Thursday, 5 March 2020

Coats Group faces challenges but profits are rising

Coats Group’s full-year results for 2019 on Thursday showed a company that’s facing global challenges with a muted revenue performance, although profits are rising and its investors seem happy as its shares rose on publication of the figures.

Revenue rose just 1% currency-neutral but they fell 2% on a reported basis to $1.389 billion. That fall was due to some foreign exchange headwinds during the first half. 

On a currency-neutral basis, the threads and trimmings giant said its key Apparel & Footwear (A&F) division’s revenue growth was also 1% with core thread sales up by the same percentage, driven by ongoing gains in market share. Those gains are, at least, encouraging given that the company is already such a massive presence in the global threads market.

Its Performance Materials unit’s revenue growth (again on a currency-neutral basis) was 1.4%. 

Adjusted operating profit rose 5% on that basis to $198 million and the margin was up 50bps to 14.3%. Reported operating profit surged by as much as 30% to $191 million as the company continued its strategic progress and significantly lowered its exceptional costs.

CEO Rajiv Sharma, highlighted that the year was one of continued growth in profits and cash flow. That was even though the market backdrop was a difficult one in which the company saw "lower than normal growth in retail sales of Apparel & Footwear and temporary softness in some of the industrial end-markets that we serve in Performance Materials”.

Looking more closely at that A&F division, the threads business within it that makes up 85% of its sales may have only been up 1% currency-neutral, but it rose 2.1% on a reported basis. A&F’s headline growth was hurt by slower demand for zips and trims (which account for around 10% of segment sales). This was “due to certain in-year fashion trends and conscious low margin product rationalisation”. Sales were also dented by ongoing difficult trading conditions in Latin America Crafts (albeit with an improving trend in H2).

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