TIDMCOA
RNS Number : 5948R
Coats Group PLC
02 March 2023
2 March 2023
Coats Group plc
2022 Full Year Results
10% organic revenue growth, 22% organic adjusted operating
profit growth and strong free cash flow
Coats Group plc ('Coats,' the 'Company' or the 'Group'), the
world's leading industrial thread and footwear components
manufacturer, announces its audited results for the year ended 31
December 2022.
FY 2021 FY 2022 vs FY
Continuing operations FY 2022 (4) 2021
------------------------------------------ -------- --------
Reported CER Organic
------------------------------------------ -------- -------- --------- ---- --------
Revenue $1,584m $1,447m 9% 16% 10%
Adjusted (1)
Operating profit $235m $198m 19% 27% 22%
Basic earnings per share 8.2c 7.2c 14%
Free cash flow $114m $124m
Net debt (excl. lease liabilities) $394m $147m
Reported (2)
Operating profit $181m $178m 2% 9% 9%
Basic earnings per share
(5) 4.8c 5.8c (18)%
Net cash generated by operating
activities $96m $129m
Final dividend per share 1.73c 1.50c
Strategic Highlights
-- Another year of excellent strategic progress alongside strong results
-- Acquisition of Texon and Rhenoflex establishes market leader in
footwear components; acquisitions trading in line with expectations,
and integration and delivery of expected cost synergies on-track
-- Strategic projects delivered accelerated in-year savings of $20
million, ahead of expectations; project scope now also expanded
with total savings up from $50 million to $70 million by 2024 for
$50 million cash cost
-- Ongoing focus on product innovation with 17 new products brought
to market and continuing strong growth from recycled products, with
CER revenue increasing 37% to $127 million
-- Substantially delivered against ambitious 2022 Sustainability goals,
with significant improvement in all areas; new 2026 targets to drive
further momentum to our approved 2030 Science Based Targets and
Net Zero
-- Significant progress in de-risking UK pension scheme; GBP350 million
buy-in transaction completed in December 2022
-- Agreement with UK pension scheme trustees on a switch off/on mechanism
for future cash contributions, as a result of material improvements
in the funding position; gives rise to potential significant Group
free cash flow benefits
Financial Highlights
-- Strong Group organic revenue growth of 10% (9% on a reported basis),
ahead of targeted medium-term growth of c.6%:
o Apparel & Footwear (A&F): full year organic revenue growth of
9%, driven by exceptional first half performance, prior to some
industry destocking, particularly in Q4
o Performance Materials (PM): full year organic revenue growth
of 13% with all three sub-segments delivering growth
-- Continued competitive gains in thread with market share up >100bps
to estimated c.24%
-- Adjusted operating profit increased to $235 million (reported $181
million), in line with market expectations, reflecting strong pricing
and mix fully offsetting inflation, as well as part-year contribution
from acquisitions and strategic projects
-- Adjusted operating margin up 120bps to 14.8% with A&F and PM both
contributing to the increase
-- Adjusted EPS increased 14% to 8.2c, reflecting strong trading performance
and delivery of strategic project savings. Basic EPS 4.8c (2021:
5.8c), included impact of exceptional and acquisition-related items
-- Strong free cash flow of $114 million as a result of increased operating
profits and good capital expenditure and working capital management
-- Year-end net debt (excluding lease liabilities) of $394 million
after acquisitions, with proforma leverage of 1.4x, (3) comfortably
within 1-2x target range
-- Proposed final dividend of 1.73 cents, +15%, resulting in full year
dividend of 2.43 cents, +15%; reflects the strong set of results,
organic growth and margin potential, as well as the Board's confidence
in the medium term
Full Year Outlook in Line with the Board's Expectations
-- Expect to deliver another year of strategic and operational progress.
Destocking by customers has continued into the early part of the
year, primarily in Apparel markets and to a lesser extent in Footwear
-- Continue to proactively respond to macroeconomic environment and
inflationary pressures using our well-defined and tested playbook,
focusing on cash, costs, self-help initiatives, deep customer relationships
and tactical pricing actions
-- Continue to anticipate full year 2023 performance in line with the
Board's expectations, with second-half weighting, underpinned by
the contribution from acquisitions, associated synergies and strategic
projects
Commenting on the results Rajiv Sharma, Group Chief Executive,
said:
" Coats produced a strong set of results in 2022, a year which
was characterised by high inflation and supply chain disruption.
Organic revenue growth was 10%, above our targeted medium-term
growth of around 6%, and organic adjusted operating profit
increased 22%.
"We made further excellent progress in transforming the Group
during the year, and this has made Coats a stronger, fitter and
more focused Group, enhancing our leading market positions in
industrial thread and footwear component markets. The 2022
acquisitions of Texon and Rhenoflex have not only significantly
strengthened our position in the attractive footwear market but
also increased our medium-term organic growth and margin
potential.
"Our strategic projects, aimed at increasing the efficiency and
effectiveness of our operations, have been successfully progressed
at speed during the year and we have today, in a period of
macroeconomic uncertainty, increased our total targeted 2024
adjusted operating profit savings to $70 million, from the previous
$50 million.
"As a result of the transformational work done to date, the
Group remains very well-positioned in its markets with a focus on
growing brands. In addition, Coats has global leadership, a wide
geographic footprint, scale, product and quality differentiation
and a pipeline of innovative and sustainable products.
Consequently, we remain excited about the growth and margin
opportunities across the Group over the medium term."
(1.) Adjusted measures are non-statutory measures (Alternative Performance
Measures). These are reconciled to the nearest corresponding statutory
measure in note 14. Constant Exchange Rate (CER) metrics are 2021
results restated at 2022 exchange rates. Organic figures are results
on a CER basis and excluding contributions from Texon and Rhenoflex
acquisitions.
(2.) Reported metrics refer to values contained in the IFRS column
of the primary financial statements in either the current or comparative
period.
(3.) Leverage calculated on a proforma and frozen GAAP basis and therefore
excludes the impact of IFRS 16 on both adjusted EBITDA and net
debt and includes a full 12 months of EBITDA for Texon and Rhenoflex.
(4.) Restated to reflect the results of the Brazil and Argentina business,
divested in 2022, as a discontinued operation.
(5.) From continuing operations.
Conference Call
Coats Management will present its full year results in a webcast
at 09.00 GMT today (Thursday, 2 March 2023). The webcast can be
accessed via www.coats.com/investors/fy2022 . The webcast will also
be made available in archive form on www. coats.com .
Enquiry details
Coats Group +44 (0)79 7497
Investors Chris Dyett plc 4690
Richard Mountain / Nick +44 (0)20 3727
Media Hasell FTI Consulting 1374
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About Coats Group plc
Coats is a world leader in thread manufacturing and structural
components for apparel and footwear, as well as an innovative
pioneer in performance materials. These critical solutions are used
to create a wide range of products, including ones that provide
safety and protection for people, data and the environment.
Headquartered in the UK, Coats is a FTSE250 company and a FTSE4Good
Index constituent. Revenue in 2022 was $1.6 billion. Trusted by the
world's leading companies to deliver crucial, innovative, and
sustainable solutions, Coats provides value-adding products
including apparel, accessory and footwear threads, structural
footwear components, fabrics, yarns and software applications.
Customer partners include companies from the apparel, footwear,
automotive, telecoms, personal protection, and outdoor goods
industries. With a proud heritage dating back more than 250 years
and spirit of evolution to constantly stay ahead of changing market
needs, Coats has operations across some 50 countries with a
workforce of 17,000, serving its customers worldwide. Coats
connects talent, textiles, and technology, to make a better and
more sustainable world. Worldwide,
there are three dedicated Coats Innovation Hubs, where experts
collaborate with partners to create the materials and products of
tomorrow. It participates in the UN Global Compact and is committed
to Science Based sustainability targets for 2030 and beyond, with
an aspiration of achieving net-zero by 2050. Coats is also
committed to achieving its goals in Diversity, Equity &
Inclusion, workplace health & safety, employee & community
wellbeing, and supplier social performance. To find out more about
Coats visit 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.
Group Chief Executive's review
Purpose and Strategy
Coats is the world's leading industrial thread and footwear
components company. Our purpose is to connect talent, textiles and
technology to make a better and more sustainable world, with a
strategy to accelerate profitable sales growth by leveraging
innovation, sustainability, digital technologies and our global
scale to create world class products and services, delivering value
to our stakeholders.
2022 Full Year Results Overview
Introduction
We made further excellent progress in transforming the Group
during the year. We purchased Texon and Rhenoflex, significantly
enhancing our position in the attractive footwear market and
increasing our medium-term organic growth and margin potential. The
integration of those businesses is on-track with efficiency savings
starting to come through at the year end, in line with plan. Our
strategic projects, announced at the start of 2022, and which will
increase the efficiency and effectiveness of our operations, have
been accelerated with greater in-year cost savings achieved as a
result ($20 million versus the initially guided $5-$10 million). We
have also now expanded the scope of these projects, with our total
targeted adjusted operating profit savings by 2024 increasing to
$70 million, from the previous $50 million.
In addition, we have also substantially delivered against our
ambitious 2022 sustainability targets, exceeding these in some
areas, with further details in the Sustainability section below. We
have challenged ourselves again by setting further ambitious
milestones for delivery in 2026, building on our achievements to
date. The milestones will help us continue the momentum to our 2030
Science Based Target Initiative (SBTi) approved targets, and our
commitment to be Net Zero by 2050.
We delivered revenue of $1,584 million in the year, an increase
of 16% on a constant currency basis. This increase reflects the
acquisitions of Texon and Rhenoflex in the year and strong Group
organic revenue growth of 10%, above our c.6% medium term target
growth. This organic revenue growth reflects our outstanding
trading performance in H1, which was driven by industry restocking
and buffer buying in the face of supply chain disruption, and
strong pricing and mix, alongside improving market demand. As
anticipated, year-on-year performance slowed during the second
half, in part due to the strong 2021 comparator results, as well as
a softening in demand due to macroeconomic factors, with some
destocking. This was most noticeable in Apparel markets in Q4 but
also impacted Footwear towards the end of the year. Reported Group
revenue, including adverse currency movements, grew 9%.
Apparel & Footwear delivered organic revenue growth of 9%,
reflecting the demand profile across the year described above. The
2022 Texon and Rhenoflex acquisitions traded in line with our
expectations. Performance Materials delivered a strong performance,
growing 13% organically, with its three sub-segments all delivering
good organic growth. As previously announced, and reflecting the
changing shape of the Group, we will report from 1 January 2023 a
revised three division structure: Apparel, Footwear and Performance
Materials.
In recent years our Apparel & Footwear business has grown
faster than the underlying market by taking market share. This
trend has continued in the year with an organic increase in market
share of over 100bps, to an estimated c.24%. We have also achieved
significant customer successes in Performance Materials, as we
bring new innovative products to market. Our ability to gain market
share is testament to the success of our strategy, including our
strong customer relationships, with a focus on growing, premium
brands. This is, in part, a result of our global scale, the premium
quality of our products and our ability to offer value-add
technical services. Our investment in innovation across all our
businesses enables us to bring new and differentiated products to
market. We have a particular focus on products made from recycled
or biomaterials, where we are the market leader. Our significant
multi-year investment in making our operations more sustainable, an
investment many of our smaller competitors cannot replicate, is a
real differentiator for many of our customers, who have made their
own environmental commitments. This investment is consistent with
the increasing trend for consumers to buy sustainable products
supported by a sustainable supply chain, and we have continued to
rapidly grow our revenue from sustainable products. We are
confident that we will continue to grow our market share in
future.
The year was also characterised by high inflation and supply
chain disruption, although this has moderated in places, as we
progressed through the year. Our pricing actions and proactive
self-help efficiency programmes have continued to fully offset
inflationary pressures in the supply chain for raw materials,
labour, energy and freight costs. In the second half, the rate of
inflationary increases for raw materials and freight, stabilised or
moderated, although input prices remain well ahead of the prior
year and are likely to remain elevated for some time.
Despite these significant operational challenges, adjusted
operating profit increased 27% on a constant currency basis to $235
million. This reflects the effectiveness of our pricing
initiatives, an enhanced mix, the contribution from Texon and
Rhenoflex, the initial benefits from our strategic projects as well
as ongoing operating efficiencies. The Group adjusted operating
margin increased by 120bps to 14.8%. Both Apparel & Footwear
and Performance Materials contributed to this increase. Operating
profit increased 2% to $181 million, after strategic project costs
and acquisition-related items.
We generated strong adjusted free cash flow of $114 million
reflecting the increased operating profit alongside well-
controlled capital expenditure and working capital management.
Year-end net debt (excluding lease liabilities) was $394 million,
with proforma leverage of 1.4x net debt/EBITDA after our 2022
acquisitions, comfortably within our target range of 1-2x net
debt/EBITDA.
We have made excellent progress in recent years to reduce and
de-risk the funding deficit within the Coats UK Pension Scheme. A
further significant step was achieved in December 2022, with the
trustee purchasing a c.GBP350m bulk annuity policy from Aviva. This
partly de-risks our UK defined benefit scheme by fully funding all
financial and demographic risks for approximately 20% of scheme
liabilities. In addition, and as a result of the significantly
improved funding position and de-risking actions, we have reached
agreement with the Pension Scheme Trustees on a mechanism to switch
off / switch on the regular cash contributions to the Scheme. This
will be based on monthly estimates of the latest funding position,
and gives rise to the potential for significant free cash flow
benefits from lower or eliminated cash contributions, if the Scheme
remains fully funded on its technical provisions basis. On a medium
term basis and when market conditions permit, we aim to remove the
Scheme from the Group's balance sheet in a cost effective
manner.
Acquisition of Texon and Rhenoflex
During the year we acquired Texon International Group Limited
(Texon) in July 2022 and Rhenoflex GmbH (Rhenoflex) in August 2022
for a combined consideration of $355 million. This is equivalent to
a post-synergy multiple of around 8x EBITDA. As a result of these
acquisitions, on a proforma full-year basis, around a quarter of
our total revenue is now in higher growth footwear markets. We
estimate medium term market growth of 7-8% per annum, ahead of the
medium term Group target of c.6%.
Texon and Rhenoflex are leading footwear and accessories
solutions providers, bringing a range of products, including heel
counters, toe puffs and insoles, which complement Coats' existing
footwear threads business. Together, the three businesses are the
leading, global component supplier to the highly attractive
footwear market, within a fragmented supply chain. There is a
strong focus in the business on fast-growth, premium-priced
quality, sports and athleisure brands.
