GPG Group

Conference call presentation for the Half Year ending 30 June 2013

9 September 2013

Disclaimer

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 (www.gpgplc.com) and Coats' website (www.coats.com). The contents of both websites 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 the GPG group and is not intended to be a profit forecast or profit estimate under applicable rules.

Currency assumptions

All NZ\$ comparatives to £ amounts are for illustrative purposes only, based on the NZ\$:GBP exchange rate on 30 June 2013, NZ\$1.9648:£1.00.

Update

Progress on value realisation

Non-Coats investment portfolio cash generation in the 6 months to 30 June 2013 ‒ £172m (NZ\$338m)
Cumulative net cash generated since 1 January 2011 ‒ £634m (NZ\$1,246m)

UK Pensions Regulator ('tPR') investigation

tPR exploring whether scope to impose a Financial Support Direction or Contribution Notice
To date requests for information and calculations pertinent to technical tests associated with FSDs have been received

Coats

Continued improved trading performance – profit before tax and exceptional items up 18%

New Coats Chairman

Mike Clasper appointed as Chairman of Coats plc with effect from 1 September 2013

Summary for the period

Shareholders' funds £472m (31 December 2012: £434m)
Net asset backing per share 33.5p (NZ\$0.66), an increase of 21% in the period
carrying value of Coats £121m (NZ\$238m)
Parent Group cash balance at 30 June 2013 £347m (31 December 2012: £243m). Balance at 23 August 2013 – £344m
Further progress on value realisation:
non-Coats investment portfolio cash generation in the 6 months to 30 June 2013 £172m (NZ\$338m)
further £4m of cash proceeds received since 30 June 2013
cumulative net cash generated since 1 January 2011 of £634m (NZ\$1,246m)
Net attributable profit for 6 months to 30 June 2013 £28m (30 June 2012 loss – £49m and year ended 31 December 2012 loss – £29m)

Simplified balance sheet

	30 Jun 2013		31 Dec 2012
	£m	£m	£m	£m
Net held for sale assets	74		222
Current asset investments	–		9
Total investments, excluding Coats		74		231
Cash		347		243
GPG assets		421		474
GPG pension schemes		(58)		(74)
Other sundry Parent Group net liabilities		(12)		(14)
		351		386
Coats					Note: Cash at 30 June 2013 consisted of the following
Other net assets	523		481		currencies:
Net debt	(254)		(226)		£m
Employee benefit obligations	(148)		(207)		GBP 116
		121		48	NZD 128
Shareholders' funds		472		434	AUD 51 USD 52
NAV / share (NZ₵)		65.8		54.4	347

Primary components of the movement in shareholders' funds in the period were the improved IAS19 funding positions (£81m), partially offset by the share buy-backs (£45m)
Overall result represents a 21% increase in the net asset backing per share

Pensions

Movement in the IAS19 deficits since the 2012 year end driven by increased nominal corporate bond yields, which reduce liabilities, and good asset performance
Real discount rate increases required to eliminate the UK deficit:
Brunel: 210 bps
Staveley: 140 bps
Coats: 65 bps
Coats UK Pension Plan 2012 triennial valuation completed:
agreement with Trustees reached to double annual past service contributions to £14m (NZ\$28m)
remains subject to bank approval and submission to tPR
Current support provisions provide the Trustees of the Brunel and Staveley schemes with a contingent claim over the assets of GPG of some £124m (NZ\$243m)
Will likely mean at least £124m (NZ\$243m) of asset realisation proceeds will be required to be retained by the GPG group
The final support arrangements for the Brunel and Staveley schemes will be determined at the conclusion of tPR investigations
Next triennial valuations:
Brunel: to be completed by 30 June 2014
Staveley: to be completed by 5 July 2015
Coats: to be completed by 1 July 2016

IAS19 deficit	30 Jun 2013 £m	31 Dec 2012 £m
Coats UK	(100)	(161)
Coats Other (net)	(48)	(46)
Coats Total	(148)	(207)
Brunel	(29)	(38)
Staveley	(29)	(36)
Total £m	(206)	(281)
Total NZ\$m	(405)	(552)

tPR

Investigations of the three UK defined benefit pension schemes currently underway
Exploring whether grounds exist to impose Financial Support Directions ("FSD") or Contribution Notice
Information and calculation requests received

