REG - Coats Group PLC - Half-year Report
01/08/2024 07:00
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RNS Number : 6862Y Coats Group PLC 01 August 2024
1 August 2024
Coats Group plc
2024 Interim Results
Continued growth, 18% EBIT margin, full year upgrades
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 2024.
Continuing operations H1 2024 H1 2023 (4)
Reported CER
Revenue $741m $695m 7% 8%
Adjusted (1)
EBIT (6) $133m $108m 24% 26%
Basic earnings per share 4.5c 3.5c
Free cash flow $59m $51m
Net debt (excl. lease liabilities) $381m $399m
Reported (2)
EBIT (6) $118m $92m
Basic earnings per share (5) 3.8c 2.8c
Net cash generated by operating activities $74m $53m
Interim dividend per share (cents) 0.93c 0.81c
Strategic Highlights
· Continued outperformance against the industry - further market share gains in
Apparel and Footwear
· Performance Materials Americas footprint transition nearing completion,
expected to support future margin progression after challenging market
continued in first half
· Strategic projects overall savings updated to $75 million - some further
footprint optimisation (c.$5 million savings) now identified
· Total integration synergies from Texon and Rhenoflex on track to deliver $22
million savings, ahead of pre-acquisition expectations
· Reinforced position as global market leader in 100% recycled thread products -
revenue grew 141% to $159 million in the period - on track for in excess of
$300 million in 2024 (2023: $172 million)
· Science based targets initiative (SBTi) validated Coats' near and long-term
science-based emissions reduction targets, including verification of the Group
net-zero target for 2050
· Outstanding Engagement Score of 85% in 'Your Voice Matters Survey', 11 points
above average external benchmark
Financial Highlights
· Reported revenue up 7%, with recovery from destocking cycle now well underway
· CER revenue up 8% on a further improving trend (January - April 2024 up 7%):
o Weak prior year comparator which was impacted by industry destocking
o Apparel customer inventory and buying patterns returned to more normalised
levels, despite macro concerns (up 14%)
o Footwear recovery slightly behind Apparel as destocking commenced later, but
now back to robust growth (up 7%)
o Performance Materials continues to be impacted by US customer phasing and
operational challenges (3% lower), but on an improving trend - returning to
year-on-year growth in Q2
· Group adjusted EBIT margin of 18% in the period, ahead of previously announced
2024 margin target of 17%
· Strong adjusted free cash flow of $59 million
· Net debt (excluding lease liabilities) at $381 million with leverage(3)
further reduced to 1.4x, comfortably within 1-2x target range and providing
significant capacity to support the Group's capital allocation strategy
· Proposed interim dividend of 0.93 cents, +15%, reflecting the Board's
confidence in growth strategy and future performance
Outlook
The Group continues to make good progress and has delivered a first half
out-turn above our expectations. As such the Board now expects a full year
performance modestly above current market expectations(7), as these trends
continue. Whilst a level of uncertainty in our markets remains, our outlook is
underpinned by ongoing evidence of the recovery in Apparel and Footwear, a
slower, but improving recent trend in Performance Materials, and the continued
benefits from our strategic projects and margin delivery.
Over the medium term, we remain confident in the Group's ability to deliver
strong profit growth and cash generation, owing to our scale, global
footprint, innovation, strong digital platform and technical support
capabilities, alongside continued investment in sustainability and innovation.
Commenting on the results Rajiv Sharma, Group Chief Executive, said:
"It has been a privilege to lead Coats over the last eight years. I am
extremely proud of my team and together we have delivered a material
improvement in the quality of the Group and its prospects through
transitioning the portfolio, a relentless focus on operational improvement,
investing in sustainability and targeting better cash generation. As I
handover it will be exciting to watch the new heights the company achieves.
For the remainder of 2024, we see generally encouraging trends supporting a
year with a more equal weighting than in the prior year."
( )
1. Adjusted measures are non-statutory measures (Alternative Performance
Measures). These are reconciled to the nearest corresponding statutory measure
in note 13. Constant Exchange Rate (CER) metrics are 2023 results restated at
2024 exchange rates.
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 frozen GAAP basis and therefore excludes the impact
of IFRS 16 on both adjusted EBITDA and net debt. See note 13b for details.
4. Restated to reflect the results of the EMEA Zips business, divested in 2023,
as a discontinued operation.
5 From continuing operations.
6. EBIT (Earnings before interest and tax) relates to Operating Profit as shown
on the face of the P/L.
7. The current company compiled analyst consensus expectation for FY24 is for
adjusted operating profit of $261.1m with a range of $256.3m-$266.5m
Conference Call
Coats Management will present its half year results in a webcast at 10.00 BST
today (Thursday, 1 August 2024). The webcast can be accessed via
https://coats.com/en/investors/investors-overview/
(https://coats.com/en/investors/investors-overview/) or this link
(https://www.investis-live.com/coats/66840c13d077e10d000f7b84/uktye) . The
webcast will also be made available in archive form on www.coats.com
(http://www.coats.com) .
Enquiry details
Investors Chris Dyett Coats Group plc +44 (0)797 497 4690
Media Richard Mountain / Nick Hasell FTI Consulting +44 (0)20 3727 1374
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 2023 was $1.4 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
to constantly stay ahead of changing market needs, Coats has operations across
some 50 countries with a permanent workforce of more than 15,000, 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
validated Science Based sustainability targets for 2030 and beyond, with an
aspiration 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
(https://nam11.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.coats.com%2F&data=05%7C01%7C%7Cd427f915c4a04c7a281808db0a8c12ed%7C048ff72770274cd0b672f075b0bdb973%7C0%7C0%7C638115368955536325%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=84xJl8cQryEvN50TOkTQnuGQiFTmWNiC4iTooOH29u0%3D&reserved=0)
.
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.
2024 Interim Results Overview
Introduction
Reported revenue was up 7% in the period, as a more broad-based recovery from
the destocking cycle is now underway and we continue to see improving trends
in each of the three divisions. Group CER revenue increased by 8%, albeit
against a weak prior year comparator. This growth was driven by Apparel (CER
growth of 14%) as customer inventory and buying patterns returned to more
normalised levels, with our strategy of 'Winning with the Winners' aligning us
with the key growth brands. As previously indicated, the destocking cycle in
Footwear commenced later, creating a slight lag effect in the recovery
relative to Apparel. With this destocking now at its end, and the recovery
beginning, Footwear returned to growth in the period (CER growth of 7%), as
demand from several major brand customers picked up. CER revenues in
Performance Materials were 3% lower. While the division continues to be
impacted by customer phasing issues in some US end markets and some cyclical
destocking, the division is on an improving trend, with revenue increasing
sequentially on a quarterly basis and Q2 returning to year-on-year growth. The
2023 customer insourcing of production in Performance Materials is behind us
and, as expected, we are seeing signs of revival in certain segments, such as
military and fire department tenders. This together with the operational
progress made on the US / Mexico footprint transition leaves this part of the
business well set for further recovery in volumes and margins.
We have continued to make significant progress against our strategic
objectives, and we expect to have again outperformed the industry and estimate
we gained market share in both Apparel and Footwear (2023 estimated market
share of 25% for Apparel, 27% for Footwear). Within Performance Materials we
have also seen share wins, in particular gains at two large automotive OEMs
and two large cable manufacturers in the US and Europe. These share gains
across the Group are testament to the commercial strategy we have been
pursuing and our ability to offer a unique customer proposition. This includes
a global presence and leadership positions offering customers a wide range of
top-quality products, customer flexibility and responsiveness, technical
support and IT systems integrated with our customers. This enables us to align
ourselves with many of the fastest-growing global brands and grow our customer
portfolio. In addition, our continued focus on innovation and close
collaboration with our customers, enables us to quickly align ourselves with
key market trends and introduce 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 further
gives brands added confidence to work with us.
We have delivered further efficiency savings in the period and this has helped
deliver another strong operational performance with adjusted EBIT 26% higher
on a CER basis to $133 million. As a result, we are pleased to have achieved
an adjusted EBIT margin of 18% in the period, ahead of our 2024 Group adjusted
EBIT margin target of 17%. This strong margin performance is supported in part
by the market recovery and associated pick-up in volumes, as well as savings
from our strategic projects, and acquisition-related synergies. Margins
expanded significantly within the Apparel and Footwear divisions, however,
within Performance Materials margins were slightly lower year-on-year, owing
to the timing of volume recovery and operational set-up challenges in one of
our new Mexican plants, which we are working hard to rectify.
Our strategic projects delivered accelerated in-year savings of $7 million,
taking the cumulative total to $64 million. We continue to expect to deliver
cumulative strategic project savings of at least $70 million in 2024, in line
with our guidance. We now expect to deliver these savings for a cash cost of
c.$40 million, considerably less than the previous guidance of $50 million.
Consequently, we have identified some further footprint optimisation projects
across our portfolio delivering an additional $5 million of savings at a cash
cost of around $10 million. These projects will be actioned in the second half
of the year with the additional $5 million savings delivered by the end of
2025.
Our acquisition-related synergies delivered $5 million of further efficiencies
in the first half, and we now expect to deliver $22 million annualised cost
savings by the end of the year, well ahead of pre-acquisition expectations
($11 million by 2024) and a further increase from our most recent update.
Beyond these projects, we have benefited from an effective pricing strategy,
and maintained a focus on our operational performance and good cost control,
including delivery of procurement savings. Customer loyalty reflects our
market differentiation, including the quality of our products, our high levels
of customer service and our ability to be highly integrated with customer
systems and processes. Reported operating profit was $118 million (H1 2023:
$92 million).
With a return to normalised levels of working capital, alongside ongoing
market recovery, we have continued to deliver strong cash generation, with
increased adjusted free cash flow in the period of $59 million (H1 2023: $51
million). Net debt (excluding lease liabilities) at 30 June 2024 was $381
million (31 December 2023: $384 million), with leverage of 1.4x net
debt/EBITDA remaining comfortably within our target range of 1-2x net
debt/EBITDA.
Strategic Enablers: Innovation, Sustainability and Digital
Our strategic enablers are Innovation, Sustainability and Digital and these
underpin our strategy to accelerate profitable sales growth while delivering
sustainable value to our stakeholders. We have continued to progress our
enablers during the year, with pleasing results.
Innovation
We innovate to deliver differentiated, highly-engineered products with a focus
on driving profitable growth. It is carried out in close collaboration with
our customers and, recognising key market trends, our innovation project
pipeline is aligned to industry demands and the provision of cutting-edge
solutions. The primary focus of our innovation is sustainability, most notably
around the adoption of products made from recycled products and biomaterials.
However, it also encompasses more efficient production techniques,
increasingly lightweight, safety critical products with enhanced protective
characteristics, and end-of-life recycling technologies.
Coats has a rich history of new and innovative products, and as the market
transitions to products made from biomaterials or recycled and circular
materials we are again at the leading edge in our industry. Examples of our
innovation, which have been recently launched, include the following:
· Coats Gral(TM) EcoVerde(TM) Ripcord - a sustainable, continuous filament yarn.
Launched in May 2024, this is a first in the telecom market and has
application within the attractive fibre optic cable market, which is expected
to grow strongly over the medium term. This eco-friendly yarn is proven to
perform as good as original polyester, providing durability and efficiency.