The combined business has an enhanced portfolio of highly
differentiated and innovative components, which are predominantly
brand specified. These include a leading portfolio of sustainable
products, including recycled and plant based components, which are
increasingly in demand for new and long-life footwear products. The
acquisitions present exciting opportunities to cross-sell the broad
range of complementary components within the business to an
expanded customer base. Early conversations with customers have
been encouraging, as they can benefit from our ability to supply a
wider range of premium, engineered components. This would enable
them to consolidate their supply chain with a longstanding and
trusted supplier. The acquisitions continue to trade in line with
our expectations.
The Group remains on-track to deliver an initial $11 million of
annualised cost efficiencies from the integration of the combined
business by the end of 2023. These efficiencies principally relate
to the elimination of duplicated roles, consolidation of
back-office functions and procurement efficiencies resulting from
increased scale. Good progress has been made in the year, with the
business now operating under a single, energised leadership team.
By the end of 2022, we had already delivered run-rate cost
efficiencies of $3 million.
Focusing the Portfolio on Attractive Markets
As announced in May 2022, and in line with our strategy to
accelerate profitable sales growth, we completed the disposal of
our business in Brazil and Argentina. We also exited direct
operations in South Africa and all operations in Russia during the
first half.
On 31 January 2023, we completed the divestment of our small
business operations in Mauritius and Madagascar. Production in
these countries has become increasingly focused on domestic and
regional customers with the more international customer base
gradually migrating their production elsewhere.
Strategic Projects
We have a strong track record of managing our costs lower and
delivering operating efficiencies, and we continued to focus on
costs during the year. To this end, we announced a number of new
strategic projects in March 2022. These will improve margins by
optimising the portfolio and footprint, enhance the overall cost
base efficiency, and mitigate structural labour availability issues
in the US.
We have accelerated project implementation, delivering in-year
efficiencies in 2022 ahead of our expectations ($20 million versus
the initially guided $5-$10 million) . In addition, we now expect
to deliver total savings of $70 million by 2024, a significant
increase on the $50 million we had previously guided. The
additional $20 million savings will primarily arise from expanding
the scope of our strategic projects, with a focus on the
transformation of our Asian operations, in particular in China and
India. The total exceptional cash cost of the projects is expected
to be $50 million (previously $35 million).
Optimising the portfolio and footprint and mitigating structural
US labour availability issues
We have in-train a number of initiatives to further optimise our
portfolio and footprint, including mitigating structural labour
availability issues in the US. We have exited legacy facilities and
technology in the US and established a new state- of-the-art
facility in Huamantla, Mexico, while also making significant
investment in our existing plant at Orizaba, Mexico. These sites
are operational, following fit-out and recruitment and training of
the workforce, with overall project timing on-track. In addition,
we expect to commission a second new plant in Mexico by the end of
the first half of 2023, which will further improve efficiency and
US labour availability issues.
As part of this project, we have installed new, proprietary
technology which reduces the number of manufacturing processes,
while increasing our flexibility to meet customer needs. The
development of a new employee-friendly and digitally controlled
bonding process, underpinned by our proprietary infra-red bonding
equipment, is a key enhancement to our operations. We have also
installed the latest compressed air system resulting in lower
energy intensity. To date, the project has enabled us to deliver
increased output for key growth segments. Wherever possible, we
have re-used equipment from our US plants, reducing the capital
requirements of the project and reducing scrap.
Due to their timing and nature, the costs and benefits of these
projects are expected to accrue predominantly during 2023 and
2024.
In addition, we have continued to consolidate our footprint in
other geographies. Following the announcement of the closure of our
warehouse in Poland in the first half, which was completed in
August, we exited our warehouse in Hungary at the end of the year.
This has enabled us to consolidate our European thread operations
in Romania in a modern, purpose-built facility.
Improving the overall cost base efficiency
A further focus is on improving the overall cost base efficiency
of the Group, and we commenced a project in the first half with
particular emphasis on our higher cost UK and US locations. The
objective is to move a number of our corporate and overhead
activities closer to our operations and customers, making us at
once more efficient and more effective. Following the progress
delivered in the first half, we have continued to accelerate
implementation of the project and have delivered total savings in
2022 of $20 million. These savings are ahead of our initial
expectations of $5-10 million for the year, and ahead of our
increased expectations of $15 million set out at the H1 2022
results. The project is continuing into 2023, with further savings
expected in line with our original overall expectations.
Strategic Enablers: Innovation, Sustainability and Digital
Our strategic enablers of Innovation, Sustainability and Digital
underpin our strategy to accelerate profitable sales growth while
delivering sustainable stakeholder value. We made further progress
during the year, as follows.
Innovation
We innovate to deliver differentiated, highly-engineered
products that will deliver profitable growth. Our innovation is
inextricably linked to sustainability, as many of the key market
trends have sustainability at their core. These include the
sourcing of natural and recycled materials for production, more
efficient production techniques, the production of lightweight,
protective and multi-use products and technologies that enhance the
ability to recycle end-of-life products. Our success in bringing
innovative new products to market that drive revenue and margin
growth is based on a number of critical factors. These include the
use of technology roadmaps, and our close relationships and
collaboration with customers.
During the year we launched 17 (2021: 21) new products which
delivered a combined $34 million (2021: $37 million) of incremental
revenue across the Group in their first year. All of our businesses
contribute to the pipeline of new and innovative products, with a
few examples from across the Group:
-- EcoCycle: a ground breaking, water dissolvable concept using
a blend of water based polymer and substrate. This enables the
easy and low-cost separation of textile and non-textile components
in end-of-life garments, facilitating re-use;
-- Eco B: a recycled polyester thread that allows synthetic plastic-based
fibres to behave more like natural fibres, such as wool;
-- Rhenoprint (TM) multizone: a process for manufacturing structural
components that generates zero waste. It allows for adjustment
of the amount of material used to create a more refined product
affording greater levels of comfort and stability;
-- Ecostrobe: footwear components made entirely from recycled plastic,
without quality or performance loss. The fully recycled nature
of the product appeals to customers, as it facilitates end-of-life
material re-use;
-- StremX: a composite strength member for fibre optic cables made
of a mix of organic and inorganic fibres. The product enables
production of lighter, thinner cables as a result of greater
tensile strength and crimping characteristics. It is also very
cost-effective to manufacture;
-- FlamePro Splash Protect: a metal molten splash protective fabric
engineered to be lightweight, soft, flexible and durable. It
ensures protection against radian heat, flame, metal splash and
other smelting hazards due to its thermal resistant and metal-shedding
design. FlamePro Splash Protect is durable after laundry with
good wash fastness, so extending the life of the garment.
During the year, Performance Materials opened a new and
significantly larger plant in Spain for the manufacture of products
for the global telecommunications industry. The plant has a new
innovation centre specialising in the development of products for
applications in telecommunications and oil and gas markets.
Our new product pipeline remains strong. We will continue to
develop our innovation credentials to deliver sustainable, tailored
solutions in line with customer requirements.
Sustainability
A key part of our company purpose is to make a better and more
sustainable world, and we aim to set benchmark performance for our
industry. Not only does this help people and the planet, it also
makes good business sense. It enables us to differentiate our
offerings and position ourselves to be a supplier of choice in the
rapidly growing market for sustainable apparel and footwear
products. In addition, by using less resources, including less
energy and water, we are aligned with broader sustainability trends
but also reducing our costs.
We are continuing towards our long-term commitment of being Net
Zero by 2050, initially by following a pathway to our 2030 SBTi
goals. As part of these SBTi goals, we will reduce scope 1 and 2
emissions by over 46% by 2030 (with scope 3 reduced by 33%), with
70% of our global energy consumption coming from renewables. In
addition, no Coats products will be made using new oil-extraction
materials such as virgin polyester and nylon. We will also adopt a
circularity approach, creating products and packaging solutions
that enable recycling and reuse, within our own operations and
across the wider garment industry.
Our shorter term 2022 targets were set in 2019. These were set
at ambitious levels to challenge us to address at speed the key
sustainability issues within the business. We are proud of what we
have achieved during the period to the end of 2022, substantially
delivering against our goals, and we have met or exceeded the
targets for many. In particular, our energy intensity has been
reduced from the 2018 baseline, achieving 143% of the 7% target.
Our target of 80% of employees working within a Great Place to Work
certification has also been exceeded, achieving 108% of the target.
We also achieved our 25% waste reduction target.
We have delivered significant improvement in all areas although,
in a few cases, we fell just short of our targets. We targeted a
40% reduction in water intensity and achieved 95% of the target. We
are also just short of our target of 100% compliance with industry
driven Zero Discharge of Harmful Chemicals (ZDHC) effluent
standards, delivering a significantly improved 92% ZDHC compliance
performance in the year. We have put in place detailed plans to
remedy the remaining issues, which arose at a small number of
plants.
We continued to rapidly increase sales of our range of 100%
recycled products, driven by market demand, where we are the clear
global market leader. Our revenue increased in the year by 37% to
$127 million (2021: $93 million) at CER. We remain focused on
ensuring all our premium polyester threads are made from 100%
recycled material by 2024, and we are making good progress towards
this.
We have now set further medium-term sustainability milestones,
using 2022 as the new baseline. This will enable us to continue on
the path to our 2030 SBTi approved targets and our 2050 Net Zero
commitment. These specific, measurable and, once again, ambitious
2026 targets continue to focus on people, water, emissions and
waste reduction, as well as product innovation and materials
transition. We have added two new 2026 target areas. These relate
to an increase in the number of female leaders in the business as
well as to reductions in scope 1 and scope 2 emissions. These 2026
targets will enable us to continue to drive our sustainability
momentum.
We had previously earmarked $10 million to fund the scaling up
of green technologies and materials that are relevant to our
industry supply chain. During the year, we allocated our first
tranche of this money to investment in water-free dyeing
technology, with other exciting ideas under consideration. The
re-purposing of our Asia Innovation Hub in Shenzhen, China to focus
on the application of biomaterials has now been completed,
following investment in top talent in a range of technologies,
including textile engineering, polymer chemistry and dyeing,
coating and bonding.
We also submitted our Carbon Disclosure Project (CDP) Climate
Change and Water questionnaire during the year, receiving a B- and
B rating respectively, reflecting our 2021 performance. We aim to
improve on this in future surveys.
Digital
By adopting and promoting digital technologies we are able to
facilitate closer links with our customers, increase our
operational agility and the efficiency of our operations and those
of our customers.
During the year, we enhanced our digital customer ecosystem,
ShopCoats, through which customers can use automated bulk and
sample ordering and status management. We supported valuable key
accounts through system integration, refreshed our front-end order
system and used Microsoft Dynamics Customer Relationship Management
software to enhance our sales and customer service systems. These
tools give us speed, agility, lower cost and increased customer
satisfaction.
In addition, our Coats Digital business, part of Apparel &
Footwear, sells software which enables fashion brands, sourcing
companies and manufacturers to optimise, connect and accelerate
business critical processes seamlessly. This includes design and
development, method-time-cost optimisation, production planning and
control, fabric optimisation and shop floor execution. Orders for
this software have increased during the year, reflecting the
growing importance of digital business in driving efficiency and
business improvement.
As part of the Rhenoflex acquisition in 2022, we acquired the
proprietary Rhenoprint(TM) 3D printing capability. This unique
process for developing and producing footwear components provides
leading brands a print-to-order solution, according to individual
needs. The process facilitates enhanced shoe performance and
characteristics, while delivering product as part of a completely
waste-free process.
Dividend
We have delivered a strong set of results in the year and, as a
result of our ongoing transformation, we are well-positioned in our
markets with growth and margin opportunities. Consequently, the
Board is pleased to propose a final dividend of 1.73 cents per
share, a 15% increase on the prior year. Subject to approval at the
forthcoming AGM, the final dividend will be paid on 25 May 2023 to
ordinary shareholders on the register at 28 April 2023, with an
ex-dividend date of 27 April 2023. Alongside the interim dividend
of 0.70 cents per share, this makes a total dividend of 2.43 cents
per share for the year, an increase of 15%.
The Board will continue to review the level of dividend payment
to shareholders, as we continue to deliver margin and earnings
growth, alongside strong cash generation.
Full Year Outlook in Line with the Board's Expectations
Following a year of excellent progress in transforming the
business, market share gains and increased profitability, we expect
to deliver another year of strategic and operational progress.
Destocking by customers has continued into the early part of the
year, primarily in Apparel markets and to a lesser extent in
Footwear markets, however we continue to proactively respond to the
macroeconomic environment and inflationary pressures using our
well-defined and tested playbook that focuses on cash, costs,
self-help initiatives, deep customer relationships and tactical
pricing actions.
As a result, we continue to anticipate that full year 2023
performance will be in line with the Board's expectations, with a
weighting to the second half. This performance will be underpinned
by the contribution from acquisitions, in addition to associated
synergies and efficiencies from strategic projects.
Coats has global leadership, a wide geographic footprint, scale,
product and quality differentiation and a pipeline of innovative
and sustainable products. This will enable revenue growth ahead of
market. Looking further ahead, as a result of the transformational
work completed to date, we remain well-positioned to grow earnings
and cash.
Operating Review
2021 2021 Inc / CER (1) Organic
2022 (3) CER (1) (dec) inc/(dec) (4) inc/(dec)
-----------------------
Continuing operations $m $m $m % % %
----------------------- ------- ------ --------- -------- ----------- ---------------
Revenue
By segment
A&F 1,163 1,048 988 11% 18% 9%
PM 420 399 373 5% 13% 13%
------- ------ ---------
Total 1,584 1,447 1,361 9% 16% 10%
By region
Asia 912 850 826 7% 10% 6%
Americas 341 314 311 9% 10% 9%
EMEA 331 283 225 17% 48% 25%
------- ------ ---------
Total 1,584 1,447 1,361 9% 16% 10%
Adjusted operating
profit (2)
By segment
A&F 201 171 162 18% 24% 18%
PM 34 27 23 26% 47% 47%
------- ------ ---------
Total adjusted
operating profit 235 198 185 19% 27% 22%
Exceptional and
acquisition related
items (54) (20)
-------
Operating profit 181 178
Adjusted operating
margin (2)
By segment
A&F 17.3% 16.3% 16.4% 100bps 90bps 140bps
PM 8.1% 6.8% 6.2% 130bps 190bps 190bps
------- ------ ---------
Total 14.8% 13.7% 13.6% 120bps 120bps 150bps
1 Constant Exchange Rate (CER) are 2021 results restated at 2022
exchange rates.
