TIDMCOA
RNS Number : 3268H
Coats Group PLC
03 August 2021
3 August 2021
Coats Group plc
2021 Half Year Results
Positive momentum continues; strong operational performance
Coats Group plc ('Coats,' the 'Company' or the 'Group'), the
world's leading industrial thread manufacturer, announces its
unaudited results for the six months ended 30 June 2021 (the
'period').
H1 2021 H1 2020 H1 2019 H1 2021 vs H1 2020 H1 2021 vs H1 2019
-------------------------------- -------- -------- -------- -------------------------- --------------------------
Continuing operations
(3) Reported CER Organic Reported CER Organic
-------------------------------- -------- -------- -------- --------- ----- -------- --------- ----- --------
Revenue $732m $536m $705m 37% 35% 34% 4% 6% 1%
Adjusted (1)
Operating profit $95m $34m $102m 179% 174% 175% (7)% (5)% (4)%
Basic earnings per
share 3.1c 0.0c 3.4c
Free cash flow $48m $(5)m $21m
Net debt (excl.
IFRS 16) $168m $207m $210m
Reported (2,3)
Operating profit $97m $29m $101m 235% 229% 230% (4)% (2)% 0%
Basic earnings per
share 3.4c (0.6)c 3.4c
Net cash generated
by operating activities $64m $15m $34m
Interim dividend
per share 0.61c nil 0.55c
Highlights
-- Continued positive momentum during the first half; organic revenues
up 1% vs 2019 and 34% vs 2020, despite recent lockdown impacts in
India in May and June which have now ended
-- Encouraging momentum and recovery in Apparel and Footwear: core
thread business up 2% vs 2019 (41% vs 2020); positive end market
sentiment across US, Europe and Asia; sports and athleisure perform
well due to ongoing casualisation trend
-- Performance Materials organic growth of 4% vs 2019 (19% vs 2020),
with all segments performing strongly apart from Personal Protection
which continues to be impacted by US labour availability issues
-- Adjusted operating profit of $95 million; inflationary pressures
offset by pricing actions and self-help productivity programmes
-- Adjusted EPS of 3.1c per share: significantly up from 2020 (0.0c)
due to the recovery of operating profits towards pre-Covid levels,
lower finance charges, and a normalisation of the effective tax
rate
-- Strong cash generation in the period; net debt (excl. IFRS 16) of
$168 million and strong adjusted free cash flow of $48 million;
0.8x leverage(4) reflecting our commitment to financial discipline
-- Interim dividend of 0.61 cents per share declared
-- As stated in a post-close trading update on 14 July, full year 2021
performance is anticipated to be moderately ahead of the Group's
previous expectations.
Commenting on the Half Year Results Rajiv Sharma, Group Chief
Executive, said:
"We are pleased to have seen continued recovery and positive
momentum during the first half of the year. We have won some
excellent contracts and programmes, across both divisions, as
customers prioritise reliability, speed and flexibility. We also
launched 12 new products in the first half, generating $11 million
of incremental revenue, with a healthy pipeline of opportunities
ahead of us. We have continued the advancement of our
industry-leading sustainability agenda, with strong demand for our
EcoVerde product range and revenue of $43m, which was 5x higher
than in the first half of 2020. We are also proud to have launched
EcoRegen, a biodegradable thread supporting Coats' drive towards a
circular economy.
"In the second half of the year we will continue to drive
performance by focusing on profitable sales growth, our strong
customer relationships, our digital, innovation and sustainability
credentials and ongoing pricing and productivity actions."
1 Adjusted measures are non-statutory measures (Alternative Performance
Measures). These are reconciled to the nearest corresponding statutory
measure in note 12. Constant Exchange Rate (CER) are 2020 and
2019 results restated at 2021 exchange rates. Organic vs 2020
on a CER basis includes like-for-like contributions from Pharr
HP (post acquisition date of February 2020). Organic vs 2019 on
a CER basis includes like-for-like contributions from ThreadSol
(post acquisition date of February 2019) and excludes contribution
from Pharr HP (acquired in February 2020). Revenue figures are
an IFRS measure; however CER and Organic growth rates constitute
Alternative Performance Measures.
2 Reported refers to values contained in the IFRS column of the
primary financial statements in either the current or comparative
period.
3 All figures on a continuing basis, unless otherwise stated.
4 Leverage calculated on a frozen GAAP basis, and therefore excludes
the impact of IFRS 16 on both adjusted EBITDA and net debt.
Conference call
Coats Management will present its half year results in a webcast
at 9:00am BST today (3 August 2021). The webcast can be accessed
via www.coats.com/investors/hy2021 . The webcast will also be made
available in archive form on www. coats.com .
Enquiry details
Coats Group +44 (0)7880 471
Investors Victoria Huxster plc 350
Richard Mountain / Nick +44 (0)20 3727
Media Hasell FTI Consulting 1374
------------------- ------------------------- ---------------- ----------------
About Coats Group plc
Coats is the world's leading industrial thread company. At home
in some 50 countries, Coats has a workforce of 17,000 people across
six continents. Revenues in 2020 were US$1.2bn. Coats' pioneering
history and innovative culture ensure the company continues leading
the way around the world. It provides complementary and value added
products, services and software solutions to the apparel and
footwear industries. It applies innovative techniques to develop
high technology Performance Materials threads, yarns and fabrics in
areas such as Transportation, Telecommunications and Energy, and
Personal Protection. Headquartered in the UK, Coats is a FTSE 250
company, a constituent of the FTSE4Good Index Series, a participant
in the UN Global Compact and a member of the Ellen MacArthur
Foundation. It has also committed to developing a long-term target
to reach net-zero emissions by 2050, the highest level of ambition
on climate under the Science Based Target initiative. To find out
more about Coats visit www.coats.com .
Cautionary statement
Certain statements in this half year report are forward-looking.
Although the Group believes that the expectations reflected in
these forward-looking statements are reasonable, we can give no
assurance that these expectations will prove to have been correct.
Because these statements contain risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements. We undertake no obligation to
update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Group Chief Executive's review
We entered 2021 with a robust balance sheet, with healthy levels
of cash generation, and with encouraging trading momentum, which
has given us a solid base from which to continue to win the Covid
recovery.
2021 half year results overview
We have had a strong start to the year with revenues back above
2019 levels despite ongoing Covid-related lockdowns in some of our
key markets such as India. The health and safety of our employees
remains our number one priority. We continue to mitigate
inflationary pressures through pricing and productivity actions. We
have had a number of good customer and programme wins in both
Apparel & Footwear "A&F" and Performance Materials "PM" due
to the ongoing focus on reliability, speed and flexibility for our
customers, as well as our continued focus on innovative new
products and our industry-leading sustainability agenda.
Adjusted operating profit came in at $95 million for the first
half. Adjusted operating profit margin of 13.0% was slightly down
on pre-Covid 2019 levels primarily due to the expected dilutive
impact of the Pharr acquisition in 2020, the ongoing labour
disruption in the wider US business, and the recent India lockdown
impacts. Earnings recovery has been strong, and only slightly below
pre-Covid levels as operating profit recovery has been supported by
a normalisation of our tax rate and lower interest charges. In
April we announced the successful completion of a three year $360
million ESG-linked bank refinancing. Net debt (excl. IFRS 16) at
the end of the period stands at $168 million, giving 0.8x leverage
which is slightly below the lower end of our target leverage range
of 1-2x.
Strategic enablers: Digital, Innovation and Sustainability
Our strategic enablers of Digital, Innovation and Sustainability
underpin our strategy and give us a competitive advantage.
Covid highlighted the critical need for digital adoption in the
industries we serve. During the first half we continued to use
digital technology to deliver value creation for our customers in a
Covid-affected world. We enhanced our digital customer ecosystem,
through which customers can, for example, use automated bulk and
sample ordering and status management. We are developing our new
TechConnect app to support customers with value-adding technical
support in product development, production and quality assurance.
We are onboarding key accounts through system integration,
refreshing our front end order system and using Dynamics CRM to
further professionalise our sales and customer service systems.
These developments deliver speed, agility and ease of use benefits
to our customers, allowing us to earn greater market share and
customer loyalty.
We continued to create innovative new solutions for our
customers, with 12 new products launched in the first half of the
year, across both A&F and PM, delivering incremental revenues
of $11.4 million so far. Examples within A&F include a
reflective tape with unique phosphorescent technology which charges
up in under ten minutes and glows for over 8 hours. We have also
launched new products in our zips and trims ranges, generating
early customer wins and stronger medium-term potential. In PM, the
largest selling innovation was a new Flamepro product with lighter
weight, higher performance and improved strength and protection
qualities. Our innovation pipeline to deliver further incremental
revenues in the future remains strong and we will continue to
accelerate our innovation credentials and solutions in order to
deliver tailored solutions to meet customers' design
requirements.
A key part of our company purpose is to make a better and more
sustainable world. We have made good progress across all our
Sustainability targets during the first half, with some particular
highlights. One of our sustainability targets is to have external
social certifications, such as Great Place to Work, across all our
key sites, with over 80% of our employees in certified sites by
2022. During the first half we added certification for India, China
and Sri Lanka. As at the end of June, 44% of our employees are
covered by the Great Place to Work certification, up from 6% at the
end of 2020. During the first half we also re-launched our global
engagement surveys and were delighted to achieve a 90%
participation rate, significantly above benchmark. Results of the
engagement score also showed a highly engaged workforce, at 83%,
again significantly above the benchmark of 74%. Demand for our
EcoVerde product range (100% recycled threads) continued to
increase at pace and revenues in the first half were up strongly to
$42.5 million (FY2020 $37 million), with an expected doubling of
EcoVerde revenues for the full year vs 2020, and on track for our
2024 target for all our premium polyester threads to be made from
100% recycled material.
During the first half we also developed and launched EcoRegen, a
biodegradable thread made from 100% lyocell, a renewable fibre
derived from wood pulp sourced from sustainably managed forests.
This eco-friendly regenerated fibre is fully biodegradable and
compostable due to its cellulosic origin and is suitable for a wide
range of apparel applications to accommodate multiple customer
needs. The launch of EcoRegen is part of Coats' Eco Journey roadmap
to produce innovative sustainable products which supports our drive
towards a circular economy. Two further new products will be
launched soon: EcoCycle, a range of water dissolvable thread that
facilitates garment recycling and end to end circularity; and
Eco-B, a recycled polyester thread incorporating an additive which
reduces synthetic fibre accumulation in landfills and microfibre
pollution in oceans. With the launch of these new sustainable
threads we are developing products that allow our customers to
design garments with a clear end-of-life strategy built into
them.
Lastly, we are particularly pleased with the progress made
during the first half on our target to reduce the amount of water
used per kilogramme of thread by 40% by 2022, against our 2018
baseline. During the first half of 2021 we achieved an overall 15%
reduction vs a 6% reduction at the end of 2020.
Board changes
As previously reported, Mike Clasper retired as Chairman and
from the Board of Coats after nearly eight years with the Company,
at the conclusion of the Annual General Meeting that took place on
19 May 2021. The company would like to thank Mike for his
commitment and service, overseeing a time of unprecedented
corporate transformation including the merger of the Guinness Peat
Group and Coats plc Boards, delisting from the Australian and New
Zealand Stock Exchanges, re-listing as Coats Group plc on the
London Stock Exchange and entry to the FTSE 250. Mike was succeeded
as Chairman by David Gosnell who has been an Independent
Non-Executive Director of Coats for 6 years.
