Coats Group lifts expectations after first half

Industrial thread manufacturer Coats Group issued its unaudited results for the six months ended 30 June on Tuesday, reporting revenue growth of 5% on a constant exchange rate basis to $788m, or 7% growth on a reported basis.

The FTSE 250 company said it saw 2% organic growth, and a 3% contribution from the acquisition of Patrick Yarn Mill.

It also reported continued strong revenue performance in its apparel and footwear thread business, up 4%, and double-digit organic growth in high-tech performance materials, and an improving trend in the NA crafts division.

Adjusted operating profit rose 12% on a constant currency basis to $100m, but fell 6% to $81m on a reported basis, with its adjusted operating margin up 70 basis points to 12.7%.

Coats said its ‘Connecting for Growth’ programme started well, with benefits being realised faster than initially anticipated, and $10m in net benefits now expected in 2018, up from a previous forecast for $5m.

Adjusted earnings per share rose 19% to 3.6 cents, while reported earnings per share fell 17% to 2.4 cents.

The board said the higher adjusted result was the result of higher operating profits, a further reduction in effective tax rate and a lower pension finance charge.

Adjusted free cash flow for the last 12 months was $85m, which was down 22% on the same period last year due to a planned increase in capital expenditure, however it remained in line with the 2017 full-year figure of $87m.

The company completed the merger of its three UK defined benefit pension schemes into one single new scheme - the Coats UK Pension Scheme.

Coats also declared an interim dividend of 0.50 cents per share, representing 14% growth over the distribution a year ago.

“We have continued to outperform the market in apparel and footwear despite continued mixed demand from retailers by maintaining our customer-led approach to service, digital solutions and corporate social responsibility,” said chief executive officer Rajiv Sharma.

“We have leveraged our global footprint and customer base to expand our performance materials business.”

Sharma said the company’s “innovation capability” had been enhanced by the recent acquisition of Patrick Yarn Mill, adding that in North America crafts, the firm saw an “improving trend” so far this year, however market conditions remained tough.

“Our customers require an increased emphasis on speed, quality, value, innovation and corporate responsibility.

“To accelerate our transition from industrial to digital, we launched the Connecting for Growth transformation programme in February, which will support our next phase of development.”

Sharma said the company was looking to build on a “strong” first half by continuing to outperform the market, deliver productivity improvements, maintain tight control of its cost base, and investing in our growth opportunities.

“As a result of the faster delivery of the net benefits from the Connecting for Growth programme, we now anticipate delivering a full year performance slightly ahead of management's previous expectations.”