Annual
Report 2014
Coats Group plc
Formerly known as Guinness Peat Group plc
Guinness Peat Group plc has
been renamed and is now
Coats Group plc, operating
under a single combined Board
of Directors.
These changes establish Coats Group
plc as the standalone, listed entity
and signal its return to the market in
the 125th anniversary year of its initial
listing on the London Stock Exchange.
1. This Annual Report is for the year ended 31 December 2014, throughout which the company was known as Guinness
Peat Group plc (‘GPG’ or ‘the Company’).
2. On 26 February 2015, Guinness Peat Group plc was renamed Coats Group plc. All references in this document to
‘GPG’ or ‘the Company’ refer to Coats Group plc (formerly known as Guinness Peat Group plc) and all references to
‘Group’ refer to Coats Group plc and its subsidiaries.
3. All references to ‘Coats plc’ refer to the subsidiary operating entity and ‘Coats Group Limited financial information’
relates to the unaudited consolidated results of Coats Group Limited (‘Coats’) which are included within the audited
consolidated financial information of GPG, now Coats Group plc.
4. All references to ‘Parent Group’ refer to the central investment activities of the ‘the Company’.
For more information about Coats Group plc – latest news
and products, financial performance, investor Information
business operations, CR approach and heritage
www.coats.com
Coats Industrial
www.coatsindustrial.com
Coats Crafts
www.makeitcoats.com
Contents
Overview and
strategic report
01 2014 Financial summary
02
05 GPG
Chairman’s statement
Coats
08 At a glance
10 Chief Executive’s review
12 People
13 Corporate Responsibility
14 Operating review
16 Financial review
18
Principal risks and
uncertainties
Corporate
governance
21 Chairman’s introduction
22 Board of Directors
24 Directors’ report
26 Corporate governance
29
Annual statement by the
Chairman of the Audit and
Risk Committee
Directors’ remuneration report
Directors’ responsibilities
statement
32
41
Coats financial
information
101 Financial information
106 Notes to financial information
Financial
statements
Independent auditor’s report
42
46 Consolidated income statement
Consolidated statement
47
of comprehensive income
Consolidated statement
of financial position
50 Company balance sheet
Consolidated statement
51
of changes in equity
Consolidated statement of
cash flows
48
52
53 Notes to financial statements
2014 Financial summary
GPG
Coats
Operating profit
Revenue
Pre-exceptional operating profita
£64m
(2013: £41m)
Net attributable profit
£9m
(2013: £23m)
$1,686m $131m
(£1,023m)
(2013: $1,704m / £1,089m)
(£79m)
(2013: $133m / £85m)
Pre-exceptional
net attributable profitac
$45m
(£27m)
(2013: $37m / £24m)
Adjusted free cash flowb
$70m
(£43m)
(2013: $54m / £35m)
a Exceptional items are set out in note 2 of Coats financial information on page 107.
b See Coats financial review on page 16 for calculation of adjusted free cash flow.
c Net attributable profit after exceptional items was $21 million (2013: $29 million).
Reporting currency explanation:
GPG’s reporting currency is £UK. Coats’ reporting currency is $US.
Explanatory note for currency conversion:
Headline numbers for Coats have been presented in £UK using a conversion rate of 1.647 to £1 (2013: 1.565 to £1).
All other figures within the Coats business review are presented in $US, which is its reporting currency
Annual Report 2014
01
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information
Overview and strategic report
Chairman’s statement
I am pleased to say we have moved on. Coats Group plc
is a world class manufacturing business and has now
returned to the market under its own name in the
125th anniversary year of its initial listing on the
London Stock Exchange.
Mike Clasper
Chairman
We have moved away from the GPG
investment company past, we now have
one Board to lead the business and we are
structuring our executive team to efficiently
support the simplified corporate structure.
Within Coats, the Industrial business
delivered good profit growth; however the
results were impacted by Crafts, particularly
in EMEA. Despite this Coats achieved a high
conversion into free cash flow during the
year. We have recently agreed the sale of
the loss making EMEA Crafts business,
leaving management free to focus on
further growth opportunities in our strong
and profitable global Industrial and
Americas Crafts businesses.
The ongoing investigations by the UK
Pensions Regulator mean we cannot pass
on our success by way of returns to
shareholders. However, we are not going to
let the investigations stop us from creating
further value for our shareholders and
continuing to strengthen the business which
underpins the Company’s obligations to its
pension schemes.
Corporate and Board changes
On 26 February 2015 the Directors of GPG
took the decision to rename the Company as
Coats Group plc and establish a single,
combined Board of Directors. This
established Coats Group plc as the
standalone, listed entity and signalled its
return to the market in the 125th anniversary
year of its first listing on the London Stock
Exchange. It also marked the point at which
the listed Company became a focused,
global industrial manufacturing business and
moved on from being an investment
company with a diversified portfolio of
assets.
The name change from Guinness Peat Group
plc to Coats Group plc became effective on
26 February 2015.
Rob Campbell, Scott Malcolm, (Chair of
the Remuneration and Nominations
Committee), and Waldemar Szlezak all
stepped down from the Board, effective
2 March 2015.
Rob, as former GPG Chairman, has brought
continuity, experience and insight over this
period of change. The Board would like to
thank all retiring directors for their
leadership during the successfully
completed asset realisation programme,
and for their support for the corporate
changes.
Directors of the Coats plc Board were
appointed to the Coats Group plc Board,
effective Monday 2 March 2015. David
Gosnell, who was recently appointed to the
Coats plc Board, and Alan Rosling both
became Independent Non-Executive
Directors, while Paul Forman, Coats Group
Chief Executive, Richard Howes, Chief
Financial Officer, and Rajiv Sharma, Global
CEO Industrial became Executive Directors.
They join Mike Allen, Ruth Anderson,
Sir Ron Brierley, Blake Nixon and me on the
Coats Group plc Board. In line with best
practice, it is the intention that from 2016
onwards Directors of Coats Group plc will
stand for re-election on an annual basis,
and the Board will continue to assess its
composition with respect to its size and mix
to reflect the needs of a global
manufacturing business with FTSE 250
aspirations.
With the departure of Scott Malcolm, and
in line with best practice, the Board has
decided to separate the Remuneration and
Nominations Committee. The Coats
Group plc Remuneration Committee
will be chaired by David Gosnell and its
Nominations Committee will be chaired by
me. Further information on Board
committees is available in the corporate
governance section of this report.
02
Annual Report 2014
Further details regarding
Coats Group plc corporate
governance given from page
21 of this report.
Capital management and share schemes
In addition to the corporate changes, the
Board is focused on having in place a
suitable capital structure to support the
business and its growth strategy. To that
end Coats has successfully refinanced its
main debt facility which features an
extended maturity and a lower margin. The
facility is backed by a group of international
banks that reflects Coats’ global footprint
(see Coats financial review on pages 16 to
17 for more details).
Coats Group plc will look to grant share-
based long term incentives for senior
executives, consistent with our FTSE 250
aspirations. To support this programme we
plan to fund an employee benefit trust to
buy shares in the open market over time,
and we are considering wider share
ownership across the Group. The employee
benefit trust is able to hold shares at any
one time of up to 5% of the market
capitalisation without seeking shareholder
approval.
Although the Company is moving forward
with the change in name, corporate
structure and capital structure, in one
aspect the Company is unable to move on.
While the pension schemes are under
investigation by the UK Pensions Regulator,
we cannot pass on the success of the strong
and cash generative Coats business by way
of returns to shareholders. It is entirely
appropriate that the Company fulfils all
obligations to its pension schemes, and the
Board and management continue to work
to find a route forward balancing the
interests of all stakeholders.
Reported consolidated financial results
Movements in shareholders’ funds
shareholders’ funds decreased from £444
million (NZ$888 million) at 31 December
2013 to £241 million (NZ$482 million) at
31 December 2014. The major change was
actuarial losses in respect of retirement
benefit schemes (£201 million), which was
only partially offset by Coats’ attributable
profit (£13 million).
The net asset backing per share has, as a
result, decreased from 31.5p (NZ63.0c) to
17.2p (NZ34.4c).
Income statement
The Group generated revenues, all
attributable to Coats, of £1,023 million
(NZ$2,046 million) in 2014 (2013: £1,089
million, NZ$2,178 million). Gross profit of
£375 million (NZ$750 million) was relatively
flat year-on-year (2013: £380 million,
NZ$760 million). Operating profit increased
from £41 million (NZ$82 million) to
£64 million (NZ$128 million) in 2014,
primarily driven by a significant reduction in
Parent Group administrative expenses. Net
attributable profit was £9 million compared
to £23 million in 2013, which included a
£46 million profit from discontinued
operations. Earnings per share from
continuing operations was 0.66p
(2013: loss of 1.58p).
Overview of GPG’s key net assets
Coats
Net profit attributable to GPG was
£13 million (US$21 million) compared with
£19 million (US$29 million) in 2013. The
decline was primarily driven by an
£11 million (US$19 million) impairment
charge on property, plant and equipment
and intangible assets relating to the EMEA
Crafts business. Excluding this and other
exceptional items, net attributable profit to
GPG was £27 million (US$45 million), up
£3 million from 2013 (£24 million,
US$37 million). Coats generated a free cash
inflow of £44 million (US$72 million) which
contributed to a reduction in Coats net debt
to £169 million (US$263 million) as of
31 December 2014 (31 December 2013:
£199 million (US$329 million)). Free cash
flow is the foundation for investing in future
growth and will provide the capacity to pay
dividends in the future.
The agreed EMEA Crafts sale followed a
comprehensive review of the business,
including its strategic fit within Coats, and
the formulation of a turnaround plan. The
sale, expected to complete in Q2 2015,
better positions Coats for future profitable
growth and allows it to focus attention on
its high performing global Industrial and
strong Americas Crafts businesses. Further
details of the transaction are included on
page 17.
Further details regarding
Coats’ performance in 2014
given on page 8 in this report
Cash at bank
At 31 December 2014 the Parent Group had
cash of £375 million (NZ$750 million)
(31 December 2013: £383 million (NZ$766
million)). The decrease in cash during the
year was primarily as a result of operating
expenses and costs related to pensions
investigations, which were partially offset by
foreign exchange gains.
Pensions
The deficits in the Coats UK Pension Plan
(‘Coats Plan’) and the Brunel and Staveley
schemes, on an IAS19 financial reporting
basis have increased from the position at
31 December 2013. This is due to an
increase in liabilities largely driven by a
115 basis point (bps) decrease in the
discount rate, which more than offset a
35bps decrease in the inflation rate, the
adoption of revised assumption setting
methodologies and the Coats Plan trustee
formally adopting improved cash
commutation factors for members.
Coats has appointed John Lovell, previously
Head of Pensions at J Sainsbury plc, as
Group Pensions Director responsible for
overseeing the Group’s pension schemes.
This newly created position will be
responsible for further developing the
Group pension strategy and working closely
with the trustees of the various schemes to
ensure its delivery.
The UK Pensions Regulator’s
investigations
The Board continues to actively engage with
the UK Pensions Regulator’s (‘tPR’)
investigations and will continue to explore
all options to try to resolve these matters
balancing the interests of all stakeholders.
Coats Plan
As previously announced on 19 December
2014 the Company, GPG (UK) Holdings plc
and Coats plc received a Warning Notice
(‘WN’) from tPR in relation to the Coats
Plan.
Annual Report 2014
03
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Overview and strategic report
Chairman’s statement continued
The relative period end positions are set out below:
IAS19 deficit
Coats UK Pension Plan
Other Coats net employee benefit obligations
Total Coats net employee obligations
Brunel
Staveley
Total £ million
Total NZ$ million
31 December
2014
£m
214
49
263
54
58
375
31 December
2013
£m
78
44
122
28
28
178
750
356
The WN explains that tPR’s case team is of
the view that each of the three sponsoring
employers of the Coats Plan was
insufficiently resourced at the relevant date
(31 December 2012), which is a prerequisite
for it to use its statutory powers. Further,
the case team considers it is reasonable for
the Determinations Panel (‘DP’) of tPR to
issue a Financial Support Direction (‘FSD’) in
relation to the Coats Plan. This could result
in the Company, GPG (UK) Holdings plc
and/or Coats plc being required to put in
place financial support for the Coats Plan.
Having reviewed the WN with its legal and
other advisers, the Company will continue
to robustly oppose tPR’s view on
insufficiency of resources. The Company
believes that the Coats Plan already benefits
from strong support provided by the Coats
business in accordance with the statutory
scheme specific funding regime, and also
does not accept that under the regulations
it is proper for tPR to seek to use its
statutory powers in relation to the Coats
Plan. The Board intends to litigate this
matter as far as necessary unless it can be
resolved satisfactorily via negotiation.
Brunel and Staveley schemes
As previously disclosed, in December 2013
GPG received WNs from tPR in respect of
Brunel and Staveley. GPG submitted written
representations on the WNs at the end of
September 2014 within the deadlines set by
tPR, but has yet to receive responses from
tPR.
Timing and settlement discussions
Hearings before the DP for the Brunel and
Staveley schemes would have been likely in
2015. However, in the Coats WN, tPR has
indicated that it believes that it would be
appropriate for the DP to hear the Brunel
and Staveley cases at the same time as the
Coats case rather than considering one or
two of the three schemes in isolation.
Therefore, the timetable is likely to be driven
by the status of the Coats Plan FSD
proceedings and, as a result, any hearing
before the DP for all three schemes is
unlikely before the second half of 2016 at
the earliest. The delay that will be caused by
linking all three schemes is frustrating in the
view of the Board.
In early 2015 a proposal, which reflected
the Board’s view of the strong legal position
in respect of the Coats Plan, was put to tPR
and the various trustees to settle matters
across the three schemes in order to resolve
all investigations. This proposal was not
accepted by tPR or the various scheme
trustees. As noted above, the Board will
litigate these matters as far as necessary,
unless they can be resolved satisfactorily via
negotiation.
Triennial funding valuations
The current level of deficit reduction
payments for the Coats Plan of £14 million
per annum that commenced in November
2013 for a period of approximately 14 years
will be subject to review at the next triennial
valuation, which commences from
1 April 2015.
The triennial valuation processes for both
the Brunel and Staveley schemes are
on-going and have been delayed by tPR’s
investigations. The Company is engaged in
discussions with the trustees of both
schemes with a view to reaching agreement
on the valuations in due course.
Parent group overheads
Total operating costs, net of foreign
exchange gains/losses, were £7 million
compared with £43 million in 2013. Foreign
exchange gains in 2014 of £11 million (2013:
£2 million loss) were partly driven by the
strengthening US Dollar against the British
Pound.
The Company continues to carefully
manage its costs while focussing on
achieving a successful completion of tPR’s
investigations, taking external advice as
necessary in order to protect the Company’s
interests. Costs incurred in relation to tPR’s
04
Annual Report 2014
investigations during 2014 were covered by
an £8 million provision made at the end of
2013 for anticipated costs during 2014. A
further £8 million provision has been made
at the end of 2014 to respond to the
Warning Notice received from tPR in
relation to the Coats Plan and for
progressing the process around the Staveley
and Brunel schemes, for the Company and
the trustees of these schemes.
As reported at the 2014 half year results,
GPG completed the downsizing and
outsourcing of support services on 30 June
2014 with the closure of its London office.
This followed a significant reduction in staff
numbers during 2013. As a consequence
staff costs significantly reduced year-on-
year to £2 million (2013: £13 million). Other
Company expenses, which included staff
costs as well as GPG Board expenses, legal,
audit and other non-pensions related
professional fees, declined from £21 million
to £6 million in 2014. Other pensions
related expenses, including pension scheme
administrative costs under IAS19, totalled
£4 million.
Excluding pension investigations costs, the
Company maintains its guidance of annual
overheads of approximately £3-4 million for
pension related expenses. Given the
corporate structure changes announced,
the Company expects other corporate
expenses to reduce to around £3 million
per annum (previous guidance was
£3-4 million).
Other items
Shareholdings
Shares of Coats Group plc retain the same
nominal value as those of Guinness Peat
Group plc, and existing share certificates
remain valid. Further information for
shareholders can be found at
www.coats.com/investors
Annual General Meeting
The Annual General Meeting will be held on
Thursday 21 May 2015 in London. Further
details of the location and time will be
provided in the Notice of Meeting which
will be sent to shareholders in April 2015.
Mike Clasper
Chairman
Coats Group plc
18 March 2015
Note: All NZ$ comparatives to £ amounts are for illustrative
purposes only, based on the NZ$:GBP exchange rate on
31 December 2014, NZ$2.00: £1.00.
GPG
Strategy and business model
In February 2011 the GPG Board announced
a plan for an orderly value realisation of
the Group’s investment portfolio with the
proceeds being used for capital
management initiatives. At the time it was
indicated that this may result in an
investment in GPG becoming a direct
investment in Coats.
The asset realisation programme was
successfully completed during 2013 and
generated a cumulative £698 million from
1 January 2011. Between 2011 and 2013
more than £160 million of proceeds were
returned to shareholders via capital returns,
cash dividends and share buybacks.
However completion of the capital return
process has been delayed by tPR’s
investigations. The Chairman’s statement
contains a full update on this process and
the costs incurred to date in dealing with
these matters.
During the year under review, and prior to
renaming Guinness Peat Group plc as Coats
Group plc, the Group was managed with
two clear operational levels:
— GPG plc Board had overall responsibility
to shareholders for stewardship of the
Company; including central treasury,
tPR’s investigations and capital
management and structuring; and
— Coats plc Board had responsibility for
setting the detailed strategy of the
Coats business and monitoring
performance against that strategy.
Detail relating to Coats’ strategy,
business model and performance in
2014 can be found from page 8
onwards.
In February 2015 the Directors took the
decision to rename Guinness Peat Group plc
as Coats Group plc and established a single,
combined Board of Directors. The
responsibilities of the Coats Group plc
Board can be found on pages 26 to 27.
