Coats Group interims weave mostly encouraging picture

In its first set of results since weaving its way back the FTSE 350, industrial threads and yarns maker Coats Group reported 38% growth in earnings and hiked its dividend 7%.

Coats, which was founded in Paisley in the 18th century before becoming a founding member of the FT 30 index in 1935 and was once the third largest company in the world, posted interim results showing $740m of sales, up 4% year-on-year or 5% at constant exchange rates as solid growth from the industrial division more than offset a decline at the much smaller US-focused crafts business.

Growth remained strong in Europe and Asia, with a return to growth in the US consumer durables markets, the 7% growth in the industrial division same from 5% growth from market share gains at apparel and footwear, and 18% from performance materials' geographic expansion plus bolt-on acquisitions.

Crafts sales declined 8%, largely due to the disruption caused by the tornado strike at the main Crafts distribution centre in Georgia, USA in January.

Boosted by acquisitions, adjusted operating profit increased 14% to $89m, with industrial adjusted operating profit increasing 11% as margins widened by 50 basis points to 13.6% due to volume growth, productivity and procurement improvements, and continued cost control which more than offset continued pricing pressure and structural inflation in the markets in which we operate.

Adjusted earnings per share surged 38% to 3.06 cents, with an extra benefit from a reduction in the effective tax rate and mark-to-market foreign exchange gains. At the underlying level EPS grew 19%.

After generating $109m adjusted free cash flow in the last 12 months but with second half capital expenditure to increase to $30-40m to represent a full year spend of $50-60m, the board declared an interim dividend of 0.44 US cents per share, up 7%.

Coats, which as Coats Limited became a subsidiary of the Guinness Peat Group in 2004 and was taken private in 2005 before being re-floated in London as Coats Group in 2015, made onto the FTSE 250 index in June's index reshuffle.

Despite inconsistent levels of demand from clothing retailers and continued weakness of the North American market, chief executive Rajiv Sharma said the year was going well as the company continued to increase market share in the apparel and footwear segment, which he attributed to a "customer-led approach to innovation, digital solutions and corporate social responsibility".

"We continue to leverage our global footprint and customer base in our Performance Materials business, develop new product solutions for our customers, and see a good contribution from our Gotex business which was acquired in 2016."

He said strong cash generation was allowing it to pay a dividend and still increase investment in the existing asset base in the second half of the year.

"We will look to build on the strong first half of the year, and expect to deliver performance in line with management's expectations for the full year. This is expected to be achieved through our initiatives to deliver market share gains and productivity improvements, maintaining a tight control of our cost base, whilst investing in our growth opportunities."

Monday saw Coats shares, which have more than tripled since the start of last year, retreated a touch from recent highs, sitting down 1.5% at 77.8p.