2 On an adjusted basis which excludes exceptional and acquisition-related
items.
3 Restated to reflect the results of the Brazil and Argentina
business as a discontinued operation.
4 Organic on a CER basis excluding contributions from Texon and
Rhenoflex acquisitions
2022 Operating Results Overview
Group revenue of $1,584 million increased 9% on a reported
basis, 16% on a CER basis (which includes the initial impact of the
Texon and Rhenoflex acquisitions), and 10% on an organic basis.
This was driven by pricing actions which fully offset ongoing
heightened inflationary pressures, market share gains and a strong
market recovery during H1. As anticipated, year-on-year performance
slowed during the second half, in part due to the 2021 comparator
strengthening, as well as a softening in demand due to
macroeconomic factors, with some destocking. This was most
noticeable in Apparel markets in Q4 but also impacted Footwear
towards the end of the year.
Group adjusted operating profit of $235 million increased 27% on
a CER basis (2021: $198 million reported), with operating margins
up 120bps to 14.8% (2021: 13.7%). On a reported basis operating
profit was $181 million (2021: $178 million) after $54 million of
strategic project costs and acquisition-related items.
Adjusted earnings per share ('EPS') for the year increased by
14% to 8.2 cents (2021: 7.2 cents) as operating profits grew
significantly due to the strong trading performance and the
delivery of savings from the strategic projects, alongside a
reduction in the underlying effective tax rate. There was some
offset from higher interest costs. Reported EPS of 4.8 cents (2021:
5.8 cents) was 18% lower, including the impact of exceptional and
acquisition related items.
Apparel & Footwear ('A&F')
Coats is the global market leader in supplying premium sewing
thread and footwear structural components to the A&F
industries. We are the trusted value-adding partner, providing
critical supply chain components and services, and our portfolio of
world-class products and services exist to serve the needs and
requirements of our customers and brand owners. Coats is also the
global market leader in footwear structural components. Our highly
engineered products have strong brand component specification,
primarily targeted at the attractive athleisure, performance, and
sports markets. The combination of Coats, Texon and Rhenoflex in
this market has enabled us to accelerate our innovation and
sustainability.
Our A&F business benefited from market share gains and
strong pricing/mix fully offsetting inflationary pressures, along
with post-COVID-19 industry inventory restocking, buffer buying in
the face of supply chain disruption and continued underlying market
recovery during H1. As anticipated, year-on-year performance slowed
during the second half, in part due to the 2021 comparator
strengthening, as well as a softening in demand due to
macroeconomic factors, with some destocking. This was most
noticeable in Apparel markets in Q4 but also impacted Footwear
towards the end of the year. Despite these industry dynamics we
have continued to leverage our key customer relationships, strong
sustainability credentials, market-leading product ranges and
technical services, and our flexibility and agility in a turbulent
supply chain environment.
Revenue of $1,163 million (2021: $1,048 million) reflected
strong growth of 18% on a CER basis (11% reported), which included
the initial contribution of the Texon and Rhenoflex acquisitions,
which were acquired in July and August 2022 respectively. Excluding
acquisitions, organic growth was 9% for the full year with H2
adversely impacted, following the exceptional H1 (organic growth
21%), as a result of the changing market conditions described
above, and strengthening comparators. The performance in the year
reflects the flexibility of our global footprint and our ability to
support customers during the COVID-19 recovery and ongoing
uncertainty in global supply chains. Our global accounts programme,
in which we dedicate customer relationship resources to our key
brands and retailers, saw significant new customer and programme
wins, which contributed to further overall share gains; this has
included a new programme win with a major European retailer in
relation to a sportwear brand launch where we are the nominated
recycled thread supplier. We have also been able to further
leverage our technical advisory and fast sampling service to
deliver notable further sales successes in a number of Asian
markets.
All of our geographic regions (Asia, Americas and EMEA)
benefited from positive end market sentiment during H1, led by our
ongoing ability to supply product. Market trends towards Sports and
Athleisure, as well as casualisation, continued to accelerate. In
addition, increasing online activity, a shift towards premium
products and supply chain digitisation trends also continued during
the year. Supplier consolidation, nearshoring and the need for
agility were also prominent trends and, unsurprisingly, customers
continue to place increasing emphasis on their sustainability
agendas. Despite the slowdown in the second half of the year,
largely driven by macroeconomic factors and resulting destocking,
these longer-term trends remain and are opportunities to underpin
further accelerated medium-term growth and share gains.
All A&F's sub-segments delivered organic revenue growth in
2022; A&F thread was up 9%, Zips and Trims was up 16%, and
Coats Digital was up 3%.
Adjusted operating profit of $201m (2021: $171m) increased 24%
vs 2021. Adjusted operating margin was up 90bps to 17.3% (2021:
16.4% at CER). Excluding the marginally dilutive initial impact of
acquisitions (which are expected to be accretive, post synergies),
A&F margins were up organically 140bps year-on-year to 17.8%.
This was as a result of excellent commercial and operational
delivery, pricing and procurement actions fully offsetting
heightened inflationary pressures, alongside strategic project
benefits and general cost discipline.
Performance Materials ('PM')
We are experts in the design and supply of a diverse range of
technical products that serve a variety of strategic end use
markets. Building on over 250 years of leadership in thread, we
incorporate specific design features to be able to provide highly
engineered solutions for our customers. The segment operates across
Personal Protection, Composites and Performance Threads. Personal
Protection offers multi-hazard industrial applications for
industrial, energy, firefighting and military wear. Composites
provides products and solutions for fibre optic cables and oil
& gas piping sectors and light weighting solutions for
automotive components, while Performance Threads has applications
in a range of sewn products like safety-critical airbags and seat
belts, outdoor goods, household products like bedding and
furniture, hygiene-sensitive consumer goods like feminine hygiene
and tea bags.
From 2022, the Group has disclosed PM in three sub-segments.
Personal Protection (in 2022, 43% of divisional revenue),
Composites (18% of revenue) and Performance Thread (39% of
revenue). The medium-term growth rates expected for each
sub-segment are high single digits for Personal Protection, low
double-digits for Composites, and global GDP growth for Performance
Thread. The overall medium-term growth target for the division is a
mid-high single digit growth CAGR (6-9%), as in the Revised
Segmental Reporting section below.
There were new customer wins across all sub-segments, such as
the nomination for our FlamePro Splash Protect fabric from a
leading US-based manufacturer of protective garments for the molten
metal industries and from an energy and data management provider
for our extruded coated nylon, composite products used in cables
for the energy and automotive segments.
Overall, PM revenue grew 13% to $420 million (2021: $399m) on an
organic and CER basis (5% on a reported basis), which was driven
primarily by price increases to offset inflation. Revenue growth
performance vs 2021 was underpinned by strong demand in Composites
(up 21%) despite some H1 supply chain issues in EMEA, and Personal
Protection (up 19%), again due to strong demand but also
operational improvements in the US yarns business. Performance
Thread increased 4% vs 2021 despite weaker consumer demand in its
Household and Recreation markets, and ongoing labour availability
issues in the US. These operational constraints are being addressed
via our strategic projects. In H2, overall demand has remained
resilient across end markets.
Adjusted operating profit increased 47% on an organic and CER
basis to $34 million (2021: $27 million). At an adjusted operating
margin level, PM margins were up on an organic and CER basis by 190
bps to 8.1% (2021: 6.2%). While still impacted in the US by labour
availability issues and labour inflation, US margins have improved
significantly due to the positive impact of actions taken.
Excluding the US business, PM margins were c.12%, slightly lower
than 2021 (13%), as a result of specific temporary supply chain
disruption issues within EMEA in H1, which have now been
resolved.
Revised Segmental Reporting from 1 January 2023
As mentioned above, in July and August 2022 we completed the
acquisitions of Texon and Rhenoflex respectively. This has made us
the global leader in footwear components, alongside our existing
global leadership position in industrial thread.
As a result of these acquisitions, and as announced at our
Capital Markets Day in 2022, our new organisational and reporting
structure, effective 1 January 2023, is comprised of three
divisions; Apparel, Footwear and Performance Materials. The new
Footwear segment will consist of the existing Coats footwear thread
business (currently part of A&F), and the acquired footwear
components businesses, Texon and Rhenoflex.
We will report our financial results on the new segmental basis
from our HY23 results.
As announced at our 2022 Capital Markets Day, the medium-term
sales growth CAGR for the new operating segments are anticipated to
be 3-4% for Apparel, c.8% for Footwear, and 6-9% for Performance
Materials, resulting in Group growth of c.6%. The goal for the
Group 2024 adjusted operating margin is c.17%, comprising 15-16%
for Apparel, >20% for Footwear, and 13-14% for Performance
Materials.
Geographical Performance
We saw strong revenue growth in all regions driven primarily by
pricing actions, mix and positive end market sentiment during
H1.
Our Asia revenue, 58% (2021: 59%) of Group, increased 6% CER to
$912 million (2021: $850 million), despite some headwinds. While
Vietnam and India delivered strong growth, following COVID-19
disruption in 2021, the market in China was impacted by COVID-19
disruption during H1 2022. Overall, Asian markets experienced
significant demand and supply volatility throughout the year, with
our performance underpinned by agility, customer focus and
self-help initiatives.
Our Americas revenue, 22% (2021: 22%) of Group, increased 9% CER
to $341 million (2021: $314 million), with a particularly strong
performance in Colombia and Central America. In addition, our US
Personal Protection business performed well, with strong demand and
operational delivery improving significantly.
In EMEA, 21% (2021: 20%) of Group, revenue increased 25% CER to
$331 million (2021: $283 million). This was driven by positive
momentum in PM in telecommunication composites and transportation,
as fibre optic sales remained robust. In A&F, Zips saw strong
demand. Organic revenue growth also benefited from the weakening
Turkish Lira, as we continued to price largely in USD, as well as
from the adoption of hyperinflation accounting in that country.
In the Americas and EMEA, we also benefited from increased
nearshoring, with customers bringing production closer to their
end-markets, and this trend gathered momentum through the year.
Financial Review
Revenue
Group revenue increased 9% on a reported basis and 16% on a CER
basis. On an organic basis revenue increased 10%, which excludes
the Texon and Rhenoflex acquisitions. All commentary below is on an
organic basis unless otherwise stated.
Operating Profit
At a Group level, adjusted operating profit increased from $198
million in 2021 to $235 million (including acquisitions) and
adjusted operating margins increased 120bps to 14.8%. The table
sets out the movement in adjusted operating profit during the
year.
Margin
$m %
2021 adjusted operating profit 198 13.7%
----- -------
Volumes impact (direct and indirect) (34)
----- -------
Price/mix 128
----- -------
Raw material inflation (60)
----- -------
Freight inflation (10)
----- -------
Other cost inflation (e.g. labour, energy) (48)
----- -------
Productivity benefits (manufacturing
and sourcing) 22
----- -------
Strategic projects savings 20
----- -------
Other SD&A savings 16
----- -------
Others (e.g. FX) (6)
----- -------
Contribution from Texon and Rhenoflex
acquisitions 9
----- -------
2022 adjusted operating profit 235 14.8%
----- -------
Exceptional and acquisition related items (54)
----- -------
2022 reported operating profit 181
----- -------
In the first half of the year, there were volume tailwinds as a
result of the significant demand recovery in the period. In the
second half, as anticipated, we saw a slow-down, particularly in
Apparel. The direct and indirect volume impact of this, together
with the increasingly strong 2021 comparators (due to the
exceptional demand conditions, which continued into H1 2022),
resulted in a direct and indirect volume headwind in the year.
In part as a result of increasing oil prices in the latter part
of 2020, and throughout 2021 and 2022, we experienced year-on-year
inflationary pressures for a number of major cost categories, most
notably raw materials, freight and other costs such as labour and
energy. As in previous years, we were able to fully offset these
headwinds, by means of productivity benefits and increased pricing.
These inflationary pressures continued throughout 2022, albeit with
some flattening out and price moderation in certain areas in the
latter part of the year. There was early evidence of this, for
example, in relation to some raw materials and freight.
Selling, Distribution and Administration costs have continued to
be well controlled, despite ongoing inflationary impacts. These are
below last year as we reduced our costs, particularly in the face
of more challenging conditions in H2. We have also benefited from
$20 million of savings in the year, in relation to our strategic
projects announced in early 2022, and these are ahead of our
initial expectations for the year. We have increased the total
efficiencies we expect to deliver by 2024 by $20 million through
expanding the scope of the projects, in particular focusing on our
Asian operations, and we now expect to deliver a total of $70
million incremental benefits.
Our 2022 acquisitions, Texon and Rhenoflex, delivered a $9
million contribution to adjusted operating profit post-acquisition.
This was in line with our acquisition business case, and we moved
quickly in the year to deliver the anticipated synergies ($11
million total by 2024) with run-rate savings at the year-end of $3
million.
As a result of these factors, the Group's adjusted operating
margins increased by 120bps to 14.8% on a CER basis (2021: 13.6%).
Excluding the Texon and Rhenoflex acquisitions, the Group margin
increased 150bps to 15.1%.
On a reported basis, Group operating profit (including
exceptional and acquisition-related items) increased to $181
million (2021: $178 million). This includes exceptional items, and
a breakdown is provided below. Exceptional and acquisition-related
items are not allocated to segments, and as such the segmental
profitability referred to above is on an adjusted basis.
Foreign exchange
The Group reports in US Dollars and translational currency
impacts can arise, as its global footprint generates significant
revenue and expenses in a number of other currencies. In 2022, this
was a headwind of 7% on revenue and 8% on adjusted operating
profit. These adverse translation impacts were primarily due to
depreciation in the year in the Euro and the Indian Rupee and to
the adoption of hyperinflation accounting in Turkey. At year-end
exchange rates we expect a c.1% translation headwind for revenue
and adjusted operating profit in 2023 (excluding any future
hyperinflation impact, which cannot be forecast with accuracy).
Non-operating Results
Adjusted earnings per share ('EPS') increased by 14% to 8.2
cents (2021: 7.2 cents) as operating profits grew significantly,
increasing from $198 million to $235 million (due to the strong
trading performance and the delivery of savings from the strategic
projects). This was alongside a reduction in the underlying
effective tax rate of 29% (2021: 30%). There was some offset from
higher interest. Reported EPS of 4.8 cents (2021: 5.8 cents) was
18% lower, including the impact of exceptional and acquisition
related items.
The increase in adjusted profit before tax was due to the
increase in adjusted operating profit ($37 million increase). This
was partially offset by the net finance charge which was $8 million
higher year-on-year (see further details below). There was a small
(c.0.1 cents) dilutive impact from the two acquisitions completed
during the year, which is not expected to recur in 2023, as the
business case and synergies are delivered.
