Destocking issues give Coats a tough half-year ride

Widespread industry destocking and tough year-ago comparisons have continued to hurt Coats Group with the UK-based threads and footwear components giant seeing its half-year revenues and earnings fall.

In the six months to 30 June, organic revenue (reported in dollars) fell 19% to $715 million (£562m) with Apparel organic revenue, which accounts for more than half the company’s business, falling 20%.

Adjusted operating profit also fell 21% to £84 million. 

However, it wasn’t all bad news as its market share did rise 100 basis points to around 24% and management expects sales to start picking up again in H2.

Meanwhile, it also said strategic projects delivered a further £16.5 million ($21m) of efficiencies, with 2023 guidance increased from $20 million to $30 million and overall project savings on track for $70 million by 2024 for $50 million cash cost.

Strategic projects delivered a further $21 million of efficiencies, with 2023 guidance increased from $20 million to $30 million and overall project savings on track for $70 million by 2024 from $50 million.

The hope is for adjusted operating margin to expand to 17%, up from 15% this year.

Rajiv Sharma, Group Chief Executive, said: “We have continued to make significant progress on our strategic objective of making Coats a stronger, fitter and more focused group. Our clearly-differentiated customer proposition enabled us to further increase our market share in Apparel and Footwear and secure key contract wins in Performance Materials.

“We opened a new Sustainability Hub in India to develop next-generation materials for sustainable threads and continued to optimise our portfolio with an agreement to divest our low-margin European Zips business. Our financial results demonstrate the effectiveness of our actions in driving our margin performance and free cash flow.”

However, Coats does expect a more gradual improvement in market demand during the second half. The CEO added: “As a result, we continue to expect our full-year trading to be in line with market expectations, albeit towards the lower end of the analyst forecast range.  Further, we remain confident that due to our actions, and supported by increasing market volumes, we will achieve our 2024 margin goal of c.17%”.