The Group is primarily comprised of the
Coats business, as well as a Parent Group
cash balance of £375 million (at
31 December 2014) and two legacy UK
defined benefit pension schemes (Brunel
and Staveley).
Although the Company has moved forward
with the change in name, corporate
structure and capital structure, in one
aspect the Company is unable to move on.
While the pension schemes are under
investigation by tPR, it cannot pass on the
success of the strong and cash generative
Coats business by way of returns to
shareholders. It is entirely appropriate that
the Group fulfils all obligations to its
pension schemes, and the Board and
management continue to work to find a
route forward balancing the interests of all
stakeholders.
The primary financial measures against
which Coats was monitored in the year
under review were turnover, pre-exceptional
operating profit, pre-exceptional
attributable profit and adjusted free cash
flow. During 2014, Coats reported a decline
in turnover of 1% (up 1% on a constant
currency basis), pre-exceptional operating
profit declined by 1% (flat on a constant
currency basis), pre-exceptional attributable
profit grew 21% to $45 million and
adjusted free cash flow increased 30% to
$70 million.
Operational performance
The financial performance of the Group as a
whole is dealt with by the Chairman in his
statement. Further details of Coats’
operational performance can be found from
pages 10 to 17.
With the change in name to Coats Group
plc, and the transition from an investment
company with a diversified portfolio of
assets to a focused, global manufacturing
business, the KPIs for the Company will be
reviewed by the Board during the year and
presented in the 2015 Annual Report.
Key Performance Indicators (KPIs)
A KPI for GPG was its reported net asset
value. The reported net asset value per
share in 2014 decreased from 31.5p to
17.2p. A significant factor in the
determination of net assets per share is the
IAS 19 employee benefit obligations. These
are based on market conditions at each
period end including the yield on corporate
bonds.
The Board previously monitored the value
realisation programme against the value of
the portfolio at the time the strategy was
announced. As noted above, the
programme was successfully completed
during 2013 and generated a cumulative
£698 million from 1 January 2011. This
compares to a market value on 1 January
2011 of the investment portfolio of
£677 million. Given the programme was
completed in 2013 the Board decided that
this KPI was no longer relevant for the year
under review.
As stated above a key element of the value
realisation strategy is returning capital to
shareholders. Given the events during 2013
and 2014 relating to tPR’s investigations,
this indicator does not fully convey the
developments of GPG during the year under
review.
Linking performance and reward
The Board through the Remuneration and
Nominations Committee has developed a
Remuneration Policy which provides an
appropriate framework of incentives for the
Executive Directors of the Company. This
Policy is set out from page 32.
Prospects
See Chairman’s statement on pages 2 to 4
and Chief Executive’s review on pages 10
and 11.
Corporate Responsibility (CR)
The CR focus for the year under review lay
within Coats. Further information regarding
Coats’ CR approach, including how it links
to business strategy, can be found on page
13 and includes our approach to
environmental matters, employees and
social, community and human rights issues.
Detail is provided on greenhouse gas
emissions on page 25.
Diversity
In line with the requirements of the Code
and of the ASX Governance Principles, it is
the Company’s practice to treat all
appointments equally and on merit,
regardless of ethnicity or gender. The Board
does not have a formal policy on diversity.
That said, the Company has been
developing a policy which is intended to be
approved by the Board in the coming year.
Coats already employs a diverse workforce
and has a stated ambition to increase the
number of women at more senior levels.
See page 12 for more information in this
area.
Annual Report 2014
05
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Overview and strategic report
GPG continued
Details of the make-up of the Group’s employees by gender as at 31 December 2014 are set out in the following table.
Board of Directors
Senior Management (excluding Board Directors)
All employees (excluding onsite contract workers)
Male
7
292
11,939
Female
1
71
8,314
Total
8
363
20,253
Female %
13%
20%
41%
In accordance with the UK Companies Act 2006, Senior Managers are employees with responsibility for planning, directing or controlling
the activities of the Company, or a strategically significant part of the company, and persons who were directors of subsidiaries of the
Company.
Within the Coats business, 41% of its global workforce and 20% of its senior management excluding Board Directors were female as of
31 December 2014.
As of 31 December 2014 there were 20,253 employees within the Group. Coats carries out an annual Engagement survey amongst its
employees and has a policy of responding to the feedback this generates.
Principal risks
It is the responsibility of the Board and its various committees to identify and understand the key risks faced by the business and to
ensure mitigating action is taken to control them. Those risks are:
Risk
Nature of risk
Action/mitigation
Employee defined benefit
obligations – accounting
impact and regular funding
The Group has a number of employee
defined benefit arrangements in place, the
most significant being:
> three UK pension schemes: Coats, Brunel
and Staveley; and
> the Coats North America plan.
The UK schemes can impact the Group
on various levels. Given their size, and
particularly that of the Coats Pension Plan,
these schemes can have a material impact
on the Group’s reported results. Under IAS19
the Consolidated Income Statement includes
an administrative charge and a finance cost
relating to these schemes and variations in
these charges can give rise to fluctuations in
reported earnings. In addition, changes in the
IAS19 accounting surpluses and deficits in
the schemes impact the level of shareholders’
funds.
When funding deficits arise this can have a
cash flow impact. The net accounting and
funding positions of these arrangements are
particularly sensitive to real discount rates
and the investment performance of any
segregated assets.
Managing the funding position of the three UK pension
schemes is the primary responsibility of their respective
trustees. The strategy followed by each trustee targets the
long term funding position of its scheme. Each has used
corporate bonds to fund short term liabilities. Equities and
other return-seeking assets are held for the longer term.
These provide a natural hedge respectively for short term
obligations and long term inflation risk. Coats has in place
a short term inflation hedging programme. In addition, the
trustees have implemented formal de-risking strategies with
thresholds for switching return-seeking assets into bonds.
The 2012 funding valuation for the Coats UK Pension Plan
was completed during 2013 and a scheme deficit of £215
million was agreed. As of November 2013 a 14 year recovery
plan commenced and the rate of contributions increased
from that date from £7 million per annum to
£14 million per annum. In addition Coats plc agreed to
provide the scheme with a parent company guarantee.
The Brunel scheme is in the process of completing its 2013
triennial valuation. There was no deficit in 2010 and, hence,
there is currently no recovery plan. However, the Board
expects a deficit and a recovery plan to result from the
current exercise.
The Staveley scheme last had a triennial valuation as at
5 April 2011. The 2011 valuation resulted in a one-off
payment of £5 million being made to the scheme in July 2012
and an eight-year recovery plan at an annualised rate of
£1.3 million.
The triennial valuation processes for both the Brunel and
Staveley schemes are on-going and have been delayed by
tPR’s investigations. The Company is engaged in discussions
with the trustees of both schemes with a view to reaching
agreement on the valuations in due course.
The Coats North America plan has a funding surplus and
the investment strategy followed includes a matching asset
pool which should substantially reduce the risk of a funding
shortfall arising in the future.
06
Annual Report 2014
Risk
Nature of risk
Action/mitigation
Employee defined benefit
obligations – regulatory
investigation
Treasury concentration risk
Foreign currency exposure
As previously reported and described further
in the Chairman’s statement on pages 3 to
4, tPR is investigating the Group’s three UK
defined benefit pension schemes and has
issued Warning Notices in relation to all three
schemes.
The Board continues to actively engage with tPR’s
investigations and will continue to explore all options to
try to resolve these matters balancing the interests of all
stakeholders.
The completion of the asset realisation
programme combined with the deferral of the
return of capital to shareholders during tPR’s
investigations has resulted in a significant
proportion of shareholder value being
represented by cash.
The Board is cognisant of the potential for this to give rise
to concentration risk. The Board is provided on a monthly
basis with a report of cash balances by bank, jurisdiction and
currency. In addition it regularly reviews these risks at Board
meetings to ensure appropriate mitigating action is being
taken.
The Board regularly reviews its currency exposures and has
taken steps to ensure transparent reporting to shareholders
of the positions held.
Coats business’ activities are primarily
denominated in USD, although it has major
asset bases in other currencies, including the
Indian Rupee and the Brazilian Real.
Coats takes action to protect its anticipated
transactional currency exposure but does not
hedge its assets and liabilities.
Cash generated through the asset realisation
programme is primarily held in GBP, USD and
NZD. The GBP balance is held to cover known
liabilities whereas the NZD and USD balances
represent the currently surplus funds.
Given the investigation being carried out by
tPR, the Board faces the potential of some
as yet unquantified obligations to provide
further financial support to the Group’s UK
pension schemes. The size and nature of
these obligations will only be known once
the process with the respective scheme
trustees and tPR has been completed. Any
hearing before the Determination Panel of
tPR for all three schemes is unlikely before the
second half of 2016 at the earliest. If all rights
of appeal are pursued, this process would
extend beyond this period.
This in turn means the Board is currently not
able to determine with certainty the quantum
of future returns, if any, to shareholders.
Human resources
Shareholder value is heavily dependent on key
individuals within the Group.
Coats
Given the simplification of the Company’s
business model, the Coats business now
represents the major portion of the Group’s
business risk.
The Board has recognised the risk to delivery of the
Company’s strategy from key staff leaving during the process.
It regularly reviews the appropriateness of its incentive and
reward arrangements and has established retention and/or
incentive plans to address this risk.
Coats faces a wide range of commercial and operational
risks. Coats manages these risks through various structures,
including its Internal Audit Function and Operational Risk
Management Committee, comprising a broad mix of
managers across the business, chaired by the Group Chief
Executive.
The Head of Internal Audit attends meetings of and reports
to the Board’s Audit and Risk Committee. The key risk areas
identified and managed through this process are described in
more detail on pages 18–20.
Annual Report 2014
07
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Overview and strategic report
Coats at a glance
A rich
heritage
dating back
to the 1750s
Coats is the world’s leading industrial
thread and consumer textiles crafts
business. We operate on a truly global
basis in more than 70 countries, employing
20,000 people across six continents
No.1
in sewing thread
over 20% market share
No.2
in global zips
fastest growing global manufacturer
Global leader
in Speciality
in high performance threads
No.1 in crafts
largest global player
in textile crafts market
Countries in which
Coats operates
Manufacturing sites
Coats
Revenue
$1,686m
Pre-exceptional operating profit
$131m
Pre-exceptional attributable
profit
$45m
Adjusted free cash flow
$70m
08
Annual Report 2014
Core offers:
> Apparel & Footwear
> Zips & Trims
> Speciality
– Traditional
– Emerging
– Value added engineered yarns
Industrial
Industrial
Every year our industrial products go into
10 billion garments, 450 million pairs of
shoes and a diverse range of products that
are part of the fabric of everyday life.
The strength of our business comes from
working closely with our customers to
develop thread and yarn solutions that add
significant value to their product ranges.
Revenue in 2014
$1,243m
Crafts
Crafts
Coats Crafts is the world’s leading supplier
of textile crafting products – from the
innovative cotton sewing thread that made
our name, to knitting, embroidery,
crochet, fabrics and a range of accessories.
Consumer activities:
> Handknitting
> Crochet
> Lifestyle fabrics
> Needlecraft
> Accessories
Revenue in 2014
$443m
Overview and strategic report
Corporate governance
Financial statements
Coats financial information
Our vision
To be the world leader
To be the world leader in value
added engineered yarns and threads
for industrial and consumer use
To develop highly
complementary products
To develop and supply highly
complementary products
and services where they add
significant value to customers
Success through
customer-focused innovation
We will achieve success through
customer-focused innovation
and winning propositions driven
by motivated people and
global teamwork
Our goals
Profitable sales growth
Increasing market share through
strong customer relationships and
product and service innovation
Increased productivity
By continually focusing on
how we utilise our assets
and expenditure
Positive teamwork
Combining the experience and
expertise of the global
team to harness the full
potential within Coats
Our business model
We have five elements to
our value
The elements of our business model
work together to sustain and build
Coats’ market leadership and deliver
cash generative, consistent growth to
our shareholders.
Further details can be found
at www.coats.com/investors
Market goals
A defined growth
strategy to achieve
three market goals
These goals are being revised over
the course of 2015 to develop the
next set of market goals to take
Coats to 2018.
Focus on sales,
earnings and free
cash flow growth
Strong and
defendable
core business
5. Cash
generative;
consistent
growth
1. Global
market leader
with robust
fundamentals
4. Experienced
management
team
Leadership,
people and
systems to
deliver growth
2. Defined
growth
strategy
Targeting known
markets through
organic and
acquisitive
growth
3. Global
presence and
capabilities
Key differentiators
that provide a platform
for growth
The leading value
added partner to
the global apparel
and footwear
industries
The leading
global player
in Speciality
threads and yarns
The leading
global player
in textile crafts
Annual Report 2014
09
Coats financial information Overview and strategic report
Chief Executive’s review
I am pleased we have delivered material increases in
pre-exceptional attributable profit and free cash flow
in 2014. These results show the positive effect of our
growth strategy.
Paul Forman
Group Chief Executive
Pre-exceptional attributable profit
$45m
Adjusted free cash flow
$70m
Speciality sales
+14%
Industrial operating profit
+18%
All references to Coats financial
performance are to that of ‘Coats Group
Limited’.
Financial summary
Overview
In 2014 Coats’ reported revenues marginally
declined to $1,685.9 million from $1,703.7
million in 2013. On a like-for-like basis
Coats’ revenues grew 1% during 2014, with
5% growth in Industrial sales and a 9%
decline in Crafts. The decline in demand for
fashion handknitting products in both
North America and EMEA impacted
performance in Crafts, suppressing growth
in group sales. The decline on a reported
basis reflected the translation impact of a
strengthening US Dollar against currencies
such as the Brazilian Real and the Indian
Rupee.
Coats’ pre-exceptional operating profit
declined 1% year-on-year on a reported
basis and remained stable on a like-for-like
basis at $130.9 million. Industrial delivered a
like-for-like 18% improvement, driven by
increased sales, while inflationary cost rises
continued to be offset with procurement
and productivity improvements coupled
with pricing initiatives. Crafts was primarily
impacted by a decline in sales, as well as by
one-off costs. However performance in the
second half improved in line with guidance
issued in the 2014 half year results.
Operating profit included approximately
$8 million of reorganisation related costs
that have not been classified as exceptional.
Industrial
Industrial sales in 2014 were $1,243.1
million, up 5% year-on-year, continuing the
positive momentum from 2013. Revenue
growth was balanced across the regions
with double digit growth in the key markets
of Turkey, the USA and Vietnam. Speciality
sales grew 14% year-on-year, and by 18%
in the second half of 2014, with strong
demand from the protective clothing
markets in EMEA and North America and
the outdoor and sporting goods markets in
Asia. Operating profit growth of 18%
year-on-year was delivered through volume
growth, with productivity and purchasing
improvements, coupled with pricing
initiatives, successfully offsetting cost
inflation.
Crafts
Crafts’ sales of $442.8 million represented a
9% year-on-year decline. The reduction in
both the Americas and EMEA was primarily
due to lower demand for fashion
handknitting products. Excluding this
anticipated decline, North American Crafts
sales grew 3% year-on-year. Sales in EMEA
were also impacted by a decline in the
Needlecrafts category and a change in
Coats’ Scandinavian operating model. As a
result of improved sales performance in the
Americas and cost reduction initiatives the
$m
Revenue
Operating profit
Profit before taxation
Net profit attributable to equity shareholders
Free cash inflow
1 Exceptional items are set out in note 2 of the Coats financial information on page 107
10
Annual Report 2014
Before
exceptional
items
Unaudited
1,685.9
130.9
100.2
45.1
Exceptional
items1
Unaudited
–
(23.8)
(23.8)
(23.9)
2014
Total
Unaudited
1,685.9
107.1
76.4
21.2
71.8
Before
exceptional
items
Unaudited
1,703.7
132.7
96.6
37.3
Exceptional
items1
Unaudited
–
(8.5)
(8.5)
(8.1)
2013
Total
Unaudited
1,703.7
124.2
88.1
29.2
44.8
Overview and strategic report
Corporate governance
Financial statements
Coats financial information
Operating summary
Revenue
Industrial
Crafts
Total revenue
Pre-exceptional
operating profit2
Industrial
Crafts
Total
Operating margin2
2014
Reported
$m
2013
2013
Reported increase/(decrease)
Like-for-like increase/(decrease)
Reported
$m
Like-for-like1
$m
Full Year
%
First Half
%
Second Half
%
Full Year
%
First Half
%
Second Half
%
1,243.1
442.8
1,685.9
1,211.8
491.9
1,703.7
1,185.1
485.0
1,670.1
128.1
2.8
130.9
7.8%
110.7
22.0
132.7
7.8%
108.9
22.0
130.9
7.8%
3%
(10)%
(1)%
16%
(87)%
(1)%
0bps
3%
(8)%
0%
3%
(12)%
(2)%
5%
(9)%
1%
5%
(7)%
2%
4%
(10)%
0%
22%
N/A
3%
20bps
10%
(70)%
(5)%
(30)bps
18%
(87)%
0%
(10)bps
24%
N/A
5%
20bps
12%
(70)%
(4)%
(30)bps
1 2013 like-for-like restates 2013 figures at 2014 exchange rates
2 Excluding exceptional items (see note 2 to the Coats financial information on page 107)
In this commentary, all comparisons with 2013 are on a like-for-like currency basis and all references to operating profit are on a pre-exceptional basis unless stated otherwise.
business returned to profitability in the
second half of 2014, thereby delivering a
$2.8 million operating profit for the year.
