TIDMCOA
RNS Number : 4610D
Coats Group PLC
03 March 2022
3 March 2022
Coats Group plc
2021 Full Year Results
Accelerated sales growth with strong profit delivery and cash
generation
Coats Group plc ('Coats,' the 'Company' or the 'Group'), the
world's leading industrial thread manufacturer, announces its
audited results for the year ended 31 December 2021.
FY 2021 FY 2020 FY 2021 vs FY 2020
---------------------------------------- -------- --------
Reported CER Organic
---------------------------------------- -------- -------- --------- ---- --------
Revenue $1,504m $1,163m 29% 29% 29%
Adjusted (1)
Operating profit $193m $111m 75% 74% 75%
Basic earnings per share 6.8c 2.4c
Free cash flow $113m $28m
Net debt (excl. lease liabilities) $147m $181m
Reported (2)
Operating profit $179m $103m 74% 74% 74%
Basic earnings per share 6.1c 1.8c
Net cash generated by operating
activities $129m $66m
Final dividend per share 1.50c 1.30c
Highlights
-- Accelerating Group sales growth of 29% (6% vs 2019) with continued
momentum:
o Apparel & Footwear: 33% sales growth (5% vs 2019); demand recovery
and positive end market sentiment across US, Europe and Asia
o Performance Materials: 19% organic sales growth (8% vs 2019)
-- Strong thread market share gains in A&F (up 2% to 23%) and customer
share wins in PM, as customers prioritise reliability and flexibility
of supply, sustainable products, quality, speed, and innovation
-- EcoVerde revenues up 159% to $96 million; significantly enhanced
sustainability ambitions announced
-- Continued innovation focus; 21 new products contributing $37 million
incremental revenue
-- Adjusted operating profit $193 million (reported $179 million);
inflationary pressures absorbed by successful pricing actions and
self-help productivity programmes
-- A&F adjusted operating margins 15%(1) ; PM adjusted operating margins
7%(1) , or 14%(1) excluding the US
-- Adjusted EPS of 6.8c per share (reported 6.1c per share), vs 2.4c
per share in 2020
-- Strong cash generation; net debt (excl. lease liabilities) of $147
million and strong adjusted free cash flow of $113 million; 0.7x
leverage(3) ; building resilience and creating a strong platform
for growth
-- Final dividend of 1.50 cents per share proposed, +15% vs 2020 final
dividend given the strong 2021 performance and a sign of the Board's
confidence into 2022
Strategy and Outlook
-- The Group has commenced a number of strategic projects to improve
margins by optimising the portfolio and footprint, improving the
overall cost base efficiency, and mitigating structural labour availability
issues in the US. The resulting benefits are anticipated to deliver
incremental adjusted operating profit of $50 million by 2024. Total
cash exceptional costs expected to be around $35 million
-- The Group expects continued growth in 2022, and FY 2022 performance
is anticipated to be modestly ahead of our previous expectations
Commenting on the results Rajiv Sharma, Group Chief Executive,
said:
"2021 was a strong year for Coats with sales and cash exceeding
2019 levels and operating profit close to 2019 levels. Sales growth
accelerated through the year, notably in the final quarter driven
by demand recovery and good market share gains in threads. This was
due to flexing our global supply chain, proactive inventory
management, strong supplier relationships, strong local leadership
and teamwork. Our ability to meet customer requirements for
reliability, sustainability, innovation and quality was a point of
major differentiation. I would like to thank all teams in Coats for
their tireless work, remarkable resilience and fortitude.
"I am particularly pleased with the further strong growth of our
EcoVerde range of recycled threads and our continued progress
towards our 2024 target.
"We continue to evaluate acquisitions in line with our strategy
and investment criteria and will remain disciplined in our
assessment of these as they arise.
"The last two years have created opportunities to further
improve customer service and margins. We have commenced a number of
strategic projects that improve operational effectiveness and
flexibility in key geographies while improving overall cost base
efficiency. This will result in margin improvement over two years.
Our focus is to accelerate profitable sales growth, and transform
the company to be even more successful in a post-pandemic
world."
1 Adjusted measures are non-statutory measures (Alternative Performance
Measures). These are reconciled to the nearest corresponding statutory
measure in note 12. Constant Exchange Rate (CER) are 2020 and
2019 results restated at 2021 exchange rates. Organic vs 2020
on a CER basis includes like-for-like contributions from Pharr
HP (post acquisition date of February 2020). Organic vs 2019 on
a CER basis includes like-for-like contributions from ThreadSol
(post acquisition date of February 2019) and excludes contribution
from Pharr HP (acquired in February 2020). Revenue figures are
an IFRS measure; however CER and Organic growth rates constitute
Alternative Performance Measures.
2 Reported refers to values contained in the IFRS column of the
primary financial statements in either the current or comparative
period.
3 Leverage calculated on a frozen GAAP basis, and therefore excludes
the impact of IFRS 16 on both adjusted EBITDA and net debt.
This announcement contains inside information for the purposes
of the Market Abuse Regulation. The person responsible for this
announcement is Jackie Callaway, Chief Financial Officer.
Conference Call
Coats Management will present its full year results in a webcast
at 0 930 GMT today (Thursday 3 March 2022). The webcast can be
accessed via www.coats.com/investors/fy2021 . The webcast will also
be made available in archive form on www.coats.com .
Sustainability Focus Session
Coats Management will host a Sustainability Focus Session for
analysts and investors at 1400 GMT on Monday 21 March 2022. For
more details, or to register, please contact
victoria.huxster@coats.com .
Enquiry details
+44 (0)7880 471
Investors Victoria Huxster Coats Group plc 350
Richard Mountain / Nick +44 (0)20 3727
Media Hasell FTI Consulting 1374
About Coats Group plc
Coats is the world's leading industrial thread company. At home
in some 50 countries, Coats has a workforce of over 18,000 people
across six continents. Revenues in 2021 were US$1.5bn. Coats
provides complementary and value-adding products, services and
software solutions to the apparel and footwear industries. It also
applies innovative techniques to develop high technology
performance materials threads, yarns, fabrics and composites in
areas like personal protection, telecoms, energy, transportation,
and household and recreation. Headquartered in the UK, Coats is a
constituent of the FTSE 250 and FTSE4Good Index Series. It is a
participant in the UN Global Compact, a member of the Ellen
MacArthur Foundation, has approved short term Science Based Targets
to 2030 and is committed to developing a long-term target to reach
net-zero emissions by 2050, the highest level of ambition on
climate change under the Science Based Target initiative. The
pioneering history and innovative culture of Coats enable the
delivery of its purpose to connect talent, textiles and technology
to make a better and more sustainable world. For further
information go to www.coats.com .
Cautionary statement
Certain statements in this full year report are forward-looking.
Although the Group believes that the expectations reflected in
these forward-looking statements are reasonable, we can give no
assurance that these expectations will prove to have been correct.
Because these statements contain risks and uncertainties, actual
results may differ materially from those expressed or implied by
these forward-looking statements. We undertake no obligation to
update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Appendix:
FY 2021 FY 2020 FY 2019 FY 2021 vs FY 2020 FY 2021 vs FY 2019
------------------------------ -------- -------- -------- ------------------------- --------------------------
Continuing operations
(3) Reported CER Organic Reported CER Organic
------------------------------ -------- -------- -------- --------- ---- -------- --------- ----- --------
Revenue $1,504m $1,163m $1,389m 29% 29% 29% 8% 11% 6%
Adjusted (1)
Operating profit $193m $111m $198m 75% 74% 75% (2)% (1)% (1)%
Basic earnings per
share 6.8c 2.4c 7.0c
Free cash flow $113m $28m $107m
Net debt (excl.
lease liabilities) $147m $181m $150m
Reported (2,3)
Operating profit $179m $103m $191m 74% 74% 74% (6)% (4)% (4)%
Basic earnings per
share 6.1c 1.8c 6.7c
Net cash generated
by operating activities $129m $66m $144m
Final dividend per
share 1.50c 1.30c nil
Group Chief Executive's review
Purpose and strategy
Our priorities are to accelerate profitable sales growth and to
transform Coats to deliver sustainable stakeholder value.
2021 full year results overview
2021 was a year of demand recovery and strong market share
gains. Coats delivered sales growth of 29% over 2020 and an organic
sales growth of 6% over 2019. Momentum increased throughout the
course of 2021 with the final two months of the year seeing growth
of 20% vs 2019 in both Apparel & Footwear ("A&F") and
Performance Materials ("PM"), vs 6% for the Group for the four
months ended October and 1% in the first half of the year.
2021 was also a year of significant supply chain challenges. Our
global scale, technology infrastructure, health and safety focus,
talented teams and strong supplier relationships meant we were able
to navigate Covid-related lockdowns in some of our key markets, as
well as inflationary pressures, supply chain disruption and labour
availability issues. We quickly identified and reacted to these
challenges by successfully implementing pricing and self-help
programmes to offset increased raw material, freight and labour
costs and, at the same time, continuing to provide our customers
with the high quality service they expect from Coats.
The Group saw strong thread market share gains in A&F (up 2%
to 23%) and customer share wins in PM as customers prioritised
sustainability, quality, speed, supply chain flexibility and
innovation.
Adjusted operating profit was $193 million for the full year.
Adjusted operating profit margin of 12.8% was well ahead of 2020
(9.5%) and slightly lower than 2019 (14.3%) primarily due to labour
disruption in the wider US business, and lockdown impacts in Asia
in Q2 and Q3. A&F adjusted operating margins were 15.0%, with
PM adjusted operating margins of 7.1%, or 14.4% excluding the US.
Earnings saw a strong recovery towards pre-Covid levels as
operating profit recovery was accompanied by a normalisation of our
tax rate and lower interest charges.
Strong adjusted free cash flow of $113 million has led to net
debt (excl. lease liabilities) at the end of the period of $147
million, giving 0.7x leverage, below the lower end of our target
leverage range of 1-2x, providing a strong platform to take
advantage of attractive organic and inorganic investment
opportunities to further accelerate growth in the future.
Strategic enablers: Sustainability, Digital and Innovation
Our strategic enablers of Sustainability, Digital and Innovation
underpin our strategy to accelerate profitable sales growth and to
deliver sustainable stakeholder value.
Sustainability
A key part of our company purpose is to make a better and more
sustainable world. When we launched our sustainability strategy,
'Pioneering a sustainable future', in 2019, we laid out ambitious
targets for 2022 and 2024. We remain committed to those targets and
have significantly increased our ambitions in order to evolve our
sustainability strategy and increase momentum, as well as to
further enhance our competitive advantage. We will reduce emissions
by 46% in this decade and reach net zero by 2050. By 2030, 70% of
our global energy consumption will come from renewables. Our other
new targets are:
-- Eco materials: By 2030, all Coats products will be made completely
independently of new oil-extraction materials such as polyester
and nylon
-- Circularity: We will shift to circularity, creating products
and packaging solutions that enable recycling and reuse, both
within our own operations and across the wider garment industry
We will continue to invest in our sustainability strategy and
have earmarked $10m to fund the scaling up of green technologies
and materials that are relevant to our industry supply chain. Our
Asia Innovation Hub in Shenzhen, China is being re-purposed to
focus on the application of biomaterials.