Net finance costs increased to $30 million (pre-exceptional)
(2021: $21 million). The key drivers were a $9 million increase in
interest on bank borrowings due to increasing interest rates on the
floating elements of debt, and additional interest on the $240
million acquisition facility taken out in July to fund the Texon
acquisition. In addition, there was a $6 million adverse movement
on foreign exchange, largely as a result of Sterling weakness
towards the year end, when we hedge a number of costs and cash
flows, including scheduled UK pension contributions. These were
partially offset by a $4 million decrease in interest on pension
scheme liabilities, as a result of an IAS19 basis surplus at 31
December 2021. There was also a $2 million credit due to the
indexation of non-current assets in Turkey as a result of the
adoption of hyperinflation accounting.
The adjusted taxation charge for the year was $60 million (2021:
$53 million). Excluding the impact of exceptional and
acquisition-related items, the effective tax rate on pre-tax profit
was 29% (2021: 30%). The reported tax rate was 37% (2021: 34%),
after exceptional and acquisition related items.
Profit attributable to minority interests increased by 13% to
$22 million (2021: $20 million) and was predominantly related to
Coats' operations in Vietnam and Bangladesh, in which it has
controlling interests.
Exceptional and Acquisition-related Items
Net exceptional and acquisition-related items before taxation
were $55 million (2021: $20 million). These include strategic
project costs of $31 million (of which $5 million are non-cash
impairments) and acquisition-related items of $24 million.
Strategic project costs of $31 million relate to the
commencement of a number of strategic initiatives during 2022; and
primarily consist of severance costs of $22 million, non-cash
right-of-use asset impairment charges in relation to UK and US
office exits of $5 million, and legal / advisor / closure costs of
$5 million, offset by a profit of $1 million from the sale of
property. These significant actions have supported the acceleration
of project benefits, as mentioned earlier, with $20 million of
incremental adjusted operating profit delivered in 2022.
Acquisition-related items of $24 million consisted of the
provisional amortisation charges from the newly recognised
intangible assets from the Texon / Rhenoflex acquisitions ($8
million), related transaction costs ($13 million) and the
amortisation of intangible assets acquired in previous acquisitions
($3 million).
Discontinued items
In May 2022, Coats completed the disposal of its business in
Brazil and Argentina to Reelpar SA, an entity backed by a Sao Paulo
Private Equity Firm.
As a result of the strategic exit from Brazil and Argentina, the
operating results of these businesses prior to sale have been
reported within discontinued operations during the current (2022
operating losses of $3 million) and prior years. This has resulted
in an overall increase to the Group adjusted operating margin of
around 50bps.
As a result of the transaction, we have disposed of $49 million
of net assets (of which $45 million relates to working capital) for
a cash payment to the purchaser and fees of $20 million. In
addition, $15 million of historic foreign exchange losses have been
recycled to discontinued operations. The Group's statutory profit
of $7 million in the year (2021: $109 million) is stated after the
loss on disposal from this divestment.
The exit from the Brazil and Argentina business is in line with
Coats' strategic initiatives, announced in March 2022, to
accelerate profitable sales growth and transform the company.
Cash flow
The Group delivered $114 million (2021: $124 million) of
adjusted free cash flow in the year. Free cash flow is measured
before annual pension deficit recovery payments, acquisitions,
disposals and dividends, and excludes exceptional items.
Adjusted free cash flow performance was strong, albeit slightly
below 2021, which benefited from some significant, favourable
non-recurring items, including non-payment of 2020 staff bonuses.
We managed net working capital closely, although there was a $22
million outflow (2021: $14 million outflow). This result was
achieved after a significant investment in inventory to underpin
service levels during an exceptional period of demand, supply chain
disruption and inflationary pressure, which particularly impacted
the first half. We continued our disciplined approach to payables
and receivables management through the year.
Capital expenditure was $34 million (2021: $31 million), as we
continued to maintain a selective approach to investing in growth
opportunities, as well as in strategic projects. We anticipate 2023
capital expenditure to be in the $30-40 million range, as we
continue to invest in support of our growth strategy and in our
environmental performance.
Minority dividends of $18 million (2021: $17 million) were paid,
as cash was repatriated from joint ventures to the Group. Tax paid
was $55 million (2021: $48 million).
The Group delivered an overall free cash outflow of $247 million
(2021: $33 million inflow). This primarily reflects the adjusted
free cash inflow of $114 million, offset by:
-- UK pension payments of $43 million (being $32 million of ongoing
deficit recovery payments and administrative expenses, and $11
million catch-up of deferred 2020 payments which are now fully
completed);
-- Dividend payments of $33 million;
-- Exceptional and acquisition related payments, mainly relating
to strategic projects of $23 million;
-- Acquisition transaction payments of $12 million;
-- Disposals and discontinued operations of $26 million relating
to the Brazil and Argentina business: payments to the purchaser
and fees of $20 million and $9 million cash outflow from discontinued
operations, net of the $3 million overdraft disposed of;
-- Net cash paid to acquire the Texon business, which consisted
of $235 million cash payment, offset by $17 million cash within
the business at the time of acquisition.
The Rhenoflex acquisition, which consisted of a $120 million
cash payment, was largely funded by an over-subscribed GBP92
million equity raise.
Net debt (excluding lease liabilities) at 31 December 2022 was
$394 million (31 December 2021: $147 million). Including lease
liabilities, net debt was $500 million (31 December 2021: $246
million).
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 $105 million
as at 31 December 2022, which was $84 million higher than 31
December 2021 ($21 million surplus). This increase 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, had a surplus on an IAS 19 basis
at 31 December 2022 of $181 million (31 December 2021: $108
million). The increase in the surplus during the year of $73
million predominantly relates to net actuarial gains of $45
million. This is from an increased discount rate due to
significantly higher corporate bond yields reducing liabilities,
but this was partially offset by asset losses due to the high
degree of hedging in place in the portfolio. There were also
employer contributions (excluding administrative expenses) of $38
million, including $11 million of catch-up payments.
UK funding update
We continue to maintain strong and collaborative relations with
the Scheme Trustees around strategic planning and have established
a joint working group between the Company and Trustees to review
further opportunities for de-risking the scheme, beyond the
significant positive progress that has already taken place.
As part of this constructive planning the Trustee of the Coats
UK Pension Scheme completed a partial buy-in transaction in
December 2022 by purchasing a c.GBP350 million bulk annuity policy
from Aviva which insures benefits payable under the scheme in
respect of c.3,700 pensioner and dependant members. These members
represent roughly 20% of the scheme's liabilities.
The purchase of this policy sees all the Scheme's financial and
demographic risks fully hedged for the covered liabilities. The
Scheme will receive a regular stream of income that matches the
pension payments for the covered members, making it a precise
liability hedging asset. This further de-risks the Scheme and
reduces future balance sheet volatility. It builds on the
significant positive steps taken to de-risk the Scheme in recent
years, resulting in 90% of the Scheme's inflation / interest rate
exposure having previously been hedged.
The Aviva buy-in is consistent with Coats' aspiration of fully
insuring the Scheme and removing it from the Group balance sheet,
in a cost effective manner.
When the Technical Provisions (funding) deficit for the Scheme
was last formally assessed at 31 March 2021, as part of the
triennial valuation cycle, it showed a GBP193 million deficit. As a
result of this valuation, future contributions were maintained at
the previously agreed levels of GBP22 million ($27 million) per
annum (indexing) up until 2028, which was expected to result in the
pay-down of the deficit slightly earlier than originally planned.
The Group agreed to continue to pay the Scheme administrative
expenses and levies of around $5 million per annum.
Updates since then indicate that the funding deficit has fallen
significantly and is now approaching fully funded on a technical
provisions basis. This significant improvement has been due to
employer contributions, favourable movements in the market
(increasing discount rates) and the de-risking actions that we and
the Trustees have taken, for example the buy-in transaction
referred to above.
As a result of this significantly improved funding position, and
reflective of the collaborative working relationship with the
Trustees, we have agreed a mechanism to switch off / switch on the
regular cash contributions to the scheme based on monthly estimates
of the latest funding position. As such, if the scheme remains in
surplus for a consecutive number of months cash contributions will
cease entirely until any trigger on the downside (i.e. a return to
deficit) has been hit. At this point, contributions on a pre-agreed
basis would resume. Given the latest funding position, this has the
potential to significantly reduce or eliminate the existing levels
of contributions made into the Scheme, and thereby increase free
cash flows generated by the Group, within the short to medium
term.
Balance sheet and liquidity
Group net debt (excluding lease liabilities) at 31 December 2022
was $394 million ($500 million including lease liabilities), an
increase on 31 December 2021 ($147 million). This reflects
disciplined cash management as noted above, offset by the
acquisition-related items, payments in relation to the sale of the
Brazil / Argentina business, ongoing pension deficit repair
payments, shareholder dividends and exceptional cash costs in
relation to strategic projects.
As previously reported, the Texon acquisition, which was
completed in July 2022, was funded by a $240 million temporary
acquisition facility. In January 2023, we successfully refinanced
this acquisition facility via the US Private Placement (USPP)
market with $250 million of notes split between 5 and 7 years tenor
at highly competitive interest rates (between 5.3% and 5.5%). This
maintains our total committed debt facilities at $835 million with
well diversified source and tenor; being $360 million revolving
credit facility, $225 million of original USPP notes (2024 and 2027
tenors), and the new $250 million of USPP notes (2028 and 2030
tenors). The committed headroom on our banking facilities was
approximately $250 million at 31 December 2022.
At 31 December 2022, our proforma leverage ratio (net debt to
EBITDA; both excluding lease liabilities) was 1.4x and remains well
within our 3x covenant limit, and in the middle of our target
leverage of 1-2x. Our interest cover covenant also continued to
have significant headroom at 31 December 2022 at 19.0x vs a
covenant limit of 4x. These covenants are tested twice annually in
June and December and monitored throughout the year.
Going concern
On the basis of current financial projections and the facilities
available, the Directors are satisfied that the Group has adequate
resources to continue for at least the next 12 months and,
accordingly, consider it appropriate to adopt the going concern
basis in preparing the financial statements. Further details of our
going concern assessment, financial scenarios and conclusions are
set out in note 1.
