Interim Results

Guinness Peat Group PLC
29 August 2007





Guinness Peat Group plc


The following unaudited consolidated results of Coats Group Limited ("the
Company") for the six months ended 30 June 2007 are released by Guinness Peat
Group plc ("GPG") for information only.





Richard Russell
Company Secretary
Guinness Peat Group plc


29 August 2007



Contacts:
Blake Nixon                    (UK)                       00 44 20 7484 3370
Gary Weiss                     (Australia)                00 61 2 8298 4305
Tony Gibbs                     (New Zealand)              00 64 9 379 8888




Coats Group Limited: unaudited results* for the six months ended 30 June 2007


Financial summary

                                                                            2007                 2006
                                                                       Half year            Half year
                                                                       Unaudited            Unaudited
                                                                            US$m                 US$m
Revenue                                                                    820.7                806.7

Operating profit before reorganisation, impairment and                      68.4                 61.0
other exceptional items (see note 2)

Operating profit                                                            53.8                 47.3

Profit before taxation                                                      45.3                 36.7

Net profit attributable to equity shareholders                              24.7                 23.1

Net debt                                                                   404.3                406.2

Net gearing                                                                  81%                  90%


*see note 1



  • Pre-exceptional operating profit up 12%

  • Industrial thread pre-exceptional operating profit up 23%

  • Asia and Rest of World like for like industrial sales growth of 6%

  • Recovery in North American crafts profits






CHAIRMAN'S STATEMENT


Results

Coats made good progress in the first half of 2007 with 12% growth in
pre-exceptional operating profit despite difficult conditions in the European
crafts market.


Pre-exceptional operating profit (before reorganisation, impairment and other
exceptional items) was $68.4 million compared to $61.0 million in H1 2006.
Profit from the industrial thread business increased by $11.9 million to $63.4
million (+23%), driven in large part by improved performance in Europe and USA.
However crafts profit decreased by $4.5 million to $5.0 million principally as a
result of weak demand for handknittings and other crafts products in Europe. The
European crafts business is in the midst of a major restructuring program and
incurred a loss which more than offset the recovery of crafts profitability in
North America. Further details of industrial and crafts performance by region
are included in the Operating Review.


Net exceptional charges of $14.6 million (see note 2) were slightly higher than
the previous half year total of $13.7 million as a result of lower exceptional
gains from sale of property. However reorganisation cost of $16.3 million was
$7.0 million below previous half year, in line with the reduction in the
industrial thread restructuring requirement as explained in last year's annual
report.


Net finance costs of $11.3 million were $3.7 million below previous half year
due to a higher net return on net pension assets. After providing for tax and
minority interests, net profit attributable to equity shareholders increased by
7% to $24.7 million.


EBITDA (defined as pre-exceptional operating profit plus depreciation and
amortisation) of $101.3 million was 9% ahead of the previous half year's total
of $92.7 million. Net operating cash flow before reorganisation costs was $34.2
million compared to $4.7 million in 2006 as a result of a lower seasonal
increase in working capital. However the increase in net debt resulting from
cash flows at $53.9 million was higher than in the previous first half ($39.0
million) due to lower property disposals in H1 2007 compared to the
exceptionally high receipts in H1 2006.


Investment, reorganisation and disposals

Investment in new plant and systems amounted to $39.3 million (H1 2006 - $32.8
million). Investment in plant and equipment largely consisted of additional
capacity to meet growth in Asia and productivity improvements in Europe.
Significant investment continues to be made in upgrading IT systems, including
the installation of SAP in all Coats units throughout the world.


In cash terms, reorganisation spend of $18.1 million was $10.5 million below the
previous first half. As advised in the 2006 annual report, a higher proportion
of reorganisation is being directed towards cost reduction and product range
rationalisation in the European crafts business.


Net cash outflow on acquisitions / disposals of businesses amounted to $6.9
million (H1 2006 net inflow $2.0 million) and included acquisition of Free
Spirit, a North American crafts patchwork & quilting fabric business, as well as
minority interests in Coats Sri Lanka.


European Commission Investigation

There have been no significant developments in the European Commission
investigation since the year end. During the second half, the outcome of the
Commission's investigation into European fasteners - the last outstanding part
of the general investigation into thread and haberdashery markets which began in
2001 - should be announced. In addition, the Court of First Instance is also
expected to rule on Coats' appeal against the fine levied in 2004 in respect of
needles. As stated in previous reports, it is believed that any anticipated
eventual payment of fines is adequately covered by existing provisions.


