Coats Group sees sales drop due to pandemic, 15 out of 50 plants are closed

By

Sandra Halliday

Published
Mar 27, 2020

Threads giant Coats Group has said it's taking a major hit from the Covid-19 outbreak as this month has seen brands and manufacturers starting to cancel or defer orders due to large-scale store closures.

The company had earlier said that the first two months of the year had seen an $8 million adverse impact on its China business due to the coronavirus pandemic, but that its other regions were in line with expectations.

This has clearly shifted in recent weeks and the company is now focused on cash management, ensuring employee health, supporting its customers and maintaining the critical elements of its supply chain.

It added that as of March 26, due to enforced international government closures, 15 of around 50 manufacturing sites are currently subject to temporary shutdowns. “Indications from those governments are that these sites will return to production in the coming weeks, however we cannot rule out further enforced government closures in these and other geographies,” it said.

It all means its Q1 organic revenues will be around 8% down on Q1 2019, “with an accelerating organic decline in March, which is expected to be around 15% down year-on-year”. And due to current uncertainty over the level of demand reduction across the group, it can’t make accurate forecasts about full-year 2020 revenues at present.

On the plus side, it said it entered this year with a robust balance sheet and generating significant levels of cash. At the end of February it had $230 million of headroom available. 

And while there’s little clarity over future trading, stress tests have shown that it can “operate within our existing facility headroom and covenants”, even if it sees a significant decline in sales in Q2 and Q3.

The company is significantly reducing its 2020 capital expenditure by around $30 million from $45 million-$55 million. The top team will also take a 20% reduction in their salary and fees in Q2. And it’s exploring all available government support schemes being put in place around the world, in relation to Covid-19. It will also cancel its 2019 final dividend.