· RHENOPRINT(TM) RP 5.0 - the most sustainable development in the RHENOPRINT(TM)
product range, with a focus on addressing the growing demand for sustainable
solutions. RHENOPRINT(TM) is a market-leading process that allows for a zero
waste production of structured components and tailor-made products. Under RP
5.0 the material uses 70% recycled content. This development enables a reduced
carbon footprint and enhanced environmental responsibility.
Our innovation hubs, in close collaboration with customers and, in some cases,
university research bodies are working on a range of other innovations that
have an overarching sustainability goal, including a focus on hard-to-recycle
products, circular solutions, bonding agents and safety critical items. These
ongoing innovations enable the use of recycled and biomaterials across this
range of hard-to-recycle and safety critical materials for the first time.
Sustainability
Sustainability remains at the very heart of our business. It encompasses the
products we create and sell through innovation, as well as how we manage our
operations. Our investment in sustainability is a compelling proposition to
the increasing number of brands who, often driven by consumer sentiment and
preference, demand sustainable products and who want to align with a supply
chain having compliant and sustainable operations. Our historic and ongoing
investment in sustainability therefore helps us increase our market share over
time, as well as reduce our costs, as we become more efficient and use less
resources.
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 are pleased
that in May 2024, the Science Based Targets initiative (SBTi) validated Coats'
near and long-term science-based emissions reduction targets, including
verification of the Group's net-zero target for 2050. This latest independent
verification is a further key milestone in the Group's sustainability strategy
and demonstrates significant progress in the Group's commitment to achieve its
2050 net-zero targets across the value chain.
Reflecting our ongoing commitment to reducing emissions and enhancing
sustainability, Coats has also been included in the "Europe's Climate Leaders"
list by the Financial Times and Statista. This acknowledges European companies
that have demonstrated a significant reduction in their core emissions
intensity, and is clear recognition of our considerable progress.
In March 2023, we announced new and challenging interim sustainability targets
for 2026. The seven targets reflect the ongoing focus on our people, water,
emissions and waste reduction categories, as well as product innovation and
materials transition. We have improved our performance against these targets
during the period. Notably, we have achieved our scope 1 and 2 CO2e emissions
reduction target, reducing emissions by 49% thus far, versus a 2026 target of
22%.
We remain the clear global market leader in the sale of 100% recycled thread
products, and we have delivered further strong growth. As customers continue
their transition to sustainable materials, we have scaled up our recycled
product offering, and we have seen an acceleration in demand for these
products. In the period revenue increased by 141% on a CER basis to $159
million, consequently, we are on track for in excess of $300 million of sales
in 2024 (2023: $172 million) - a significant milestone. The proportion of
sustainable materials within our overall production also increased during the
period to 41%, (December 2023: 32%(1)F) driven by increased recycled polyester
fibres and filaments in our thread products. Our target is to transition to
60% of sustainable primary raw materials by 2026, and 100% by 2030.
We are committed to providing a safe and respectful working environment for
our employees and other stakeholders and aim to have an organisational culture
which promotes inclusion, diversity, belonging, equal opportunities, personal
development, and mutual respect. Through the course of 2024 we have
implemented various programmes and initiatives to promote female diversity
across our business and have delivered an increase in the female
representation in senior leadership roles to 28%, up from 21% in our 2022
baseline, and on track for the 30% target set for the end of 2026.
Highlighting our commitment to an inclusive culture, we asked our employees to
complete the 'Your Voice Matters Survey' this year and are delighted to have
achieved an outstanding Engagement Score of 85%, 11 points above the average
external benchmark of 74% and 6 points higher than our 2023 score.
Participation rates for this survey were exceptionally high at 94% of our
global workforce.
(1.)Restated from 29% to reflect reclassification of certain materials.
Digital
Our digital offering is another differentiator and enhancing our global
digital infrastructure and capability is a key piece of our strategy. We are
able to invest in our digital operations by virtue of our scale, and this
investment has allowed us to flex our supply chain, react to situations with
speed and ensure we are focused on customer, employee, and shareholder value
creation.
During the period, we continued to expand our digital offering, with the Coats
customer catalogue now digitised. This enables products and colours to be
shared in digital format with customers, and incorporated into customers'
design systems. With a focus on high-quality customer service, we have also
developed Tech Connect - the Coats technical customer support system -
enabling customers to now seek real-time online support for issues
encountered.
Going forward, we will continue to investigate AI and emerging technologies as
a way of connecting with our customers, including building a ShopCoats mobile
application which will enable the remainder of e-commerce customers to
transition to ShopCoats. From its inception in 2021 to the end of the first
half of 2024, the ShopCoats digital system has processed just under $1.7
billion of customer orders, with the value of customer orders through
ShopCoats continuing to increase year-on-year.
Our Coats Digital business, part of Apparel, sells software to third party
customers, with an overarching theme of making operations more efficient. With
the growing importance of productivity, operational and cost efficiency,
interest in our software products is also increasing. The business had an
excellent first half, onboarding 12 new customers and doubling order bookings
compared to the same period last year. The recurring software-as-a-service
(SaaS) based revenue also continues to increase.
Board Update
In May 2024 we announced that Rajiv Sharma had decided to step down after
eight years as Group Chief Executive. Following a comprehensive selection
process, the Board has appointed David Paja as Group Chief Executive
designate. David Paja was until recently CEO of GKN Aerospace, part of Melrose
Industries PLC, where he played a major role in the successful turnaround of
the business and delivery of profitable growth. Prior to this, David held
senior leadership positions at Aptiv, Honeywell and Valeo. David will join the
Group and become an Executive Director of the Board on 1 September 2024 and
assume responsibilities from Rajiv on 1 October 2024 when Rajiv steps down as
a Director from the Board.
Following the May 2024 AGM, Nicholas Bull, Senior Independent Director,
stepped down from the Board after nine years. Steve Murray, an existing
Non-executive Director, succeeded Nicholas as Senior Independent Director.
Dividend
With ongoing evidence of the expected recovery in Apparel and Footwear, and an
improving recent revenue trend in Performance Materials we delivered a strong
financial performance, including an increased margin and strong levels of free
cash flow. With further progress made on pension de-risking during the year,
the Group's Balance Sheet remains strong. We are well-positioned in our
markets; we continue to gain market share and see further growth and margin
opportunities as the market gradually recovers from destocking and other
headwinds.
With these factors in mind, the Board has decided to pay an interim dividend
of 0.93 cents per share, a 15% increase on the prior year. The interim
dividend will be paid on 14 November 2024 to ordinary shareholders on the
register at 18 October 2024, with an ex-dividend date of 17 October 2024.
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, within the context of our capital allocation policy.
Operating Review
Continuing operations H1 2024 H1 2023(3) H1 2023 CER(1, 3) Inc / (dec) CER(1)
inc / (dec)
$m $m $m % %
Revenue
By division
Apparel 376 334 329 12% 14%
Footwear 198 184 184 7% 7%
Performance Materials 167 177 173 (5%) (3%)
Total 741 695 686 7% 8%
0 0 0
By region
Asia 458 398 393 15% 16%
Americas 123 133 135 (7%) (8%)
EMEA 160 165 158 (3%) 1%
Total 741 695 686 7% 8%
Adjusted EBIT (2, 4)
By division
Apparel 72 53 52 34% 37%
Footwear 48 38 38 25% 25%
Performance Materials 14 16 15 (14%) (11%)
Total adjusted EBIT 133 108 106 24% 26%
Exceptional and acquisition related items
(15) (16)
EBIT(4) 118 92
Adjusted EBIT margin (2, 4)
By division
Apparel 19.1% 16.0% 15.9% 310 bps 320 bps
Footwear 24.1% 20.8% 20.7% 330 bps 340 bps
Performance Materials 8.3% 9.1% 9.0% (80 bps) (70 bps)
Total 18.0% 15.5% 15.4% 250 bps 250 bps
1 Constant Exchange Rate (CER) are 2023 results restated at 2024 exchange rates.
2 On an adjusted basis which excludes exceptional and acquisition-related items.
3 2023 restated for the disposal of the European Zips business, which is now
shown as a discontinued operation. This has resulted in a reduction in
previously reported 2023 revenues of $20 million and an increase in adjusted
EBIT of $0.4 million.
4 EBIT (Earnings before interest and tax) relates to Operating Profit as shown
on the face of the P/L.
H1 2024 Operating Results Overview
Group revenue of $741 million increased 7% on a reported basis and 8% on a CER
basis. There has been an improving trend through the year with Jan-Apr CER
revenues up 7% vs 2023, as we continue to see improving market conditions for
each of the three divisions. The revenue growth reflects the recovery from the
widespread industry destocking in Apparel and Footwear against softer prior
year comparators, and continued quarter-on-quarter improvements in Performance
Materials.
Group adjusted EBIT of $133 million increased by 26% on a CER basis (2023:
$106 million CER), largely driven by improved revenue performance and
continued benefits from strategic projects and acquisition synergies, as well
as certain foreign exchange gains. Inflationary pressures continued to be well
managed through pricing and productivity levers, and we have made targeted
reinvestments in our cost base as our end markets continue to recover. As a
result, adjusted EBIT margins were up 250bps to 18.0% (2023: 15.4% CER), ahead
of our stated 2024 Group adjusted EBIT margin target of 17%.
On a reported basis EBIT was $118 million (2023: $92 million), after $15
million of exceptional and acquisition-related items (2023: $16 million) which
predominantly related to the execution of our strategic projects and 2022
footwear acquisitions.
Adjusted earnings per share ('EPS') increased by 27% to 4.5 cents (2023: 3.5
cents) and was driven by our improved operating performance. In addition we
continued to tightly manage our interest costs, tax charge and profit
attributable to minority interests. Reported EPS of 3.8 cents (2023: 1.5
cents) was significantly higher, also including the impact of discontinued
operations (European Zips) in 2023 and exceptional and acquisition-related
items, which were significantly reduced year on year.
Our Group cash performance remained strong with adjusted free cash flow of $59
million (2023: $51 million) as we returned to normalised levels of working
capital alongside ongoing market recovery. Our Balance Sheet remains in a
strong position, with net debt (excluding lease liabilities) of $381 million
(December 2023: $384 million), and leverage of 1.4x.
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 $376 million (2023: $334 million) was up 14% on a CER basis (12%
reported). As previously guided we have seen customer inventory and buying
patterns return to more normalised levels during the year despite wider macro
concerns. This follows a prolonged period of industry destocking that
commenced in 2022 and continued throughout the majority of 2023, and as such
significantly impacts prior year comparators.
The Apparel business continues to benefit from market share gains (2023 market
share 25%). We were also able to maintain pricing, and owing to our
proactive procurement strategy, leverage 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.
With market conditions continuing to improve, our strong market position,
agile supply chain, global presence, differentiation and focus on leading
brands provide further opportunities for growth and market share gains.
Adjusted EBIT of $72 million (2023: $53 million) increased 37% vs the prior
year on a CER basis. The adjusted EBIT margin was 320bps higher at 19.1% on a
CER basis (2023: 16.0%), a record level, which is well ahead of our 2024
margin target. This was driven by improving volumes, alongside continued
savings from our strategic projects, ongoing procurement benefits, and some
positive foreign exchange gains. Excluding these foreign exchange gains,
underlying margins were around 18.4%.
