Demerger delay hits Coats shares

COATS VIYELLA delivered a further blow to its shareholders yesterday when it announced it was delaying its planned three-way demerger due to turbulence in the financial markets and negative sentiment towards the retail and textile sectors.

The announcement forced Coats Viyella shares down 16 per cent to a new all-time low of 40.5p.

The demerger of the Viyella business, which includes the Jaeger fashion chain, had been expected to take place in the next few months. It is now unlikely to take place until the second half of next year. The demerger of the group's precision engineering division still depends on tax clearance, but Coats said it hoped to confirm the timetable early next year.

Kirk Stephenson, the finance director, said: "What we are saying is that, given the general instability in financial markets and the very poor sentiment towards the retail end and the textile sector in the UK, we just don't think it's the right time to be putting Viyella out into the world on its own."

The delay came as Coats Viyella reported a collapse in profits from pounds 44m to pounds 14.3m for the six months to June, hit by the strong pound and weakening overseas markets. Operating profits fell by 22 per cent to pounds 49m.

The figures were further damaged by nearly pounds 30m of exceptional charges. These included pounds 15m for the closure of contract clothing operations and a pounds 13.5m loss on the sale of the Talon zips business and Allied Thread.

In the Coats division, profits from the threads businesses fell by more than pounds 10m, hit by a pounds 3.5m currency hit and destocking in North America. Precision engineering profits fell from pounds 20m to pounds 15m mainly due to a weakness in plastics.

In the Viyella division, the fashion clothing business slumped to a loss because of a poor performance from Jaeger ladieswear.

Mr Stephenson said it was not surprising that Marks & Spencer was apparently urging its suppliers to shift more production to lower-cost manufacturing facilities in countries such as Morocco and Indonesia.

He said that although he did not expect to lose any business with Marks & Spencer, Coats would be shifting more of its manufacturing for M&S to overseas markets.

Mr Stephenson said the company was not relying on an improvement in market conditions to enable its demerger to go through.

"We have taken steps to change the cost base in a lot of our positions and we have also made improvements in the way we are running our factories, which we believe will lead to improving profits even in difficult market conditions," Mr Stephenson said.

Group sales were 4 per cent lower on a like-for-like basis at pounds 1.04bn. There is an interim dividend of 1.5p.