Sale of EMEA Crafts
As announced on 19 February 2015 Coats
has agreed to sell the EMEA Crafts business
to the Aurelius Group. The sale follows a
comprehensive review of the business,
including its strategic fit within Coats, and
the formulation of a turnaround plan. The
sale better positions Coats for future
profitable growth and allows it to focus
attention on its high performing global
Industrial and strong Americas Crafts
businesses. The sale is subject to a limited
number of conditions usual for this type of
transaction and is expected to complete in
Q2 2015. Further details of the transaction
are included on page 17.
Financial summary
Net profit attributable to equity
shareholders increased 21% to $45.1
million, on a reported pre-exceptional basis,
compared to 2013 ($37.3 million). This was
primarily due to lower pension finance
costs, reduced finance costs resulting from
lower year-on-year net debt and average
interest rates, and a lower tax charge.
Pensions finance costs will be significantly
higher in 2015 due to the increase in the
pensions deficit of the Coats Plan during
2014. Including exceptional items and their
associated tax effect, including an $18.8
million impairment charge of property, plant
and equipment and intangible assets
relating to the EMEA Crafts business, Coats
generated a reported attributable profit of
$21.2 million (2013: $29.2 million). No
exceptional reorganisation charges were
incurred in 2014. Operating profit included
approximately $8 million of reorganisation
related costs that have not been classified
as exceptional.
In 2014 Coats generated adjusted free cash
flowa of $70.1 million, a 30% increase on
2013 ($54.1 million). The year-on-year
improvement was driven by improved
working capital management, lower interest
and tax payments. Reflecting strong cash
generation, year-end net debt fell to
$262.6 million (2013: $329.2 million) and
Coats’ leverage ratiob of net debt to EBITDA
fell to 1.4 times (2013: 1.8 times).
Return on capital employedc increased to
26% (2013: 22%), primarily driven by the
reduction in net working capital.
Prospects
A mixed regional picture in consumer
demand for Coats’ products is expected to
continue in 2015. While Coats anticipates a
broadly positive outlook in Asia and solid
growth in North America, the situation in
Europe is likely to be affected by underlying
macroeconomic developments and Latin
America is expected to remain relatively flat.
In a general deflationary environment it will
become increasingly challenging to use
pricing improvements to offset payroll and
other inflationary pressures which Coats
faces in the many countries in which it
operates.
In the core Apparel and Footwear business
there will be an increased focus on
customer engagement and order
management using digital channels, while
in the Speciality business continued growth
is expected to be achieved through
geographic expansion and new product
innovation in areas such as aramids and
composites. Year-on-year performance in
the Americas Crafts business is expected to
remain relatively stable, as ongoing growth
in core handknitting sales will be offset by
reduced demand for fashion handknitting
products.
The mixed consumer demand outlook,
ongoing inflationary challenges and a
continued strengthening of the US dollar
will have a negative impact on operating
profits in 2015. This will be somewhat
mitigated by the treatment of losses
attributable to EMEA Crafts as discontinued
items, leading to a broadly stable operating
profit for the year, with profitability
weighted towards the second half.
Attributable profit will be reduced by an
increase in pensions finance costs, which
should be offset by a continuing reduction
in the effective tax rate and interest
charges.
Conclusion
The underlying results for the year
demonstrate a strengthening of the core
Apparel and Footwear business, double
digit sales growth within Speciality and a
strong and profitable Americas Crafts
business. This enabled Coats to deliver
growth in pre-exceptional attributable profit
and to generate significant free cash flow,
which provides a strong base for organic
and inorganic growth.
Paul Forman
Group Chief Executive
Coats Group plc
18 March 2015
a See Financial review on page 16 for calculation of adjusted
free cash flow
b Under the definitions of net debt and EBITDA prescribed in
Coats’ senior debt facility
c Return on capital employed defined as pre-exceptional
operating profit divided by capital employed at period end
Annual Report 2014
11
Coats financial information Overview and strategic report
People
Coats’ employees are the core of our business.
Their leadership, talent and commitment ensure
we remain leaders in our sector, are competitive
in the marketplace and operate our businesses
effectively and efficiently.
Although our average gender split is good,
with women representing over 40% of our
global workforce, only 20% of our senior
management (excluding Board Directors)
are women. We recognise there is more to
do and during the year we developed plans
for a new diversity and inclusion initiative
which was launched in January 2015.
Through a range of associated activities, we
aim to increase the diversity of our
workforce at all levels, and specifically
address the number of women in leadership
positions.
Human rights and employment
standards
Whilst the Company does not have a
specific human rights policy, our worldwide
employment standards (available on
www.coats.com) set out the principles
which are observed across our global
operations. These standards state our
approach to human rights and recognise
the requirements of the UN Declaration of
Human Rights and the Convention on the
Rights of the Child, the core ILO
Conventions, and the OECD Guidelines for
Multinational Enterprises.
a US Occupational Safety and Health Administration
b UK Health and Safety Executive
A healthy working environment
Our number one priority is to keep our
employees safe and our health, safety and
welfare programmes continue to keep our
accident statistics low. In 2014, our global
accident rate was 0.33 reportable incidents
per 100 full time employees (compared to
0.37 in 2013, 0.44 in 2012, and 0.60 in
2011). This is well below the latest OSHAa
average of 3.1 for US textile mills and below
the UK average of 0.43 for the manufacture
of textiles, as reported for 2013/14 by the
UK HSEb. However, there is always more we
can do and we aspire to reduce our accident
levels still further in the coming years.
Employee engagement
In order to achieve our business goals, we
rely on our employees being engaged and
driving our business forward. To make sure
we are on the right track, we benchmark
our workplace culture on an annual basis
through our employee engagement survey.
This tells us how people feel about working
at Coats and helps us identify areas that
need attention. With a high participation
rate of 94% in the 2014 survey, we were
pleased to see that our employee
engagement score has increased to 81%
(one percentage point higher than last year
and four higher than 2012). This positions
Coats in the top 10% of all global surveyed
companies (as benchmarked by a leading
specialist survey organisation).
Leadership and talent development
It is important to Coats that we harness and
nurture the best talent among our
workforce and provide them with the skills
and opportunities to succeed. Through
competitive packages we recruit and retain
high calibre individuals. We invest in our
people by providing equal opportunities for
learning, through general training and
job-skills programmes and, where
appropriate, tailored career planning and
leadership development.
During 2014, we reviewed our global
approaches to leadership, talent
development and succession planning and
made great progress.
> We have reviewed our senior
management positions, and by the end of
2015 will have developed comprehensive
succession plans for all senior posts.
> Our Management Capability
Development Programme (MCD) was
awarded a Brandon Hall Bronze Award
for Best Blended Program in 2014. This is
a tailored learning programme aimed at
strengthening leadership skills throughout
the business. During 2014, more than
300 people across 10 countries
participated in the MCD programme, and
99% said that ‘it makes them a better
leader’. A further 240 will enrol during
2015.
> Our ‘CEO Circle’ initiative saw its first
group of nine high potentials complete
the programme. A second group has now
started its journey. This is a two-year
programme led by the Group CEO and
designed to accelerate the development
of leadership capabilities in a select group
of high potential managers within Coats.
A diverse workforce
We believe in equal opportunities and pride
ourselves on the diversity of our workforce.
At the end of 2014, we had 77 nationalities
amongst our employees and 24 are
represented in our global leadership team.
Gender diversity at Coats
Women
Men
41%
59%
12
Annual Report 2014
Senior management
(excl. Board Directors)
Women
Men
20%
80%
Overview and strategic report
Corporate governance
Financial statements
Coats financial information
Corporate Responsibility
Responsible behaviour is the thread that holds
us all together. Our Corporate Responsibility (CR)
programme is integrated with our business strategy
and helps us build and maintain both our reputation
and our relationships with key stakeholders.
The values and standards that we subscribe
to as a company are at the core of our CR
programme. They are embodied in the five
principles that describe the way we work:
openness and honesty, energy for change,
freedom to operate, customer-led
innovation and keeping our promises.
Defining our programme
Our CR materiality assessment underpins
the CR programme. The assessment, which
is available on our website, quantified
what’s important to Coats and our
stakeholders and identifies issues that
support our business goals: profitable sales
growth, increased productivity and positive
teamwork.
The key issues we identified were grouped
under seven themes as illustrated in the
graphic on the right. Although we discuss
just two of these themes here, all seven
themes are equally important to us and the
progress we are making across each of
these areas is described on our website.
To further embed our CR programme, we
created a global network of CR champions
this year. Their main role will be to share
information on CR initiatives, act as a point
of contact for their area of the business and
help disseminate best practice.
Manufacturing processes and
environmental impact
We constantly review our manufacturing
processes to remain as efficient as possible,
to minimise both the cost to our business
and the impact we have on the world
around us. Since 2000, we have focused on
reducing our energy consumption and have
seen a dramatic reduction in our carbon
footprint. In 2014, greenhouse gas
emissions were 5.1 kg CO2e per kg of dyed
product (compared to 5.3 in 2013, 5.6 in
2012 and 5.7 in 2011) and we have seen a
5% reduction in our overall carbon
footprint.
Our Products
Customer Health
& Safety
Our Manufacturing
Water
Energy & Transport
Materials Use
Our People
Employment Practices
Health & Safety
Training & Development
Our Standards
Ethics, Responsibility
& Governance
Our Environment
Effluent
Emissions
Waste
Our Communities
Being part of the communities
in which we operate
Our Partners
Ethical & Sustainable Trading
Engaging with our communities
Developing a clear and active approach to
community engagement helps us build
stronger relationships with local
communities, governments and business
partners. It also increases our ability to
attract and retain high quality, committed
employees.
2014 saw the global launch of our
community engagement programme. The
two key themes of Education and Textiles
provide a focus for our activities and reflect
the interests of our employees, our business
and the products and services we offer.
Our entire senior team was involved in the
launch and as a result, during 2014 we
implemented around 100 separate
community engagement plans in 47
business units across 38 different countries.
Although the types of activity vary greatly
across the globe, the enthusiasm that our
employees have shown for this initiative has
been universal.
For more information on
our approach to CR and our
seven strategic themes,
go to our website.
www.coats.com/
corporateresponsibility
Annual Report 2014
13
Coats financial information Overview and strategic report
Operating review
Industrial
Sales in 2014
$1,243.1m
Geographic revenue
1. Asia and Australasia
$679.8m
2. Americas $288.6m
$274.7m
3. EMEA
Industrial overview
Industrial sales rose 5% year-on-year due
primarily to significant revenue growth in
Speciality (14%) and steady growth in the
core Apparel and Footwear category. This
resulted in both categories growing by
approximately the same amount in absolute
terms. Double digit sales growth was
delivered in key markets such as Turkey,
USA and Vietnam due to market share gains
and underlying market growth.
Industrial operating profit increased by 18%
to $128.1 million (2013: $108.9 million),
with volume growth, productivity,
procurement and pricing initiatives more
than offsetting payroll and energy inflation.
As a result operating margins increased by
110bps to 10.3% (2013: 9.2%).
Region
Asia and Australasia
Asia and Australasia sales increased by 4%
year-on-year with growth across the region.
A key growth driver was apparel and
footwear sales in both Vietnam and India,
although a marginal slowdown in these key
markets led to reduced regional growth in
the second half. Speciality made good
progress, with the outdoor and sporting
goods markets in particular contributing to
sales growth.
Americas
A strong second half performance enabled
the Americas region to generate a 5%
year-on-year increase in revenues. In H2
2014 growth of 7% was primarily driven by
North American Speciality sales, particularly
within the protective clothing and wire and
cable markets, which also showed good
growth in the first half. In addition the
Apparel and Footwear category delivered
an improved performance following
softness in demand from some US brands
during the first half of 2014.
EMEA
Sales in EMEA increased 6% with year-on-
year growth across most key markets and a
strong performance from both Speciality
and Zips. The Speciality category benefited
from strong demand in the bedding market
during the second half and the protective
clothing market throughout 2014.
Category
Apparel and Footwear
Revenues in the Apparel and Footwear
category grew 3% year-on-year from a
combination of market share gains and
underlying market growth, although
growth during the second half slowed due
to strong comparators.
Speciality
In the Speciality category, 14% year-on-year
growth (18% in the second half) was
achieved through geographic expansion
and new product innovation and sales. For
example, sales to engineered performance
fabrics customers, including sales of the
Flamepro product range, an aramid thread
used in personal protective equipment,
increased $6 million year-on-year, while
sales of aramid composite products, that
enable the replacement of steel natural gas
pipes with reinforced thermoplastic pipes,
were up $3 million.
All references to Coats financial
performance are to that of ‘Coats Group
Limited’.
Industrial
Revenue
By region
Asia and Australasia
Americas
EMEA
Total
By category
Apparel and Footwear2
Speciality
Total
Pre-exceptional operating profit3
Operating margin3
2014
2013
Like-for-like increase
Reported
$m
Reported1
$m
Reported
increase
%
Like-for-like1
$m
Full Year
%
First half
%
Second half
%
679.8
288.6
274.7
1,243.1
1,008.1
235.0
1,243.1
128.1
10.3%
659.0
284.5
268.3
1,211.8
651.4
3%
274.1
1%
2%
259.6
3% 1,185.1
4%
5%
6%
5%
5%
3%
7%
5%
1,001.3
210.6
1,211.8
110.7
16%
9.1% 120bps
979.3
1%
12%
205.8
3% 1,185.1
108.9
9.2%
3%
14%
5%
18%
110bps
4%
10%
5%
24%
160bps
3%
7%
5%
4%
2%
18%
4%
12%
60bps
1 2013 like-for-like restates 2013 figures at 2014 exchange rates
2 Includes accessories, zips and trims and global services
3 Excluding exceptional items (see note 2 to the Coats financial information on page 107)
In the commentary above, all comparisons with 2013 are on a like-for-like currency basis and all references to operating profit are on a pre-exceptional basis unless stated otherwise.
14
Annual Report 2014
Overview and strategic report
Corporate governance
Financial statements
Coats financial information
Crafts overview
Crafts sales declined 9% year-on-year,
primarily due to the impact of lower
demand for fashion handknitting products
in North America and EMEA and the
change in operating model in Scandinavia in
2013.
Due to the overall weaker sales
performance, and change in operating
model in Scandinavia, Crafts made an
operating profit of $2.8 million in 2014,
compared to $22.0 million in 2013. This
resulted in a decline in operating margin to
0.6% from 4.5% in 2013. However, and in
line with prior guidance, the Crafts business
returned to profitability in the second half
due to improved sales performance in the
Americas and cost reduction initiatives. This
enabled the Americas business to deliver a
reasonable operating profit for the year.
Crafts
Sales in 2014
$442.8m
Geographic revenue
1. Americas $295.7m
$147.1m
2. EMEA
Region
Americas
In the Americas, revenue fell 5% year-on-
year, primarily due to a decline in fashion
handknitting sales, including Red Heart’s
Sashay fashion handknitting product range,
following a peak in demand in 2013.
Excluding fashion handknitting sales, North
American Crafts grew sales by 3%. In the
smaller Latin America business, growth in
Handknittings in the first half of 2014
continued into the second half, despite
challenging market conditions. Overall
Americas Crafts remains a strong business
that generates good margins based on its
market leading position.
EMEA
Revenue in EMEA, down 15%, was
significantly impacted by the decline in
fashion handknitting sales. The full year
decline also reflected falling sales in the
Needlecrafts category and the move from a
retail sales model to distribution model in
Scandinavia, which impacted sales by
approximately $11 million, equating to a 6%
decline in EMEA revenues.
Category
The 6% decline in Needlecraft sales reflects
the long term decline in that market.
The 11% fall in Handknitting sales was
impacted by the previously mentioned
change in fashion trends following a peak in
demand in 2013, although the core
handknitting business grew globally.
Crafts
Revenue
By region
Americas
EMEA
Total
By category
Needlecrafts2
Handknittings
Total
Pre-exceptional operating profit3
Operating margin3
2014
2013
2013
Like-for-like decrease
Reported
$m
Reported1
$m
Reported
decrease
%
Like-for-like1
$m
Full year
%
First half
%
Second half
%
295.7
147.1
442.8
206.4
236.4
442.8
2.8
0.6%
318.5
173.4
491.9
(7)%
(15)%
(10)%
311.8
173.2
485.0
(5)%
(15)%
(9)%
(4)%
(13)%
(7)%
(6)%
(17)%
(10)%
(9)%
225.8
(11)%
266.1
(10)%
491.9
(87)%
22.0
4.5% (390)bps
(6)%
220.2
(11)%
264.8
(9)%
485.0
(87)%
22.0
4.5% (390)bps
(6)%
(8)%
(7)%
N/A
(430)bps
(6)%
(13)%
(10)%
(70)%
(350)bps
1 2013 like-for-like restates 2013 figures at 2014 exchange rates
2 Includes other textile craft products
3 Excluding exceptional items (see note 2 to the Coats financial information on page 107)
In the commentary above, all comparisons with 2013 are on a like-for-like currency basis and all references to operating profit are on a pre-exceptional basis unless stated otherwise.
Annual Report 2014
15
Coats financial information Overview and strategic report
Financial review
The successful refinancing of our debt facility
in early 2015 and reduction in leverage gives
us a strong platform to invest in organic and
inorganic growth opportunities.
Richard Howes
Chief Financial Officer
Leverage ratioa
1.4x
(2013: 1.8x)
NWC as % of salesb
11.5%
(2013: 15.1%)
All references to Coats financial
performance are to that of ‘Coats Group
Limited’.
Exceptional items
Net exceptional costs before taxation
totalled $23.8 million (2013: $8.5 million).
This included an $18.8 million impairment
of property, plant and equipment and
intangible assets related to EMEA Crafts.
In addition there was a $3.7 million charge
relating to costs incurred by the trustee of
the Coats Plan in 2014 in responding to
tPR’s investigation into the scheme, and a
provision made for the trustee’s expected
costs to respond to the Warning Notice
received from tPR. There was a $2.9 million
gain on the disposal of properties, related
to activities in 2014 and prior years, and
$4.2 million of other exceptional costs
related to the capital incentive plan. This
plan is intended to reward the Coats’ senior
executive team for delivering growth in the
value of the Company’s investment; the
amount incurred in 2015 is expected to
reduce.