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.
Footwear revenue increased 7% to $198 million (2023: $184 million) on a CER
and reported basis. The revenue growth was driven by the normalisation of
customer buying patterns and inventory levels post the significant destocking
cycle seen in 2022 and 2023 (which contributes to weaker comparators), albeit
the recovery profile is slightly behind that of the Apparel division, as
expected.
Our Footwear business has a focus on innovation and sustainability, and this
year we have introduced new products and technologies that meet environmental
sustainability criteria, as well as the needs of customers. Our combined
capability as Coats Footwear has accelerated this process. Not only do we have
a comprehensive portfolio, but we also have a strong focus on fast-growth
sports and athleisure brands which attract premium pricing. Our
brand-specified positions have considerable longevity, typically lasting over
the production life of the end-product. This is an enabler of growth ahead of
the market. We have also continued to deliver share gains and programme wins
(2023 market share 27%), reflecting our position as a trusted partner with our
global accounts programme, in which we dedicate resources to key brands and
retailers.
Part of the strategic rationale for combining the three footwear businesses
(Coats' legacy Footwear business, Texon and Rhenoflex), has been the potential
to cross-sell our broad range of products to customers through a single
customer-facing commercial team. We have created a number of opportunities for
complementary offerings, with our customers seeing the potential to simplify
and optimise their supply chains. We are now seeing the benefits of this, and
in the period succeeded in cross-selling our products to two large well-known
German sports brands, as well as a leading US brand.
Adjusted EBIT was $48 million with adjusted EBIT margins up 340bps to 24.1% on
a CER basis, another record, as improved volumes, strong commercial delivery
and continued benefits from the acquisition integration synergies impact and
mean that we have delivered significantly in excess of our 2024 margin target
of >20%. Acquisition integration has so far focused on commercial and
general & administrative costs, as well as on procurement, and
consequently we will deliver $22 million of annualised efficiency savings
(significantly ahead of our initial guidance of $11 million savings). Most
recently, we have announced the merger of two of our French operating
entities, to create Coats Footwear France. This single business entity will
further streamline activities and leverage synergies, as well as bring clear
benefits for our customers, suppliers and partners.
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 three PM sub-segments: Personal Protection (39% of H1 2024
divisional revenue), Composites (17% of H1 2024 divisional revenue) and
Performance Thread (44% of H1 2024 divisional revenue). Medium-term revenue
growth potential for each of the sub-segments is expected to be high single
digits for Personal Protection, low double-digits for Composites, and growth
in line with global GDP for Performance Threads. The overall medium-term
growth target for the division is a 6-9% CAGR.
PM revenue declined 3% to $167 million (2023: $177 million) on a CER basis (5%
decline on a reported basis), with Personal Protection decreasing by 1% on a
CER basis, Composites decreasing by 19% (CER) against particularly strong
comparators, and Performance Threads growing by 3% (CER). As previously
disclosed there have been customer phasing issues in some US markets as well
as destocking at some US telecommunication customers in Composites. However,
all three sub-segments are on improving trends and the Division as a whole has
returned to year-on-year growth in the second quarter. In Personal Protection
it has been encouraging to see a steady improvement in military and fire
department tender activity in the US and, together with the operational
progress made on the US / Mexico footprint transition, this part of the
business is well set for further recovery in volumes and margins.
Adjusted EBIT was 11% lower vs 2023 on a CER basis at $14 million (2023: $16
million). Adjusted EBIT margins were 8.3% (2023: 9.1%), below the 2024 margin
target of 13-14%, reflecting the timing of volume recovery in the industries
served as well as the ongoing transition of the US / Mexico footprint
transition that both continued to impact. This includes operational challenges
in one of our new Mexican plants, which we are working hard to rectify. PM
margins included c.$4 million of under-recovered costs in relation to the US /
Mexico plant transitions as volumes ramp up to expected levels. Excluding
these costs, PM margins were 140bps higher at 10.5%. We now anticipate to
realise the main benefits of the US / Mexico footprint projects in 2025, one
year later than originally planned, largely as a result of the subdued market
conditions within the Personal Protection sub-segment.
Financial Review
Revenue
Group revenue from continuing operations increased 7% on a reported basis and
8% on a CER basis. All commentary below is on a CER basis unless otherwise
stated.
Operating Profit (EBIT)
At a Group level, adjusted EBIT from continuing operations increased 26% to
$133 million and adjusted EBIT margins increased 250bps to 18.0%. The table
sets out the movement in adjusted EBIT during the year.
$m Margin %
H1 2023 adjusted EBIT 108 15.5%
Volumes impact (direct and indirect) 19
Price/mix 2
Raw material deflation 8
Freight inflation (2)
Other cost inflation (e.g. labour, energy) (13)
Productivity benefits (manufacturing and sourcing) 14
Strategic projects savings 7
Increased SD&A (13)
Others (2)
Texon and Rhenoflex synergies 5
H1 2024 adjusted EBIT 133 18.0%
Exceptional and acquisition related items (15)
H1 2024 reported EBIT 118
Following the significant volume headwinds during 2023, primarily due to
widespread industry destocking in Apparel and Footwear, there has been a
return to year-on-year volume growth during H1 against these weaker
comparators. The direct and indirect impact of this contributed to a
significant improvement in operating profits and margins vs 2023.
We have benefited from an effective pricing strategy, maintaining price during
a period in which we have seen an easing of some key raw material input costs,
though other cost categories such as freight and energy have returned to an
inflationary trend. Labour inflation has maintained throughout and remains at
relatively normal levels. Overall, our ability to hold price and continue to
generate productivity benefits has more than offset our overall inflationary
pressures.
Selling, Distribution and Administration (SD&A) costs are above last year
as certain costs have returned to the business, in part due to the return to
top line growth, but also due to targeted reinvestments into the business
after a period of significant cost containment during the destocking cycle. We
have also benefited from a further $7 million of efficiency savings (total
savings to date are $64 million), in relation to our strategic projects
announced in March 2022. Our 2022 acquisitions, Texon and Rhenoflex, will
deliver a total of $22 million of annualised synergy benefits with $5 million
of incremental benefits vs H1 2023.
The Group's adjusted EBIT margins increased by 250bps to 18.0% on a CER basis
(2023: 15.5%), with the impact of the year-on-year volume increases, self-help
actions, strategic project savings and acquisition synergies all contributing.
On a reported basis, Group EBIT, including exceptional and acquisition-related
items, increased to $118 million (2023: $92 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. For the period, this was a headwind of 1% on revenue and
2% on adjusted EBIT. As previously announced, these adverse translation
impacts were primarily due to the previous adoption of hyperinflation
accounting in Turkey, and furthermore saw local EBIT headwinds as inflationary
pressures continued to accelerate. Aside from the impact of the Turkish Lira,
and the resulting volatility of hyperinflation accounting, underlying
headwinds were modest and driven primarily by the depreciation of Chinese and
Egyptian currencies. At latest exchange rates, we expect a 1-2% headwind
impact on revenue and adjusted EBIT for full year 2024 (excluding any future
hyperinflation impact in Turkey, which cannot be forecasted with accuracy).
Non-operating Results
Adjusted EPS increased by 27% year-on-year to 4.5 cents (2023: 3.5 cents),
supported by a return to growth in Apparel and Footwear. Interest costs were
slightly higher than 2023 at $16 million, as we managed our cash position well
throughout the period. Our effective tax rate was slightly lower at 28% due to
certain timing benefits in H1 (2023: 29%), with a marginal increase in profit
attributable to minority interests. Reported EPS of 3.8 cents (2023: 1.5
cents) was significantly higher year-on-year, driven by the improved trading
performance, lower exceptional and acquisition related items, and the impact
of discontinued operations (European Zips) in 2023.
The adjusted taxation charge for the period was $33 million (2023: $26
million). Excluding the impact of exceptional and acquisition-related items,
we expect the effective tax rate on pre-tax profit to remain at 29% for the
full year (2023: 29%), in line with our guidance, as the H1 timing benefits
referred to in H1 reverse. The reported tax rate for the half was 29% (2023:
29%), 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.
Profit attributable to minority interests increased to $13 million (2023: $12
million) reflective of the ongoing market recovery in these territories.
Exceptional and Acquisition-related Items
Net exceptional and acquisition-related items before taxation were $15 million
(2023: $16 million). These include strategic project costs of $4 million,
footwear integration costs of $1 million and other acquisition-related items
of $11 million.
Strategic project costs of $4 million relate to the strategic initiatives
commenced during 2022; and primarily consist of severance costs of $1 million
and legal / advisor / closure costs of $3 million. These costs have supported
the acceleration of project benefits, with $7 million of incremental adjusted
EBIT delivered in the half (with $64 million incremental savings on the
projects to date).
A further $1 million of costs have been incurred in relation to the delivery
of acquisition-related synergies which, as mentioned above, are ahead of
expectation, with a total of $22 million of annualised savings to be delivered
since acquisition.
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
with previous acquisitions.
Cash flow
The Group delivered strong $59 million (2023: $51 million) adjusted free cash
flow, driven by improved profitability as a result of market recovery and a
return to normalised levels of working capital. Adjusted free cash flow is
measured before UK pension administrative costs, acquisitions, disposals and
dividends, and excludes exceptional items.
We have continued to manage net working capital closely, with a focus on
inventory, without compromising service levels. We also continued our
disciplined approach to payables and receivables management during the year as
an input to working capital efficiency.
Capital expenditure was $11 million (2023: $12 million) as we continued to
maintain a selective approach to investing in growth opportunities and in
strategic projects which will favourably impact long-term returns. We
anticipate 2024 full year capital expenditure to remain in the $30-40 million
range as we continue to invest in support of our growth strategy, in
productivity and in our environmental performance.
Minority dividends of $9 million (2023: $12 million) were paid, as cash was
repatriated from those relevant overseas entities to the Group. Tax paid was
$31 million (2023: $23 million). Interest paid was $14 million (2023: $14
million).
The Group delivered an overall free cash inflow of $7 million (2023: $2
million outflow). This primarily reflects the adjusted free cash inflow of $59
million, offset by:
· UK pension administrative expenses of $3 million - significantly below H1 2023
($17 million) due to the switch off of deficit recovery payments;
· Exceptional and other non-recurring, mainly relating to strategic projects of
$10 million;
· Dividend payments of $31 million.
Net debt (excluding lease liabilities) at 30 June 2024 was $381 million (31
December 2023: $384 million). Including lease liabilities, net debt was $465
million (31 December 2023: $471 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 $72 million at 30 June 2024, which was $9
million higher than 31 December 2023 ($63 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 surplus on an IAS 19 basis at 30 June 2024 of $107
million (31 December 2023: $102 million). The increase in the surplus during
the year of $5 million predominantly relates to net actuarial gains of $3
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 potentially removing it from the Group balance sheet
and we remained actively engaged with the insurance industry to achieve a full
insurance of the benefits of the remaining 80% of the scheme liabilities in a
cost effective manner.
Balance sheet and liquidity
Group net debt (excluding lease liabilities) at 30 June 2024 was $381 million
($465 million including lease liabilities), broadly in line with 31 December
2023 ($384 million). This reflects strong and disciplined cash management as
noted above, offset by residual exceptional cash costs in relation to
strategic projects, shareholder dividends, and ongoing pensions administrative
expenses.
