Coats sinks into the red in first half on writedown on sale of EMEA crafts business

Tuesday 4th August 2015

Coats Group, the company that grew out of diversified investor Guinness Peat Group, turned to a first half loss after a writedown on the sale of its unprofitable EMEA crafts business.

The UK based threadmaker reported a loss of US$48.1 million, or 3.42 cents per share, in the six months ended June 30, compared to a profit of US$15 million, or 1.06 cents, a year earlier, it said in a statement. That included a US$46 million writedown on the value of the EMEA crafts business and a US$6.2 million trading loss from the discontinued operation.

Coats first announced the sale of the crafts business in February to Aurelius Group for US$10 million, but last week said the transaction was completed in increasingly poor market conditions which affected the unit's performance. That meant Coats ended up agreeing to a nominal final consideration, with an amount of cash being retained in the crafts business, making the transaction cash negative.

Stripping out the impact of the sale, Coats reported an operating profit of US$64.8 million compared to US$63 million a year earlier. Revenue fell 3 percent to US$748.1 million.

"Non-operating items, primary foreign exchange losses on parent group cash and discontinued losses related to EMEA crafts, had a negative impact on reported earnings," chief executive Paul Forman said in a statement. "On an adjusted basis, we continued to deliver good growth."

Coats' industrial division posted a 1 percent decline in first half revenue to US$615 million, while generating a 9 percent increase in segment profit to US$66.3 million as margins widened on cheaper oil, and improved non-raw material procurement.

The remaining crafts business posted a 7 percent decline in revenue to US$133.1 million on a like for like basis, while segment profit more than halved to US$2.8 million.

The company said it anticipates annual underlying earnings to beat the US$123 million reported in 2014, though non-operating charges will "materially impact full year reported EPS (earnings per share)."

Coats said it's still of the view that the UK Pensions Regulator is wrong to use its statutory powers in relation to the Coats pension scheme and intends to litigate the matter if a settlement can't be reached. In relation to the Brunel and Staveley schemes, the regulator hasn't responded to Coats' representations made last year.

The board didn't declare an interim dividend.

Coats shares last traded at 64 cents on the NZX, and have climbed 42 percent this year.

BusinessDesk.co.nz

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