30th Aug 2006 07:15
Guinness Peat Group PLC30 August 2006 Guinness Peat Group plc The following unaudited consolidated results of Coats Group Limited ("theGroup") for the six months ended 30 June 2006 are released by Guinness PeatGroup plc ("GPG") for information only. Richard RussellCompany SecretaryGuinness Peat Group plc 30 August 2006 Contacts:Blake Nixon (UK) 00 44 20 7484 3370Gary Weiss (Australia) 00 61 2 8298 4305Tony Gibbs (New Zealand) 00 64 9 379 8888 Coats Group Limited: unaudited results* for the six months ended 30 June 2006 Financial summary Like-for-like** 2006 2005 2005 Half year Half year Half year Unaudited Unaudited Unaudited US$m US$m US$m Revenue 806.7 ** 836.9 830.4 Operating profit before reorganisation, 61.0 ** 68.1 66.5impairment and other exceptional items (see note2) Operating profit 47.3 ** 56.3 54.2 Net profit attributable to equity shareholders 23.1 *** 36.8 Net debt 406.2 483.9 *See note 1 **Excluding the impact of exchange translation and the acquisition and disposalof businesses (see Operating Review) ***Restated, see note 1 • Improved performance from industrial thread offset by lower crafts sales • Asia like-for-like sales growth of 17% • Crafts handknittings sales affected by US retailer de-stocking • Debt reduced by $78 million compared to previous half year CHAIRMAN'S STATEMENT Results In H1 2006, Coats Group Limited continued to make underlying progress despitemore difficult trading conditions. Pre-exceptional operating profit (before reorganisation, impairment and otherexceptional items) decreased by 10% on a like-for-like basis to $61.0 million.The decrease was almost entirely due to lower crafts handknitting sales in NorthAmerica, which more than offset a significant improvement in the profitabilityof industrial thread due to cost savings in North America and strong growth inAsia. During the first half, on a like-for-like basis, Group worldwide sales ofindustrial thread grew by 3% whilst sales of crafts products fell by 14%.Further details are included in the Operating Review. Net exceptional charges of $13.7 million (see note 2) were slightly above theprior half year total of $12.3 million. However the net increase of $1.4 millionmasks a $4.7 million reduction in reorganisation costs and a $19.5 millionprofit from the sale of surplus properties, the benefit of which was wiped outby an adverse swing of $25.6 million in exchange movements. Interest costs were in line with the previous half year but total net financecosts increased by $6.4 million mainly due to the absence of the exchange gainwhich benefited the 2005 comparative. Net earnings attributable to equityshareholders of $23.1 million (2005 - $36.8 million) were also affected by arelatively high tax charge, due to unrelieved losses in certain territories. Net cash inflow from operations before reorganisation costs and exceptionalitems was $4.7 million (2005 - $16.5 million), reflecting the seasonal increasein working capital in the six months to 30 June. However compared to June 2005,the ratio of average working capital / sales reduced by two percentage points to23.5% and net debt at $406.2 million was $77.7 million lower. Investment, reorganisation & disposals Investment in new plant and systems amounted to $32.8 million (2005 - $38.5million). The bulk of investment was directed towards upgrading existingoperations with the balance consisting of additional capacity to meet growth inAsia. Reorganisation costs of $23.3 million (2005 - $28.0 million) were charged duringthe period. Most of the projects involve site closures and overhead reduction inEurope. In cash terms these were more than offset by exceptionally highdisposals of surplus property totalling $46.2 million (2005 - $16.6 million). Prospects The improvement in industrial profitability during the first half wasencouraging and demonstrates that investment in new plant and reorganisation isbeginning to pay off. Although the market for industrial thread remainsextremely competitive, global demand is reasonably stable and second halfresults should continue to benefit from recent spending on new plant andreorganisation. The fall in US