Consolidated income statement
For the year ended
31 December
2022 2021*
Exceptional Exceptional
Before and Before and
exceptional acquisition exceptional acquisition
and related and related
acquisition items acquisition items
related (see related (see
items note 3) Total items note 3) Total
Notes US$m US$m US$m US$m US$m US$m
Continuing operations
Revenue 1,583.8 - 1,583.8 1,446.7 - 1,446.7
Cost of sales (1,087.1) (9.9) (1,097.0) (979.3) - (979.3)
------------- ------------- ---------- --------------- ------------- -----------
Gross profit 496.7 (9.9) 486.8 467.4 - 467.4
Distribution costs (126.1) (3.8) (129.9) (125.1) - (125.1)
Administrative
expenses (135.7) (41.4) (177.1) (144.6) (19.5) (164.1)
Other operating
income - 1.2 1.2 - - -
------------- ------------- ---------- --------------- ------------- -----------
Operating profit 234.9 (53.9) 181.0 197.7 (19.5) 178.2
Share of profits
of joint ventures 1.1 - 1.1 1.2 - 1.2
Finance income 4 2.6 - 2.6 0.4 - 0.4
Finance costs 5 (32.3) (1.1) (33.4) (21.8) - (21.8)
------------- ------------- ---------- --------------- ------------- -----------
Profit before
taxation 206.3 (55.0) 151.3 177.5 (19.5) 158.0
Taxation 6 (60.1) 3.7 (56.4) (53.3) 0.2 (53.1)
------------- ------------- ---------- --------------- ------------- -----------
Profit from continuing
operations 146.2 (51.3) 94.9 124.2 (19.3) 104.9
(Loss)/profit
from discontinued
operations 13 (3.7) (83.9) (87.6) (5.2) 8.9 3.7
Profit for the
year 142.5 (135.2) 7.3 119.0 (10.4) 108.6
------------- ------------- ---------- --------------- ------------- -----------
Attributable
to:
----------------------- ------ ------------- ------------- ---------- --------------- ------------- -----------
EQUITY SHAREHOLDERS
OF THE COMPANY 120.2 (134.9) (14.7) 99.3 (10.4) 88.9
----------------------- ------ ------------- ------------- ---------- --------------- ------------- -----------
Non-controlling
interests 22.3 (0.3) 22.0 19.7 - 19.7
------------- ------------- ---------- --------------- ------------- -----------
142.5 (135.2) 7.3 119.0 (10.4) 108.6
------------- ------------- ---------- --------------- ------------- -----------
Earnings/(loss)
per share (cents) 7
Continuing operations:
Basic 4.80 5.84
Diluted 4.77 5.82
Continuing and
discontinued
operations:
Basic (0.98) 6.10
Diluted (0.97) 6.07
Adjusted earnings 14
per share (d) 8.17 7.17
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
Consolidated statement of comprehensive income
Year ended 31 December 2022 2021
US$m US$m
Profit for the year 7.3 108.6
Items that will not be reclassified
subsequently to profit or loss:
Actuarial gains on retirement benefit
schemes (note 15) 59.8 212.8
Tax on items that will not be reclassified (1.4) (1.0)
------- -------
58.4 211.8
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations (31.9) (17.0)
Items reclassified to profit or loss:
Exchange differences transferred to
income statement on sale of business
(note 13) 15.0 -
Other comprehensive income and expense
for the year 41.5 194.8
------- -------
Net comprehensive income and expense
for the year 48.8 303.4
------- -------
Attributable to:
--------------------------------------------- ------- -------
EQUITY SHAREHOLDERS OF THE COMPANY 27.5 284.2
---------------------------------------------- ------- -------
Non-controlling interests 21.3 19.2
48.8 303.4
------- -------
Consolidated statement of financial position
31 December 31 December
Notes 2022 2021
US$m US$m
Non-current assets
Goodwill 12 124.7 26.2
Other intangible assets 12 488.7 256.7
Property, plant and equipment 256.3 244.5
Right-of-use assets 96.5 91.6
Investments in joint ventures 13.1 12.0
Other equity investments 5.9 6.0
Deferred tax assets 24.4 20.7
Pension surpluses 15 222.7 159.7
Trade and other receivables 20.2 28.7
------------ ------------
1,252.5 846.1
Current assets
Inventories 211.4 250.1
Trade and other receivables 286.3 302.7
Pension surpluses 15 2.0 5.2
11
Cash and cash equivalents (g) 172.4 107.2
672.1 665.2
Total assets 1,924.6 1,511.3
------------ ------------
Current liabilities
Trade and other payables (278.4) (346.8)
Current income tax liabilities (20.2) (16.5)
Bank overdrafts and other 11
borrowings (g) (16.7) (19.2)
11
Lease liabilities (g) (19.0) (17.8)
Retirement benefit obligations:
- Funded schemes 15 (27.6) (41.9)
- Unfunded schemes 15 (5.0) (6.1)
Provisions (18.2) (8.1)
(385.1) (456.4)
Net current assets 287.0 208.8
------------ ------------
Non-current liabilities
Trade and other payables (26.3) (24.2)
Deferred tax liabilities 12 (65.3) (6.8)
11
Borrowings (g) (550.1) (235.1)
11
Lease liabilities (g) (86.4) (81.2)
Retirement benefit obligations:
- Funded schemes 15 (3.3) (5.6)
- Unfunded schemes 15 (83.4) (90.2)
Provisions (25.4) (27.7)
(840.2) (470.8)
Total liabilities (1,225.3) (927.2)
------------ ------------
Net assets 699.3 584.1
------------ ------------
Equity
Share capital 8 99.0 90.1
Share premium account 8 111.4 10.5
Own shares 8 (0.1) (0.5)
Translation reserve (121.9) (105.7)
Capital reduction reserve 59.8 59.8
Other reserves 246.3 246.3
Retained profit 270.7 252.5
EQUITY SHAREHOLDERS' FUNDS 665.2 553.0
--------------------------------------------- ------------ ------------
Non-controlling interests 34.1 31.1
------------ ------------
Total equity 699.3 584.1
------------ ------------
Consolidated statement of changes in equity
For the year ended 31 December 2022
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$m
------------
Balance as at
1 January
2021 90.1 10.5 (3.2) (89.2) 59.8 246.3 (23.8) 290.5 28.4 318.9
Profit for the
year - - - - - - 88.9 88.9 19.7 108.6
Other
comprehensive
income and
expense
for the year - - - (16.5) - - 211.8 195.3 (0.5) 194.8
Dividends - - - - - - (27.6) (27.6) (16.5) (44.1)
Movement in
own
shares - - 2.7 - - - (0.8) 1.9 - 1.9
Share based
payments - - - - - - 3.9 3.9 - 3.9
Deferred tax
on
share schemes - - - - - - 0.1 0.1 - 0.1
Balance as
at
31 December
2021 90.1 10.5 (0.5) (105.7) 59.8 246.3 252.5 553.0 31.1 584.1
(Loss)/profit
for
the year - - - - - - (14.7) (14.7) 22.0 7.3
Other
comprehensive
income and
expense
for the year - - - (16.2) - - 58.4 42.2 (0.7) 41.5
Application of
IAS
29 (note 1) - - - - - - 5.0 5.0 - 5.0
Dividends - - - - - - (32.9) (32.9) (18.3) (51.2)
Issue of
ordinary
shares 8.9 100.9 - - - - - 109.8 - 109.8
Purchase of
own
shares by
Employee
Benefit Trust - - (2.1) - - - - (2.1) - (2.1)
Movement in
own
shares - - 2.5 - - - (2.5) - - -
Share based
payments - - - - - - 4.6 4.6 - 4.6
Deferred tax
on
share schemes - - - - - - 0.3 0.3 - 0.3
Balance as
at
31 December
2022 99.0 111.4 (0.1) (121.9) 59.8 246.3 270.7 665.2 34.1 699.3
-------------- -------- -------- ------- ------------ ---------- --------- --------- ------- ------------ -------
Consolidated statement of cash flows
For the year ended 31 December 2022 2021
Note US$m US$m
Cash inflow from operating
activities
11
Cash generated from operations (a) 176.5 189.0
11
Interest paid (b) (25.5) (12.5)
11
Taxation paid (c) (54.6) (47.9)
---------------- --------
Net cash generated by operating
activities 96.4 128.6
---------------- --------
Cash outflow from investing
activities
11
Investment income (d) 0.5 0.3
Net capital expenditure and 11
financial investment (e) (31.6) (30.3)
11
Acquisitions of businesses (f) (271.2) -
11
Disposal of business (f) (17.0) -
Net cash absorbed in investing
activities (319.3) (30.0)
---------------- --------
Cash inflow/(outflow) from
financing activities
Issue of ordinary shares 8 109.8 -
Purchase of own shares by Employee
Benefit Trust (2.1) -
Dividends paid to equity shareholders (33.0) (27.4)
Dividends paid to non-controlling
interests (18.3) (16.5)
Payment of lease liabilities (18.1) (22.1)
Borrowings settled on completion
of acquisitions 12 (62.5) -
Drawdown of term loan acquisition 11
facility (g) 240.0 -
Net increase in other borrowings 79.2 8.4
---------------- --------
Net cash generated from/(absorbed
in) financing activities 295.0 (57.6)
---------------- --------
Net increase in cash and cash
equivalents 72.1 41.0
Net cash and cash equivalents
at beginning of the year 90.8 52.1
Foreign exchange losses on
cash and cash equivalents (5.2) (2.3)
---------------- --------
Net cash and cash equivalents 11
at end of the year (g) 157.7 90.8
---------------- --------
Reconciliation of net cash
flow to movement in net debt
Net increase in cash and cash
equivalents 72.1 41.0
Drawdown of term loan acquisition 11
facility (g) (240.0) -
Net increase in other borrowings (79.2) (8.4)
---------------- --------
Change in net debt resulting
from cash flows 14
(Free cash flow) (e) (247.1) 32.6
Net movement in lease liabilities
during the year (13.0) (33.0)
Movement in fair value hedges 5.2 3.0
Other non-cash movements (1.0) (1.3)
Foreign exchange gains/(losses) 2.2 (0.8)
---------------- --------
(Increase)/decrease in net
debt (253.7) 0.5
Net debt at the start of the
year (246.1) (246.6)
---------------- --------
Net debt at the end of the 11
year (g) (499.8) (246.1)
---------------- --------
Notes to the consolidated financial information for the year
ended 31 December 2022
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 2022 or 2021. The financial information for the
year ended 31 December 2021 and 2022 is derived from the statutory
accounts for 2021 (which has been delivered to the Registrar of
Companies) and 2022 (which will be delivered to the Registrar of
Companies following the AGM in May 2023). The auditors have
reported on the 2021 and 2022 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 Group's financial statements for the year ended 31 December
2022 have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006, 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 2021 Annual Report. A full list of accounting policies will be
presented in the 2022 Annual Report. For details of new accounting
policies applicable to the Group in 2022 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 International Financial Reporting
Standards ('IFRS'), this statement does not itself contain
sufficient information to comply with IFRS. Full financial
statements that comply with IFRS are included in the 2022 Annual
Report; these will be available to shareholders in March 2023.
Critical accounting judgements and key sources of estimation
uncertainty
The principal accounting policies adopted by the Group are set
out in 2022 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:
In the course of preparing the financial statements, the below
critical judgements and key sources of estimation uncertainty have
had a significant effect on the amounts recognised in the financial
statements for the years ended 31 December 2022. The critical
accounting judgements made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those applied to the consolidated financial
statements for the year ended 31 December 2021, except for the
critical accounting judgement relating to the sale of the Brazil
and Argentina business in 2022 set out below.
Critical judgements in applying the Group's accounting
policies
Exceptional and acquisition related items
Judgement is used to determine those items which should be
separately disclosed as exceptional and acquisition related items
to provide valuable additional information for users of the
financial statements in understanding the Group's performance. 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 $180.7 million at
31 December 2022 (2021: $108.0 million). Judgement has been applied
when interpreting the scheme rules to determine 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 15 for
further details.
Critical judgements in applying the Group's accounting policies
(continued)
In management's judgement the Brazil and Argentina business
which was sold in May 2022 represents a separate major geographical
area and therefore its results for 2022 have been presented as a
discontinued operation with 2021 comparative amounts represented to
reclassify the results of the Brazil and Argentina business from
continuing operations to discontinued operations (see below for
further details).
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.
Sensitivities regarding the discount rate and inflation
assumptions used to measure the liabilities of the UK pension
scheme are set out in note 15.
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 2021.
During the year, the Group adopted the following standards,
interpretations and amendments:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37);
-- Annual Improvements to IFRS Standards 2018-2020;
-- Property, Plant and Equipment: Proceeds before Intended Use (Amendments
to IAS 16); and
-- Reference to the Conceptual Framework (Amendments to IFRS 3).
The adoption of these standards and amendments has not had a
material impact on the financial statements of the Group.
Discontinued operations
On 10 May 2022 the Group announced the agreement to sell its
business in Brazil and Argentina to Reelpar SA, an entity backed by
a Sao Paulo Private Equity Firm. The sale was completed on 26 May
2022, the date which control passed to the acquirer. The results of
the Brazil and Argentina business are presented as a discontinued
operation in the consolidated income statement for the year ended
31 December 2022. Amounts for year ended 31 December 2021 in the
consolidated income statement have been represented to reclassify
the results of the Brazil and Argentina business from continuing
operations to discontinued operations. Note 13 provides further
details of the sale.
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 2023
as well as the Group's updated Medium Term Plan for 2024;
-- 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 certain
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 2022 the Group's net debt excluding leases
liabilities was $394.4 million (2021: $147.1 million). Following
the completion of the new US Private Placement and repayment of the
acquisition facility in February 2023, the Group's committed debt
facilities total $835 million across its Banking and US Private
Placement group, with a range of maturities from late 2024 through
to 2030. As of 31 December 2022, based on the facilities in place
at that date, the Group had around $250 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.
All banking covenants tests were met comfortably at 31 December
2022, with leverage of 1.4x and interest cover of 19.0x. 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:
2022 2021
------------ ------------------ ------ ------
Average Sterling 0.81 0.73
Euro 0.95 0.85
Chinese Renminbi 6.73 6.45
Indian Rupee 78.59 73.92
Turkish Lira * 16.57 8.89
------------------- ----------- ------ ------
Period end Sterling 0.83 0.74
Euro 0.93 0.88
Chinese Renminbi 6.90 6.35
Indian Rupee 82.72 74.47
Turkish Lira 18.69 13.32
------------------- ----------- ------ ------
* Cumulative inflation rates over a three-year period exceeded
100% in Turkey in Q2 2022 and is considered as hyperinflationary
and as a result IAS 29 "Financial Reporting in Hyperinflationary
Economies" has been applied for the first time for the year ended
31 December 2022. In accordance with IAS 29, the financial
statements of the Company's subsidiary in Turkey are translated
into the Group's US Dollar presentational currency at the 31
December 2022 year end exchange rate. Monetary assets and
liabilities are not restated. All non-monetary items recorded at
historical rates are restated for the change in purchasing power
caused by inflation from the date of initial recognition to the
year end balance sheet date. The income statement of the Company's
subsidiary in Turkey is adjusted for inflation during the reporting
period. Comparative amounts in the Group's financial statements are
not restated. The translation adjustment resulting from the initial
application of IAS 29 of $5.0 million was recognised in equity and
a net monetary gain of $1.9 million was recognised within finance
income on non-monetary items held in Turkish Lira. The inflation
rate used is the consumer price index published by the Turkish
Statistical Institute, TurkStat. The movement in the price index
for the year ended 31 December 2022 was 64%.
2. Segmental analysis
Operating segments are components of the Group's business
activities about which separate financial information is available
that is evaluated regularly by the chief operating decision maker
(the Group Executive Team) in deciding how to allocate resources
and in assessing performance. The Group's customers throughout the
year ended 31 December 2022 were grouped into two segments Apparel
& Footwear and Performance Materials which have distinct
different strategies and differing customer/end-use market
profiles.
Effective 1 January 2023 the Group's new organisational
structure and reporting structure will consist of three divisions:
Apparel, Footwear and Performance Materials. The Group will report
its financial results on this new segmental basis from half year
2023 and, from 1 January 2023, this will be the basis on which
financial information is reported internally to the chief operating
decision maker (CODM) for the purpose of allocating resources
between segments and assessing their performance. As at December
2022, this internal reorganisation had not occurred with segment
results grouped into two segments Apparel & Footwear and
Performance Materials to which the CODM was provided financial
information on which to assess performance and allocate
resources.
Segment revenue and results
Apparel Performance
& Footwear Materials Total
Year ended 31 December 2022 US$m US$m US$m
------------------------------------------- ------------- ------------- ----------
Continuing operations
Revenue 1,163.4 420.4 1,583.8
------------- ------------- ----------
Segment profit 200.8 34.1 234.9
------------- -------------
Exceptional and acquisition related items
(note 3) (53.9)
Operating profit 181.0
Share of profits of joint ventures 1.1
Finance income 2.6
Finance costs (33.4)
----------
Profit before taxation from continuing
operations 151.3
----------
Apparel Performance
& Footwear Materials Total
Year ended 31 December 2021* US$m US$m US$m
------------------------------------------- ------------- ------------- ----------
Continuing operations
Revenue 1,048.1 398.6 1,446.7
------------- ------------- ----------
Segment profit 170.7 27.0 197.7
------------- -------------
Exceptional and acquisition related items
(note 3) (19.5)
Operating profit 178.2
Share of profits of joint ventures 1.2
Finance income 0.4
Finance costs (21.8)
----------
Profit before taxation from continuing
operations 158.0
----------
Segment results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
Exceptional and acquisition related items are not allocated to
segments. In addition, no measures of total assets and total
liabilities are reported for each reportable segment as such
amounts are not regularly provided to the chief operating decision
maker. The accounting policies of the reportable operating segments
are the same as the Group's accounting policies.
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
Disaggregation of revenue
The following table shows revenue disaggregated by primary
geographical markets with a reconciliation of the disaggregated
revenue with the Group's reportable segments.
2022 2021*
Year ended 31 December US$m US$m
---------------------------------------- -------- --------
Continuing operations
Primary geographic markets
Asia 911.8 849.7
Americas 340.6 313.8
EMEA 331.4 283.2
Total 1,583.8 1,446.7
======== ========
Continuing operations
Apparel & Footwear 1,163.4 1,048.1
Performance Materials 420.4 398.6
Total 1,583.8 1,446.7
======== ========
Timing of revenue recognition
Goods transferred at a point in time 1,573.6 1,435.6
Software solution services transferred
over time 10.2 11.1
Total 1,583.8 1,446.7
======== ========
The software solutions business is included in the Apparel &
Footwear segment.