Prospects

The progress achieved by the industrial business is encouraging and with major
restructuring projects largely complete Coats is able to use its more
competitive cost base to focus on growth of sales and market share. The global
market for industrial thread remains highly competitive and challenging but
continues to grow, with declining demand in Europe and the Americas more than
offset by growth in Asia. Coats industrial global footprint is now well balanced
and should enable the business to take full advantage of the changes in local
demand caused by shifting trade flows.


The first half recovery in North American crafts profitability on the back of a
more stable handknittings market is expected to continue in the second half. In
addition, the acquisition of Free Spirit and the subsequent launch of a wider
range of patchwork & quilting fabrics open up new growth opportunities for Coats
in a popular and long-established North American crafts activity.


In Europe crafts, a major restructuring program is well underway with the
objective of transforming the previous structure of country-based organisations
- each with its own product range - into a more cost-effective pan-European
business with a single, harmonised product offer. In the process, key products
are being redesigned and new supply chains established so that the new
pan-European product ranges will be more attractive and offer better value than
could have been created by individual countries acting alone. Although the full
project is estimated to take another two years to complete, benefits should
begin to flow through from 2008 onwards. In terms of prospects for the second
half of 2007, the downturn in handknittings is expected to bottom out with
European buying patterns lagging North America. Along with a lower cost base and
improved supply chains, this should result in an improved performance compared
to the first half.


Notwithstanding the uncertainty over the short term development of crafts demand
in Europe, it is expected that the overall progress shown by the Group in the
first half will continue in the second half. Over the longer term, the Board
remains confident that Coats' position in both the industrial thread and crafts
markets will deliver further growth opportunities.


Gary Weiss
Chairman
29 August 2007




                                OPERATING REVIEW

Industrial Trading Performance
INDUSTRIAL                       2006           *2006          2007      Like-for-like          Actual 
                             reported   like-for-like      reported         increase /        increase
                                   $m              $m            $m       (decrease) %    / decrease %
Sales
Asia and Rest of World          229.3           233.8         248.6                +6%             +8%
Europe                          135.0           145.0         140.9                -3%             +4%
Americas                        158.1           162.4         155.2                -4%             -2%
Total sales                     522.4           541.2         544.7                +1%             +4%

Pre-exceptional                  51.5            53.2          63.4               +19%            +23%
operating profit**



*2006 like-for-like restates 2006 figures at 2007 exchange rates.

**Pre reorganisation, impairment, and other exceptional items (see note 2)


The Asian industrial business delivered another good performance, particularly
once the strong comparatives achieved in the previous half year are taken into
account. Sales and profits are broadly based across the region.

European sales continued to be affected by customer migration in Western Europe
but this was partially offset by growth in Eastern Europe. However there was a
major recovery in operating profit as a result of previous reorganisation and
investment.


North and South America continued to be affected by increased penetration of
apparel imports from Asia. However there was further recovery in operating
profit as a result of earlier reorganisation and investment.



Crafts Trading Performance
                                        2006              *2006   2007 reported        Like-for-like  Actual increase /
                                    reported      like-for-like                  increase / decrease         decrease % 
                         
                                          $m                 $m              $m                    %
                                          
Sales
Asia and Rest of World                  27.9               29.2            28.9                  -1%                +4%
Europe                                 128.0              144.4           115.0                 -20%               -10%
Americas                               128.4              133.2           132.1                  -1%                +3%
Total sales                            284.3              306.8           276.0                 -10%                -3%

Pre-exceptional operating                9.5                9.2             5.0                 -46%               -47%
profit**



*2006 like-for-like restates 2006 figures at 2007 exchange rates and includes an
adjustment to reflect the impact of acquisitions and disposals.

**Pre reorganisation, impairment, and other exceptional items (see note 2)


Crafts sales in Europe were principally affected by reduced demand for
handknittings, although all crafts categories were down in an exceptionally weak
retail environment for crafts products. With a relatively high fixed cost base,
the reduction in sales pushed the business into loss. The major restructuring is
in its second year and aims to lower the cost base, improve productivity and
deliver a harmonised pan-European product offer by 2008/9.


Crafts results in the Americas benefited from a more stable handknittings market
in North America and the absence of mark-downs and other one-off charges which
affected H1 2006. In total, sales of handknittings were slightly down on
previous half year as recovery in North America was offset by decline in South
America. The acquisition of Free Spirit was successfully completed and
contributed to sales growth in patchwork & quilting fabrics.




