29th Aug 2007 07:05
Guinness Peat Group PLC29 August 2007 Guinness Peat Group plc The following unaudited consolidated results of Coats Group Limited ("theCompany") for the six months ended 30 June 2007 are released by Guinness PeatGroup plc ("GPG") for information only. Richard RussellCompany SecretaryGuinness Peat Group plc 29 August 2007 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 2007 Financial summary 2007 2006 Half year Half year Unaudited Unaudited US$m US$mRevenue 820.7 806.7 Operating profit before reorganisation, impairment and 68.4 61.0other exceptional items (see note 2) Operating profit 53.8 47.3 Profit before taxation 45.3 36.7 Net profit attributable to equity shareholders 24.7 23.1 Net debt 404.3 406.2 Net gearing 81% 90% *see note 1 • Pre-exceptional operating profit up 12% • Industrial thread pre-exceptional operating profit up 23% • Asia and Rest of World like for like industrial sales growth of 6% • Recovery in North American crafts profits CHAIRMAN'S STATEMENT Results Coats made good progress in the first half of 2007 with 12% growth inpre-exceptional operating profit despite difficult conditions in the Europeancrafts market. Pre-exceptional operating profit (before reorganisation, impairment and otherexceptional items) was $68.4 million compared to $61.0 million in H1 2006.Profit from the industrial thread business increased by $11.9 million to $63.4million (+23%), driven in large part by improved performance in Europe and USA.However crafts profit decreased by $4.5 million to $5.0 million principally as aresult of weak demand for handknittings and other crafts products in Europe. TheEuropean crafts business is in the midst of a major restructuring program andincurred a loss which more than offset the recovery of crafts profitability inNorth America. Further details of industrial and crafts performance by regionare included in the Operating Review. Net exceptional charges of $14.6 million (see note 2) were slightly higher thanthe previous half year total of $13.7 million as a result of lower exceptionalgains from sale of property. However reorganisation cost of $16.3 million was$7.0 million below previous half year, in line with the reduction in theindustrial thread restructuring requirement as explained in last year's annualreport. Net finance costs of $11.3 million were $3.7 million below previous half yeardue to a higher net return on net pension assets. After providing for tax andminority interests, net profit attributable to equity shareholders increased by7% to $24.7 million. EBITDA (defined as pre-exceptional operating profit plus depreciation andamortisation) of $101.3 million was 9% ahead of the previous half year's totalof $92.7 million. Net operating cash flow before reorganisation costs was $34.2million compared to $4.7 million in 2006 as a result of a lower seasonalincrease in working capital. However the increase in net debt resulting fromcash flows at $53.9 million was higher than in the previous first half ($39.0million) due to lower property disposals in H1 2007 compared to theexceptionally high receipts in H1 2006. Investment, reorganisation and disposals Investment in new plant and systems amounted to $39.3 million (H1 2006 - $32.8million). Investment in plant and equipment largely consisted of additionalcapacity to meet growth in Asia and productivity improvements in Europe.Significant investment continues to be made in upgrading IT systems, includingthe installation of SAP in all Coats units throughout the world. In cash terms, reorganisation spend of $18.1 million was $10.5 million below theprevious first half. As advised in the 2006 annual report, a higher proportionof reorganisation is being directed towards cost reduction and product rangerationalisation in the European crafts business. Net cash outflow on acquisitions / disposals of businesses amounted to $6.9million (H1 2006 net inflow $2.0 million) and included acquisition of FreeSpirit, a North American crafts patchwork & quilting fabric business, as well asminority interests in Coats Sri Lanka. European Commission Investigation There have been no significant developments in the European Commissioninvestigation since the year end. During the second half, the outcome of theCommission's investigation into European fasteners - the last outstanding partof the general investigation into thread and haberdashery markets which began in2001 - should be announced. In addition, the Court of First Instance is alsoexpected to rule on Coats' appeal against the fine levied in 2004 in respect ofneedles. As stated in previous reports, it is believed that any anticipatedeventual payment of fines is adequately covered by existing provisions. Prospects The progress achieved by the