Dividend
The Board is mindful of the importance of income to shareholders
and, as a result of the strength of the Group's balance sheet, the
continued encouraging recovery out of the Covid pandemic, and its
confidence in the strategy and outlook for the Group, it is pleased
to declare an ordinary interim dividend of 0.61 cents per share
(2020 interim dividend: nil). The interim dividend will be paid on
16 November 2021 to ordinary shareholders on the register at 22
October 2021, with an ex-dividend date of 21 October 2021. The
proposed full year dividend will be announced in March 2022
alongside the Full Year 2021 results.
Outlook
In the second half of the year we will continue to drive
performance by focusing on profitable sales growth, our strong
customer relationships, our digital, innovation and sustainability
credentials and ongoing pricing and productivity actions.
The company issued a post-close trading update on 14 July which
stated that performance for the full year 2021 was anticipated to
be moderately ahead of its previous expectations.
Operating review
H1 2021 H1 2021
vs H1 vs H1
2020 2019
CER Organic Organic
H1 Inc / (1) (1) Inc / CER (1) (1)
H1 2021 2020 H1 2019 (dec) inc/(dec) inc/(dec) (dec) inc/(dec) inc/(dec)
--------------
$m $m $m % % % % % %
-------------- ---------- ------ -------- -------- ----------- ----------- --------- ----------- ------------
Revenue (2)
By segment
Apparel and
Footwear 531 372 539 43% 41% 41% (2)% 0% 0%
Performance
Materials 201 164 165 23% 22% 19% 22% 24% 4%
---------- ------ --------
Total 732 536 705 37% 35% 34% 4% 6% 1%
By region
Asia 405 283 395 43% 40% 40% 2% 3% 3%
Americas 185 149 167 24% 26% 23% 11% 18% (2)%
EMEA 143 104 142 38% 34% 34% 0% 2% 2%
---------- ------ --------
Total 732 536 705 37% 35% 34% 4% 6% 1%
Adjusted
operating
profit (2,3)
By segment
Apparel and
Footwear 82 27 79 202% 201% 201% 4% 5% 5%
Performance
Materials 13 7 23 86% 75% 79% (43)% (42)% (35)%
---------- ------ --------
Total
adjusted
operating
profit 95 34 102 179% 174% 175% (7)% (5)% (4)%
Exceptional
and
acquisition
related
items 1 (5) (1)
----------
Operating
profit 97 29 101 235% 229% 230% (4)% (2)% (0)%
Adjusted
operating
margin (2,3)
By segment
Apparel and
Footwear 15.5% 7.3% 14.7% 820bps 820bps 820bps 80bps 70bps 70bps
Performance
Materials 6.4% 4.2% 13.7% 220bps 190bps 220bps (730)bps (720)bps (510)bps
---------- ------ --------
Total 13.0% 6.4% 14.5% 660bps 660bps 670bps (150)bps (150)bps (70)bps
1 Constant Exchange Rate (CER) are 2020 and 2019 results restated
at 2021 exchange rates. Organic vs 2020 on a CER basis includes
like-for-like contributions from Pharr HP (post acquisition date
of February 2020). Organic vs 2019 on a CER basis includes like-for-like
contributions from ThreadSol (post acquisition date of February
2019) and excludes contribution from Pharr HP (acquired in February
2020).
2 Includes contribution from bolt-on acquisitions made during the
period.
3 On an adjusted basis which excludes exceptional and acquisition-related
items.
H1 2021 Results overview
Group revenues increased 37% on a reported basis vs 2020, as
sentiment improved across all end markets. On a CER basis, Group
revenues increased 35%, which was 2% lower than the reported rate
of increase as a result of year-on-year currency translation
tailwinds (notably the Chinese Yuan and Euro).
Group adjusted operating profit of $95 million increased 174% on
a CER basis (H1 2020: $34 million, H1 2019: $102 million on a
reported basis). Adjusted operating margins were up 660bps to 13.0%
(H1 2020: 6.4%, H1 2019: 14.5% on a reported basis).
Group revenues on an organic basis increased 1% vs 2019.
Adjusted earnings per share ('EPS') for the period increased to
3.1 cents (2020: 0.0 cents, 2019: 3.4 cents). This was due to
continued operating profit recovery, an associated normalisation of
our tax rate and lower interest charges.
Apparel & Footwear ('A&F')
Our Apparel & Footwear business benefited from its key
customer relationships, flexibility and agility as the industry
started to recover from the Covid pandemic. Despite recent
lockdowns in our core India market and the regional resurgence of
Covid in Asia and South America in recent months, our core thread
business (c.85% of A&F) returned to growth of 41% vs the first
half of 2020. Our global accounts programme, in which we dedicate
customer relationship resources to our key brands and retailers,
delivered a wide range of customer and programme wins.
End market sentiment is positive across all our regions of the
US, Europe and Asia. Trends that started to emerge during 2020
continued to accelerate. Sports and athleisure continue to perform
well and the casualisation trend continues. Other continuing trends
include digital online adoption, supplier consolidation,
nearshoring, changing customer needs for speed, and aggressive
digitisation of the supply chain. In particular we are seeing
growth from the increasing commitment of our customers to their own
sustainability agendas. The demand shift from West to East also
played to our strengths, with first half revenue for our China
domestic business, up 61% vs 2020.
Our key competitive differentiators have continued to help us
win new customers and also share of spend. These competitive
differentiators include our market-leading product ranges,
technical services, reliability and speed of supply, sustainability
credentials and digital technologies. Our geographical proximity to
customers across sourcing locations remains a critical
differentiator in a fast-changing market environment. The division
saw continued customer wins and share gains across key apparel
manufacturers, brands and regions.
All of the A&F sub-segments had strong revenue growth vs the
first half of 2020; A&F thread up 41%, zips up 43%, Latin
America Crafts up 53% and Coats Digital up 12%.
Adjusted operating profit for A&F increased 201%, compared
to the Group organic increase of 175%. Organic adjusted operating
margin was up 820bps to 15.5% (up 70bps vs 2019) compared to the
Group increase of 670bps to 13.0%. This was as a result of
excellent commercial and operational delivery, pricing actions and
procurement self-help initiatives more than offsetting the
heightened inflationary pressures we face.
2019 comparatives
As noted above o ur Apparel & Footwear business had a strong
start to the year with revenues in line with 2019 levels despite
ongoing Covid-related lockdowns in some of our key markets such as
India. By sub-segment, A&F thread revenues (c.85% of segment
revenue) were up 2% vs 2019, which was somewhat offset by a slower
recovery in zips, largely due to a slower recovery in high-end,
luxury handbags and accessories markets in Europe. Latin America
Crafts grew 4% vs 2019. Our Coats Digital business was down 26% vs
2019 with a healthy pipeline for the second half and encouraging
growth in SaaS, software sales and annual recurring revenues.
A&F operating margins, after largely normalising in the
second half of 2020 post Covid, were 70bps ahead of 2019 with
healthy gross margin levels as a result of good customer, product
and end use mix, supported by volume recovery.
Performance Materials ('PM')
Our PM business operates in five key market segments; Telecoms
and Energy (15% of segment revenues), Personal Protection (40%),
Transportation (10%), Household and Recreation (20%), and Other
Industrial Applications (15%).
After seeing a heavy impact from Covid during 2020, revenues
have recovered well in all segments, except Personal Protection
(down 2% on an organic basis vs 2020). Personal Protection
continues to be impacted by labour availability issues in the US.
All other end uses such as Telecoms and Energy, Transportation and
Household and Recreation performed strongly, and have seen growth
in the first half vs both 2020 and 2019. The division saw some
noteworthy customer wins across all industry segments, such as
automotive composites programmes as well as multiple transportation
wins with Tier 1 and OEMs across Europe, China and the US.
Overall, PM revenues grew 22% on a CER basis (23% reported),
consisting of organic growth of 19% and a 3% contribution from the
acquisition of Pharr HP. Organic revenue growth performance in the
period was underpinned by strong demand in Telecom and Energy (up
34%), with consumer demand remaining strong in Household and
Recreation (up 45%), particularly in US outdoor goods.
Transportation (up 61%) saw good revenue growth from share
gains, in spite of semiconductor shortages that continue to impact
vehicle builds. These shortages are expected to continue into 2022.
Other Industrial Applications end-use sub-segment performed well as
demand remained robust in defensive areas.
Adjusted operating profit increased 75% on a CER basis to $13
million and at an adjusted operating margin level, PM margins were
up 190 bps to 6.4%. PM margins were however adversely impacted in
the US by continuing labour availability issues, labour inflation
and raw material inflation. Because of these labour availability
issues our US operations, which represent c.50% of PM, are running
at only c.60% utilisation, resulting in an under-recovery of
costs.
Excluding the US business, PM margins were 16.5% indicating a
healthy recovery of margins elsewhere in the Group. We continue to
place significant focus on our US operations, with several actions
already in place such as: price increases agreed to cover
inflationary pressures; self-help initiatives to improve
operational efficiencies, such as improved productivity through
automation; and the implementation of new shift patterns to help
address labour availability issues. We have also integrated the
Patrick Yarns and Pharr businesses under a new management team, to
form a Coats 'One Performance Yarns' business. As a result of these
actions, it is still anticipated that operating margins in PM as a
whole, for the full year, will be in the mid to high single digits
range.
2019 comparatives
Compared to the first half of 2019 Performance Materials had
organic revenue growth of 4% with all segments continuing to
perform strongly (and in line with the trends described above)
apart from Personal Protection which continues to be impacted by US
labour availability issues.
Operating margins remained significantly down on 2019 (720bps on
a CER basis) due to the dilutive effect of the Pharr HP acquisition
(210bps impact), as well as the operational impacts as a result of
the US labour availability issues.
Geographical performance
We saw strong Covid recovery across all geographical regions
with significant growth against 2020 levels driven by improving end
market sentiment.
In Asia, which is predominantly an A&F business and was most
severely impacted by the Covid pandemic in 2020, we saw revenue
increase by 40%, driven by key Apparel and Footwear markets. This
was 3% up on 2019 revenue levels, as this region saw the fastest
recovery from Covid, despite some ongoing impacts in the period,
most notably in India which suffered severe lockdowns in May / June
(c.$10 million estimated revenue impact). In Vietnam we saw an
encouraging return to above pre Covid levels, having performed
relatively well throughout 2020 as a result of being less impacted
by the pandemic, and being a reliable and attractive alternative
sourcing solution to other key Asia A&F markets during the most
significant disruption from the pandemic. Performance in China and
Bangladesh were notably strong returning to well above pre Covid
revenue levels, despite being significantly impacted by the
pandemic in 2020.
Our Americas business saw organic revenues grow by 23% above
2020 levels, but remained slightly below 2019 levels largely due to
the performance issues impacting our US Performance Materials
business which has been impacted by labour availability issues.
Despite this, demand outlook remains strong in the US. The US
performance was to some extent offset by a strong performance in
the smaller South America business where we saw continued
significant growth in the crafting part of the business.
In Europe, which was impacted significantly by Covid last year,
we saw revenues grow by 34% vs 2020, which was 2% above 2019
pre-Covid levels. This recovery was driven by Performance Materials
recovery in telecoms and transportation as fibreoptics and
automotive sales remained robust lead by our key markets in Spain
and Turkey. Growth in the region was slightly tempered by slower
recovery profile in Italy Zips where demand for high end luxury
goods remained soft.