Meanwhile we have made very good progress on our 2022 targets,
in particular:
-- One of our 2019 targets was to have external social certifications,
such as Great Place to Work, across all our key sites, with
over 80% of our employees in certified sites by 2022. Last year,
we achieved 83%, reaching the target a year early
-- We also saw excellent sales growth in EcoVerde, our range of
100% recycled products, with revenues for the full year up 159%
to $96 million (FY2020 $37 million), on track for our 2024 target
for all our premium polyester threads to be made from 100% recycled
material
-- We have almost achieved our energy reduction target of 7% (6.9%
reduction) a year early, and expect to deliver substantially
better than the target in 2022.
Digital
Our investment in technology infrastructure and digital tools
has allowed us to flex our supply chain, react to situations with
speed and ensure we are focused on customer, shareholder and
employee value creation. In 2021 we enhanced our digital customer
ecosystem, ShopCoats, through which customers can, for example, use
automated bulk and sample ordering and status management. We
onboarded valuable key accounts through system integration,
refreshed our front-end order system and used Microsoft Dynamics
CRM to further professionalise our sales and customer service
systems. These tools give us speed, agility, lower cost and more
customer satisfaction.
Innovation
We continue to create innovative new solutions to solve our
customers' current and emerging challenges. During 2021 we launched
21 new products across both A&F and PM (FY2020 22 new
products), delivering incremental revenues of $37 million (FY2020:
$13 million). Examples of innovation within A&F include Lattice
Lite Eco, a revolutionary fibre-laying technology using sustainable
materials to create footwear composite materials for the next
generation of high performance supershoe. We also launched EcoRegen
during 2021, a biodegradable thread made from 100% lyocell, and
part of Coats' Eco Journey roadmap to produce innovative
sustainable products which support our drive towards a circular
economy. In PM, the largest selling innovation was a new FlamePro
product called FlamePro Orbit with lighter weight, higher
performance and improved strength and protection qualities. We also
developed Epic Patriot for US non-flame retardant military
applications with a specially formulated lubricant. Our innovation
pipeline to deliver further incremental revenues in the future
remains strong and we will continue to accelerate our innovation
credentials and solutions in order to deliver tailored solutions to
meet customers' design requirements.
Dividend
The Board is mindful of the importance of returns to
shareholders and, as a result of the strength of the Group's
balance sheet, the strong growth and recovery out of the Covid
pandemic, and its confidence in the strategy and growth outlook for
the Group, it is pleased to propose a final dividend of 1.50 cents
per share, +15% vs the 2020 final dividend (1.30c). Subject to
approval at the forthcoming AGM, the final dividend will be paid on
25 May 2022 to ordinary shareholders on the register at 29 April
2022, with an ex-dividend date of 28 April 2022. Alongside the
interim dividend of 0.61 cents per share, this makes a total of
2.11 cents per share for the full year 2021.
Strategic Projects
The Group has commenced a number of strategic projects to
improve margins by optimising the portfolio and footprint,
improving the overall cost base efficiency, and mitigating
structural labour availability issues in the US. These projects
will result in anticipated incremental adjusted operating profit of
$50 million by 2024. Total cash exceptional costs are expected to
be around $35 million.
Outlook
The strong end to the year has continued into the start of 2022,
and despite some evidence of stock replenishment from customers
during this period, we expect continued growth for 2022 as a whole.
We remain confident in our ability to offset inflationary pressures
through pricing and productivity actions. We now anticipate the
Group's FY 2022 performance to be modestly ahead of our previous
expectations.
Operating review
FY 2021 FY 2021
vs FY vs FY
2020 2019
CER Organic Organic
Inc / (1) (1) Inc / CER (1) (1)
FY 2021 FY 2020 FY 2019 (dec) inc/(dec) inc/(dec) (dec) inc/(dec) inc/(dec)
--------------
$m $m $m % % % % % %
-------------- ---------- -------- -------- -------- ---------- ----------- --------- ----------- -----------
Revenue (2)
By segment
A&F 1,094 823 1,063 33% 33% 33% 3% 5% 5%
PM 409 341 326 20% 21% 19% 26% 29% 8%
---------- -------- --------
Total 1,504 1,163 1,389 29% 29% 29% 8% 11% 6%
By region
Asia 846 629 800 34% 33% 33% 6% 6% 6%
Americas 375 315 323 19% 20% 19% 16% 23% 2%
EMEA 282 219 266 29% 31% 31% 6% 10% 10%
---------- -------- --------
Total 1,504 1,163 1,389 29% 29% 29% 8% 11% 6%
Adjusted
operating
profit (2,3)
By segment
A&F 164 96 156 72% 72% 72% 5% 6% 6%
PM 29 15 42 93% 92% 94% (30)% (28)% (28)%
---------- -------- --------
Total
adjusted
operating
profit 193 111 198 75% 74% 75% (2)% (1)% (1)%
Exceptional
and
acquisition
related
items (14) (7) (7)
----------
Operating
profit 179 103 191 74% 74% 74% (6)% (4)% (4)%
Adjusted
operating
margin (2,3)
By segment
A&F 15.0% 11.6% 14.7% 340bps 340bps 340bps 30bps 10bps 10bps
PM 7.1% 4.4% 12.8% 270bps 260bps 280bps (570)bps (560)bps (420)bps
---------- -------- --------
Total 12.8% 9.5% 14.3% 330bps 330bps 340bps (140)bps (160)bps (100)bps
1 Constant Exchange Rate (CER) are 2020 and 2019 results restated
at 2021 exchange rates. Organic vs 2020 on a CER basis includes
like-for-like contributions from Pharr HP (post acquisition date
of February 2020). Organic vs 2019 on a CER basis includes like-for-like
contributions from ThreadSol (post acquisition date of February
2019) and excludes contribution from Pharr HP (acquired in February
2020).
2 Includes contribution from bolt-on acquisitions made during the
period.
3 On an adjusted basis which excludes exceptional and acquisition-related
items.
FY 2021 Operating Results overview
In A&F we are growing faster than the market because of our
excellent reputation for quality, our value proposition, our global
footprint and our drive for innovative and sustainable products. In
PM we continue to grow our customer share, and we see high growth
opportunities in both Composites and Personal Protection, combining
our innovative and differentiated product offerings.
Group revenues of $1,504m increased 29% vs 2020 on a reported
basis as the business recovered from the Covid pandemic. Group
revenues on an organic basis increased 6% vs 2019 with continued
accelerating momentum, delivering a performance above pre-Covid
levels; this included accelerating momentum throughout the year
with 20% growth vs 2019 in November and December (vs 1% at the half
year, and 6% in July to October).
Group adjusted operating profit of $193 million increased 75%
(FY2020: $111 million, FY2019: $198 million). Adjusted operating
margins were up 330bps to 12.8% (FY2020: 9.5%, FY2019: 14.3%).
Adjusted earnings per share ('EPS') for the period increased to
6.8 cents (2020: 2.4 cents, 2019: 7.0 cents), b ack towards
pre-Covid levels as operating profits and tax rates normalised from
the significant disruption seen in 2020.
Apparel & Footwear ('A&F')
Our A&F business benefited from a robust recovery in demand
and saw strong thread market share gains (up 2% to 23%) as it
leveraged its key customer relationships, its strong sustainability
credentials, its market-leading product ranges and technical
services, and its flexibility and agility in a turbulent supply
chain environment.
The division saw strong growth of 33%, demonstrating the
strength of our global footprint and ability to support customers
during Covid lockdowns across Asia in Q2 and Q3. Our global
accounts programme, in which we dedicate customer relationship
resources to our key brands and retailers, saw excellent new
customer and programme wins.
All of our regions (US, Europe and Asia) benefited from positive
end market sentiment. Trends towards Sports and Athleisure as well
as casualisation continued to accelerate through the second half
whilst online adoption, a shift towards premium products and supply
chain digitisation advanced further. Supplier consolidation,
nearshoring and the customer need for speed were also prominent
trends and unsurprisingly, our customers continue to place
increasing emphasis on their own sustainability agendas. The
ongoing demand shift from West to East and growth in domestic Asia
also played to our strengths, with strong growth from domestic
China brands and revenue for our China domestic business up 36% vs
2020.
All of the A&F sub-segments had strong revenue growth in
2021; A&F thread up 34%, zips and trims up 29%, Latin America
Crafts up 8% and Coats Digital up 22%. Coats Digital, our Fashion
Tech business, enables fashion brands, sourcing companies, and
manufacturers to optimise, connect and accelerate business-critical
processes seamlessly. In 2021 bookings saw high double-digit growth
ahead of reported sales growth, indicating confidence for continued
future growth. The order pipeline remains strong for 2022.
Adjusted operating profit for A&F increased 72% vs 2020.
Adjusted operating margin was up 340bps to 15.0% vs 2020. This was
as a result of excellent commercial and operational delivery,
pricing actions and procurement self-help initiatives more than
offsetting heightened inflationary pressures and the Covid
disruptions during the year.
2019 comparatives
As noted above, our A&F business had a strong year with
revenues up 5% vs 2019 levels despite Covid-related lockdowns in
Asia. By sub-segment, A&F thread revenues (c.85% of segment
revenue) were up 6% vs 2019, with zips and trims (c.9% of segment
revenue) up 13% in the second half to end the year flat vs
2019.
A&F adjusted operating margins were 30bps ahead of 2019
despite Covid-related lockdowns in Asia as a result of excellent
commercial and operational delivery, tight control of discretionary
spend, and supported by volume recovery.
Performance Materials ('PM')
To more clearly align to the growth opportunities for the PM
segment, the Group is changing the way in which it operates and
reports the sub-segments of the division. From 2022 the Group will
divide PM into Personal Protection (c.40% of divisional revenue),
Composites (c.25%) and Performance Thread (c.35%). Performance
Thread will be made up of the majority of the former Household
& Recreation, Transportation and Other Industrial Applications
sub-segments. The medium-term growth rates expected for each
sub-segment are high single digits for Personal Protection,
double-digit for Composites, and global GDP growth for Performance
Thread. There is no change to the overall growth expectations of
the division of mid-high single digit growth medium term.
Revenues recovered well in all segments, with organic growth of
19% vs 2020, including a recovery in Personal Protection which grew
by 40% in November and December to end the year up 12% on an
organic basis.
The division saw further customer share gains as well as new
customer wins in the second half across all sub-segments, such as a
Composites programme with a leading sports footwear manufacturer
for its premium marathon shoe, increased share with automotive
suppliers in Performance Thread, and Oil & Gas customers in
Personal Protection.
Overall, PM revenues grew 21% on a CER basis (20% reported),
consisting of organic growth of 19% and a 2% contribution from the
acquisition of Pharr HP. Organic revenue growth performance vs 2020
was underpinned by all sub-segments with strong demand in
Composites (+32%), Personal Protection (+12%) and Performance
Thread (+20%).