Our total committed debt facilities remain 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 $320 million at 30 June 2024.
At 30 June 2023, our leverage ratio (net debt to EBITDA; both excluding lease
liabilities) was 1.4x (31 December 2023: 1.5x) 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
2024 which was 9.7x, 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 and the Company has sufficient
resources to continue in operation for the period from the date of this report
to 31 December 2025, 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.
INDEPENDENT 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 2024 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 20. We have read the other information
contained in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
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 2024 is not prepared, in all
material respects, 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.
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 2024
Condensed consolidated financial statements
Condensed consolidated income statement
For the half year ended 30 June 2024
Half year 2024 Half year 2023*
Full year
2023
Note Before Exceptional Before Exceptional
exceptional and acquisition related items exceptional and acquisition related items
and acquisition related items (note 3) and acquisition related (note 3)
unaudited unaudited items unaudited
unaudited
Total Total Total
unaudited unaudited audited
US$m US$m US$m US$m US$m US$m US$m
Continuing operations
Revenue 740.7 - 740.7 695.0 - 695.0 1,394.2
Cost of sales (468.1) (3.0) (471.1) (461.5) (6.7) (468.2) (929.1)
Gross profit 272.6 (3.0) 269.6 233.5 (6.7) 226.8 465.1
Distribution costs (60.4) - (60.4) (60.1) - (60.1) (118.5)
Administrative expenses (79.0) (12.2) (91.2) (65.6) (15.1) (80.7) (168.4)
Other operating income - - - - 5.7 5.7 5.8
Operating profit 133.2 (15.2) 118.0 107.8 (16.1) 91.7 184.0
Share of profit of joint ventures 1.1 - 1.1 0.7 - 0.7 1.1
Finance income 4 1.2 - 1.2 2.1 - 2.1 4.6
Finance costs 5 (17.4) - (17.4) (15.9) - (15.9) (33.9)
Profit before taxation 118.1 (15.2) 102.9 94.7 (16.1) 78.6 155.8
Taxation 6 (33.1) 3.4 (29.7) (26.2) 3.2 (23.0) (55.0)
Profit from continuing
operations 85.0 (11.8) 73.2 68.5 (12.9) 55.6 100.8
Loss from discontinued
operations 12 - - - (0.4) (19.2) (19.6) (26.7)
Profit for the period 85.0 (11.8) 73.2 68.1 (32.1) 36.0 74.1
Attributable to:
Equity shareholders of the company 72.3 (11.8) 60.5 56.5 (31.8) 24.7 56.5
Non-controlling interests 12.7 - 12.7 11.6 (0.3) 11.3 17.6
85.0 (11.8) 73.2 68.1 (32.1) 36.0 74.1
Earnings per share (cents) 7
Continuing operations:
Basic 3.77 2.77 5.18
Diluted 3.74 2.75 5.13
Continuing and discontinued
operations:
Basic 3.77 1.54 3.52
Diluted 3.74 1.53 3.48
Adjusted earnings per share 13 (d) 4.50 3.54 8.04
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
Condensed consolidated statement of comprehensive income
For the half year ended 30 June 2024
Half year Half year Full year
2024 2023 2023
unaudited unaudited audited
US$m US$m US$m
Profit for the period 73.2 36.0 74.1
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit schemes 2.3 8.8 (70.8)
Tax relating to items that will not be reclassified - - (0.2)
2.3 8.8 (71.0)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (12.1) 0.8 (0.4)
Remeasurement of equity investment at fair value - - (6.7)
(12.1) 0.8 (7.1)
Items reclassified to profit or loss:
Exchange differences transferred to income statement on sale of business (note
12)
- - 6.6
Other comprehensive income and expense for the period (9.8) 9.6 (71.5)
Net comprehensive income and expense for the period 63.4 45.6 2.6
Attributable to:
Equity shareholders of the company 50.9 34.9 (14.3)
Non-controlling interests 12.5 10.7 16.9
63.4 45.6 2.6
Condensed consolidated statement of financial position
At 30 June 2024
30 June Restated* 31 December
2024 30 June 2023
2023
unaudited unaudited audited
Note US$m US$m US$m
Non-current assets
Goodwill 124.7 125.6 126.1
Other intangible assets 456.8 480.5 470.7
Property, plant and equipment 243.2 239.9 243.2
Right-of-use assets 73.1 82.2 74.4
Investments in joint ventures 12.9 13.8 12.8
Other equity investments 0.6 5.7 0.9
Deferred tax assets 17.0 22.0 18.0
Pension surpluses 14 154.2 193.7 148.2
Trade and other receivables 24.3 21.4 19.5
1,106.8 1,184.8 1,113.8
Current assets
Inventories 202.4 193.5 173.5
Trade and other receivables 311.4 294.1 292.0
Pension surpluses 14 1.6 2.0 1.6
Cash and cash equivalents 11 (g) 130.7 128.1 132.4
Assets of disposal group and non-current assets classified as held for sale 1.0 11.0 1.0
647.1 628.7 600.5
Total assets 1,753.9 1,813.5 1,714.3
Current liabilities
Trade and other payables (323.2) (274.4) (285.6)
Income tax liabilities (47.5) (31.4) (45.5)
Bank overdrafts and other borrowings 11 (g) (128.2) (3.7) (144.3)
Lease liabilities (16.5) (17.3) (17.5)
Retirement benefit obligations:
- Funded schemes 14 (0.1) (0.2) (0.8)
- Unfunded schemes 14 (8.7) (6.2) (7.7)
Provisions (13.3) (12.4) (17.1)
Liabilities of disposal group classified as held for sale - (10.6) -
(537.5) (356.2) (518.5)
Net current assets 109.6 272.5 82.0
Non-current liabilities
Trade and other payables (4.3) (27.1) (3.2)
Deferred tax liabilities (58.3) (71.9) (63.9)
Borrowings 11 (g) (383.0) (523.7) (372.2)
Lease liabilities (68.3) (75.6) (69.3)
Retirement benefit obligations:
- Funded schemes 14 (2.8) (3.3) (2.9)
- Unfunded schemes 14 (72.0) (79.3) (75.6)
Provisions (17.1) (20.3) (19.3)
(605.8) (801.2) (606.4)
Total liabilities (1,143.3) (1,157.4) (1,124.9)
Net assets 610.6 656.1 589.4
Equity
Share capital 8 99.0 99.0 99.0
Share premium account 111.4 111.4 111.4
Own shares 8 (5.2) (0.1) (6.1)
Translation reserve (121.6) (115.2) (109.7)
Capital reduction reserve 59.8 59.8 59.8
Other reserves 246.3 246.3 246.3
Retained profit 186.1 222.3 157.4
Equity shareholders' funds 575.8 623.5 558.1
Non-controlling interests 34.8 32.6 31.3
Total equity 610.6 656.1 589.4
* Pension surplus amounts at 30 June 2023 for the Coats US Pension Scheme has
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 six months ended
30 June 2023.
Condensed consolidated statement of changes in equity
For the half year ended 30 June 2024
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 2023 (audited) 99.0 111.4 (0.1) (116.6) 59.8 246.3 216.7 616.5 34.1 650.6
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 99.0 111.4 (0.1) (115.2) 59.8 246.3 222.3 623.5 32.6 656.1
30 June 2023* (unaudited)
Balance as at
1 January 2023 (audited) 99.0 111.4 (0.1) (116.6) 59.8 246.3 216.7 616.5 34.1 650.6
Profit for the year - - - - - - 56.5 56.5 17.6 74.1
Other comprehensive income and expense for the year - - - 6.9 - - (77.7) (70.8) (0.7) (71.5)
Dividends - - - - - - (40.6) (40.6) (19.7) (60.3)
Purchase of own shares by Employee Benefit Trust - - (10.1) - - - - (10.1) - (10.1)
Movement in own shares - - 4.1 - - - (4.5) (0.4) - (0.4)
Share based payments - - - - - - 7.0 7.0 - 7.0
Balance as at 99.0 111.4 (6.1) (109.7) 59.8 246.3 157.4 558.1 31.3 589.4
31 December 2023 (audited)
Profit for the period - - - - - - 60.5 60.5 12.7 73.2
Other comprehensive income and expense for the period - - - (11.9) - - 2.3 (9.6) (0.2) (9.8)
Dividends - - - - - - (31.7) (31.7) (9.0) (40.7)
Purchase of own shares by Employee Benefit Trust - - (6.6) - - - - (6.6) - (6.6)
Movement in own shares - - 7.5 - - - (6.6) 0.9 - 0.9
Share based payments - - - - - - 4.2 4.2 - 4.2
Balance as at 99.0 111.4 (5.2) (121.6) 59.8 246.3 186.1 575.8 34.8 610.6
30 June 2024 (unaudited)
* Pension surplus amounts at 30 June 2023 for the Coats US Pension
Scheme has 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 six months ended 30 June 2023.
Condensed consolidated cash flow statement
For the half year ended 30 June 2024
Half year Half year Full year
2024 2023 2023
unaudited unaudited audited
Note US$m US$m US$m
Cash inflow from operating activities
Cash generated from operations 11 (a) 121.7 92.2 217.3
Interest paid 11 (b) (16.7) (16.9) (33.7)
Taxation paid 11 (c) (31.2) (22.1) (59.7)
Net cash generated by operating activities 73.8 53.2 123.9
Cash outflow from investing activities
Investment income 11 (d) 1.0 - 0.6
Net capital expenditure and financial investment 11 (e) (10.8) (4.3) (19.7)
Disposal of businesses 11 (f) - 0.9 (1.2)
Net cash absorbed in investing activities (9.8) (3.4) (20.3)
Cash outflow from financing activities
Purchase of own shares by Employee Benefit Trust (6.6) (3.1) (10.1)
Dividends paid to equity shareholders (31.4) (27.5) (40.3)
Dividends paid to non-controlling interests (9.0) (12.2) (19.7)
Payment of lease liabilities (9.6) (9.2) (18.5)
Repayment of term loan acquisition facility - (240.0) (240.0)
Issue of senior notes - 248.6 248.6
Net increase/(decrease) in other borrowings 10.0 (37.1) (67.0)
Net cash absorbed in financing activities (46.6) (80.5) (147.0)
Net increase/(decrease) in cash and cash equivalents 17.4 (30.7) (43.4)
Net cash and cash equivalents at beginning of the period 111.5 157.7 157.7
Foreign exchange losses on cash and cash equivalents (2.3) (2.6) (2.8)
Net cash and cash equivalents at end of the period 11 (g) 126.6 124.4 111.5
Reconciliation of net cash flow to movement in net debt
Net increase/(decrease) in cash and cash equivalents 17.4 (30.7) (43.4)
Repayment of term loan acquisition facility - 240.0 240.0
Issue of senior notes - (248.6) (248.6)
Net (increase)/decrease in other borrowings (10.0) 37.1 67.0
Change in net debt resulting from cash flows
(Free cash flow) 13 (e) 7.4 (2.2) 15.0
Net movement in lease liabilities during the period 0.2 10.7 17.5
Movement in fair value hedges (0.7) (0.1) (1.2)
Other non-cash movements (0.8) (0.7) (1.5)
Foreign exchange losses (0.5) (0.1) (0.9)
Decrease in net debt 5.6 7.6 28.9
Net debt at start of period (470.9) (499.8) (499.8)
Net debt at end of period 11 (g) (465.3) (492.2) (470.9)
Notes to the condensed consolidated financial statements
For the half year ended 30 June 2024
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 2023, 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 2024 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 2024 have been reviewed but have not been audited. The condensed
consolidated financial statements for the equivalent period in 2023 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 2023,
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 2023 does not constitute statutory
accounts (as defined in section 434 of the Companies Act 2006). The financial
information for the year ended 31 December 2023 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 2023
was not qualified, did not draw attention to any matters by way of emphasis
and did not contain statements under Sections 498(2) or 498(3) of the
Companies Act 2006.