Consolidated income statement (unaudited)
                                                                               2007              2006            2006
                                                                          Half year         Half year       Full year
                                                                          Unaudited         Unaudited       Unaudited
For the six months ended 30 June 2007                         Notes            US$m              US$m            US$m
Continuing operations
Revenue                                                                       820.7             806.7         1,615.1

Cost of sales                                                                (530.6)           (535.2)       (1,084.8)

Gross profit                                                                  290.1             271.5           530.3

Distribution costs                                                           (148.9)           (152.3)         (299.9)
Administrative expenses                                                       (90.7)            (92.2)         (176.4)
Other operating income                                                          3.3              20.3            25.9

Operating profit                                                2              53.8              47.3            79.9

Share of profits of joint ventures                                              0.9               1.2             2.1

Investment income                                                               1.9               3.2             4.4

Finance costs                                                   3             (11.3)            (15.0)          (29.3)

Profit before taxation                                                         45.3              36.7            57.1

Taxation                                                        4             (16.1)            (15.5)          (26.3)

Profit from continuing operations                                              29.2              21.2            30.8

Discontinued operations
(Loss)/profit from discontinued operations                                     (0.4)              3.5             3.2

Profit for the period                                                          28.8              24.7            34.0

Attributable to:
EQUITY SHAREHOLDERS OF THE COMPANY                                             24.7              23.1            29.9
Minority interests                                                              4.1               1.6             4.1
                                                                               28.8              24.7            34.0




Consolidated balance sheet (unaudited)
                                                                           2007                2006               2006
                                                                        30 June             30 June        31 December
                                                                      Unaudited           Unaudited          Unaudited
At 30 June 2007                                            Notes           US$m                US$m               US$m
Non-current assets
Intangible assets                                                         263.7               257.6              260.9
Property, plant and equipment                                             515.4               479.9              510.8
Investments in joint ventures                                              15.1                16.6               16.2
Available-for-sale investments                                              5.0                 4.2                4.9
Deferred tax assets                                                        10.2                 6.9                9.5
Pension surpluses                                                          72.8                64.9               61.3
Trade and other receivables                                                25.9                24.9               27.6
                                                                          908.1               855.0              891.2

Current assets
Inventories                                                               332.7               317.2              307.6
Trade and other receivables                                               354.8               342.1              308.5
Available-for-sale investments                                              0.2                 5.9                0.2
Cash and cash equivalents                                      7           44.3                41.1               76.4
                                                                          732.0               706.3              692.7

Non-current assets classified as held for sale                              3.2                10.4                4.8

Total assets                                                            1,643.3             1,571.7            1,588.7

Current liabilities
Trade and other creditors                                                (322.5)             (284.3)            (328.3)
Current income tax liabilities                                            (11.3)               (7.8)             (10.6)
Bank overdrafts and other borrowings                                     (142.8)             (105.7)            (127.9)
Provisions                                                               (172.7)             (159.3)            (167.1)
                                                                         (649.3)             (557.1)            (633.9)

Net current assets                                                         82.7               149.2               58.8

Non-current liabilities
Trade and other creditors                                                 (18.1)              (29.0)             (25.9)
Deferred tax liabilities                                                  (11.0)              (12.0)             (10.7)
Borrowings                                                               (305.8)             (341.6)            (294.2)
Retirement benefit obligations:
Funded schemes                                                             (1.0)               (2.2)              (1.0)
Unfunded schemes                                                         (110.3)             (120.5)            (112.4)
Provisions                                                                (48.1)              (56.4)             (56.6)
                                                                         (494.3)             (561.7)            (500.8)

Total liabilities                                                      (1,143.6)           (1,118.8)          (1,134.7)

Net assets                                                                499.7               452.9              454.0

Equity
Share capital                                                               4.2                 4.2                4.2
Share premium account                                                     412.1               412.1              412.1
Hedging and translation reserve                                            37.0                 8.9               17.0
Retained profit                                                            25.9                 4.4                1.2
EQUITY SHAREHOLDERS' FUNDS                                     5          479.2               429.6              434.5
Minority interests                                             5           20.5                23.3               19.5
Total equity                                                   5          499.7               452.9              454.0






Consolidated cash flow statement (unaudited)

                                                                                2007             2006             2006
                                                                           Half year        Half year        Full year
                                                                           Unaudited        Unaudited        Unaudited
For the six months ended 30 June 2007                        Notes              US$m             US$m             US$m
Cash inflow/(outflow) from operating activities
Net cash inflow/(outflow) generated by operations                6              16.1            (23.9)           117.8
Interest paid                                                                  (19.4)           (17.4)           (37.0)
Taxation paid                                                                  (15.0)           (14.8)           (35.8)
Net cash (absorbed)/generated from operating activities                        (18.3)           (56.1)            45.0