Whilst the Covid recovery across all geographies has been
encouraging, we are mindful of the risk from ongoing localised
disruption as a result of the pandemic. This was illustrated by the
significant disruption seen in India in May and June, and most
recently some local lockdowns seen in some of our Asian businesses
(for example Vietnam and Indonesia). We continue to manage this
risk closely, including maintaining alternative sourcing options
for our customers by leveraging our global footprint and
agility.
Financial Review
Revenues
Group revenues increased 37% on a reported basis, as all markets
recovered strongly having been adversely impacted by the Covid
pandemic in 2020. On a CER basis, Group revenues increased 35%,
which was 2% below the reported rate of decrease as a result of
year-on-year currency translation tailwinds (notably the Chinese
Yuan and Euro). On an organic CER basis, revenues increased 34% due
to the acquisition of Pharr High Performance Yarns (Pharr HP) which
was completed in February 2020. All commentary below is on a CER
basis unless otherwise mentioned.
When compared to pre-Covid (2019) levels, revenues in the period
were 1% up on an organic basis, and this was despite the ongoing
Covid disruption seen in India in May and June. Excluding the
impact of this recent Covid disruption in India (which has now
subsided), revenues would have been up 3% on an organic basis vs
2019.
Operating profit
At a Group level, adjusted operating profit increased from $34
million in 2020 to $95 million (2019: $102 million on a reported
basis) and adjusted operating margins were up 660bps to 13.0%
(2019: 14.5% on a reported basis). The table below sets out the
movement in adjusted operating profit during the period:
Margin
$m %
2020 H1 adjusted operating profit 34 6.4%
----- -------
Volumes impact (direct and indirect) 81
----- -------
Pricing / Mix 11
----- -------
Raw material inflation (3)
----- -------
Freight inflation (6)
----- -------
Other inflation (e.g. labour) (7)
----- -------
Productivity benefits (manufacturing
and sourcing) 9
----- -------
Higher SD&A (24)
----- -------
2021 H1 adjusted operating profit 95 13.0%
----- -------
Exceptional and acquisition related items 1
----- -------
2021 H1 reported operating profit 97 13.2%
----- -------
The direct and indirect volume impact of the Covid disruption,
particularly in H1 2020, was a significant headwind on profits and
margins in the prior period, as lower utilisation of factories led
to an under recovery of manufacturing overheads. As a result of the
ongoing encouraging Covid recovery, these volume impacts have
largely been reversed in the first half of the year, albeit there
was some adverse impact still felt in the period, particularly in
relation to India in May and June which faced further significant
lockdown impacts (which have now subsided) and as a result saw
manufacturing under recoveries in those months.
As a result of increasing oil prices in the latter part of 2020
we have started to see some year-on-year inflationary headwinds on
raw material costs, in addition to the ongoing structural
inflationary pressures we face and specific higher prices in
relation to sea freight as a result of container availability. As
in previous periods we have been successful in offsetting these
inflationary pressures with productivity benefits and pricing /
surcharges. We expect these inflationary pressures to continue into
the second half of the year, and the pricing actions taken in the
first half of the year leave us well placed to continue to offset
these heightened year-on-year headwinds.
We experienced positive mix in the period, in particular in PM,
which was largely a reversal of the negative mix movements seen in
2020. The above impacts, albeit predominantly the positive volume
impacts, led to a significant normalisation of gross margins in the
period which were up 380bps compared to 2020 to 32.6%.
We moved decisively to underpin our SD&A cost base during
2020 by minimising discretionary spend (for example travel, staff
bonuses, Long Term Incentive Plans and consulting costs) and
variable costs of selling, and, as expected, we have seen most of
these savings reverse in the period as the business has
recovered.
As a result of these factors, the Group's adjusted operating
margins significantly increased to 13.0% (2020: 6.4%). This
compares to 2019 adjusted operating margins of 14.5% which,
excluding the known dilutive impact of the Pharr HP acquisition in
February 2020 of 80bps, is broadly in line with the margin
delivered in this period.
On a reported basis, Group operating profit (including
exceptional and acquisition-related items) was $97 million (2020:
$29 million). See below for a breakdown of these exceptional items.
Exceptional and acquisition-related items are not allocated to
segments, and as such the segmental profitability referred to above
is on an adjusted basis only.
Foreign exchange
The Income Statement on a reported basis was impacted by the
relative strength of the US Dollar compared to 2020. As the Company
reports in US Dollars and given that its global footprint generates
significant revenues and expenses in a number of other currencies,
a translational currency impact can arise. This resulted in an
increase of 37% in reported revenues year-on-year, which is a 2%
translation tailwind when compared to the 35% revenue increase on a
CER basis. The main currency impacts in the period was the
weakening US Dollar against the Chinese Yuan and Euro. At current
exchange rates (30 June 2021) we expect a further small translation
tailwind on revenues for the Full Year 2021.
Free cash flow
The Group delivered an adjusted free cash flow of $48 million in
the period (2020: $5 million outflow). This was a significant
improvement on 2020 as the trading of the business continued to
recover from the Covid disruption in 2020, whilst keeping close
control of working capital and capital expenditure. Adjusted free
cash flow of $48 million in the period was also significantly above
the levels delivered in 2019 ($21 million), in part due to the
impact of Covid underpinning measures that have impacted this
period (e.g. non-payment of bonuses for 2020 due to be paid in
March 2021), as well as a disciplined approach to capital
expenditure in the Covid recovery phase.
Non-operating results
Adjusted earnings per share ('EPS') for the period increased to
3.1 cents (2020: 0.0 cents). This significant increase was due to
the recovery in adjusted profit before tax (up from $15.7 million
to $85.9 million), and the expected normalisation in the effective
tax rate to 31% (H1 2020: 48%) as profitability returns to pre
Covid levels. The increase in adjusted profit before tax was due to
the increase in adjusted operating profit ($61 million increase),
and a net interest charge which was $9 million lower year-on-year
(see below for further details). Adjusted EPS of 3.1 cents was
marginally below 2019 (3.4 cents) due to lower operating profits, a
slightly higher effective tax rate, higher minority interest with
some offset from lower net finance costs.
Net finance costs in the period were $10.0 million
(pre-exceptional), an $8.8 million decrease year-on-year (2020:
$18.8 million). The key drivers of the decrease in net finance
costs in the period was a $0.9 million reduction in interest on
bank borrowings due to lower interest rates and lower corporate
facility utilisation compared to 2020. In addition, the $5.7
million mark-to-market foreign exchange loss seen on forward
hedging contracts seen in the first half of the 2020 (due to
sterling weakness in H1 2020) reversed as a result of subsequent
sterling strengthening since Q2 2020, leading to a year-on-year
benefit of $7.0 million.
The taxation charge for the period was $30.0 million (2020:
$11.3 million). Excluding the impact of exceptional and
acquisition-related items and the impact of IAS19 finance charges,
the effective tax rate on pre-tax profit was 31% (H1 2020: 48%).
This rate decrease was due to the significant impact of Covid in H1
2020 on Group profit mix and withholding taxes that were still
incurred at broadly historic levels as the payment of these amounts
are not always directly linked to the lower level of operating
profits seen in 2020. As profitability has normalised to pre Covid
levels in H1 2021, so has the effective tax rate, as expected.
The reported tax rate was 33% (2020: 107%), which includes the
impact of exceptional and acquisition related items.
Profit attributable to minority interests was $12.8 million and
was predominantly related to Coats' operations in Vietnam and
Bangladesh (in which it has controlling interests). This was 62%
above the 2020 level ($7.9 million), which is lower than the
overall adjusted operating profit growth for the Group, which
reflects the relative strength of performance of those territories
during 2020 (in particular Vietnam, which was relatively less
impacted by the pandemic), compared to the wider Group.
Exceptional and acquisition-related items
Net exceptional and acquisition-related items before taxation
were a $6.1 million credit (2020: $5.1 million charge). This credit
primarily related to the recognition of a historic indirect tax
claim within Brazil which is now deemed virtually certain, and has
resulted in a $5.1 million exceptional credit within operating
profit and a further $4.7 million exceptional interest income.
Further details on this can be seen in note 3.
The acquisition-related items of $1.8 million consisted of the
amortisation of intangible assets acquired ($1.7 million), and
acquisition earnouts ($0.1 million).
In the taxation line, exceptional items of $2.6 million
predominantly relates to a tax charge on the Brazilian indirect
taxes refund claim referred to above.
Cash flow
The Group delivered $48 million of adjusted free cash flow in
the period (2020: $5 million outflow). This free cash flow measure
is before annual pension deficit recovery payments, acquisitions
and dividends, and excludes exceptional items.
This adjusted free cash flow performance was significantly ahead
of 2020 as a result of the recovery of adjusted operating profit,
alongside continued well controlled albeit higher net working
capital outflows ($17 million outflow vs $2 million inflow in 2020)
as 2020 benefited from the natural unwinding of working capital
from lower activity levels due to Covid in Q2. Adjusted free cash
flow in the period of $48 million was also significantly above 2019
levels, as a result of the recovery of profitability to close to
2019 levels, alongside continued well controlled working capital
(albeit benefiting from some 2020 Covid cash actions e.g. non
payment of staff bonuses in March 2021), and lower capital
expenditure.
Capital expenditure was in line with 2020 ($13 million), as we
invest selectively in the most appropriate opportunities in the
Covid recovery phase. Minority dividend payments of $13 million
were incurred (2020: $11 million) which relate to the repatriation
of cash from local operations to the Group. Tax paid was $22
million and broadly in line with H1 2020, which is lower than the
P/L charge as reflects some timing benefit from the lower tax
charge in 2020 as a result of lower profitability levels.
The Group generated a free cash inflow of $13 million in the
period (2020: $54 million outflow), which primarily reflects the
adjusted free cash flow of $48 million, offset by UK pension
payments of $19 million (being $17 million of ongoing deficit
recovery payments and administrative expenses, and $2 million catch
up of deferred 2020 payments), and shareholder dividends ($15
million).
As a result of the above free cash inflow, net debt (excluding
the impact of IFRS 16) as at 30 June 2020 was $168 million (31
December 2020: $181 million). Including the impact of IFRS 16, net
debt as at 30 June 2021 was $264 million (31 December 2020: $247
million).
Capital expenditure
Capital expenditure was in line with 2020 ($13 million). As we
recover out of Covid, and in order to continue to support our
longer-term growth strategy and further reinforce our strong
environmental compliance credentials, we anticipate capital
expenditure to be in the $35-40 million range for 2021 including
strategic growth initiatives primarily in our Asian operations.
Pensions and other post-employment benefits
The net obligation for the Group's retirement and other
post-employment defined benefit liabilities (UK and other Group
schemes), on an IAS19 financial reporting basis, was $76 million as
at 30 June 2021, which was $150 million lower than 31 December 2020
($226 million). This decrease is primarily due to movements on the
UK scheme.
