GPG Half Year Results to 30 June 2013

RNS Number : 5871M
Guinness Peat Group PLC
28 August 2013
 



 

 

 

 

GUINNESS PEAT GROUP plc
('GPG' or the 'Company')

 

2013 HALF YEAR FINANCIAL REPORT

 

Chairman's Statement for Half Year Financial Report

 

The six months to 30 June 2013 has been a period of mixed events for GPG.  Further progress has been made towards completion of GPG's investment portfolio realisation programme, Coats has traded positively and a new Chairman, Mike Clasper, has been selected to lead that business through the next phase of its development.

 

However, the launch by the UK Pensions Regulator ('tPR') of investigations into GPG's three UK defined benefit pension schemes has introduced an element of uncertainty into the timetable for the transition from an investment group into one focussed on the global industrial thread and consumer textile crafts markets and the capital return process.

 

During the current year the business model has continued to be rationalised and this is reflected in the simplified balance sheet at the period end date, more on this later.  As detailed in the appendix to this statement, divestments from the investment portfolio between 1 January and 30 June 2013 totalled £172 million (NZ$338 million) with a further £4 million (NZ$8 million) realised since the period end.  During 2013 we have fully exited our positions in CIC Australia, AV Jennings, Tandou, PrimeAg, Capral and Ridley and have seen a partial return of our investment in Tower.

 

In March 2013 the Company completed its £70 million share buy-back programme.  As previously reported, further capital returns have been deferred for the present time and this is addressed in the section dealing with pensions later in the report.  The Board is very conscious of the need to manage costs during this interruption in the capital return process.  Actions taken and planned include:

 

·      reductions in Board fees to be implemented from 1 October in recognition of the simplification of the group, notwithstanding the need to address the pensions regulatory investigations;

·      closure of GPG's last Australian office by November 2013 and its principal London office at year end;

·      permanent headcount reductions from 15 at December 2012 to 12 in August 2013 and 8 by December 2013; and

·      implementation of regular Board meetings by conference call to reduce travel and associated costs.



 

REPORTED FINANCIAL RESULTS

Shareholders' funds increased in the period by £38 million (NZ$74 million) to £472 million (NZ$927 million) and the net asset backing per share increased from 27.7p (NZ54.4¢) to 33.5p (NZ65.8¢):

 

Movements in shareholders' funds

 




6 months ended 
30 June 2013 

6 months ended  *

30 June 2012   

Year ended *
31 December 2012  


£m

£m  

£m

£m   

£m

£m  

Opening equity shareholders' funds


434  


602   


602  

Shareholders' returns







-   Share buy-backs


(45) 


-  


(25) 

Profit/(loss) for the period


28  


(49) 


(29) 

Movements in unrealised gains reserve







-   Net gains realised in the period (recycled through the Income Statement)

 

 

(12)


 

 

(29)


 

 

(39)


-   Net unrealised movements on AFS investments

 

(3)


 

(17)


 

(14)


-   Deferred tax movement






(14) 


(44) 


(50) 

IAS19 adjustments







-   GPG schemes

18 



(12)


-   Coats

63 


15 


(2)




81  


17  


(14) 

Foreign currency revaluations







-   Parent Group (losses)/gains arising in the period

(7)



(7)


-   Gains recycled to the Income Statement

 

(7)


 

(20)


 

(39)


-   Coats losses

(2)


(5)


(4)




(16) 


(23) 


(50) 

Hedging gains


4  


-  


-  








Closing equity shareholders' funds £ million


 

472  


 

503  


 

434  








Closing equity shareholders' funds NZ$ million


 

927  


 

988  


 

853  








Net asset backing per share


33.5p


31.0p


27.7p

Net asset backing per share


NZ65.8¢


NZ60.9¢


NZ54.4¢

 

 







* Restated to reflect the impact of IAS19 (revised) "Employee Benefits" (see note 1 on page 25)



The primary components of the movement in shareholders' funds in the period were the improved IAS19 funding position (£81 million) partially offset by the share buy-backs (£45 million).  The overall result represents a 21% increase in the net asset backing per share.



Consolidated Income Statement:

The key elements of GPG's result for the period are presented in a non-statutory format below:

 


6 months ended
30 June
2013


6 months ended
30 June
2012

*,**

Year ended

31 December

2012

*


£m


£m


£m















Continuing activity













Coats













- Attributable profit before exceptionals

 




 




 

13 




- EC fine and related interest




(76)




(76)




- Other exceptional items

(3)




(9)




(27)










(78)




(90)


Parent Group













- Overheads

(15)




(13)




(23)




- Foreign exchange gains/(losses)

 




 

(4)




 

(2)




- Other income










- Net interest income/(expense)




(7)




(12)







(13)




(24)




(36)


Net loss from continuing activity



(9)




(102)




(126)




























Discontinued activities













Coats






(1)




(2)


Parent Group subsidiary and associated undertakings and
joint ventures



 

 

17 




 

 

24 




 

 

62 


Investment activity













- Gains realised in the period (recycled from the unrealised gains reserve)

 

 

12 




 

 

29 




 

 

39 




- Dividend income










- Impairments

(1)




(2)




(3)







16 




30 




42 


Other income










Parent Group tax charge



(2)




(2)




(5)


Net profit from  discontinued activities



 

37 




 

53 




 

97 















Net profit/(loss) for the period attributable to GPG shareholders £ million



 

 

28 




 

 

(49)




 

 

(29)















Total NZ$ million



55 




(96)




(57)















 

* Restated to reflect the impact of IAS19 (revised) "Employee Benefits" (see note 1 on page 25)

**Restated to reflect the results of Gosford Quarry Holdings Ltd, Touch Holdings Ltd, CIC Australia Ltd

    and Parent Group investment operations as discontinued operations



Simplified balance sheet

 

Set out below is a simplified balance sheet for GPG as at 30 June 2013.



30 June 2013

31 December 2012


£m

£m

£m

£m

Net held for sale assets

74 


222 


Current asset investments

-



Total investments (excluding Coats)


74 


231 

Cash


347 


243 

GPG assets, excluding Coats


421 


474 

GPG Pension Schemes


(58)


(74)

Other sundry Parent Group net liabilities


(12)


(14)



351 


386 

Coats





-   Other net assets

523 


481 


-   Net debt

(254)


(226)


-   Employee benefit obligations

(148)


(207)




121 


48 

Shareholders' funds £ million


472 


434 

Shareholders' funds NZ$ million


927 


853 






NAV per share (p)


33.5p


27.7p

NAV per share (NZ¢)


NZ65.8¢ 


NZ54.4¢


The reduction in net assets excluding Coats from £386 million to £351 million is mainly a consequence of share buy-backs (£45 million) and overhead expenditure partially offset by reduced pension deficits.


OVERVIEW OF GPG'S NET ASSET VALUE COMPONENTS

 

The constituent parts of the GPG simplified balance sheet are addressed below.

 

Investment portfolio (excluding Coats)

 

The current investment portfolio of £74 million compares to a starting valuation on 1 January 2011 of £677 million and on 1 January 2013 of £231 million.  Net cash proceeds from investment activities to 30 June 2013 total £630 million or 93% of the initial valuation.

 

In all material respects GPG's only remaining investment other than Coats is Tower.  Following the sale of Tower's health insurance and investments businesses, Tower completed a capital return of NZ$119 million in April 2013.  Further to these transactions, in August 2013 Tower announced the completion of the sale of the bulk of its life insurance business and the arrangements which had been agreed with the Reserve Bank of New Zealand relating to its licensing conditions and in particular its minimum solvency capital requirements.  The Tower board is now considering its capital management strategy while also exploring disposal options for the balance of its life business.

 

GPG's investment in Tower is recorded at 30 June 2013 at its then market price of NZ$1.95 per share (total value to GPG £69 million).  Subsequent to the period end, and following the announcements referred to above, the share price has reduced and was NZ$1.72 on 23 August 2013.  GPG remains fully supportive of Tower's Board and management as they complete the significant restructuring process embarked upon last year.  Furthermore, GPG considers the on-going Tower business has an intrinsic value in excess of the current share price.  GPG's strategic holding in the company will continue to be managed in this context.



 

Cash

 

At 30 June 2013 the GPG Parent Group had cash of £347 million (NZ$682 million) (31 December 2012 (£243 million) (NZ$477 million)).  A breakdown of this balance by currency is included later under Capital Management.

 

Pensions

 

The carrying values of the Coats UK Pension Plan and the two GPG pension schemes, Brunel and Staveley, (together the 'UK Pension Schemes') on an IAS19 financial reporting basis have improved from the position at 31 December 2012.  This improvement was driven by increased nominal corporate bond yields, which reduce liabilities, and good asset performance.

 

The relative period end positions are set out in the table below:


30 June 2013 

31 December 2012 

IAS19 deficit

£m 

£m 

Coats UK Pension Plan

100 

161 

Other Coats net employee benefit obligations

48 

46 

Total Coats net employee obligations

148 

207 

Brunel

29 

38 

Staveley

29 

36 

Total £ million

206 

281 

Total NZ$ million

405 

552 

 

The UK Pension Regulator's investigations

 

As noted above and previously advised to the market, tPR has launched investigations into each of GPG's three UK defined benefit pension schemes.  tPR is exploring whether there is scope to impose a Financial Support Direction ('FSD') or Contribution Notice on GPG or one or more of the entities connected or associated with the UK Pension Schemes' respective sponsoring employers under the provisions of the UK Pensions Act 2004 (the 'Act').

 

An FSD requires a company to put in place financial support for a pension scheme acceptable to tPR.  tPR may only impose an FSD if certain technical tests including demonstrating that the sponsoring employer of the scheme is "insufficiently resourced" are met and then only to the extent such action is reasonable, as defined in the Act.  There is very little precedent indicating what reasonableness means in the FSD context.  A Contribution Notice is an obligation for a person or one or more of the entities connected or associated with the UK Pension Schemes' respective sponsoring employers to make a payment into a pension scheme.  A Contribution Notice can only be imposed in cases where an act or deliberate omission has been effected that has caused, in broad terms, material detriment to the likelihood of members receiving their accrued benefits in full from the pension scheme.