The same accounting policies, presentation and methods of computation are
followed in the condensed set of financial statements as applied in the
Group's latest annual audited financial statements, and are expected to be
applied in the annual audited financial statements for the current year other
than the following new and revised standards, amendments and improvements to
existing standards that were effective as of 1 January 2024:
· Non-current Liabilities with Covenants and classification of
Liabilities as Current or Non-current (Amendments to IAS 1);
· Lease liability in a Sale and Leaseback (Amendments to IFRS
16); and
· Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7).
The adoption of these standards and amendments has not had a material impact
on the financial statements of the Group.
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 2023.
Sensitivities regarding the discount rate and inflation assumptions used to
measure the liabilities of the UK pension scheme are set out in note 14.
Discontinued operations
On 30 June 2023 the Group entered into an agreement to sell its European Zips
business to Aequita, a German family office and the sale was completed on 31
August 2023. The exit from the European Zips business was in line with Coats'
previously announced strategic initiatives to optimise the Group's portfolio
and footprint, and improve the overall cost base efficiency.
In management's judgement the European Zips business represented a separate
major line of business and therefore its results for the year ended 31
December 2023 were presented as a discontinued operation in the Group's 2023
Annual Report.
Judgement is used by the Group in assessing whether a disposal of a business
represents a disposal of a separate major line of business considering the
facts and circumstances of each disposal. In determining whether a disposal
represents a separate major line of business, the Group considers both
quantitative and qualitative factors.
The results of the European Zips business for six months ended 30 June 2023
was previously presented as a continuing operation and has been represented to
reclassify the results from continuing operations to discontinued operations,
consistent with the presentation of results for the year ended 31 December
2023. Note 12 provides further details of the sale.
Prior period restatement of pension surplus
The pension surplus amount at 30 June 2023 for the Coats US defined benefit
pension scheme has been restated to reflect a change in measurement as set out
in note 14 and is consistent with the basis of measurement at 31 December 2023
included in the Group's 2023 Annual Report. There is no impact on either
profits or cash flows for the six months ended 30 June 2023.
Going concern
The Directors are satisfied that the Group has sufficient resources to
continue in operation for the period from the date of this report to 31
December 2025. Accordingly, they continue to adopt the going concern basis in
preparing the 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 2024 Interim Results Overview
section of the Chief Executive's Review, 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 2024 as well as
the Group's updated Medium Term Plan for 2025, which takes into account the
repayment of $125 million of US Private Placement debt that matures during the
going concern assessment period;
· A downside scenario has been prepared, which assumes that the global economic
environment is depressed over the assessment period. This scenario assumes
trading below 2023, this scenario is considered to be severe but plausible as
2023 was impacted by high inflation, elevated interest rates and the
unprecedented industry destocking, which is not expected to reoccur given
improving sales trends and normalising customer inventory levels; 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 included in the 2024 Interim
Report, the Directors expect the 2024 full year expectations to be modestly
above current market expectations underpinned by ongoing evidence of the
recovery in Apparel and Footwear, an improving trend in Performance Materials
and the continued benefits from our strategic projects albeit a level of
uncertainty in our markets remain. 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,
with revenues almost 30% below the base case, would be required. The test also
includes further controllable management actions that could be deployed if
required (for example no bonus payments, reduced discretionary costs and
significantly reduced capital expenditure). 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 2024 the Group's net debt (excluding IFRS 16 leases liabilities)
was $380.5 million (31 December 2023: $384.1 million). The Group's committed
debt facilities total $835 million across its Banking and US Private Placement
group, with a range of maturities from December 2024 through to 2030. In the
base case, severe but plausible downside scenario and reverse stress test
scenario it has been assumed that the $125 million of US Private Placement
maturing during the going concern assessment period in December 2024 will be
repaid in full through a drawdown in the Group's revolving credit facility.
The Directors have considered the strong operating performance, current market
conditions, the current leverage and credit rating as well as a successful
history of extending the revolving credit facility, most recently extended in
April 2023. Based on this consideration, as well as the time period available
to refinance the revolving credit facility of $360 million, the Directors
expect that the revolving credit facility, which matures in April 2026, will
be refinanced on similar terms. As of 30 June 2024 the Group had around $320
million of headroom against these committed banking facilities. In each
scenario 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 on a
twelve month rolling basis 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 2024, with leverage of 1.4x and
interest cover of 9.7x. 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 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 consolidated financial statements on the
going concern basis for the period from the date of this report to 31 December
2025.
Principal exchange rates
The principal exchange rates (to the US dollar) used are as follows:
June June December 2023
2024 2023
Average Sterling 0.79 0.81 0.80
Euro 0.93 0.93 0.92
Chinese Renminbi 7.21 6.93 7.08
Indian Rupee 83.22 82.16 82.56
Turkish Lira * 31.63 19.94 23.79
Period end Sterling 0.79 0.79 0.79
Euro 0.93 0.92 0.91
Chinese Renminbi 7.27 7.25 7.10
Indian Rupee 83.36 82.09 83.19
Turkish Lira 32.65 26.05 29.48
* 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" has been
applied. 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. A net monetary gain of $0.4 million has been recognised within finance
income in the six months ended 30 June 2024 on non-monetary items held in
Turkish Lira (six months ended 30 June 2023: $1.2 million, year ended 31
December 2023: $2.3 million). The inflation rate used is the consumer price
index published by the Turkish Statistical Institute, TurkStat. The movement
in the price index for the six months ended 30 June 2024 was 25% (six months
ended 30 June 2023: 20%, year ended 31 December 2023: 65%).
2. Segmental analysis
Operating segments are components of the Group's business activities about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker (the Group Executive Team). The
Group's organisational structure and reporting structure consists of three
divisions: Apparel, Footwear and Performance Materials. The Group's customers
are grouped into three segments Apparel, Footwear and Performance Materials
which have distinct different strategies and differing customer/end-use market
profiles. This is the basis on which financial information is reported
internally to the chief operating decision maker (CODM) for the purpose of
allocating resources between segments and assessing their performance.
Performance Materials
Apparel Footwear unaudited Total
unaudited unaudited unaudited
Six months ended 30 June 2024 US$m US$m US$m US$m
Continuing operations
Revenue 375.8 197.7 167.2 740.7
Segment profit 71.7 47.7 13.8 133.2
Exceptional and acquisition related items (note 3) (15.2)
Operating profit 118.0
Share of profits of joint ventures 1.1
Finance income 1.2
Finance costs (17.4)
Profit before taxation from continuing operations 102.9
Performance Materials
Apparel Footwear unaudited Total
unaudited unaudited unaudited
Six months ended 30 June 2023* US$m US$m US$m US$m
Continuing operations
Revenue 334.2 184.2 176.6 695.0
Segment profit 53.4 38.3 16.1 107.8
Exceptional and acquisition related items (note 3) (16.1)
Operating profit 91.7
Share of profits of joint ventures 0.7
Finance income 2.1
Finance costs (15.9)
Profit before taxation from continuing operations 78.6
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
Segment revenue and results
Apparel Footwear Performance Materials Total
audited audited audited audited
Year ended 31 December 2023 US$m US$m US$m US$m
Continuing operations
Revenue 689.4 368.4 336.4 1,394.2
Segment profit 120.4 84.1 28.9 233.4
Exceptional and acquisition related items (note 3) (49.4)
Operating profit 184.0
Share of profits of joint ventures 1.1
Finance income 4.6
Finance costs (33.9)
Profit before taxation from continuing operations 155.8
Segment results include items directly attributable to a segment as well as
those that can be allocated on a reasonable basis. Cost of sales and other
operating costs not directly attributable to a segment are allocated to
segments on an aggregated basis. Exceptional and acquisition related items are
not allocated to segments to align to the reporting provided to the chief
operating decision maker. In addition no measures of total assets and total
liabilities are reported for each reportable segment as such amounts are not
regularly provided to the chief operating decision maker.
Disaggregation of revenue
The following table shows revenue disaggregated by primary geographical
markets with a reconciliation of the disaggregated revenue with the Group's
reportable segments.
Half year 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
US$m US$m US$m
Continuing operations
Primary geographic markets
Asia 457.8 397.6 822.6
Americas 123.4 132.7 246.3
EMEA 159.5 164.7 325.3
Total 740.7 695.0 1,394.2
Continuing operations
Apparel 375.8 334.2 689.4
Footwear 197.7 184.2 368.4
Performance Materials 167.2 176.6 336.4
Total 740.7 695.0 1,394.2
Timing of revenue recognition
Goods transferred at a point in time 735.6 690.7 1,385.1
Software solutions services transferred over time 5.1 4.3 9.1
Total 740.7 695.0 1,394.2
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.
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
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 13.
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 2024 was $15.2 million (six months ended 30
June 2023: $16.1 million; year ended 31 December 2023: $49.4 million).
This comprises exceptional items for the six months ended 30 June 2024 of $4.1
million (six months ended 30 June 2023: $5.2 million; year ended 31 December
2023: $27.9 million) and acquisition related items for the six months ended 30
June 2024 of $11.1 million (six months ended 30 June 2023: $10.9 million; year
ended 31 December 2023: $21.5 million).
Taxation in respect of exceptional and acquisition related items is set out in
note 6.
Exceptional items
Exceptional items charged/(credited) to operating profit are set out below:
Half year Half year Full year
2024 2023* 2023
unaudited unaudited audited
US$m US$m US$m
Exceptional items:
Strategic project costs:
- Cost of sales 2.8 6.7 13.4
- Distribution costs - - 1.3
- Administrative expenses 0.8 3.1 9.1
3.6 9.8 23.8
Profit on sale of property and businesses:
- Other operating income - (5.7) (5.8)
Costs from integration of Footwear acquisitions:
- Cost of sales 0.2 - 4.8
- Distribution costs - - 1.3
- Administrative expenses 0.3 1.1 0.2
0.5 1.1 6.3
Lower Passaic River non-cash impairment charge:
- Administrative expenses - - 3.6
Total exceptional items charged to operating profit from continuing operations 4.1 5.2 27.9
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
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 2024 further initiatives were undertaken
in the US and Mexico to deliver operating efficiencies and mitigate structural
labour availability.
During the year ended 31 December 2023 a second new plant in Mexico at Toluca
was commissioned. In addition the Group undertook optimisation initiatives in
China and India. In China, manufacturing activities of lower-margin zip
production ceased and were outsourced to a third party supplier. In India,
office and warehouse space was consolidated.
