Annual Report 2016 Harnessing Talent and Technology in Textiles
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Harnessing talent and technology in textiles COATS GROUP PLC ANNUAL REPORT 2016 HARNESSING TALENT AND TECHNOLOGY IN TEXTILES • Throughout this document WE ARE 19,000 PEOPLE IN 60 COUNTRIES you will see references to where supporting information WITH ONE COMMON PURPOSE – TO can be found online HARNESS TALENT AND TECHNOLOGY IN • A full copy of our Annual Report can be downloaded TEXTILES TO ENHANCE PEOPLE’S LIVES. along with other relevant WE ARE COATS. documents from www.coats.com/ara2016 • You can find more information For over 200 years we have worked to harness talent and technology in about Coats online at textiles to enhance people’s lives – touching everything from sewing thread www.coats.com to medical sutures and fibre optic cables, from high performance threads used in planes, automobiles and safety equipment to the yarns, fabrics and accessories that inspire creative crafters the world over. We are restless pioneers – creating new advanced materials and partnering with customers across multiple industries to realise the challenges they face. We are Coats – helping to connect and form the fabric of daily life on our planet for over 200 years. OUR ANNUAL REPORT OUR ‘YEAR IN REVIEW’ FOR 2016 ONLINE FOR 2016 This is our audited Annual Report for We have produced a printed, audited 2016. It contains our Strategic report, version of this year’s Annual Report Governance section, Financial because we are legally required to statements and Other information. do so and we also know some stakeholders want to read the report Strategic report – this contains in this format. information about us, how we create value and how we run our business. However, this year we have elected It includes our investment case, to put more energy into producing business model, market place, strategy, an online ‘Year in Review’. We have what KPIs we measure as well as our done this as many more people now approach to sustainability and risk. view our Annual Report online than in print, and we believe online Governance section – this contains provides a more visually engaging detailed Corporate governance way to communicate our progress information, our Committee reports in the year. and how we remunerate our Directors. Financial statements section – this contains our audited financial On 1 January 2017 ‘Speciality’ was statements and notes to the accounts. renamed ‘Performance Materials’ in order to better reflect the present Other information – this contains and future state of this growth area shareholder details and regulatory of the business. information on overall group structure. 2016 FULL YEAR RESULTS AND HIGHLIGHTS CONTENTS Financial performance 2016 2015 1 Change CER Organic change change Strategic report Revenue reported $1,457m $1,472m (1%) 2% 1%2 02 Coats at a glance 03 Our investment case 04 Chairman’s statement Operating profit reported $153m $111m 38% 06 Group Chief Executive’s adjusted $158m $140m 13% 16% 14%2 statement 08 Market trends Basic earnings reported 4.28c (3.61)c n/a 2 10 Business model per share adjusted 4.91c 4.00c 23% 12 Our strategy Free cash adjusted $78m2 $71m 10% 14 Key Performance Indicators flow 16 People 18 Corporate Responsibility Return on capital employed 39%2 33% 600bps 20 Principal risks and (ROCE) uncertainties 25 Long term viability statement 26 Operating review Organic revenue growth of 1% on a CER basis to $1,457 million (down 1% reported). 28 Financial review Continued solid growth of 4% in Industrial Division achieved through market share gains, offsetting 8% decline in Crafts Americas. Corporate governance Organic adjusted operating profit up 14% (up 13% reported) through market share gains, 32 Board of Directors cost productivity, controlled overheads and raw material price benefits. 35 Group Executive Team Adjusted EPS up 23% to 4.91c (reported EPS of 4.28c) with higher operating profit and 36 Chairman’s introduction reduction in tax rate partially offset by unrealised losses on foreign exchange hedges. 38 Corporate governance report 41 Audit and Risk Adjusted free cash flow up 10% to $78 million (2015: $71 million) as net working capital Committee report continues to be controlled effectively. 46 Nomination Committee report 48 UK Corporate Governance Return on capital employed increase of 600bps to 39% (2015: 33%) mainly as a result of Code report higher profitability. 52 Directors’ remuneration report Strategic progress 72 Directors’ report Acquired Gotex and Fast React; both performing well and ahead of management 77 Directors’ responsibilities expectations ($3 million operating profit contribution in 2016). statement Cessation of regulatory action for UK Coats and Brunel pension schemes following Financial statements settlement, which represents approximately 90% of UK pension liabilities and 79 Independent auditor’s report scheme members. 