Coats hails strong first half, looks to 'more normalised' trading

Industrial thread maker Coats reported group sales growth of 19% on a constant exchange rate basis in its first half on Tuesday, or 14% on a reported basis, to reach $801m in revenue.

The FTSE 250 company put the growth down to “favourable” underlying market conditions in the six months ended 30 June, alongside early pricing actions, continued supply chain agility and self-help programmes.

In apparel and footwear it recorded sales growth of 21% at coinstant currency, with all key regions performed strongly despite some ongoing Covid-19 impacts.

Performance materials, meanwhile, saw 16% sales growth, with double-digit growth reported in personal protection and composites, and an “encouraging improvement” described in the US yarns business.

Adjusted operating profit totalled $125m for the half-year, making for reported growth of 28% and constant currency growth of 35%, with adjusted margins up 180 basis points to 15.6% and “well above” 2019 levels.

Apparel and footwear adjusted operating margins came in at 18.2%, reflecting strong volumes and “excellent” customer service, while performance materials margins at 8.2% showed “continual improvement”, driven by US strategic projects and operational improvements.

Coats reported adjusted earnings per share of 4.3 US cents, up 30% year-on-year, and reported earnings of 3.4 cents per share.

Net debt, excluding lease liabilities, widened to $195m from $168m year-on-year, with its leverage of 0.8x supported by “robust” free cash flow generation.

The board declared an interim dividend of 0.7 cents per share, up 15% over last year’s first-half distribution, reflecting its confidence to deliver progress in 2022 and beyond.

Looking ahead, Coats said it was expecting “more normalised growth” in the second half, as the stock replenishment of the first half gave way to more typical demand patterns.

It said it would keep using “timely” pricing actions to fully offset inflationary pressure, adding that it was delivering ahead of expectations on its strategic transformation projects.

The company’s focus on the premium and ‘athleisure’ markets in apparel and footwear, and its diversified end markets in performance materials, put Coats in a strong position, according to the board.

As a result, the directors said they now anticipated the group's full-year performance to be “moderately ahead” of their previous expectations.

“During the first half of 2022, we saw outstanding results for the group,” said chief executive officer Rajiv Sharma.

“We have made good progress in accelerating profitable sales growth and transforming the portfolio to improve margins.

“Despite inflationary pressures and supply chain challenges, Coats delivered timely pricing actions, productivity and self-help programmes to deliver significantly improved margins now well beyond pre-Covid levels.”

At 0921 BST, shares in Coats Group were down 5.24% at 70.69p.

Reporting by Josh White at Sharecast.com.