Guinness Peat Group plc

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Notes to Financial Statements - Guinness Peat Group plc

8 GUINNESS PEAT GROUP PLC • ANNUAL REPORTChairman’s StatementCoats Report continuedGeographyCoats’ geographic reach is impressive.It has manufacturing units in 41 countriescovering the whole world and isparticularly strong in the high growthareas of India, China and other Far Eastcountries. In November 2004, it openeda major new plant (80,000 sq.m.) inShenzhen, China which is indicative ofthe trend to larger facilities in lowercost areas. This follows the recentestablishment of similar modern facilitiesin Mexico and Romania.Coats’ real estate value is substantialbut more important is the totalreplacement cost of an establishednetwork which would be virtuallyimpossible to replicate.No other thread producer can match thislevel of international service.RelocationsIn the decade prior to GPG’s arrival, therewas a major shift of production capacityto developing countries but there is stillmuch to be done - more than weoriginally estimated would be required.There are very heavy one-off costs ofclosing traditional sites but it isimperative the process continues tocompletion as it represents an essentialinvestment for the future.2005 will be a further period of transitionbut on a lesser scale than 2004 and thereal benefits will begin to flow in 2006and beyond.Cash FlowCash flow has proved to be very strongand a sound indicator of basic businesshealth. To some extent this has beenat the expense of profitability with anemphasis on reducing surplus inventoryand tighter debtor control rather thanincreased sales. 2004 net cash inflowfrom operations was £131 million. Cashgeneration for essential capitalexpenditure and debt reduction willcontinue to be a priority.Real EstateA number of well situated propertiesare surplus or will be so in the nearfuture. Disposals to date also includevarious fringe assets (lochs in Scotland,a racecourse in India) which hadaccumulated in Coats’ 100 years or moreof existence.

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