16
Annual Report 2014
No exceptional reorganisation charges were
incurred in 2014 (2013: $21.6 million).
Operating profit includes approximately
$8 million of reorganisation related costs
that have not been classified as exceptional.
Non-operating results
The share of profit from joint ventures was
$1.5 million (2013: $0.7 million).
Excluding IAS19 pensions interest, finance
costs reduced by 7% to $27.4 million (2013:
$29.4 million) as a result of lower year-on-
year net debt and a reduction in the margin
over LIBOR on borrowings as a consequence
of lower leverage.
Investment
During 2014 investment continued to be
made to support business growth and to
further improve Coats’ operational
performance. Investment in new plant and
systems amounted to $47.4 million (2013:
$37.8 million).
The year-on-year increase was driven by
investment in IT, digital services and
efficiency initiatives, such as the
construction and commissioning of a bio
mass plant for steam generation at an
Indian factory. Capital expenditure was
1.0 times depreciation (including computer
software amortisation) for 2014 (2013:
0.8 times).
The taxation charge for 2014 was $45.6
million (2013: $51.0 million) resulting in a
reported tax rate of 60%. Excluding all
exceptional items and the impact of IAS19
finance charges, the underlying effective
rate on pre-tax profits reduced by 500bps
to 42% (2013: 47%). The reduction was
primarily driven by a change in mix as
regions with lower statutory tax rates
contributed higher profits and a reduction
in unrelieved losses in the year.
Profits attributable to minority interests
were $9.6 million in 2014 (2013: $7.8
million).
Net profit attributable to equity
shareholders, on a pre-exceptional basis,
was $45.1 million, a 21% year-on-year
improvement (2013: $37.3 million).
Including exceptional items and their
associated tax effect, Coats generated a
reported attributable profit of $21.2 million
(2013: $29.2 million).
Cash flow
Adjusted free cash flow of $70.1 million
was up 30% on 2013 ($54.1 million).
This excludes reorganisation spend of $3.7
million related to expenses incurred in 2013
(2013: $27.7 million), a $1.8 million tax
inflow (repayment) related to a US antitrust
litigation (2013: $8.2 million non-tax related
outflow) and proceeds from property
disposals, including tax, of $3.6 million
(2013: $26.6 million). Free cash flow was
$71.8 million (2013: $44.8 million).
EBITDA (defined as pre-exceptional
operating profit before depreciation and
amortisation) was $179.4 million (2013:
$181.6 million).
Net working capital as a percentage of sales
fell year-on-year to 11.5% (2013: 15.1%)
resulting in a cash inflow of $41.1 million.
This improvement was driven by a
continued focus on all aspects of working
capital, with improvements made in
Industrial inventory and debtor
management, as well as reduced Crafts
sales.
Overview and strategic report
Corporate governance
Financial statements
Coats financial information
Interest paid decreased to $21.9 million (2013: $26.2 million), as a
result of lower year-on-year net debt and lower interest rates
achieved on borrowings.
Taxation paid was $56.0 million, compared to $53.3 million in
2013. Excluding the tax impact of exceptional items, taxation paid
in 2014 declined by $2.5 million in 2014 to $53.3 million (2013:
$55.8 million).
Pension payments increased to $37.7 million in 2014 (2013: $25.6
million) due to higher recovery plan contributions to the UK funded
scheme, in line with the recovery plan agreed with the Coats Plan
trustee in 2013.
Balance sheet
Due to the strong cash flow performance net debt reduced to
$262.6 million (2013: $329.2 million).
An important metric for the Coats Group is the leverage ratio of
net debt to EBITDA. Under the definitions of net debt and EBITDA
prescribed in Coats’ senior debt facility, net debt at 31 December
2014 was 1.4 times EBITDA of the preceding twelve months
(31 December 2013: 1.8 times). Coats is comfortably within the
covenant limit of 3.0 times.
Equity shareholders’ funds decreased from $226.2 million at 31
December 2013 to a deficit of $11.5 million at 31 December 2014.
This primarily reflects actuarial losses in respect of retirement
benefit schemes of $246.1 million, which more than offset
attributable profit of $21.2 million.
Pensions and other post-employment benefits
The net obligation for the Coats Group’s retirement and other post-
employment defined benefit liabilities was $409.6 million as at
31 December 2014, up from $202.6 million at the end of 2013.
Coats Plan
As at 31 December 2014, the deficit on an IAS19 accounting basis
in the Coats Plan, which represents the Group’s most significant
funded defined benefit arrangement, increased from $129.2 million
at the end of 2013 to $333.6 million. The movement was due to an
increase in liabilities, which was primarily driven by a 115bps
decrease in discount rate, which more than offset a 35bps decrease
in the inflation rate. In addition the adoption of revised assumption
setting methodologies and the trustee formally adopting improved
cash commutation factors for members had a negative impact of
approximately $41 million on the deficit. Deficit reduction
contributions to the Coats Plan during the year were $23.1 million,
which is in line with the 14 year recovery plan agreed with the
Coats Plan trustee in 2013 as part of the 2012 triennial valuation.
Other pension and post-employment arrangements
The recognised surplus for the US funded defined benefit scheme
increased to $54.8 million as at 31 December 2014 (31 December
2013: $47.1 million), while the overall net deficit on other plans was
$130.8 million (31 December 2013: $120.5 million).
Refinanced debt facility
In February 2015 Coats successfully replaced its $760 million
syndicated bank facility with a new $680 million, five year revolving
facility. The new facility, which matures in February 2020, was
oversubscribed and is syndicated among a changed group of
international banks, which better reflects Coats’ global footprint.
It features a lower margin, approximately 25bps, compared with
the previous facility and indicative pricing for 2015 is LIBOR plus
150bps. The size of the new facility reflects Coats’ ability to
generate free cash. There is no change to the financial
covenants, namely, net debt will not exceed three times EBITDA
and EBITDA will not be lower than four times net finance
charges.
Richard Howes
Chief Financial Officer
Coats Group plc
18 March 2015
a Under the definitions of net debt to EBITDA prescribed in Coats’ senior debt facility
b Net working capital as a percentage of sales
Sale of EMEA Crafts
Coats announced an agreement to sell its EMEA Crafts business
to the Aurelius Group on 19 February 2015 for a total
consideration of US$10.0 million, payable in cash on completion
and subject to customary adjustments. As part of the sale an
amount of cash will be retained within the business being sold,
which is expected to result in the transaction being marginally
cash negative. The sale followed a comprehensive review of the
business, including its strategic fit within Coats, and the
formulation of a turnaround plan. The sale better positions
Coats for future profitable growth and allows it to focus
attention on its high performing global Industrial and strong
Americas Crafts businesses. The sale is subject to a limited
number of conditions usual for this type of transaction and is
expected to complete in Q2 2015.
As part of the strategy review and sales process it was decided
that the UK Crafts business should remain within Coats. This
decision was based on a number of factors, including the long
heritage of Coats in the UK and the due diligence requirements
for any buyer in relation to the ongoing tPR investigations.
On balance it was concluded that retaining the business would
generate the best overall value to shareholders.
In 2014 EMEA Crafts (excluding the UK) generated revenues of
$124.9 million and a pre-exceptional operating loss of $9.8
million. Including exceptional items, namely an $18.8 million
impairment of property, plant and equipment and intangible
assets, EMEA Crafts incurred an operating loss of $28.6 million.
As at 31 December 2014, after impairment, the business had
net tangible assets of $35.4 million, including cash retained
within the business as part of the sale. Given the total
consideration of $10 million for the business compared to its net
tangible asset position of $35.4 million at 2014 year end, and
taking into account completion adjustments and disposal-
related costs, a substantial loss on disposal is expected to be
recognised on completion of the transaction. The precise
quantum will be finalised on completion and will in addition
include historical foreign exchange translation gains and losses
previously recognised in equity. The results of the EMEA Crafts
business (excluding UK) together with the loss on disposal will
be presented as a discontinued operation when the Group
reports its 2015 half year results.
On completion of the sale Coats expects to provide some
transitional support services to the EMEA business under new
ownership for a period of time. However during the transition
period Coats will continue to incur some costs previously
allocated to the EMEA Crafts business, thereby impacting Coats’
2015 operating profit from ongoing operations. These costs will
be subject to review during 2015 to ensure Group operating
margins will not be negatively affected in the medium term.
Annual Report 2014
17
Coats financial information
Overview and strategic report
Principal risks and uncertainties
Coats faces a wide range of commercial and
operational risks
While our risk management process is driven from Board level, identifying, assessing and managing risks is embedded into our day to day
operations. Overlaying Coats’ positive business principles and culture are formal structures and reporting procedures, including the
Internal Audit Function and the Operational Risk Management Committee (ORMC), which comprises a broad mix of managers across the
business and is chaired by the Group Chief Executive.
Risk
Nature of risk
Action/mitigation
Strategy and strategic planning risks
Delivery of strategy
A lack of resource, poor project management,
lack of skills or lack of acceptance in the
market may result in not delivering growth
projects. Consequently profitability goals
are not achieved or the market multiple is
materially below target.
Projects are managed by a dedicated team and sponsored by
a member of the Coats Management Board or Industrial or
Crafts Americas Leadership Teams. They are controlled by a
Steering Committee and monitored financially.
The Board receives regular progress reports and sets targets
for profitable sales.
Recruiting, maintaining
and motivating high-quality
staff
Not identifying and retaining key staff or
improving their skills and knowledge may
result in an inability to execute growth
strategy.
HR policies cover reward and recognition, health and safety,
talent management, skills assessment and development,
performance management, succession planning and
employee consultation.
Financial risks
Pensions
Treasury
Fluctuations in discount rates, investment
values and returns, inflation and/or member
longevity in the defined benefit pension
arrangements result in funding burdens on
the Group in the future.
An exposure to uncertainties in financial
markets and the banking sector including
foreign exchange, interest rate, credit and
liquidity risks as well as the risk of bank
failure.
Coats may be unable to present itself as an
attractive candidate for financing.
Operational risks
Information Technology (IT)
Unauthorised access to Coats IT systems and
data may result in the theft of data or the
disruption of business processes.
An annual group-wide employee satisfaction survey flags any
areas for concern which are then acted on.
An annual survey of pay and benefits ensures that terms and
conditions of employment remain competitive.
Pension position and strategy is regularly reviewed by the
Board.
Funded pension schemes are overseen by their trustees.
Trustees are required to have the appropriate knowledge
and understanding in this area and take professional and
actuarial investment advice as necessary. Where appropriate
independent professional trustees are appointed to schemes
to provide additional expertise.
Coats and the trustees seek to de-risk the scheme through
liability management and investment strategies to reduce the
impact of fluctuations.
Coats’ policies cover all aspects of its Treasury operations,
providing strict controls on managing risks and bank
selection.
Compliance with the terms of Coats’ senior bank facility
agreements is actively monitored. There is regular contact
with core relationship banks and alternative sources of
finance have been identified. In 2015 debt facility was
successfully refinanced and maturity extended to 2020.
Standard firewall capability is overseen by an external vendor.
Coats’ networks are actively monitored and multiple layers of
password protection are used at device and application level.
Communications with portable devices are encrypted.
Coats ensures all internal users have appropriate access rights
and permissions for their roles.
An inability of Coats’ IT network and systems
to perform critical transactions and processes
may result in business disruption.
Coats has sufficient network capacity and established IT
systems in place with Group and Divisional IT teams to
manage the IT risks.
18
Annual Report 2014
Overview and strategic report
Corporate governance
Financial statements
Coats financial information
Risk
Nature of risk
Action/mitigation
Supplier dependency
If one or more major external suppliers is
unable or unwilling to supply goods it may
cause major disruption to the Coats supply
chain that cannot be replaced in the short-
term, leading to lost contribution and long-
term impact on customer relations.
Internal supply chain
Disproportionate reliance on critical internal
supply chain nodes may have a significant
impact on profitability in the event of
disruption to any of them.
Customer dependency
Key Crafts customers reduce shelf space for
a group of products which Coats supplies
or engages in price negotiation, materially
reducing the contribution earned by the
business.
Environmental
Non-compliance with internal environmental
control procedures or local requirements (if
these are stricter) leads to a serious pollution
event having an adverse impact on operations
and resulting in regulatory action being taken.
This results in litigation, resultant damages
and damage to reputation.
Supplier relationships and external supply chains are
monitored and managed, with multiple sourcing of materials
and strategic inventories.
Regular supplier meetings include detailed discussions of
market conditions and supply expectations. Risk is spread by
dealing with more than one supplier on each key material
and continual identification of new supply sources.
Global insurance programmes include supplier dependency
cover.
Manufacturing and supply chain function monitors and
reviews internal supply chains, fire protection systems and
creates and tests disaster recovery plans.
Rolling property risk surveys are conducted of all Coats
critical supply chain nodes. The implementation of the risk
reduction recommendations is actively monitored and where
necessary capital expenditure is prioritised.
Global insurance programmes include property destruction
and business interruption cover.
Strong commercial relationships are maintained with senior
level management with direct access to final decision
makers. Coats works to ensure a high degree of customer
collaboration, communication and management attention to
POS data and weekly replenishment levels. It provides a high
level of service/stock availability.
Significant investment in pattern/design support, product
promotions and consumer advertising undertaken to boost
in-store footfall and sales growth. Strategic marketing has
targeted craft consumer demographics, in-store buying
behaviour and positive correlation to store sales in other
categories.
Management aims to achieve the highest practicable
standards of environmental performance. All environmental
issues are reported to the Group’s Audit and Risk Committee
and Management Board through a semi-annual Risk
Questionnaire completed by all operating units.
All sites must comply with local legal requirements for
effluent quality and volume and hold the relevant permit to
discharge. Coats has ‘Global Water Effluent Limits’, a set of
15 parameters with the strictest limits of any local authority
across three downstream categories.
Global insurance programme includes cover for 3rd Party
property damage and injury or illness resulting from pollution
of air, water or soil caused by a sudden or unforeseen
incident.
Coats may be held responsible and
accountable for clean-up/remediation costs
of legacy environmental issues originating
before it acquired those sites or after their
disposal/closure.
Appropriate checks are undertaken on sites we are looking to
acquire, and we conduct ongoing monitoring of current sites.
Every step appropriate is taken to ensure closed and/or sold
sites are cleaned up.
Labour relations
Poor labour relations in critical manufacturing
sites could result in disruption to business.
An annual Employee Engagement satisfaction survey
is conducted and relevant strategies developed and
implemented to address concerns.
In the event of disruption, Coats can move production to
other sites.
Annual Report 2014
19
Coats financial information Overview and strategic report
Principal risks and uncertainties continued
Risk
Nature of risk
Action/mitigation
Health and Safety (H&S)
Non-compliance with internal H&S
procedures or local requirements (if these are
stricter) may lead to the injury or death of
individuals.
Group H&S Policy requires high standards of H&S
management at all sites, implemented through performance
monitoring, risk assessment and management and mitigation
of identified risks.
As well as being a failure of its duty of care to
its employees and contractors, this adversely
impacts operations and results in regulatory
action being taken. This results in litigation,
resultant damages and damage to reputation.
The most senior manager for each business unit is
responsible for H&S, supported by site managers and senior
HR officers who are responsible for ensuring all activities
under their control are carried out in line with the Group H&S
Policy and management systems. Every unit is required to
report its H&S KPIs to the Group Risk Manager who reports
them to the Board. Each site has an H&S Manager who as
a minimum must be trained and qualified according to local
legislation. All employees are responsible for reporting all
incidents and near misses on site and on the way to or from
work to their H&S Manager.
Product liability
Increased focus on growth of Speciality
products potentially leads to more exposure
to Product Liability claims.
Products are tested and measured against stringent
standards with quality control teams periodically improving
and measuring progress.
Compliance and ethics risks
Non-compliance with laws
and regulation
Non-compliance with any applicable laws/
regulations (including those relating to
bribery and corruption, human rights and
competition/anti-trust) by Coats or one of
its major trading partners results in civil or
criminal liabilities, individual or corporate fines
and reputational damage. It could also result
in being excluded from government related
contracts.
Coats’ global insurance programme includes product liability
cover.
Coats is committed to the highest standards of corporate
and individual behaviour as set out in the Ethics Policy and
the Code of Business Conduct. Online compliance training on
anti-bribery and corruption, competition/anti-trust and ethics
is repeated periodically for all senior employees and those in
high risk positions. The Chief Legal & Risk Officer and Group
Company Secretary attends and also sits as a member of the
Management Board.
Coats has a whistle-blower system, enabling employees who
are aware of, or suspect, misconduct, illegal activities, fraud,
abuse of assets or violations of any group policy, to report
these confidentially.
The Strategic Report comprising pages 2 to 20 was approved by the Board on 18 March 2015.
Mike Clasper
Chairman
Coats Group plc
20
Annual Report 2014
I am pleased to introduce the Corporate Governance
Report. This is the first since I became Chairman and
since we made the corporate and Board changes
announced on 26 February 2015.
I believe it is essential that every company
has in place robust corporate governance
arrangements to underpin the work of the
Board. We have worked hard during the
year to develop our governance structures
to ensure they are appropriate and to
support our transition from an investment
company, with a diversified portfolio of
assets, to a global manufacturing business
with FTSE 250 aspirations. In this section of
our Annual Report we have set out our
approach to governance and provided
further information on the operation of the
Board and its Committees. Some of this
report refers to arrangements which were
in place during the financial year ended
31 December 2014. We have also set out
our current arrangements and indicated
where these will change going forward.