 

GPG has been working with the relevant parties, including tPR.  Certain companies within the Group have received requests for information from tPR relating to each of the three UK Pension Schemes and have been asked to perform calculations of their resources pertinent to the technical tests associated with FSDs.  tPR has a statutory process which it needs to follow and it is required by the Act to consider all relevant factors.  In parallel with dealing with tPR's requirements, the Board and executive management are working with advisors to undertake a detailed review of matters potentially relevant to each UK Pension Scheme.



 

Discussions regarding the Coats UK Pension Plan 2012 triennial valuation have progressed well during the period and an in principle agreement with the trustee has been reached.  This agreement, which remains subject to bank approval and submission to tPR, has been structured to provide Coats with the flexibility it needs to invest in the business to support its strategic plans while maintaining the Company's covenant from the trustee's perspective, and would see the doubling of annual contributions in respect of past service to £14 million as previously outlined to the market.  More details on the terms of the triennial valuation will be announced once they have been approved by all relevant parties.

 

In parallel with the pensions review, the Board is working with advisors to develop its views on the most appropriate capital structure for the Group.  The Board has determined that while these plans are developed and there is uncertainty as to the outcome of tPR's investigations, there will be no further returns of capital.

 

COATS

 

Coats' trading performance has shown good progress in the period and from a shareholder perspective, GPG has encouraged management to explore areas of further profit enhancement which would impact favourably on future core profitability.  This has manifested itself into a series of projects aimed at both business growth and cost reduction.

 

Coats' sales increased year-on-year by 2% to US$840 million (£544 million) and by 4% at constant currencies.  Sales growth was achieved in both the Industrial and the Crafts Divisions at this rate and this builds on the performance improvement experienced in the second half of 2012.  Operating profit before exceptional items of £41 million (US$64 million) compares favourably to the equivalent figure of £36 million (US$57 million) in the comparable period in 2012.

 

The overall result for the six months to June 2013 before taking account of exceptional items was an attributable profit of £7 million (US$11 million).  The attributable profit before exceptional items, restated for the amendments to IAS19 "Employee Benefits", was £6 million (US$9 million) for the first half of 2012 and £11 million (US$17 million) for 2012 as a whole.

 

Total exceptional items after tax, including gains on the sale of surplus property, amounted to a net charge of £3 million (US$4 million) in the period ended 30 June 2013 (period ended 30 June 2012: net charge of £86 million (US$135 million), year ended 31 December 2012: net charge of £103 million (US$164 million)).

 

Profit attributable to GPG for the six month period was £4 million (US$7 million) (6 months to 30 June 2012: loss of £80 million (US$126 million)).

 

The intra year cyclical nature of Coats' business is such that operating cash flow during the first half is generally negative.  After taking account of temporary funding provided by GPG at June 2012, the year-on-year performance is relatively stable.  Net debt at the period end was £254 million (US$387 million) (31 December 2012: £226 million (US$368 million)) and based on the definitions contained within the Coats banking agreement, the business was comfortably inside its financial covenants.

 

The carrying value of Coats in GPG's consolidated balance sheet has increased during the period from £48 million (US$78 million) to £121 million (US$185 million) principally due to the improved IAS19 valuation of employee benefits, as described earlier in this report.

 

A full review of Coats' performance and financial position is included later.

 

OVERHEAD COSTS

 

The Parent Group overheads for the prior periods have been restated to reflect the impact of amendments to IAS19 on the accounting for the Brunel and Staveley pension schemes.



 

The expenses for the period ended 30 June 2013 include significant advisory costs in respect of both the execution of the strategy to realise value and return capital to shareholders and tPR's investigation of the group's UK Pension Schemes.  Staff costs in the period, including incentive schemes and redundancies, total £6 million (six months to 30 June 2012: £7 million, year ended 31 December 2012: £12 million).

 

CAPITAL MANAGEMENT

 

The management of foreign currency risk remains a key focus.  The table below summarises the position at 31 December 2012, 30 June 2013 and 23 August 2013:

 


23 August 2013

30 June 2013  

31 December 2012 


£m 

£m  

£m 

GBP

148 

116 

114 

AUD

12 

51 

26 

NZD

93 

128 

103 

USD

91 

52 

Total £ million

344 

347 

243 

 

The Parent Group's cash balances have been rebalanced during the year following the share buybacks on the London Stock Exchange and the receipt of investment proceeds primarily in AUD and NZD.  The GBP and AUD balances mainly reflect expected commitments in those currencies.  As noted in the May 2013 Interim Management Statement a portion of the potentially surplus cash has been converted into USD with the remainder held in NZD.  It is the Board's current plan to retain this currency position for the foreseeable future.

 

BOARD CHANGES AND STRUCTURE

 

On 6 March 2013 Waldemar Szlezak was appointed a Non-Executive Director of the Company.  The Board currently comprises six Non-Executive Directors, of whom three are considered independent.

 

As noted earlier in the report, Board fees have been reviewed.  This review was completed with the assistance of an external consultant and fees will be reduced with effect from 1 October 2013.  Waldemar Szlezak does not receive a fee from the Company. 

 

 

 

 

 

Rob Campbell, Chairman

28 August 2013

 

Note: 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.



 

APPENDIX

 

Net proceeds from portfolio disinvestments from 1 January 2011 to 23 August 2013

 

 






£ million 


NZ$ million 

2011 Disposals

144 


283 





2012 Disposals

314 


617 





2013 Disposals




CIC Australia

35 


69 

Ridley (including £4 million post 30 June 2013)

38 


75 

Capral

27 


53 

PrimeAg

26 


51 

Tower

22 


43 

Tandou

10 


20 

AV Jennings


11 


164 


322 

Disposals less than £5 million and dividend receipts

12 


24 





Total generated in the period

176 


346 





Grand Total

634 


1,246 

 



 

Coats Group Limited: Unaudited results 1

for the six months ended 30 June 2013

 

Financial summary


2013 Half year

2012 Half year (restated) 1


Before 



Before




Exceptional 

Exceptional   


Exceptional

Exceptional



items 

items 2

Total  

items

items 2

Total 


Unaudited 

Unaudited 

Unaudited  

Unaudited

Unaudited

Unaudited 


US$m 

US$m 

US$m  

US$m

US$m

US$m 

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 taxation

43.1 

(4.2) 

38.9  

36.6 

(136.9)

(100.3) 

Net profit/(loss) attributable to equity shareholders

10.9 

(4.3) 

6.6  

9.4 

(135.3)

(125.9) 

Free cash flow 3



(15.4) 



10.7  

Net debt at period end 4



386.6  



228.2  

ROCE



19.0%



16.6%

Net working capital % sales



19.0%



17.8%









1

 

The basis of preparation is set out in note 1 of the Coats financial information and includes the restatement of 2012 for adoption of IAS19 (revised)

2

Exceptional items are set out in note 3 of the Coats financial information

3

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

4

Net debt at 30 June 2012 is before payment in July 2012 of the European Commission fine and interest of $174.8 million

 

 

Highlights

 

·      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

·      Pre-exceptional 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 $2.7 million net of tax

·      H1 free cash flow profile in line with prior half year excluding GPG short term financing

·      New Coats Chairman appointed (see separate announcement of 21 August)

 

'Coats' performance during the first half of 2013 has continued to improve and build on the growth achieved in the second half of 2012, despite market conditions remaining mixed.  Both divisions have grown sales with the productivity, procurement and reorganisation activity resulting in improved profitability and we are confident of continued progress in the second half.'

 

 

 

 

Paul Forman,

Group Chief Executive

Coats plc



 

Operating Review

 

COATS GROUP

H1 2013 

Reported 

$m 

H1 2012 

Like-for-like1  

$m 

H1 2012 

Restated2

$m 

Like-for-like

Increase

%

Actual

Increase

%

Revenue






Industrial

606.7 

585.1 

591.7 

3.7%

2.5%

Crafts

233.0 

224.8 

227.6 

3.6%

2.4%

Total revenue

839.7 

809.9 

819.3 

3.7%

2.5%







Pre-exceptional operating profit3






Industrial

54.6 

50.6 

50.4 

7.9%

8.3%

Crafts

9.0 

5.6 

6.4 

60.7%

40.6%

Total

63.6 

56.2 

56.8 

13.2%

12.0%

 

2012 like-for-like restates 2012 figures at 2013 exchange rates

2

In line with the reporting of full year 2012 results and following changes during 2012 to the Group's internal management structure, results for Asia and Rest of World are reported in the Industrial division, and the H1 2012 comparative figures have been restated accordingly.  2012 pre-exceptional operating profit results have also been restated for the adoption of IAS19 (revised)

3

Pre reorganisation and other exceptional items (note 3 to the Coats financial information)

 

In the following commentary, all comparisons with 2012 are on a like-for-like constant currency basis and all references to operating profit are to pre-exceptional operating profit.

 

Coats' trading over the last two quarters has been encouraging despite the continued mixed market conditions.  Driven by growth across both operating divisions; sales during the first half increased by 3.7% year-on-year on a like-for-like constant currency basis.  This measure gives the best view of underlying performance.

 

The Industrial Division's sales increase was largely driven by demand for clothing and footwear in developed economies, primarily North America, as well as a normalisation of inventory levels in the related retail supply chains.  Demand over the last six months has again been impacted by uncertain economic conditions, particularly in Europe.  In addition, the trend in our key Brazilian market for local apparel and footwear production to be replaced by imports has continued to place pressure on this market.  Despite these challenges first half sales in this Division increased by 3.7% on a like-for-like basis reflecting Coats' global footprint and strong relationships with the major brands in the apparel and footwear sectors.

 

Crafts sales were up 3.6% on a like-for-like basis driven by further expansion in shelf space with large US retail customers.  There was also on-going strong growth in handknittings, particularly in North America and Europe.

 

Coats' pre-exceptional operating profit of $63.6 million represents 13.2% growth.  Both divisions continued to offset inflationary cost rises in the business with procurement and productivity improvements coupled with pricing initiatives.

 

The Industrial Division's operating profit rose by $4.0 million (7.9%), with the operating profit margin up to 9.0% from 8.6% in 2012.  Successful reorganisation of the Crafts Division has driven a 60.7% rise in operating profit to $9.0 million, with margins up to 3.9% from 2.5% in 2012.