industrial business is encouraging and with majorrestructuring projects largely complete Coats is able to use its morecompetitive cost base to focus on growth of sales and market share. The globalmarket for industrial thread remains highly competitive and challenging butcontinues to grow, with declining demand in Europe and the Americas more thanoffset by growth in Asia. Coats industrial global footprint is now well balancedand should enable the business to take full advantage of the changes in localdemand caused by shifting trade flows. The first half recovery in North American crafts profitability on the back of amore stable handknittings market is expected to continue in the second half. Inaddition, the acquisition of Free Spirit and the subsequent launch of a widerrange of patchwork & quilting fabrics open up new growth opportunities for Coatsin a popular and long-established North American crafts activity. In Europe crafts, a major restructuring program is well underway with theobjective of transforming the previous structure of country-based organisations- each with its own product range - into a more cost-effective pan-Europeanbusiness with a single, harmonised product offer. In the process, key productsare being redesigned and new supply chains established so that the newpan-European product ranges will be more attractive and offer better value thancould have been created by individual countries acting alone. Although the fullproject is estimated to take another two years to complete, benefits shouldbegin to flow through from 2008 onwards. In terms of prospects for the secondhalf of 2007, the downturn in handknittings is expected to bottom out withEuropean buying patterns lagging North America. Along with a lower cost base andimproved supply chains, this should result in an improved performance comparedto the first half. Notwithstanding the uncertainty over the short term development of crafts demandin Europe, it is expected that the overall progress shown by the Group in thefirst half will continue in the second half. Over the longer term, the Boardremains confident that Coats' position in both the industrial thread and craftsmarkets will deliver further growth opportunities. Gary WeissChairman29 August 2007 OPERATING REVIEW Industrial Trading PerformanceINDUSTRIAL 2006 *2006 2007 Like-for-like Actual reported like-for-like reported increase / increase $m $m $m (decrease) % / decrease %SalesAsia and Rest of World 229.3 233.8 248.6 +6% +8%Europe 135.0 145.0 140.9 -3% +4%Americas 158.1 162.4 155.2 -4% -2%Total sales 522.4 541.2 544.7 +1% +4% Pre-exceptional 51.5 53.2 63.4 +19% +23%operating profit** *2006 like-for-like restates 2006 figures at 2007 exchange rates. **Pre reorganisation, impairment, and other exceptional items (see note 2) The Asian industrial business delivered another good performance, particularlyonce the strong comparatives achieved in the previous half year are taken intoaccount. Sales and profits are broadly based across the region. European sales continued to be affected by customer migration in Western Europebut this was partially offset by growth in Eastern Europe. However there was amajor recovery in operating profit as a result of previous reorganisation andinvestment. North and South America continued to be affected by increased penetration ofapparel imports from Asia. However there was further recovery in operatingprofit as a result of earlier reorganisation and investment. Crafts Trading Performance 2006 *2006 2007 reported Like-for-like Actual increase / reported like-for-like increase / decrease decrease % $m $m $m % SalesAsia and Rest of World 27.9 29.2 28.9 -1% +4%Europe 128.0 144.4 115.0 -20% -10%Americas 128.4 133.2 132.1 -1% +3%Total sales 284.3 306.8 276.0 -10% -3% Pre-exceptional operating 9.5 9.2 5.0 -46% -47%profit** *2006 like-for-like restates 2006 figures at 2007 exchange rates and includes anadjustment to reflect the impact of acquisitions and disposals. **Pre reorganisation, impairment, and other exceptional items (see note 2) Crafts sales in Europe were principally affected by reduced demand forhandknittings, although all crafts categories were down in an exceptionally weakretail environment for crafts products. With a relatively high fixed cost base,the reduction in sales pushed the business into loss. The major restructuring isin its second year and aims to lower the cost base, improve productivity anddeliver a harmonised pan-European product offer by 2008/9. Crafts results in the Americas benefited from a more stable handknittings marketin North America and the absence of mark-downs and other one-off charges whichaffected H1 2006. In total, sales of handknittings were slightly down onprevious half year as recovery in North