Governance
Other than as referred to in this report, the
Company complied with the UK Corporate
Governance Code issued in September 2012
(the Code) and with its equivalent in
Australia. It should be noted that the Code
may materially differ from the corporate
governance rules of NZX Limited (NZX) and
the principles of NZX’s Corporate
Governance Best Practice Code but the
Company is not obliged to comply with
these.
Board composition and succession
planning
I was appointed to the Board on
20 February 2014 and became Chairman on
16 April when Rob Campbell stepped down
as Chairman. Rob remained a Director until
his resignation on 2 March 2015. I would
like to take this opportunity to thank him
for his time as Chairman and as a Director.
Scott Malcolm and Waldemar Szlezak also
resigned on 2 March 2015 and the Board
thanks them for their contributions during
the successfully completed asset realisation
programme.
We were delighted to welcome a number of
new Directors to the Board. Ruth Anderson
joined the Board as an independent
Non-Executive Director on 16 April 2014
having joined the Board of Coats plc on
2 January 2014. On 2 March 2015 the five
Directors of the subsidiary company, Coats
plc, who were not already on the Board of
Coats Group plc were appointed to it. David
Gosnell and Alan Rosling both joined as
independent Non-Executive Directors
bringing the total number of independent
Directors, excluding me, to four while Paul
Forman, Richard Howes and Rajiv Sharma
joined the Board as Executive Directors.
I believe that these appointments result in a
strong Board with the appropriate mix of
skills and experience. We will, however,
keep this under review. The Nominations
Committee, which I chair, will review the
Board’s structure, size and composition and
make recommendations to the Board on
succession planning, taking into account the
challenges and opportunities facing the
Company. Our Directors’ experience is
varied and they bring a wealth of
knowledge and skills to bear on all aspects
of the management of the Group.
Biographical details, which include a
summary of particular experience, skills and
qualifications are set out on pages 22 to 23
of this report. Senior management are
regularly invited to attend Board meetings
to present and there is an effective level of
communication, challenge and support
between the Board and management.
Board focus
Naturally, during 2014 the Board
concentrated most of its work on
stewardship of the Company and engaging
actively with the UK Pensions Regulator
(tPR).
Supported by the Audit and Risk
Committee, the Board has also increased
and deepened its focus on risk over the
period. The Financial Reporting Council has
highlighted, in the 2014 Code, that
companies are expected to give a broader
and clearer view of risk management than
may have been the case previously. We
provide an overview of Principal risks and
uncertainties on pages 6 to 7 and 18 to 20.
Further detail on the matters discussed by
the Board through the year is set out on
page 28 of this report.
Mike Clasper
Chairman
Coats Group plc
18 March 2015
Annual Report 2014
21
Overview and strategic reportCorporate governanceFinancial statementsChairman’s introductionCoats financial information Corporate governance
Board of Directors
1
3
5
7
9
2
4
6
8
10
22
Annual Report 2014
1. Mike Clasper, CBE
Chairman
Mike has over 35 years’ experience in general
management and marketing for global
companies, with a particular focus on brands
and business services.
He is currently Chairman of Which? Ltd., is
the Senior Independent Director at Serco
Group plc and was until recently Senior
Independent Non-Executive Director of
ITV plc. Mike is also President of The
Chartered Management Institute.
Mike has served as Chief Executive Officer of
BAA plc, Chairman of HM Revenue &
Customs, Operational Managing Director at
Terra Firma, and also held a number of senior
management positions at Procter & Gamble.
He holds an MA in Engineering, St John’s
College Cambridge.
Appointed: February 2014 (Previously appointed to
Coats plc Board, August 2013)
Committee member: Nominations (Chair)
2. Mike Allen
Independent Non-Executive Director
Mike has over 25 years’ experience in
investment banking and general
management, both in New Zealand and
the UK.
He is a Non-Executive Director of Watercare
Services Ltd., Godfrey Hirst NZ Ltd. and Tainui
Group Holdings Ltd.
Mike is also the current Chairman of PGG
Wrightson Finance. He previously held various
senior roles at Southpac Corporation and
Westpac in New Zealand.
Appointed: September 2010
Committee member: Remuneration; Nominations
3. Ruth Anderson
Independent Non-Executive Director
Ruth is a chartered accountant and worked
with the accounting firm KPMG LLP for 33
years, from student accountant to UK vice
chairman. While at KPMG she worked with
many global businesses.
Ruth is currently Non-Executive Director at
Ocado Group plc and Travis Perkins plc.
She is also a Director of The Royal Parks,
which is an executive agency of the
Department of Culture Media and Sport
and is a trustee of the Duke of Edinburgh’s
Award Charity. She was born in Enniskillen,
Northern Ireland and has a BA in French and
Spanish from the University of Bradford.
Appointed: April 2014 (Previously appointed to
Coats plc Board, January 2014)
Committee member: Audit and Risk (Chair),
Nominations
4. Sir Ron Brierley
Non-Executive Director
Sir Ron Brierley founded Brierley
Investments Ltd in 1961.
He was appointed in March 1990 to the
Board of GPG, now known as Coats Group
plc, and continued to apply and develop his
established approach within the Company.
On 9 December 2010 he retired as
Chairman of the Company but remains on
the Board as a Non-Executive Director.
Appointed: March 1990
Committee member: Nominations
5. Paul Forman
Group Chief Executive
Paul joined Coats in November 2009 and
became Group Chief Executive on
31 December 2009.
Paul has wide experience in global
manufacturing, as well as strategy
consultancy and M&A advisory services.
Before joining Coats he was Group Chief
Executive of Low & Bonar PLC, a global
performance materials group, quoted on
the London Stock Exchange, and prior
to that was MD at Unipart International,
the leading European automotive
aftermarket supplier.
Paul has served as a Non-Executive Director
at Brammer PLC from 2006 to 2010 and
on 1 January 2015 was appointed a
Non-Executive Director at Tate & Lyle plc.
Paul holds an MA in English from Fitzwilliam
College, Cambridge.
Appointed: March 2015 (Previously appointed to
Coats plc Board, December 2009)
6. David Gosnell
Independent Non-Executive Director
David has over 30 years’ experience in
supply and procurement strategy and
execution.
In December 2014, he retired from Diageo
plc where he had most recently held the
role of President of Global Supply and
Procurement. He led a team of 9,000
people around the world across
manufacturing, logistics and technical
operations as well as managing Diageo’s
global procurement budget.
Prior to joining Diageo, David spent 25 years
at HJ Heinz in various operational roles.
David is also currently Non-Executive
Director of Brambles Ltd, the supply chain
solutions provider.
He holds a BSc (Hons) in Electrical and
Electronic Engineering from Middlesex
University and has completed Supply Chain
Manufacturing – Drive Operational
Excellence at INSEAD (Singapore).
previously an Executive Director of Tata
Sons, where his responsibility was
internationalisation of the Tata Group. From
1998 to 2003 he was Chairman of the
Jardine Matheson Group in India.
Appointed: March 2015 (Previously appointed to
Coats plc Board, February 2015)
Committee member: Audit and Risk;
Remuneration (Chair); Nominations
7. Richard Howes
Chief Financial Officer
Richard joined Coats as Chief Financial
Officer in February 2012. Previously he held
the equivalent position at Topaz Energy and
Marine, an oil field services company.
Richard also worked for FTSE 250 company
Geest plc, an international food
manufacturer, and was made CFO following
its takeover by the Bakkavor Group. Richard
qualified as a Chartered Accountant with
Ernst & Young before joining Dresdner
Kleinwort Benson’s Corporate
Finance team.
His experience encompasses a broad range
of financial and commercial responsibilities
including debt and equity capital market
transactions and M&A as well as leading
senior management functions.
Richard holds a BSc (Hons) in Geography
from Loughborough University.
Appointed: March 2015 (Previously appointed to
Coats plc Board, February 2012)
8. Blake Nixon
Non-Executive Director
Blake Nixon has wide corporate experience
in the UK and overseas.
He is a founding partner of Worsley
Associates LLP, an activist fund manager.
On 30 June 2011 Blake ceased to be an
Executive Director and became a Non-
Executive Director of GPG, now known as
Coats Group plc.
Appointed: March 1990
Committee member: Nominations
9. Alan Rosling, CBE
Independent Non-Executive Director
Alan’s international experience spans
business development and the energy,
government and policy, textiles and banking
arenas.
Alan chairs Griffin Growth Partners, a
specialist strategic advisory firm that assists
clients in developing and implementing
winning strategies in India. He is also
co-founder of Kiran Energy, a solar power
developer based in Bombay and was
His earlier career included positions as
Special Advisor to the British Prime Minister,
Rt. Hon. John Major MP, and as a member
of the Policy Unit at No.10 Downing Street;
Strategy Development Director, United
Distillers plc; Chief Executive, Piersons (a
division of Courtaulds Textiles plc); and
an investment banker with S.G. Warburg &
Co Ltd.
Alan was educated at Downing College,
Cambridge, and the Harvard Business
School. He was made an OBE in 1994 and a
CBE in 2014.
Appointed: March 2015 (Previously appointed to
Coats plc Board, October 2011)
Committee member: Audit and Risk;
Remuneration; Nominations
10. Rajiv Sharma
Global CEO, Industrial
Rajiv joined Coats in November 2010 to lead
the Industrial business and is responsible for
its global operations.
Prior to joining Coats, Rajiv worked at
companies such as Westinghouse, SAAB,
Honeywell, GE and Shell, and his experience
spans sales, marketing, M&A, business
development and operations. The majority
of his career has been dedicated to growing
or turning around businesses.
Rajiv has a degree in Mechanical
Engineering, as well as an MBA from the
University of Pittsburgh, USA. He has lived
in many different countries and covered all
continents during his career.
Appointed: March 2015 (Previously appointed to
Coats plc Board, December 2014)
During the year Rob Campbell, Scott
Malcolm (Chair of the Remuneration and
Nominations Committee), and Waldemar
Szlezak served on the Board. All stepped
down with effect 2 March 2015.
Annual Report 2014
23
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information The Directors present their Annual Report and
audited financial statements for the year ended
31 December 2014.
Shareholder authority for the Company to
purchase up to 210,944,275 of its own
shares was granted at the 2014 Annual
General Meeting. No shares were
purchased pursuant to this authority during
the year.
Research and Development (R&D)
The Group has a number of ongoing R&D
projects focused on developing added value
products aimed at the industrial market
segments, as well as continuing to develop
its proprietary colour management systems.
Employee issues
A description of the Company’s employee
policies applied during the year and details
of our Employee Engagement survey can be
found on page 12 of this Annual Report.
Disabled employees
Applications for employment by disabled
persons are always fully considered, bearing
in mind the aptitudes of the applicant
concerned. In the event of members of staff
becoming disabled, every effort is made to
ensure that their employment with the
Company continues and that appropriate
training is arranged. It is the policy of the
Company that the training, career
development and promotion of disabled
persons should, as far as possible, be
identical to that of other employees.
Shareholder authority for the Company to
allot shares up to an aggregate nominal
amount of £23,453,888 was granted at the
2014 Annual General Meeting. No shares
were allotted pursuant to this authority
during the year. However, taking into
account allotments during the year
following the exercise of options by the
Company’s share option scheme
participants, the issued share capital of the
Company at 31 December 2014 was
£70,380,614 divided into 1,407,612,282
ordinary shares of 5 pence each. The
Company’s Ordinary Shares are listed on the
London Stock Exchange, the main Board
equity security market operated by NZX
Limited (the ‘New Zealand Stock Exchange’)
and on the Australian Securities Exchange.
The principal register is held in the UK.
Branch registers are maintained in New
Zealand and Australia.
Property, plant and equipment
Details of property, plant and equipment
are set out in note 14 to the financial
statements.
Stuart Morgan
Company Secretary
Results and dividends
The results of the Group are shown on page
46 and movements in reserves are set out in
note 28 to the financial statements.
The Company paid no interim dividend in
respect of the year ended 31 December
2014 (2013: £Nil). The Directors do not
propose a final dividend (2013: £Nil).
Post balance sheet events
On 19 February 2015 the Company
announced that Coats had agreed to sell its
EMEA Crafts business to Aurelius Group.
This transaction is expected to complete in
Q2 2015.
On 26 February 2015 the name change
from Guinness Peat Group plc to Coats
Group plc became effective.
Share capital
Details of the Company’s issued share
capital, together with details of the
movements in the Company’s issued share
capital during the year, are shown in note
27. The Company has one class of Ordinary
Shares, which does not carry the right to
receive a fixed income. Each share carries
the right to one vote at general meetings of
the Company. There are no restrictions or
agreements known to the Company that
may result in restrictions on share transfers
or voting rights in the Company. There are
no specific restrictions on the size of a
holding, on the transfer of shares, or on
voting rights, all of which are governed by
the provisions of the Articles of Association
and prevailing legislation.
24
Annual Report 2014
Corporate governanceDirectors’ report Substantial interests
As at 31 December 2014 the Company had been notified, in accordance with Chapter 5 of
the Disclosure and Transparency Rules, of the following voting rights as a shareholder of
the Company (See table below).
Substantial interests
Holder
9.01%
Quantum Strategic Partners
7.27%
M&G Investment Funds
6.26%
Orbis Holdings Limited
5.66%
MSD Capital
5.19%
Invesco Asset Management Limited
Since the year end and up to 18 March 2015 the Company has not received notifications of any changes, in accordance with
Chapter 5 of the Disclosure and Transparency Rules.
133,201,970
102,376,275
88,157,848
79,606,443
73,120,000
Auditor
A resolution to re-appoint Deloitte LLP as
auditor will be proposed at the 2015 Annual
General Meeting. A statement in respect of
the auditor, in accordance with Section 418
of the Companies Act 2006, has been
included in the Directors’ responsibilities
statement on page 41.
Disclosures required under Listing Rule
9.8.4R
There is no information required to be
disclosed by Listing Rule 9.8.4R.
This Directors’ Report was approved by
order of the Board.
Financial instruments
Disclosure of the use of financial
instruments by the Group can be found in
note 35 to the financial statements.
Political donations
No contributions were made to political
parties during the year (2013: £Nil).
Directors and their responsibilities
The current Directors who served during the
year and up to the date of this report are
detailed on pages 22 to 23.
Details of those Directors seeking election
or re-election at the forthcoming Annual
General Meeting of the Company will be
included in the Notice of that meeting to be
sent to shareholders in due course.
A report on Directors’ responsibilities
appears on page 41.
Further discussion of the Board’s activities,
powers and responsibilities appears within
the Corporate governance section on pages
26 to 28. Information on compensation for
loss of office is contained in the Directors’
remuneration report on pages 32 to 40.
Stuart Morgan
Company Secretary
Coats Group plc
18 March 2015
Greenhouse Gas Emissions
For the year ended 31 December 2014,
Coats reported the following emissions:
Global tonnes of CO2ea,b
Direct (Gas, coal, oil)
Indirect (Electricity)
2014
93.1
251.5
2013
114.2
247.6
a Based on 2014 UK DEFRA GHG reporting guidance and
conversion factors. Includes Scope 1 – direct emissions
from the combustion of fuel (Gas, Coal and Oil) and Scope
2 – indirect emissions from the purchase of electricity.
b Emissions reported are from energy consumption in our
global operations.
Details of Coats’ emissions per kg of dyed
product are provided on page 13 of this
Annual Report.
Annual Report 2014
25
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Listings
The Company is a premium listed issuer on
the London Stock Exchange and its shares
are also quoted on the Australian Securities
Exchange (‘ASX’) in CDI form. In addition it
is an Overseas Listed Issuer on the New
Zealand Stock Exchange.
Compliance
The Board of Directors remains fully
committed to the principles of best practice
in corporate governance and throughout
2014 has complied, except as otherwise
noted, with the UK Corporate Governance
Code issued in September 2012 (the Code)
which can be found at www.frc.org.uk.
Directors. Four of the Non-Executive
Directors are considered to be independent
and free of any business relationships that
could compromise the exercise of
independent and objective judgement. Two
Non-Executive Directors are not considered
independent. Sir Ron Brierley is not
considered to be independent because of
his length of service and Blake Nixon was
previously an Executive Director.
All the Directors, whether judged
independent or not, challenge assumptions
effectively and assist management in the
development of strategy and the effective
leadership of the Group.
Chairman and Chief Executive. Following
the appointment of the Chief Executive,
Paul Forman to the Board on 2 March 2015,
this separation has been documented.
Role of the Chairman
Mike Clasper, the Chairman, leads the
Board, and is responsible for its
effectiveness and governance. He sets the
tone for the Company and ensures that the
links between the Board and management
and between the Board and shareholders
are strong. He sets the Board agenda and
ensures that sufficient time is allocated to
important matters, in particular those
relating to strategy issues.
Mike Clasper was appointed to the Board
on 20 February 2014. Further information
on Mike is set out on page 22 along with
the biographies of the other Directors.
Role of the Chief Executive
Paul Forman was appointed to the Board on
2 March 2015, having been Chief Executive
of Coats plc since 31 December 2009.
Paul is responsible for the day-to-day
management of the Group’s operations, for
recommending the Group’s strategy to the
Board and for implementing the strategy
agreed by the Board. He is supported in
decision-making by a Management Board
comprised of senior managers.
Senior Independent Director
The Code provides that a company should
identify a senior independent Non-Executive
Director. During the year under review, the
Company did not have such a designated
director and the independent Non-
Executive Directors collectively fulfilled the
role set out in the Code in respect of a
senior independent director. In particular, in
respect of shareholder communications
with the Board, if a shareholder found that
contact through the normal channels of the
Chairman had failed to address particular
The Board met regularly throughout the
period. There were nine scheduled meetings
in 2014. Directors are expected to attend all
meetings of the Board, and the Committees
on which they sit, and to devote sufficient
time to the Company’s affairs to enable
them to fulfil their duties as Directors. The
Directors were located in the UK, Australia,
New Zealand and the USA and this
geographical diversity meant that it was not
always possible for every Director to attend
all Board and Committee meetings. In the
event that Directors were unable to attend
a meeting, their comments on papers to be
considered at the meeting were discussed in
advance with the Chairman so that their
contribution could be included in the wider
Board discussion.