 

Sales growth at actual exchange rates of 2.5% and 2.4% has been achieved in the Industrial and Crafts Divisions respectively.



Industrial Division

INDUSTRIAL




Like-for-like 

Actual 


H1 2013 

H1 2012 

H1 2012 

Increase/ 

Increase/ 


Reported 

Like-for-like1

Restated2

(decrease)

(decrease)


$m 

$m 

$m 

Revenue






Asia and Australasia

325.5 

301.8

305.6 

7.9% 

6.5% 

EMEA

138.9 

133.9

134.1 

3.7% 

3.6% 

Americas

142.3 

149.4

152.0 

(4.8)%

(6.4)%

Total revenue

606.7 

585.1

591.7 

3.7% 

2.5% 







Pre-exceptional operating profit3

54.6 

50.6

50.4 

7.9% 

8.3% 

 

1

2012 like-for-like restates 2012 figures at 2013 exchange rates

2

In line with the reporting of full year 2012 results and following changes during 2012 to the Group's internal management structure, results for Asia and Australasia are reported in the Industrial division, and the H1 2012 comparative figures have been restated accordingly.  2012 pre-exceptional operating profit results have also been restated for the adoption of IAS19 (revised)

3

Pre reorganisation and other exceptional items (note 3 to the Coats financial information)

 

In the following commentary, all comparisons with 2012 are on a like-for-like constant currency basis and all references to operating profit are to pre-exceptional operating profit.

 

The Industrial Division's sales rose 3.7% primarily following increased demand for thread in the apparel markets.  Sales of trim and zips products continue to grow at a more modest rate, as does the general footwear market.  Speciality thread also continued to grow as we increased sales in Asian and Latin American markets.

 

Asia and Australasia sales increased by 7.9% year-on-year across the region, primarily driven by demand across the US and Western Europe.

 

The EMEA sales increase of 3.7% was driven by improvements in most geographies and all key regions showed a year-on-year increase.

 

The Americas sales decline (4.8% in the period under review) reflected the performance within Latin America where softer demand in Brazil and some short term supply chain pressures due to a major ERP implementation adversely impacted performance.  North American manufacturing and defence sector weakness also had a negative impact on Speciality product sales in that region.

 

While the positive mix impact from premium product sales primarily in Asia was offset to an extent by the ERP issues in Brazil, the more stable raw material prices, productivity gains, procurement activity and pricing initiatives have offset inflationary pressures.  These elements drove an increase in pre-exceptional operating profit margin to 9.0% from 8.6% in the prior year.



Crafts Division

CRAFTS






 


H1 2013 

 

H1 2012  

 

H1 2012  

 

Like-for-like

Actual

 


Reported  

Like-for-like

 

Restated

 

Increase/

 





Increase

(decrease)

 


$m 

$m  

$m  

%

%

 

Revenue






 

EMEA

82.3 

76.8  

76.2  

7.2%

8.0%

 

Americas

150.7 

148.0  

151.4  

1.8%

(0.5)%

 

Total revenue

233.0 

224.8  

227.6  

3.6%

2.4%

 







 

Pre-exceptional operating profit3

9.0 

5.6  

6.4  

60.7%

40.6%

 







 

1

2012 like-for-like restates 2012 figures at 2013 exchange rates

2

In line with the reporting of full year 2012 results and following changes during 2012 to the Group's internal management structure, results for Asia and Rest of World are reported in the Industrial division, and the H1 2012 comparative figures have been restated accordingly.  2012 pre-exceptional operating profit results have also been restated for the adoption of IAS19 (revised)

3

Pre reorganisation and other exceptional items (note 3 to the Coats financial information)

 

In the following commentary, all comparisons with 2012 are on a like-for-like constant currency basis and all references to operating profit are to pre-exceptional operating profit.

 

Sales in the Crafts Division rose 3.6% despite some disruption from on-going reorganisation activity in the period.  Sales of handknitting products, rather than the traditional sewing products, continued to drive growth.

 

Within EMEA there was consistent demand in the period for handknittings, the largest product category.  Overall growth in EMEA sales was 7.2% year-on-year.  This builds on the positive performance during the second half of 2012, following several years of decline.

 

Sales growth of 1.8% in the Americas is again primarily due to handknittings, especially in the fashion yarn segment which includes Red Heart's Sashay yarn.  North America was particularly strong, and digital activity continues to grow.  However, performance in Latin America has been adversely impacted on a short term basis by poor availability of goods as a result of ERP implementation operational challenges in Brazil.

 

The continued operational efficiency focus driven primarily by the reorganisation activity in the EMEA region underpinned the increase in pre-exceptional operating profit margin of the Crafts division to 3.9% from 2.5% in the prior year.  EMEA operating losses were $4.6 million lower year-on-year.

Financial overview

 

Summary

 

For the first half of 2013 reported Coats revenues were $840 million, representing growth of 2.5%.  Growth on a like-for-like constant currency basis was 3.7%.  Reported pre-exceptional operating profit was $63.6 million, representing growth of 12.0%.  Post-exceptional items, the operating profit for the period was $59.4 million (2012 - $44.3 million loss).

 



Tax

 

The taxation charge for the first six months of  2013 is $27.5 million (2012 - $19.4 million).  Excluding all exceptional items and prior year tax adjustments, the rate on pre-tax profits of $43.1 million (2012 - $36.6 million) is 61% (2012 - 59%).  The tax rate has been adversely impacted by the adoption of IAS19 (revised).  The increase in the 2013 tax rate as a result of the adoption of this accounting standard is 19% and, following the restatement of the 2012 comparatives to comply with IAS19 (revised), the 2012 tax rate has increased by 18% from the 41% reported in the 2012 half year report.  The 2% increase in the period in the effective tax rate has primarily been driven by the impact of changes to the geographical mix of profits and losses, in particular Brazil.

 

During the period, Coats engaged external consultants to assist in a global review of the corporate tax affairs of the company.  This review is expected to conclude during the second half of the year.

 

Exceptional items

 

Net exceptional costs charged to profit before taxation totalled $4.2 million (2012 - $136.9 million, of which $84.6 million related to the previously announced European Commission fine and $35.8 million to associated interest charges).

 

Included in net exceptional costs is the profit on sale of property in Peru of $18.4 million (2012 - $nil).  Exceptional expense items include reorganisation, $14.7 million (2012 - $11.2 million); US antitrust settlement, net of existing provisions, $7.1 million (2012 - $nil); and other exceptional costs, $0.8 million (2012 - $5.3 million).

 

US antitrust settlement

 

Settlement has been reached in the US antitrust litigation which had been pending in the US District Court for the Eastern District of Pennsylvania.  The settlement is subject to the Court's approval and relates to alleged activity in the period from 1991-2007.  While Coats denies that it breached any US antitrust law and continues to believe it has good defences to the claims alleged, it decided to enter into the settlement to avoid further expense and the distraction of on-going and protracted litigation in the US.

 

The settlement amount of $9.9 million includes plaintiffs' legal costs and expenses.  The net exceptional charge arising from this settlement is $2.7 million post US tax deductions of $4.4 million.

 

Investment

 

Investment continued in the first half of 2013 to support the growth of the business and to improve its operational performance.

 

Investment in new plant and systems amounted to $12.7 million (2012 - $19.8 million).  This capital expenditure was focussed on productivity improvements in the Industrial Division, primarily in EMEA.  Capital expenditure was lower than anticipated at 0.5 times depreciation due to the phasing of spend in the first half of the year versus the second half across the regions.

 

Reorganisation costs were $14.7 million (2012 - $11.2 million), concentrated on the continued restructuring of the European Industrial thread and EMEA Crafts operations.

 

Cash flow

 

EBITDA (defined as pre-exceptional operating profit before depreciation and amortisation) was $88.6 million (2012 - $84.0 million).



 

The historic free cash flow trend, whereby the second half cash inflow significantly exceeds that in the first half, continued with the first half cash outflow of $15.4 million (2012 - $10.7 million inflow).  The higher cash inflow in 2012 primarily reflected the benefit of assignment of receivables to GPG not repeated in 2013 (2012 - $25.0 million), while 2013 has seen increases in the underlying net working capital outflow ($19.6 million higher) driven by business growth and taxation payments  ($13.1 million higher), partly offset by reduced capital expenditure ($7.1 million lower) and proceeds of $18.4 million from a property sale in Peru.

 

The higher taxation payments in 2013 primarily reflected the increased first half operating profit and the timing of "on account" payments, including the payment deferral of a $4.9 million 2012 US tax liability into 2013.

 

Net cash outflow for reorganisation activity ($11.2 million in the period under review) was primarily in relation to restructuring the EMEA Crafts operation announced in 2012 and the European Industrial thread operation undertaken in 2013.  This reorganisation is part of the accelerated programme announced in 2012 to bring forward projects planned for future years, with the aim of not incurring separately identifiable reorganisation expenditure from 2014 onwards.

 

Following a review of the reorganisation programme, one of the proposed projects will be scaled back, reducing the expected exceptional reorganisation P&L charge in 2013 from $35 million to approximately $20 million.  The planned disposal of the properties associated with the project will no longer take place and, as a consequence, the overall accelerated reorganisation programme announced in 2012 will no longer be self-financing.  We therefore now expect a net cash outflow across the years 2013 and 2014 of c. $20 million, excluding the benefits associated with the accelerated programme.  All other reorganisation activity remains on track.

 

Net debt increased from $367.6 million at the 2012 year end to $386.6 million at the end of June 2013, and was $16.4 million below the June 2012 like-for-like level of $403.0 million (adjusted for the European Commission fine paid in July 2012 of $174.8 million, including interest).

 

A key metric for the Group is the leverage ratio of net debt to EBITDA.  Under the definitions of net debt and EBITDA prescribed in Coats' senior debt facility put in place in October 2011, net debt at 30 June 2013 was 2.1 times EBITDA of the preceding twelve months (June 2012 - 2.3 times), well within Coats' covenant limit of 3.0 times.