America was offset by decline in SouthAmerica. The acquisition of Free Spirit was successfully completed andcontributed to sales growth in patchwork & quilting fabrics. Consolidated income statement (unaudited) 2007 2006 2006 Half year Half year Full year Unaudited Unaudited UnauditedFor the six months ended 30 June 2007 Notes US$m US$m US$mContinuing operationsRevenue 820.7 806.7 1,615.1 Cost of sales (530.6) (535.2) (1,084.8) Gross profit 290.1 271.5 530.3 Distribution costs (148.9) (152.3) (299.9)Administrative expenses (90.7) (92.2) (176.4)Other operating income 3.3 20.3 25.9 Operating profit 2 53.8 47.3 79.9 Share of profits of joint ventures 0.9 1.2 2.1 Investment income 1.9 3.2 4.4 Finance costs 3 (11.3) (15.0) (29.3) Profit before taxation 45.3 36.7 57.1 Taxation 4 (16.1) (15.5) (26.3) Profit from continuing operations 29.2 21.2 30.8 Discontinued operations(Loss)/profit from discontinued operations (0.4) 3.5 3.2 Profit for the period 28.8 24.7 34.0 Attributable to:EQUITY SHAREHOLDERS OF THE COMPANY 24.7 23.1 29.9Minority interests 4.1 1.6 4.1 28.8 24.7 34.0 Consolidated balance sheet (unaudited) 2007 2006 2006 30 June 30 June 31 December Unaudited Unaudited UnauditedAt 30 June 2007 Notes US$m US$m US$mNon-current assetsIntangible assets 263.7 257.6 260.9Property, plant and equipment 515.4 479.9 510.8Investments in joint ventures 15.1 16.6 16.2Available-for-sale investments 5.0 4.2 4.9Deferred tax assets 10.2 6.9 9.5Pension surpluses 72.8 64.9 61.3Trade and other receivables 25.9 24.9 27.6 908.1 855.0 891.2 Current assetsInventories 332.7 317.2 307.6Trade and other receivables 354.8 342.1 308.5Available-for-sale investments 0.2 5.9 0.2Cash and cash equivalents 7 44.3 41.1 76.4 732.0 706.3 692.7 Non-current assets classified as held for sale 3.2 10.4 4.8 Total assets 1,643.3 1,571.7 1,588.7 Current liabilitiesTrade and other creditors (322.5) (284.3) (328.3)Current income tax liabilities (11.3) (7.8) (10.6)Bank overdrafts and other borrowings (142.8) (105.7) (127.9)Provisions (172.7) (159.3) (167.1) (649.3) (557.1) (633.9) Net current assets 82.7 149.2 58.8 Non-current liabilitiesTrade and other creditors (18.1) (29.0) (25.9)Deferred tax liabilities (11.0) (12.0) (10.7)Borrowings (305.8) (341.6) (294.2)Retirement benefit obligations:Funded schemes (1.0) (2.2) (1.0)Unfunded schemes (110.3) (120.5) (112.4)Provisions (48.1) (56.4) (56.6) (494.3) (561.7) (500.8) Total liabilities (1,143.6) (1,118.8) (1,134.7) Net assets 499.7 452.9 454.0 EquityShare capital 4.2 4.2 4.2Share premium account 412.1 412.1 412.1Hedging and translation reserve 37.0 8.9 17.0Retained profit 25.9 4.4 1.2EQUITY SHAREHOLDERS' FUNDS 5 479.2 429.6 434.5Minority interests 5 20.5 23.3 19.5Total equity 5 499.7 452.9 454.0 Consolidated cash flow statement (unaudited) 2007 2006 2006 Half year Half year Full year Unaudited Unaudited UnauditedFor the six months ended 30 June 2007 Notes US$m US$m US$mCash inflow/(outflow) from operating activitiesNet cash inflow/(outflow) generated by operations 6 16.1 (23.9) 117.8Interest paid (19.4) (17.4) (37.0)Taxation paid (15.0) (14.8) (35.8)Net cash (absorbed)/generated from operating activities (18.3) (56.1) 45.0 Cash inflow/(outflow) from investing activitiesDividends received from associates and joint ventures 2.0 1.0 2.3Acquisition of property, plant and equipment and intangible (39.3) (32.8) (78.3)assetsDisposal of property, plant and equipment and intangible 9.5 46.2 60.2assetsAcquisition of financial investments (0.1) (3.0) (0.9)Disposal of financial investments - 4.8 8.6Acquisition and disposal of businesses (6.9) 2.0 (7.5)Net cash (absorbed)/generated in investing activities (34.8) 18.2 (15.6) Cash inflow/(outflow) from financing activitiesDividends paid to minority interests (0.8) (1.1) (4.4)Increase/(decrease) in debt and lease financing 20.7 2.4 (33.3)Net cash generated/(absorbed) in financing activities 19.9 1.3 (37.7) Net decrease in cash and cash equivalents (33.2) (36.6) (8.3)Net cash and cash equivalents at beginning of the period 50.1 57.1 57.1Foreign exchange gains on cash and cash equivalents 1.1 0.1 1.3Net cash and cash equivalents at end of the period 7 18.0 20.6 50.1 Reconciliation of net cash flow to movement in net debtNet decrease in cash and cash equivalents (33.2) (36.6) (8.3)Cash (inflow)/outflow from change in debt and lease financing (20.7) (2.4) 33.3Change in net debt resulting from cash flows (53.9) (39.0) 25.0New finance leases - - (0.3)Other (2.7) (2.0) (3.9)Foreign exchange (2.0) (1.9) (3.2)(Increase)/decrease in net debt (58.6) (42.9) 17.6Net debt at start of period (345.7) (363.3) (363.3)Net debt at end of period 7 (404.3) (406.2) (345.7) Consolidated statement of recognised income and expense (unaudited) 2007 2006 2006 Half year