Cash inflow/(outflow) from investing activities
Dividends received from associates and joint ventures                            2.0              1.0              2.3
Acquisition of property, plant and equipment and intangible                    (39.3)           (32.8)           (78.3)
assets
Disposal of property, plant and equipment and intangible                         9.5             46.2             60.2
assets
Acquisition of financial investments                                            (0.1)            (3.0)            (0.9)
Disposal of financial investments                                                  -              4.8              8.6
Acquisition and disposal of businesses                                          (6.9)             2.0             (7.5)
Net cash (absorbed)/generated in investing activities                          (34.8)            18.2            (15.6)

Cash inflow/(outflow) from financing activities
Dividends paid to minority interests                                            (0.8)            (1.1)            (4.4)
Increase/(decrease) in debt and lease financing                                 20.7              2.4            (33.3)
Net cash generated/(absorbed) in financing activities                           19.9              1.3            (37.7)

Net decrease in cash and cash equivalents                                      (33.2)           (36.6)            (8.3)
Net cash and cash equivalents at beginning of the period                        50.1             57.1             57.1
Foreign exchange gains on cash and cash equivalents                              1.1              0.1              1.3
Net cash and cash equivalents at end of the period               7              18.0             20.6             50.1

Reconciliation of net cash flow to movement in net debt
Net decrease in cash and cash equivalents                                      (33.2)           (36.6)            (8.3)
Cash (inflow)/outflow from change in debt and lease financing                  (20.7)            (2.4)            33.3
Change in net debt resulting from cash flows                                   (53.9)           (39.0)            25.0
New finance leases                                                                 -                -             (0.3)
Other                                                                           (2.7)            (2.0)            (3.9)
Foreign exchange                                                                (2.0)            (1.9)            (3.2)
(Increase)/decrease in net debt                                                (58.6)           (42.9)            17.6
Net debt at start of period                                                   (345.7)          (363.3)          (363.3)
Net debt at end of period                                        7            (404.3)          (406.2)          (345.7)






Consolidated statement of recognised income and expense (unaudited)


                                                                        2007                  2006               2006
                                                                   Half year             Half year          Full year
                                                                   Unaudited             Unaudited          Unaudited
For the six months ended 30 June 2007                  Notes            US$m                  US$m               US$m

Gain on cash flow hedges                                                 1.3                   5.5                2.2
Exchange differences on translation of foreign                          20.5                   3.8               17.0
operations
Actuarial losses in respect of retirement benefit                          -                     -               (9.4)
schemes
Tax on items taken directly to equity                                      -                     -               (0.6)
Net income recognised directly in equity                                21.8                   9.3                9.2
Profit for the period                                                   28.8                  24.7               34.0
Transferred to profit or loss on cash flow hedges                       (1.7)                 (1.3)              (2.8)
Other transfers                                                            -                   0.5                  -
Total recognised income and expense for the period       5              48.9                  33.2               40.4

Attributable to:
EQUITY SHAREHOLDERS OF THE COMPANY                                      44.7                  31.7               36.6
Minority interests                                                       4.2                   1.5                3.8
                                                                        48.9                  33.2               40.4






Notes

1    Basis of preparation
     Coats Group Limited is incorporated in the British Virgin Islands. It does 
     not prepare consolidated statutory accounts and therefore the financial 
     information contained in this announcement does not constitute full 
     financial statements and has not been, and will not be, audited.

     The financial information for the six months ended 30 June 2007 has been 
     prepared in accordance with the recognition and measurement requirements 
     of International Financial Reporting Standards ("IFRS") endorsed by the
     European Union, and the accounting policies adopted have been consistently 
     applied to the financial information presented for the six months ended 
     30 June 2006 and the full year ended 31 December 2006.

     Coats Group Limited follows the accounting policies of its ultimate parent 
     company, Guinness Peat Group plc.