Revenue from Texon and Rhenoflex totalling $87.2 million for the
period to 31 December 2022 from their respective acquisition dates
(see note 12) is included in the amount above for the Apparel &
Footwear segment of which $34.4 million is included in Asia, $1.2
million is included in Americas and $51.6 million is included in
EMEA.
The Group had no revenue from a single customer which accounts
for more than 10% of the Group's revenue.
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
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 exclude exceptional and acquisition related items
on a consistent basis with the previous reporting period to provide
valuable additional information for users of the financial
statements in understanding the Group's performance and reflects
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 14.
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
profit before taxation for the year ended 31 December 2022 were
$55.0 million (2021: $19.5 million) comprising exceptional items
for the year ended 31 December 2022 of $31.2 million (2021: $3.7
million) and acquisition related items for the year ended 31
December 2022 of $23.8 million (2021: $15.8 million). Taxation in
respect of exceptional and acquisition related items is set out in
note 6.
Exceptional items
Exceptional items charged/(credited) to operating profit during
the year ended 31 December 2022 are set out below:
2022 2021*
Year ended 31 December US$m US$m
------------------------------------------------------ ----------- -------------
Exceptional items:
Strategic project costs:
* Cost of sales 9.9 -
* Distribution costs 3.8 -
* Administrative costs 18.7 3.7
----------- -------------
32.4 3.7
Profit on sale of property:
* Other operating income (1.2) -
----------- -------------
Total exceptional items charged to operating profit
from
continuing operations 31.2 3.7
=========== =============
Strategic project costs - At the end of 2021 the Group commenced
a strategic project to improve margins by optimising the portfolio
and footprint, improving the overall cost base efficiency, and
mitigating structural labour availability issues in the US. During
the year a new facility was established in Mexico, manufacturing
processes were transferred from the US and a legacy facility in the
US was exited. In EMEA thread operations in Romania were
consolidated in a purpose-built logistics facility and warehouses
in Poland and Hungary were exited. Corporate and overhead
activities in the UK and US were moved closer to the Group's
operations and customers. As a result of these activities,
exceptional restructuring costs totalling $32.4 million were
incurred during the year ended 31 December 2022 which included
severance costs of $22.5 million, non-cash impairment charges of
tangible fixed assets and right-of-use assets of $4.7 million and
$5.2 million of legal, advisers, closure and related costs.
The Group accelerated the implementation of this strategic
project during the year ended 31 December 2022, delivering in-year
efficiencies in 2022 ahead of the Group's expectations. In
addition, the Group expect to deliver total savings of $70 million
by 2024, a significant increase on the $50 million the Group
previously expected to deliver. The additional $20 million savings
will primarily arise from the transformation of Asian operations,
in particular in China and India.
During the previous year ended 31 December 2021, exceptional
strategic project costs of $3.7 million were incurred which
included advisers' costs of $0.9 million, impairment charges
relating to plant and equipment in North America of $2.0 million
and closure and 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.
Profit from sale of property - During the year ended 31 December
2022 a profit of $1.2 million was made from the sale of a property
in Poland as part of the above strategic project.
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
Acquisition related items
Acquisition related items are set out below:
2022 2021
Year ended 31 December US$m US$m
---------------------------------------------------- ------------ ------------
Acquisition related items:
Administrative expenses:
Acquisition transaction costs 11.9 12.4
Amortisation of acquired intangible assets 10.8 3.3
Acquisition earnouts and contingent consideration - 0.1
------------ ------------
22.7 15.8
Finance costs:
Acquisition transaction costs 1.1 -
Total acquisition related items before
taxation 23.8 15.8
============ ============
Acquisition transaction costs charged to administrative expenses
during the year ended 31 December 2022 of $11.9 million include
transaction costs relating to the acquisitions of Texon and
Rhenoflex (see note 12).
Acquisition transaction costs charged to finance costs during
the year ended 31 December 2022 of $1.1 million relate to the
$240.0 million term loan acquisition facility used to finance the
acquisition of Texon (see note 12).
During the year ended 31 December 2021, the Group pursed several
acquisition opportunities and as a result incurred transaction
costs of $12.4 million.
Acquisition transaction costs and amortisation of intangible
assets acquired through business combinations are not included
within adjusted operating profit and adjusted earnings per share.
These costs are acquisition related and management consider them to
be capital in nature and are not included in profitability measures
by which management assess the performance of the Group.
Excluding amortisation of intangible assets acquired through
business combinations and recognised in accordance with IFRS 3
"Business Combinations" from adjusted results also ensures that the
performance of the Group's acquired businesses is presented
consistently with its organically grown businesses. It should be
noted that the use of acquired intangible assets contributed to the
Group's results for the years presented and will contribute to the
Group's results in future periods as well. Amortisation of acquired
intangible assets will recur in future periods. Amortisation of
software is included within operating results as management
consider these costs to be part of the trading performance of the
business.
The Group has made acquisitions in prior years with earn-outs to
allow part of the consideration to be based on the future
performance of the businesses acquired and to lock in key
management. Where consideration paid or contingent consideration
payable in the future is employment linked, it is treated as an
expense and part of statutory results. However, all consideration
of this type is excluded from adjusted operating profit and
adjusted earnings per share, as in management's view, these items
are part of the capital transaction.
4. Finance income
2022 2021*
Year ended 31 December US$m US$m
------------------------------------------------ -------- --------
Income from investments 0.1 0.1
Net monetary gain arising from hyperinflation
accounting (see note 1) 1.9 -
Other interest receivable and similar
income 0.6 0.3
2.6 0.4
======== ========
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
5. Finance costs
2022 2021*
Year ended 31 December US$m US$m
-------------------------------------------------- --------- -----------------
Interest on bank and other borrowings 18.9 10.4
Interest expense on lease liabilities 4.9 5.2
Net interest on pension scheme assets
and liabilities 0.5 4.1
Other finance costs including unrealised
gains and losses on foreign exchange contracts 9.1 2.1
--------- -----------------
33.4 21.8
========= =================
Other finance costs for the year ended 31 December 2022 include
acquisition related transaction costs of $1.1 million incurred in
connection with the $240.0 million term loan acquisition facility
used to finance the acquisition of Texon (see note 3).
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
6. Tax on profit from continuing operations
2022 2021*
Year ended 31 December US$m US$m
---------------------------------------- --------- -----------------
UK Corporation tax at 19% (2021: 19%) - -
Overseas tax charge (56.2) (55.0)
Deferred tax (charge)/credit (0.2) 1.9
Total tax charge (56.4) (53.1)
========= =================
The overseas tax charge includes withholding tax charges and
other taxes not based on profits for the year ended 31 December
2022 of $13.3 million (2021: $12.1 million).
For the year ended 31 December 2022 the tax credit in respect of
exceptional and acquisition related items was $3.7 million (2021:
$0.2 million). This includes exceptional tax credits of $2.0
million relating to exceptional strategic projects and $1.7 million
relating to the unwinding of tax liabilities on the amortisation of
intangible assets acquired as a result of the acquisitions of Texon
and Rhenoflex during the year ended 31 December 2022 (refer to note
12).
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
7. Earnings/(loss) per share
The calculation of basic earnings per ordinary share from
continuing operations is based on the profit from continuing
operations attributable to equity shareholders and the weighted
average number of Ordinary Shares in issue during the year,
excluding shares held by the Employee Benefit Trust but including
shares under share incentive schemes which are not contingently
issuable.
The calculation of basic earnings/(loss) per ordinary share from
continuing and discontinued operations is based on the
profit/(loss) attributable to equity shareholders. The weighted
average number of ordinary shares used for the calculation of basic
earnings per ordinary share from continuing and discontinued
operations is the same as that used for basic earnings per ordinary
share from continuing operations.
For diluted earnings per ordinary share, the weighted average
number of ordinary shares in issue is adjusted to include all
potential dilutive ordinary shares. The Group has two classes of
dilutive potential Ordinary Shares: those shares relating to awards
under the Group Deferred Bonus Plan which have been awarded but not
yet reached the end of the three year retention period and those
long-term incentive plan awards for which the performance criteria
would have been satisfied if the end of the reporting period were
the end of the contingency period.
2022 2021*
Year Ended 31 December US$m US$m
-------------------------------------------------- ------- ------------
Profit from continuing operations attributable
to equity shareholders 72.9 85.2
(Loss)/profit from continuing and discontinued
operations attributable to equity shareholders (14.7) 88.9
------- ------------
Profit from continuing operations attributable to equity
shareholders for the year ended 31 December 2022 of $72.9 million
(2021: $85.2 million) comprises the profit from continuing
operations for the year ended 31 December 2022 of $94.9 million
(2021: $104.9 million) less non-controlling interests for the year
ended 31 December 2022 of $22.0 million (2021: $19.7 million) as
reported in the income statement.
2022 2021
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 1,516.0 1,457.1
Adjustment for share options and LTIP
awards 9.3 5.9
----------- --------------
Weighted average number of ordinary
shares in issue for diluted earnings
per share 1,525.3 1,463.0
----------- --------------
2022 2021*
Year Ended 31 December cents cents
------------------------------------------- ------- ---------------
Continuing operations:
Basic earnings per ordinary share 4.80 5.84
Diluted earnings per ordinary share 4.77 5.82
------- ---------------
Continuing and discontinued operations:
Basic (loss)/earnings per ordinary share (0.98) 6.10
Diluted (loss)/earnings per ordinary
share (0.97) 6.07
------- ---------------
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
8. Issued share capital
During the year ended 31 December 2022 the Company issued
145,240,000 Ordinary shares of 5p each in connection with an equity
placing as set out below. The par value of the shares issued was
$8.9 million. The proceeds raised net of costs were $109.8 million
and were used to fund the acquisition of Rhenoflex GmbH (see note
12). During the year ended 31 December 2021 the Company issued
493,113 Ordinary shares of 5p each following the exercise of awards
under the Group's share based incentive plans.
Number
of
Shares US$m
-------------------------- -------------- -----
At 1 January 2022 1,452,570,385 90.1
Issue of ordinary shares 145,240,000 8.9
At 31 December 2022 1,597,810,385 99.0
============== =====
The own shares reserve of $0.1 million at 31 December 2022
(2021: $0.5 million) represents the cost of shares in Coats Group
plc purchased in the market and held by an Employee Benefit Trust
to satisfy awards under the Group's share based incentive plans.
The number of shares held by the Employee Benefit Trust at 31
December 2022 was 805,501 (2021: 2,020,306).
9. Dividends
2022 2021
Year Ended 31 December US$m US$m
------------------------------------------ ----- --------------
2022 interim dividend paid - 0.70 cents
per share 11.1 -
2021 final dividend paid - 1.50 cents
per share 21.8 -
2021 interim dividend paid - 0.61 cents
per share - 8.8
2020 final dividend paid - 1.30 cents
per share - 18.8
32.9 27.6
===== ==============
The proposed final dividend of 1.73 cents per ordinary share for
the year ended 31 December 2022 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 2023 to
ordinary shareholders on the register on 28 April 2023, with an
ex-dividend date of 27 April 2023.
10. US environmental matters
As noted in previous reports, in December 2009, the US
Environmental Protection Agency ('EPA') 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. In 2011, CC joined a cooperating parties group
('CPG') of companies formed to fund and conduct a remedial
investigation and feasibility study of the area.
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. In September 2021, EPA
issued a Record of Decision selecting an interim remedy for the
upper 9 miles of the LPR (involving targeted removal of
contaminants and ongoing monitoring to assess whether additional
contaminant removal would be necessary), at an estimated cost of
$441 million on a net present value basis.
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 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 for the full 17-mile LPR are expected to be shared among
more than a hundred parties, including many who are not currently
in the CPG, the allocation of remedial costs among those parties in
a settlement or court ruling has not yet been finally
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
allocation process concluded in December 2020. The EPA-appointed
allocator determined that CC is in the lowest tier (Tier 5) of
allocation parties, and is responsible for only a de micromis share
of 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
addressed in the EPA sponsored allocation process, and does not
alter CC's defences or CC's continued belief that it is a de
micromis party.
In 2015, a provision totalling $15.8 million was recorded for
remediation costs for the entire 17 miles of the LPR and the
estimated associated legal and professional costs in defence of
CC's position. The provision for remediation costs was based on
CC's estimated share of de minimis costs for (a) EPA's selected
remedy for the lower 8 miles of the LPR and (b) the remedy for the
upper 9 miles proposed by the CPG, which was later substantively
adopted by the EPA. This charge to the income statement was net of
insurance reimbursements and was 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.
At 31 December 2022, the remaining provision, taking into
account insurance reimbursement, was $9.2 million (2021: $11.2
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 process and OCC's lawsuit, 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.
In 2022, CC and other parties entered into a settlement with EPA
in which the settling parties agreed to pay $150 million toward
remediation of the full 17-mile LPR in exchange for a release for
those matters addressed in the settlement. CC's share of the
cash-out settlement is consistent with a de micromis share of total
remedial costs for the full 17-mile LPR. EPA has indicated it will
seek the balance of LPR remedial costs from OCC and a small number
of other parties that EPA has determined were not eligible to
participate in a cash-out settlement. These work parties (and not
the cash-out parties) would be responsible for remedial costs
over-runs. The settlement does not address claims for natural
resource damages by federal natural resource trustees. The Group
believes that CC's share, if any, of such costs would be de
micromis.
In late 2022, the cash-out settlement for the full 17-mile LPR
was lodged with the court by the Department of Justice (DOJ) on
behalf of EPA. Court approval is necessary for the settlement to go
into effect, and OCC has indicated that it will oppose such
approval. The Group expects that DOJ and EPA will assert that the
settlement is just and reasonable and that it should be approved by
the court, and courts have generally deferred to EPA's judgment on
such matters. However, it is nonetheless possible that the court
may not approve the settlement. It is also possible that the court
may approve the settlement but permit OCC's litigation against the
settling parties to continue in whole or in part. Because of these
continued uncertainties, the Group is maintaining its current
provision for the LPR for the present time.