 

Balance sheet

 

Equity shareholders' funds increased from $77.9 million at the end of 2012 to $184.6 million at June 2013.  This primarily reflects the attributable profit of $6.6 million and actuarial gains in respect of retirement schemes of $98.0 million due to good asset performance in the period and increasing nominal interest rates (see below).

 

Pensions and other post-employment benefits

 

The Group's most significant funded defined benefit pension arrangement is the Coats Pension Plan in the UK.  As at June 2013, the deficit in the UK scheme on an IAS19 accounting basis reduced significantly from $261.8 million at the 2012 year end to $151.6 million as a result of improved asset performance and an upturn in nominal interest rates in the UK.

 

Total company contributions to the UK scheme remain at $13.1 million per annum (at 30 June 2013 exchange rates) in line with the ten year recovery plan agreed with the scheme's trustee as part of the April 2009 triennial valuation.  An in-principle agreement has been reached with the trustee in relation to the 2012 triennial valuation.  This agreement, which remains subject to approval from the Company's banks and submission to the UK Pensions Regulator, would see annual contributions increase by approximately $11 million to $24 million per annum.  A further update will be given once the terms of the agreement have been approved by all parties.



 

Prospects and conclusion

 

Coats continues to make good progress and the business is well placed to sustain and grow both revenue and profit, although trading conditions remain mixed across different geographies.  The combination of Coats' market-leading position, relationship with leading brands and unparalleled geographic footprint represents a robust and defendable business model.  In addition, the actions being taken, both in terms of restructuring and in new product development, digital technology and other commercial enablers will support profitable and cash generative growth.

 

The recent appointment of Mike Clasper as Coats' Chairman is a very positive development.  His knowledge and expertise will help Coats in its on-going evolution and I am very much looking forward to working with him.  On stepping down as Coats' Chairman, Mike Allen will remain on the Coats Board as a Non-Executive Director.

 

 

 

 

Paul Forman,
Group Chief Executive

Coats plc
28 August 2013

Enquiry details are:






For GPG:



Chief Investment Officer



Anthony Eisen

+612 8298 4300

anthony_eisen@gpgaustralia.com.au

Chief Financial Officer



Nick Tarn

+44 20 7484 3370

ntarn@gpgplc.co.uk




New Zealand and Australian media:



Geoff Senescall

+64 9 309 5659

geoff@senescallakers.co.nz

UK media:



Kevin Smith

+44 20 7282 1054

kevin.smith@citigatedr.co.uk




For Coats:



Group Chief Executive



Paul Forman

+44 20 8210 5008

paul.forman@coats.com

Chief Financial Officer



Richard Howes

+44 20 8210 5121

richard.howes@coats.com




UK media:



Charles Ryland

+44 20 7466 5000 or

charlesr@buchanan.uk.com


+44 7768 230 457


Anna Mitchell

+44 20 8210 5015 or



+44 7740 747 976

anna.mitchell@coats.com




 

About Coats

 

With a rich heritage dating back to the 1750s, Coats is the world's leading industrial thread and consumer textile crafts business, at home in more than 70 countries, employing more than 20,000 people across six continents.  Revenues in 2012 were US$1.7bn.

 

Our well-known brands and strong relationships with customers and consumers mean our products and services meet current and future needs.  Our company-wide understanding of our business partners and consumers, coupled with the deep expertise of our people, builds trust and certainty.

 

Coats' pioneering history and innovative culture ensure the company continues leading the way around the world: providing complementary and value added products and services to the apparel and footwear industries; extending the crafts offer into new markets and online; and applying innovative techniques to develop products in new areas such as tracer threads, aramids and fibre optics.

 

·     One in five garments on the planet is held together using Coats' thread

·     75 million car airbags are made using Coats' thread every year

·     Coats produces enough yarn to knit 65 million scarves a year

·     In three and a half hours, Coats makes enough thread to go to the moon and back

·     300 million pairs of shoes are made every year using Coats' thread

·     One million teabags using Coats' thread are brewed every 10 minutes

·     Thousands of surgical operations take place every day using Coats' thread

·     Thomas Edison used Coats' thread in 1879 to invent the light bulb

·     Coats produces enough thread to reach around the Equator every 11 minutes

·     Coats is the second largest and fastest growing global zip manufacturer

 

To find out more about Coats visit www.coats.com



INDEPENDENT REVIEW REPORT TO GUINNESS PEAT GROUP PLC

 

We have been engaged by the Guinness Peat Group plc (the 'Company') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the reconciliation of consolidated changes in equity, the condensed statement of consolidated cash flows and related notes 1 to 18, Coats consolidated income statement for the six months ended 30 June 2013, the Coats consolidated statement of comprehensive income, the Coats consolidated statement of financial position, the Coats consolidated statement of changes in equity, the Coats consolidated statement of cash flows and related Coats notes 1 to 7 as presented within the Guinness Peat Group plc financial statements.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1 to the GPG condensed consolidated financial statements, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.



 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

28 August 2013

 

 

GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Condensed Consolidated Income Statement








Unaudited  


Unaudited   

*,**

Audited   

**


6 months to  


6 months to   


Year to   



30 June  


30 June   


31 December   



2013  


2012   


2012   



£m  


£m   


£m   


Continuing Operations







Revenue

544  


519   


1,043   









Cost of sales (periods to June 2012 and December 2012: including £53m in respect of the EC fine)

 

(359) 


 

(398)  


 

(755)  









Gross profit

185  


121   


288   









Interest receivable - Parent Group

3  


3   


6   


Distribution costs

(91) 


(88)  


(177)  


Administrative expenses

(70) 


(77)  


(142)  


Operating profit/(loss)

27  


(41)  


(25)  


 

Interest and other income - Coats

 

1  


 

1   


 

2   









Share of profit of joint ventures

-  


-   


1   









Finance costs (periods to June 2012 and December 2012: including £23m in respect of the EC fine)

 

(16) 


 

(47)  


 

(71)  









Profit/(loss) before taxation from continuing operations

(periods to June 2012 and December 2012:  including £76m charge in respect of the EC fine)

 

 

12  


 

 

(87)  


 

 

(93)  









Tax on profit/(loss) from continuing operations

(18) 


(12)  


(28)  









Loss for the period from continuing operations

(6) 


(99)  


(121)  









Discontinued Operations







Profit from discontinued operations

37  


54   


95   









Profit/(loss) for the period

31  


(45)  


(26)  









Attributable to:







EQUITY SHAREHOLDERS OF THE COMPANY

28  


(49)  


(29)  


Non-controlling interests

3  


4   


3   



31  


(45)  


(26)  


Earnings/(loss) per Ordinary Share from continuing and discontinued operations:




Basic and diluted (pence)

1.90p


(3.01)p


(1.76)p

**








Loss per Ordinary Share from continuing operations:






Basic and diluted (pence)

(0.58)p


(6.26)p

*

(7.76)p

**








*

Restated to reflect the results of Gosford Quarry Holdings Ltd, Touch Holdings Ltd, CIC Australia Ltd and Parent Group investment operations as discontinued operations


**

Restated to reflect the adoption of IAS19 (revised) "Employee Benefits" (see note 1 on page 25)



 

GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






Condensed Consolidated Statement of Comprehensive Income








Unaudited 


Unaudited 

*

Audited 

*


6 months to 


6 months to 


Year to 



30 June 


30 June 


31 December 



2013 


2012 


2012 



£m 


£m 


£m 









Profit/(loss) for the period

31 


(45)


(26)









Items that will not be reclassified to profit or loss:







Actuarial gains/(losses) on retirement benefit schemes

81 


18 


(12)


Tax on items that will not be reclassified


(1)


(1)



81 


17 


(13)









Items that may be reclassified subsequently to profit or loss:







Losses on revaluation of fixed asset investments

(4)


(17)


(13)


Exchange losses on translation of foreign operations

(9)


(2)


(14)


Gains/(losses) on cash flow hedges


(2)


(3)


Tax on items that may be reclassified




Transferred to profit or loss on sale of fixed asset investments

(12)


(29)


(40)


Transferred to profit or loss on sale of businesses

(7)


(21)


(39)


Transferred to profit or loss on cash flow hedges





(27)


(67)


(102)









Net comprehensive income/(expense) for the period

85 


(95)


(141)









Attributable to:







EQUITY SHAREHOLDERS OF THE COMPANY

82 


(99)


(143)


Non-controlling interests












85 


(95)


(141)









*

Restated to reflect the adoption of  IAS19 (revised) "Employee Benefits" (see note 1 on page 25)




 

GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Consolidated Statement of Financial Position

 


 



Unaudited 


Unaudited 


Audited 



30 June 


30 June 


31 December 



2013 


2012 


2012 



£m 


£m 


£m 

NON-CURRENT ASSETS







Intangible assets


169 


165 


160 

Property, plant and equipment


225 


274 


226 

Investments in associated undertakings



179 


Investments in joint ventures



80 


Fixed asset investments



111 


Deferred tax assets


10 


13 


Pension surpluses


22 


20 


21 

Trade and other receivables


11 


16 


13 



448 


858 


440 

CURRENT ASSETS







Inventories


206 


214 


191 

Trade and other receivables


249 


223 


190 

Current asset investments



11 


10 

Derivative financial instruments




Cash and cash equivalents


431 


374 


322 



888 


823 


715 








Assets held for sale


74 



273 








TOTAL ASSETS


1,410 


1,681 


1,428 








CURRENT LIABILITIES







Trade and other payables


246 


260 


220 

Current tax liabilities


13 



10 

Capital Notes



179 


Other borrowings


37 


25 


27 

Derivative financial instruments




Provisions


50 


115 


46 



350 


592 


307 








NET CURRENT ASSETS


538 


231 


408 








Liabilities directly associated with assets held for sale




37 



 

GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Consolidated Statement of Financial Position (continued)



 



Unaudited 


Unaudited 


Audited 

 



30 June 


30 June 


31 December 

 



2013 


2012 


2012 

 



£m 


£m 


£m 

 

NON-CURRENT LIABILITIES







 

Trade and other payables


12 


17 


15 

 

Deferred tax liabilities


26 


26 


25 

 

Other borrowings


302 


230 


278 

 

Derivative financial instruments




 

Retirement benefit obligations:







 


Funded schemes


146 


209 


225 

 