The table at the foot of this page shows
Directors’ attendance at scheduled Board
and Committee meetings in 2014.
Governance structure
Division of responsibilities between the
Chairman and Chief Executive
During the year under review, the Company
was an investment holding company and
had no Executive Directors and so there was
no requirement to formally document the
separate roles and responsibilities of a
Directors’ attendance at 2014 Board and Committee meetings
Director
Mike Clasper (Chairman) (appointed 20 February 2014) (1)
Mike Allen
Ruth Anderson (appointed 16 April 2014)
Sir Ron Brierley
Rob Campbell (resigned 2 March 2015)
Scott Malcolm (resigned 2 March 2015)
Blake Nixon
Waldemar Szlezak (resigned 2 March 2015)
Audit
and Risk
N/A
N/A
4/4
N/A
N/A
N/A
7/7
N/A
Remuneration
and
Nominations2
3/3
3/3
3/3
3/3
3/3
3/3
3/3
2/3
Board
8/8
8/9
5/6
5/9
8/9
8/9
8/9
3/9
1 Mike Clasper also attended the Board meeting on 12 February by invitation
2 Since 2 March 2015 the work of this Committee has been split between two new Committees: the Remuneration
Committee and the Nominations Committee
As an ASX listed company the Company is
required to explain any deviation from the
ASX Corporate Governance Council’s
Corporate Governance Principles and
Recommendations (3rd edition) (ASX
Governance Principles). More information
on the ASX Governance Principles can be
found at www.asx.com.au. It should be
noted that the Code may differ materially
from the corporate governance rules and
the principles of NZX’s Corporate
Governance Best Practice Code but the
Company is not obliged to comply with
these.
Leadership
The Role of the Board
The Board is responsible to the shareholders
for the management of the Group’s assets
and operation. It is also ultimately
responsible for the management,
governance, controls, risk management,
direction and performance of the Group.
During the year under review, the Directors
were situated in the UK, Australia, New
Zealand and the United States of America
and had in place suitable communication
and reporting systems which enabled them
to monitor, on a timely basis, the Group’s
activities.
The Board is responsible for the Group’s
strategy and for its overall management. All
matters are reserved for the Board unless
specifically listed in the terms of reference
for Committees of the Board or where the
Board has delegated its authority. A formal
schedule of delegated authorities is
reviewed by the Board annually.
Composition of the Board and Board
Meetings
During the year under review, the Board
considered the Company a small company
for the purposes of the Code and, as such,
had, at all times during 2014, at least two
independent Non-Executive Directors as
prescribed by the Code. The Board currently
consists of an independent Chairman, six
Non-Executive Directors and three Executive
26
Annual Report 2014
Corporate governanceCorporate governance concerns, then these could be conveyed to
any of the independent Non-Executive
Directors whose wide experience enabled
them to deal appropriately with any such
enquiries.
Following the structural changes announced
on 26 February 2015, the Board intends to
appoint a Senior Independent Director in
due course.
Board Committees
The Board has delegated specific
responsibilities to each of the Audit and
Risk, Remuneration and Nominations
Committees, details of which are set out
below. Each Committee has written terms
of reference setting out its duties, authority
and reporting responsibilities. Copies of all
the Committee Terms of Reference are
available via the Company’s website
www.coats.com.
The Terms of Reference are kept under
review to ensure they remain appropriate
and reflect any changes in legislation,
regulation or best practice. They are
reviewed formally on an annual basis by the
relevant Committee and the Board. The
Chairman of each Committee reports on
the proceedings of the previous Committee
meeting at the following Board meeting
matters.
Audit and Risk Committee
During 2014 this Committee consisted of
Ruth Anderson as Chairman from 16 April
2014, and Blake Nixon (previously
Chairman) and David Wadsworth FCA.
David Wadsworth is not a Director of the
Company but was appointed in 2009 to
comply with the Code requirement that the
Committee included a member with recent
and relevant financial expertise. Mr
Wadsworth was formerly a partner at
Deloitte LLP. Ruth Anderson, who was
appointed as Chairman on 16 April 2014
also has recent and relevant financial
expertise. Mr Wadsworth resigned on
28 February 2015. The composition of the
Committee was not fully compliant with the
Code or the ASX Governing Principles
throughout 2014 as it did not have the
requisite number of independent Non-
Executive Directors. However, following the
appointment of David Gosnell and Alan
Rosling to the Committee on 2 March 2015
it is now fully compliant. It was compliant
with the ASX Governance Principles
recommendation that the Chairman be an
independent Director from the date of the
appointment of Ruth Anderson.
Remuneration and Nominations
Committee
During the year under review, this
Committee consisted of Scott Malcolm as
Chairman together with all other Non-
Executive Directors of the Company. During
the year, the Committee monitored,
reviewed and set the Group’s remuneration
policy as set out in the Directors’
remuneration report on pages 32 to 40.
It was also tasked with establishing and
agreeing with the Board the policy for
Board appointments.
During the year under review, the
Committee performed the functions of the
Nominations Committee. Following careful
consideration by all members of the Board,
Mike Clasper was appointed to the Board
on 20 February 2014 and Ruth Anderson
was appointed to the Board on 16 April
2014. At the time of their appointments,
both were directors of Coats plc (having
been appointed in August 2013 and January
2014 respectively) following a thorough
recruitment process involving external
search consultants, the Inzito Partnership,
which has no other connections to the
Company.
With effect from 2 March 2015, following
careful consideration by the Board, the
following directors of Coats plc were
appointed to the Board: Alan Rosling, Paul
Forman, Richard Howes, and Rajiv Sharma.
David Gosnell was also appointed to the
Board with effect from that date, having
been appointed as a director of Coats plc in
February 2015 following a thorough
recruitment process involving the Inzito
Partnership.
When searching for candidates for Board
appointments, the Board seeks to make
appointments on merit against objective
criteria with due regard to the benefits of
diversity. This includes gender diversity.
On 2 March 2015 the Committee was
renamed the Remuneration Committee and
its nomination work was transferred to a
new Nominations Commmittee. Both
Committees have written terms of reference
which are available via www.coats.com.
Remuneration Committee
The Remuneration Committee is currently
chaired by David Gosnell and its other
members are Alan Rosling and Mike Allen.
Nominations Committee
The Nominations Committee is chaired by
Mike Clasper and its other members
comprise all the Non-Executive Directors.
Pensions Committee
The Pensions Committee is an ad hoc
committee of the Board which has been
formed specifically to manage tPR related
pensions issues and have oversight of the
Company’s pension strategy. The Board has
delegated certain authorities relating to,
amongst other matters, the approval of tPR
related legal fees incurred. The Committee
reports and makes recommendations to the
Board on a regular basis. The Committee is
chaired by Mike Allen and, from 2 March
2015, its other members are David Gosnell;
Ruth Anderson; Blake Nixon; and Richard
Howes. Prior to 2 March 2015, during year
under review, the Committee consisted of
Mike Allen as Chairman; and its other
members were Rob Campbell; Scott
Malcolm; and Blake Nixon.
Effectiveness
The skills and experience of the Board are
set out in their biographical details on pages
22 and 23. The experience and knowledge
of each of the Directors gives them the
ability to constructively challenge strategy
and to scrutinise performance.
Induction of new Directors
On joining the Board, all Directors undergo
a thorough induction programme.
Ordinarily, Directors are advised of the time
required to fulfil the role prior to
appointment and are asked to confirm that
they can make the required commitment
before an appointment is made. However,
as a result of the evolving asset value
realisation process which concluded in
2013, together with the more recent need
to address tPR’s investigations, it has not
been possible to quantify the time
commitment required from Directors, nor
the commitment which will be required
going forward. The letters of appointment
of Non-Executive Directors, therefore, do
not set out their expected time
commitment, although all Directors have
undertaken to provide sufficient time to
engage effectively on behalf of
shareholders. The Board is satisfied that
each of the Non-Executive Directors has
been able to devote sufficient time to the
Company’s business.
Evaluation
During the year, the Board conducted a
formal evaluation of its members. Each
Director was invited to submit an evaluation
of their performance during the year with
particular regard to how they have
contributed to the effectiveness and
timeliness of the asset realisation process,
the functional wind-down of GPG
operations, the preparation process to allow
Coats to stand alone and the handling of
the tPR investigations, as well as their
contributions and commitments to the
Board and its Committees. The Chairman of
the Board was invited to comment on each
evaluation. The Chairman’s evaluation was
considered by the other members of the
Board. The outcome of these evaluations
allows the Board to conclude that it is
Annual Report 2014
27
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information satisfied with the effectiveness and
appropriateness of the composition of the
Board and its Committees.
Continuing development
All Directors are advised of changes in
relevant legislation and regulations and
changing risks, with the assistance of the
Company’s advisers where appropriate.
Directors’ interests
The interests of the Directors, including
their connected persons, in the share capital
of the Company and its subsidiaries are set
out in the Directors’ remuneration report on
pages 32 to 40. No Director, either during
or since the end of the year under review,
was or has become interested in any
material contract (not being a contract of
employment) with the Company or any of
its subsidiaries.
Conflicts of interest
At each meeting the Board considers
Directors’ conflicts of interest. The
Company’s Articles of Association provide
for the Board to authorise any actual or
potential conflicts of interest.
Independent professional advice
Directors have access to independent
professional advice at the Company’s
expense. In addition, they have access to
the advice and services of the Group
Company Secretary who is responsible for
advice on corporate governance matters to
the Board.
Directors and officers liability insurance
As recommended by the Code, Coats Group
plc provides certain protections for directors
and officers of companies within the Group
against personal financial exposure that they
may incur in the course of their duties. In
addition, the Company has provided an
indemnity for its Directors to the extent
permitted by law in respect of the liabilities
incurred as a result of their office.
Election of Directors
In accordance with the Articles of
Association all the Directors appointed
during the year will offer themselves for
election by the shareholders at the Annual
General Meeting. In addition, Mike Allen
will retire by rotation in accordance with the
Articles of Association and offer himself for
re-election. It is proposed that a resolution
will be tabled at the Annual General
Meeting to amend the Articles of
Association to require all continuing
Directors of the Company to offer
themselves for election or re-election each
year, which is best practice under the Code.
28
Annual Report 2014
Board decisions and activity during
the year
Each year the Board agrees a schedule of
regular business, financial and operational
matters to be addressed by the Board and
its Committees during the course of the
year and this ensures that all areas for which
the Board has responsibility are reviewed.
Directors receive Board and Committee
papers one week prior to meetings.
Senior management and professional
advisers are invited to attend Board and
Committee meetings where appropriate to
contribute to discussions and advise
members of the Board or its Committees on
particular matters. The involvement of the
senior management at Board and
Committee discussions strengthens the
relationship between the Board and its
operating business and helps to provide the
Board with a greater understanding of
operations and strategy.
Accountability
Annual Report and Financial Statements
The Board considers that the Annual Report
and financial statements, taken as a whole,
are fair, balanced and understandable and
provide the information necessary for
shareholders to assess the Company’s
performance, business model and strategy.
The Board is responsible for determining the
nature and extent of its principal risks and
for determining the extent of the Group’s
risk appetite. The Audit and Risk Committee
is tasked with keeping the effectiveness of
the Group’s risk management framework
under review and the Group’s approach to
the management of risk is set out on pages
6 to 7.
Going Concern
The Company’s business activities, together
with the factors likely to affect its future
development, performance and position are
set out in the Chairman’s Statement.
In addition, note 35 to the financial
statements includes the Company’s
objectives, policies and processes for
managing its capital; its financial risk
management objectives; details of its
financial instruments and hedging activities;
and its exposures to credit risk and liquidity
risk. The Directors believe that the Company
is well placed to manage its business risks
successfully.
At the year end the Parent Group had cash
totalling £375 million (2013: £383 million).
The Parent Group also has various other
actual and contingent liabilities. The Board
expects to be able to meet these obligations
from existing resources. Further information
on the net cash position of the Group is
provided in the table at the foot of the
Consolidated statement of cash flows.
Giving due consideration to the nature of
the Group’s business and underlying
investments, taking account of the following
matters: the ability of the Group to realise
its liquid investments and to manage the
timing of such liquidations; the Group’s
foreign currency exposures; the potential
requirement to provide financial support to
the Group’s UK pension schemes; the
appropriate capital structure to be adopted
in the future; and the factors which will
determine further returns of surplus cash to
shareholders; and also taking into
consideration the cash flow forecasts
prepared by the Group and the sensitivity
analysis associated therewith, the Directors
consider that the Company and the Group
are going concerns and these financial
statements are prepared on that basis.
Relations with shareholders
The Group has a dedicated Investor
Relations function and a website
focussed on information and updates
relevant to public shareholders
(www.coats.com/investors).
The Board receives regular updates on
investor communication activity, changes to
the shareholder register and analysis of
share price performance.
The Board considers transparency and
openness to be a key feature of its stated
strategy and endeavours to ensure that
both the market and shareholders are made
aware, as soon as possible, of any matters
which may be of interest and that regular
updates are released to the market. The
Group has a formal policy on continuing
disclosure and communications with
shareholders.
Presentations are made to analysts and
shareholders covering the Company’s
Preliminary Results and its half year results
each year.
Annual General Meeting
The Board considers the Annual General
Meeting (“AGM”) to be a useful forum to
develop an understanding of the views of
its shareholders. At its 2014 AGM the
Chairman provided an additional report
to shareholders.
Copies of these presentations and reports
and the results of proxy voting at the 2014
AGM were released to the markets and can
be found on the Company’s website
www.coats.com.
This year’s AGM will be held on 21 May
2015 in London.
Corporate governanceCorporate governance continued Our work during the year has led us to conclude that
the internal control and risk management systems
within the business remain effective.
Ruth Anderson
Chairman, Audit and Risk Committee
Finally, a key element of the Committee’s
work is to review the internal control
and risk management systems of the
business. Our work during the year has led
us to conclude that they continue to be
effective.
I will be available at the AGM to answer
any questions about our work.
Ruth Anderson
Chairman, Audit and Risk Committee
Dear Shareholder,
As Chairman of the Audit and Risk
Committee (‘the Committee’), I
am pleased to report below on the
Committee’s activities in 2014.
I succeeded Blake Nixon as Chairman of
the Committee on 16 April 2014 and I
would like to thank him for his work as
Chairman. Blake remained a member
of the Committee throughout 2014,
along with David Wadsworth, who was
co-opted onto the Committee in 2009,
and both David and I were considered
to have the recent and relevant financial
experience required by the Code. The
attendance of Committee members is
set out on page 26. The Group Chairman
and senior executives also attended
Committee meetings and we received
reports from the Operational Risk
Management Committee, the meetings
of which I have a standing invitation to
attend.
One of my first actions as Chairman
was to ask the Committee to review its
terms of reference; the updated terms of
reference can be found via our website
at www.coats.com/governance. The
Committee has an annual work plan
to ensure that it covers all the work
required of it and in addition to this plan
it considered a number of significant
accounting issues which are described in
more detail in this report below.
Introduction
The Committee is responsible on behalf of
the Board for monitoring, amongst other
things:
> the financial reporting process, the
integrity of the financial statements of the
Company, and any other formal
announcements relating to its financial
performances and reviewing significant
financial reporting judgments contained
in them;
> the effectiveness of the internal financial
controls and the controls and risk
management systems of the Company;
> the terms of engagement of the external
auditor, its remuneration, its
independence and objectivity and the
effectiveness of the external audit
process;
> developing and implementing the
Company’s policy on the supply of
non-audit services by the external auditor;
and
> compliance with statutory obligations and
corporate governance requirements. In
particular, during the year it had direct
oversight of the financial reporting
process of the Company and of its
subsidiary Coats plc. Members of the
Coats plc board had a general standing
invitation to attend the meetings of the
Committee. The Committee meets as
required in advance of and during the
annual audit process and to consider the
final output, as well as to consider the
half-year announcement.
> The Committee regularly makes itself
available to meet with the external and
internal auditor without the presence of
executive management.
Annual Report 2014
29
Overview and strategic reportCorporate governanceFinancial statementsAnnual statement by the Chairman of the Audit and Risk CommitteeCoats financial information
The Committee has formally reported to the Board on how it has discharged its responsibilities.
The Committee has an annual work plan. This includes standing items that the Committee considers regularly in addition to any specific
matters that require its attention and topical items on which it has chosen to focus.
Significant accounting issues considered during the year
Significant financial and reporting issues considered by the Committee in the year, in no particular order, were as
follows:
Significant financial and
reporting issue
Pension matters – valuation of
obligations and disclosure
How the issue has been addressed
The Committee reviewed the methodology for determining key assumptions underpinning the valuation of
liabilities of the Group’s most significant pension schemes under International Accounting Standards. The
Committee also reviewed in detail the various aspects of the continuing obligation to the Group’s ongoing
schemes, including the potential impact of tPR’s investigation, and is satisfied that the disclosure relating to
these provides an appropriate balance.
The carrying value of intangible
assets
The Group has significant balance sheet values relating to intangible assets with indefinite lives (brands).
Following input from executive management, the Committee has considered these carrying values and agreed
impairment adjustments where necessary.
The carrying value of tangible
assets
The Committee also reviewed evidence of impairment of tangible assets. This entails identifying loss making
business activities and interrogating the related business plans. The Committee is satisfied the carrying value of
tangible fixed assets is recoverable.
US environment provisions
Other provisioning
Taxation
The Committee has considered management’s position on the accounting and disclosure implications
surrounding the Lower Passaic River following the publication of the Focused Feasibility Study by the US
Environmental Protection Agency during the year and concurs with the treatment adopted and related
disclosures.