Half year Full year Unaudited Unaudited UnauditedFor the six months ended 30 June 2007 Notes US$m US$m US$m Gain on cash flow hedges 1.3 5.5 2.2Exchange differences on translation of foreign 20.5 3.8 17.0operationsActuarial losses in respect of retirement benefit - - (9.4)schemesTax on items taken directly to equity - - (0.6)Net income recognised directly in equity 21.8 9.3 9.2Profit for the period 28.8 24.7 34.0Transferred to profit or loss on cash flow hedges (1.7) (1.3) (2.8)Other transfers - 0.5 -Total recognised income and expense for the period 5 48.9 33.2 40.4 Attributable to:EQUITY SHAREHOLDERS OF THE COMPANY 44.7 31.7 36.6Minority interests 4.2 1.5 3.8 48.9 33.2 40.4 Notes 1 Basis of preparation Coats Group Limited is incorporated in the British Virgin Islands. It does not prepare consolidated statutory accounts and therefore the financial information contained in this announcement does not constitute full financial statements and has not been, and will not be, audited. The financial information for the six months ended 30 June 2007 has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards ("IFRS") endorsed by the European Union, and the accounting policies adopted have been consistently applied to the financial information presented for the six months ended 30 June 2006 and the full year ended 31 December 2006. Coats Group Limited follows the accounting policies of its ultimate parent company, Guinness Peat Group plc. The principal exchange rates (to the US dollar) used are as follows: June June December 2007 2006 2006 Average Sterling 0.51 0.56 0.54 Euro 0.75 0.81 0.79 Period end Sterling 0.50 0.54 0.51 Euro 0.74 0.78 0.76 2 Operating profit is stated after charging/ (crediting): 2007 2006 2006 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Exceptional items: Reorganisation costs and impairment of property, plant and 16.3 23.3 51.6 equipment Profit on the sale of property (3.3) (19.5) (21.3) Foreign exchange losses 1.6 9.9 12.2 Total 14.6 13.7 42.5 3 Finance costs 2007 2006 2006 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Interest on bank and other borrowings 20.9 19.9 39.7 Net return on pension scheme assets and liabilities (11.4) (7.2) (15.7) Other 1.8 2.3 5.3 Total 11.3 15.0 29.3 4 Taxation The taxation charges for the six months ended 30 June 2007 and 30 June 2006 are based on the estimated effective tax rate for the full year, including the effect of prior period tax adjustments. 5 Reconciliation of closing equity Equity shareholders' Minority funds interests Total equity Unaudited Unaudited Unaudited US$m US$m US$m At 1 January 2007 434.5 19.5 454.0 Total recognised income and expense for the period 44.7 4.2 48.9 Dividends paid - (0.8) (0.8) Changes in holdings in subsidiary undertakings - (2.4) (2.4) At 30 June 2007 479.2 20.5 499.7 6 Reconciliation of operating profit to net cash inflow/(outflow) generated by operations 2007 2006 2006 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Operating profit 53.8 47.3 79.9 Depreciation 29.1 28.2 55.8 Amortisation of intangible assets (computer 3.8 3.5 7.3 software) Reorganisation costs (see note 2) 16.3 23.3 51.6 Other exceptional items (see note 2) (1.7) (9.6) (9.1) Increase in inventories (16.5) (23.0) (6.1) (Increase)/decrease in debtors (33.0) (35.6) 9.8 Decrease in creditors (6.8) (23.6) (9.5) Provision movements (12.0) (6.0) (14.7) Other non-cash movements 1.2 0.2 7.3 Net cash inflow from normal operating activities 34.2 4.7 172.3 Net cash outflow in respect of reorganisation costs (18.1) (28.6) (54.5) Net cash inflow/(outflow) generated by operations 16.1 (23.9) 117.8 7 Net debt 2007 2006 2006 Half year Half year Full year Unaudited Unaudited Unaudited US$m US$m US$m Cash and cash equivalents 44.3 41.1 76.4 Bank overdrafts (26.3) (20.5) (26.3) Net cash and cash equivalents 18.0 20.6 50.1 Other borrowings (422.3) (426.8) (395.8) Total (404.3) (406.2) (345.7) 8 Balance sheet consolidated by Guinness Peat Group plc (unaudited) The balance sheet consolidated by Guinness Peat Group plc (GPG) as at 30 June 2007 differs from that disclosed as follows: Coats Included in Group Limited GPG's Coats Group US$:GBP at GPG fair value consolidated Limited 0.4984 adjustments balance sheet Unaudited Unaudited Unaudited Unaudited US$m £m £m £m Intangible assets 263.7 131 14 145 Other non-current assets 644.4 321 - 321 Current assets 732.0 364 - 364 Non-current assets classified as held for sale 3.2 2 - 2 Total assets 1,643.3 818 14 832 Current liabilities (649.3) (324) - (324) Non-current liabilities (494.3) (246) - (246) Minority interests (20.5) (10) - (10) Equity shareholders' funds 479.2 238 14 252 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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