Unfunded schemes


65 


53 


61 

 

Provisions


21 


22 


19 

 



574 


560 


626 

 








 

TOTAL LIABILITIES


924 


1,152 


970 

 








 

NET ASSETS


486 


529 


458 

 








 








 

EQUITY







 

Share capital


70 


81 


78 

 

Share premium account




 

Translation reserve


72 


117 


89 

 

Unrealised gains reserve



19 


14 

 

Capital reduction reserve


48 


118 


93 

 

Other reserves


124 


110 


112 

 

Retained earnings


157 


58 


48 

 

EQUITY SHAREHOLDERS' FUNDS


472 


503 


434 

 

Non-controlling interests


14 


26 


24 

 

TOTAL EQUITY


486 


529 


458 

 








 








 

Net asset backing per share:







 

Pence


33.52 


30.99 


27.73 

 

Australian cents


55.81 


47.42 


43.37 

 

New Zealand cents


65.86 


60.47 


54.42 

 




R J Campbell, Director


Approved by the Board on 27 August 2013

 



 

GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Condensed Reconciliation of Consolidated Changes in Equity

6 months ended 30 June 2013
















Share


Unrealised

Capital 





Non-


Share 

premium

Translation 

gains 

reduction 

Other 

Retained 



controlling 


capital 

account

reserve 

reserve 

reserve 

reserves 

earnings 

Total 


interests


£m 

£m

£m 

£m 

£m 

£m 

£m 

£m 


£m 

Balance as at 1 January 2012

81 

139 

64 

118 

109 

91 

602 


64 

Total comprehensive income











  and expense for the period

(22)

(45)

(33)

(99)


Dividends


(3)

Dilution of investment in











  subsidiaries


Disposal of subsidiaries


(40)

Balance as at 30 June 2012

81 

117 

19 

118 

110 

58 

503 


26 












Balance as at 1 January 2012

81 

139 

64 

118 

109 

91 

602 


64 












Total comprehensive income











  and expense for the year

(50)

(50)

(43)

(143)


Share buy-backs

(3)

(25)

(25)


Dividends


(4)

Disposal of subsidiaries


(38)

Balance as at 31 December 2012

 

78 

 

 

89 

 

14 

 

93 

 

112 

 

48 

 

434 


 

24 












Total comprehensive











  income and expense for











  the period

(17)

(14)

109 

82 


Share buy-backs

(8)

(45)

(45)


Dividends



(3)

Share issues


Dilution of investment in

subsidiaries

 

 

 

 

 

 

 

 


 

Disposal of subsidiaries


(11)

Balance as at 30 June 2013

70 

72 

48 

124 

157 

472 


14 























 

 

 



 

GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Statement of Consolidated Cash Flows

 







 


Unaudited 


Unaudited 

*

Audited 



6 months to 


6 months to 


Year to 



30 June 


30 June 


31 December 

 


2013 


2012 


2012 

 


£m 


£m 


£m 

 

Cash inflow from operating activities






 

Net cash inflow from operating activities

100 


102 


134 

 

Interest paid

(8)


(17)


(58)

 

Taxation paid

(19)


(12)


(24)

 

Net cash generated by operating activities

73 


73 


52 

 







 

Cash inflow from investing activities






 

Investment income



 

Property disposal proceeds, capital expenditure and financial investment






 

investment


(13)


(27)

 

Acquisitions and disposals

63 


84 


193 

 

Net cash generated by investing activities

67 


74 


172 

 







 

Cash outflow from financing activities






 

Net buyback of Ordinary Shares

(45)



(24)

 

Dividends paid to non-controlling interests

(3)


(3)


(5)

 

Net increase/(decrease) in borrowings

16 


(36)


(142)

 

Net cash absorbed in financing activities

(32)


(39)


(171)

 







 

Net increase in cash and cash equivalents

108 


108 


53 

 

Cash and cash equivalents at beginning of the period

311 


259 


259 

 

Exchange gains/(losses) on cash and cash equivalents



(1)

 

Cash and cash equivalents at end of the period

422 


369 


311 

 







 

Cash and cash equivalents per the Condensed Consolidated






 

Statement of Financial Position

431 


374 


322 

 

Bank overdrafts

(9)


(5)


(11)

 

Cash and cash equivalents at end of the period

422 


369 


311 

 







 

Summary of net debt






 

  -  Parent Group** cash

347 


289 


243 

 

  -  Capital Notes


(179)


 

  -  Parent Group net cash

347 


110 


243 

 

  -  Other group cash

84 


85 


79 

 

  -  Other group debt

(339)


(255)


(305)

 

Total group net cash/(debt)

92 


(60)


17 

 







 

*   Restated to reflect Gosford Quarry Holdings Ltd, Touch Holdings Ltd, CIC Australia Ltd and Parent Group investment      operations as discontinued operations

 

** Parent Group comprises the Group's central investment  activities






 



 

NOTES TO THE GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.  The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with IAS34 "Interim Financial Reporting", as adopted by the European Union, and comply with the disclosure requirements of the Listing Rules of the UK Financial Services Authority and the Listing Rules of the Australian Securities Exchange.

 

Other than the adoption of amendments to IAS1 "Presentation of items in Other Comprehensive Income", IAS19 "Employee Benefits" and IFRS13 "Fair Value Measurement", the same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements, and are expected to be applied in the annual audited financial statements for the current year.

 

The impact of adoption of amendments to IAS19 - effective from 1 January 2013 but applied retrospectively - is as follows:



6 months to

30 June

2013

6 months to

30 June

2012

Year to

31 December

2012



£m

£m

£m


Increase in operating expenses re administration costs

(3)

(2)

(5)


Increase in finance costs

(14)

(12)

(22)


Decrease in tax charge


Increase in net actuarial gains/decrease in net actuarial losses in other comprehensive income

 

17 

 

13 

 

26 


 

IAS19 (revised) has impacted the accounting for the Group's defined benefit schemes by replacing the interest cost and expected return on plan assets with a net interest amount on net defined benefit assets and liabilities.  In addition, pension scheme administrative expenses including the PPF levy and actuary, audit, legal and trustee charges are recognised as administrative expenses.  There have been no changes to the Group's total defined benefit obligations recognised in the Consolidated Statement of Financial Position or to the net cash inflow generated by operations recognised in the Consolidated Statement of Cash Flows.

 

Other than a change in the presentation of items within the Statement of Comprehensive Income, the adoption of amendments to IAS1 has no impact on the consolidated financial statements.

 

The adoption of IFRS13 has had no significant impact on these condensed consolidated financial statements.

 


At 30 June 2013 the Parent Group had cash totalling £347 million (30 June 2012: net cash £110 million; 31 December 2012: cash £243 million).  The Parent Group also has various actual and contingent liabilities.  The Board expects to be able to meet these obligations from existing resources.  Further information on the net cash position of the Group is provided in the table at the foot of the Condensed Statement of Consolidated Cash Flows.




Giving due consideration to the nature of the Group's business and underlying investments, taking account of the following matters: the ability of the Parent Group to realise its liquid investments and to manage the timing of such liquidations; the uncertainty inherent in the capital markets in which it operates; the Group's foreign currency exposures; the potential requirement to provide funding to the Group's defined benefit pension schemes; the capital structure to be adopted by GPG in readiness for its re-launch as Coats; and the factors which will determine further returns of surplus cash to shareholders and also taking into consideration the cash flow forecasts prepared by the Group and the sensitivity analysis associated therewith, the directors consider that the Company and the Group are going concerns and this financial information is prepared on that basis.



2.

The condensed consolidated financial statements for the six months ended 30 June 2013 have been reviewed - see attached independent review report - but have not been audited.  The condensed consolidated financial statements for the equivalent period in 2012 were also reviewed but not audited.



 

NOTES TO THE GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



2.

(continued)


The information for the year ended 31 December 2012 does not constitute statutory accounts (as defined in section 434 of the Companies Act 2006).  The financial information for the year ended 31 December 2012, as adjusted for the impact of the adoption of amendments to IAS19, is derived from the statutory accounts for that year, which have been filed with the Registrar of Companies.  The audit report on those accounts was unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under Sections 498(2) or 498(3) of the Companies Act 2006.






3.

Group foreign exchange movements - during the six months to 30 June 2013, GPG recognised within operating profit £1 million of net foreign exchange gains (six months to 30 June 2012: £4 million losses*; year to 31 December 2012: £2 million losses).





*

Restated to reflect the results of Gosford Quarry Holdings Ltd, Touch Holdings Ltd, CIC Australia Ltd and Parent Group investment operations as discontinued operations.





 

4.

Tax on profit/(loss) from continuing operations

 



30 June  

30 June

31 December

 



2013  

2012

2012

 




*,**

**

 



£m  

£m

£m

 


UK Corporation tax at 23.5% (June 2012: 25.0%;

December 2012: 24.5%)

 

-  

 

 

 


Overseas tax

(19) 

(11)

(29)

 



(19) 

(11)

(29)

 


Deferred tax

1  

(1)

 



(18) 

(12)

(28)

 






 


The tax charges for all periods reflect the impact of unrelieved losses in certain subsidiary undertakings.

 






 


*

Restated to reflect the results of Gosford Quarry Holdings Ltd, Touch Holdings Ltd, CIC Australia Ltd and Parent Group investment operations as discontinued operations.

 



 



 


**

Restated to reflect the adoption of IAS19 (revised) "Employee Benefits" (see note 1 on page 25).

 




 

5.

The Parent Group's joint ventures and associated undertakings were as follows:

 


 





 


30 June    

30 June 

31 December  

 


2013   

2012 

2012  

 


na   

47.4%

47.4%

 


na   

47.8%

na   

 


na   

72.5%

na   

 


33.6%

33.6%

33.6%

 





 


At 30 June 2013 the investment in Tower Ltd is included in Assets Held for Sale.

 

 


At 31 December 2012 the investments in Capral Ltd and Tower Ltd were included in Assets Held for Sale.

 



 

NOTES TO THE GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued



6.