Adjusted operating profit increased 92% on a CER basis to $29
million and at an adjusted operating margin level, PM margins were
up 260 bps to 7.1%, in line with guidance of mid to high single
digits. PM margins for the year were however adversely impacted in
the US by labour availability issues and labour inflation.
Excluding the US business, PM margins were 14.4% indicating a
healthy recovery of margins elsewhere in the segment.
2019 comparatives
Compared to 2019 PM saw organic revenue growth of 8% with all
segments performing strongly (and in line with the trends described
above); Composites was up 15%, Performance Thread was up 10% and
Personal Protection recovered in November and December to end the
year flat vs 2019 on an organic basis.
Operating margins remained down on 2019 (560bps on a CER basis)
primarily as a result of the operational impacts of labour
disruption in the wider US business, but saw an improving trend in
the second half.
Geographical performance
We saw strong recovery across all regions with significant
growth vs 2020 driven by improving end market sentiment and Coats'
strong customer proposition.
In Asia, we saw revenue increase by 33%, driven by key A&F
markets. This was 6% up on 2019 revenue levels, as this region saw
the fastest recovery from Covid, despite some ongoing impacts in
the period, most notably in India which suffered lockdowns in the
second quarter and in Vietnam in the third quarter. Performance in
China saw strong sales to domestic brands and in Bangladesh sales
to the apparel export market were healthy. PM also performed well
in Asia with growth in China as well as in India which saw
increased production due to US demand.
Our Americas business saw organic revenues grow by 19% vs 2020,
with 2% organic growth vs 2019 after an improved second half and
growth in Brazil and Colombia. Consumer demand remains strong in
the US across all PM segments.
In Europe, which was also impacted significantly by Covid last
year, we saw revenues grow by 31% vs 2020, and 10% above 2019. This
strong recovery was driven by the recovery in PM in telecom
composites and transportation as fibreoptics and automotive sales
remained robust, led by our key markets in Spain and Turkey. Zips
also saw a recovery in demand.
Financial Review
Revenues
Group revenues increased 29% on a reported and organic CER
basis, as all markets recovered strongly having been adversely
impacted by the Covid pandemic in 2020. All commentary below is on
a CER basis unless otherwise mentioned.
Compared to pre-Covid (2019) levels, revenues in the year were
up 6% on an organic basis, as demand accelerated during the year,
and this was despite the ongoing Covid disruption seen across Asia
in Q2 and Q3.
Operating profit
At a Group level, adjusted operating profit increased from $111
million in 2020 to $193 million (2019: $198 million) and adjusted
operating margins were up 330bps to 12.8% (2019: 14.3%). The table
below sets out the movement in adjusted operating profit during the
year:
Margin
$m %
2020 adjusted operating profit 111 9.5%
----- -------
Volumes impact (direct and indirect) 129
----- -------
Price/mix 37
----- -------
Raw material inflation (25)
----- -------
Freight inflation (20)
----- -------
Other cost inflation (e.g. labour, energy) (17)
----- -------
Productivity benefits (manufacturing
and sourcing) 22
----- -------
Normalisation of SD&A costs (34)
----- -------
Others (e.g. FX) (9)
----- -------
2021 adjusted operating profit 193 12.8%
----- -------
Exceptional and acquisition related items (14)
----- -------
2021 reported operating profit 179 11.9%
----- -------
The direct and indirect volume impact of the Covid disruption,
particularly in H1 2020, was a significant headwind on profits and
margins in the prior year, as lower utilisation of factories led to
an under recovery of manufacturing overheads. As a result of the
ongoing strong Covid recovery, these volume impacts were largely
reversed during the year, albeit there was some adverse impact
felt, particularly in relation to Asia in Q2 and Q3 due to further
lockdowns which produced manufacturing under recoveries in those
quarters.
As a result of increasing oil prices in the latter part of 2020
and throughout 2021 we saw year-on-year inflationary headwinds on
raw material costs, sea freight as a result of container
availability and other costs such as labour and energy. As in
previous periods we were successful in mitigating these
inflationary pressures with productivity benefits and pricing /
surcharges. We expect these inflationary pressures to continue into
2022; the pricing actions taken throughout 2021 position us well to
continue to offset these.
We moved decisively to underpin our SD&A cost base during
2020 by minimising discretionary spend (for example travel, staff
bonuses, Long Term Incentive Plans and consulting costs) and
variable costs of selling. As expected, these savings normalised in
the year as the business recovered, and resulted in a $34 million
normalisation of our SD&A costs.
As a result of these factors, the Group's adjusted operating
margins significantly increased to 12.8% (FY2020: 9.5%).
On a reported basis, Group operating profit (including
exceptional and acquisition-related items) was $179 million (2020:
$103 million). See below for a breakdown of these exceptional
items. Exceptional and acquisition-related items are not allocated
to segments, and as such the segmental profitability referred to
above is on an adjusted basis only.
Foreign exchange
As the Company reports in US Dollars and given that its global
footprint generates significant revenues and expenses in a number
of other currencies, a translational currency impact can arise. For
the full year, this impact was minimal on sales, and a marginal
headwind on an adjusted operating profit, primarily due to
movements in the Turkish Lira, Euro, and Colombian Peso. At current
exchange rates (31 December 2021) we expect a c.2% headwind on
revenues for the Full Year 2022.
Free cash flow
The Group delivered an adjusted free cash flow of $113 million
in the year (2020: $28 million). This was a significant improvement
on 2020 as the trading of the business continued to recover from
the Covid disruption in 2020, as well as a disciplined approach to
capital expenditure in the Covid recovery phase ($31 million), and
despite some investment in working capital (inventory levels up $63
million year-on-year) to support our service levels during the
strong demand recovery.
Non-operating results
Adjusted earnings per share ('EPS') for the year increased to
6.8 cents (2020: 2.4 cents). This significant increase was due to
the recovery in adjusted profit before tax (up from $86.4 million
to $172.5 million), and the expected normalisation in the
underlying effective tax rate to 31% (2020: 39%) as profitability
returned to pre-Covid levels. The increase in adjusted profit
before tax was due to the increase in adjusted operating profit
($82 million increase), and a net interest charge which was $4
million lower year-on-year (see below for further details).
Net finance costs in the year were $21.8 million
(pre-exceptional), a $3 million decrease year-on-year (2020: $24.8
million). The key drivers of the decrease in net finance costs in
the year were a $0.5 million reduction in interest on bank
borrowings due to lower interest rates, and lower corporate
facility utilisation compared to 2020. In addition, there was a
$2.6 million favourable movement year on year in relation to
foreign exchange rate movements. These were partially offset by a
$1.3 million increase in interest on lease liabilities due to
certain new leases taken out during the year.
The taxation charge for the year was $54.4 million (2020: $37.4
million). Excluding the impact of exceptional and
acquisition-related items and the impact of IAS19 finance charges,
the effective tax rate on pre-tax profit was 31% (2020: 39%). As
profitability normalised to pre-Covid levels in 2021, so did the
effective tax rate, as expected.
The reported tax rate was 33% (2020: 47%), which includes the
impact of exceptional and acquisition related items.
Profit attributable to minority interests was $19.7 million and
was predominantly related to Coats' operations in Vietnam and
Bangladesh (in which it has controlling interests). This was 25%
above the 2020 level ($15.8 million), which is lower than the
overall adjusted operating profit growth for the Group (up 75% on
2020), which reflects the relative strength of performance of those
territories during 2020.
Exceptional and acquisition-related items
Net exceptional and acquisition-related items before taxation
were $9.5 million (2021: $6.8 million). These include strategic
project costs of $3.7 million and acquisition-related items of
$15.8 million. Strategic project costs were offset by a credit in
relation to the recognition of a historic indirect tax claim within
Brazil which is now deemed virtually certain and resulted in a $5.8
million exceptional credit within operating profit and a further
$4.2 million exceptional interest income.
Strategic project costs of $3.7 million relate to the
commencement of a number of strategic initiatives during 2021. It
is anticipated that cash exceptional costs in the order of $35
million will be incurred in relation to these and further strategic
initiatives across 2022 and 2023 in total. The resulting benefits
are anticipated to deliver incremental adjusted operating profit of
$50 million by 2024.
Acquisition-related items of $15.8 million consisted of the
amortisation of intangible assets acquired in previous acquisitions
($3.3 million), transaction costs in relation to the pursuit of
strategic acquisition opportunities during the year ($12.4
million), and acquisition earnouts ($0.1 million). Growth through
acquisitions is a key element of the Group's strategy and the Group
will continue to be disciplined in the assessment of acquisition
opportunities as they arise. The Group looks to identify companies
with complementary capabilities that can further strengthen the
core, technology, innovations, or Intellectual Property and which
can be scaled to deliver growth and value for customers and
shareholders.
Cash flow
The Group delivered $113 million of adjusted free cash flow in
the year (2020: $28 million). This free cash flow measure is before
annual pension deficit recovery payments, acquisitions and
dividends, and excludes exceptional items.
This adjusted free cash flow performance was significantly ahead
of 2020 as a result of the recovery of adjusted operating profit,
alongside continued well controlled net working capital outflows
($15 million outflow) despite a number of inflationary pressures on
our cost base and an investment in inventory to support supply
chain disruption.
Capital expenditure was above 2020 ($15 million) at $31 million,
as we invested selectively in the most appropriate opportunities in
the Covid recovery phase. Minority dividend payments of $17 million
were incurred (2020: $18 million) which relate to the repatriation
of cash from local operations to the Group. Tax paid was $48
million, broadly in line with 2020, which was lower than the
P&L charge as it reflects some timing benefit from the lower
tax charge in 2020, which benefited the first half.
The Group generated a free cash flow of $33 million in the year
(2020: $23 million outflow), which primarily reflects the adjusted
free cash flow of $113 million, offset by UK pension payments of
$42 million (being $33 million of ongoing deficit recovery payments
and administrative expenses, and $9 million catch up of deferred
2020 payments), shareholder dividends ($27 million), and
exceptional costs of $11 million.
As a result of the above free cash flow, net debt (excluding the
impact of lease liabilities) as at 31 December 2021 was $147
million (31 December 2021: $181 million). Including the impact of
lease liabilities, net debt as at 31 December 2021 was $246 million
(31 December 2020: $247 million).
Capital expenditure
Capital expenditure for the year was $31 million (2020: $15
million). As we continue to recover out of Covid, and in order to
continue to support our longer-term growth strategy and further
reinforce our strong environmental compliance credentials, we
anticipate capital expenditure to be in the $35-45 million range
for 2022.
Pensions and other post-employment benefits
The net surplus for the Group's retirement and other
post-employment defined benefit liabilities (UK and other Group
schemes), on an IAS19 financial reporting basis, was $21 million as
at 31 December 2021, which was $247 million lower than 31 December
2020 ($226 million liability). This decrease was primarily due to
movements on the UK scheme.
The Coats UK Pension Scheme, which is a key constituent of the
Group defined benefit liabilities, showed a $108 million IAS19
surplus at 31 December 2021 (GBP80 million), which was $237 million
better than at 31 December 2020 (deficit of $129 million, or GBP94
million). This improvement predominantly relates to net actuarial
gains of $203 million (higher discount rate due to higher corporate
bond yields, experience gains and asset outperformance), and $37
million employer contributions (excluding administrative
expenses).