The Committee considered the various judgments made by management in setting other provisions, the
main areas being in respect of property and costs associated with tPR’s investigation and is satisfied with the
judgments made.
The Group operates in numerous jurisdictions around the world and the sheer variety of regulation together
with the quantum of cross-border transactions gives rise to inherent risks. The Committee has reviewed
management’s reports on tax risks and is satisfied with the judgments taken in preparing the financial
statements.
Going Concern
The Committee reviewed a detailed paper
presented by management setting out the
assumptions underlying the going concern
statement. The paper covered the Group’s
current financing, budgets and forecasts
and assessments of principal risks and
uncertainties. The Committee considered
this report, the report of the external
auditors and also in particular issues relating
to tPR’s investigations and concluded that
there is a reasonable expectation that the
Company and the Group will have adequate
resources to continue in operational
existence for the period of assessment of
twelve months from the date of signing the
accounts. The Committee reported
accordingly to the Board.
External Audit
The Committee is also responsible for
making recommendations on the
engagement and independence of the
Company’s auditor, Deloitte LLP. The audit
firm has a policy of partner rotation which
complies with regulatory standards and the
audit engagement partner changed with
effect from the beginning of the 2014
financial year in line with this requirement.
In addition, the auditor has a structure of
peer reviews for its engagements which is
aimed at ensuring from its perspective
independence is maintained. Deloitte LLP
was appointed the Company’s auditor in
2003 following an evaluation process
including the Company’s predecessor audit
firm. During the year a formal audit
tendering policy was approved. It was
agreed that, in the future, the audit would
be put out to tender at least every ten
years, although, in order not to adversely
affect the business, the Group would take
advantage of the FRC transitional
arrangements proposed at the time of the
publication of the 2012 Code. The
Committee considers maintaining an
independent relationship with the
Company’s auditor to be a critical part of
assessing the effectiveness of the audit
process. To this end the Committee
regularly reviews the level of audit and
non-audit fees paid to Deloitte LLP and also
has in place a policy for ensuring significant
assignments are not awarded to the auditor
without first being subject to the scrutiny of
the Committee. There are no contractual
obligations that restrict the Company’s
choice of external audit firm. The policy
requires the Committee to take action
based on the following categories of
non-audit services:
(i) Permitted services are those that fall
outside the scope of an audit and these
are managed with reference to the fee
levels whereby services with fees
exceeding certain amounts cannot be
provided by the auditor without the
prior approval of the Audit, and Risk
Committee. During 2014, these
permitted non-audit services were
primarily comprised of tax strategy,
compliance and reporting accountant’s
work in relation to The Pensions
Regulator’s (tPR) insufficiently resourced
tests for the Coats Pension Plan;
30
Annual Report 2014
Corporate governanceAnnual statement by the Chairman of the Audit and Risk Committee continued (ii) Other advisory services which are
deemed not to compromise the
independence of the auditor but are
reviewed on a case by case basis and
require the prior approval of the
Committee; and
(iii) Certain services, such as services
remunerated on a success fee or
participation in activities normally
undertaken by management, are
prohibited from being provided by the
auditor because of the potential to
compromise audit independence. The
Committee confirms that no such
services have been provided.
The Committee is satisfied that the policy
on the supply of non-audit services by the
Company’s auditor, Deloitte LLP, could not
lead to audit objectivity and independence
being compromised.
The scope of the external audit is
documented by the auditor in a formal
proposal. The draft proposal is discussed
with management before it is referred to
the Committee. The Committee then
reviews the draft and satisfies itself as to its
adequacy by further discussions with
management. The Committee suggests
changes to the plan as appropriate before
final approval.
The finance team and the external audit
team review the effectiveness of the audit
process at their closing meetings and
consider how it might be improved. Their
suggestions are then discussed with the
Committee. The Committee then meet
privately, without the external auditors
present, to discuss the overall performance
of the auditors and their independence and
objectivity, and potential reappointment.
Following the year under review, the
Committee concluded that there were no
concerns about the auditors’ performance,
and that they had maintained a suitable
level of independence and objectivity and
that it was therefore appropriate to
recommend their reappointment for the
2015 financial year. The Committee have
decided to enhance the review process by
issuing a questionnaire to all those involved
in the audit process, to seek further views
on its effectiveness and suggestions for
improvement.
Internal audit
The Code obliges Audit Committees to
consider the need for internal audit and to
make a recommendation to the Board. The
Committee considers Group’s operations to
be sufficiently widespread and complex to
require an internal audit function. The Head
of Group Internal Audit agrees the
department’s programme of work with, and
makes his reports directly to, the
Committee. Internal audit reports contain a
grading for each location visited and those
not reaching an acceptable standard are
scheduled for follow up visits as part of the
programme for the following year. In
addition to its rolling programme of
reviews, the Company’s Internal Audit team
carries out special reviews as the need
arises.
Whistleblowing procedure
The Company has a whistleblower system,
enabling employees who are aware of, or
suspect, misconduct, illegal activities, fraud,
abuse of assets or violations of any
Company policy, to report these
confidentially. The Committee is briefed on
the instances of whistleblowing at each
meeting by the Head of Group Internal
Audit.
Internal controls
The Board has overall responsibility for the
Group’s system of internal control and for
reviewing its effectiveness. It has delegated
to the Committee within its terms of
reference the formality of monitoring
compliance with this obligation and receives
regular reports from the Committee.
The reporting process ensures that all
significant business units within the Group
report to the Board as a whole in relation to
financial information, risk management and
internal control. The systems operated by
the Group are reviewed annually by
management and the results of these
reviews are reported to the Committee and
to the Board.
The Committee and the Board are satisfied
that these systems operate effectively in all
material respects in relation to financial
reporting risks. Furthermore, the Committee
and the Board are satisfied that this process
provides appropriate assurance regarding
the Group’s financial condition, operational
results, risk management and internal
compliance and control systems.
The Board considers that its system of risk
management and internal control is
operating effectively in all material respects
in relation to financial reporting risks.
However, the Company has not received the
declaration referred to in section 295A of
the Australian Corporations Act (as
recommended by Recommendation 7.3 of
the ASX Governance Principles), since the
Australian Corporations Act does not apply
to the Company.
The principal risks and uncertainties facing
the Company are addressed in the Strategic
Report and in the table on page 30 of this
report.
The Board has been notified of its
responsibilities for identifying key business
risks appropriate to its own business sector
and establishing appropriate and relevant
control and compliance procedures. The
Board is also required to acknowledge it is
responsible for the operation of its internal
control systems. Notwithstanding this, as
noted above, the Committee takes full
responsibility for reviewing the internal
control environment within the Company
and receives regular reports from
management, Internal Audit and the
external auditor.
Governance
The Committee has undertaken a review of
its own performance, focussing on the
Code requirements for Audit Committees,
via a new questionnaire. The results are
positive. The related comments will be
debated at a forthcoming Audit & Risk
Committee meeting, when the Committee
will agree whether there are actions which
should be taken to further improve the way
in which the Committee operates.
The Audit and Risk Committee Report
was approved by the Board of Directors on
18 March 2015 and signed on its behalf by:
Ruth Anderson
Chairman
Audit and Risk Committee
18 March 2015
Annual Report 2014
31
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information I am pleased to present the Directors’ remuneration report
for the year ended 31 December 2014
David Gosnell
Chairman, Remuneration Committee
Annual statement by the Chairman
of the Remuneration Committee
Dear Shareholder,
On behalf of the Remuneration
Committee (the ‘Committee’) I am pleased
to present the Directors’ remuneration
report for the year ended 31 December
2014.
This report includes the remuneration
policy for Directors as approved by
shareholders at the Annual General
Meeting (AGM) on 22 May 2014 and
discloses the amounts paid relating to the
year ended 31 December 2014.
Throughout 2014 the Committee
continued to prepare for the transition of
the Company from an investment
portfolio holding company with only
Non-Executive Directors to a more
traditional global LSE main market listed
company with a Board consisting of
Non-Executive and Executive Directors.
Prior to the AGM on 22 May 2014 the
Company consulted with major
shareholders on the details of the
remuneration policy for both Executive
and Non-Executive Directors. The policy
was intended to be appropriate for the
on-going Coats business and to adhere to
the latest best practice guidelines for a
FTSE company. I am pleased that the
policy and the associated share-based
incentive plans received overwhelming
support from our shareholders at the
2014 AGM.
No Executive Directors were appointed to
the Board during 2014. However, as
announced on 26 February 2015, Paul
Forman, Richard Howes and Rajiv Sharma
joined the Board as Executive Directors in
March 2015. The remuneration policy will
therefore, as planned, apply to the new
Executive Directors from 2015 onwards.
Mike Clasper joined the Board on 20
February 2014 and became Chairman on
16 April 2014. As disclosed in the 2013
Remuneration Report he elected not to
receive an additional fee from the
Company on appointment as a Non-
Executive Director of the Company. He
continued to receive a fee as Chairman of
the Board of Coats plc (a subsidiary of the
Company). From 1 June 2014 this
Chairman’s fee was paid by the Company.
The Chairman’s fee remained at the same
level following his appointment as Coats
plc Chairman and was not increased. Full
details of the fees paid to all Non-
Executive Directors are shown in this
report.
The Committee will continue to monitor
and evaluate the effectiveness of the
Company’s remuneration policy and
ensure that it remains aligned with the
interests of all the Company’s stakeholders
and provides an effective framework that
enables the Company to attract, retain
and incentivise the executives that the
Company needs to meet its objectives.
I joined the Board on 2 March 2015 and
have assumed responsibility as
Remuneration Committee Chairman from
Scott Malcolm following his decision to
retire from the Board.
David Gosnell
Chairman, Remuneration Committee
Directors’ Remuneration Policy
The Committee has responsibility for
determining remuneration for the
Company’s Directors including the
Chairman. The Committee takes into
account the need to recruit and retain
Directors who have the suitable skills and
experience to perform in the interests of the
Company and its shareholders, while paying
no more than is necessary.
It will need to ensure that any incentive
compensation for Executive Directors is
suitably motivational and will encourage any
such Executive Directors to meet stretching
performance targets within an acceptable
degree of risk.
The Committee’s policy is that remuneration
and benefit levels should be sufficiently
competitive, having regard to remuneration
practice in the industry and the countries in
which the Group operates, to attract,
incentivise, reward and retain Directors and
senior executives.
Although the Company did not have any
Executive Directors during 2014, the
Remuneration Policy set out below applies
to all Executive Directors who are appointed
to the Board during the life of this policy.
Non-Executive Directors
The Chairman and Non-Executive Directors
receive an annual fee (paid in monthly
instalments). The fee for the Chairman is set
by the Committee and the fees for the
Non-Executive Directors are approved by
the Board, on the recommendation of the
Chairman. In determining the appropriate
level of fees the Committee and the
Chairman consider advice from external
sources and data on the fee levels in other
similar companies. No individual is present
when his or her own level of remuneration
is discussed.
32
Annual Report 2014
Corporate governanceDirectors’ remuneration report for the year ended 31 December 2014 Non-Executive Directors’ remuneration policy table
Element
Purpose and link to strategy Operation
Fees
To attract and retain a
high-calibre Chairman and
Non-Executive Directors by
offering market competitive fee
levels.
The Chairman is paid an all-inclusive fee for all Board responsibilities. The other
Non-Executive Directors receive a basic Board fee, with supplementary fees payable for
additional Board responsibilities (if appropriate). The fee levels are reviewed on a
periodic basis, and may be increased taking into account factors such as the time
commitment of the role and market levels in companies of comparable size and
complexity.
Additional payments may be made above the basic Board fee if duties significantly
exceed expectations.
Supplementary fees.
Supplementary fees may be payable to the Senior Independent Director, Chair of the
Audit and Risk Committee and Chair of the Remuneration Committee.
No benefits or other remuneration will be provided to Non-Executive Directors.
Legacy matters
Two of the Non-Executive Directors hold
share options granted under the Guinness
Peat Group plc 2002 Executive Share
Option Scheme (“the Scheme”). Details of
share options granted to existing Non-
Executive Directors are set out on page 38
of the Annual Report.
These remain eligible to vest based on their
original award terms. The share options
were not granted subject to performance
targets, although as the options were
granted with an exercise price equal to the
share price at the date of grant, the options
are subject to an inherent share price target.
All such options are fully vested and are
capable of exercise in full.
The Scheme contains limited discretions
including determining the treatment of
leavers based on the rules of the relevant
plan and whether adjustments are required
in certain circumstances (eg rights issues,
corporate restructuring events and special
dividends). Any exercise of these discretions
would, where relevant, be explained in the
Annual Report on Remuneration.
Approach to recruitment remuneration
When recruiting Non-Executive Directors,
the remuneration arrangements offered will
be in line with those set out in the relevant
table above.
In determining the level of fees for a new
Non-Executive Director, the Committee will
take into account all factors it determines to
be relevant, including the skills and
experience of the individual and the need to
attract Non-Executive Directors of the
appropriate calibre. The Committee will also
take into account the level of fees offered
by equivalent companies.
Terms of appointment
Fees
Under their respective Non-Executive
Director appointment letters, all of the
Non-Executive Directors other than
Waldemar Szlezak are entitled to receive an
annual fee. Waldemar Szlezak’s
appointment letter reflected his agreement
not to receive any fee.
Sir Ron Brierley is eligible under his Non-
Executive Director appointment letter to
participate in the Scheme and staff bonus
scheme. However, no further options can
be granted under the Scheme and there is
no current or future intention to award Sir
Ron Brierley any bonus under the staff
bonus scheme. Sir Ron Brierley has elected
not to receive any fee as from 1 October
2013.
Mike Clasper elected not to receive any fee
in respect of his duties from his
appointment until 1 June 2014 (although he
did continue to receive his fee for being the
Chairman of Coats plc). With effect from
1 June 2014 this fee became payable by the
Company.
Term and termination provisions
None of the appointment letters contains a
set term of office.
None of the appointment letters (other than
for Sir Ron Brierley) contains a notice period.
Removal of the Non-Executive Directors
would be governed by the Articles of
Association of the Company.
Sir Ron Brierley’s appointment is terminable
by the Company on giving 18 months’
written notice or by Sir Ron Brierley giving
12 months’ written notice. In case of early
termination by the Company other than for
cause Sir Ron Brierley is entitled to receive a
payment in respect of any annual bonus for
the period to the date on which the notice
period would expire, based either (at Sir Ron
Brierley’s election) on the average bonus
paid in the preceding two financial years or
on the bonus actually declared (or which
would have been declared but for the
cessation of office) for the relevant financial
years. If Sir Ron Brierley is removed as a
director within two years of a change in
control of the Company, other than for
cause, he is entitled to compensation equal
to two times the average bonus received in
the preceding two financial years. As
referred to above, there is no current or
future intention to award Sir Ron Brierley
any bonus under the staff bonus scheme.
All Non-Executive Director letters of
appointment are available for inspection at
1 The Square, Stockley Park, Uxbridge, UB11
1TD during normal hours of business, and
will also be available at the Company’s
AGM on 21 May 2015 until the close of the
meeting.
Policy on payment for loss of office
Save in respect of Sir Ron Brierley, there are
no provisions in the Non-Executive
Directors’ letters of appointment that would
give rise to any compensation payments for
loss of office. Sir Ron Brierley’s entitlements
on termination of appointment are set out
above.
Share options
In respect of the share options granted
under the Scheme and held by certain
Non-Executive Directors, on a cessation of
office on grounds of gross misconduct or
on-going breach of the terms of
appointment following a written warning,
options will lapse. In all other cases options
would remain capable of exercise.
Annual Report 2014
33
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Executive Directors
As noted above there were no Executive
Directors at any stage during 2014.
However, the policy that applies following
the appointments of Paul Forman, Richard
Howes and Rajiv Sharma as Executive
Directors with effect from 2 March 2015 is
shown below. A similar policy applies to
other senior executives to the extent
applicable.
Recruitment
In order to appoint an Executive Director,
including a promotion to the Board of an
executive from within the Group, the
Committee will offer the recruit a
remuneration package that it believes is
appropriate, taking into account the skills
and experience of the individual and the
need to attract, retain and motivate
individuals of the appropriate calibre. In
determining the remuneration package that
may be offered to a new Executive Director,
the Committee may also take into account
external and internal comparisons and
relevant market factors, as well as any other
factors which the Board determines to be
relevant.
The remuneration package offered may
include the components of remuneration
described below in the Executive Directors’
Remuneration Policy Table subject to the
relevant limits as set out in the table.
For external appointments, the Committee
may determine that there may be
exceptional circumstances where it would
be appropriate, in order to secure the right
candidate, to compensate for lost awards
incurred by an individual as a result of
leaving their former employer. In the case of
any long term incentive awards, save where
such awards are close to vesting, any such
award on appointment would normally be
granted as a share based award, subject to
such vesting and/or performance conditions
as the Committee determined to be
appropriate, either under a one-off
arrangement or under the terms of the
Long Term Incentive Plan (as described
below). In determining the terms of any
such awards, the Committee would take
account of the vesting schedule and
conditions attached to the forfeited awards,
but also other factors that it determined to
be relevant, including the need to suitably
incentivise and retain the individual during
the initial years of their appointment.
Executive Directors’ remuneration policy table
Fixed remuneration
Salary
Purpose and link to strategy
Operation and opportunity
To attract and retain the key talent
that the Company needs to achieve
its objectives.
Salaries for new Executive Directors will be set by the Board taking into account such factors as it determines to
be necessary, as discussed above.
Following recruitment, salaries will be reviewed annually with effect from 1 July. Salary reviews take account
of factors including the market competitive level of pay in other companies, average salary increases applied
elsewhere across the Group, the performance of the Company and the relative skills, performance and talent
of the individual and any increase in the scope and/or responsibility of the individual’s role.