The Coats UK Pension Scheme, which is a key constituent of the
Group defined benefit liabilities, shows a $19 million IAS19
surplus at 30 June 2021 (GBP14 million), which is $148 million
better than at 31 December 2020 (deficit of $129 million, or GBP94
million). This reduction in deficit predominantly relates to net
actuarial gains of $134 million (higher discount rate assumption
due to higher corporate bond yields which more than offset asset
losses), and $17 million employer contributions (excluding
administrative expenses). The IAS19 discount rate remains
underpinned by AA corporate bond yield spreads, unlike the
Technical Provisions basis of valuation (relevant for the triennial
valuation process) which is linked to gilt yields. The company, in
conjunction with the pension trustees, regularly monitors the
funding position of the UK Pension Scheme.
In agreement with the trustees of the Coats UK Pension Scheme,
and as part of the wider Covid underpinning actions, in 2020 we
agreed to defer the remaining deficit recovery payments for that
year (April-December inclusive), to provide an additional c.$21
million of headroom cover. The catch up of these payments commenced
in May and will be evenly spread over a period of around 18 months.
As a result, total payments in 2021 are expected to be around $43
million (which includes $9 million in relation to the start of the
catch-up of the 2020 deferred contributions).
The effective date for the next UK scheme triennial is 31 March
2021, and this will be required to be finalised by no later than 30
June 2022.
Balance sheet and liquidity
Group net debt (excluding IFRS 16) as at 30 June 2021 was $168
million ($264 million including IFRS 16), which was lower than 31
December 2020 ($181 million) and the same point in 2020 ($207
million), and reflects strong cash management (adjusted free cash
flow of $48 million, UK pension payments ($19 million; being $17
million of ongoing deficit recovery payments and administrative
expenses, and $2 million catch up of deferred 2020 payments), and
shareholder dividends ($15 million).
At 30 June 2021, our leverage ratio (net debt to EBITDA; both
excluding IFRS 16) was 0.8x and remains well within our 3x covenant
limit, and slightly below the lower end of our target leverage
range of 1-2x. Our interest cover covenant also maintained
significant headroom at 30 June 2021 at 17.3x vs a covenant of 4x.
These covenants are tested twice annually at June and December, and
are monitored throughout the year. Committed headroom on our
banking facilities was around $330 million at 30 June, which
remains at a comfortable level allowing us strategic optionality to
consider the most attractive investments in the post Covid recovery
phase.
INDEPENT REVIEW REPORT TO COATS GROUP PLC
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 2021 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
related notes 1 to 18. 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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, 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.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, 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.
Conclusion
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 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
3 August 2021
Condensed consolidated financial statements
Condensed consolidated income statement
For the half year ended 30 June 2021
Full
year
Half year 2021 Half year 2020 2020
Exceptional Exceptional
Before and Before and
exceptional acquisition exceptional acquisition
and related and related
acquisition items acquisition items
related (note related (note
items 3) Total items 3) Total Total
Note unaudited unaudited unaudited unaudited unaudited unaudited audited
US$m US$m US$m US$m US$m US$m US$m
Continuing
operations
Revenue 732.4 - 732.4 535.8 - 535.8 1,163.3
Cost of sales (493.7) 5.1 (488.6) (381.5) (5.0) (386.5) (811.5)
------------ ------------ ----------- ------------ ------------- ----------- -----------
Gross profit 238.7 5.1 243.8 154.3 (5.0) 149.3 351.8
Distribution
costs (63.1) - (63.1) (55.0) - (55.0) (116.1)
Administrative
expenses (80.4) (3.7) (84.1) (65.1) (1.7) (66.8) (134.0)
Other operating
income - - - - 1.3 1.3 1.4
Operating profit 95.2 1.4 96.6 34.2 (5.4) 28.8 103.1
Share of profit
of
joint ventures 0.7 - 0.7 0.3 - 0.3 0.6
Finance income 4 0.2 4.7 4.9 0.3 0.3 0.6 1.4
Finance costs 5 (10.2) - (10.2) (19.1) - (19.1) (25.5)
Profit before
taxation 85.9 6.1 92.0 15.7 (5.1) 10.6 79.6
Taxation 6 (27.4) (2.6) (30.0) (8.4) (2.9) (11.3) (37.4)
------------ ------------ ----------- ------------ ------------- ----------- -----------
Profit/(loss) for
the period 58.5 3.5 62.0 7.3 (8.0) (0.7) 42.2
------------ ------------ ----------- ------------ ------------- ----------- -----------
Attributable to:
------------------ ----- ------------ ------------ ----------- ------------ ------------- ----------- -----------
Equity
shareholders
of the company 45.7 3.5 49.2 (0.6) (8.0) (8.6) 26.4
------------------ ----- ------------ ------------ ----------- ------------ ------------- ----------- -----------
Non-controlling
interests 12.8 - 12.8 7.9 - 7.9 15.8
------------ ------------ ----------- ------------ ------------- ----------- -----------
58.5 3.5 62.0 7.3 (8.0) (0.7) 42.2
------------ ------------ ----------- ------------ ------------- ----------- -----------
Earnings/(loss)
per
share (cents) 7
Basic 3.38 (0.59) 1.81
Diluted 3.38 (0.59) 1.81
Adjusted
earnings/(loss) 12
per share (d) 3.14 (0.04) 2.42
Condensed consolidated statement of comprehensive income
For the half year ended 30 June 2021
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
Profit/(loss) for the period 62.0 (0.7) 42.2
Items that will not be reclassified
subsequently to profit or loss:
Actuarial gains/(losses) in respect
of retirement benefit schemes (note
13) 134.2 27.1 (39.7)
Tax relating to items that will
not be reclassified - - 0.1
---------- ---------- ----------
134.2 27.1 (39.6)
Items that may be reclassified subsequently
to profit or loss:
Net change in fair value of cash
flow hedges - 4.2 (2.4)
Transferred to profit or loss on
cash flow hedges - (0.4) -
Exchange differences on translation
of foreign operations (5.3) (13.4) (13.3)
(5.3) (9.6) (15.7)
Other comprehensive income and expense
for the period 128.9 17.5 (55.3)
---------- ---------- ----------
Net comprehensive income and expense
for the period 190.9 16.8 (13.1)
---------- ---------- ----------
Attributable to:
--------------------------------------------- ---------- ---------- ----------
Equity shareholders of the company 178.3 9.2 (28.9)
---------------------------------------------- ---------- ---------- ----------
Non-controlling interests 12.6 7.6 15.8
190.9 16.8 (13.1)
---------- ---------- ----------
Condensed consolidated statement of financial position
At 30 June 2021
30 June 30 June 31 December
2021 2020 2020
unaudited unaudited audited
Note US$m US$m US$m
Non-current assets
Intangible assets 285.0 289.0 288.6
Property, plant and equipment 248.2 261.2 254.4
11
Right-of-use assets (f) 90.1 56.6 60.7
Investments in joint ventures 11.7 11.7 11.1
Other equity investments 6.0 6.0 6.0
Deferred tax assets 24.0 21.5 22.7
Pension surpluses 13 71.5 12.9 11.4
Trade and other receivables 25.7 14.0 19.0
------------------- ---------- ------------
762.2 672.9 673.9
Current assets
Inventories 226.0 186.2 187.0
Trade and other receivables 331.2 225.0 274.5
Other investments 0.1 0.1 0.1
Pension surpluses 13 4.8 4.7 4.8
11
Cash and cash equivalents (f) 85.7 90.7 71.9
647.8 506.7 538.3
Total assets 1,410.0 1,179.6 1,212.2
------------------- ---------- ------------
Current liabilities
Trade and other payables (342.4) (230.3) (255.7)
Current income tax liabilities (16.9) (12.7) (13.9)
Bank overdrafts and other
borrowings (17.2) (14.6) (22.8)
Lease liabilities (16.1) (13.4) (16.4)
Retirement benefit obligations:
- Funded schemes 13 (42.3) (15.1) (35.3)
- Unfunded schemes 13 (6.7) (6.5) (7.1)
Provisions (6.7) (9.1) (8.2)
(448.3) (301.7) (359.4)
Net current assets 199.5 205.0 178.9
------------------- ---------- ------------
Non-current liabilities
Trade and other payables (20.5) (20.3) (18.1)
Deferred tax liabilities (11.4) (7.4) (9.0)
Borrowings (236.2) (283.6) (229.7)
Lease liabilities (80.5) (46.5) (49.6)
Retirement benefit obligations:
- Funded schemes 13 (6.4) (45.5) (100.1)
- Unfunded schemes 13 (97.0) (91.2) (99.5)
Provisions (27.8) (27.9) (27.9)
------------------- ---------- ------------
(479.8) (522.4) (533.9)
Total liabilities (928.1) (824.1) (893.3)
------------------- ---------- ------------
Net assets 481.9 355.5 318.9
------------------- ---------- ------------
Equity
Share capital 8 90.1 89.7 90.1
Share premium account 10.5 10.5 10.5
Own shares 8 (2.6) (6.0) (3.2)
Translation reserve (94.3) (89.0) (89.2)
Capital reduction reserve 59.8 59.8 59.8
Other reserves 246.3 252.5 246.3
Retained profit/(loss) 143.7 10.5 (23.8)
--------------------------------- ----- ------------------- ---------- ------------
Equity shareholders' funds 453.5 328.0 290.5
--------------------------------- ----- ------------------- ---------- ------------
Non-controlling interests 28.4 27.5 28.4
------------------- ---------- ------------
Total equity 481.9 355.5 318.9
------------------- ---------- ------------
Condensed consolidated statement of changes in equity
For the half year ended 30 June 2021
Share Capital Non-
Share premium Own Translation reduction Other Retained controlling Total
capital account shares reserve reserve reserves profit/(loss) 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
2020
(audited) 89.6 10.5 (5.7) (75.9) 59.8 248.7 (5.9) 321.1 30.4 351.5
(Loss)/profit
for
the period - - - - - - (8.6) (8.6) 7.9 (0.7)
Other
comprehensive
income and
expense
for the
period - - - (13.1) - 3.8 27.1 17.8 (0.3) 17.5
Dividends - - - - - - - - (10.5) (10.5)
Issue of
ordinary
shares 0.1 - - - - - (0.1) - - -
Purchase of
own
shares - - (3.1) - - - - (3.1) - (3.1)
Movement in
own
shares - - 2.8 - - - (2.5) 0.3 - 0.3
Share based
payments - - - - - - 0.8 0.8 - 0.8
Deferred tax
on
share schemes - - - - - - (0.3) (0.3) - (0.3)
Balance as at
30 June 2020
(unaudited) 89.7 10.5 (6.0) (89.0) 59.8 252.5 10.5 328.0 27.5 355.5
-------------- -------- ------- -------- ------------ --------- --------- ---------------- ------- ----------- -------
Balance as at
1 January
2020
(audited) 89.6 10.5 (5.7) (75.9) 59.8 248.7 (5.9) 321.1 30.4 351.5
Profit for the
year - - - - - - 26.4 26.4 15.8 42.2
Other
comprehensive
income and
expense
for the year - - - (13.3) - (2.4) (39.6) (55.3) - (55.3)
Dividends - - - - - - - - (17.8) (17.8)
Issue of
ordinary
shares 0.5 - - - - - (0.5) - - -
Movement in
own
shares - - 2.5 - - - (5.8) (3.3) - (3.3)
Share based
payments - - - - - - 1.6 1.6 - 1.6
Balance as
at
31 December
2020
(audited) 90.1 10.5 (3.2) (89.2) 59.8 246.3 (23.8) 290.5 28.4 318.9
Profit for the
period - - - - - - 49.2 49.2 12.8 62.0
Other
comprehensive
income and
expense
for the
period - - - (5.1) - - 134.2 129.1 (0.2) 128.9
Dividends - - - - - - (18.8) (18.8) (12.6) (31.4)
Movement in
own
shares - - 0.6 - - - - 0.6 - 0.6
Share based
payments - - - - - - 2.6 2.6 - 2.6
Deferred tax
on
share schemes - - - - - - 0.3 0.3 - 0.3
Balance as at
30 June 2021
(unaudited) 90.1 10.5 (2.6) (94.3) 59.8 246.3 143.7 453.5 28.4 481.9
-------------- -------- ------- -------- ------------ --------- --------- ---------------- ------- ----------- -------
Condensed consolidated cash flow statement
For the half year ended 30 June 2021
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
Note US$m US$m US$m
Cash inflow from operating
activities
11
Cash generated from operations (a) 91.2 48.5 128.0
Interest paid (5.5) (10.3) (16.1)
11
Taxation paid (b) (21.9) (23.5) (46.3)
---------------- ----------------- -----------------
Net cash generated by operating
activities 63.8 14.7 65.6
---------------- ----------------- -----------------
Cash outflow from investing
activities
11
Investment income (c) - - 0.9
Net capital expenditure and 11
financial investment (d) (12.9) (9.7) (12.3)
11
Acquisitions and disposals (e) - (36.9) (36.9)
Net cash absorbed in investing