In agreement with the trustees of the Coats UK Pension Scheme,
and as part of the wider Covid underpinning actions, in 2020 we
agreed to defer the remaining deficit recovery payments for that
year (April-December inclusive), to provide an additional c.$21
million of headroom cover. The catch up of these payments commenced
in May 2021 and will be evenly spread over a period of around 18
months. As a result, total payments in 2021 were $42 million (which
includes $9 million in relation to the start of the catch-up of the
2020 deferred contributions).
UK triennial update
The effective date for the latest UK scheme triennial valuation
was 31 March 2021. This valuation was successfully completed and
agreed with the Trustees during the year, ahead of schedule, with a
resulting Technical Provisions deficit of GBP193 million which is
GBP59 million lower than the previously agreed valuation in 2018.
As a result of this valuation, future contributions remain at the
previously agreed levels of GBP22 million ($29 million) per annum
(indexing) up until 2028, and result in the pay down of the deficit
slightly earlier than originally planned. The Group will continue
to pay the scheme administrative expenses and levies of around $5
million per annum. Together with the remaining catch up of deferred
2020 contributions, 2022 payments are expected to be around $46
million.
Balance sheet and liquidity
Group net debt (excluding lease liabilities) as at 31 December
2021 was $147 million ($246 million including lease liabilities),
which was lower than 31 December 2020 ($181 million), and reflects
strong cash management as noted above.
At 31 December 2021, our leverage ratio (net debt to EBITDA;
both excluding lease liabilities) was 0.7x and remains well within
our 3x covenant limit, and slightly below the lower end of our
target leverage range of 1-2x. Our interest cover covenant also
maintained significant headroom at 31 December 2021 at 28x vs a
covenant of 4x. These covenants are tested twice annually at June
and December, and are monitored throughout the year. Committed
headroom on our banking facilities was around $330 million at 31
December, which remains at a comfortable level allowing us
strategic optionality to consider the most attractive organic and
inorganic investments in the post Covid recovery phase.
Going concern
On the basis of current financial projections and the facilities
available, the Directors are satisfied that the Group has adequate
resources to continue for at least the next 12 months and,
accordingly, consider it appropriate to adopt the going concern
basis in preparing the financial statements. Further details of our
going concern assessment, financial scenarios and conclusions can
be seen in note 1.
Coats Group plc
Consolidated income statement
For the year ended
31 December 2021 2020
Exceptional Exceptional
Before and Before and
exceptional acquisition exceptional acquisition
and related and related
acquisition items acquisition items
related (see note related (see note
items 3) Total items 3) Total
Notes US$m US$m US$m US$m US$m US$m
Continuing operations
Revenue 1,503.8 - 1,503.8 1,163.3 - 1,163.3
Cost of sales (1,025.3) 5.8 (1,019.5) (806.6) (4.9) (811.5)
------------- ------------- ---------- ------------- ------------- --------
Gross profit 478.5 5.8 484.3 356.7 (4.9) 351.8
Distribution costs (135.3) - (135.3) (116.1) - (116.1)
Administrative
expenses (150.1) (19.5) (169.6) (130.0) (4.0) (134.0)
Other operating
income - - - - 1.4 1.4
------------- ------------- ---------- ------------- ------------- --------
Operating profit 193.1 (13.7) 179.4 110.6 (7.5) 103.1
Share of profits
of joint ventures 1.2 - 1.2 0.6 - 0.6
Finance income 4 0.4 4.2 4.6 0.7 0.7 1.4
Finance costs 5 (22.2) - (22.2) (25.5) - (25.5)
------------- ------------- ---------- ------------- ------------- --------
Profit before
taxation 172.5 (9.5) 163.0 86.4 (6.8) 79.6
Taxation 6 (53.5) (0.9) (54.4) (35.2) (2.2) (37.4)
------------- ------------- ---------- ------------- ------------- --------
Profit for the
year 119.0 (10.4) 108.6 51.2 (9.0) 42.2
------------- ------------- ---------- ------------- ------------- --------
Attributable to:
----------------------- ------ ------------- ------------- ---------- ------------- ------------- --------
EQUITY SHAREHOLDERS
OF THE COMPANY 99.3 (10.4) 88.9 35.4 (9.0) 26.4
----------------------- ------ ------------- ------------- ---------- ------------- ------------- --------
Non-controlling
interests 19.7 - 19.7 15.8 - 15.8
------------- ------------- ---------- ------------- ------------- --------
119.0 (10.4) 108.6 51.2 (9.0) 42.2
------------- ------------- ---------- ------------- ------------- --------
Earnings per share
(cents) 7
Basic 6.10 1.81
Diluted 6.07 1.81
Adjusted earnings
per share 12 6.81 2.42
Consolidated statement of comprehensive income
Year ended 31 December 2021 2020
US$m US$m
Profit for the year 108.6 42.2
Items that will not be reclassified
subsequently to profit or loss:
Actuarial gains/(losses) on retirement
benefit schemes 212.8 (39.7)
Tax on items that will not be reclassified (1.0) 0.1
------- -------
211.8 (39.6)
Items that may be reclassified subsequently
to profit or loss:
Net change in fair value of cash flow
hedges - (2.4)
Exchange differences on translation
of foreign operations (17.0) (13.3)
(17.0) (15.7)
Other comprehensive income and expense
for the year 194.8 (55.3)
------- -------
Net comprehensive income and expense
for the year 303.4 (13.1)
------- -------
Attributable to:
--------------------------------------------- ------- -------
EQUITY SHAREHOLDERS OF THE COMPANY 284.2 (28.9)
---------------------------------------------- ------- -------
Non-controlling interests 19.2 15.8
303.4 (13.1)
------- -------
Consolidated statement of financial position
31 December 31 December
Notes 2021 2020
US$m US$m
Non-current assets
Intangible assets 282.9 288.6
Property, plant and equipment 244.5 254.4
Right-of-use assets 91.6 60.7
Investments in joint ventures 12.0 11.1
Other equity investments 6.0 6.0
Deferred tax assets 20.7 22.7
Pension surpluses 159.7 11.4
Trade and other receivables 28.7 19.0
------------ ------------
846.1 673.9
Current assets
Inventories 250.1 187.0
Trade and other receivables 302.7 274.5
Other equity investments - 0.1
Pension surpluses 5.2 4.8
Cash and cash equivalents 11(f) 107.2 71.9
665.2 538.3
Total assets 1,511.3 1,212.2
------------ ------------
Current liabilities
Trade and other payables (346.8) (255.7)
Current income tax liabilities (16.5) (13.9)
Bank overdrafts and other
borrowings (19.2) (22.8)
Lease liabilities (17.8) (16.4)
Retirement benefit obligations:
- Funded schemes (41.9) (35.3)
- Unfunded schemes (6.1) (7.1)
Provisions (8.1) (8.2)
(456.4) (359.4)
Net current assets 208.8 178.9
------------ ------------
Non-current liabilities
Trade and other payables (24.2) (18.1)
Deferred tax liabilities (6.8) (9.0)
Borrowings (235.1) (229.7)
Lease liabilities (81.2) (49.6)
Retirement benefit obligations:
- Funded schemes (5.6) (100.1)
- Unfunded schemes (90.2) (99.5)
Provisions (27.7) (27.9)
(470.8) (533.9)
Total liabilities (927.2) (893.3)
------------ ------------
Net assets 584.1 318.9
------------ ------------
Equity
Share capital 8 90.1 90.1
Share premium account 10.5 10.5
Own shares 8 (0.5) (3.2)
Translation reserve (105.7) (89.2)
Capital reduction reserve 59.8 59.8
Other reserves 246.3 246.3
Retained profit/(loss) 252.5 (23.8)
EQUITY SHAREHOLDERS' FUNDS 553.0 290.5
------------------------------------------- ------------ ------------
Non-controlling interests 31.1 28.4
------------ ------------
Total equity 584.1 318.9
------------ ------------
Consolidated statement of changes in equity
For the year ended 31 December 2021
Share Capital Retained Non-
Share premium Own Translation reduction Other profit/ controlling Total
capital account shares reserve reserve reserves (loss) Total interests equity
US$m US$m US$m US$m US$m US$m US$m US$m US$m US$m
------------
Balance as at
1 January
2020 89.6 10.5 (5.7) (75.9) 59.8 248.7 (5.9) 321.1 30.4 351.5
Profit for the
year - - - - - - 26.4 26.4 15.8 42.2
Other
comprehensive
income and
expense
for the year - - - (13.3) - (2.4) (39.6) (55.3) - (55.3)
Dividends - - - - - - - - (17.8) (17.8)
Issue of
ordinary
shares 0.5 - - - - - (0.5) - - -
Movement in
own
shares - - 2.5 - - - (5.8) (3.3) - (3.3)
Share based
payments - - - - - - 1.6 1.6 - 1.6
Balance as
at
31 December
2020 90.1 10.5 (3.2) (89.2) 59.8 246.3 (23.8) 290.5 28.4 318.9
Profit for the
year - - - - - - 88.9 88.9 19.7 108.6
Other
comprehensive
income and
expense
for the year - - - (16.5) - - 211.8 195.3 (0.5) 194.8
Dividends - - - - - - (27.6) (27.6) (16.5) (44.1)
Movement in
own
shares - - 2.7 - - - (0.8) 1.9 - 1.9
Share based
payments - - - - - - 3.9 3.9 - 3.9
Deferred tax
on
share schemes - - - - - - 0.1 0.1 - 0.1
Balance as
at
31 December
2021 90.1 10.5 (0.5) (105.7) 59.8 246.3 252.5 553.0 31.1 584.1
-------------- -------- -------- ------- ------------ ---------- --------- --------- ------- ------------ -------
Consolidated statement of cash flows
For the year ended 31 December 2021 2020
Note US$m US$m
Cash inflow from operating
activities
11
Cash generated from operations (a) 189.0 128.0
Interest paid (12.5) (16.1)
11
Taxation paid (b) (47.9) (46.3)
-------- ---------
Net cash generated by operating
activities 128.6 65.6
-------- ---------
Cash outflow from investing
activities
11
Investment income (c) 0.3 0.9
Net capital expenditure and 11
financial investment (d) (30.3) (12.3)
Acquisitions and disposals 11
of businesses (e) - (36.9)
Net cash absorbed in investing
activities (30.0) (48.3)
-------- ---------
Cash outflow from financing
activities
Purchase of own shares - (3.1)
Dividends paid to equity shareholders (27.4) (0.2)
Dividends paid to non-controlling
interests (16.5) (17.8)
Payment of lease liabilities (22.1) (19.4)
Net increase/(decrease) in
borrowings 8.4 (58.7)
-------- ---------
Net cash absorbed in financing
activities (57.6) (99.2)
-------- ---------
Net increase/(decrease) in
cash and cash equivalents 41.0 (81.9)
Net cash and cash equivalents
at beginning of the year 52.1 135.9
Foreign exchange losses on
cash and cash equivalents (2.3) (1.9)
-------- ---------
Net cash and cash equivalents 11
at end of the year (f) 90.8 52.1
-------- ---------
Reconciliation of net cash
flow to movement in net debt
Net increase/(decrease) in
cash and cash equivalents 41.0 (81.9)
Net (increase)/decrease in
other borrowings (8.4) 58.7
-------- ---------
Change in net debt resulting
from cash flows
(Free cash flow) 32.6 (23.2)
Net movement in lease liabilities
during the period (33.0) (0.3)
Movement in fair value hedges 3.0 (5.4)
Other non-cash movements (1.3) (0.7)
Foreign exchange losses (0.8) (2.1)
-------- ---------
Decrease/(increase) in net
debt 0.5 (31.7)
Net debt at the start of the
year (246.6) (214.9)
-------- ---------
Net debt at the end of the 11
year (f) (246.1) (246.6)
-------- ---------
Notes to the consolidated financial information for the year
ended 31 December 2021
1. Basis of preparation
The financial information set out in this statement does not
constitute the Coats Group plc's statutory accounts for the years
ended 31 December 2021 or 2020. The financial information for the
year ended 31 December 2020 and 2021 is derived from the statutory
accounts for 2020 (which has been delivered to the Registrar of
Companies) and 2021 (which will be delivered to the Registrar of
Companies following the AGM in May 2022). The auditors have
reported on the 2020 and 2021 accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Sections 498(2) or 498(3) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2021 are
prepared in accordance with International Financial Reporting
Standards ('IFRS') as adopted by the United Kingdom Endorsement
Board (UKEB), and complies with the disclosure requirements of the
Listing Rules of the UK Financial Conduct Authority. The accounting
policies adopted by the Group are consistent with those set out in
the 2020 Annual Report. A full list of accounting policies is
presented in the 2021 Annual Report. For details of new accounting
policies applicable to the Group in 2021 and their impact please
refer below.
