Coats Group PLC (CGGGF) (H1 2024) Earnings Call Highlights: Strong Revenue Growth and ...

GuruFocus News
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In This Article:

  • Revenue Growth: Reported revenues up 7%, with an 8% increase in constant currency terms.

  • Apparel Division Revenue: 14% growth in constant currency.

  • Footwear Division Revenue: 7% growth in constant currency.

  • Recycled Products Revenue: 141% growth, reaching $159 million in the half.

  • Adjusted EBIT Margin: 18%, up 250 basis points.

  • Adjusted Free Cash Flow: $59 million.

  • EPS Growth: 27% increase in earnings per share.

  • Interim Dividend: Increased by 15% to $0.0093 per share.

  • Net Debt: $381 million, with leverage at 1.4 times.

  • Apparel Division EBIT Margin: 19.1%, up 310 basis points.

  • Footwear Division EBIT Margin: 24.1%, up 340 basis points.

  • Performance Materials Revenue: 3% decline in the half.

  • Performance Materials EBIT Margin: 8.3%, with a pro forma margin of 10.5% excluding certain costs.

Release Date: August 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Coats Group PLC (CGGGF) reported a strong revenue growth of 7% in the first half, with an 8% increase in constant currency terms.

  • The company achieved a significant milestone with a 141% growth in recycled products, contributing $159 million in revenue.

  • Coats Group PLC (CGGGF) delivered an 18% adjusted EBIT margin, the best since rejoining the London Stock Exchange in 2015.

  • The company generated a healthy $59 million adjusted free cash flow, supported by market recovery and improved operating results.

  • The Board increased the interim dividend by 15%, reflecting confidence in the business strategy and strong cash generation capabilities.

Negative Points

  • Performance materials division faced challenges due to customer phasing issues in some US end markets, impacting revenue.

  • The company experienced a 3% revenue decline in the performance materials division in the first half.

  • There are ongoing operational challenges in ramping up production at the new plant in Toluca, Mexico.

  • The performance materials division's adjusted EBIT margin was lower due to under-recovered costs related to production transition.

  • The US market remains cautious, with expected positive momentum only anticipated in the first quarter of next year.

Q & A Highlights

Q: Could we talk a little bit about the shape of sales growth in H2, considering the challenging comps? A: Rajiv Sharma, Group CEO, explained that they expect a slow, gradual recovery with each quarter slightly better than the previous one. While the comps get harder in the second half, the trend is consistent with their previous predictions of a gradual recovery.

Q: On sustainability, have you seen a change in emphasis, and what do you need to do to deliver on your 2026 targets? A: Rajiv Sharma noted that 70% of sustainability sales are driven by market pull, particularly from two European brands. The remaining 30% is proactive material replacement. They are on track to meet 2026 targets, with challenges beyond 2026 depending on technological breakthroughs in biomaterials.

Q: Can you give a sense of the targeted reinvestment needed in the cost base? A: Rajiv Sharma stated that investments are going into commercial resources and inventory to ensure the best service levels. This includes boosting the frontline and commercial excellence programs to maintain competitive advantage.

Q: Regarding the Performance Materials margin, when do you expect it to recover, and what volume levels are needed? A: Rajiv Sharma mentioned that volumes need to return to 2019 levels for margins to reach the 13%-14% target. This recovery is expected to trend positively by the second half of next year.

Q: Can you comment on the Vitality Index and what you're seeing there on a divisional basis? A: Rajiv Sharma reported that the Vitality Index was just under 12% in the first half, with most new products coming from the Performance Materials business. The goal is to achieve a group vitality index between 15% and 20% in the medium term.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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