Coats Group Plc Annual Report 2015 for Personal Use Only Use Personal for About Coats
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Enhancing the essential products of life Coats Group plc Annual Report 2015 For personal use only About Coats Coats is the world’s leading industrial thread manufacturer serving the apparel and footwear industries and Speciality markets such as automotive and fibre optics. We are also a major player in the Americas textile crafts market, and have operations in the UK. Enhancing the essential products of life Every day we use our industry knowledge and global expertise to design and deliver products and services that enhance life’s essentials. See more on pages 6, 14, 17 and 18. For more on latest news and products, history and heritage, business operations, financial performance and Corporate Responsibility: www.coats.com For personal use only Strategic report Highlights Strategic report 2015 highlights1 Revenue Pre-exceptional operating profit Operating profit +3% $1,490m +19% $139m +7% $111m (2014: $1,445m) (2014: $117m) (2014: $103m) Adjusted earnings per share Adjusted free cash flow Net working capital % sales +38% 3.96c $74m 10% (2014: 2.88 cents) (2014: $88m) (2014: 12%) On 4 March 2016, the United States Environmental Protection Agency announced a final Record of Decision for the remediation of the lower 8 miles of the Lower Passaic River (see note 28). The implications of this announcement have been reflected in the Annual Report and audited financial statements. Consequently, the results presented in the Annual Report supersede the Group’s unaudited results announced on 25 February 2016. Strong operating performance and improved quality Highly engaged and safe workforce of earnings • Recordable accident rate down 12%; overall employee • Pre-exceptional operating profit up 19% like-for-like; engagement score up to 83% (global top 10%) operating margins up 130bps • Adjusted earnings per share up 38% like-for-like; reported Normalising as a UK plc loss ($51m) due to discontinued items • Change of name, combined Board, UK focused share • Adjusted free cash flow of $74m (2014: $88m) register, intention to delist from NZX and ASX • Return on capital employed increased to 33% (2014: 24%) • Pensions investigations: initiated settlement discussions with Trustees of the three UK schemes Strategic progress • Disposed of loss-making EMEA Crafts business and completed first acquisition (GSD) • Good market share gains in Industrial 1 2014 figures restated to reflect the change in accounting policies for presentation currency, operating profit and exceptional items and the results of EMEA Crafts business as a discontinued operation. See note 1 to the accounts for further details. Revenue, pre-exceptional operating profit and adjusted earnings per share (EPS) are stated on a like-for-like (constant currency) basis that restates 2014 figures at 2015 exchange rates. Exceptional items excluded from pre-exceptional operating profit are set out in note 4. Adjusted EPS is before exceptional items and foreign exchange gains/losses on Parent Group cash balance. Adjusted free cash flow is adjusted for exceptional and discontinued items, acquisitions, purchase of own shares for the Employee Benefits Trust and UK pension recovery payments, as set out in note 36. ROCE – pre-exceptional operating profit divided by capital employed, 24% in 2014 includes EMEA Crafts (27% excluding) as set out in note 36. Contents Strategic report Corporate governance Financial statements Other information 01 Highlights 34 Board of Directors 66 Independent auditor’s report 134 Group structure 02 Group at a glance 36 Management Board 72 Consolidated income statement 136 Shareholder information 04 Chairman’s statement 37 Chairman’s introduction 73 Consolidated statement of 07 Market trends 38 Corporate governance report comprehensive income 08 Business model 43 Audit and Risk 74 Consolidated statement of 10 Group Chief Executive’s Committee report financial position For personal use only statement 47 Nomination Committee report 76 Consolidated statement of 15 Operating review: 48 Directors’ remuneration report changes in equity – Industrial 62 Directors’ report 77 Consolidated statement of – Crafts 65 Directors’ responsibilities cash flows 20 People statement 78 Notes to the financial statements 22 Corporate Responsibility 128 Company balance sheet 24 Financial review 129 Company statement of 27 Key performance indicators changes in equity 28 Principal risks and uncertainties 130 Company cash flow statement 33 Long term viability statement 131 Notes to the Company financial statements Coats Group plc Annual Report 2015 01 Strategic report Group at a glance Overview Organisation Coats is the world’s leading industrial thread manufacturer and a major player in the Americas Industrial