Total sales up 15% and 71% increase in pre-exceptional operating profit.

Attributable profit increased to $35.5 million (2009 - $8.7 million loss) - a $44.2 million turnaround.

Industrial thread pre-exceptional operating profit margin increased to 11% (2009 – 8%).  All regions improved margins.

Improved performance from the Crafts business; a pre-exceptional operating profit of $9.1 million (2009 - $6.1 million) was achieved.

Reorganisation costs significantly lower at $12.9 million - down from $21.8 million in the first half of 2009; the full year expectation is for further year on year reduction.

Tax rate improved to 31% (2009 – 161%).

Average net debt reduced from $394.5 million in the first half of 2009 to $306.8 million for the same period in 2010.  Net gearing was at 65% (2009 – 76%).

Average net working capital/sales ratio (annualised basis) reduced from 23% in the first half of 2009 to 19% in the first half of 2010.

Chairman’s Statement

Overview

Coats made good progress in the first half of 2010, with 15% growth in revenue and a 71% increase in pre-exceptional operating profit.  Attributable profit for the period increased to $35.5 million (2009 - $8.7 million loss) – a $44.2 million turnaround.

The restructuring process of the last six years is nearing its conclusion and Coats is now focused on delivering sustained revenue growth.  The increase in revenue during the period is pleasing, even though it was on the back of weak 2009 comparatives, which were significantly impacted by the global recession and the associated downturn in world-wide demand plus destocking in the supply chain.  Excellent conversion of sales growth to profit reflected the decisive action taken in 2009 and earlier years to reduce Coats’ cost base.

Operating results

Industrial sales, which are largely driven by demand for clothing and footwear, grew by 23% to $516.4 million (2009 - $421.4 million).  Inventory levels in the apparel supply chain were at historically low levels at the end of 2009, and 2010 first half results have benefited from restocking.  In addition, there has been some underlying improvement in demand and new customers have been gained. Pre-exceptional operating profit (before reorganisation, impairment and other exceptional items) increased by 75% to $57.8 million (2009 - $33.1 million), representing an operating profit margin of 11% (2009 – 8%).  Productivity levels have improved, with plants operating at higher utilisation levels than seen in 2009 and benefiting strongly from previous reorganisation initiatives, and this has more than offset raw material cost and payroll inflation pressures.

Crafts sales increased by 1% to $244.8 million (2009 - $242.0 million) and pre-exceptional operating profit increased to $9.1 million (2009 - $6.1 million).  This resulted in an operating profit margin of 3.7% (2009 – 2.5%).

In Europe, where the consumer environment remains weak overall, Crafts sales were 4% down on 2009 levels (5% down on a like-for-like basis, following the 13% decline on a like- for-like basis reported in the first half of 2009).  However, notwithstanding these sales decreases, operating losses were reduced to $10.3 million, down from $13.6 million in the first half of 2009 and $20.5 million in the first half of 2008.  This reduction in operating losses reflects the benefits from the major restructuring of this business, which focussed on lowering the cost base, enhancing productivity and delivering a harmonised pan-European product offer.  This restructuring has positioned the business for profitability when market conditions improve.

Sales from the Crafts businesses in the Americas and Asia have increased by 4% to $165.1 million (2009 - $159.1 million); this growth was achieved notwithstanding some destocking in the period by key North American customers.  Despite some raw material cost pressure, profits remained steady at $19.4 million (2009 - $19.7 million).

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