     The principal exchange rates (to the US dollar) used are as
     follows:
                                                                                    June           June       December
                                                                                    2007           2006           2006

     Average                                               Sterling                 0.51           0.56           0.54
                                                           Euro                     0.75           0.81           0.79
     Period end                                            Sterling                 0.50           0.54           0.51
                                                           Euro                     0.74           0.78           0.76


2    Operating profit is stated after charging/
     (crediting):
                                                                                    2007           2006           2006
                                                                               Half year      Half year      Full year
                                                                               Unaudited      Unaudited      Unaudited
                                                                                    US$m           US$m           US$m
     Exceptional items:
     Reorganisation costs and impairment of property, plant and                     16.3           23.3           51.6
     equipment
     Profit on the sale of property                                                 (3.3)         (19.5)         (21.3)
     Foreign exchange losses                                                         1.6            9.9           12.2

     Total                                                                          14.6           13.7           42.5


3    Finance costs
                                                                                    2007           2006           2006
                                                                               Half year      Half year      Full year
                                                                               Unaudited      Unaudited      Unaudited
                                                                                    US$m           US$m           US$m

     Interest on bank and other borrowings                                          20.9           19.9           39.7
     Net return on pension scheme assets and liabilities                           (11.4)          (7.2)         (15.7)
     Other                                                                           1.8            2.3            5.3

     Total                                                                          11.3           15.0           29.3


4    Taxation

     The taxation charges for the six months ended 30 June 2007 and 30 June 
     2006 are based on the estimated effective tax rate for the full year, 
     including the effect of prior period tax adjustments.

5    Reconciliation of closing equity
                                                                                   Equity         
                                                                             shareholders'     Minority   
                                                                                    funds     interests   Total equity
                                                                                Unaudited     Unaudited      Unaudited
                                                                                     US$m          US$m           US$m

     At 1 January 2007                                                              434.5          19.5          454.0
     Total recognised income and expense for the period                              44.7           4.2           48.9
     Dividends paid                                                                     -          (0.8)          (0.8)
     Changes in holdings in subsidiary undertakings                                     -          (2.4)          (2.4)
     At 30 June 2007                                                                479.2          20.5          499.7




6   Reconciliation of operating profit to net cash inflow/(outflow) generated by
    operations

                                                                                    2007           2006           2006
                                                                               Half year      Half year      Full year
                                                                               Unaudited      Unaudited      Unaudited
                                                                                    US$m           US$m           US$m

    Operating profit                                                                53.8           47.3           79.9
    Depreciation                                                                    29.1           28.2           55.8
    Amortisation of intangible assets (computer                                      3.8            3.5            7.3
    software)
    Reorganisation costs (see note 2)                                               16.3           23.3           51.6
    Other exceptional items (see note 2)                                            (1.7)          (9.6)          (9.1)
    Increase in inventories                                                        (16.5)         (23.0)          (6.1)
    (Increase)/decrease in debtors                                                 (33.0)         (35.6)           9.8
    Decrease in creditors                                                           (6.8)         (23.6)          (9.5)
    Provision movements                                                            (12.0)          (6.0)         (14.7)
    Other non-cash movements                                                         1.2            0.2            7.3
    Net cash inflow from normal operating activities                                34.2            4.7           172.3
    Net cash outflow in respect of reorganisation costs                            (18.1)         (28.6)         (54.5)
    Net cash inflow/(outflow) generated by operations                               16.1          (23.9)         117.8

7   Net debt

                                                                                    2007           2006           2006
                                                                               Half year      Half year      Full year
                                                                               Unaudited      Unaudited      Unaudited
                                                                                    US$m           US$m           US$m

    Cash and cash equivalents                                                       44.3           41.1           76.4
    Bank overdrafts                                                                (26.3)         (20.5)         (26.3)
    Net cash and cash equivalents                                                   18.0           20.6           50.1
    Other borrowings                                                              (422.3)        (426.8)        (395.8)
    Total                                                                         (404.3)        (406.2)        (345.7)


8   Balance sheet consolidated by Guinness Peat Group plc (unaudited)

    The balance sheet consolidated by Guinness Peat Group plc (GPG) as at 
    30 June 2007 differs from that disclosed as follows:

                                                               
                                                                                               
                                                                                   Coats                   Included in
                                                                           Group Limited                         GPG's
                                                         Coats Group          US$:GBP at  GPG fair value  consolidated
                                                             Limited              0.4984     adjustments balance sheet
                                                           Unaudited           Unaudited       Unaudited     Unaudited
                                                                US$m                  £m              £m            £m

    Intangible assets                                          263.7                 131              14           145
    Other non-current assets                                   644.4                 321               -           321
    Current assets                                             732.0                 364               -           364
    Non-current assets classified as held for sale               3.2                   2               -             2
    Total assets                                             1,643.3                 818              14           832
    Current liabilities                                       (649.3)               (324)              -          (324)
    Non-current liabilities                                   (494.3)               (246)              -          (246)
    Minority interests                                         (20.5)                (10)              -           (10)
    Equity shareholders' funds                                 479.2                 238              14           252






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