Whilst the financial information included in this statement has
been compiled in accordance with the recognition and measurement
principles of applicable IFRS, this statement does not itself
contain sufficient information to comply with IFRS. Full Financial
Statements that comply with IFRS are included in the 2021 Annual
Report; these will be available to shareholders in March 2022.
Critical accounting judgements and key sources of estimation
uncertainty
The principal accounting policies adopted by the Group are set
out in 2021 Annual Report. Certain of the Group's accounting
policies inherently rely on subjective assumptions and judgements,
such that it is possible over time the actual results could differ
from the estimates based on the assumptions and judgements used by
the Group. Due to the size of the amounts involved, changes in the
assumptions relating to the following policies could potentially
have a significant impact on the result for the year and/or the
carrying values of assets and liabilities in the consolidated
financial statements:
Critical judgements in applying the Group's accounting
policies
In the course of preparing the financial statements, the below
critical judgements have had a significant effect on the amounts
recognised in the financial statements for the year ended 31
December 2021. For the year ended 31 December 2020 there were no
judgements that were made in the process of applying the Group's
accounting policies, other than those involving estimations that
had a significant effect on the amounts recognised in the financial
statements.
Exceptional and acquisition related items
As set out in in the Group's accounting policy below, judgement
is used to determine those items which should be separately
disclosed as exceptional and acquisition related items to allow an
understanding of the underlying trading performance of the Group.
This judgement includes assessment of whether an item is of
sufficient size or of a nature that is not consistent with normal
trading activities. Please see note 3 for further details.
UK pension surplus recognition
The Group has recognised a net defined benefit pension surplus
for the Coats UK Pension Scheme under IAS 19 of $108.0 million at
31 December 2021 (2020: deficit of $128.5 million). Judgement has
been applied when determining whether the Group can recognise this
surplus asset amount on the statement of financial position or
whether any economic benefits available as a refund are contingent
upon factors beyond the Group's control and instead require an
adjustment to be made to restrict the amount of the surplus
recognised and reflect a liability arising from future committed
contributions to the Coats UK Pension Scheme under IFRIC 14. The
Group has determined that it has an unconditional right to a refund
of the surplus assuming the gradual settlement of liabilities over
time and therefore has recognised the full amount of the net
defined benefit pension surplus. Please see note 13 for further
details.
Critical accounting judgements and key sources of estimation
uncertainty (continued)
Key sources of estimation uncertainty
The key assumptions concerning the future, and other sources of
estimation uncertainty at the balance sheet date, that may have a
significant risk of causing material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
UK retirement benefit obligations
The UK retirement benefit surplus recognised in the consolidated
statement of financial position is the net of the fair value of
scheme assets less the present values of the defined benefit
obligations at the year end. Key assumptions involved in the
determination of the present values of the defined benefit
obligations include discount rates, beneficiary mortality and
inflation rates. Changes in any or all of these assumptions could
materially change the employee benefit surplus recognised in the
consolidated statement of financial position.
The gross actuarial value of the UK pension scheme liabilities
at 31 December 2021 was $3,034.9 million (2020: $3,338.7 million)
and the total market value of assets at 31 December 2021 was
$3,142.9 million (2020: $3,210.2 million). At 31 December 2021 the
UK pension scheme net surplus was $108.0 million (2020: net deficit
of $128.5 million).
Sensitivities regarding the discount rate and inflation
assumptions used to measure the liabilities of the UK pension
scheme, along with the impact they would have on the scheme
liabilities, are set out below. Interrelationships between
assumptions might exist and the analysis below does not take the
effect of these interrelationships into account:
2021 2020
+0.25% -0.25% +0.25% -0.25%
Year ended 31 December US$m US$m US$m US$m
------------------------- -------- ---------------- -------- ----------------
Discount rate (108.8) 115.0 (127.3) 135.2
Inflation rate 74.6 (72.0) 89.6 (99.3)
------------------------- -------- ---------------- -------- ----------------
An increase of 1.0% in the discount rate would result in the
Coats UK Pension Scheme liabilities decreasing by $401.4 million
(2020: $467.2 million). A decrease of 1.0% in the discount rate
would result in the Coats UK Pension Scheme liabilities increasing
by $502.7 million (2020: $594.6 million). The above sensitivity
analysis (on a IAS 19 basis) considers the impact on the scheme
liabilities only and excludes any impacts on scheme assets from
changes in discount and inflation rates. As noted in the 2021
Annual Report, the Coats UK Pension Scheme is currently over 85%
hedged against interest rate and inflation rate movements.
Therefore on a Technical Provision basis, to the extent there is a
change in the scheme liabilities due to movements in discount and
inflation rates there would be offsetting impacts from the scheme
assets due to the hedging in place.
If members of the Coats UK Pension Scheme live one year longer
the scheme liabilities will increase by $105.8 million (2020:
$157.8 million).
Further details of the carrying values of the Group's pension
obligations and sensitivities relating to changes in discount
rates, beneficiary mortality and inflation rates are included in
the 2021 Annual Report.
In preparing the consolidated financial statements for the year
ended 31 December 2021, the key sources of estimation uncertainty
were the same as those applied to the consolidated financial
statements for the year ended 31 December 2020.
New IFRS accounting standards, interpretations and amendments
adopted in the year
Except for the changes arising from the adoption of new
accounting standards, interpretations and amendments (as detailed
below), the same accounting policies, presentation and methods of
computation have been followed in the financial information set out
in this statement as applied in the Group's annual financial
statements for the year ended 31 December 2020.
New IFRS accounting standards, interpretations and amendments
adopted in the year (continued)
During the year, the Group adopted the following standards,
interpretations and amendments:
-- Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16); and
-- COVID-19-Related Rent Concessions (Amendment to IFRS 16).
The adoption of these standards and amendments has not had a
material impact on the financial statements of the Group.
Going concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly, they continue to adopt the going concern basis in
preparing the consolidated financial statements.
In assessing the Group's going concern position, the Directors
have considered a number of factors, including the current balance
sheet position and available liquidity, the principal and emerging
risks which could impact the performance of the Group and
compliance with borrowing covenants.
In order to assess the going concern status of the Group
management has prepared:
-- A base case scenario, aligned to the latest Group budget for
2022 as well as the Group's Medium Term Plan for 2023;
-- A severe but plausible downside scenario, which assumes that
the global economic environment is severely depressed over the
assessment period; and
-- A reverse stress test flexing sales to determine what circumstance
would be required to either reduce headroom to nil on committed
borrowing facilities or breach borrowing covenants, whichever
occurred first.
The severe but plausible downside scenario includes further
management actions that would be deployed if required (for example
further reduction in costs).
The reverse stress test also includes further controllable
management actions that could be deployed if required. The outcome
of the reverse stress test was that the interest cover covenant
would be breached, however, at the breaking point in the test the
Group still maintained a comfortable level of liquidity on
committed borrowing facilities. The Directors consider the
likelihood of the condition in the reverse stress test occurring to
be remote.
Liquidity headroom
As at 31 December 2021 the Group's net debt excluding leases
liabilities was $147.1 million (2020: $180.6 million). The Group's
committed debt facilities total $585 million across both its
Banking and US Private Placement group, with a range of maturities
from late 2024 through to 2027, as of 31 December 2021 the Group
has around $330 million of headroom against these committed banking
facilities.
In both the base case and the severe but plausible downside
scenario liquidity is comfortable throughout the assessment
period.
Covenant testing
The Group's committed borrowing facilities are subject to
ongoing covenant testing. Covenants are measured twice a year, at
full year and half year and are measured under frozen accounting
standards and therefore exclude the effects of IFRS 16. The
financial covenants under the borrowing agreements are for leverage
(net debt / EBITDA) less than 3.0 and interest cover (EBITDA /
interest charge) to be in excess of 4.0.
Covenant testing (continued)
All banking covenants tests were met comfortably at 31 December
2021, with leverage of 0.7x and interest cover of 28.4x. The base
case forecast indicates that banking covenants will be comfortably
met throughout the assessment period. Under the severe but
plausible downside scenario covenant compliance is still projected
to be achieved throughout the assessment period, although with
reduced but adequate headroom .
Conclusion
In conclusion, after reviewing the base case, the severe but
plausible downside scenario and considering the remote likelihood
of the scenario in the reverse stress test occurring, the Directors
have formed the judgement that, at the time of approving the
consolidated financial statements, there are no material
uncertainties that cast doubt on the Group's going concern status
and that it is appropriate to prepare the consolidated financial
statements on the going concern basis.
Principal exchange rates
The principal exchange rates (to the US dollar) used are as
follows:
2021 2020
------------ ------------------ ------ ------
Average Sterling 0.73 0.78
Euro 0.85 0.88
Brazilian Real 5.40 5.16
Chinese Renminbi 6.45 6.90
Indian Rupee 73.92 74.11
Turkish Lira 8.89 7.02
------------------- ----------- ------ ------
Period end Sterling 0.74 0.73
Euro 0.88 0.82
Brazilian Real 5.57 5.19
Chinese Renminbi 6.35 6.53
Indian Rupee 74.47 73.04
Turkish Lira 13.32 7.43
------------------- ----------- ------ ------
2. Segmental analysis
Operating segments are components of the Group's business
activities about which separate financial information is available
that is evaluated regularly by the chief operating decision maker
(the Group Executive Team) in deciding how to allocate resources
and in assessing performance. The Group's customers are grouped
into two segments Apparel & Footwear and Performance Materials
which have distinct different strategies and differing
customer/end-use market profiles.
