Commenting on the Half Year Results Rajiv Sharma, Group Chief Executive, said:

‘I am proud of the speed, confidence, clarity and empathy with which Coats has responded to the COVID-19 challenges. As a result of the significant ongoing COVID-19 effects seen in the period, the Group continues to be focused on three key priorities, namely; continuing to ensure the health and safety of our employees; cash, liquidity and working capital management; and supporting our customers and maintaining the critical elements of our supply chain.

‘Very early in the crisis, we took decisive underpinning action to protect the financial health of the business. On cash and liquidity, our swift action resulted in maintaining a comfortable headroom position. Working capital levers were managed well to optimise cash while maximising our ability to serve customers. Cost actions were taken to underpin profit without compromising our ability to implement our strategy.

‘We have seen an improving sales trend in recent, albeit low-season, months with organic sales declines reducing to 25% in June and 18% in July. As we look to the remainder of the second half we are mindful of the ongoing wider macro-economic uncertainty caused by COVID-19 and the importance of trading in the peak months of September, October and November.

‘Our focus has already shifted to winning the recovery. In a crisis, customers depend on trusted and dependable partners like Coats that offer quality, reliability, innovation, sustainability, digital solutions and technical support. Our global scale has allowed us to reliably deliver products and services to customers, resulting in incremental customer wins. We have seen an acceleration of digital adoption and sustainability in our industry and our recent investments in these areas have resulted in commercial gains during the period. Coats is focused on seizing the short-term and longer-term opportunities that are presented, and I am confident that Coats will emerge even stronger and more valuable to our industry and shareholders in a post-COVID world.’

Financial highlights

• Group revenues down 21% on a CER basis for the period (down 24% reported);
  • Organic revenues down 26%, which excludes a 5% contribution from the Pharr High Performance Yarns acquisition;
  • Significant impact from the demand and supply disruption caused by COVID-19; Q2 organic revenues down 45% (Q1 down 8%) but with an improving performance through the quarter with June underlying organic revenues down 25%;
  • Both segments impacted by COVID-19 during the period; Apparel & Footwear down 29% and Performance Materials down 19% on a CER organic basis.
• Adjusted operating profit of $34 million down 66% year-on-year on a CER basis (down 67% reported); resilient margins despite significant COVID-19 disruption as a result of the ability to significantly flex our cost base during the period.
• Adjusted EPS of zero cents driven by lower adjusted operating profits, higher effective tax rate and the impact of mark-to-market foreign exchange losses (primarily due to weakened Sterling in the period).
• Reported operating profit of $29 million and basic EPS of (0.6) cents; lower than adjusted measures primarily due to certain non-cash impairment costs in relation to COVID-19.
• Adjusted free cash outflow of $5 million (2019: $21 million inflow) reflecting prudent cash management (e.g. lower capital expenditure), and working capital unwind in Q2 based on strong collections and lower activity levels.
• Closing net debt (incl. IFRS 16) of $267 million; flat year-on-year despite purchase of Pharr HP business in February for $37 million; net debt (excl. IFRS 16) of $207 million (1.3x leverage 6).
• Committed facility headroom of $270 million; providing comfortable liquidity and further improved since May Trading Update.

Covid-19 underpinning actions

• Full year 2020 capital expenditure to be reduced by c.70% to c.$15 million.
• Flexing of manufacturing footprint to manage impact of lower volumes.
• Q2 pay reductions for some 4,000 of our non-operational staff, senior management and Board.
• Agreeing with our UK pension trustees the deferrals of our remaining 2020 deficit recovery contributions.
• Cancellation of final 2019 dividend; no interim 2020 dividend declared.
• Significant reductions in other discretionary spend; SG&A down 21% year-on-year in Q2.
• £300 million of undrawn funding via Bank of England Covid Corporate Financing Facility (CCFF) available, providing additional headroom if required.

Strategic highlights

• Unwavering focus on supporting our customers; already delivering incremental new customer wins and share gains from competitors as we are able to leverage our global footprint, flexibility and digital tools to deliver exceptional customer service.
• Group remains well placed to navigate through the current challenging environment and emerge even stronger having moved quickly and prudently on underpinning measures.
• Balance Sheet remains in a strong position providing optionality over most attractive investments during post-COVID recovery phase.
• 13 new product launches during the period; pace of innovation accelerating, with strong pipeline in place.
• Launch of Coats Fast Start to help address the global shortage of PPE; aligned to the accelerating shift to industry digitisation.
• Acquisition of Pharr High Performance Yarns, completed in February; combination with existing US Personal Protection business delivers scale and market leadership in an attractive growth market.

ENDS