handknittings sales during the first half was disappointing butnot unexpected given the high stocks held by major crafts retailers at the endof last year as mentioned in the 2005 report. For the second half, the mainuncertainty is whether underlying consumer demand for handknittings will besustained at the relatively high levels experienced over the last few years.However, given the Group's broad portfolio of other crafts products and with areduced impact from retailer de-stocking in the second half, it is expected thatcrafts sales and profits in the second half will show some recovery. The main objectives for full year 2006 continue to be debt reduction andexecution of the reorganisation projects necessary to reduce the Group's costbase. Despite difficult market conditions, the Group expects to make progress atthe operating level on a like-for-like basis in the second half. The Boardremains confident that the Group will continue to make further progress. Gary WeissChairman30 August 2006 OPERATING REVIEW Trading performance by region* 2005 Exchange Acquisitions/ 2005 2006 Like-for-like $m retranslation** disposals like-for-like reported increase/(decrease) $m $m $m $m %External salesAsia 221.8 (2.7) 219.1 257.3 17%UK & Europe 284.9 (10.7) 8.0 282.2 263.0 (7)%N America 228.2 0.9 229.1 179.3 (22)%S America 95.5 11.0 106.5 107.1 1%Total 830.4 (1.5) 8.0 836.9 806.7 (4)% Pre-exceptionaloperating profit***Asia 31.3 (0.5) 30.8 40.0 30%UK & Europe 7.1 0.5 7.6 6.4 (16)%N America 16.1 0.2 16.3 2.0 (88)%S America 12.0 1.4 13.4 12.6 (6)%Total 66.5 1.1 0.5 68.1 61.0 (10)% *All figures prepared in accordance with IFRS as explained in note 1 **Impact of restating 2005 figures at 2006 exchange rates ***Pre reorganisation, impairment and other exceptional items (see note 2) In the following comments on regional performance, all comparisons with 2005 arebased on the table above. Asia Sales +17%; OP +30% All Asian markets delivered strong performances, led by China and India. Demandfor industrial thread in the region was strong, assisted by further migration ofgarment production from other areas previously considered low cost such asEastern Europe and Central America. Sales benefited from the Group'srelationships with global retailers and brand owners as well as the new capacityinstalled in 2005. In addition to the impact of higher sales volumes, the growthin profit also reflects the resolution of the start-up issues which affected thenew China plants and depressed margins in H1 2005. UK & Europe Sales -7%; OP -16% Although handknitting sales continued to grow in Europe, on a like-for-likebasis (after adjusting for Almedahls, acquired in April 2005) crafts salesoverall were down 3% on previous year as a result of weak demand for othertraditional crafts products. Sales of industrial products fell by 9%, with zipsparticularly weak as a result of current fashion trends in addition to customermigration which also affected demand for apparel thread. In contrast to last year's improved performance, in H1 2006 the impact of lowersales offset the savings generated by ongoing reorganisation. Efforts continueto execute successfully the major remaining projects required to reduce the costbase and improve margins. North America Sales -22%; OP -88% Crafts sales fell by 35%, almost entirely due to handknittings where sales wereaffected by retailer de-stocking. The sharp drop in handknittings volume waslargely responsible for the reduction in profits from the region. The comparisonwith H1 2005 is exacerbated by the exceptionally strong sales of handknittingsin that period which led to retailers' over-stocked position at the end of theyear. Whilst there was a decline in underlying consumer demand for fancy yarnsin the North American 2005/6 season, sales of classic yarns were more stable.However, given the seasonality of this business the overall market trend willremain uncertain until later in the year. Sales of industrial thread decreased by 8%, with demand affected by netmigration of apparel production from Mexico and Central America to Asia.Notwithstanding the difficult sales climate, benefits from previous investmentsin plant