activities (12.9) (46.6) (48.3)
---------------- ----------------- -----------------
Cash outflow from financing
activities
Purchase of own shares - (3.1) (3.1)
Dividends paid to equity shareholders (14.7) (0.2) (0.2)
Dividends paid to non-controlling
interests (12.6) (10.5) (17.8)
Payment of lease liabilities (11.0) (8.5) (19.4)
Net increase/(decrease) in
other borrowings 10.0 4.8 (58.7)
---------------- ----------------- -----------------
Net cash absorbed in financing
activities (28.3) (17.5) (99.2)
---------------- ----------------- -----------------
Net increase/(decrease) in
cash and cash equivalents 22.6 (49.4) (81.9)
Net cash and cash equivalents
at beginning of the period 52.1 135.9 135.9
Foreign exchange losses on
cash and cash equivalents (1.0) (3.4) (1.9)
---------------- ----------------- -----------------
Net cash and cash equivalents 11
at end of the period (f) 73.7 83.1 52.1
---------------- ----------------- -----------------
Reconciliation of net cash
flow to movement in net debt
Net increase/(decrease) in
cash and cash equivalents 22.6 (49.4) (81.9)
Net (increase)/decrease in
other borrowings (10.0) (4.8) 58.7
---------------- ----------------- -----------------
Change in net debt resulting
from cash flows 12
(Free cash flow) (e) 12.6 (54.2) (23.2)
Net movement in lease liabilities
during the period (30.8) 3.1 (0.3)
Movement in fair value hedges 1.4 - (5.4)
Other non-cash movements (0.8) (0.4) (0.7)
Foreign exchange losses (0.1) (1.0) (2.1)
---------------- ----------------- -----------------
Increase in net debt (17.7) (52.5) (31.7)
Net debt at start of period (246.6) (214.9) (214.9)
---------------- ----------------- -----------------
11
Net debt at end of period (f) (264.3) (267.4) (246.6)
---------------- ----------------- -----------------
Notes to the condensed consolidated financial statements
For the half year ended 30 June 2021
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 2020, which were prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union. The Group's
consolidated financial statements for the year ending 31 December
2021 will be prepared in accordance with International Financial
Reporting Standards as adopted by the United Kingdom Endorsement
Board (UKEB). The condensed consolidated financial statements for
the six months ended 30 June 2021 included in this half-yearly
financial report have been prepared in accordance with
International Accounting Standard 34: Interim Financial Reporting,
as adopted by the UKEB, and the requirements of the Disclosure and
Transparency Rules (DTR) of the Financial Conduct Authority (FCA)
in the United Kingdom as applicable to interim financial
reporting.
The condensed consolidated financial statements for the six
months ended 30 June 2021 have been reviewed but have not been
audited. The condensed consolidated financial statements for the
equivalent period in 2020 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 2020, which were prepared in accordance
with International Financial Reporting Standards (IFRS) adopted for
use by the UKEB. The information for the year ended 31 December
2020 does not constitute statutory accounts (as defined in section
434 of the Companies Act 2006). The financial information for the
year ended 31 December 2020 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 2020 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 2021:
-- Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16); and
-- COVID-19-Related Rent Concessions (Amendment to IFRS 16).
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 2020.
Going concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly, they continue to adopt the going concern basis in
preparing the condensed consolidated financial statements.
In assessing the Group's going concern position, the Directors
have considered a number of factors, including the current balance
sheet position and available liquidity, the 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 2021 as well as the Group's updated Medium Term Plan for
2022;
-- A severe but plausible downside scenario, assumes that the
global economic environment is severely depressed over the
assessment period; 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.
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 also includes further controllable
management actions that could be deployed if required. The outcome
of the reverse stress test was that the interest cover covenant
would be breached, however, at the breaking point in the test the
Group still maintained a comfortable level of liquidity on
committed borrowing facilities. The Directors consider the
likelihood of the condition in the reverse stress test occurring to
be remote.
Liquidity headroom
As at 30 June 2021 the Group's net debt (excluding IFRS16
leases) was $168 million. The Group's committed debt facilities
total $585 million across both its Banking and US Private Placement
group, with a range of maturities from 2024 through to 2027, as of
30 June 2021 the Group has around $330 million of headroom against
these committed banking facilities.
In both the base case and the severe but plausible downside
scenario liquidity is comfortable throughout the assessment
period.
Covenant testing
The Group's committed borrowing facilities are subject to
ongoing covenant testing. Covenants are measured twice a year, at
full year and half year and are measured under frozen accounting
standards and therefore exclude the effects of IFRS 16. The
financial covenants under the borrowing agreements are for leverage
(net debt / EBITDA) less than 3.0 and interest cover (EBITDA /
interest charge) to be in excess of 4.0.
All banking covenants tests were met comfortably at 30 June
2021, with leverage of 0.8x and interest cover of 17.3x. The base
case forecast indicates that banking covenants will be comfortably
met throughout the assessment period. Under the severe but
plausible downside scenario covenant compliance is still projected
to be achieved throughout the assessment period, although with
reduced but adequate headroom.
Conclusion
In conclusion, after reviewing the base case, the severe but
plausible downside scenario and considering the remote likelihood
of the scenario in the reverse stress test occurring, the Directors
have formed the judgement that, at the time of approving the
condensed consolidated financial statements, there are no material
uncertainties that cast doubt on the Group's going concern status
and that it is appropriate to prepare the condensed consolidated
financial statements on the going concern basis.
Principal exchange rates
The principal exchange rates (to the US dollar) used are as
follows:
June June December
2021 2020 2020
------------ ------------------ ------ ------ ---------
Average Sterling 0.72 0.79 0.78
Euro 0.83 0.91 0.88
Brazilian Real 5.39 4.92 5.16
Chinese Renminbi 6.47 7.03 6.90
Indian Rupee 73.33 74.15 74.11
Turkish Lira 7.90 6.49 7.02
------------------------------- ------ ------ ---------
Period end Sterling 0.72 0.81 0.73
Euro 0.84 0.89 0.82
Brazilian Real 4.97 5.47 5.19
Chinese Renminbi 6.46 7.07 6.53
Indian Rupee 74.36 75.54 73.04
Turkish Lira 8.70 6.85 7.43
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 customers are grouped into
two segments Apparel & Footwear and Performance Materials which
have distinct different strategies and differing customer/end-use
market profiles.
Segment revenue and results
Apparel Performance
& Footwear Materials Total
unaudited unaudited unaudited
Six months ended 30 June 2021 US$m US$m US$m
------------------------------------------- ------------- ------------- --------------
Continuing operations
Revenue 531.1 201.3 732.4
------------- ------------- --------------
Segment profit 82.4 12.8 95.2
------------- -------------
Exceptional and acquisition related items
(note 3) 1.4
Operating profit 96.6
Share of profits of joint ventures 0.7
Finance income 4.9
Finance costs (10.2)
--------------
Profit before taxation from continuing
operations 92.0
--------------
Apparel Performance
& Footwear Materials Total
unaudited unaudited unaudited
Six months ended 30 June 2020 US$m US$m US$m
------------------------------------------- ------------- ------------- --------------
Continuing operations
Revenue 372.1 163.7 535.8
------------- ------------- --------------
Segment profit 27.3 6.9 34.2
------------- -------------
Exceptional and acquisition related items
(note 3) (5.4)
Operating profit 28.8
Share of profit of joint ventures 0.3
Finance income 0.6
Finance costs (19.1)
--------------
Profit before taxation from continuing
operations 10.6
--------------
Apparel Performance
& Footwear Materials Total
audited audited audited
Year ended 31 December 2020 US$m US$m US$m
------------------------------------------- ------------- ------------- --------------
Continuing operations
Revenue 822.7 340.6 1,163.3
------------- ------------- --------------
Segment profit 95.5 15.1 110.6
------------- -------------
Exceptional and acquisition related items
(note 3) (7.5)
Operating profit 103.1
Share of profits of joint ventures 0.6
Finance income 1.4
Finance costs (25.5)
--------------
Profit before taxation from continuing
operations 79.6
--------------
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
Exceptional and acquisition related items are not allocated to
segments. In addition no measures of total assets and total
liabilities are reported for each reportable segment as such
amounts are not regularly provided to the chief operating decision
maker.
Disaggregation of revenue
The following table shows revenue disaggregated by primary
geographical markets with a reconciliation of the disaggregated
revenue with the Group's reportable segments.
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
----------------------------------------- ----------- ------------- ----------
Continuing operations
Primary geographic markets
Asia 404.8 283.4 629.4
Americas 184.9 148.6 314.5
EMEA 142.7 103.8 219.4
----------- ------------- ----------
Total 732.4 535.8 1,163.3
=========== ============= ==========
Continuing operations
Apparel & Footwear 531.1 372.1 822.7
Performance Materials 201.3 163.7 340.6
----------- ------------- ----------
Total 732.4 535.8 1,163.3
=========== ============= ==========
Timing of revenue recognition
Goods transferred at a point in time 727.1 531.5 1,154.8
Software solutions services transferred
over time 5.3 4.3 8.5
----------- ------------- ----------
Total 732.4 535.8 1,163.3
=========== ============= ==========
The software solutions business is included in the Apparel &
Footwear segment.
The Group had no revenue from a single customer which accounts
for more than 10% of the Group's revenue.
3. Exceptional and acquisition related items
The Group's consolidated income statement format is presented
both before and after exceptional and acquisition related
items.
Adjusted results exclude exceptional and acquisition related
items on a consistent basis with the previous reporting period to
provide a more meaningful comparison of how the business is managed
and measured on a day-to-day basis. Further details on alternative
performance measures are set out in note 12.
Exceptional items may include significant restructuring
associated with a business or property disposal, litigation costs
and settlements, profit or loss on disposal of property, plant and
equipment, gains or losses arising from significant one off changes
to the assumptions underlying the 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
(credited)/charged to operating profit for the six months ended 30
June 2021 were a credit of $1.4 million (six months ended 30 June
2020: charge of $5.4 million; year ended 31 December 2020: charge
of $7.5 million). This comprises exceptional items for the six
months ended 30 June 2021 of a $3.2 million credit (six months
ended 30 June 2020: charge of $3.7 million; year ended 31 December
2020 charge of $3.5 million) and acquisition related items for the
six months ended 30 June 2021 of $1.8 million (six months ended 30
June 2020: $1.7 million; year ended 31 December 2020: $4.0
million). Tax in respect of exceptional and acquisition related
items is set out in note 6.