Primarily as a result of these activities, exceptional restructuring costs
totalling $3.6 million were incurred during the six months ended 30 June 2024
(six months ended 30 June 2023: $9.8 million; year ended 31 December 2023:
$23.8 million) which included:
- severance and related employee costs of $0.6 million (six months ended 30 June
2023: $6.3 million; year ended 31 December 2023: $11.1 million);
- non-cash impairment charges of property, plant and equipment, right-of-use
assets and inventories of $nil (six months ended 30 June 2023: $0.1 million;
year ended 31 December 2023: $5.2 million); and
- legal, advisers, closure and related costs of $3.0 million (six months ended
30 June 2023: $3.4 million; year ended 31 December 2023: $7.5 million).
Profit on sale of property and businesses
During the year ended 31 December 2023 the Group sold land and buildings in
connection with the above strategic project and completed the sale of its
businesses in Mauritius and Madagascar generating a profit on disposal of $5.7
million (six months ended 30 June 2023: $5.8 million).
Costs from integration of Footwear acquisitions
During the six months ended 30 June 2024 exceptional costs of $0.5 million was
incurred as a result of the continued integration of the Texon and Rhenoflex
businesses, which were acquired in July 2022 and August 2022 respectively (six
months ended 30 June 2023: $1.1 million, year ended 31 December 2023: $6.3
million).
Acquisition related items
Acquisition related items are set out below:
Half year Half year Full year
2024 2023 2023
unaudited unaudited audited
US$m US$m US$m
Acquisition related items:
Administrative expenses:
Amortisation of acquired intangible assets 11.1 10.9 21.5
Total acquisition related items charged to profit before taxation 11.1 10.9 21.5
Amortisation of intangible assets acquired through business combinations are
not included within adjusted operating profit and adjusted earnings per share.
These charges 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.
4. Finance income
Half year 2024 Half year Full year
unaudited 2023 2023
unaudited audited
US$m US$m US$m
Income from investments - - 0.1
Net monetary gain arising from hyperinflation accounting (see note 1) 0.4 1.2 2.3
Other interest receivable and similar income 0.8 0.9 2.2
1.2 2.1 4.6
5. Finance costs
Half year 2024 Half year Full year
unaudited 2023 2023
unaudited audited
US$m US$m US$m
Interest on bank and other borrowings 14.8 15.5 30.3
Interest expense on lease liabilities 2.5 2.9 5.6
Net interest on pension scheme assets and liabilities (1.3) (2.7) (4.4)
Other finance costs including unrealised gains and losses on foreign exchange 1.4 0.2 2.4
contracts
17.4 15.9 33.9
6. Taxation
The taxation charge for the six months ended 30 June 2024 and 30 June 2023 is
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 2024 was $29.7 million (six months ended 30 June 2023: $23.0
million; year ended 31 December 2023: $55.0 million).
For the six months ended 30 June 2024 the tax credit in respect of exceptional
and acquisition related items was $3.4 million (six months ended 30 June 2023:
$3.2 million; year ended 31 December 2023: $2.9 million) which comprised the
following amounts:
- Exceptional tax credits of $1.2 million for the six months ended 30 June 2024
(six months ended 30 June 2023: $1.0 million; year ended 31 December 2023:
$2.3 million) in connection with the strategic project set out in note 3; and
- An exceptional tax credit for the six months ended 30 June 2024 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 and the impact of tax rate differences (six months ended 30 June
2023 $2.2 million; year ended 31 December 2023: $0.6 million).
The Group has recognised provisions for uncertain tax positions. As at 30 June
2024 amounts relating to uncertain tax positions of $26.0 million (31 December
2023: $29.2 million) are included as income tax liabilities within current
liabilities in the condensed consolidated statement of financial position. As
at 30 June 2023 uncertain tax positions are included in trade and other
payables within non-current liabilities.
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. The Group is within the
scope of the OECD Pillar Two model rules which became effective from 1 January
2024 in the United Kingdom, where Coats Group plc is incorporated, and other
jurisdictions in which the Group operates. Under the Pillar Two rules the
Group is liable to pay top-up tax on profits of jurisdictions that are taxed
at an effective tax rate of less than 15%.
The Group has applied the temporary exception issued by the IASB in May 2023
from the accounting requirements for deferred taxes in IAS 12. Accordingly,
the Group neither recognises nor discloses information about deferred tax
assets and liabilities related to Pillar Two income taxes.
The current tax charge for the six months ended 30 June 2024 includes Pillar 2
top-up taxes of $0.4 million and relates to Honduras and Hungary (six months
ended 30 June 2023: $nil; year ended 31 December 2023: $nil).
7. Earnings per share
The calculation of basic earnings per ordinary share from continuing
operations is based on the profit from continuing operations attributable to
equity shareholders and the weighted average number of ordinary shares in
issue during the period, excluding shares held by the Employee Benefit Trust
but including shares under share incentive schemes which are not contingently
issuable.
The calculation of basic earnings per ordinary share from continuing and
discontinued operations is based on the profit attributable to equity
shareholders. The weighted average number of ordinary shares used for the
calculation of basic earnings per ordinary share from continuing and
discontinued operations is the same as that used for basic earnings per
ordinary share from continuing operations.
For diluted earnings per ordinary share, the weighted average number of
ordinary shares in issue is adjusted to include all potential dilutive
ordinary shares to the extent that this does not dilute a loss. The Group has
two classes of dilutive potential ordinary shares: those shares relating to
awards under the Group Deferred Bonus Plan which have been awarded but not yet
reached the end of the three year retention period and those long-term
incentive plan awards for which the performance criteria would have been
satisfied if the end of the reporting period was the end of the contingency
period.
Half year 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
US$m US$m US$m
Profit from continuing operations attributable to equity shareholders 60.5 44.3 83.2
Profit from continuing and discontinued operations attributable to equity 60.5 24.7 56.5
shareholders
Profit from continuing operations attributable to equity shareholders for the
six months ended 30 June 2024 of $60.5 million (six months ended 30 June 2023:
$44.3 million; year ended 31 December 2023: $83.2 million) comprises the
profit from continuing operations for the six months ended 30 June 2024 of
$73.2 million (six months ended 30 June 2023: $55.6 million; year ended 31
December 2023: $100.8 million) less non-controlling interests for the six
months ended 30 June 2024 of $12.7 million (six months ended 30 June 2023:
$11.3 million; year ended 31 December 2023: $17.6 million) as reported in the
income statement.
Half year 2024 Half year Full year
unaudited 2023 2023
unaudited audited
Number of shares m Number of shares m Number of shares m
Weighted average number of ordinary shares in issue for basic earnings per 1,606.4 1,605.2 1,605.0
share
Adjustment for deferred bonus plan and LTIP awards 9.2 10.5 16.4
Weighted average number of ordinary shares in issue for diluted earnings per 1,615.6 1,615.7 1,621.4
share
Half year 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
cents cents cents
Continuing operations:
Basic earnings per ordinary share 3.77 2.77 5.18
Diluted earnings per ordinary share 3.74 2.75 5.13
Continuing and discontinued operations:
Basic earnings per ordinary share 3.77 1.54 3.52
Diluted earnings per ordinary share 3.74 1.53 3.48
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
8. Issued share capital
At 30 June 2024 the share capital of the Company comprised 1,597,810,385
Ordinary Shares of 5p each (31 December 2023: 1,597,810,385; 30 June 2023:
1,597,810,385).
During the six months ended 30 June 2024, six months ended 30 June 2023 and
year ended 31 December 2023 the Company did not issue any Ordinary Shares.
The own shares reserve of $5.2 million at 30 June 2024 (31 December 2023: $6.1
million; 30 June 2023: $0.1 million) represents the cost of shares in Coats
Group plc purchased in the market and held by an Employee Benefit Trust to
satisfy awards under the Group's share based incentive plans. The number of
shares held by the Employee Benefit Trust at 30 June 2024 was 5,194,871 (31
December 2023: 6,124,223; 30 June 2023: 150,000).
9. Dividends
Half year 2024 Half year Full year
unaudited 2023 2023
unaudited audited
US$m US$m US$m
2023 final dividend paid - 1.99 cents per share 31.7 - -
2023 interim dividend paid - 0.81 cents per share - - 13.0
2022 final dividend paid - 1.73 cents per share - 27.6 27.6
31.7 27.6 40.6
The directors have declared an ordinary interim dividend per share of 0.93
cents (30 June 2023: 0.81 cents) to be paid on 14 November 2024 to
shareholders on the register on 18 October 2024. 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.
A settlement of those claims is expected to 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, a pending settlement
involving CC and other parties has not yet been approved by the court and the
share of payments for other parties has not yet been determined.
In March 2017, EPA notified 20 parties not associated with the disposal or
release of any contaminants of concern that they were eligible for early cash
out settlements. As expected, EPA did not identify CC as one of those 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.
At the end of 2023, CC's insurer was placed into liquidation. As a result, the
previously recognised insurance receivable for future expected partial
recovery of remediation costs and associated legal and professional costs was
treated for accounting purposes as being impaired in full resulting in an
exceptional charge of $3.6 million being recognised for the year ended 31
December 2023, without prejudice to any future claims against the insurer in
the liquidation proceedings.
At 30 June 2024, the remaining provision was $11.5 million (31 December 2023:
$12.2 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 would be responsible
for most remedial cost 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. In January
2024, DOJ moved for entry of the settlement on behalf of EPA, with amendments
that are not material to CC. Court approval is necessary for the settlement to
go into effect, and OCC is opposing such approval. DOJ and EPA have asserted
that the settlement is fair 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.
11. Notes to the condensed consolidated cash flow statement
a) Reconciliation of operating profit to net cash inflow from operations
Half year 2024 Half year 2023* Full year
unaudited unaudited 2023
audited
US$m US$m US$m
Operating profit(1) 118.0 91.7 184.0
Depreciation of owned property, plant and equipment 12.8 13.9 27.0
Depreciation of right-of-use assets 9.0 9.7 18.8
Amortisation of intangible assets 11.9 11.8 22.9
(Increase)/decrease in inventories (32.6) 1.1 21.1
Increase in debtors (34.6) (16.3) (22.8)
Increase in creditors 44.3 6.8 18.9
Provision and pension movements (9.4) (21.5) (53.1)
Foreign exchange and other non-cash movements 3.7 (3.4) 4.5
Discontinued operations (1.4) (1.6) (4.0)
Cash generated from operations 121.7 92.2 217.3
( )
(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 2024 Half year 2023 Full year
unaudited unaudited 2023
audited
US$m US$m US$m
Interest paid (16.7) (16.9) (33.7)
c) Taxation paid
Half year 2024 Half year 2023 Full year
unaudited unaudited 2023
audited
US$m US$m US$m
Overseas tax paid (31.2) (22.1) (59.7)
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
d) Investment income
Half year 2024 Half year 2023 Full year
unaudited unaudited 2023
audited
US$m US$m US$m
Dividends received from joint ventures 1.0 - 0.6
e) Capital expenditure and financial investment
Half year 2024 Half year 2023 Full year
unaudited unaudited 2023
audited
US$m US$m US$m
Purchase of property, plant and equipment and intangible assets (11.3) (11.8) (31.0)
Sale/(purchase) of other equity investments 0.1 0.3 (0.4)
Proceeds from disposal of property, plant and equipment 0.4 7.3 11.8
Discontinued operations - (0.1) (0.1)
(10.8) (4.3) (19.7)
f) Acquisitions and disposals of businesses
Half year 2024 Half year 2023 Full year
unaudited unaudited 2023
audited
US$m US$m US$m
Disposal of businesses - 0.9 (1.2)
g) Net debt
A summary of net debt is set out below:
30 June 2024 30 June 2023 31 December
unaudited unaudited 2023
audited
US$m US$m US$m
Cash and cash equivalents 130.7 128.1 132.4
Bank overdrafts (4.1) (3.7) (20.9)
Net cash and cash equivalents 126.6 124.4 111.5
Other borrowings (507.1) (523.7) (495.6)
Net debt excluding lease liabilities (380.5) (399.3) (384.1)
Lease liabilities (84.8) (92.9) (86.8)
Total net debt (465.3) (492.2) (470.9)
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 2024 for covenant
purposes was $383.8 million (30 June 2023: $406.2 million; 31 December 2023:
$388.8 million).