Segment revenue and results
Apparel Performance
& Footwear Materials Total
Year ended 31 December 2021 US$m US$m US$m
------------------------------------------- ------------ ------------ ---------
Continuing operations
Revenue 1,094.4 409.4 1,503.8
------------ ------------ ---------
Segment profit 163.9 29.2 193.1
------------ ------------
Exceptional and acquisition related items
(note 3) (13.7)
Operating profit 179.4
Share of profits of joint ventures 1.2
Finance income 4.6
Finance costs (22.2)
---------
Profit before taxation from continuing
operations 163.0
---------
Apparel Performance
& Footwear Materials Total
Year ended 31 December 2020 US$m US$m US$m
------------------------------------------- ------------- ------------- ----------
Continuing operations
Revenue 822.7 340.6 1,163.3
------------- ------------- ----------
Segment profit 95.5 15.1 110.6
------------- -------------
Exceptional and acquisition related items
(note 3) (7.5)
Operating profit 103.1
Share of profits of joint ventures 0.6
Finance income 1.4
Finance costs (25.5)
----------
Profit before taxation from continuing
operations 79.6
----------
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
Exceptional and acquisition related items are not allocated to
segments. In addition, no measures of total assets and total
liabilities are reported for each reportable segment as such
amounts are not regularly provided to the chief operating decision
maker. The accounting policies of the reportable operating segments
are the same as the Group's accounting policies as set out in the
2021 Annual Report.
Disaggregation of revenue
The following table shows revenue disaggregated by primary
geographical markets with a reconciliation of the disaggregated
revenue with the Group's reportable segments.
2021 2020
Year ended 31 December US$m US$m
---------------------------------------- -------- --------
Continuing operations
Primary geographic markets
Asia 846.2 629.4
Americas 375.4 314.5
EMEA 282.2 219.4
Total 1,503.8 1,163.3
======== ========
Continuing operations
Apparel & Footwear 1,094.4 822.7
Performance Materials 409.4 340.6
Total 1,503.8 1,163.3
======== ========
Timing of revenue recognition
Goods transferred at a point in time 1,492.7 1,154.8
Software solution services transferred
over time 11.1 8.5
Total 1,503.8 1,163.3
======== ========
The software solutions business is included in the Apparel &
Footwear segment.
The Group had no revenue from a single customer which accounts
for more than 10% of the Group's revenue.
3. Exceptional and acquisition related items
The Group's consolidated income statement format is presented
before and after exceptional and acquisition related items.
Adjusted results (also referred to as underlying performance)
exclude exceptional and acquisition related items on a consistent
basis with the previous reporting period to provide a more
meaningful comparison of how the performance of the business is
managed and measured on a day-to-day basis. Further details on
alternative performance measures are set out in note 12.
Exceptional items may include significant restructuring
associated with a business or property disposal, litigation costs
and settlements, profit or loss on disposal of property, plant and
equipment, non-actuarial gains or losses arising from significant
one off changes to defined benefit pension obligations, regulatory
investigation costs and impairment of assets. Acquisition related
items include amortisation of acquired intangible assets,
acquisition transaction costs, contingent consideration linked to
employment and adjustments to contingent consideration.
Judgement is used by the Group in assessing the particular
items, which by virtue of their scale and nature, are presented in
the income statement and disclosed in the related notes as
exceptional items. In determining whether an event or transaction
is exceptional, materiality is a key consideration and qualitative
factors, such as frequency or predictability of occurrence, are
also considered. This is consistent with the way financial
performance is measured by management and reported to the
Board.
Total exceptional and acquisition related items charged to
operating profit for the year ended 31 December 2021 were $13.7
million (2020: $7.5 million) comprising exceptional items for the
year ended 31 December 2021 of a $2.1 million credit (2020: charge
of $3.5 million) and acquisition related items for the year ended
31 December 2021 of $15.8 million (2020: $4.0 million). Tax in
respect of exceptional and acquisition related items is set out in
note 6.
Exceptional items
Exceptional items (credited)/charged to operating profit during
the year ended 31 December 2021 are set out below:
2021 2020
Year ended 31 December US$m US$m
--------------------------------------------------------- ------ ------
Exceptional items:
Cost of sales:
Brazil indirect taxes (5.8) -
Impairment charges - 4.9
Administrative expenses:
Strategic project costs 3.7 -
Other operating income:
Profit from sale of property - (1.4)
------ ------
Total exceptional items (credited)/charged to operating
profit from
continuing operations (2.1) 3.5
------ ------
Brazil indirect taxes - During the year ended 31 December 2021
the Brazilian Supreme Federal Court concluded its judgement that
Brazilian ICMS (indirect tax on goods and services) should not be
included in the calculation basis of PIS (Program of Social
Integration) and COFINS (Contribution for the Financing of Social
Security) indirect taxes.
As a result, estimated refunds have been recognised in the
results for the year ended 31 December 2021 of $5.8 million (2020:
$nil) which has been included in cost of sales and in addition
exceptional interest income has been recognised of $4.2 million
(2020: $0.7 million).
These refunds date back to 2003 and the estimated tax credit
amounts are expected to be utilised over a period of approximately
six years, based upon current assumptions, once the Group has
received a favourable Court ruling, which is considered virtually
certain.
Strategic project costs - The Group has commenced a number of
strategic projects to improve margins by optimising the portfolio
and footprint, improving the overall cost base efficiency, and
mitigating structural labour availability issues in the US.
Exceptional costs of $3.7 million were incurred during the year
ended 31 December 2021 which includes advisors' costs of $0.9
million, impairment charges relating to plant and equipment in
North America of $2.0 million and closure and other related costs
of $1.7 million. This was offset by an exceptional credit of $0.9
million relating to the closure of a small business in Australia in
a prior year. It is anticipated that cash exceptional costs in the
order of $35 million will be incurred in relation to these and
further strategic initiatives across 2022 and 2023 in total.
Exceptional items during the year ended 31 December 2020 are set
out below:
Impairment charges - At each balance sheet date, the Group
reviews the carrying amounts of its assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the assets are estimated in order to determine the extent
of the impairment loss, if any. During the year ended 31 December
2020, following this review impairment charges totalling $4.9
million were made in smaller markets in EMEA ($4.1 million relating
to property, plant and equipment and $0.8 million relating to
right-of-use assets). The impairment charges were attributable to
the increased economic uncertainty as a result of Covid. The
impairment charges in these markets represented a full write down
of property, plant and equipment and right-of-use assets, except
for owned land and buildings of $1.7 million which is not
considered to be impaired. None of the cash generating units for
which an impairment charge was recognised during the year ended 31
December 2020 included goodwill or intangible assets with
indefinite useful lives.
Profit from sale of property - During the year ended 31 December
2020 a profit of $1.4 million was made from the sale of a property
in a non-core market.
Acquisition related items
Acquisition related items are set out below:
2021 2020
Year ended 31 December US$m US$m
--------------------------------------------------- ----- -----
Acquisition related items:
Administrative expenses:
Acquisition earnouts and contingent consideration 0.1 0.8
Acquisition transaction costs 12.4 -
Amortisation of acquired intangible assets 3.3 3.2
Total acquisition related items before
taxation 15.8 4.0
===== =====
The Group pursed several acquisition opportunities during the
year ended 31 December 2021 and as a result incurred transaction
costs of $12.4 million (2020: $nil). Growth through acquisitions is
a key element of the Group's strategy and the Group will continue
to be disciplined in the assessment of acquisition opportunities as
they arise. The Group looks to identify companies with
complementary capabilities that can further strengthen the core,
technology, innovations, or Intellectual Property and which can be
scaled to deliver growth and value for customers and
shareholders.
The Group has made acquisitions in prior years with earn-outs to
allow part of the consideration to be based on the future
performance of the businesses acquired and to lock in key
management. Where consideration paid or contingent consideration
payable in the future is employment linked, it is treated as an
expense and part of statutory results. However, all consideration
of this type is excluded from adjusted operating profit and
adjusted earnings per share, as in management's view, these items
are part of the capital transaction.
Acquisition transaction costs and amortisation of intangible
assets acquired through business combinations are not included
within adjusted earnings. These costs are acquisition related and
management consider them to be capital in nature and they do not
reflect the underlying trading performance of the Group.
Excluding amortisation of intangible assets acquired through
business combinations and recognised in accordance with IFRS 3
"Business Combinations" from adjusted results also ensures that the
performance of the Group's acquired businesses is presented
consistently with its organically grown businesses. It should be
noted that the use of acquired intangible assets contributed to the
Group's results for the years presented and will contribute to the
Group's results in future periods as well. Amortisation of acquired
intangible assets will recur in future periods. Amortisation of
software is included within operating results as management
consider these cost to be part of the underlying trading
performance of the business.
4. Finance income
2021 2020
Year ended 31 December US$m US$m
---------------------------------------- -------- -------
Income from investments 0.1 0.1
Other interest receivable and similar
income 4.5 1.3
4.6 1.4
======== =======
Other interest receivable and similar income for the year ended
31 December 2021 includes exceptional income of $4.2 million (2020:
$0.7 million) relating to refunds for indirect taxes in Brazil (see
note 3 for further details).
5. Finance costs
2021 2020
Year ended 31 December US$m US$m
-------------------------------------------------- -------- ----------------
Interest on bank and other borrowings 10.7 11.2
Interest expense on lease liabilities 5.2 3.9
Net interest on pension scheme assets
and liabilities 4.3 4.7
Other finance costs including unrealised
gains and losses on foreign exchange contracts 2.0 5.7
-------- ----------------
22.2 25.5
======== ================
6. Tax on profit from continuing operations
2021 2020
Year ended 31 December US$m US$m
---------------------------------------- --------- ----------------
UK Corporation tax at 19% (2020: 19%) - -
Overseas tax charge (56.3) (43.0)
Deferred tax credit 1.9 5.6
Total tax charge (54.4) (37.4)
========= ================
The overseas tax charge includes withholding tax charges and
other taxes not based on profits for the year ended 31 December
2021 of $13.1 million (2020: $12.5 million).
Exceptional tax charges for the year ended 31 December 2021 were
$0.9 million (2020: $2.2 million) relating to Brazil refunds of
indirect taxes (see note 3).
7. Earnings per share
The calculation of basic earnings per ordinary share from
continuing operations is based on the profit from continuing
operations attributable to equity shareholders and the weighted
average number of Ordinary Shares in issue during the year,
excluding shares held by the Employee Benefit Trust but including
shares under share incentive schemes which are not contingently
issuable.
The calculation of basic earnings per ordinary share from
continuing and discontinued operations is based on the profit
attributable to equity shareholders. The weighted average number of
ordinary shares used for the calculation of basic earnings per
ordinary share from continuing and discontinued operations is the
same as that used for basic earnings per ordinary share from
continuing operations.