textile crafts market. Headquartered in the UK, Revenue (2015) Read more on page 15 we employ 19,000 people and in 2015 generated revenues of $1.5 billion. $1,213m Leading Apparel and Footwear Speciality N o. 1 position • Apparel, footwear • High technology and accessories threads threads and yarns from world’s leading thread in Speciality – high • Zips and trims products performance materials producer for the apparel and performance threads • Coats Global Services for non-apparel and footwear industries and yarns footwear uses Largest No. 2 player supplier of zips in North America to global brands textile crafts market Revenue (2015) Employees (2015) Crafts Revenue (2015) Read more on page 19 $1.5bn 19,000 $277m • Foundation and fashion • Needlecrafting – includes handknitting products consumer sewing and lifestyle fabrics Apparel and Footwear 66% Industrial 90% Speciality 16% Crafts 9% Crafts 18% Other 1% Global footprint Revenue by region (2015) We operate on a global $1.5bn For personal use only basis employing people across six continents at some 50 sites and a sales presence in over 100 countries. Americas 35% EMEA 17% Presence Asia 48% Manufacturing sites 02 Coats Group plc Annual Report 2015 Our vision, principles and goals Strategic report At Coats we have a clearly defined vision and a way of working that is guided by our core principles and goals and supported by our business model and investment case. Vision ‘We will be the world leader in value added engineered yarns and threads for industrial and consumer use. We will develop and supply highly complementary products and services, where they add significant value to customers. We will achieve success through customer-focused innovation and winning propositions driven by motivated people and global teamwork.’ Principles and goals The way we work to achieve our vision is guided by five principles and three goals. Energy Freedom for change to operate 3 Goals Delivery (keep Profitable sales growth 5 our promises) Principles Increased productivity Positive teamwork Customer led Openness innovation and honesty Key differentiators Our business model and the five elements to our investment case give us the confidence we can achieve the above. Business model Read more on page 8 Core strengths Operational and Leading products Benefits for stakeholders commercial expertise and services Five elements to our investment case Read more on page 11 For personal use only Global market Global presence Defined growth Experienced Cash generative: leader with robust and capabilities strategy management team consistent growth fundamentals Key differentiators Targeting known Leadership, people Focus on sales, Strong and that provide a markets through and systems to earnings and free defendable core platform for growth organic and deliver growth cash flow growth business acquisitive growth Coats Group plc Annual Report 2015 03 Strategic report Chairman’s statement The past year has been one of significant progress, even for a company with a heritage as long as ours. Mike Clasper Chairman Dear shareholder Delisting announcement As a Group we enter 2016 on a solid The past year has been one of significant Our re-emergence as a UK-headquartered footing with improving returns and quality progress, even for a company with global industrial manufacturing business of earnings and a stronger business a heritage as long as ours. has resulted in a change in the regional portfolio. More details on performance diversity of our shareholder base. Over 70% during the year can be found in the Group In February 2015, we established of our shareholders are now UK-based Chief Executive’s statement on page 10 Coats Group plc as a standalone, listed (mainly institutional investors), with fewer and Operating review on page 15. entity. All major investments apart from than 12% in New Zealand and Australia. the Coats business have been sold, In light of this, in November we announced Pensions culminating in the Company changing our intention to delist from the New Another matter of significance for the Group name from Guinness Peat Group to Coats Zealand and Australia stock exchanges. is pensions – namely the investigations by the Group. We are now a UK-headquartered, UK Pensions Regulator (‘tPR’) that have been global industrial manufacturing business We have no material operations or ongoing for the past two years. with a new role and direction as a publicly Executive Directors in New Zealand or traded company with FTSE 250 ambitions. Australia and, during the year, both Sir Ron We have recently initiated settlement Brierley and Blake Nixon ended their long discussions with all three sets of Board and governance associations with the company by stepping Trustees and have stated we would like to In March 2015, we established the Coats down from the Board. This delisting