Exceptional items
Exceptional items (credited)/charged to operating profit are set
out below:
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------- ---------- -------------- --------------
Exceptional items:
Cost of sales:
Brazil indirect taxes (5.1) - -
Impairment charges - 5.0 4.9
Administrative expenses:
Other exceptional costs 1.9 - -
Other operating income:
Profit from sale of property - (1.3) (1.4)
Total exceptional items (credited)/charged
to operating profit from continuing operations (3.2) 3.7 3.5
========== ============== ==============
Brazil indirect taxes - During the six months ended 30 June 2021
the Brazilian Supreme Federal Court concluded its judgement that
Brazilian ICMS (indirect tax on goods and services) should not be
included in the calculation basis of PIS (Program of Social
Integration) and COFINS (Contribution for the Financing of Social
Security) indirect taxes.
As a result, estimated refunds have been recognised in the
results for the six months ended 30 June 2021 of $5.1 million (year
ended 31 December 2020: $nil; six months ended 30 June 2020: $nil)
which has been included in cost of sales and in addition
exceptional interest income has been recognised of $4.7 million
(year ended 31 December 2020: $0.7 million; six months ended 30
June 2020: $0.3 million).
These refunds date back to 2003 and the estimated tax credit
amounts are expected to be utilised over a period of approximately
six years, based upon current assumptions, once the Group has
received a favourable Court ruling, which is considered virtually
certain.
Other exceptional costs - During the six months ended 30 June
2021 other non-recurring exceptional costs were $1.9 million.
Exceptional items during 2020 are set out below:
Impairment charges - At each balance sheet date, the Group
reviews the carrying amounts of its assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the assets are estimated in order to determine the extent
of the impairment loss, if any. During the year ended 31 December
2020, following this review impairment charges totalling $4.9
million (30 June 2020: $5.0 million) were made in smaller markets
in EMEA ($4.1 million relating to property, plant and equipment and
$0.8 million relating to right-of-use assets). The impairment
charges were attributable to the increased economic uncertainty as
a result of Covid.
Profit from sale of property - During the year ended 31 December
2020 a profit of $1.4 million (six months ended 30 June 2020: $1.3
million) was made from the sale of a property in a non-core
market.
Acquisition related items
Acquisition related items are set out below:
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------------- ---------- -------------- --------------
Administrative expenses:
Acquisition earnouts and contingent consideration 0.1 0.1 0.8
Amortisation of acquired intangibles 1.7 1.6 3.2
---------- -------------- --------------
Total acquisition related items charged
to operating profit 1.8 1.7 4.0
========== ============== ==============
The Group has made acquisitions with earn outs to allow part of
the consideration to be based on the future performance of the
businesses acquired and to lock in key management. Where
consideration paid or contingent consideration payable in the
future is employment linked, it is treated as an expense and part
of statutory results. However, all consideration of this type is
excluded from adjusted operating profit and adjusted earnings per
share as in management's view, these items are part of the capital
transaction.
Acquisition transaction costs and amortisation of intangible
assets acquired through business combinations are not included
within adjusted earnings. These costs are acquisition related and
management consider them to be capital in nature and they do not
reflect the underlying trading 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 underlying
trading performance of the business.
4. Finance income
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
--------------------------------------- ----------- ------------- ----------
Income from investments - - 0.1
Other interest receivable and similar
income 4.9 0.6 1.3
4.9 0.6 1.4
=========== ============= ==========
Other interest receivable and similar income for the six months
ended 30 June 2021 includes exceptional interest income of $4.7
million (six months ended 30 June 2020: $0.3 million; year ended 31
December 2020: $0.7 million) relating to Brazil refunds of indirect
taxes (see note 3 for further details).
5. Finance costs
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------- ----------- ------------- ----------
Interest on bank and other borrowings 5.2 6.1 11.2
Interest expense on lease liabilities 2.6 1.9 3.9
Net interest on pension scheme assets
and liabilities 2.2 2.4 4.7
Other finance costs including unrealised
gains and losses on foreign exchange contracts 0.2 8.7 5.7
----------- ------------- ----------
10.2 19.1 25.5
=========== ============= ==========
6. Taxation
The taxation charges for the six months ended 30 June 2021 and
30 June 2020 are based on the estimated effective tax rate for the
full year, including the effect of prior period tax adjustments.
For the six months ended 30 June 2021 the tax charge in respect of
exceptional and acquisition related items was $2.6 million (six
months ended 30 June 2020: $2.9 million; year ended 31 December
2020: $2.2 million).
Included within the exceptional tax charge for the six months
ended 30 June 2021 is a charge of $2.7 million relating to Brazil
refunds of indirect taxes (see note 3). The exceptional tax charge
for the six months ended 30 June 2020 included a charge of $1.9
million relating to deferred tax assets that were written down as
they were no longer expected to be realised based on future
expected taxable profits due to Covid impacts.
7. Earnings/(loss) per share
The calculation of basic earnings/(loss) per ordinary share is
based on the profit/(loss) attributable to equity shareholders and
the weighted average number of ordinary shares in issue during the
period, excluding shares held by the Employee Benefit Trust but
including shares under share incentive schemes which are not
contingently issuable.
For diluted earnings per ordinary share, the weighted average
number of ordinary shares in issue is adjusted to include all
potential dilutive ordinary shares to the extent that this does not
dilute a loss. The Group has two classes of dilutive potential
ordinary shares: those share options granted to employees where the
exercise price is less than the average market price of the
Company's ordinary shares during the period and those long-term
incentive plan awards for which the performance criteria would have
been satisfied if the end of the reporting period were the end of
the contingency period.
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
--------------------------------------------------- ------------ ------------- -----------
Profit/(loss) attributable to equity shareholders 49.2 (8.6) 26.4
------------ ------------- -----------
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
Number Number Number
of shares of shares of shares
m m m
--------------------------------------------------- ------------ ------------- -----------
Weighted average number of ordinary shares
in issue for basic earnings per share 1,456.9 1,456.4 1,455.6
Adjustment for share options and LTIP
awards - - 1.4
------------ ------------- -----------
Weighted average number of ordinary shares
in issue for diluted earnings per share 1,456.9 1,456.4 1,457.0
------------ ------------- -----------
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
Cents Cents Cents
--------------------------------------------------- ------------ ------------- -----------
Basic earnings/(loss) per ordinary share 3.38 (0.59) 1.81
Diluted earnings/(loss) per ordinary share 3.38 (0.59) 1.81
------------ ------------- -----------
8. Issued share capital
During the six months ended 30 June 2021 the Company issued
493,113 Ordinary Shares of 5p each (six months ended 30 June 2020:
1,234,543; year ended 31 December 2020: 7,261,231) following the
exercise of awards under the Group's share based incentive plans as
set out below:
Number of Shares US$m
At 1 January 2021 1,452,077,272 90.1
Issue of ordinary shares 493,113 -
At 30 June 2021 1,452,570,385 90.1
======================== =====
The own shares reserve of $2.6 million at 30 June 2021 (31
December 2020: $3.2 million; 30 June 2020: $6.0 million) represents
the cost of shares in Coats Group plc purchased in the market and
held by an Employee Benefit Trust to satisfy awards under the
Group's share based incentive plans. The number of shares held by
the Employee Benefit Trust at 30 June 2021 was 5,944,427 (31
December 2020: 7,010,248; 30 June 2020: 12,317,109).
9. Dividends
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
-------------------------------------- ----------- ------------- ----------
2020 final dividend paid - 1.30 cents
per share 18.8 - -
=========== ============= ==========
The directors have declared an ordinary interim dividend per
share of 0.61 cents (30 June 2020: nil) to be paid on 16 November
2021 to shareholders on the register on 22 October 2021. 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, the US Environmental Protection
Agency ('EPA') has 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.
Approximately 50 PRPs are currently members of a cooperating
parties group ('CPG') of companies, formed to fund and conduct a
remedial investigation and feasibility study of the area. CC joined
the CPG in 2011.
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. The EPA's Record of
Decision did not include a remedial decision for the upper 9 miles
of the LPR. The EPA may consider a remedial alternative proposed by
the CPG for the upper 9 miles, or it may select a different remedy.
Discussions with EPA regarding the nature and timing of such a
decision are ongoing.
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 also created a
liquidating trust to pursue potential claims against Maxus' parent
entity, YPF SA, and potentially others, which could result in
additional funding for the LPR remedy. While the ultimate costs of
the remedial design and the final remedy are expected to be shared
among hundreds of parties, including many who are not currently in
the CPG, the final allocation of remedial costs among those parties
in a settlement or court ruling has not yet been determined.
In March 2017, EPA notified 20 parties not associated with the
disposal or release of any contaminants of concern as being
eligible for early cash out settlements. As expected, EPA did not
identify CC as one of the 20 parties. EPA invited approximately 80
other parties, including CC, to participate in an allocation
process to determine their respective allocation shares and
potential eligibility for future cash out settlements. In the
allocation, CC presented factual and scientific evidence that it is
not responsible for the discharge of dioxins, furans or PCBs - the
contaminants that are driving the remediation of the LPR - and that
it is a de minimis or even smaller de micromis party. The
confidential allocation process concluded in December 2020. CC
continues to believe that it should be a de minimis or even smaller
de micromis party in an eventual settlement or court ruling
allocating 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 being
addressed in the EPA sponsored allocation process, and does not
alter CC's defences or CC's continued belief that it is a de
minimis or even smaller de micromis party.
In 2015, a provision of $9.0 million was recorded for
remediation costs for the entire 17 miles of the LPR. This
provision was based on CC's estimated share of de minimis costs for
EPA's selected remedy for the lower 8 miles of the LPR and the
remedy proposed by the CPG for the upper 9 miles. A separate
provision of $6.8 million was recorded for associated legal and
professional costs in defence of CC's position. Both of these
charges to the income statement were net of insurance
reimbursements and were stated on a net present value basis. During
the year ended 31 December 2018, an additional provision of $8.0
million was recorded as an exceptional item to cover legal and
professional fees. The Group will continue to mitigate additional
costs as far as possible through insurance and other avenues.
As at 30 June 2021, $12.9 million of this provision had been
utilised. The remaining provision at 30 June 2021, taking into
account insurance reimbursement, was $11.9 million (31 December
2020: $12.6 million). The process concerning the LPR continues to
evolve and these estimates are subject to change based upon legal
defence costs associated with the EPA sponsored allocation and
OCC's lawsuit, the scope of the remedy selected by EPA for the
upper nine miles, the share of remedial costs to be paid by the
major polluters on the river, and the share of remaining remedial
costs apportioned among CC and other companies.
Coats believes that CC's predecessor did not generate any of the
contaminants which are driving the current and anticipated remedial
actions in the LPR, that it has valid legal defences which are
based on its own analysis of the relevant facts, that it is a de
minimis or even smaller de micromis party, and that additional
parties not currently in the CPG will be responsible for a
significant share of the ultimate costs of remediation. However, as
this matter evolves, additional provisions could be recorded and
such provisions could increase materially based on further
decisions by EPA, negotiations among the parties, and other future
events.