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 the
EPA-appointed allocator correctly concluded that it has a de
micromis share of the total remediation costs, and that OCC and
other parties will be responsible for a significant share of the
ultimate costs of remediation. As this matter evolves, the
provision may be reduced if the settlement is approved by the court
and if the court bars further litigation against CC and other
settling parties. It is nonetheless still possible that additional
provisions could be recorded and that such provisions could
increase materially based on further decisions by the court,
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
2022 2021*
Year Ended 31 December US$m US$m
---------------------------------------- ------- ---------------
Operating profit 181.0 178.2
Depreciation of owned property, plant
and equipment 26.5 27.3
Deprecation of right-of-use assets 19.4 19.4
Amortisation of intangible assets 12.6 6.0
Decrease/(increase) in inventories 43.6 (66.8)
Decrease/(increase) in debtors 10.4 (38.2)
(Decrease)/increase in creditors (76.2) 91.5
Provisions and pension movements (41.6) (34.5)
Foreign exchange and other non-cash
movements 8.8 13.0
Discontinued operations (8.0) (6.9)
------- ---------------
Cash generated from operations 176.5 189.0
======= ===============
b) Interest paid
2022 2021*
Year Ended 31 December US$m US$m
------------------------- ------- -------
Interest paid (24.8) (11.0)
Discontinued operations (0.7) (1.5)
------- -------
(25.5) (12.5)
======= =======
c) Taxation paid
2022 2021*
Year Ended 31 December US$m US$m
------------------------- ------- -------
Overseas tax paid (54.6) (47.8)
Discontinued operations - (0.1)
------- -------
(54.6) (47.9)
======= =======
d) Investment income
2022 2021
Year Ended 31 December US$m US$m
---------------------------------------- ----- -----
Dividends received from joint ventures 0.5 0.3
===== =====
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
e) Capital expenditure and financial investment
2022 2021*
Year Ended 31 December US$m US$m
---------------------------------------------- ------- ---------------
Purchase of property, plant and equipment
and intangible assets (33.8) (30.5)
(Purchase)/sale of other equity investments (0.1) 0.1
Disposal of property, plant and equipment 2.8 0.8
Discontinued operations (0.5) (0.7)
(31.6) (30.3)
======= ===============
f) Acquisitions and disposals of businesses
2022 2021
Year Ended 31 December US$m US$m
------------------------- ----- -------------
Acquisition of businesses (note 12) (271.2) -
Disposal of business (note 13) (17.0) -
(288.2) -
========
g) Summary of net debt
2022 2021
Year Ended 31 December US$m US$m
-------------------------------------- -------- --------
Cash and cash equivalents 172.4 107.2
Bank overdrafts (14.7) (16.4)
-------- --------
Net cash and cash equivalents 157.7 90.8
Borrowings (552.1) (237.9)
-------- --------
Net debt excluding lease liabilities (394.4) (147.1)
Lease liabilities (105.4) (99.0)
Total net debt (499.8) (246.1)
======== ========
On 20 July 2022, the Group fully drew down on a new $240 million
term loan acquisition facility to fund the purchase of Texon (see
note 12). This facility was to mature in July 2024, and the Group
had an option to extend this term by a further nine months to May
2025.
In February 2023, the Group completed the refinancing of this
acquisition facility via the US Private Placement (USPP) market
with $250 million of notes. $150 million 5.26% Series A Senior
Notes are due on 16 February 2028 and $100 million 5.37% Series B
Senior Notes are due on 16 February 2030.
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 2022 for covenant
purposes was $399.9 million (31 December 2021: $148.0 million).
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
12. Acquisitions
The Group completed two acquisitions during the year obtaining
control of both Texon and Rhenoflex, leading manufacturers of
structural footwear components supplying the world's leading
footwear brands. Both have operations in Asia and Europe and are
complementary additions to Coats' existing footwear business with
opportunities to leverage existing footprints and combine expertise
in the attractive athleisure footwear market.
-- On 20 July 2022, the Group acquired the entire share capital
of Torque Group International Fortune Limited ('Texon') for
$211.0 million. On completion, the Group immediately settled
all Texon's external bank debt of $24.4 million such that the
total cash outflow was $235.4 million.
-- On 23 August 2022, the Group also purchased the entire share
capital of Rhenoflex GmbH ('Rhenoflex') for $81.5 million.
On completion, the Group immediately settled all of Rhenoflex's
external bank debt of $38.1 million such that the total cash
outflow was $119.6 million.
The Texon transaction was funded through a new $240.0 million
term loan acquisition facility and the Rhenoflex transaction was
predominately financed through an equity raise of $109.8 million
net of costs.
These acquisitions have been accounted for as business
combinations using the acquisition method in accordance with IFRS 3
'Business Combinations.' For each acquisition, a provisional
assessment of the fair values of identified assets acquired and
liabilities assumed has been undertaken with assistance provided by
external valuation specialists.
In the provisional accounting, adjustments are made to the book
values of the net assets of the companies acquired to reflect their
provisional fair values to the Group. Previously unrecognised
assets and liabilities at acquisition are included. As part of this
exercise, accounting policies are aligned with those of the Group
and as the acquisitions were made in the second half of the year
and given their global footprint, the fair values presented below
are provisional as these assessments will be completed within 12
months from each relevant acquisition date. The provisional fair
values of the identifiable assets and liabilities of Texon and
Rhenoflex as at their respective acquisition dates were as
follows:
Provisional Provisional
fair value fair value
recognised recognised
on acquisition on acquisition
of of Provisional
Texon Rhenoflex Total
US$m US$m US$m
---------------------------------------- ---------------- ---------------- ------------
Assets
Acquired intangible assets
- Customer relationships 107.1 51.7 158.8
- Brands and trade names 26.7 14.2 40.9
- Technology 26.3 14.2 40.5
---------------- ---------------- ------------
160.1 80.1 240.2
Computer software 0.1 0.5 0.6
Property, plant and equipment 14.4 9.3 23.7
Right-of-use-assets 4.9 4.3 9.2
Investments in joint ventures 0.7 - 0.7
Deferred tax assets 2.6 0.7 3.3
Inventories 20.6 20.3 40.9
Trade and other receivables 26.0 13.8 39.8
Cash and cash equivalents 16.8 4.5 21.3
---------------- ---------------- ------------
246.2 133.5 379.7
Liabilities
Trade and other payables (28.8) (12.7) (41.5)
Deferred tax liabilities (28.5) (26.3) (54.8)
Borrowings (24.4) (38.1) (62.5)
Lease liabilities (4.9) (4.3) (9.2)
Retirement benefit obligations (7.6) (2.7) (10.3)
Provisions (5.3) (2.1) (7.4)
---------------- ---------------- ------------
(99.5) (86.2) (185.7)
---------------- ---------------- ------------
Total identifiable net assets acquired
at fair value 146.7 47.3 194.0
Goodwill recognised on acquisition
(provisional) 64.3 34.2 98.5
---------------- ---------------- ------------
Purchase consideration paid 211.0 81.5 292.5
================ ================ ============
The fair value assessed for intangible customer relationship
assets was $107.1 million for Texon and $51.7 million for
Rhenoflex. In both cases this will be amortised over a fifteen-year
useful economic life. As fair value level one observable market
prices are not available for these assets, management engaged
external professional valuation advisors to assist in identifying
and valuing these assets The excess earnings method was used to
value these customer relationships which considers the use of other
assets in the generation of projected cash flows to isolate the
economic benefit generated by the relationships.
The fair value assessed for brands and trade names was $26.7
million for Texon and $14.2 million for Rhenoflex and for
technology was $26.3 million for Texon and $14.2 million for
Rhenoflex. The relief from royalty method was used to value both
the technology and the trade names which will be amortised over a
useful economic life of ten years. The relief from royalty method
looks at the savings from owning the trade name and technology
compared to paying royalties for their use based on comparable
market royalty rates.
The net deferred tax position reflected adjustments related to
the deferred tax impact of the fair value uplifts on acquired
intangible assets and other fair value adjustments at the tax rates
that are expected to be applied to the temporary differences when
they reverse, based on the laws that were enacted or substantively
enacted. Deferred tax liabilities recognised as a result of the
acquisition of Texon and Rhenoflex total $54.8 million. The Group's
total deferred tax liabilities at 31 December 2022 were $65.3
million (2021: $6.8 million).
Fair value adjustments were also made to uplift property, plant
and equipment by a total of $3.5 million for Texon. Other
adjustments were made to decrease pension obligations on an IAS 19
basis by $2.1 million and $0.7 million at the acquisition dates for
Texon and Rhenoflex respectively. Due to their contractual dates,
the fair value of receivables acquired approximated to the gross
contractual amounts receivable. There was no material expected
credit losses for either acquisition and these receivables have
materiality been settled between the respective acquisition dates
and the 31 December 2022 year-end date. There are no material
contingent liabilities recognised in accordance with paragraph 23
of IFRS 3.
Provisional goodwill of $64.3 million for Texon and $34.2
million for Rhenoflex represents the premium attributable to
purchasing separately established businesses with assembled
workforces, opportunities for synergies and exploitation of the
general technological capabilities and knowledge base of each
company. Goodwill is not expected to be deductible for tax
purposes.
Goodwill is not amortised but tested annually for impairment.
For the purposes of annual impairment testing the combined
provisional goodwill has initially been allocated to a new
Structural Footwear Components cash generating unit. This initial
allocation will be reviewed during 2023 following further
integration of Structural Footwear Components with the pre-existing
Coats footwear and thread business.
Provisional goodwill and intangible assets acquired for Texon
and Rhenoflex totalled $338.7 million. From their respective
acquisition dates to 31 December 2022, amortisation charges for
acquired intangible assets amounted to $5.6 million for Texon and
$2.1 million for Rhenoflex.
From their acquisition dates, the contribution to revenues in
the year to 31 December 2022 was $57.2 million for Texon and $30.0
million for Rhenoflex. The contribution to operating profit
excluding exceptional items and amortisation of acquired intangible
assets in the year to 31 December 2022 was $5.8 million for Texon
and $3.4 million for Rhenoflex in the year to 31 December 2022. The
loss after tax in the year to 31 December 2022 (after exceptional
items and amortisation of acquired intangible assets) was $1.9
million for Texon and a profit of $0.5 million for Rhenoflex.
If the acquisitions had taken effect at the beginning of the
reporting period (1 January 2022), the Group's revenues for the
year ended 31 December 2022 would have been $85.9 million higher
for Texon and $60.0 million higher for Rhenoflex and the Group's
profit after tax would have been $2.9 million higher for Texon and
$3.1 million higher for Rhenoflex, based on management
accounts.
Transaction costs totalling $12.6 million relating to the
acquisitions of Texon ($8.6 million) and Rhenoflex ($4.0 million)
have been expensed and are included in the consolidated income
statement (see note 3). Transaction costs of $11.5 million have
been charged to administrative expenses and $1.1 million has been
charged to finance costs relating to the $240.0 million Texon term
loan acquisition facility.
Transaction costs paid in the year ended 31 December 2022
relating to these acquisitions was $12.3 million and are included
in cash flows absorbed in operating activities in the consolidated
cash flow statement. In addition costs of $2.8 million were
incurred in connection with the equity raise to finance the
acquisition of Rhenoflex which have been charged to the share
premium reserve.
The purchase consideration was paid in cash with the amounts
included in the statement of consolidated cash reconciled as
follows:
Texon Rhenoflex Total
US$m US$m US$m
----------------------------------------- ------- ---------- -------
Purchase consideration paid to previous
owners 211.0 81.5 292.5
Cash and cash equivalents acquired (16.8) (4.5) (21.3)
------- ---------- -------
Acquisition of businesses - investing
cash flows 194.2 77.0 271.2
External bank borrowings settled
on completion - financing cash flows 24.4 38.1 62.5
------- ---------- -------
Total cash out flow on respective
acquisition dates 218.6 115.1 333.7
======= ========== =======
The repayment of the external bank borrowings of Texon and
Rhenoflex on the respective completion dates of the acquisitions is
presented as financing cash flows.
The total cash outflow for the acquisitions of Texon and
Rhenoflex in the year ended 31 December 2022 was $346.0 million
(see note 14(e)) comprising the total cash outflow on the
respective acquisition dates of $333.7 million plus transaction
costs paid of $12.3 million.
13. Discontinued operations
Sale of Brazil and Argentina
On 10 May 2022 the Group announced the agreement to sell its
business in Brazil and Argentina to Reelpar SA, an entity backed by
a Sao Paulo Private Equity Firm. The sale was completed on 26 May
2022, the date which control passed to the acquirer. Under the
terms of the disposal, the Group paid $15.0 million to Reelpar S.A.
to support restructuring of the business. During the five years
following the completion date earn-out payments are payable to the
Group in the event that certain operational cash flow targets are
met by the Brazil and Argentina business. No earn-out payments have
been recognised by the Group as at 31 December 2022.
a) Discontinued operations
The results of the discontinued operations are presented
below:
2022 2021*
Year Ended 31 December US$m US$m
-------------------------------------------- ------- -------
Revenue 26.3 66.8
Cost of sales (22.6) (49.8)
------- -------
Gross profit 3.7 17.0
Distribution costs (3.8) (10.2)
Administrative expenses (3.3) (5.6)
------- -------
Operating (loss)/profit (3.4) 1.2
Investment income - 4.2
Finance costs (0.3) (0.4)
------- -------
(Loss)/profit before taxation (3.7) 5.0
Taxation - (1.3)
------- -------
(Loss)/profit from discontinued operations
for the year (3.7) 3.7
Loss on disposal (note 13 (b)) (68.9) -
Exchange loss transferred to income
statement on disposal (15.0) -
Total (loss)/profit from discontinued
operations (87.6) 3.7
------- -------
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
Revenue reported above includes inter-company sales for the year
ended 31 December 2022 of $1.6 million (2021: $3.6 million).
External revenue of the Brazil and Argentina business for the year
ended 31 December 2022 was $24.7 million (2021: $63.2 million).
Exceptional items - discontinued operations
Exceptional items (charged)/credited to (loss)/profit from
discontinued operations are set out below:
2022 2021*
Year Ended 31 December US$m US$m
---------------------------------------- ------- ------
Brazil indirect taxes:
* Cost of sales - 5.8
* Finance income - 4.2
* Taxation - (1.1)
Loss on disposal (note 13(b)) (68.9) -
Exchange loss transferred to income
statement on disposal (15.0) -
Total exceptional items - discontinued
operations (83.9) 8.9
======= ======
Brazil indirect taxes - In 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 were recognised as exceptional
items in the results for the year ended 31 December 2021 of $5.8
million which was included in cost of sales and in addition
exceptional interest income was recognised year ended 31 December
2021 of $4.2 million. The exceptional tax charge for the year ended
31 December 2021 was $1.1 million. These refunds dated back to 2003
and the estimated tax credit amounts were expected to be utilised
over a period of approximately six years, once the business has
received a favourable Court ruling.