Segmental Analysis: Analysis by activity

 






Non-


 






operating


 



Thread

Fruit/produce


items


 


Investment

manufacture

distribution

Unallocated

(note 1)

Total

 


£m

£m

£m

£m

£m

£m

 








 

6 months ended 30 June 2013:







 

Revenue:







 

External sales

544 

544 

 








 

Results:







 

Continuing operations







 

Operating (loss)/profit

(11)

38 

27 

 

(Loss)/profit after tax

(13)

(6)

 

Discontinued operations







 

Profit after tax

20 

17 

37 

 








 

Total assets 30 June 2013

353 

867 

190 

1,410 

 








 

6 months ended 30 June 2012 (notes 2, 3 and 4):






 

Revenue:







 

External sales

519 

519 

 








 

Results:







 

Continuing operations







 

Operating loss

(13)

(28)

(41)

 

Loss after tax

(23)

(76)

(99)

 

Discontinued operations







 

Profit/(loss) after tax

30 

(1)

25 

54 

 








 

Total assets 30 June 2012

431 

824 

59 

367 

1,681 

 








 

Year ended 31 December 2012 (notes 2 and 3):






 

Revenue:







 

External sales

1,043 

1,043 

 








 

Results:







 

Continuing operations







 

Operating loss

(17)

(8)

(25)

 

Loss after tax

(35)

(86)

(121)

 

Discontinued operations







 

Profit/(loss) after tax

78 

(2)

25 

(6)

95 

 








 

Total assets 31 December 2012

258 

793 

377 

1,428 

 

Notes:

1.

 

 

 

2.

 

 

 

3.

 

4.

Non-operating items comprise cash and cash equivalents, derivatives and investments held by operating subsidiaries (which are not considered to be financial operations), plus taxation assets and non-current assets classified as held for sale.

 

Excluding the effect of the EC fine the result from thread manufacturing was a profit after tax from continuing operations of £Nil for the 6 months ended 30 June 2012 and a loss after tax from continuing operations of £10 million for the year ended 31 December 2012.

 

Restated to reflect the adoption of IAS19 (revised) "Employee Benefits" (see note 1 on page 25).

 

Restated to reflect Gosford Quarry Holdings Ltd, Touch Holdings Ltd, CIC Australia Ltd and Parent Group investment operations as discontinued operations.

 

 



 

NOTES TO THE GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued


7.

Discontinued operations

 


The combined results of discontinued operations were as follows:















6 months to 

30 June 

2013 


6 months to 

30 June 

2012 

*

Year to 

31 December 

2012 







£m 


£m 


£m 



Investment 


Unallocated 


Total 


Total 


Total 













Revenue

10 



12 


89 


108 


Cost of sales

(10)


(1)


(11)


(61)


(69)


Expenses


(6)


(5)


(30)


(42)




(5)


(4)


(2)


(3)


Other income

21 



26 


72 


93 


Finance costs


(1)


(1)


(2)


(3)


Profit/(loss) before tax

22 


(1)


21 


68 


87 


Attributable tax

(2)



(1)


(1)


(4)


Profit after tax

20 



20 


67 


83 













Loss arising on











measurement to fair











value





(17)













Gain/(loss) on disposal











of businesses


17 


17 


(13)


29 













Gain on discontinued











operations

20 


17 


37 


54 


95 













In May 2013 the Group completed the sale of CIC Australia Ltd ('CIC'), a former subsidiary undertaking in the unallocated business segment.  The gain on disposal of CIC, which was accounted for as an asset held for sale at 31 December 2012, was £17 million.





Other income within "Investment" above includes £22 million capital returns, and £5 million dividends, from Tower, partially offset by a £19 million impairment charge to reflect Tower's market value at 30 June 2013.




*

Restated to reflect Gosford Quarry Holdings Ltd, Touch Holdings Ltd, CIC Australia Ltd and Parent Group investment operations as discontinued operations.

 

NOTES TO THE GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

 


 

7.

Discontinued operations (continued)

 


The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:


 








30 June

2013


31 December 

2012 

 



£m


£m 

 






 


Property, plant and equipment



20 

 


Associated undertakings


69 


113 

 


Joint ventures



36 

 


Other fixed asset investments



76 

 


Deferred tax assets



 


Inventories



 


Due from associated undertakings and joint ventures



 


Trade and other receivables



 


Other financial asset receivables



 


Other receivables



 


Cash and cash equivalents



 


Assets held for sale


74 


273 

 







 


Due to associated undertakings



(13)

 


Other financial liability payables



(4)

 


Borrowings



(20)

 


Liabilities directly associated with assets held for sale



(37)

 







 


Associated undertakings classified as held for sale are reported at fair value less costs to sell.  These assets are categorised as level 1 investments and their fair values are derived from quoted prices.

 

 


 

  8.

Earnings/(loss) per Ordinary Share - The calculation of earnings/(loss) per Ordinary Share is based on profit/(loss) after taxation attributable to shareholders and the weighted average number of 1,460,944,073 Ordinary Shares in issue during the six months ended 30 June 2013 (six months ended 30 June 2012: 1,622,676,844; year ended 31 December 2012: 1,618,876,707).  For the calculation of diluted earnings/(loss) per Ordinary Share, the weighted average number of Ordinary Shares in issue is adjusted, where appropriate, to assume conversion of all dilutive potential Ordinary Shares, being share options granted to employees and Capital Notes.  Calculations of earnings/(loss) per Ordinary Share are based on results to the nearest £000s.




  9

Net tangible assets per share at 30 June 2013 are 22.45p (30 June 2012: 22.38p, 31 December 2012: 19.07p).



10

Issued share capital



Number of Shares 


£m 


At 1 January 2013

1,565,935,990 


78 


Share buy-backs

(160,501,683)


(8)


Exercise of options

1,717,816 



At 30 June 2013

1,407,152,123 


70 





11.

Dividends - No dividend was paid during the period or approved in respect of the period (2012: Nil).



12.

Contingent liabilities

As noted in previous reports, the US Environmental Protection Agency ('USEPA') has notified Coats & Clark, Inc. ('CC') that it is a "potentially responsible party" under the US Superfund law for investigation and remediation costs at the Lower Passaic River Study Area ('LPRSA') in New Jersey in respect of an alleged predecessor's former facilities which operated in that area prior to 1950.  Approximately 70 companies to date have formed a cooperating parties group ('CPG') to fund and conduct a remedial investigation and feasibility study ('RI/FS') of the area.  CC joined the CPG in 2011.  The total costs of the RI/FS and related expenditures are currently estimated by the CPG to be approximately $117 million.

 


 

 

 

 

NOTES TO THE GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

 

12

Contingent liabilities (continued)


Under the interim allocation in place when CC joined the CPG, CC was responsible for approximately 1.7% of the total RI/FS and related CPG costs.  During 2012, three companies that had shared a common allocation within the CPG - Tierra Solutions, Inc, Maxus Energy Corporation and Occidental Chemical Corporation (collectively 'TMO') - withdrew from the CPG.  TMO is not currently funding the RI/FS, and CC's interim allocation of future RI/FS and related CPG costs is now approximately 2.0%.  The interim allocation is expressly limited to the RI/FS and related expenditures, and is subject to reallocation after the RI/FS has been issued.  CC believes that there are many parties that will participate in its remediation that are not currently funding the study of the river, including those that are the most responsible for its current contamination, which will reduce CC's allocation.


USEPA has indicated that it expects to issue a Focused Feasibility Study ('FFS') for remediation of the lower 8 miles of the Lower Passaic River during 2013, before the CPG's RI/FS for the entire 17 mile stretch of the river is completed.  At this time, Coats cannot reasonably estimate CC's potential share or a range of future costs because: (a) USEPA has not made a final remedial decision for the FFS; (b) the scope, nature and timing of the remediation is not known; and (c) the total number of parties that will participate in funding future remediation and their respective allocations are not known.


During 2012, the members of the CPG, including CC, agreed to fund the remediation of one part of the LPRSA (River Mile 10.9).  CC's interim allocation of the cost of this is estimated at approximately $0.7 million and this was included in the $8.0 million US environmental exceptional charge.


Coats believes that CC's predecessors did not generate any of the contaminants which are driving the current and anticipated remedial actions in the LPRSA, that it has valid legal defences which are based on its own analysis of the relevant facts, and that additional parties not currently in the CPG will be responsible for a significant share of the ultimate costs of remediation.  The foregoing, as well as other mitigating factors, should result in a reduced share of any exposure for future remedial and other costs.  At the present time, there can be no assurance as to the scope of future remedial action and other costs, nor can Coats predict what CC's ultimate share will be.  Accordingly, no provision has been made for these costs.

13.

There have been no changes to the principal risks and uncertainties compared to those outlined in note 37 to the Financial Statements and the Corporate Governance Statement in the 2012 Annual Report, comprising risks associated with currency, interest rate, market price, liquidity, capital, credit, human resources, pensions and regulatory compliance.  As announced to the market, initially in April 2013, the UK Pensions Regulator is undertaking investigations into whether financial support should be provided to one or more of the Group's UK defined benefit pension schemes by the Company, or one or more other group companies under the provisions of the UK Pensions Act 2004.




14.

Post Balance Sheet Events

At 30 June 2013 the Tower share price was NZ$1.95 (GPG share £69 million).  In August 2013 Tower announced the completion of the sale of the bulk of its life insurance business and the arrangements which had been agreed with the Reserve Bank of New Zealand relating to its licensing conditions and in particular its minimum solvency capital requirements.  As at 23 August 2013 the Tower share price was NZ$1.72.

 

Since 30 June 2013 Coats has reached a preliminary settlement in the US fasteners antitrust litigation which has been pending in the US District Court for the Eastern District of Pennsylvania and which was disclosed in the 2012 Annual Report.  The litigation related to the period from 1991-2007 and, while Coats denies that it breached any US antitrust laws and continues to believe it had good defences to the claims alleged, it has decided to enter into this settlement to avoid further expense and the distraction of on-going and protracted litigation.  The cost of this preliminary settlement has been provided for in the results for the six month period to 30 June 2013.

 

15.

Related party transactions - There have been no related party transactions or changes in related party transactions described in the 2012 Annual Report that could have a material effect on the financial position or performance of the Group in the first six months of the financial year.



 


NOTES TO THE GPG CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued



16.

