Coats Group faces challenges but profits are rising

By

Sandra Halliday

Published
Mar 5, 2020

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 it 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. Thos 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).

By geography, overall it saw resilient revenue growth in Asia (up 3% currency-neutral) which was underpinned by A&F growth across key non-China markets, such as Indonesia and Vietnam, as they continued to benefit from incremental volumes moving out of China. That was “a dynamic that was exacerbated by US-China Trade War uncertainty in 2019,” it said. 

Revenues in EMEA rose 4%, driven by Performance Materials, while in the Americas, revenues fell 5% as a result of the Latin America decline and other issues.

The company also said that the coronavirus impact on its business so far this year had seen the four China-based global manufacturing facilities it has in the country (out of a total of 50 worldwide) being closed But they’re now open again and it said they should be at full capacity by the end of the month.