and reorganisation resulted in improved industrial margins, albeitstill below Group targets. South America Sales +1%; OP -6% US dollar values of sales and profits in South America benefited fromrevaluation of local currencies but the resulting reduction in competitivenessdepressed demand for industrial thread and zips and put pressure on margins. Asin 2005, this was largely offset by growth in crafts sales, driven byhandknittings. Consolidated income statement (unaudited) 2006 2005 2005 Half year Half year Full year Unaudited Unaudited Unaudited Restated* Restated*For the six months ended 30 June 2006 Notes US$m US$m US$mContinuing operationsRevenue 806.7 830.4 1,636.7 Cost of sales (535.2) (534.1) (1,084.0) Gross profit 271.5 296.3 552.7 Distribution costs (152.3) (152.6) (306.2)Administrative expenses (92.2) (90.5) (165.6)Other operating income 20.3 1.0 18.9 Operating profit 2 47.3 54.2 99.8 Share of profits of joint ventures 1.2 0.9 1.6 Investment income 3.2 2.0 7.0 Finance costs 3 (15.0) (8.6) * (24.2) * Profit before taxation 36.7 48.5 84.2 Taxation 4 (15.5) (9.1) (39.5) Profit from continuing operations 21.2 39.4 44.7 Discontinued operationsProfit/(loss) from discontinued operations 3.5 (0.6) 15.0 Profit for the period 24.7 38.8 59.7Attributable to:EQUITY SHAREHOLDERS OF THE COMPANY 23.1 36.8 58.3Minority interests 1.6 2.0 1.4 24.7 38.8 59.7 * Finance costs have been restated from the $12.1 million disclosed in the interim accounts for the six months ended30 June 2005 and from the $30.1 million disclosed in accounts for the year ended 31 December 2005 following anamendment to IAS 21 (see note 1). Consolidated balance sheet (unaudited) 2006 2005 2005 30 June 30 June 31 December Unaudited Unaudited Unaudited Restated* Restated*At 30 June 2006 Notes US$m US$m US$mNon-current assetsIntangible assets 257.6 253.0 257.5Property, plant and equipment 479.9 458.6 482.5Investments in joint ventures 16.6 17.6 16.4Available-for-sale investments 4.2 10.0 3.5Deferred tax assets 6.9 12.0 4.6Pension surpluses 64.9 28.5 57.5Trade and other receivables 24.9 20.0 23.4 855.0 799.7 845.4 Current assetsInventories 317.2 331.1 286.9Trade and other receivables 342.1 354.7 302.7Available-for-sale investments 5.9 - 8.8Cash and cash equivalents 7 41.1 72.7 77.8 706.3 758.5 676.2 Non-current assets classified as held for sale 10.4 64.7 30.2 Total assets 1,571.7 1,622.9 1,551.8 Current liabilitiesTrade and other creditors (284.3) (275.2) (313.5)Current income tax liabilities (7.8) (35.8) (4.5)Bank overdrafts and other borrowings (105.7) (94.8) (122.0)Provisions (159.3) (172.7) (150.0) (557.1) (578.5) (590.0) Net current assets 149.2 180.0 86.2 Non-current liabilitiesTrade and other creditors (29.0) (10.2) (28.0)Deferred tax liabilities (12.0) (16.0) (12.1)Borrowings (341.6) (461.8) (319.1)Retirement benefit obligations: Funded schemes (2.2) (22.1) * (2.1) Unfunded schemes (120.5) (99.7) (113.3)Provisions (56.4) (41.4) (62.6) (561.7) (651.2) (537.2) Liabilities directly associated with non-currentassets classified as held for sale - (22.1) - Total liabilities (1,118.8) (1,251.8) (1,127.2) Net assets 452.9 371.1 424.6 EquityShare capital 4.2 4.2 4.2Share premium account 412.1 412.1 412.1Revaluation reserve - 1.2 -Hedging and translation reserves 8.9 11.4 * 0.7 *Retained profit/(loss) 4.4 (88.7) * (19.1) *EQUITY SHAREHOLDERS' FUNDS 5 429.6 340.2 397.9Minority interests 5 23.3 30.9 26.7Total equity 5 452.9 371.1 424.6 * Retirement benefit obligations for funded schemes as at 30 June 2005 have been restated from the $65.0 milliondisclosed in the interim accounts for the six months ended 30 June 2005 and reserves have been restated following anamendment to IAS 21 (see note 1). Consolidated cash flow statement (unaudited) 2006 2005 2005 Half year Half year Full year Unaudited Unaudited UnauditedFor the six months ended 30 June 2006 Notes US$m US$m US$mCash (outflow)/inflow from operating activitiesNet cash (outflow)/inflow generated by operations 6 (23.9) (5.8) 176.9Interest paid (17.4) (19.0) (36.4)Taxation paid (14.8) (18.8) (39.8)Net cash (absorbed)/generated from operating activities (56.1) (43.6) 100.7 Cash