Following the sale of the North America Crafts business,
including CC, announced on 22 January 2019, Coats North America
Consolidated Inc. (the seller) retains the control and
responsibility for the eventual outcome of the ongoing LPR
environmental matters, including the rights to the related
insurance reimbursements.
11. Notes to the condensed consolidated cash flow statement
a) Reconciliation of operating profit to net cash inflow from
operations
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
--------------------------------------- ----------- ------------- ----------
Operating profit 96.6 28.8 103.1
Depreciation of owned property, plant
and equipment 14.3 15.3 30.5
Depreciation of right-of-use assets 9.7 8.1 18.3
Amortisation of intangible assets 3.3 3.4 7.2
(Increase)/decrease in inventories (41.6) 1.5 4.9
(Increase)/decrease in debtors (60.3) 50.4 1.1
Increase/(decrease) in creditors 82.7 (49.2) (28.7)
Provision and pension movements (18.9) (13.8) (14.0)
Foreign exchange and other non-cash
movements 5.4 4.1 5.7
Discontinued operations - (0.1) (0.1)
----------- ------------- ----------
Cash generated from operations 91.2 48.5 128.0
=========== ============= ==========
b) Taxation paid
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
------------------- ----------- ----------- ----------
Overseas tax paid (21.9) (23.5) (46.3)
=========== =========== ==========
c) Investment income
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
---------------------------------------- ------------ ------------ ----------
Dividends received from joint ventures - - 0.9
============ ============ ==========
d) Capital expenditure and financial investment
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
---------------------------------------------- ----------- ----------- ----------
Acquisition of property, plant and equipment
and intangible assets (13.1) (12.5) (15.4)
Disposal of other equity investments 0.1 - 0.1
Disposal of property, plant and equipment 0.1 2.8 3.0
(12.9) (9.7) (12.3)
=========== =========== ==========
e) Acquisitions and disposals
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
--------------------------- ------------ ----------- ----------
Acquisition of businesses - (36.9) (36.9)
============ =========== ==========
f) Net debt
A summary of net debt is set out below:
30 June 30 June 31 December
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
-------------------------------------- ----------- ----------- ------------
Cash and cash equivalents 85.7 90.7 71.9
Bank overdrafts (12.0) (7.6) (19.8)
----------- ----------- ------------
Net cash and cash equivalents 73.7 83.1 52.1
Other borrowings (241.4) (290.6) (232.7)
----------- ----------- ------------
Net debt excluding lease liabilities (167.7) (207.5) (180.6)
Lease liabilities (96.6) (59.9) (66.0)
Total net debt` (264.3) (267.4) (246.6)
=========== =========== ============
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 2021 for covenant purposes
was $170.2 million (30 June 2020: $209.5 million; 31 December 2020:
$177.0 million).
The components of net debt and movements during the periods are
set out below:
Series
A and Total Cash
Series financing at bank
B Senior Bank Lease Bank activity and Net
Notes loans liabilities overdrafts liabilities in hand debt
US$m US$m US$m US$m US$m US$m US$m
-------------------------- ----------- -------- -------------- ------------- -------------- ---------- --------
At 1 January 2020
(audited) (225.0) (60.8) (65.0) (41.5) (392.3) 177.4 (214.9)
Cash flows - (4.8) 8.5 33.9 37.6 (83.3) (45.7)
Non-cash movements - (0.4) (5.4) - (5.8) - (5.8)
Foreign exchange - 0.4 2.0 - 2.4 (3.4) (1.0)
----------- -------- -------------- ------------- -------------- ---------- --------
At 30 June 2020
(unaudited) (225.0) (65.6) (59.9) (7.6) (358.1) 90.7 (267.4)
----------- -------- -------------- ------------- -------------- ---------- --------
At 1 January 2020
(audited) (225.0) (60.8) (65.0) (41.5) (392.3) 177.4 (214.9)
Cash flows - 58.7 19.4 21.7 99.8 (103.6) (3.8)
Non-cash movements (5.4) (0.7) (19.7) - (25.8) - (25.8)
Foreign exchange - 0.5 (0.7) - (0.2) (1.9) (2.1)
At 31 December 2020
(audited) (230.4) (2.3) (66.0) (19.8) (318.5) 71.9 (246.6)
Cash flows - (10.0) 11.0 7.8 8.8 14.8 23.6
Non-cash movements 1.4 (0.8) (41.8) - (41.2) - (41.2)
Foreign exchange - 0.7 0.2 - 0.9 (1.0) (0.1)
----------- -------- -------------- ------------- -------------- ---------- --------
At 30 June 2021
(unaudited) (229.0) (12.4) (96.6) (12.0) (350.0) 85.7 (264.3)
=========== ======== ============== ============= ============== ========== ========
The non-cash movement during the six months ended 30 June 2021
of $1.4 million (six months ended 30 June 2020: $nil; year ended 31
December 2020: $5.4 million) within Series A and Series B Senior
Notes represents the movement in the fair value adjustment to the
nominal amount outstanding of $225.0 million and relates to
interest rate swaps which are accounted for as fair value
hedges.
The non-cash movement during the six months ended 30 June 2021
of $41.8 million (six months ended 30 June 2020: $5.4 million; year
ended 31 December 2020: $19.7 million) within lease liabilities
relates to the following: the unwind of lease liabilities of $2.6
million (six months ended 30 June 2020: $1.8 million; year ended 31
December 2020: $3.9 million) and the impact of entering into new
leases, disposals and modification of existing leases of $39.2
million (six months ended 30 June 2020: $3.6 million; year ended 31
December 2020: $15.8 million).
Right-of-use assets at 30 June 2021 were $90.1 million (31
December 2020: $60.7 million; 30 June 2020: $56.6 million). The
increase in the six months ended 30 June 2021 was primarily due to
the impact of entering into new leases, disposals and modification
of existing leases of $39.2 million, with a corresponding change in
lease liabilities (see above) offset by depreciation of
right-of-use assets during the six months ended 30 June 2021 of
$9.7 million.
12. 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 a more meaningful comparison 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 2020.
A reconciliation of alternative performance measures to the most
directly comparable measures reported in accordance with IFRS is
provided below.
a) Organic growth on a constant exchange rate (CER) basis
Organic growth measures the change in revenue and operating
profit before exceptional and acquisition related items after
adjusting for acquisitions. The effect of acquisitions is equalised
by:
-- removing from the year of acquisition, their revenue and operating profit; and
-- in the following year, removing the revenue and operating
profit for the number of months equivalent to the pre-acquisition
period in the prior year.
The effects of currency changes are removed through restating
prior year revenue and operating profit at current period exchange
rates. The principal exchange rates used are set out in note 1.
Organic revenue growth on a CER basis measures the ability of
the Group to grow sales by operating in selected geographies and
segments and offering differentiated cost competitive products and
services.
Adjusted organic operating profit growth on a CER basis measures
the underlying profitability progression of the Group.
Adjusted operating profit is calculated by adding back
exceptional and acquisition related items (see note 3 for further
details).
Half year Half year
2021 2020
unaudited unaudited %
Revenue US$m US$m Growth
--------------------------------------------- ------------ ------------ -------
Revenue from continuing operations 732.4 535.8 37%
Constant currency adjustment - 6.0
------------ ------------ -------
Revenue on a CER basis 732.4 541.8 35%
Revenue from acquisitions (4.3) -
Organic revenue on a CER basis 728.1 541.8 34%
============ ============ =======
Half year Half year
2021 2020
unaudited unaudited %
Operating profit US$m US$m Growth
--------------------------------------------- ------------ ------------ -------
Operating profit from continuing operations
(1) 96.6 28.8 235%
Exceptional and acquisition related
items (note 3) (1.4) 5.4
------------ ------------ -------
Adjusted operating profit from continuing
operations 95.2 34.2 179%
Constant currency adjustment - 0.5
------------ ------------ -------
Adjusted operating profit on a CER basis 95.2 34.7 174%
Operating loss from acquisitions 0.2 -
Organic adjusted operating profit on
a CER basis 95.4 34.7 175%
============ ============ =======
(1) Refer to the condensed consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations .
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance
measure to show the underlying operating performance of the Group
excluding the effects of depreciation of owned fixed assets and
right-of-use assets, amortisation and impairments and excluding
exceptional and acquisition related items.
Operating profit before exceptional and acquisition related
items and before depreciation of owned fixed assets and
right-of-use assets and amortisation (Adjusted EBITDA) is set out
below:
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
------------------------------------------------ ----------- ------------ ----------
Profit before taxation from continuing
operations 92.0 10.6 79.6
Share of profit of joint ventures (0.7) (0.3) (0.6)
Finance income (note 4) (4.9) (0.6) (1.4)
Finance costs (note 5) 10.2 19.1 25.5
----------- ------------ ----------
Operating profit from continuing operations 96.6 28.8 103.1
Exceptional and acquisition related items
(note 3) (1.4) 5.4 7.5
----------- ------------ ----------
Adjusted operating profit from continuing
operations 95.2 34.2 110.6
Depreciation of owned property, plant
and equipment 14.3 15.3 30.5
Amortisation of intangible assets 1.6 1.8 4.0
----------- ------------ ----------
Adjusted EBITDA including IFRS 16 depreciation
of right-of-use assets (Pre-IFRS 16 basis) 111.1 51.3 145.1
Depreciation of right-of-use assets 9.7 8.1 18.3
----------- ------------ ----------
Adjusted EBITDA 120.8 59.4 163.4
=========== ============ ==========
Adjusted EBITDA on a last twelve months basis to 30 June 2021
was $224.8 million (30 June 2020: $180.7 million).
Adjusted EBITDA on a last twelve months basis to 30 June 2021 of
$224.8 million is the adjusted EBITDA for the six months ended 30
June 2021 of $120.8 million plus the adjusted EBITDA for the year
ended 31 December 2020 of $163.4 million less the adjusted EBITDA
for the six months ended 30 June 2020 of $59.4 million.
Net debt including lease liabilities under IFRS 16 was $264.3
million at 30 June 2021 (31 December 2020: $246.6 million; 30 June
2020: $267.4 million).
This gives a leverage ratio of net debt including lease
liabilities to Adjusted EBITDA at 30 June 2021 of 1.2 (31 December
2020: 1.5; 30 June 2020: 1.5).
On a pre-IFRS 16 basis adjusted EBITDA on a last twelve months
basis to 30 June 2021 was $204.9 million (30 June 2020: $164.5
million).
Net debt excluding lease liabilities under IFRS 16 was $167.7
million at 30 June 2021 (31 December 2020: $180.6 million; 30 June
2020: $207.5 million).
This gives a leverage ratio on a pre-IFRS 16 basis at 30 June
2021 of 0.8 (31 December 2020: 1.2; 30 June 2020: 1.3).
For the definition and calculation of net debt including and
excluding lease liabilities see note 11(f).
c) Underlying effective tax rate
The underlying effective tax rate removes the tax impact of
exceptional and acquisition related items and net interest on
pension scheme assets and liabilities to arrive at a tax rate based
on the underlying profit before taxation.
A significant proportion of the Group's net interest on pension
scheme assets and liabilities relates to UK pension plans for which
there is no related current or deferred tax credit or charge
recorded in the income statement. The Group's net interest on
pension scheme assets and liabilities is adjusted in arriving at
the underlying effective tax shown below and, in management's view,
were this not adjusted would distort the alternative performance
measure. This is consistent with how the Group monitors and manages
the underlying effective tax rate.