(Loss)/earnings per ordinary share from discontinued
operations
The (loss)/earnings per ordinary share from discontinued
operations is as follows:
2022 2021*
Year Ended 31 December Cents Cents
------------------------------------------ ------- ------
(Loss)/earnings per ordinary share
from discontinued operations:
Basic (loss)/earnings per ordinary share (5.78) 0.26
Diluted (loss)/earnings per ordinary
share (5.74) 0.25
------- ------
Cash flows from discontinued operations
The table below sets out the cash flows from discontinued
operations:
2022 2021*
Year Ended 31 December US$m US$m
--------------------------------------------- ------ ------
Net cash outflow from operating activities (8.7) (8.5)
Net cash outflow from investing activities (0.5) (0.7)
Net cash flows from discontinued operations (9.2) (9.2)
====== ======
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
b) Loss on disposal
The major classes of assets and liabilities disposed relating to
the Brazil and Argentina business was as follows:
US$m
--------------------------------------------- -------
Property, plant and equipment 10.8
Inventories 26.9
Trade and other receivables 35.7
Cash and cash equivalents 0.7
-------
Total assets 74.1
-------
Trade and other payables (18.1)
Current income tax liabilities (1.2)
Bank overdrafts (2.5)
Retirement benefit obligations (2.0)
Provisions (0.9)
-------
Total liabilities (24.7)
-------
Net assets disposed 49.4
Consideration paid 15.0
Disposal costs 4.5
Exceptional loss on disposal - discontinued
operations 68.9
=======
The consideration paid on the date of disposal was $15.0 million
and net of cash and cash equivalents and bank overdrafts disposed
was $13.2 million. Disposal costs of $3.8 million were paid in the
year ended 31 December 2022 and as a result the cash outflow in the
year ended 31 December 2022 on the sale of the Brazil and Argentina
business was $17.0 million.
14. Alternative performance measures
The financial information in this statement contains both
statutory measures and alternative performance measures which, in
management's view, provide valuable additional information for
users of the financial statements in understanding the Group's
performance.
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') 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 profitability progression of the Group. Adjusted operating
profit is calculated by adding back exceptional and acquisition
related items (see note 3 for further details).
2022 2021*
Year Ended 31 December US$m US$m % Growth
------------------------------------- -------- -------------- ---------
Revenue from continuing operations 1,583.8 1,446.7 9%
Constant currency adjustment - (85.3)
-------- -------------- ---------
Revenue on a CER basis 1,583.8 1,361.4 16%
Revenue from acquisitions (1) (87.2) -
-------- -------------- ---------
Organic revenue on a CER basis 1,496.6 1,361.4 10%
======== ============== =========
2022 2021*
Year Ended 31 December US$m US$m % Growth
------------------------------------- -------- -------------- ---------
Operating profit from continuing
operations (2) 181.0 178.2 2%
Exceptional and acquisition related
items (note 3) 53.9 19.5
-------- -------------- ---------
Adjusted operating profit from
continuing operations 234.9 197.7 19%
Constant currency adjustment - (12.3)
-------- -------------- ---------
Adjusted operating profit on
a CER basis 234.9 185.4 27%
Operating profit from acquisitions
(1) (9.2) -
-------- -------------- ---------
Organic adjusted operating profit
on a CER basis 225.7 185.4 22%
======== ============== =========
(1) Revenue and operating profit from acquisitions relates to
the acquisitions of Texon and Rhenoflex (see note 12).
(2) Refer to the consolidated income statement for a
reconciliation of profit before taxation to operating profit from
continuing operations.
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance
measure to show the operating performance of the Group excluding
the effects of depreciation of owned fixed assets and right-of-use
assets, amortisation and impairments and excluding exceptional and
acquisition related items.
Operating profit from continuing operations before exceptional
and acquisition related items and before depreciation of owned
fixed assets and right-of-use assets and amortisation (Adjusted
EBITDA) is set out below:
2022 2021*
Year Ended 31 December US$m US$m
------------------------------------------------- ------------ -------
Profit before taxation from continuing
operations 151.3 158.0
Share of profit of joint ventures (1.1) (1.2)
Finance income (note 4) (2.6) (0.4)
Finance costs (note 5) 33.4 21.8
------------ -------
Operating profit from continuing operations
(1) 181.0 178.2
Exceptional and acquisition related items
(note 3) 53.9 19.5
------------ -------
Adjusted operating profit from continuing
operations 234.9 197.7
Depreciation of owned property, plant
and equipment 26.5 27.3
Amortisation of intangible assets 1.8 2.7
------------ -------
Adjusted EBITDA including IFRS 16 depreciation
of right-of-use assets (Pre-IFRS 16 basis) 263.2 227.7
Depreciation of right-of-use assets 19.4 19.4
------------ -------
Adjusted EBITDA 282.6 247.1
============ =======
(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 2022 was $499.8 million (2021: $246.1 million).
This gives a leverage ratio of net debt including lease
liabilities to adjusted EBITDA at 31 December 2022 of 1.8 (2021:
1.0).
Net debt excluding lease liabilities under IFRS 16 at 31
December 2022 was $394.4 million (2021: $147.1 million).
This gives a leverage ratio on a pre-IFRS 16 basis at 31
December 2022 of 1.5 (2021: 0.6).
The Group's proforma leverage on a pre-IFRS 16 basis at 31
December 2022 is 1.4 after adjusting EBITDA to include Texon and
Rhenoflex as if the acquisitions had taken effect at the beginning
of the reporting period (1 January 2022).
For the definition and calculation of net debt including and
excluding lease liabilities see note 11 (g).
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
c) Adjusted effective tax rate
The adjusted effective tax rate removes the tax impact of
exceptional and acquisition related items and net interest on
pension scheme assets and liabilities to arrive at a tax rate based
on the adjusted profit before taxation.
A significant proportion of the Group's net interest on pension
scheme assets and liabilities relates to UK pension plans for which
there is no related current or deferred tax credit or charge
recorded in the income statement. The Group's net interest on
pension scheme assets and liabilities is adjusted in arriving at
the adjusted effective tax shown below and, in management's view,
were this not adjusted it would distort the alternative performance
measure. This is consistent with how the Group monitors and manages
the effective tax rate.
2022 2021*
Year Ended 31 December US$m US$m
------------------------------------------------- ------------- -------
Profit before taxation from continuing
operations 151.3 158.0
Exceptional and acquisition related items
(note 3) 55.0 19.5
Net interest on pension scheme assets
and liabilities 0.5 4.1
------------- -------
Adjusted profit before taxation from
continuing operations 206.8 181.6
------------- -------
Taxation charge from continuing operations 56.4 53.1
Tax credit in respect of exceptional and
acquisition related items 3.7 0.2
Tax credit in respect of net interest
on pension scheme assets and
liabilities 0.5 0.5
------------- -------
Adjusted tax charge from continuing operations 60.6 53.8
------------- -------
Adjusted effective tax rate 29% 30%
------------- -------
d) Adjusted earnings per share
The calculation of adjusted earnings per share is based on the
profit from continuing operations attributable to equity
shareholders before exceptional and acquisition related items as
set out below. Adjusted earnings per share growth measures the
progression of the benefits generated for shareholders.
2022 2021*
Year Ended 31 December US$m US$m
------------------------------------------------- -------- --------------
Profit from continuing operations 94.9 104.9
Non-controlling interests (22.0) (19.7)
-------- --------------
Profit from continuing operations attributable
to equity shareholders 72.9 85.2
Exceptional and acquisition related items
net of non-controlling interests (note
3) 54.7 19.5
Tax credit in respect of exceptional and
acquisition related items (3.7) (0.2)
-------- --------------
Adjusted profit from continuing operations 123.9 104.5
-------- --------------
Weighted average number of Ordinary Shares 1,515,999,205 1,457,076,765
Adjusted earnings per share (cents) 8.17 7.17
===== =====
Adjusted earnings per share (growth %) 14%
=====
The weighted average number of Ordinary Shares used for the
calculation of adjusted earnings per share for the year ended 31
December 2022 is 1,515,999,205 (2021: 1,457,076,765), the same as
that used for basic earnings per ordinary share from continuing
operations (see note 7).
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
e) Adjusted free cash flow
Net cash generated by operating activities, a GAAP measure,
reconciles to changes in net debt resulting from cash flows (free
cash flow) as set out in the consolidated cash flow statement. A
reconciliation of free cash flow to adjusted free cash flow is set
out below.
Consistent with previous periods, adjusted free cash flow is
defined as cash generated from continuing activities less capital
expenditure, interest, tax, dividends to minority interests and
other items, and excluding exceptional and discontinued items,
acquisitions, purchase of own shares by the Employee Benefit Trust
and payments to the UK pension scheme.
Adjusted free cash flow measures the Group's cash generation
that is available to service shareholder dividends, pension
obligations and acquisitions.
2022 2021*
Year Ended 31 December US$m US$m
------------------------------------------------ -------- ------
Change in net debt resulting from cash
flows (free cash flow) (247.1) 32.6
Acquisition of businesses (note 12) 346.0 -
Disposal of business (note 13) 17.0 -
Net cash outflow from discontinued operations 9.2 9.2
Payments to UK pension scheme 42.7 42.4
Net cash flows in respect of other exceptional
and acquisition
related items 22.5 12.2
Issue of ordinary shares (note 8) (109.8) -
Purchase of own shares by Employee Benefit
Trust 2.1 -
Dividends paid to equity shareholders 33.0 27.4
Tax inflow in respect of adjusted cash
flow items (1.4) -
-------- ------
Adjusted free cash flow 114.2 123.8
======== ======
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1).
f) Adjusted return on capital employed
Adjusted return on capital employed ('ROCE') is defined as
operating profit before exceptional and acquisition related items
adjusted for the full year impact of acquisitions divided by period
end capital employed as set out below. Adjusted ROCE measures the
ability of the Group's assets to deliver returns.
2022 2021*
Year Ended 31 December US$m US$m
--------------------------------------------- -------- --------
Operating profit from continuing operations
before exceptional and acquisition related
items adjusted for full year impact
of acquisitions (1) 250.9 197.7
-------- --------
Non-current assets
Acquired intangible assets 366.6 36.8
Property, plant and equipment 256.3 235.1
Right-of-use assets 96.5 91.6
Trade and other receivables 20.2 20.4
Current assets
Inventories 211.4 229.6
Trade and other receivables 286.3 279.8
Current liabilities
Trade and other payables (278.4) (328.9)
Lease liabilities (19.0) (17.8)
Non-current liabilities
Trade and other payables (26.3) (24.2)
Lease liabilities (86.4) (81.2)
-------- --------
Capital employed 827.2 441.2
-------- --------
Adjusted ROCE 30% 45%
======== ========
(1) Operating profit from continuing operations before
exceptional and acquisition related items for the year ended 31
December 2022 has been adjusted to include Texon and Rhenoflex as
if the acquisitions had taken effect at the beginning of the
reporting period (1 January 2022). Including full year proforma
results, rather than the actual consolidated results of these
acquired businesses, better reflects the return from the capital
position at the period end. Therefore this provides reliable and
more relevant information on the financial performance of the Group
to a user of the financial statements. Refer to note 3 for details
of exceptional and acquisition related items.
* Represented to reflect the results of the Brazil and Argentina
business as a discontinued operation (see note 1). Amounts for
non-current assets, current assets, current liabilities and
non-current liabilities at 31 December 2021 exclude the
discontinued Brazil and Argentina business.
15. 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 $105.4 million as at 31 December
2022 (2021: $21.1 million). The increase in the net surplus during
the year ended 31 December 2022 is primarily due to movements on
the UK 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 2022 of $180.7 million (31 December 2021: $108.0
million). The increase in the surplus during the year ended 31
December 2022 of $72.7 million predominantly relates to net
actuarial gains of $44.9 million (higher discount rate due to
significantly higher corporate bond yields offset to some extent by
asset losses due to the high degree of hedging in place in the
portfolio) and employer contributions (excluding administrative
expenses) of $37.9 million. This was offset by foreign exchange
translation movements.
Sensitivities regarding the discount rate and inflation
assumptions used to measure the liabilities of the Coats UK Pension
Scheme, along with the impact they would have on the scheme
liabilities, are set out below. Interrelationships between
assumptions might exist and the analysis below does not take the
effect of these interrelationships into account:
31 December 31 December
2022 2021
+0.25% -0.25% +0.25% -0.25%
US$m US$m US$m US$m
---------------- ------- -------------- -------- ------------
Discount rate (51.4) 53.9 (108.8) 115.0
Inflation rate 28.0 (30.1) 74.6 (72.0)
----------------- ------- -------------- -------- ------------
An increase of 1.0% in the discount rate would result in the
Coats UK Pension Scheme liabilities decreasing by $192.3 million
(31 December 2021: $401.4 million). A decrease of 1.0% in the
discount rate would result in the Coats UK Pension Scheme
liabilities increasing by $232.2 million (31 December 2021: $502.7
million). The above sensitivity analysis (on an 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 2022 Annual Report, the Coats UK Pension
Scheme is currently over 90% 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 $59.8 million (31 December
2021: $105.8 million).
In December 2022, the trustee board of the Coats UK Pension
Scheme purchased a circa GBP350 million bulk annuity policy from
Aviva, which insures all the benefits payable in respect of around
3,700 pensioner members (a "pensioner buy-in"). This policy will
see all financial and demographic risks, including those related to
longevity, covered for approximately 20% of Scheme members. The
bulk annuity policy is an asset of the Scheme. Under IAS 19 it is
deemed a qualifying insurance policy, due to it exactly matching
the amount and timing of benefits payable by the Scheme to the
covered members. Under IAS 19, the value of the bulk annuity policy
is therefore set equal to the corresponding IAS 19 liabilities for
covered members; not the premium paid. Given the favourable pricing
at the point of transaction, the pensioner buy-in has no material
impact on the Group's balance sheet or future income statements on
an IAS 19 basis.
16. Post balance sheet events
On 20 February 2023 the Group announced completion of a $250
million issue of US Private Placement notes (see note 11 (g) for
further details).
17. Directors
The following persons were, except where noted, directors of
Coats Group plc during the whole of the year ended 31 December 2022
and up to the date of this report:
D Gosnell OBE
R Sharma
N Bull
J Callaway
A Fahy (Resigned 18 May 2022)
H Lawrence (Appointed 7 November 2022)
H Lu
S Murray (Appointed 1 September 2022)
F Philip
J Sigurdsson
On behalf of the Board
D Gosnell
Chairman
1 March 2023
United Kingdom
--------------------------------------------- --------------
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