For diluted earnings per ordinary share, the weighted average
number of ordinary shares in issue is adjusted to include all
potential dilutive ordinary shares. The Group has two classes of
dilutive potential Ordinary Shares: those shares relating to awards
under the Group Deferred Bonus Plan which have been awarded but not
yet reached the end of the three year retention period and those
long-term incentive plan awards for which the performance criteria
would have been satisfied if the end of the reporting period were
the end of the contingency period.
2021 2020
Year Ended 31 December US$m US$m
-------------------------------------------- ----- -----
Profit attributable to equity shareholders 88.9 26.4
----- -----
2021 2020
Number Number
of shares of shares
Year Ended 31 December m m
------------------------------------------ ----------- -----------
Weighted average number of ordinary
shares in issue for basic earnings per
share 1,457.1 1,455.6
Adjustment for share options and LTIP
awards 5.9 1.4
----------- -----------
Weighted average number of ordinary
shares in issue for diluted earnings
per share 1,463.0 1,457.0
----------- -----------
2021 2020
Year Ended 31 December cents cents
-------------------------------------- ------ --------------
Basic earnings per ordinary share 6.10 1.81
Diluted earnings per ordinary share 6.07 1.81
------ --------------
8. Issued share capital
During the year ended 31 December 2021 the Company issued
493,113 Ordinary shares of 5p each (2020: 7,261,231) following the
exercise of awards under the Group's share based incentive plans as
set out below:
Number of
Shares US$m
-------------------------- -------------- -----
At 1 January 2021 1,452,077,272 90.1
Issue of ordinary shares 493,113 -
At 31 December 2021 1,452,570,385 90.1
============== =====
The own shares reserve of $0.5 million at 31 December 2021
(2020: $3.2 million) represents the cost of shares in Coats Group
plc purchased in the market and held by an Employee Benefit Trust
to satisfy awards under the Group's share based incentive plans.
The number of shares held by the Employee Benefit Trust at 31
December 2021 was 2,020,306 (2020: 7,010,248).
9. Dividends
2021 2020
Year Ended 31 December US$m US$m
------------------------------------------ ----- ------
2021 interim dividend paid - 0.61 cents
per share 8.8 -
2020 final dividend paid - 1.30 cents
per share 18.8 -
27.6 -
================================================ ======
The proposed final dividend of 1.50 cents per ordinary share for
the year ended 31 December 2021 is not recognised as a liability in
the consolidated statement of financial position in line with the
requirements of IAS 10 Events after the Reporting Period and,
subject to shareholder approval, will be paid on 25 May 2022 to
ordinary shareholders on the register on 29 April 2022, with an
ex-dividend date of 28 April 2022.
10. US environmental matters
As noted in previous reports, the US Environmental Protection
Agency ('EPA') has notified Coats & Clark, Inc. ('CC') that CC
is a 'potentially responsible party' ('PRP') under the US Superfund
law for investigation and remediation costs at the 17-mile Lower
Passaic River Study Area ('LPR') in New Jersey in respect of
alleged operations of a predecessor's former facilities in that
area prior to 1950. Over 100 PRPs have been identified by EPA.
Approximately 50 PRPs are currently members of a cooperating
parties group ('CPG') of companies, formed to fund and conduct a
remedial investigation and feasibility study of the area. CC joined
the CPG in 2011.
CC has analysed its predecessor's operating history prior to
1950, when it left the LPR, and has concluded that it was not
responsible for the contaminants and environmental damage that are
the primary focus of the EPA process. CC also believes that there
are many parties that will participate in the LPR's remediation,
including those that are the most responsible for its
contamination.
In March 2016, EPA issued a Record of Decision selecting a
remedy for the lower 8 miles of the LPR at an estimated cost of
$1.38 billion on a net present value basis. The EPA's Record of
Decision did not include a remedial decision for the upper 9 miles
of the LPR. The EPA may consider a remedial alternative proposed by
the CPG for the upper 9 miles, or it may select a different remedy.
Discussions with EPA regarding the nature and timing of such a
decision are ongoing.
EPA has entered into an administrative order on consent ('AOC')
with Occidental Chemical Corporation ('OCC'), which has been
identified as being responsible for the most significant
contamination in the river, concerning the design of the selected
remedy for the lower 8 miles of the LPR. Maxus Energy Corporation
('Maxus'), which provided an indemnity to OCC that covered the LPR,
has been granted Chapter 11 bankruptcy protection, but OCC remains
responsible for its remedial obligations even in the absence of
Maxus' indemnity. The approved bankruptcy plan also created a
liquidating trust to pursue potential claims against Maxus' parent
entity, YPF SA, and potentially others, which could result in
additional funding for the LPR remedy. While the ultimate costs of
the remedial design and the final remedy are expected to be shared
among hundreds of parties, including many who are not currently in
the CPG, the final allocation of remedial costs among those parties
in a settlement or court ruling has not yet been determined.
In March 2017, EPA notified 20 parties not associated with the
disposal or release of any contaminants of concern as being
eligible for early cash out settlements. As expected, EPA did not
identify CC as one of the 20 parties. EPA invited approximately 80
other parties, including CC, to participate in an allocation
process to determine their respective allocation shares and
potential eligibility for future cash out settlements. In the
allocation, CC presented factual and scientific evidence that it is
not responsible for the discharge of dioxins, furans or PCBs - the
contaminants that are driving the remediation of the LPR - and that
it is a de minimis or even smaller de micromis party. The
confidential allocation process concluded in December 2020. CC
continues to believe that it should be a de minimis or even smaller
de micromis party in an eventual settlement or court ruling
allocating remedial costs.
On 30 June 2018, OCC filed a lawsuit against approximately 120
defendants, including CC, seeking recovery of past environmental
costs and contribution toward future environmental costs. OCC
released claims for certain past costs from 41 of the defendants,
including CC, and is not seeking recovery of those past costs from
CC. OCC's lawsuit seeks resolution of many of the same issues being
addressed in the EPA sponsored allocation process, and does not
alter CC's defences or CC's continued belief that it is a de
minimis or even smaller de micromis party.
In 2015, a provision of $9.0 million was recorded for
remediation costs for the entire 17 miles of the LPR. This
provision was based on CC's estimated share of de minimis costs for
EPA's selected remedy for the lower 8 miles of the LPR and the
remedy proposed by the CPG for the upper 9 miles. A separate
provision of $6.8 million was recorded for associated legal and
professional costs in defence of CC's position. Both of these
charges to the income statement were net of insurance
reimbursements and were stated on a net present value basis. During
the year ended 31 December 2018, an additional provision of $8.0
million was recorded as an exceptional item to cover legal and
professional fees. The Group will continue to mitigate additional
costs as far as possible through insurance and other avenues.
As at 31 December 2021, $13.8 million of this provision had been
utilised. The remaining provision at 31 December 2021, taking into
account insurance reimbursement, was $11.2 million (2020: $12.6
million). The process concerning the LPR continues to evolve and
these estimates are subject to change based upon legal defence
costs associated with the EPA sponsored allocation and OCC's
lawsuit, the scope of the remedy selected by EPA for the upper nine
miles, the share of remedial costs to be paid by the major
polluters on the river, and the share of remaining remedial costs
apportioned among CC and other companies.
Coats believes that CC's predecessor did not generate any of the
contaminants which are driving the current and anticipated remedial
actions in the LPR, that it has valid legal defences which are
based on its own analysis of the relevant facts, that it is a de
minimis or even smaller de micromis party, and that additional
parties not currently in the CPG will be responsible for a
significant share of the ultimate costs of remediation. However, as
this matter evolves, it is nonetheless still possible that
additional provisions could be recorded and such provisions could
increase materially based on further decisions by EPA, negotiations
among the parties, and other future events.
Following the sale of the North America Crafts business,
including CC, announced on 22 January 2019, Coats North America
Consolidated Inc. (the seller) retains the control and
responsibility for the eventual outcome of the ongoing LPR
environmental matters, including the rights to the related
insurance reimbursements.
11. Notes to the consolidated cash flow statement
a) Reconciliation of operating profit to cash generated from operations
2021 2020
Year Ended 31 December US$m US$m
--------------------------------------- ------- -------
Operating profit 179.4 103.1
Depreciation of owned property, plant
and equipment 28.2 30.5
Deprecation of right-of-use assets 19.4 18.3
Amortisation of intangible assets 6.0 7.2
(Increase)/decrease in inventories (76.0) 4.9
(Increase)/decrease in debtors (49.8) 1.1
Increase/(decrease) in creditors 101.4 (28.7)
Provisions and pension movements (34.5) (14.0)
Foreign exchange and other non-cash
movements 14.9 5.7
Discontinued operations - (0.1)
------- -------
Cash generated from operations 189.0 128.0
======= =======
b) Taxation paid
2021 2020
Year Ended 31 December US$m US$m
------------------------ ------- -------
Overseas tax paid (47.9) (46.3)
======= =======
c) Investment income
2021 2020
Year Ended 31 December US$m US$m
---------------------------------------- ----- -----
Dividends received from joint ventures 0.3 0.9
===== =====
d) Capital expenditure and financial investment
2021 2020
Year Ended 31 December US$m US$m
---------------------------------------------- ------- -------
Acquisition of property, plant and equipment
and intangible assets (31.2) (15.4)
Acquisition of other equity investments 0.1 0.1
Disposal of property, plant and equipment 0.8 3.0
(30.3) (12.3)
======= =======
e) Acquisitions and disposals of businesses
2021 2020
Year Ended 31 December US$m US$m
------------------------------ ----- -------
Acquisition of businesses - (36.9)
===== =======
f) Summary of net debt
2021 2020
Year Ended 31 December US$m US$m
-------------------------------------- -------- --------
Cash and cash equivalents 107.2 71.9
Bank overdrafts (16.4) (19.8)
-------- --------
Net cash and cash equivalents 90.8 52.1
Borrowings (237.9) (232.7)
-------- --------
Net debt excluding lease liabilities (147.1) (180.6)
Lease liabilities (99.0) (66.0)
Total net debt (246.1) (246.6)
======== ========
For financial covenant purposes, the Group's leverage is
calculated on the basis of net debt without IFRS 16 lease
liabilities and at the Coats Group Finance Company Limited level.
Net debt excluding IFRS 16 lease liabilities at the Coats Group
Finance Company Limited level at 31 December 2021 for covenant
purposes was $148.0 million (31 December 2020: $177.0 million).
12. Alternative performance measures
The financial information in this statement contains both
statutory measures and alternative performance measures which, in
management's view, reflect the underlying performance of the
business and provide a more meaningful comparison of how the
Group's business is managed and measured on a day-to-day basis. The
Group's definition of underlying performance is set out in note
3.
The Group's alternative performance measures and key performance
indicators are aligned to the Group's strategy and together are
used to measure the performance of the business. A number of these
measures form the basis of performance measures for remuneration
incentive schemes.
Alternative performance measures are non-GAAP (Generally
Accepted Accounting Practice) measures and provide supplementary
information to assist with the understanding of the Group's
financial results and with the evaluation of operating performance
for all the periods presented. Alternative performance measures,
however, are not a measure of financial performance under
International Financial Reporting Standards ('IFRS') as adopted by
the UKEB and should not be considered as a substitute for measures
determined in accordance with IFRS. As the Group's alternative
performance measures are not defined terms under IFRS they may
therefore not be comparable with similarly titled measures reported
by other companies.