Directors - The following persons were, except where noted, directors of GPG during the whole of the period and up to the date of this report:




R J Campbell

M N Allen

Sir Ron Brierley

S L Malcolm

B A Nixon

W R Szlezak (appointed 6 March 2013)



17.

Interim Management Report - The Chairman's Statement appearing in the half-yearly financial report and signed by Rob Campbell provides a review of the operations of the Group for the six months ended 30 June 2013.



18.

Publication - This statement will be available at the registered office of the Company, First Floor, Times Place,
45 Pall Mall, London SW1Y 5GP.  A copy will also be displayed on the Company's website on
www.gpgplc.com.



DIRECTORS' RESPONSIBILITY STATEMENT


In accordance with a resolution of the directors of Guinness Peat Group plc I state that:

in the opinion of the directors and to the best of their knowledge:


a.

the condensed set of unaudited financial statements:





(i) 

give a true and fair view of the financial position as at 30 June 2013 and the performance of the consolidated Group for the half-year ended on that date;





(ii) 

have been prepared in accordance with IAS34 "Interim Financial Reporting";





(iii) 

comply with the recognition and measurement principles of applicable International Financial Reporting Standards as adopted by the Group; and




b.

the half-yearly financial report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8; and



c.

there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and payable.


The Directors of Guinness Peat Group plc are listed in Note 16 to the Condensed Consolidated Financial Statements. 



Signed on behalf of the Board

R J Campbell, Director

28 August 2013



 

 

GPG Contact Details


UNITED KINGDOM

First Floor, Times Place, 45 Pall Mall,

Tel:  020 7484 3370

Fax:  020 7925 0700

London SW1Y 5GP


AUSTRALIA

c/o BDO East Coast Partnership

Level 10, 1 Margaret Street, Sydney NSW 2000

Tel:  02 9251 4100

Fax:  02 9240 9821


NEW ZEALAND

c/o Computershare Investor Services Limited

Private Bag 92119, Auckland 1142

Tel:  09 488 8700

Fax:  09 488 8787



Incorporated and registered in England No. 103548

 


COATS FINANCIAL STATEMENTS

Consolidated Income Statement (unaudited)

 










2013



2012 


2012   





Half Year



Half year *


Full year *








Restated


Restated 




Before



Before







Exceptional  

Exceptional  


Exceptional 

Exceptional






Items

items

Total

items

items

Total

Total




Unaudited

Unaudited 

Unaudited  

Unaudited

Unaudited

Unaudited

Unaudited

















For the six months ended

30  June 2013

Notes

US$m 

US$m 

US$m 

US$m 

US$m 

US$m 

US$m 

Continuing operations









Revenue


839.7 

839.7 

819.3 

819.3 

1,653.4 











Cost of sales


(532.8)

(21.8)

(554.6)

(529.3)

(99.0)

(628.3)

(1,197.5)











Gross profit


306.9 

(21.8)

285.1 

290.0 

(99.0)

191.0 

455.9 











Distribution costs


(139.5)

(139.5)

(139.3)

-  

(139.3)

(280.3)

Administrative expenses


(103.8)

(0.8)

(104.6)

(93.9)

(2.1)

(96.0)

(184.9)

Other operating income/









(expense)


18.4 

18.4 

(1.8)










Operating profit/(loss)


63.6 

(4.2)

59.4 

56.8 

(101.1)

(44.3)

(11.1)











Share of profits of joint









ventures


0.5 

0.5 

0.2 

0.2 

1.1 










Investment income


1.3 

1.3 

1.3 

1.3 

2.6 











Finance costs

4

(22.3)

-  

(22.3)

(21.7)

(35.8)

(57.5)

(83.9)











Profit/(loss) before taxation

3

43.1 

(4.2)

38.9 

36.6 

(136.9)

(100.3)

(91.3)











Taxation

5

(27.4)

(0.1)

(27.5)

(21.0)

1.6 

(19.4)

(44.9)











Profit/(loss) from continuing operations


15.7 

(4.3)

11.4 

15.6 

(135.3)

(119.7)

(136.2)











Discontinued operations









Loss from discontinued operations


(0.1)

(0.1)

(2.0)

-  

(2.0)

(2.7)











Profit/(loss) for the period


15.6 

(4.3)

11.3 

13.6 

(135.3)

(121.7)

(138.9)











Attributable to:









EQUITY SHAREHOLDERS OF

THE COMPANY

 

10.9 

 

(4.3)

 

6.6 

 

9.4 

 

(135.3)

 

(125.9)

 

(146.4)

Non-controlling interests


4.7 

-  

4.7 

4.2 

4.2 

7.5 




15.6 

(4.3)

11.3 

13.6 

(135.3)

(121.7)

(138.9)











* 2012 results have been restated to reflect the impact of the adoption of IAS19 (revised) "Employee Benefits" (see note 1 to the Financial   Information)



 

COATS FINANCIAL STATEMENTS



Consolidated Statement of Comprehensive Income (unaudited)







Restated


Restated




2013


2012


2012




Half year


Half year


Full year




Unaudited


Unaudited


Unaudited

For the six months ended 30 June 2013


US$m


US$m


US$m









Profit/(loss) for the period


11.3 


(121.7)


(138.9)









Items that will not be reclassified subsequently to profit or loss:







Actuarial gains/(losses) in respect of retirement benefit schemes


98.0 


25.3 


(0.8)

Tax relating to items that will not be reclassified



(0.8)


(2.1)




98.0 


24.5 


(2.9)

Items that may be reclassified subsequently to profit or loss:







Cash flow hedges:







Gains/(losses) arising during the period


2.5 


(2.3)


(4.7)

Transferred to profit or loss on cash flow hedges


2.8 


2.8 


5.7 









Exchange differences on translation of foreign operations


(3.4)


(4.5)


(7.4)




1.9 


(4.0)


(6.4)









Other comprehensive income and expense for the period


99.9 


20.5 


(9.3)









Total comprehensive income and expense for the period


111.2 


(101.2)


(148.2)









Attributable to:







EQUITY SHAREHOLDERS OF THE COMPANY


106.7 


(105.5)


(155.8)

Non-controlling interests


4.5 


4.3 


7.6 




111.2 


(101.2)


(148.2)

 



 

COATS FINANCIAL STATEMENTS

Consolidated Statement of Financial Position (unaudited)







2013 


2012 


2012 





30 June 


30 June 


31 December 





Unaudited 


Unaudited 


Unaudited 

At 30 June 2013

Notes

US$m 


US$m 


US$m 

Non-current assets







Intangible assets


258.7 


259.4 


260.1 

Property, plant and equipment


341.5 


378.9 


366.9 

Investments in joint ventures


14.0 


15.4 


13.4 

Available-for-sale investments


3.2 


2.9 


3.1 

Deferred tax assets


15.5 


13.3 


15.1 

Pension surpluses


33.0 


31.5 


34.6 

Trade and other receivables


16.3 


15.3 


15.1 





682.2 


716.7 


708.3 










Current assets







Inventories



313.0 


316.6 


310.8 

Trade and other receivables


368.9 


302.5 


309.3 

Available-for-sale investments


0.4 


0.7 


0.2 

Cash and cash equivalents

7

128.7 


125.8 


128.4 





811.0 


745.6 


748.7 










Non-current assets classified as held for sale


2.0 


0.1 


3.0 










Total assets



1,495.2 


1,462.4 


1,460.0 










Current liabilities







Trade and other payables


(362.0)


(332.9)


(347.4)

Current income tax liabilities


(18.7)


(11.3)


(14.6)

Bank overdrafts and other borrowings


(56.4)


(31.1)


(43.9)

Provisions



(71.2)


(215.6)


(71.1)





(508.3)


(590.9)


(477.0)










Net current assets


302.7 


154.7 


271.7 










Non-current liabilities







Trade and other payables


(21.6)


(23.4)


(22.6)

Deferred tax liabilities


(39.6)


(41.5)


(40.6)

Borrowings



(458.9)


(322.9)


(452.1)

Retirement benefit obligations:







  Funded schemes


(135.1)


(225.5)


(245.6)

  Unfunded schemes


(98.4)


(82.7)


(99.4)

Provisions



(27.9)


(28.3)


(24.9)





(781.5)


(724.3)


(885.2)










Total liabilities


(1,289.8)


(1,315.2)


(1,362.2)










Net assets



205.4 


147.2 


97.8 

Equity









Share capital



20.5 


20.5 


20.5 

Share premium account


412.1 


412.1


412.1 

Hedging and translation reserve


(23.4)


(23.1)


(25.5)

Retained loss



(224.6)


(281.3)


(329.2)

EQUITY SHAREHOLDERS' FUNDS


184.6 


128.2 


77.9 

Non-controlling interests


20.8 


19.0 


19.9 

Total equity



205.4 


147.2 


97.8 



 

COATS FINANCIAL STATEMENTS





 

Consolidated Statement of Changes in Equity (unaudited)

 








Share




Equity

Non




Share

premium

Hedging

Translation

Retained

shareholders'

controlling

Total



capital

 account

reserve

reserve

(loss)/earnings

funds

interests

equity



Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited



US$m

US$m

US$m

US$m

US$m

US$m

US$m

US$m











Balance as at 1 January 2012

20.5 

412.1 

(10.1)

(8.9)

(179.9)

233.7 

17.9 

251.6 











(Loss)/profit for the period

(125.9)

(125.9)

4.2 

(121.7)











Other comprehensive income and









 expense for the period

0.5 

(4.6)

24.5 

20.4 

0.1 

20.5 











Total comprehensive income and









 expense for the period

0.5 

(4.6)

(101.4)

(105.5)

4.3 

(101.2)











Dividends paid to non-controlling









 Interests

(3.2)

(3.2)











Balance as at 30 June 2012

20.5 

412.1 

(9.6)

(13.5)

(281.3)

128.2 

19.0 

147.2 





















Balance as at 1 January 2012

20.5 

412.1 

(10.1)

(8.9)

(179.9)

233.7 

17.9 

251.6 











(Loss)/profit for the year

(146.4)

(146.4)

7.5 

(138.9)











Other comprehensive income and









 expense for the year

1.0 

(7.5)

(2.9)

(9.4)

0.1 

(9.3)