The components of net debt and movements during the periods are set out below:
Series A and Series B Senior Notes
Total Cash at bank and in hand
financing
Bank loans Lease liabilities activity liabilities Bank overdrafts Net
debt
US$m US$m US$m US$m US$m US$m US$m
At 1 January 2023 (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)
At 1 January 2023 (audited) (222.3) (329.8) (105.4) (657.5) (14.7) 172.4 (499.8)
Financing cash flows (248.6) 307.0 18.5 76.9 - - 76.9
Other cash flows - - 5.6 5.6 (6.2) (36.0) (36.6)
Disposal of subsidiaries - - 0.9 0.9 - (1.2) (0.3)
Non-cash movements (1.4) (1.3) (7.5) (10.2) - - (10.2)
Foreign exchange - 0.8 1.1 1.9 - (2.8) (0.9)
At 31 December 2023 (audited) (472.3) (23.3) (86.8) (582.4) (20.9) 132.4 (470.9)
Financing cash flows - (10.0) 9.6 (0.4) - - (0.4)
Other cash flows - - 2.5 2.5 16.8 0.6 19.9
Non-cash movements (0.8) (0.7) (11.9) (13.4) - - (13.4)
Foreign exchange - - 1.8 1.8 - (2.3) (0.5)
At 30 June 2024 (unaudited) (473.1) (34.0) (84.8) (591.9) (4.1) 130.7 (465.3)
The non-cash movement during the six months ended 30 June 2024 of $0.8 million
(six months ended 30 June 2023: $0.1 million; year ended 31 December 2023:
$1.4 million) within Series A and Series B Senior Notes predominantly
represents the movement in the fair value adjustment to the nominal amount
outstanding and relates to interest rate swaps which are accounted for as fair
value hedges.
12. Discontinued operations
Sale of European Zips business
On 30 June 2023 the Group entered into an agreement to sell its European Zips
business to Aequita, a German family office and the sale was completed on 31
August 2023. The European Zips business was included in the Apparel segment.
The exit from the European Zips business was in line with Coats' previously
announced strategic initiatives to optimise the Group's portfolio and
footprint, and improve the overall cost base efficiency.
The results of the European Zips business was presented as a discontinued
operation in the consolidated income statement for the year ended 31 December
2023. The results of the European Zips business for six months ended 30 June
2023 was previously presented as a continuing operation and has been
represented to reclassify the results from continuing operations to
discontinued operations, consistent with the presentation of results for the
year ended 31 December 2023.
a) Discontinued operations
The results of the discontinued operations are presented below:
Half year 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
US$m US$m US$m
Revenue - 20.1 25.3
Cost of sales - (19.1) (23.7)
Gross profit - 1.0 1.6
Distribution costs - (2.2) (2.6)
Administrative expenses - (1.2) (2.0)
Operating loss and loss from discontinued operations - (2.4) (3.0)
Impairment loss on measurement to fair value less costs to sell - (17.2) -
Loss on disposal (note 14(b)) - - (17.1)
Exchange loss transferred to income statement on disposal - - (6.6)
Total loss from discontinued operations - (19.6) (26.7)
The operating loss before exceptional items of the European zips business for
the six months ended 30 June 2023 was $0.4 million (year ended 31 December
2023: $1.3 million). Exceptional items for the six months ended 30 June 2023
charged to operating loss from discontinued operations was $2.0 million (year
ended 31 December 2023: $1.7 million). As a result the operating loss of the
European Zips business for the six months ended 30 June 2023 was $2.4 million
(year ended 31 December 2023: $3.0 million).
Exceptional items - discontinued operations
Exceptional items charged to loss from discontinued operations are set out
below:
Half year Half year Full year
2024 2023* 2023
unaudited unaudited audited
US$m US$m US$m
Strategic project costs - (2.0) (1.7)
Impairment loss on measurement to fair value less costs to sell - (17.2) -
Loss on disposal - - (17.1)
Exchange loss transferred to income statement on disposal - - (6.6)
Total exceptional items - discontinued operations - (19.2) (25.4)
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
Loss per ordinary share from discontinued operations
Half year 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
cents cents cents
Loss per ordinary share from discontinued operations:
Loss per ordinary share - (1.23) (1.66)
Diluted loss per ordinary share - (1.22) (1,64)
Cash flows from discontinued operations
Half year 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
US$m US$m US$m
Net cash outflow from operating activities (1.4) (1.6) (4.0)
Net cash outflow from investing activities - (0.1) (0.1)
Net cash flows from discontinued operations (1.4) (1.7) (4.1)
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
b) Loss on disposal
The assets and liabilities at 30 June 2023 of the European Zips business were
classified as a disposal group held for sale. Net assets disposed in August
2023 relating to the European Zips business amounted to $13.9 million. The
exceptional loss on disposal included in the results of discontinued
operations for the year ended 31 December 2023 was $17.1 million, which
included disposal costs and completion adjustments of $5.1 million.
The consideration received for the sale of the European Zips business was $1.9
million and, net of cash and cash equivalents and bank overdrafts disposed,
there was a net inflow of $0.7 million. Disposal costs of $2.7 million were
paid in the year ended 31 December 2023 and as a result the cash outflow in
the year ended 31 December 2023 on the sale of the European Zips business was
$2.0 million.
13. 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 2023.
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.
There were no acquisitions in the six months ended 30 June 2024 or the six
months ended 30 June 2023.
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 2024 Half year %
unaudited 2023*
Unaudited
Revenue US$m US$m Increase
Revenue from continuing operations 740.7 695.0 7%
Constant currency adjustment - (8.7)
Organic revenue on a CER basis 740.7 686.3 8%
Half year 2024 Half year %
unaudited 2023*
unaudited
Operating profit US$m US$m Increase
Operating profit from continuing operations(1) 118.0 91.7 29%
Exceptional and acquisition related items (note 3) 15.2 16.1
Adjusted operating profit from continuing operations 133.2 107.8 24%
Constant currency adjustment - (1.9)
Organic adjusted operating profit on a CER basis 133.2 105.9 26%
(1) Refer to the condensed consolidated income statement for a reconciliation
of profit before taxation to operating profit from continuing operations.
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance measure to show the
operating performance of the Group excluding the effects of depreciation of
owned fixed assets and right-of-use assets, amortisation and impairments and
excluding exceptional and acquisition related items.
Operating profit before exceptional and acquisition related items and before
depreciation of owned fixed assets and right-of-use assets and amortisation
(Adjusted EBITDA) is set out below:
Half year 2024 Full year
unaudited Half year 2023
2023* audited
unaudited
US$m US$m US$m
Profit before taxation from continuing operations 102.9 78.6 155.8
Share of profit of joint ventures (1.1) (0.7) (1.1)
Finance income (note 4) (1.2) (2.1) (4.6)
Finance costs (note 5) 17.4 15.9 33.9
Operating profit from continuing operations(1) 118.0 91.7 184.0
Exceptional and acquisition related items (note 3) 15.2 16.1 49.4
Adjusted operating profit from continuing operations 133.2 107.8 233.4
Depreciation of owned property, plant and equipment 12.8 13.8 27.0
Amortisation of intangible assets 0.8 0.9 1.4
Adjusted EBITDA including IFRS 16 depreciation of right-of-use assets 146.8 122.5 261.8
(Pre-IFRS 16 basis)
Depreciation of right-of-use assets 9.0 9.7 18.8
Adjusted EBITDA 155.8 132.2 280.6
(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 2024 was $304.2
million (30 June 2023: $267.3 million).
Adjusted EBITDA on a last twelve months basis to 30 June 2024 of $304.2
million is the adjusted EBITDA for the six months ended 30 June 2024 of $155.8
million plus the adjusted EBITDA for the year ended 31 December 2023 of $280.6
million less the adjusted EBITDA for the six months ended 30 June 2023 of
$132.2 million.
Net debt including lease liabilities under IFRS 16 was $465.3 million at 30
June 2024 (31 December 2023: $470.9 million; 30 June 2023: $492.2 million).
This gives a leverage ratio of net debt including lease liabilities to
Adjusted EBITDA at 30 June 2024 of 1.5 (31 December 2023: 1.7; 30 June 2023:
1.8).
On a pre-IFRS 16 basis adjusted EBITDA on a last twelve months basis to 30
June 2024 was $286.1 million (30 June 2023: $248.3 million).
Net debt excluding lease liabilities under IFRS 16 was $380.5 million at 30
June 2024 (31 December 2023: $384.1 million; 30 June 2023: $399.3 million).
This gives a leverage ratio on a pre-IFRS 16 basis at 30 June 2024 of 1.3 (31
December 2023: 1.5; 30 June 2023: 1.6).
For the definition and calculation of net debt including and excluding lease
liabilities see note 11(g).
For bank covenant purposes, the Group's leverage is calculated on the basis of
net debt without IFRS 16 lease liabilities and at the Coats Group Finance
Company Limited level. Leverage for bank covenant purposes at 30 June 2024 was
1.4.
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
c) Adjusted effective tax rate
The adjusted effective tax rate removes the tax impact of exceptional and
acquisition related items and net interest on pension scheme assets and
liabilities to arrive at a tax rate based on the adjusted profit before
taxation.
A significant proportion of the Group's net interest on pension scheme assets
and liabilities relates to UK pension plans for which there is no related
current or deferred tax credit or charge recorded in the income statement. The
Group's net interest on pension scheme assets and liabilities is adjusted in
arriving at the adjusted effective tax rate shown below and, in management's
view, were this not adjusted would distort the alternative performance
measure. This is consistent with how the Group monitors and manages the
effective tax rate.
