# Coats Group Sales for the period down 17% year-on-year

- Link: https://www.directorstalkinterviews.com/coats-group-sales-for-the-period-down-17-year-on-year/412823593
- Published: 2020-05-20T08:09:48+01:00
- Author: Amilia Stone

**Coats Group plc** (LON:COA), the world’s leading industrial thread manufacturer,
today announced a trading update for the period 1 January 2020 to 30 April 2020.

**Overview**

·      Group sales for the period down 17% year-on-year.

·      April sales down around 50%, as anticipated in our base scenario, due to 
demand and supply impacts from COVID-19 which included c.15 manufacturing sites 
under enforced government closure (now only 2).

·      Immediate management actions yielding cost and cash benefits; anticipate 
around 40% year-on-year reduction in Q2 like-for-like operating cost base (including
CoGS, administration and distribution costs) due to management actions and lower
activity levels.

·      Balance Sheet remains strong with comfortable liquidity and headroom.

·      Group remains well placed to navigate through the current challenging environment
and emerge stronger when it passes. 

In light of the ongoing COVID-19 effects, the Group continues to be focused on three
key priorities, namely; continuing to ensure the health and safety of our employees;
cash, liquidity and working capital management; and supporting our customers and
maintaining the critical elements of our supply chain.

**Current trading**

Group sales for the period declined 17% year-on-year on a CER basis, which reflected
21% organic decline and a 4% contribution from the acquisition of Pharr High Performance
Yarns (Pharr HP) which was bought in February.  The 17% year-on-year decline on 
a CER basis consisted of 23% decline in Apparel and Footwear (A&F), with some offset
from Performance Materials (PM) which grew 6% (including the initial contribution
from Pharr HP).  On a reported basis Group sales for the period declined 19%; the
marginal headwind vs CER rates being due to the recent depreciation in the Indian
Rupee, Brazilian Real, and Turkish Lira.   The 17% CER decline in Group sales for
the period included a decline of 50% in April as the wider demand and supply disruptions
from COVID-19 impacted the Group, as anticipated.  

The Apparel and Footwear decline for the period reflected the impact of brands and
manufacturers cancelling or deferring orders from mid-March which significantly 
impacted demand into April.   In addition enforced government closures of our facilities
impacted some of our major Apparel and Footwear markets throughout April, for example
India / Bangladesh, which remained closed across the whole month.   We have, however,
started to see a number of these enforced government closures now being lifted, 
and at present only 2 of our c.50 manufacturing sites (across A&F and PM) around
the globe are now subject to enforced closure (against 15 in the March Trading Update).

Performance Materials organic sales in the period declined 12%. The reported CER
growth of 6% included an 18% contribution from Pharr HP.  Demand in April was impacted
by COVID-19 albeit not to the same magnitude as Apparel and Footwear.  Heavily reduced
order levels were seen in the end use area of Transportation as global car production
continues to decline, and orders were also affected by some of the enforced government
site closures noted above.   However, certain end use areas such as Telecoms and
Energy, and Personal Protection, performed more resiliently as demand for critical
infrastructure and safety products remained relatively buoyant.     

Our unwavering focus on supporting customers through these difficult times has already
delivered incremental new customer wins as we are able to leverage our global footprint,
flexibility and customer service offering successfully to deliver high quality products
at speed.   We are also providing help and support as part of a global effort to
fight COVID-19.  For example, we are providing excess threads for free to enable
production of vital pieces of PPE, and launched Coats Fast Start, a digitally enabled
initiative, which supports manufacturers switching parts of their production facilities
and supply chains to help address the global shortage of PPE.  

**Management actions   **

As noted in our March trading update, we are taking the necessary actions to manage
our cost base and cash resources prudently in order to manage net debt and keep 
a good level of headroom.  We therefore anticipate that our Q2 like-for-like (i.
e. excluding Pharr HP) operating cost base (which includes Cost of Goods Sold, administration
and distribution costs) will be around 40% lower than 2019 due to strong management
actions and lower activity levels.  In addition, our projected full year capital
expenditure will reduce by c.70%.   We also remain focused on managing our working
capital closely, including the heightened credit risk that these times of uncertainty
presents.  

In agreement with the trustees of the Coats UK Pension Scheme, we have agreed to
defer the remaining deficit recovery payments for 2020 (April – December inclusive),
to provide an additional c.$17 million of headroom cover during this year.   The
catch up of these payments are currently anticipated to commence in mid-2021 and
be evenly spread over a period of around 18 months.  We will continue to pay the
scheme administrative expenses during this time (c.$5 million p.a.).     

**Balance Sheet update  **

We entered 2020 with a robust Balance Sheet, generating healthy levels of cash, 
and with comfortable headroom on our banking covenants, which place us in a strong
position to manage through this period.   As at 30 April 2020 our net debt (excluding
IFRS16) was $253 million. 

Our committed debt facilities total $575 million across our Banking and US Private
Placement group, with a range of maturities from late 2022 through to 2027, and 
we currently have around $235 million of committed headroom against these banking
facilities.  This is broadly in line with the $230 million committed headroom we
noted in our March trading update (as at the end of February) and is largely as 
a result of the prudent actions we are taking to manage our liquidity position through
this initial period of uncertainty in March and April.  

**Future prospects**

The Board remains confident in the Group’s ability to successfully manage through
the current challenging environment.   We enter this phase of our 250+ year history
in robust shape and as a market leader with an unrivalled global footprint.   Alongside
our enhanced operational agility this leaves us well placed to benefit from the 
acceleration in demand and emerge as a stronger business once COVID-19 passes.  

**Conference call**

Coats Management will present its trading update on a conference call at 0800 BST
today (20 May 2020).   The conference call can be accessed by dialling +44 (0) 800
358 9473 (toll-free) or +44 (0) 333 300 0804, with participant access code ‘92810888#’.

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