inflow/(outflow) from investing activitiesDividends received from associates and joint ventures 1.0 0.9 2.8Acquisition of property, plant and equipment and intangible assets (32.8) (38.5) (81.3)Disposal of property, plant and equipment and intangible assets 46.2 16.6 56.6Acquisition of financial investments (3.0) (5.1) (9.3)Disposal of financial investments 4.8 - 2.4Acquisition and disposal of businesses 2.0 12.4 5.4Net cash generated/(absorbed) in investing activities 18.2 (13.7) (23.4) Cash inflow/(outflow) from financing activitiesDividends paid to minority interests (1.1) (2.3) (7.1)Increase/(decrease) in debt and lease financing 2.4 (7.7) (119.5)Net cash generated/(absorbed) in financing activities 1.3 (10.0) (126.6) Net decrease in cash and cash equivalents (36.6) (67.3) (49.3)Net cash and cash equivalents at beginning of the period 57.1 113.5 113.5Foreign exchange gains/(losses) on cash and cash equivalents 0.1 (6.6) (7.1)Net cash and cash equivalents at end of the period 7 20.6 39.6 57.1 Reconciliation of net cash flow to movement in net debtNet decrease in cash and cash equivalents (36.6) (67.3) (49.3)Cash (outflow)/inflow from change in debt and lease financing (2.4) 7.7 119.5Change in net debt resulting from cash flows (39.0) (59.6) 70.2New finance leases - - (3.6)Transfer of preference shares from equity under IAS 32 - (28.0) (28.0)Other (2.0) 1.0 (3.9)Foreign exchange (1.9) 6.5 5.8(Increase)/decrease in net debt (42.9) (80.1) 40.5Net debt at start of period (363.3) (403.8) (403.8)Net debt at end of period 7 (406.2) (483.9) (363.3) Consolidated statement of recognised income and expense (unaudited) 2006 2005 2005 Half year Half year Full year Unaudited Unaudited Unaudited Restated* Restated*For the six months ended 30 Notes US$m US$m US$mJune 2006 Gain on revaluation of - 1.2 -available-for-sale investmentsGain on cash flow hedges 5.5 0.4 4.6Exchange differences on 3.8 0.1 * (12.6) *translation of foreignoperationsActuarial gains in respect of - - 47.4retirement benefit schemesTax on items taken directly to - - 0.3equityNet income recognised directly 9.3 1.7 39.7in equityProfit for the period 24.7 38.8 * 59.7 *Transferred to profit or loss (1.3) 0.5 0.8on cash flow hedgesOther transfers 0.5 - (2.1)Total recognised income and 5 33.2 41.0 98.1expense for the period Attributable to:EQUITY SHAREHOLDERS OF THE 31.7 39.0 96.7COMPANYMinority interests 1.5 2.0 1.4 33.2 41.0 98.1 * See note 1 for details of the restatement. Notes 1 Basis of preparation Coats Group Limited is incorporated in the British Virgin Islands. It does not prepare consolidated statutory accounts and therefore the financial information contained in this announcement does not constitute full financial statements and has not been, and will not be, audited. The financial information for the six months ended 30 June 2006 has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) endorsed by the European Union, and the accounting policies adopted have been consistently applied to the restated financial information presented for the six months ended 30 June 2005 and the full year ended December 2005. Subsequent to the publication of the half year results for the six months ended 30 June 2005, management reviewed the Group's IFRS accounting policies in the light of emerging best practice. It is considered that best practice under IAS 19 on Employee Benefits is for administration costs to be deducted annually from the expected and actual return on pension plan assets, rather than for provision to be made for the present value of these costs expected over the life of the plan. Subsequent to the publication of the results for the full year ended 31 December 2005, an amendment to IAS 21 on The Effects of Changes in Foreign Exchange Rates has been endorsed by the European Union, whereby currency translation gains and losses arising on inter-company loans that are not in the functional currency of either party can now be dealt with through reserves rather than in the income statement. The impact of these accounting policy changes is as follows: 2005 2005 Half year Full year Unaudited Unaudited US$m US$m Hedging and translation reserves as