86 Primary financial statements Rajiv Sharma became Group CEO on 1 January 2017, previously CEO Industrial Division. 92 Notes to the financial statements Announced final dividend of 0.84 US cents per share payable in May 2017, subject to 149 Company financial statements shareholder approval, represents a pro forma full year dividend of 1.25 US cents per share. 152 Notes to Company Non-financial performance financial statements 2 Employee engagement score in 2016 of 83% overall favourable − retains position in top 10% of companies globally in the IBM Kenexa survey. Other information 155 Group structure Recordable accident rate (RAR)2 in 2016 of 0.38 work related injuries per 100 FTEs per year 161 Shareholder information − largely as a result of the increase in minor injury reporting, our RAR increased in 2016 by 31% but it remains 89% below industry averages. 1 Restated to reflect the results of the UK Crafts business as a discontinued operation (see note 1b). 2 Denotes KPIs for definitions see page 14. Alternative Performance Measures see note 37 on page 146. 1 COATS AT A GLANCE COATS IS THE WORLD’S LEADING INDUSTRIAL THREAD MANUFACTURER AND A MAJOR PLAYER IN THE AMERICAS TEXTILE CRAFTS MARKET. HEADQUARTERED IN THE UK, WE EMPLOY SOME 19,000 PEOPLE AND IN 2016 GENERATED REVENUES OF $1.5 BILLION. Apparel & Footwear Performance Materials Americas Crafts INDUSTRIAL The value adding partner Global experts in the CRAFTS Foundation and fashion to the global Apparel design and supply hand knitting yarns, and Footwear industry of high-technology quilting fabrics and $1,221m performance materials $236m various needlecraft items Threads Key brands include: Automotive, household (2015: $1,213m) Zips (2015: $260m) Red Heart, Coats & and recreation, medical, Trims Clark, Dual Duty XP, health and food; safety; Technology solutions Anchor, Free Spirit telecoms; composites; and Cisne mechanical rubber goods and other industrial #1 thread Leading 2016 performance $1,457m supplier position Revenue up 2% World’s leading thread In Performance Materials – producer for the Apparel high performing threads $158m and Footwear industries and yarns Pre-exceptional Technology Largest operating profit up 16% solutions player $78m Productivity improvements for In North America textile Adjusted free cash flow brands, retailers and partners. crafts market Global footprint Our sales presence in over 100 countries and digital platforms enable us to serve customers wherever they are located. With employees across six continents, and some 50 manufacturing sites, we have an unrivalled, global manufacturing footprint. Revenue by region Americas 34% EMEA 17% Asia 49% For more go online www.coats.com/aboutus Alternative Performance Measures see note 37 on page 146. 2 OUR INVESTMENT CASE There are five elements to our investment case – each element is a strength in itself but, together, they combine to set us apart from our competitors, giving us a solid platform from which to innovate and grow. During 2016 we reviewed each element of our investment case and looked to align these more closely to the future core operations of our key business segments following the reported business changes in recent years such as the disposal of EMEA Crafts. Element Which provides Key attributes Highlights in 2016 For more information us as an organisation with: of this element 1. Global market A strong and defendable Global leader Market share growth Market trends leader in Apparel core business in A&F market Acceleration of Business model and Footwear Increasing market eComm adoption (A&F) thread share in stable market Strategy Successful integration Leading the response of bolt-on acquisition Corporate to meet changing Fast React Responsibility industry needs Strong Corporate Operating Review Responsibility credentials 2. Leading player Opportunity to grow Performance Materials Successful integration Market trends in Performance in fragmented, high operates in a high value of bolt-on acquisition Business model Materials market growth market market that typically of Gotex grows above GDP rates Geographic expansion Strategy Leverage core across areas such Operating review global capabilities to as automotive differentiate our offer New product Developing new development in competencies and areas such as technologies carbon composites 3. Refocused Americas Major player in the Market leading brands in Continued strong Market trends Crafts business Americas textile North and Latin America cash delivery crafts market Business model Deep customer Controlled costs relationships with to protect margins Strategy North American retailers New product launches Operating review eComm adoption