Half year 2024 Full year
unaudited Half year 2023
2023* audited
unaudited
US$m US$m US$m
Profit before taxation from continuing operations 102.9 78.6 155.8
Exceptional and acquisition related items (note 3) 15.2 16.1 49.4
Net interest on pension scheme assets and liabilities (note 5) (1.3) (2.7) (4.4)
Adjusted profit before taxation from continuing operations 116.8 92.0 200.8
Taxation charge from continuing operations 29.7 23.0 55.0
Tax credit in respect of exceptional and acquisition related items 3.4 3.2 2.9
Tax credit in respect of net interest on pension scheme assets and liabilities 0.1 0.3 0.2
Adjusted taxation charge from continuing operations 33.2 26.5 58.1
Adjusted effective tax rate 28% 29% 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 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
US$m US$m US$m
Profit from continuing operations 73.2 55.6 100.8
Non-controlling interests (12.7) (11.3) (17.6)
Profit from continuing operations attributable to equity shareholders 60.5 44.3 83.2
Exceptional and acquisition related items net of non-controlling 15.2 16.1 48.8
interests (note 3)
Tax credit in respect of exceptional and acquisition related items (3.4) (3.2) (2.9)
Adjusted profit from continuing operations 72.3 57.2 129.1
Weighted average number of Ordinary Shares 1,606,358,559 1,605,222,055 1,604,955,182
Adjusted earnings per share 4.50 3.54 8.04
The weighted average number of Ordinary Shares used for the calculation of
adjusted earnings per share is the same as that used for basic earnings per
Ordinary Share from continuing operations (see note 7).
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
e) Adjusted free cash flow
Net cash generated by operating activities, a GAAP measure, reconciles to
changes in net debt resulting from cash flows (free cash flow) as set out in
the consolidated cash flow statement. A reconciliation of free cash flow to
adjusted free cash flow is set out below.
Consistent with previous periods, adjusted free cash flow is defined as cash
generated from continuing activities less capital expenditure, interest, tax,
dividends to non-controlling interests and other items, and excluding
exceptional and discontinued items, acquisitions, purchase of own shares by
the Employee Benefit Trust and payments to the UK pension scheme.
Adjusted free cash flow measures the Group's cash generation that is available
to service shareholder dividends, pension obligations and acquisitions.
Half year 2024 Half year Full year
unaudited 2023* 2023
unaudited audited
US$m US$m US$m
Change in net debt resulting from cash flows (free cash flow) 7.4 (2.2) 15.0
Disposal of businesses - (0.9) 1.2
Net cash outflow from discontinued operations 1.4 1.7 4.1
Payments to UK pension scheme 2.6 16.7 48.9
Net cash flows in respect of exceptional and acquisition 9.7 5.3 12.6
related items
Purchase of own shares by Employee Benefit Trust 6.6 3.1 10.1
Dividends paid to equity shareholders 31.4 27.5 40.3
Tax inflow in respect of adjusted cash flow items (0.2) - (1.7)
Adjusted free cash flow 58.9 51.2 130.5
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
f) Return on capital employed
Return on capital employed ('ROCE') is defined as operating profit before
exceptional and acquisition related items on a last twelve months' basis
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 2024 Half year Full year
unaudited 2023* 2023
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(1)
258.8 219.8 233.4
Non-current assets
Acquired intangible assets 334.7 358.7 349.6
Property, plant and equipment 243.2 239.9 243.2
Right-of-use assets 73.1 82.2 74.4
Trade and other receivables 24.3 21.4 19.5
Current assets
Inventories 202.4 193.5 173.5
Trade and other receivables 311.4 294.1 292.0
Current liabilities
Trade and other payables (323.2) (274.4) (285.6)
Lease liabilities (16.5) (17.3) (17.5)
Non-current liabilities
Trade and other payables (4.3) (27.1) (3.2)
Lease liabilities (68.3) (75.6) (69.3)
Capital employed 776.8 795.4 776.6
ROCE 33% 28% 30%
(1) Refer to the condensed consolidated income statement for a reconciliation
of profit before taxation to operating profit from continuing operations.
* Represented to reflect the results of the European Zips business as a
discontinued operation (see note 1).
14. 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
$72.2 million as at 30 June 2024 (31 December 2023: $62.8 million; 30 June
2023: $106.7 million).
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 2024 of
$107.1 million (31 December 2023: $102.2 million; 30 June 2023: $151.9
million).
Sensitivities regarding the discount rate and inflation assumptions used to
measure the liabilities of the Coats UK Pension Scheme, along with the impact
they would have on the scheme liabilities, are set out below.
Interrelationships between assumptions might exist and the analysis below does
not take the effect of these interrelationships into account:
30 June 30 June 31 December
2024 2023 2023
+0.25% -0.25% +0.25% -0.25% +0.25% -0.25%
US$m US$m US$m US$m US$m US$m
Discount rate (50.6) 53.1 (47.0) 49.5 (55.9) 58.7
Inflation rate 30.3 (34.1) 27.9 (26.7) 32.3 (36.6)
An increase of 1.0% in the discount rate would result in the Coats UK Pension
Scheme liabilities decreasing by $189.6 million (31 December 2023: $208.7
million; 30 June 2023: $176.6 million). A decrease of 1.0% in the discount
rate would result in the Coats UK Pension Scheme liabilities increasing by
$228.8 million (31 December 2023: $253.1 million; 30 June 2023: $213.4
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
2023 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 $59.4 million (31 December 2023: $66.3 million;
30 June 2023: $57.2 million).
United Kingdom Pension Benefits - High Court of Justice Ruling on Actuarial
Confirmations
In June 2023, the High Court ruled in the case between Virgin Media and the
NTL Pension Trustees II Limited (and others) that the absence of a "Section
37" certificate accompanying an amendment to benefits in a contracted-out
pension scheme would render the amendment void. The appeal on the Virgin Media
and the NTL Pension Trustees II Limited (and others) case has been dismissed
on 25 July 2024. The Group's position has not changed from that disclosed in
annual financial statements of the Group for the year ended 31 December 2023
and the Group and the Trustee of the Coats UK Pension Scheme will continue to
keep this matter under review.
Prior period restatement of US pension surplus
In the Group's 2023 Annual Report, pension surplus amounts at 31 December 2022
and 31 December 2021 were restated for the Coats US defined benefit pension
scheme to reflect a change in measurement. As originally reported the IAS 19
accounting surplus for the US pension scheme was not recognised in full but
recognised based on the expected utilisation of the accounting surplus for
transfers to a US medical plan and future pension scheme administrative costs.
In the Group's 2023 Annual Report, prior period amounts were restated to
recognise the accounting surplus in full on the basis that the future economic
benefits are unconditionally available to the Group, which is assumed to be
via a refund net of applicable US taxes.
The pension surplus amount at 30 June 2023 for the Coats US defined benefit
pension scheme has also been restated to reflect this change. There is no
impact on either profits or cash flows for the six months ended 30 June 2023.
The US pension scheme accounting surplus under IAS 19 in the restated
condensed consolidated statement of financial position is $40.3 million at 30
June 2023. This represents an increase of $27.4 million from the original
reported US pension surplus amount of $12.9 million.
Amounts as of 30 June 2023 have been restated as set out below:
As reported US Pension As
Adjustment restated
US$m US$m US$m
Condensed consolidated statement of financial position
30 June 2023
Non-current assets:
Pension surpluses 166.3 27.4 193.7
Total assets 1,786.1 27.4 1,813.5
Deferred tax liabilities (59.0) (12.9) (71.9)
Total liabilities (1,144.5) (12.9) (1,157.4)
Net assets and total equity 641.6 14.5 656.1
15. Fair value of assets and liabilities
As at 30 June 2024 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
Total Level 1 Level 2 Level 3
30 June 2024 US$m US$m US$m US$m
Financial assets measured at fair value through the income statement:
Trading derivatives 0.5 - 0.5 -
Financial assets measured at fair value through the statement of comprehensive
income:
Other investments 0.6 - - 0.6
Total 1.1 - 0.5 0.6
Total Level 1 Level 2 Level 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
Total Level 1 Level 2 Level 3
31 December 2023 US$m US$m US$m US$m
Financial assets measured at fair value through the income statement:
Trading derivatives 1.3 - 1.3 -
Financial assets measured at fair value through the statement of comprehensive
income:
Other investments 0.9 - - 0.9
Total 2.2 - 1.3 0.9
Financial liabilities measured at fair value
Total Level 1 Level 2 Level 3
30 June 2024 US$m US$m US$m US$m
Financial liabilities measured at fair value through the income statement:
Trading derivatives (1.4) - (1.4) -
Derivatives designated as effective hedging instruments
(1.0) - (1.0) -
Total (2.4) - (2.4) -
Total Level 1 Level 2 Level 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) -
Total Level 1 Level 2 Level 3
31 December 2023 US$m US$m US$m US$m
Financial liabilities measured at fair value through the income statement:
Trading derivatives (1.8) - (1.8) -
Derivatives designated as effective hedging
instruments (1.8) - (1.8) -
Total (3.6) - (3.6) -
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 2024.
16. 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.
17. 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 2023 and
these are expected to stay the same for the remainder of 2024. 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 as
part of its strategic growth and sustainability ambitions.
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. 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 and/or reputational damage as
result of noncompliance with Group's ethical standards.
7. 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.
8. 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 including potentially as result of energy security challenges
and ability to access sufficient renewable energy in relevant locations),
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.
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. Legal and regulatory compliance risk - risk of breach of law in relation
to areas such as anti-corruption, competition or sanctions, 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 2023 on
pages 52 to 58, a copy of which is available on the Group's website,
www.coats.com
(https://nam11.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.coats.com%2F&data=05%7C01%7C%7Cf7e7b37c9c764f6ef65608da64ab7e87%7C048ff72770274cd0b672f075b0bdb973%7C0%7C0%7C637932984960280143%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=Pe22iGjTntbOnEot0Udz5HMcHK81tf%2FRgZWC0GbLXlU%3D&reserved=0)
.
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 2023 with the exception of the risk in relation to
supplier non-performance, unavailability and/or price increases of raw
materials, labour and freight and/or logistical challenges (risk number 6 in
the above list), which is now considered to be increasing (previously stable).
More detail is set out below.
6. Risk of supplier non-performance, unavailability and/or price increases
of raw materials, labour and freight and/or logistical challenges - With the
ongoing Red Sea-related sea freight disruptions and logistical challenges
which have resulted in higher freight costs, longer delivery times, port
congestion, occasional supply disruption and a knock-on impact on freight
reliability more broadly, we now consider this risk to be increasing rather
than stable. While these disruptions have persisted, and may continue to
persist, for longer than was generally anticipated, we are successfully
managing this risk and challenges through our strategic engagement with key
suppliers and intensive follow-up with freight service providers. Significant
additional container capacity, which is now being introduced by the shipping
industry, may also help to further mitigate this risk and challenges.
18. Related party transactions
There have been no related party transactions or changes in related party
transactions described in the 2023 Annual Report that could have a material
effect on the financial position or performance of the Group in the first six
months of the financial year.
19. Directors
The following persons were directors of Coats Group plc during the half year
ended 30 June 2024 and up to the date of this report:
D Gosnell OBE
R Sharma
N Bull (Resigned 22 May 2024)
J Callaway
S Highfield
H Lu
S Murray
F Philip
J Sigurdsson
20. Publication
This statement will be available at the registered office of the Company, 4th
Floor,14 Aldermanbury Square, London, EC2V 7HS. 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 19 to the Condensed
Consolidated Financial Statements.
By order of the Board,
D Gosnell
Chair
31 July 2024
United Kingdom
4th Floor,14 Aldermanbury Square, London, EC2V 7HS Tel: 0208 210 5000
Registered in England and Wales No. 103548
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