previously 16.5 5.0 reported IAS 19 adjustment (3.2) - IAS 21 adjustment as at 31 December 2004 1.6 1.6 IAS 21 adjustment for 2005 (3.5) (5.9) Hedging and translation reserves as restated 11.4 0.7 Retained loss as previously reported (136.7) (23.4) IAS 19 adjustment 46.1 - IAS 21 adjustment as at 31 December 2004 (1.6) (1.6) IAS 21 adjustment for 2005 3.5 5.9 Retained loss as restated (88.7) (19.1) Coats Group Limited follows the accounting policies of its ultimate parent company, Guinness Peat Group plc. The principal exchange rates (to the US dollar) used are as follows: June June December 2006 2005 2005 Average Sterling 0.56 0.53 0.55 Euro 0.81 0.78 0.81 Period end Sterling 0.54 0.56 0.58 Euro 0.78 0.83 0.85 2 Operating profit is stated after charging/ (crediting): 2006 2005 2005 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Exceptional items: Reorganisation costs and impairment of property, 23.3 28.0 62.4 plant and equipment Profit on the sale of property (19.5) - (17.2) Foreign exchange losses/(gains) 9.9 (15.7) (18.5) Total 13.7 12.3 26.7 3 Finance costs 2006 2005 2005 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Interest on bank and other borrowings 19.9 21.1 41.3 Foreign exchange gains - (10.3) (11.8) Net return on pension scheme assets and liabilities (7.2) (2.8) (8.3) Other 2.3 0.6 3.0 Total 15.0 8.6 24.2 4 Taxation The taxation charges for the six months ended 30 June 2006 and 30 June 2005 are based on the estimated effective tax rate for the full year, including the effect of prior period tax adjustments. The foreign exchange losses recognised in operating profit and finance costs for the six months ended 30 June 2006 of $9.9 million (2005 - $26.0 million gains) are non-taxable. Excluding these items, a taxation charge of $15.5 million (2005 - $9.1 million) arises on adjusted profits of $46.6 million (2005 - $22.5 million). 5 Reconciliation of closing equity Equity Minority Total equity shareholders' interests funds Unaudited Unaudited Unaudited US$m US$m US$m At 1 January 2006 397.9 26.7 424.6 Total recognised income and expense for the period 31.7 1.5 33.2 Dividends paid - (1.1) (1.1) Other - (3.8) (3.8) At 30 June 2006 429.6 23.3 452.9 6 Reconciliation of operating profit to net cash (outflow)/inflow generated by operations 2006 2005 2005 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Operating profit 47.3 54.2 99.8 Depreciation 28.2 23.4 50.4 Amortisation of intangible assets (computer 3.5 4.5 5.6 software) Reorganisation costs (see note 2) 23.3 28.0 62.4 Other exceptional items (see note 2) (9.6) (15.7) (35.7) (Increase)/decrease in inventories (23.0) (33.2) 3.9 (Increase)/decrease in debtors (35.6) (18.5) 34.2 (Decrease)/increase in creditors (23.6) (18.8) 17.3 Provision movements (6.0) (6.9) (11.7) Other non-cash movements 0.2 (0.5) 5.0 Net cash inflow from normal operating activities 4.7 16.5 231.2 Net cash outflow in respect of reorganisation costs (28.6) (22.3) (54.3) and other exceptional items Net cash (outflow)/ inflow generated by operations (23.9) (5.8) 176.9 7 Net debt 2006 2005 2005 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Cash and cash equivalents 41.1 72.7 77.8 Bank overdrafts (20.5) (33.1) (20.7) Net cash and cash equivalents 20.6 39.6 57.1 Other borrowings (426.8) (523.5) (420.4) Total (406.2) (483.9) (363.3) 8 Balance sheet consolidated by Guinness Peat Group plc (unaudited) The balance sheet consolidated by Guinness Peat Group plc (GPG) as at 30 June 2006 differs from that disclosed as follows: Coats Group Coats Group GPG fair value Included in Limited Limited adjustments GPG's consolidated balance sheet US$:GBP at 0.5405 Unaudited Unaudited Unaudited Unaudited US$m £m £m £m Intangible assets 257.6 139 14 153 Other non-current assets 597.4 323 323 Current assets 706.3 382 382 Non-current assets classified as held for sale 10.4 6 6 Total assets 1,571.7 850 14 864 Current liabilities (557.1) (301) (301) Non-current liabilities (561.7) (304) (304) Minority interests (23.3) (13) (13) Equity shareholders' funds 429.6 232 14 246 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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