Connecting Talent, Textiles and Technology to Make a Better and More Sustainable World Strategic Report Corporate Governance Financial Statements Other Information
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COATS GROUP PLC COATS GROUPCOATS PLC ANNUAL REPORT 2020 Connecting ANNUAL REPORT 2020 talent, textiles and technology to make a better and more sustainable world Strategic report Corporate governance Financial statements Other information CONNECTING TALENT, TEXTILES AND TECHNOLOGY CONTENTS OUR PURPOSE IS TO CONNECT TALENT, TEXTILES AND TECHNOLOGY TO MAKE A BETTER AND MORE Strategic report 1 2020 full year results SUSTAINABLE WORLD and highlights 2 Coats at a glance Coats is the world’s leading industrial thread company. Coats’ pioneering history and innovative 4 Chairman’s statement culture ensure the Company leads the way around the world. We provide complementary and 6 Market trends value-adding products, services and software solutions to the Apparel & Footwear (A&F) 8 Business model industries. We apply innovative techniques to develop high technology Performance Materials 10 Investment case (PM) threads, yarns and fabrics in areas such as Transportation, Telecoms and Energy, and 12 Group Chief Executive’s Personal Protection. statement A key part of our Company purpose is to make a better and more sustainable world. 14 Our strategic goals 15 Key performance indicators This report details how we deliver our purpose to support our customers, their industries, our 17 Stakeholder engagement shareholders, our people and the communities in which we operate. 23 Working responsibly We are achieving this by focusing on three key areas: 34 Principal risks and uncertainties • Talent – our people are our greatest asset and we continue to invest in their development to 45 Operating review enhance their specialised skills and acquire new ones through our ever-growing digital learning 48 Financial review platform and peer-to-peer sessions led by internal experts Corporate Governance • Textiles – we develop innovative textile solutions to enhance people’s lives, touching 52 Chairman’s introduction everything from sewing thread to fibre optic cables 56 Board of Directors • Technology – we embrace new, emerging and disruptive technologies to penetrate markets 59 Corporate Governance Report with new and improved textile applications and material solutions that are more sustainable 66 Audit and Risk Committee and functional Report Find out more online: 71 Nomination Committee Report 74 Directors’ Report For a more visually engaging way to read about our progress in the year see our online ‘Year 78 Directors’ responsibilities in Review’ at coats.com/ar2020 statement 79 Remuneration Committee A full copy of this Annual Report can also be downloaded from coats.com/investors Report Throughout this document you will see references to where supporting information can also be found online at coats.com Financial statements Sustainability Report: 96 Independent Auditor’s Report 108 Primary financial statements To read our Sustainability Report, and for more on our policies, their impact and our 114 Notes to the financial approach to ‘Pioneering a sustainable future’, go to coats.com/sustainability statements 180 Company financial statements 183 Notes to Company financial statements Other information 185 Group structure 195 Five-year summary 196 Shareholder information Strategic report Corporate governance Financial statements Other information 2020 FULL YEAR RESULTS AND HIGHLIGHTS Continuing operations: Financial performance Revenue ($m) CER Organic Continuing operations3 2020 2019 Change change1 change1 2020 1,163 Revenue $1,163m $1,389m (16)% (14)% (19)%* Adjusted1 2019 1,389 Operating profit $111m $198m (44)% (43)% (43)%* 2018 1,415 Basic earnings per share 2.4c 7.0c Free cash flow $28m* $107m Adjusted operating profit ($m) Net debt (excl. IFRS 16) $181m $150m Reported2,3 2020 111 Operating profit $103m $191m (46)% (45)% (44)% 2019 198 Basic earnings per share 1.8c 6.7c Net cash generated by operating 2018 195 activities $66m $144m Final dividend per share 1.30c nil Operating profit ($m) Highlights • Improving sales momentum with Group organic sales exit rate down 5% for November 2020 103 and December (versus down 26% H1 2020 and down 15% four months to October 2020), following the impact of Covid earlier in the year. 2019 191 • Continued share gains in Apparel & Footwear and customer wins in Performance Materials 2018 147 as customers’ priorities pivot to reliability, speed and flexibility during Covid. • Continued Innovation focus despite Covid disruption; 22 new products launched in the year, generating $13 million of incremental revenue, and with a rich pipeline of opportunities. Key Performance Indicators • Adjusted operating profit of $111 million, ahead of previous expectations, with solid recovery We have indicated with * those in H2; ability to significantly flex cost base leading to resilient margins of 12.2% in H2 measures we consider KPIs. See (6.4% H1). pages 15–16 for more details and historical performance. • Further advancement on Sustainability agenda; increased demand for EcoVerde product range with revenues up 6x year-on-year; signed up to Science Based Targets initiative, specifically 1. Adjusted measures are non-statutory measures to achieving net-zero emissions by 2050. (Alternative Performance Measures). These are 4 reconciled to the nearest corresponding statutory • Net debt (excl. IFRS 16) of $181 million, 1.2x leverage ; committed facility headroom of measure in note 37. Constant exchange rate (CER) $330 million. figures are 2019 results restated at 2020 exchange rates. Organic figures are results on a CER basis and • Proposed final dividend of 1.30 cents per share as a result of the strength of the balance excluding contributions from bolt-on acquisitions (Pharr HP and ThreadSol). Revenue figures are an IFRS sheet, the encouraging recovery, and the Board’s confidence in the strategy and outlook for measure; however CER and Organic growth rates the Group. constitute Alternative Performance Measures. 2. Reported refers to values contained in the IFRS column of the primary financial statements in either the current or comparative period. 3. All figures on a continuing basis, unless otherwise stated. 4. Leverage calculated on a frozen GAAP basis, and therefore excludes the impact of IFRS 16 on both adjusted EBITDA and net debt. Alternative Performance Measures – see note 37 on pages 176–179. coats.com/investors Coats Group plc Annual Report and Accounts 2020 1 Strategic report Corporate governance Financial statements Other information COATS AT A GLANCE COATS IS THE WORLD’S LEADING INDUSTRIAL THREAD COMPANY. HEADQUARTERED IN THE UK, WE OPERATE 2020 GLOBALLY AND IN 2020 GENERATED REVENUES OF $1.2BN Revenue $1.163m What we do We deliver innovative and value add product and service solutions for our c.40,000 global customers to meet the design specifications they require. $1.2bn Group revenues 71% Apparel & Footwear Our products are a small but critical component in international 29% Performance Materials 9.5% operating margins global industries such as Apparel & Footwear, Telecoms and 1.2x leverage Energy, Personal Protection and Automotive industries. Sustainability is at the heart of our core business values. We look to do business at all times in an ethical manner, 2020 Revenue respectful of our environment, and delivering peace of mind by Region for our customers. Each year we aim to produce more from $1.163m less of the planet’s resources. Whilst our industry was significantly impacted by Covid during 2020 we were able to use our flexible business model to maintain 27% Americas 54% Asia robust financial performance. 19% EMEA Where we Headquartered in the UK and operate quoted on the London Stock Exchange, we have a global sales presence and digital platforms to enable us to serve 100 customers wherever they are Sales in around countries located. Our unrivalled global reach and footprint serve as one of our competitive advantages. c.40,000 HQ HQ Innovation Hub Customers globally Innovation Hub Manufacturing Site Presence Manufacturing Site 250 Presence Years of textiles experience How we operate: We launched our strategy in 2019 with challenging targets Our strategy ‘Pioneering a Our Sustainability for 2022 and 2024. We have continued to make good progress sustainable future’ focuses Strategy towards these goals notwithstanding the considerable disruption on five priority areas: caused by Covid, but not all the actions that we planned for 2020 were achievable in the circumstances. This was especially WATER the case with our Social targets (for details go to coats.com/ ENERGY sustainability). EFFLUENT & EMISSIONS While this means that we have more to achieve in the time remaining to deliver on our targets, we are holding to our SOCIAL commitments and not extending the strategy horizon or LIVING SUSTAINABLY reducing our ambition. Action plans have been revised to accelerate progress in 2021. 2 Coats Group plc Annual Report and Accounts 2020 coats.com/investors Strategic report Corporate governance Financial statements Other information APPAREL & FOOTWEAR We are the trusted value-adding partner, providing critical supply Main customer markets 2020 revenue: $823m chain components and services to the $1.8tn (pre-Covid) global We ultimately supply products Apparel & Footwear industry. Our portfolio of world class 2020 operating profit: and services to premium global products and services exist to serve the needs and requirements $96m brands across many markets such of our customers and brand owners. (11.6% margin) as mid-market, premium lifestyle, Our industry was significantly impacted by Covid during 2020, value / mass,