSE4Good Index Series and a participant in the UN Global Compact. To find out more about Coats visit www.coats.com.