INVESTMENT COLUMN: Coats avoid clangers to spin a pretty good yarn

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Coats Viyella always seems to find a banana skin. Two years ago, economic problems led to horrendous losses in Brazil. Last year it was Turkey's turn to knock profits by £5m-£10m.

But these are the inevitable risks of running a broadly spread thread and textiles business and Neville Bain, chief executive, has proved his ability to deal effectively with such problems. That was confirmed yesterday, when he announced pre-exceptional profits up 18 per cent to £152m, including a £10m turnround in Brazil.

The Turkish problems, stemming from a devaluation of over 150 per cent in the lira, dragged down results from Coats' retail-oriented craft threads division, where operating profits sank to £36.6m from £40.2m. But that was more than offset by the industrial threads side, which lifted its contribution from £82.6m to £86.2m.

However, effective action taken in the Jaeger and Viyella retailing operation continues to bear fruit and precision engineering justifies its place in the Coats' stable after its contribution increased by £4m to £28.2m.

The company is pretty much pared back to its core, after last year's disposal of the carpets business and the sale of yarns and fabrics announced earlier this week. The losses on disposal accounted for the £68.5m turnround on exceptionals, leaving a £47.3m loss and headline profits down 30 per cent at £105m.

Analysts had been braced for unpleasant surprises after the sharp increase in raw materials costs this year and the collapse in the dollar so there was relief at the absence of clangers yesterday and the shares rose 5.5p to 195.5p.

Mr Bain indeed warned that the dollar-pound relationship, which ended the year at $1.56, could start to inflict pain if it goes much higher than $1.65. But he played down the effect of raw material prices, which have soared between 25 and 35 per cent.

The shares, down from a high of 284p in early 1994, have already priced in most of the fears, and on forecast profits of £175m, stand on a forward P-E of 12. With a yield of 5.4 per cent, they are a reasonable bet.