IAS 19

Revised standard adopted 1 January 2013 with retrospective application

Disinvestments and remaining portfolio (non-Coats)

INVESTMENT PORTFOLIO 23 AUGUST 2013: TOWER

GPG holds 33.6%, market value at 23 August 2013 NZ\$120m
Tower capital return of NZ\$119m in April 2013 (GPG share £22m)
Tower completed sale of bulk of life business August 2013
Tower reached agreement with RBNZ regarding licensing and solvency capital requirements – August 2013
Tower board currently considering capital management strategy

CAPITAL MANAGEMENT

Net proceeds 1 January 2013 to 23 August 2013 £176m (NZ\$346m)
£70m on-market buyback announced on 25 October 2012: £25m bought in the period to 31 December 2012 and programme completed during H1
Timing and amount of future returns will take account of the appropriate capital structure for 'New Coats', Group's obligation to pension schemes and outcome of tPR investigations

Disposals	£ million	NZ\$ million
2011 Disposals	144	283

2012 Disposals	314	617

2013 Disposals
CIC Australia	35	69
Ridley	38	75
Capral	27	53
PrimeAg	26	51
Tower (capital return)	22	43
Tandou	10	20
AV Jennings	6	11
	164	322
Disposals less than £5million, dividend receipts and other investment activity	12	24
Total generated in the period	176	346

Grand Total	634	1,246

Overhead costs

Significant advisory costs re:
Execution of the strategy to realise value and return capital to shareholders;
tPR's review of the group's UK pension schemes
Staff costs including incentive schemes and redundancies: total £6m (six months to 30 June 2012: £7m; year ended 31 December 2012: £12m)
Actions taken to manage costs:
Reduction in board fees
Closure during H2 of GPG's last Australian office and principal London office
Permanent headcount reduction from 15 at Dec 2012 to 8 by Dec 2013
Board meetings by conference call

Coats Half Year summary

Continued improved trading performance despite mixed market conditions
Like-for-like half year sales up 4% ‒ both Divisions growing
13% like-for-like improvement in operating profit before exceptionals
Underlying operating margins increased from 6.9% to 7.6%
18% increase in profit before tax, before exceptional items
Reorganisation activity on track
US antitrust litigation settled ‒ exceptional net charge of \$2.7million net of tax
H1 free cash flow profile in line with prior half year
New Coats Chairman appointed

Coats Half Year financial performance

	H1 2013		H1 2012 (restated) 1
\$'m	Before exceptional items	Exceptional items	Total	Before exceptional items	Exceptional items	Total
Revenue	839.7		839.7	819.3	-	819.3
Operating profit / (loss)	63.6	(4.2)	59.4	56.8	(101.1)	(44.3)
Profit / (loss) before tax	43.1	(4.2)	38.9	36.6	(136.9)	(100.3)
Profit / (loss) from continuing operations	15.7	(4.3)	11.4	15.6	(135.3)	(119.7)
Retained profit / (loss)	10.9	(4.3)	6.6	9.4	(135.3)	(125.9)
2 Free cash flow			(15.4)			10.7
EBITDA			89			84
Net debt			387			228
3 ROCE			19.0%			16.6%

1) Includes the restatement of 2012 for adoption of IAS19 (revised)

2) 2012 free cash flow includes benefit of assignment of receivables to GPG (\$25 million)

3) ROCE defined as last twelve months Operating profit before exceptionals/Capital employed at period end

Coats Underlying operating performance

Industrial revenue

Crafts revenue

Operating profit and margin
	Six months ended		Six months ended
\$'m	June 2013	YoY%	June 2012 1,3
Operating profit 2
Industrial	54.6	8%	50.6
Crafts	9.0	61%	5.6
Total	63.6	13%	56.2

Operating profit margin % 2
Industrial	9.0%	40 bps	8.6%
Crafts	3.9%	140 bps	2.5%
Total	7.6%	70 bps	6.9%