A reconciliation of alternative performance measures to the most
directly comparable measures reported in accordance with IFRS is
provided below.
a) Organic growth on a constant exchange rate (CER) basis
Organic growth measures the change in revenue and operating
profit before exceptional and acquisition related items after
adjusting for acquisitions. The effect of acquisitions is equalised
by:
-- removing from the year of acquisition, their revenue and operating
profit; and
-- in the following year, removing the revenue and operating profit
for the number of months equivalent to the pre-acquisition period
in the prior year.
The effects of currency changes are removed through restating
prior year revenue and operating profit at current year exchange
rates. The principal exchange rates used are set out in note 1.
Organic revenue growth on a CER basis measures the ability of
the Group to grow sales by operating in selected geographies and
segments and offering differentiated cost competitive products and
services.
Adjusted organic operating profit growth on a CER basis measures
the underlying profitability progression of the Group.
Adjusted operating profit is calculated by adding back
exceptional and acquisition related items (see note 3 for further
details).
2021 2020
Year Ended 31 December US$m US$m % Growth
------------------------------------ -------- -------- ---------
Revenue from continuing operations 1,503.8 1,163.3 29%
Constant currency adjustment - 0.6
-------- -------- ---------
Revenue on a CER basis 1,503.8 1,163.9 29%
Revenue from acquisitions (1) (4.3) -
-------- -------- ---------
Organic revenue on a CER basis 1,499.5 1,163.9 29%
======== ======== =========
2021 2020
Year Ended 31 December US$m US$m % Growth
-------------------------------------- -------- -------------- ---------
Operating profit from continuing
operations (2) 179.4 103.1 74%
Exceptional and acquisition related
items (note 3) 13.7 7.5
-------- -------------- ---------
Adjusted operating profit from
continuing operations 193.1 110.6 75%
Constant currency adjustment - 0.1
-------- -------------- ---------
Adjusted operating profit on
a CER basis 193.1 110.7 74%
Operating loss from acquisitions
(1) 0.2 -
-------- -------------- ---------
Organic adjusted operating profit
on a CER basis 193.3 110.7 75%
======== ============== =========
(1) Revenue and operating loss from acquisitions of $4.3 million
and $0.2 million respectively relates to Pharr High Performance
Yarns ("Pharr HP") for the month of January 2021. Pharr HP was
acquired in February 2020.
(2) Refer to the consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations.
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance
measure to show the underlying operating performance of the Group
excluding the effects of depreciation of owned fixed assets and
right-of-use assets, amortisation and impairments and excluding
exceptional and acquisition related items.
Operating profit from continuing operations before exceptional
and acquisition related items and before depreciation of owned
fixed assets and right-of-use assets and amortisation (Adjusted
EBITDA) is set out below:
2021 2020
Year Ended 31 December US$m US$m
------------------------------------------------- ------ ------
Profit before taxation from continuing
operations 163.0 79.6
Share of profit of joint ventures (1.2) (0.6)
Finance income (note 4) (4.6) (1.4)
Finance costs (note 5) 22.2 25.5
------ ------
Operating profit from continuing operations
(1) 179.4 103.1
Exceptional and acquisition related items
(note 3) 13.7 7.5
------ ------
Adjusted operating profit from continuing
operations 193.1 110.6
Depreciation of owned property, plant
and equipment 28.2 30.5
Amortisation of intangible assets 2.7 4.0
------ ------
Adjusted EBITDA including IFRS 16 depreciation
of right-of-use assets (Pre-IFRS 16 basis) 224.0 145.1
Depreciation of right-of-use assets 19.4 18.3
------ ------
Adjusted EBITDA 243.4 163.4
====== ======
(1) Refer to the consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations.
Net debt including lease liabilities under IFRS 16 at 31
December 2021 was $246.1 million (2020: $246.6 million).
This gives a leverage ratio of net debt including lease
liabilities to adjusted EBITDA at 31 December 2021 of 1.0 (2020:
1.5).
Net debt excluding lease liabilities under IFRS 16 at 31
December 2021 was $147.1 million (2020: $180.6 million).
This gives a leverage ratio on a pre-IFRS 16 basis at 31
December 2021 of 0.7 (2020: 1.2).
For the definition and calculation of net debt including and
excluding lease liabilities see note 11 (f).
c) Underlying effective tax rate
The underlying effective tax rate removes the tax impact of
exceptional and acquisition related items and net interest on
pension scheme assets and liabilities to arrive at a tax rate based
on the underlying profit before taxation.
A significant proportion of the Group's net interest on pension
scheme assets and liabilities relates to UK pension plans for which
there is no related current or deferred tax credit or charge
recorded in the income statement. The Group's net interest on
pension scheme assets and liabilities is adjusted in arriving at
the underlying effective tax shown below and, in management's view,
were this not adjusted it would distort the alternative performance
measure. This is consistent with how the Group monitors and manages
the underlying effective tax rate.
2021 2020
Year Ended 31 December US$m US$m
--------------------------------------------- ------ ------
Profit before taxation from continuing
operations 163.0 79.6
Exceptional and acquisition related items
(note 3) 9.5 6.8
Net interest on pension scheme assets
and liabilities 4.3 4.7
------ ------
Underlying profit before taxation from
continuing operations 176.8 91.1
------ ------
Taxation charge from continuing operations 54.4 37.4
Tax charge in respect of exceptional and
acquisition related
items and net interest on pension scheme
assets and liabilities (0.4) (1.7)
------ ------
Underlying tax charge from continuing
operations 54.0 35.7
------ ------
Underlying effective tax rate 31% 39%
------ ------
d) Adjusted earnings per share
The calculation of adjusted earnings per share is based on the
profit from continuing operations attributable to equity
shareholders before exceptional and acquisition related items as
set out below. Adjusted earnings per share growth measures the
underlying progression of the benefits generated for
shareholders.
2021 2020
Year Ended 31 December US$m US$m
------------------------------------------------- -------- -------------
Profit from continuing operations 108.6 42.2
Non-controlling interests (19.7) (15.8)
-------- -------------
Profit from continuing operations attributable
to equity shareholders 88.9 26.4
Exceptional and acquisition related items
net of non-controlling interests (note
3) 9.5 6.8
Tax charge in respect of exceptional and
acquisition related items 0.9 2.2
-------- -------------
Adjusted profit from continuing operations 99.3 35.4
-------- -------------
Weighted average number of Ordinary Shares 1,457,076,765 1,455,587,353
Adjusted earnings per share (cents) 6.81 2.42
===== =====
Adjusted earnings per share (growth %) 181%
=====
The weighted average number of Ordinary Shares used for the
calculation of adjusted earnings per share for the year ended 31
December 2021 is 1,457,076,765 (2020: 1,455,587,353), the same as
that used for basic earnings per ordinary share from continuing
operations (see note 7).
e) Adjusted free cash flow
Net cash generated by operating activities, a GAAP measure,
reconciles to changes in net debt resulting from cash flows (free
cash flow) as set out in the consolidated cash flow statement. A
reconciliation of free cash flow to adjusted free cash flow is set
out below.
Consistent with previous periods, adjusted free cash flow is
defined as cash generated from continuing activities less capital
expenditure, interest, tax, dividends to minority interests and
other items, and excluding exceptional and discontinued items,
acquisitions, purchase of own shares by the Employee Benefit Trust
and payments to the UK pension scheme.
Adjusted free cash flow measures the Group's underlying cash
generation that is available to service shareholder dividends,
pension obligations and acquisitions.
2021 2020
Year Ended 31 December US$m US$m
------------------------------------------------ ------- --------
Change in net debt resulting from cash
flows (free cash flow) 32.6 (23.2)
Acquisition of businesses - 37.3
Net cash outflow from discontinued operations - 0.1
Payments to UK pension scheme 42.4 10.9
Net cash flows in respect of other exceptional
and acquisition
related items 10.5 (1.1)
Purchase of own shares by Employee Benefit
Trust - 3.1
Dividends paid to equity shareholders 27.4 0.2
Tax outflow in respect of adjusted cash
flow items - 0.7
------- --------
Adjusted free cash flow 112.9 28.0
======= ========
f) Return on capital employed
Return on capital employed ('ROCE') is defined as operating
profit before exceptional and acquisition related items divided by
period end capital employed as set out below. ROCE measures the
ability of the Group's assets to deliver returns.
2021 2020
Year Ended 31 December US$m US$m
--------------------------------------------- -------- --------
Operating profit from continuing operations
before exceptional and acquisition related
items (1) 193.1 110.6
-------- --------
Non-current assets
Acquired intangible assets 36.8 41.8
Property, plant and equipment 244.5 254.4
Right-of-use assets 91.6 60.7
Trade and other receivables 28.7 19.0
Current assets
Inventories 250.1 187.0
Trade and other receivables 302.7 274.5
Current liabilities
Trade and other payables (346.8) (255.7)
Lease liabilities (17.8) (16.4)
Non-current liabilities
Trade and other payables (24.2) (18.1)
Lease liabilities (81.2) (49.6)
-------- --------
Capital employed 484.4 497.6
-------- --------
ROCE 40% 22%
======== ========
(1) Refer to note 3 for details of exceptional and acquisition
related items.
13. Retirement and other post-employment benefit arrangements
The net surplus for the Group's retirement and other
post-employment defined benefit arrangements (UK and other Group
schemes), on an IAS 19 basis, was $21.1 million as at 31 December
2021 (2020: net obligation of $225.8 million). The decrease in the
net obligation during the year ended 31 December 2021 is primarily
due to movements on the Coats UK Pension Scheme.
The Coats UK Pension Scheme, which is a key constituent of the
Group defined benefit liabilities, had a surplus on an IAS 19 basis
at 31 December 2021 of $108.0 million (2020: deficit of $128.5
million). The reduction in the deficit during the year ended 31
December 2021 of $236.5 million predominantly relates to net
actuarial gains of $202.7 million (increase in the discount rate
assumption from 1.25% per annum at 31 December 2020 to 1.85% per
annum at 31 December 2021 due to higher corporate bond yields) and
employer contributions (excluding administrative expenses) of $37.4
million.
During the current year the Group carried out a "spin and
termination" transaction in the Coats US Scheme whereby current
retiree benefits were secured with an insurance company, whilst
releasing a proportion of the surplus to the company to fund future
401k employer contributions. Due to favourable pricing the
transaction resulted in a non cash settlement gain of $3.6 million
which has been included in operating profit.
14. Directors
The following persons were, except where noted, directors of
Coats Group plc during the whole of the year ended 31 December 2021
and up to the date of this report:
D Gosnell OBE
M Clasper CBE (Resigned 19 May 2021)
R Sharma
S Boddie (Resigned 31 March 2021)
N Bull
J Callaway
A Fahy
H Lu
F Philip
J Sigurdsson
On behalf of the Board
D Gosnell
Chairman
2 March 2022
United Kingdom
---------------------------------------------- --------------
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