Unbuttoned Coats Hopes To Pick Up The Thread

The reasons for Coats Viyellas demerger were painfully apparent in the trading statement that accompanied details of its plans on Wednesday. Things had to change. The demerger announcement amounts to an admission that businesses as diverse as bed linen and diecast engineering components simply did not belong in the same company, and could not be managed effectively in that form.

Sir David Alliance hinted at that yesterday. Although the company had spent heavily on restructuring in recent years - 55m in 1996 - it had failed to deliver results. Amid all the restructuring we lost our way, Sir David said.

 

So it became Michael Osts first task since becoming chief executive earlier this year to begin the process investors had been urging, and unravel the empire as-sembled over four decades by Sir David.

Coats Viyella will become Coats and Viyel-la in the middle of next year. With the first part of this plan now in place and further splits in prospect, the company hopes to cast off the unfashionable image of a diversified industrial and textiles group and eventually become at least three focused outfits - precision engineering, threads, and clothing and home textiles. Much of this process will be the series of management changes Ost announced yesterday. But even here the key part of the puzzle is missing: who takes over as chief executive of the Viyella clothing business when Ost becomes chief executive of Coats? The company says it is seeking an executive to work alongside Sir David at Viyella, but a name could be some months coming. Whoever lands the job will be busy. Although the Viyella retail operation is performing well, the Jaeger fashion chain has failed to prosper.

The Berghaus outdoor clothing brand also has problems, especially in its ill-fated attempts to expand in Russia. Coats hopes to address these problems by bringing in Rebecca Cotterell, formerly a director of Sears, as chief executive of Jaeger, and moving John Shaw from its Indian threads operation to take charge at Berghaus. But the problems in these divisions must be set alongside difficulties in the contract clothing business, which designs and sources or manufactures garments for retailers. This is being restructured to focus on supplying Marks and Spencer under Mike Hartley, currently head of the Asia-Pacific thread operations, who replaces the retiring Bill Drummond.

In 1996 the Viyella companies had sales of 911.7m, almost half from contract clothing. But less than a quarter of the 42.2m operating profits came from contract clothing that year and the situation has worsened. This year the company says contract clothing will do no more than break even. And tough competition from rivals in lower-wage countries will continue to raise the pressure to shift operations overseas.

Coats Viyellas difficulties do not stop there. Although precision engineering has grown to the point where it contributed 37.6m of the 174.3m operating profits in 1996, it has also had problems with slowing growth this year, with Brazil proving particularly difficult.

Problems there and in Europe have also held back the core threads business. Faced with such a sea of troubles, Coats Viyella has taken one of the few courses left to it. The challenge now is to manage its assorted businesses out of their present difficulties. But with pre-tax profits after restructuring costs forecast by BZW, the companys broker, at only about 30m (94.4m last time) - against a consensus of about 90m as recently as September - there is a long, hard road ahead.

Financial Times