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
-------------------------------------------- ----------- ------------ ----------
Profit before taxation from continuing
operations 92.0 10.6 79.6
Exceptional and acquisition related items
(note 3) (6.1) 5.1 6.8
Net interest on pension scheme assets
and liabilities (note 5) 2.2 2.4 4.7
----------- ------------ ----------
Underlying profit before taxation from
continuing operations 88.1 18.1 91.1
----------- ------------ ----------
Taxation charge from continuing operations 30.0 11.3 37.4
Tax charge in respect of exceptional and
acquisition related items (2.6) (2.9) (2.2)
Tax credit in respect of net interest
on pension scheme assets and liabilities 0.3 0.2 0.5
Underlying taxation charge 27.7 8.6 35.7
----------- ------------ ----------
Underlying effective tax rate 31% 48% 39%
=========== ============ ==========
d) Adjusted earnings/(loss) 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
underlying progression of the benefits generated for
shareholders.
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
-------------------------------------------- -------------- -------------- --------------
Profit/(loss) from continuing operations 62.0 (0.7) 42.2
Non-controlling interests (12.8) (7.9) (15.8)
-------------- -------------- --------------
Profit/(loss) from continuing operations
attributable to equity shareholders 49.2 (8.6) 26.4
Exceptional and acquisition related items
net of non-controlling
interests (note 3) (6.1) 5.1 6.8
Tax charge in respect of exceptional and
acquisition related items 2.6 2.9 2.2
Adjusted profit/(loss) from continuing
operations 45.7 (0.6) 35.4
-------------- -------------- --------------
Weighted average number of Ordinary Shares 1,456,883,189 1,456,414,822 1,455,587,353
-------------- -------------- --------------
Adjusted earnings/(loss) per share 3.14 (0.04) 2.42
-------------- -------------- --------------
The weighted average number of Ordinary Shares used for the
calculation of adjusted earnings per share is the same as that used
for basic earnings per Ordinary Share from continuing operations
(see note 7).
e) Adjusted free cash flow
Net cash generated by operating activities, a GAAP measure,
reconciles to changes in net debt resulting from cash flows (free
cash flow) as set out in the consolidated cash flow statement. A
reconciliation of free cash flow to adjusted free cash flow is set
out below.
Consistent with previous periods, adjusted free cash flow is
defined as cash generated from continuing activities less capital
expenditure, interest, tax, dividends to minority interests and
other items, and excluding exceptional and discontinued items,
acquisitions, purchase of own shares by the Employee Benefit Trust
and payments to the UK pension scheme.
Adjusted free cash flow measures the Group's underlying cash
generation that is available to service shareholder dividends,
pension obligations and acquisitions.
Half year Half year Full year
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
----------------------------------------------- ------------ ------------ ----------
Change in net debt resulting from cash
flows (free cash flow) 12.6 (54.2) (23.2)
Acquisition of businesses - 37.3 37.3
Net cash outflow from discontinued operations - 0.1 0.1
Payments to UK pension scheme 19.3 8.5 10.9
Net cash flows in respect of exceptional
and acquisition
related items 1.1 (0.3) (1.1)
Purchase of own shares by Employee Benefit
Trust - 3.1 3.1
Dividends paid to equity shareholders 14.7 0.2 0.2
Tax outflow in respect of adjusted cash
flow items - - 0.7
------------ ------------ ----------
Adjusted free cash flow 47.7 (5.3) 28.0
============ ============ ==========
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 divided by period end capital employed as set
out below. ROCE measures the ability of the Group's assets to
deliver returns.
30 June 30 June 31 December
2021 2020 2020
unaudited unaudited audited
US$m US$m US$m
------------------------------------------- ----------- ----------- -----------------
Operating profit before exceptional
and acquisition related items on a last
twelve months' basis (1) 171.6 130.2 110.6
Non-current assets
Acquired intangible assets 39.6 40.4 41.8
Property, plant and equipment 248.2 261.2 254.4
Right-of-use assets 90.1 56.6 60.7
Trade and other receivables 25.7 14.0 19.0
Current assets
Inventories 226.0 186.2 187.0
Trade and other receivables 331.2 225.0 274.5
Current liabilities
Trade and other payables (342.4) (230.3) (255.7)
Lease liabilities (16.1) (13.4) (16.4)
Non-current liabilities
Trade and other payables (20.5) (20.3) (18.1)
Lease liabilities (80.5) (46.5) (49.6)
----------- ----------- -----------------
Capital employed 501.3 472.9 497.6
----------- ----------- -----------------
ROCE 34% 28% 22%
----------- ----------- -----------------
(1) Operating profit before exceptional and acquisition related
items on a last twelve months basis to 30 June 2021 of $171.6
million is the operating profit before exceptional and acquisition
related items for the six months ended 30 June 2021 of $95.2
million (see note 12(a)) plus the operating profit before
exceptional and acquisition related items for the year ended 31
December 2020 of $110.6 million less the operating profit before
exceptional and acquisition related items for the six months ended
30 June 2020 of $34.2 million. Refer to note 3 for details of
exceptional and acquisition related items.
13. Retirement and other post-employment benefit arrangements
The net obligation for the Group's retirement and other
post-employment defined benefit arrangements (UK and other Group
schemes), on an IAS 19 basis, was $76.1 million as at 30 June 2021
(31 December 2020: $225.8 million; 30 June 2020: $140.7 million).
The decrease during the six months ended 30 June 2021 is primarily
due to movements on the UK scheme.
The Coats UK Pension Scheme, which is a key constituent of the
Group defined benefit liabilities, had a surplus on an IAS 19
surplus basis at 30 June 2021 of $19.4 million (31 December 2020
deficit of $128.5 million; 30 June 2020: deficit of $53.6 million).
The reduction in the deficit during the six months ended 30 June
2021 of $147.9 million predominantly relates to net actuarial gains
of $134.2 million (increase in the discount rate assumption from
1.25% per annum at 31 December 2020 to 1.8% per annum at 30 June
2021 due to higher corporate bond yields which more than offset
asset losses), and employer contributions (excluding administrative
expenses) of $16.5 million.
14. Fair value of assets and liabilities
As at 30 June 2021 there were no significant differences between
the book value and fair value (as determined by market value) of
the Group's financial assets and liabilities.
The following tables provide an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable:
- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
- Level 2 fair value measurements are those derived from inputs
other than quoted prices that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not observable market data (unobservable inputs).
Financial assets measured at fair value
Total Level 1 Level 2 Level 3
30 June 2021 US$m US$m US$m US$m
------------------------------------------ -------- -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 5.0 - 5.0 -
Derivatives designated as effective
hedging instruments 3.3 - 3.3 -
Financial assets measured at
fair value through the statement
of other comprehensive income:
Other investments 6.0 1.0 - 5.0
Total 14.3 1.0 8.3 5.0
-------- -------- -------- --------
Total Level 1 Level 2 Level 3
30 June 2020 US$m US$m US$m US$m
------------------------------------------ -------- -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 1.8 - 1.8 -
Financial assets measured at
fair value through the statement
of other comprehensive income:
Derivatives designated as effective
hedging instruments 5.3 - 5.3 -
Other investments 6.2 1.2 - 5.0
Total 13.3 1.2 7.1 5.0
-------- -------- -------- --------
Total Level 1 Level 2 Level 3
31 December 2020 US$m US$m US$m US$m
------------------------------------------ -------- -------- -------- --------
Financial assets measured at
fair value through the income
statement:
Trading derivatives 4.4 - 4.4 -
Derivatives designated as effective
hedging instruments 4.6 - 4.6 -
Financial assets measured at
fair value through the statement
of other comprehensive income:
Other investments 6.1 1.1 - 5.0
Total 15.1 1.1 9.0 5.0
-------- -------- -------- --------
Financial liabilities measured at fair value
Total Level 1 Level 2 Level 3
30 June 2021 US$m US$m US$m US$m
---------------------------------------- -------- -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (1.0) - (1.0) -
Borrowings (69.0) - (69.0) -
Total (70.0) - (70.0) -
-------- -------- -------- --------
Total Level 1 Level 2 Level 3
30 June 2020 US$m US$m US$m US$m
---------------------------------------- -------- -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (5.1) - (5.1) -
Financial liabilities measured
at fair value through the statement
of comprehensive income:
Derivatives designated as effective
hedging instruments (0.1) - (0.1) -
Total (5.2) - (5.2) -
-------- -------- -------- --------
Total Level 1 Level 2 Level 3
31 December 2020 US$m US$m US$m US$m
---------------------------------------- -------- -------- -------- --------
Financial liabilities measured
at fair value through the income
statement:
Trading derivatives (0.3) - (0.3) -
Borrowings (70.4) - (70.4) -
Total (70.7) - (70.7) -
-------- -------- -------- --------
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.
15. 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 2020 and these are expected to stay the
same for the remainder of 2021. These principal risks and
uncertainties are as follows:
Strategic risks
1. M&A scale ambition risk
2. Risk of ever increasing customer expectations and continuing
ability to meet and exceed those expectations
3. Risk of failure to attract and retain talent and capability
External risks
4. Economic and geopolitical risk arising from political and demand
uncertainty
5. Risk of cyber incidents
6. Climate change risk
7. Environmental non-performance risk
Operational risks
8. Health and Safety risk
9. Bribery and anti-competitive behaviour risk
Legacy risks
10. Risk of potential volatility in UK pension gross liabilities
and total assets
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 2020 on pages 34 to 44, a
copy of which is available on the Group's website, www.coats.com
.
In addition to the ongoing general risk landscape we, like other
companies, have since early 2020 been responding to and mitigating
the immediate and ongoing impacts of the Covid pandemic. 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 2020 with the exception of
the Geopolitical element of risk four listed above, which is now
considered to be stable (previously increasing). We still consider
the Economic element of this risk to be increasing. More detail is
set out below.
4. Economic and geopolitical risk arising from political and
demand uncertainty - This year the Geopolitical risk has moved from
global risk to a regional risk and therefore, in comparison to
2020, we now consider Geopolitical risk to be stable rather than
increasing. In 2020 we had shutdowns/lockdowns across many regions.
Comparatively in the first half of 2021 we have seen localised
disruptions in our Indian, Vietnamese and South American operations
leading to shutdowns and impacted revenue streams. We anticipate
dealing with this regional risk for some time to come and we have a
clear play book and experience on how we will deal with this and
offset those impacts.
16. Related party transactions
There have been no related party transactions or changes in
related party transactions described in the 2020 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.
17. Directors
The following persons were directors of Coats Group plc during
the half year ended 30 June 2021 and up to the date of this
report:
D Gosnell OBE
M Clasper CBE (Resigned 19 May 2021)
R Sharma
S Boddie (Resigned 31 March 2021)
N Bull
J Callaway
A Fahy
H Lu
F Philip
J Sigurdsson
18. Publication
This statement will be available at the registered office of the
Company, 4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE. 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 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 17 to the
Condensed Consolidated Financial Statements.
By order of the Board,
D Gosnell
Chairman
3 August 2021
United Kingdom
---------------------------------------------- --------------
4 Longwalk Road, Stockley Park, Uxbridge, Tel: 0208 210
UB11 1FE 5000
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