Total comprehensive income and









 expense for the year

1.0 

(7.5)

(149.3)

(155.8)

7.6 

(148.2)











Dividends paid to non-controlling









 Interests

(5.6)

(5.6)











Balance as at 31 December 2012

20.5 

412.1 

(9.1)

(16.4)

(329.2)

77.9 

19.9 

97.8 











Profit for the period

6.6 

6.6 

4.7 

11.3 











Other comprehensive income and









 expense for the period

5.3 

(3.2)

98.0 

100.1 

(0.2)

99.9 











Total comprehensive income and









 expense for the period

5.3 

(3.2)

104.6 

106.7 

4.5 

111.2 











Dividends paid to non-controlling









 Interests

(3.6)

(3.6)











Balance as at 30 June 2013

20.5 

412.1 

(3.8)

(19.6)

(224.6)

184.6 

20.8 

205.4 

 



 

COATS FINANCIAL STATEMENTS



Consolidated Statement of Cash Flows (unaudited)














2013


2012


2012




Half year


Half year


Full year




Unaudited


Unaudited


Unaudited

For the six months ended 30 June 2013

Notes

US$m


US$m


US$m

Cash inflow/(outflow) from operating activities







Net cash inflow generated by operations

6

24.7 


63.1 


8.3 

Interest paid


(13.3)


(14.1)


(63.1)

Taxation paid


(28.6)


(15.5)


(35.3)

Net cash (absorbed in)/generated by operating activities


(17.2)


33.5 


(90.1)









Cash inflow/(outflow) from investing activities







Dividends received from joint ventures


0.4 


0.9 


0.9 

Acquisition of property, plant and equipment and intangible assets


(12.7)


(19.8)


(38.8)

Disposal of property, plant and equipment and intangible assets


18.9 


0.2 


1.7 

Acquisition of financial investments


(0.4)


(0.4)


(0.5)

Disposal of financial investments




0.3 

(Acquisition)/disposal of businesses


(0.8)


(0.5)


2.1 

Net cash generated by/(absorbed in) investing activities


5.4 


(19.6)


(34.3)









Cash inflow/(outflow) from financing activities







Dividends paid to non-controlling interests


(3.6)


(3.2)


(5.6)

Increase in debt and lease financing


25.1 


21.0 


151.9 

Net cash generated by financing activities


21.5 


17.8 


146.3 









Net increase in cash and cash equivalents


9.7 


31.7 


21.9 

Net cash and cash equivalents at beginning of the period


110.4 


85.6 


85.6 

Foreign exchange (losses)/gains on cash and cash equivalents


(6.0)


0.3 


2.9 

Net cash and cash equivalents at end of the period

7

114.1 


117.6 


110.4 

















Reconciliation of net cash flow to movement in net debt








Net increase in cash and cash equivalents


9.7 


31.7 


21.9 

Cash inflow from change in debt and lease financing


(25.1)


(21.0)


(151.9)

Change in net debt resulting from cash flows (Free cash flow)


(15.4)


10.7 


(130.0)

Other


(1.1)


(1.1)


(2.3)

Exchange (losses)/gains


(2.5)


0.6 


3.1 

(Increase)/decrease in net debt


(19.0)


10.2 


(129.2)

Net debt at start of period


(367.6)


(238.4)


(238.4)

Net debt at end of period

7

(386.6)


(228.2)


(367.6)

 



 

Notes to the Coats Financial Statements










1

Basis of preparation


















The financial information contained in this section of the report represents the unaudited results of Coats as contained within the unaudited consolidated financial information of GPG for the six months ended 30 June 2013 and 30 June 2012 and the audited consolidated financial information of GPG for the year ended 31 December 2012, as adjusted for the impact of the adoption of amendments to IAS1 and IAS19 (revised).

 


It incorporates the consolidated results of Coats Group Limited ('CGL') as adjusted to account for the Coats capital incentive plan ('CIP'), on a basis consistent with that required to be adopted by GPG, and for inclusion in the balance sheet at 30 June 2013, 31 December 2012 and 30 June 2012 of $6.0 million of intangible assets held at the GPG level but which are associated with its acquisition of Coats.

 


The CIP is operated by GPG for the benefit of certain senior CGL employees.  In accordance with IFRS, this is accounted for by CGL as an equity-settled compensation plan as CGL has no obligation to settle the share-based payment.  Under IFRS, equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant and this fair value is expensed on a straight-line basis over the vesting period, with a corresponding increase recognised in equity as a contribution from the parent.  GPG accounts for this arrangement as a cash-settled share-based compensation plan and, in accordance with IFRS, is required to reassess the fair value of the CIP at each reporting date.

 


As previously reported, the Board of GPG determined in 2013 that an amendment should be made to the CIP scheme to provide for an appropriate retention mechanism to reward Coats' senior management for their role in the further development of that business over the next two to three years.  That amendment, which provides for a benefit pool equivalent to between 1% and 1.5% of GPG's equity, was formally agreed by the GPG Board on 22 August 2013 and as such has not been reflected in the results for the period to 30 June 2013.

 


CGL is incorporated in the British Virgin Islands.  It does not prepare consolidated statutory accounts and therefore the financial information contained in this section of the report does not constitute full financial statements and has not been, and will not be, audited, other than in so far as it is included within audited financial information of its ultimate parent company, GPG.

 


The financial information for the six months ended 30 June 2013 has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards ('IFRS') endorsed by the European Union.  During the period, CGL adopted the amendments to IAS1 "Presentation of items in Other Comprehensive Income" and IAS19 (revised) "Employee Benefits".  The accounting policies adopted have been consistently applied to the financial information presented for the six months ended 30 June 2012 and the full year ended 31 December 2012 and, as the Group has applied IAS1 and IAS19 (revised) retrospectively, comparative amounts for these periods have been restated.

 


The amendments to IAS1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those items that will never be reclassified, together with their associated income tax.  The amendments have been applied retrospectively, and hence the presentation of items of other comprehensive income in the Consolidated Statement of Comprehensive Income has been restated to reflect the change.  The amendments affected presentation only and had no impact on the Group's financial position or performance.

 


IAS19 (revised) has impacted the accounting for the Group's defined benefit schemes by replacing the interest cost and expected return on plan assets with a net interest amount on net defined benefit assets and liabilities.  In addition, pension scheme administrative expenses including the PPF levy and actuary, audit, legal and trustee charges are recognised as administrative expenses.  There have been no changes to the Group's total defined benefit obligations recognised in the Consolidated Statement of Financial Position or to the net cash inflow generated by operations recognised in the Consolidated Statement of Cash Flows.  The impact of the adoption of IAS19 (revised) is set out in Note 2.

 



 


Notes to the Coats Financial Statements (continued)

1

Basis of preparation (continued)


Enquiries have been made into the adequacy of the Group's financial resources, through a review of the current financial projections, reorganisation and capital expenditure plans and the financing facilities available.  The Coats Group's forecasts and projections take account of reasonably possible changes in trading performance.  Giving due consideration to the financial resources available to the Coats Group, it is appropriate to continue to adopt the going concern basis in preparing the financial information.  In reaching this view on going concern, six categories of risk and contingent liabilities were considered.  The six categories of risk considered were liquidity risk, capital risk, credit risk, currency risk, interest rate risk and market risk.  The Coats Group is financed primarily through a banking facility subject to guarantees issued by Coats plc and certain of its principal subsidiaries.  The Coats Group actively maintains a mixture of long-term and short-term debt finance that is designed to ensure that it has sufficient funds for its operations.











The principal exchange rates (to the US dollar) used are as follows:










June 


June 


December 





2013 


2012 


2012 












Average

Sterling

0.65 


0.63 


0.63 




Euro

0.76 


0.77 


0.78 




Brazilian Real

2.03 


1.86 


1.95 




Indian Rupee

55.00 


52.10 


53.80 



Period end

Sterling

0.66 


0.64 


0.62 




Euro

0.77 


0.79 


0.76 




Brazilian Real

2.21 


2.01 


2.05 




Indian Rupee

59.39 


55.50 


55.00 












 


Notes to the Coats Financial Statements (continued)





 









 

2

Impact of adoption of IAS19 (revised) "Employee Benefits"

 









 





 



2012

                      2012

 



Half year

                       Full year

 



 

As reported

 

Adjustment

 

As restated

 

As reported

 

Adjustment

 

As restated



Unaudited

US$m

Unaudited

US$m

Unaudited

US$m

Unaudited

US$m

Unaudited

US$m

Unaudited

US$m










Consolidated Income Statement *








Administrative expenses

(90.8)

(3.1)

(93.9)

(181.1)

(6.4)

(187.5)


Operating profit

59.9 

(3.1)

56.8 

127.0 

(6.4)

120.6 


Finance costs

(7.5)

(14.2)

(21.7)

(19.4)

(28.7)

(48.1)


Profit before taxation

53.9 

(17.3)

36.6 

111.3 

(35.1)

76.2 


Taxation

(21.8)

0.8 

(21.0)

(50.5)

1.7 

(48.8)


Profit from continuing operations

32.1 

(16.5)

15.6 

60.8 

(33.4)

27.4 


Net profit attributable to equity shareholders

30.1 

(16.5)

13.6 

50.6 

(33.4)

17.2


* Before exceptional items (see note 3)
















Consolidated Income Statement








Administrative expenses

(92.9)

(3.1)

(96.0)

(178.5)

(6.4)

(184.9)


Operating loss

(41.2)

(3.1)

(44.3)

(4.7)

(6.4)

(11.1)


Finance costs

(43.3)

(14.2)

(57.5)

(55.2)

(28.7)

(83.9)


Loss before taxation

(83.0)

(17.3)

(100.3)

(56.2)

(35.1)

(91.3)


Taxation

(20.2)

0.8 

(19.4)

(46.6)

1.7 

(44.9)


Loss from continuing operations

(103.2)

(16.5)

(119.7)

(102.8)

(33.4)

(136.2)


Net loss attributable to equity shareholders

(105.2)

(16.5)

(121.7)

(113.0)

(33.4)

(146.4)










Consolidated Statement of Comprehensive Income















Loss for the period

(105.2)

(16.5)

(121.7)

(105.5)