AGM
June 2011
THIS PRESENTATION IS GIVEN ON COATS AT GPG's AGM ON 8 JUNE 2011 IMPORTANT NOTICE
Restricted distribution
This presentation is not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction (the "Restricted Jurisdictions").
Not an Offer
This presentation is not intended to and does not constitute, or form part of, any offer to sell or subscribe for or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the matters contained herein or otherwise.
Website
A copy of this presentation will be available subject to certain restrictions relating to persons resident in the Restricted Jurisdictions on GPG's website. The contents of GPG's website are not incorporated into and do not form part of this presentation.
Forward-looking statements
This document contains certain forward-looking statements, including statements regarding Coats' and GPG's plans, objectives and expected performance. Such statements relate to events and depend on circumstances that will occur in the future and are subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts of licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; and war and terrorism. These forward-looking statements speak only as at the date of this document.
Not a profit forecast
The financial information contained in this presentation is based on publicly available historic financial information of Coats and is not intended to be a profit forecast or profit estimate under applicable rules.
Coats at a glance
- Founded 1755, world's first multi-national
- 2 core activities industrial yarns and textile consumer crafts
- Active presence in five/six continents
- 73 factories
- Over 100 warehouses
- Over 100 sales locations
- Over 22,000 employees 87% in developing countries
- \$US1,600m total sales
- Over one million product lines in our portfolio
Business focus in the past five years (to 2009)
- \$700m investment in capex and reorganisation
- Focus on Supply Chain product harmonisation, common IT systems, modernisation of manufacturing facilities
- Shift to a lower cost base, with more modern facilities in low cost markets
- GM% improvement from 34% to 37%
- 2009 SDA/sales % maintained broadly in line with 2004
- NWC/sales % improvement from 27% to 20%
- c.30% headcount reduction (29K to 21K)
Reorganisation
| \$m |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
| Industrial |
55 |
41 |
17 |
25 |
17 |
7 |
| Crafts * |
7 |
10 |
23 |
24 |
32 |
13 |
| Total |
62 |
51 |
40 |
49 |
49 |
20 |
* Incl
Crafts
Europe |
7 |
9 |
21 |
20 |
31 |
10 |
Average NWC/Sales %
Pre-exceptional operating margin
|
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
| Industrial |
5% |
7% |
10% |
12% |
10% |
8% |
11% |
| Crafts |
7% |
9% |
3% |
4% |
-1% |
5% |
4% |
| Total |
6% |
8% |
8% |
9% |
6% |
7% |
8% |
15 year Sales History (\$m)
-0.6% nominal CAGR; -2.9% inflation-adjusted CAGR
9
When I arrived at Coats
- A sizeable, global business
- GPG had invested significantly in the quality of the business
- Efficiency ratios all improving
- But no organic sales growth in value terms
My two personal objectives
• Turn an ex growth company into a growth company
• Oversee Coats' transition into its new state of existence
- Lack of strategic clarity: focus was restructuring
- Minimal customer led innovation
- Regional silos
- Insufficient focus/resources in important areas eg R&D, eCommerce, marketing
A great base for growth
- Excellent market shares
- A great set of brands
- A diverse and established global footprint
- Unparalleled access to Crafts channels, footwear and apparel companies and industrial manufacturers
- Immense internal know how
Our products are sold in over
100 countries
1 in 5 garments
$\mathcal{L}$
million
pairs of shoes
million
$2nd$ largest
3 times
the size of our nearest competitor
in industrial thread
million teabags
- Outstanding customer service
- Market-leading innovation
- Product and geographic expansion
Coats Worldwide Presence 2010
Colour Capability
- World leader in digital textile colour technology from the start
- Proprietary colour management and imaging systems
- 40+ dyehouses globally linked for seamless integration "virtual global dyehouse"
- Sophisticated 3D modelling for quality assurance and colour analysis
• Machine sewn button security
• Flat, comfortable overlocked seams
Hand stitched beads, sequins, buttons, embellishments
• Secure hems
Tracer threads
ASSADAY
X
used in passports offer a huge
growth opportunity for Coats
Traceable thread
- Counterfeiting is a significant and growing problem for global brands
- Use of sub standard componentry is also a problem for brands with outsourced manufacturing
- Coats has formed a JV partnership with NZ based VTT to address these issues using a proprietary "tracer thread"
- Customers using the thread can quickly prove that a product is genuine
- This is not just about "selling thread" but a value added service for our customers
Lifestyle fabrics – a fast-growing segment for Coats
North America Sales 2007-2012
This year's CAPEX investment
Investing in
Strategic
Industrial Strategy
Our vision
"Value added thin lines"
Our vision
\$ \$ \$
With complementary services that make our customers more successful as businesses
Fibre Optics Global telecommunications market
Armored single jacket Loose tube dry cable
- Specialist knowledge Global customers
- Water blocking technology
Thousands
of operations are made possible every
day because of Coats' thread
Positive global teamwork
- Structural changes:
- 2 global Divisions
- New Commercial Development function
- Global Sales team
- Integrated Supply Chain function
- Increased senior level and new skills recruitment
- New training eg sales force effectiveness, 6 sigma
- First global Engagement Survey
Increased productivity
- Operational
- Integrated Supply Chain
- Harmonisation of our product offer and data structure
- Six Sigma
- Use of modern technology and tools
- Over \$US150m in IT investments eg SAP, CF2000E
- Commercial
- Stage gate process
- Crafts B2B Ecommerce/Webshop
- New digital strategy
- Back office
- Centralised financial shared services
- Centralised Supply Chain planning
- Change management process
Is it working?
Coats 2010 headlines
- Total revenue up 12%
- Reorganisation spend more than halved and this downward trend will continue
- Attributable profit increased to \$60m, a \$64m improvement
- 38% increase in pre-exceptional operating profit
- Industrial Division pre-exceptional operating profit margin increased to 11%
- Sales growth of 2% in crafts, following two years of decline – and steadily improving trend
- Average net debt reduced from \$367m to \$300m
Outlook
- Year has started positively in both Divisions, with both showing year on year growth
- Market conditions remain volatile, especially in Japan, US and Europe
- Raw material costs have reached unprecedented levels in Q2, albeit there is some minor relief currently in some categories
- Price rises have helped to counterbalance cost increases
- Crafts remains on track to return to historic margins within two years
Conclusions
- A sizeable business with a global heritage
- but whose focus has been on restructuring
- yet is really well positioned for growth
- … and the journey has started