Coats Group lifts guidance after strong first half

(Sharecast News) - Industrial thread specialist Coats Group announced a robust set of interim results on Thursday, with a 7% increase in revenue to $741m, and revenue growth accelerating to 8% on a constant exchange rate (CER) basis, leading to an upgrade to its full-year guidance. The FTSE 250 company said its performance was driven by a recovery from the industry-wide destocking cycle and a return to more normalised buying patterns among apparel customers, with apparel segment sales rising by 14%.

Its adjusted EBIT surged 24% to $133m, with a margin of 18%, exceeding the previously-announced 2024 target of 17%.

The strong margin performance was supported by operational improvements and strategic cost-saving initiatives.

Reported EBIT also rose to $118m, up from $92m in the first half of 2023.

Adjusted basic earnings per share increased to 4.5 cents from 3.5 cents, while reported basic earnings per share grew to 3.8 cents from 2.8 cents.

Coats generated $59m in adjusted free cash flow during the period, up from $51m in the prior year, and reduced its net debt excluding lease liabilities to $381m, with leverage further decreasing to 1.4x, within the group's target range.

Reflecting the board's confidence in Coats' growth strategy and future performance, the interim dividend was raised by 15% to 0.93 cents per share.

Strategically, Coats said it continued to outperform the industry, gaining further market share in both the apparel and footwear segments.

The group also made significant progress in its transition of the Performance Materials Americas footprint, which was expected to support future margin improvements.

Integration synergies from the acquisitions of Texon and Rhenoflex were on track to deliver $22m in savings, exceeding initial expectations.

Coats reinforced its position in sustainable products, with revenue from 100% recycled thread products growing 141% to $159m in the half-year, as the group remained on track to exceed $300m in revenue from those products in 2024.

The company also received validation from the Science Based Targets initiative (SBTi) for its emissions reduction targets, including its net-zero target for 2050.

Looking ahead, Coats upgraded its full-year outlook, with the board now expecting performance to be modestly above current market expectations.

While some uncertainty remained in the market, the group said its outlook was underpinned by the ongoing recovery in apparel and footwear, improving trends in performance materials, and continued benefits from strategic projects and margin improvements.

Over the medium term, Coats said it was confident in its ability to deliver strong profit growth and cash generation, supported by its global scale, innovation, and commitment to sustainability.

"It has been a privilege to lead Coats over the last eight years; I am extremely proud of my team and together we have delivered a material improvement in the quality of the group and its prospects through transitioning the portfolio, a relentless focus on operational improvement, investing in sustainability and targeting better cash generation," said group chief executive officer Rajiv Sharma.

"As I handover it will be exciting to watch the new heights the company achieves.

"For the remainder of 2024, we see generally encouraging trends supporting a year with a more equal weighting than in the prior year."

At 1142 BST, shares in Coats Group were up 6.45% at 95.28p.

Reporting by Josh White for Sharecast.com.