The Committee’s approach will consider the median level of salary of similar positions in the FTSE250
(excluding financial services) for UK based roles to reflect the global scope and dimensions of the Group’s
operations and the sector in which it operates. External benchmark data is considered only as a reference point
and the median figure will not be regarded as a target level of remuneration.
Pension
Purpose and link to strategy
Operation and opportunity
To provide a market competitive
level of retirement provision.
In the case of an external appointment, the Executive Director will either be entitled to participate in a defined
contribution scheme, on a non-contributory basis, with an employer contribution of up to 20% of salary, or
will be provided with a cash alternative in lieu of any pension benefits of up to 20% of salary.
In the case of promotion of an executive of the Group to the role of Executive Director, the individual will be
entitled to continue to participate in any pension arrangements (including any cash alternative arrangements) in
which they participate at the time of promotion or to participate in a new arrangement on the same terms as
may be offered to an external appointment (as described above).
Benefits
Purpose and link to strategy
Operation and opportunity
To provide a market competitive
level of benefits.
Benefit provision to Executive Directors will be determined by the Committee taking into account such factors
as it determines to be necessary, with the aim of creating a competitive overall package.
Benefits may include the provision of private medical insurance, ill-health protection and/or life insurance and a
cash-for-car-allowance.
In addition, the Company may provide assistance in connection with the relocation of an Executive Director
and, in the event of an international transfer, may provide tax equalisation arrangements.
Executive Directors may also participate in any all-employee incentive plan operated by the Company from time
to time, up to the same limit for participation as applies for other employees.
34
Annual Report 2014
Corporate governanceDirectors’ remuneration report continuedfor the year ended 31 December 2014 Variable remuneration
Annual bonus
Cash bonus and deferral into shares under the rules of the Deferred Bonus Plan
Purpose and link to strategy
Operation and opportunity
Performance
Annual bonus incentivises key
individuals to achieve the objectives
of the annual business plan.
Annual bonuses will be determined by reference to
performance, in the normal course measured over one
financial year.
The performance measures, weightings and
targets for the annual bonus will be set by the
Committee on an annual basis.
The metrics are designed to
incentivise key individuals to
achieve the objectives and targets
that result in an increase in
profit growth, strong cash-flow
generation for the Group and
individual key objectives that will
contribute to the growth of the
Group.
The deferred element ensures
that the final value of the annual
incentive is linked to the longer
term value of the Group.
The maximum annual bonus that may be awarded will be
100% of salary.
Any bonuses awarded will be subject to a mandatory 25%
deferral into shares, to be held for a three year retention
period, under the terms of the Deferred Bonus Plan. Deferral
may operate so that shares will be held beneficially by the
Executive Director during this period, in which case dividends
will be payable on shares during such period. The deferral
may alternatively be achieved by the grant of a share award
or nil-cost option in lieu of the deferred portion of the bonus,
and in which case an additional payment in cash or shares
may be made to reflect dividends that may have been earned
during the period from grant to vesting.
The deferred element of the bonus may be subject to
clawback (via the forfeiture of the deferred shares) in cases
of personal misconduct or a restatement of results that mean
the annual bonus awarded was greater than it should have
been.
The Deferred Bonus Plan was approved by shareholders at
the 2014 AGM.
Performance measures will normally include
tests of both business and individual
performance.
As an indication, the business objectives will
include a profit-based measure and a measure
that reflects cash generation.
The weighting for each business objective will
be between 20% and 50% and the weighting
for the personal objectives will be up to a
maximum of 20%.
The Target or Budget level of performance
will result in a payment of between 40% to
60% of the maximum award. The Committee
will determine the Target/Budget level
of remuneration on a basis that it feels is
stretching and challenging.
The Committee will be able to reduce
vesting levels if it determines the result of
the performance targets does not accurately
reflect the financial health of the Company.
All annual bonus payments and awards are
made at the discretion of the Committee and
the terms of the awards may be amended by
the Committee at any time provided that they
remain within the terms of this policy.
Long Term Incentive Plan
Purpose and link to strategy
Operation and opportunity
Performance
To incentivise key individuals to
achieve key long term objectives.
Awards will be made annually, conditional on the
achievement of three year performance conditions.
Performance will be assessed over a period of
not less than three years.
Principally the objectives are to
achieve profit growth; sustained
cash generation and superior
performance in Total Shareholder
Return relative to the FTSE250.
Targets are established considering
the sector in which the Group
operates and the acceptable risk
profile of the Group.
To create alignment between
executives and shareholders.
To retain key individuals.
Award levels for a Chief Executive Officer or a Chief Financial
Officer will be up to 150% of salary, with lower award levels
for any other Executive Director. Awards may be made to
other senior executives within the Group. Larger awards
may be made in exceptional circumstances, but in no case to
exceed 250% of salary.
Awards will normally be made in the form of nil-cost options,
exercisable following vesting until the tenth anniversary of
grant, although awards may be made in other forms. An
additional payment in cash or shares may be made to reflect
dividends that may have been earned on the proportion of
the award that vests during the period from grant to vesting.
Awards will be subject to malus and claw-back provisions.
The malus provisions give the Committee discretion to
reduce the level of an award prior to vesting in the event of
personal misconduct or if events happened that caused the
Committee to determine the grant level was not appropriate.
The Committee will have discretion to claw-back vested
awards in the event that personal misconduct prior to vesting
is discovered or if within three years of vesting there is a
restatement of results that means awards vested at too high
a level.
The Long Term Incentive Plan was approved by shareholders
at the 2014 AGM.
The performance measures will consist of
a profitability measure, a cash generation
measure and a total shareholder return
measure.
The weighting for each measure will be
between 20% and 50%.
The weighting for each specific award, the
definition of the precise measure and the
targets will be determined by the Committee
considering the balance of strategic priorities
for the Company for each three year
performance period.
In addition, the Committee may consider
setting an underpin condition which must be
satisfied prior to vesting of an award.
The Committee will be able to reduce
vesting levels if it determines the result of
the performance targets does not accurately
reflect the financial health of the Company.
Following grant of an award, the Committee
will have power to amend performance
measures and targets if events happen
that mean they are no longer a fair test of
performance, but not so as to make the
assessment of performance materially less
onerous.
Annual Report 2014
35
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Subject to this, the key elements of a service contract offered to a UK based Executive
Director appointment will be:
Notice period
The notice period will be no more than 12 months (in the case of notice
being given by the Company or the Executive Director). An Executive
Director may be placed on garden leave during some or all of the notice
period.
Payment in
lieu of notice
(“PILON”)
Save in circumstances justifying summary termination, employment may
be terminated without notice by paying a PILON comprising basic salary
and contractual benefits. Subject to any legacy terms, the Company will
have discretion to pay on a phased basis, which will normally be subject to
mitigation.
Pension
Benefits
Incentive plans
The service contract may include entitlement to pension benefits, subject
to the provisions and any limits set out in this Policy and the pension
scheme rules or an annual allowance. The entitlement to pension benefits
may continue during any notice period.
The service contract may include entitlement to other benefits, subject to
the provisions and limits set out in this Policy. The entitlement to benefits
may continue during any notice period.
The Executive Director will be eligible to be considered (at the Committee’s
discretion) to participate in the annual bonus and long term incentive
arrangements operated from time to time, subject to the provisions and
limits set out in this Policy. The terms of such arrangements would apply in
the event of a cessation of office or employment, as set out below.
Legacy matters in respect of future
Executive Directors
In the event that an executive of the Group
is promoted to the Board, the Company
retains power to honour any existing
remuneration commitments. In particular,
any long term awards, both cash and share
awards, will continue to be capable of
vesting on their existing terms. This would
include awards previously granted under
legacy Group incentive plans. This would
also include any awards granted under the
Long Term Incentive Plan or Deferred Bonus
Plan prior to the individual being appointed
as a director (although it would be intended
that any such awards would in any event
comply with the Policy as set out above).
Shareholding target
Executive Directors will be required to attain
a shareholding, over a five year period,
equivalent to 100% of salary.
Service contracts of future Executive
Directors
The Committee’s policy is for service
contracts for Executive Directors to reflect
the Committee’s understanding of best
corporate practice for listed companies.
However, in the event that an executive of
the Group is promoted to the Board, the
Committee may include terms in any new
service contract which are consistent with
that individual’s existing service contract
and legacy arrangements.
Notice periods, salary and contractual
rights
The notice periods and contractual rights on
termination that would be included in a
service contract offered to an external
recruit are set out above. In addition, the
Executive Director would be entitled to
accrued but untaken holiday.
Service contracts offered to non-UK based,
external appointments will generally be in
line with the provisions set out above,
subject to any local law requirements.
Executive Directors will be able to accept
Non-Executive appointments outside the
Company (as long as this does not lead to a
conflict of interest) with the consent of the
Board, as such appointments can enhance
their experience and add value to the
Company. Any fees received (excluding
positions where the Executive Director is
appointed as the Company’s representative)
may be retained by the Executive Director.
In respect of any awards made to an
Executive Director under any all-employee
share plan, the same leaver conditions will
apply as apply in respect of employees
generally.
Discretions
In considering the exercise of its discretions
under the incentive arrangements, as
referred to above, or otherwise in
connection with the cessation of office or
employment of an Executive Director, the
Committee will take into account all
relevant circumstances, having regard to
their duties as Directors.
Policy on payment for loss of office of
future Executive Directors
In the case of an executive of the Group
who is promoted to the Board, the terms on
cessation of office or employment would be
governed by the terms of the individual’s
existing employment agreement. In
addition, the terms of any incentive awards
made to the individual prior to being
appointed as an Executive Director, and the
terms of any pre-existing participation in a
pension scheme, would govern the
treatment of such arrangements.
In doing so, factors that the Committee may
take into account shall include, but not be
limited to, considering the best interests of
the Company, whether the Executive
Director has presided over an orderly
handover, the contribution of the Executive
Director to the success of the Company
during their tenure, the need to ensure
continuity, the need to compromise any
claims that the Executive Director may have,
whether the Executive Director received a
PILON and whether, had the Executive
Director served out their notice, a greater
proportion of the outstanding award may
have vested.
36
Annual Report 2014
Other
The Company may enter into new
contractual and financial arrangements with
a departing Executive Director in connection
with the cessation of office or employment,
including (but not limited to) in respect of
settlement of claims, confidentiality,
restrictive covenants and/or consultancy
arrangements, where the Committee
determines it necessary or appropriate to do
so. Appropriate disclosure of any such
arrangement would be made.
Corporate Actions
On a corporate action affecting the
Company, the rules of the Long Term
Incentive Plan and Deferred Bonus Plan will
apply. In summary, on a change of control
awards will vest, subject to the performance
conditions and, unless the Committee
determines otherwise, time pro-rating.
Deferred shares awarded under the terms
of the Deferred Bonus Plan, which represent
deferrals of previously earned bonus, will
vest in full. Under the Long Term Incentive
Plan and Deferred Bonus Plan, the
Committee may determine that a demerger
or similar event shall constitute a corporate
action.
On a variation of share capital or similar
event, the Committee may make such
adjustment to awards under the Long Term
Incentive Plan and the Deferred Bonus Plan
as the Committee considers appropriate.
Corporate governanceDirectors’ remuneration report continuedfor the year ended 31 December 2014 Incentive plans
Annual bonus
“Good leavers”
Other leavers
The Company does not consider it appropriate to set defined “good
leaver” and “bad leaver” conditions in respect of the annual bonus
arrangements. Instead, where an Executive Director has ceased to hold
office or employment with the Group, or is under notice, other than due
to personal misconduct, the Committee will determine whether or not the
individual will be eligible to receive any annual bonus.
If the Committee determines that a departing Executive Director is eligible
to receive a bonus, the amount of the bonus will be assessed by reference
to the performance targets set for that financial year.
The deferral requirement in respect of 25% of the amount of any bonus
awarded will apply if the Committee so determines.
The amount of any bonus will be pro-rated for time, provided that the
Committee has discretion to waive time pro-rating.
Where the reason for cessation of office
or employment is personal misconduct no
bonus will be payable.
In other cases, unless the Committee
determines that the departing Executive
Director is eligible to receive a bonus, no
bonus will be payable.
Long Term
Incentive Plan
A departing Executive Director will be a “good leaver” on ceasing
employment due to retirement, injury, disability, ill-health, death,
redundancy or the sale of a business or subsidiary out of the Group.
Unvested awards will lapse in full where
the cessation of office or employment is on
grounds of personal misconduct.
Awards held by “good leavers” will normally vest on the normal vesting
date (ie the third anniversary of grant) to the extent that the performance
conditions are met, and be pro-rated for time.
The Committee will have discretion to accelerate vesting to the date of
cessation. The Committee also will have discretion to waive the time pro-
rating requirement.
In other cases, the Committee will have
discretion to determine that unvested awards
will vest (in which case the terms applicable
to “good leavers” will apply). Unless this
discretion is exercised, unvested awards lapse
in full.
Deferred Bonus
Plan
Unvested deferred shares (which represent deferrals of earned bonus) will
vest in full on the normal vesting date (ie the third anniversary of grant),
provided that the Committee will have discretion to accelerate vesting to
the date of cessation.
Where the reason for cessation of office or
employment is personal misconduct unvested
deferred shares will lapse in full.
Development of this policy
Statement of consideration of employment conditions elsewhere in the Company
The Committee does not consult with employees when determining remuneration policy.
Statement of consideration of shareholder views
The Committee remains committed to shareholder dialogue and takes an active interest in voting outcomes. The Committee sought the
views of our major shareholders before submitting this Policy for shareholder approval at the 2014 AGM.
The Committee may, without seeking shareholder approval, make minor changes to this Policy that do not have a material advantage
to Directors.
Annual Report on Remuneration
The information below has been audited where required by the regulations.
Single total figure of remuneration for each Non-Executive Director
We have set out the amount earned by the Non-Executive Directors in the table below (audited).
R J Campbell
M Clasper
M N Allen
R Anderson
Sir Ron Brierley
S L Malcolm
B A Nixon
W R Szlezak
* No other benefits, bonus, long term incentives, pensions or other remuneration were earned during the year.
Fees (£)*
Total (£)*
2014
80,000
217,916
104,166
62,500
–
65,833
60,000
–
2013
225,833
–
198,801
–
50,468
102,142
124,089
–
2014
80,000
217,916
104,166
62,500
–
65,833
60,000
–
2013
225,833
–
198,801
–
50,468
102,142
124,089
–
Annual Report 2014
37
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Included within Directors’ fees for 2014 are
£32,500 for M Allen (2013: £133,333),
£21,666 for R Anderson and £86,666 for M
Clasper in respect of services provided to
Coats plc during the period of their
appointment to the Board of Coats Group
plc. From 1 June 2014 to 28 February 2015
M Allen, R Anderson and M Clasper were
also Non-Executive Directors of Coats plc.
Coats plc paid an additional fee of £20,000
per annum in view of the additional time
commitment required for being a member
of two separate Boards at the same time.
All fees from Coats plc ceased with effect
from 1 March 2015. The single figure of
total remuneration for each Non-Executive
Director shown in the table indicates all fees
from the Company and Coats plc.
Total pension entitlements
No Director participates in any pension
arrangements funded by the Company.
Scheme interests awarded during the
financial year
No awards of shares were made to any
Director during the financial year.
Payments to past Directors
There have been no payments made to past
Directors during the financial year.
Payments for loss of office
There have been no payments made to past
Directors for loss of office during the year.
Statement of Directors’ shareholding
and share interests
The interests of the Directors who held
office during the year, and their connected
persons (if any), in the shares, options, and
listed securities of Coats Group plc and its
subsidiaries as at 31 December 2014, are set
out below.
B A Nixon sold 3,400,000 shares in the
period since 31 December 2014.
No other Directors have entered into any
transactions since the year end.
Interests in shares (excluding share options)
Ordinary 5p shares
R J Campbell
M Clasper CBE
M N Allen
R Anderson
Sir Ron Brierley
S L Malcolm
B A Nixon
W R Szlezak
31 December 2014
525,043
1,490,000
200,000
100,000
16,882,765
570,000
17,815,623
–
Upon their appointment to the Board on 2 March 2015 the following Directors held shares
at the time of their appointment; D Gosnell: 386,475 shares; P Forman: 310,000 shares;
R Howes: 200,000 shares; A Rosling: nil shares; R Sharma: nil shares.
Options under the Group’s share option scheme
The outstanding scheme interests are in the form of share options, as set out below, which
are currently capable of exercise and are not subject to performance conditions, although
as the options were granted with an exercise price equal to the share price at the date of
grant the options are subject to an inherent share price target. Options were awarded
under the terms of the Guinness Peat Group plc 2002 Executive Share Option Scheme.
Ordinary 5p shares
Sir Ron Brierley
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
B A Nixon
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31 December
2013
Number
Lapsed
during year
31 December
2014
Number
Effective
exercise price
(pence
per share)
767,245
697,495
396,302
237,779
360,278
196,515
(767,245)
–
–
–
–
–
–
697,495
396,302
237,779
360,278
196,515
2,291,740 (2,291,740)
2,179,682
1,981,528
951,131
1,441,115
1,310,104
–
– 2,179,682
– 1,987,528
–
951,131
– 1,441,115
– 1,310,104
40.0912
48.2294
51.0967
56.6480
56.5534
49.9961
40.0912
48.2294
51.0967
56.6480
56.5534
49.9961
Exercise period
23.04.07 to 23.04.14
09.03.08 to 09.03.15
24.10.08 to 24.10.15
15.03.09 to 15.03.16
09.03.10 to 09.03.17
10.04.11 to 10.04.18
23.04.07 to 23.04.14
09.03.08 to 09.03.15
24.10.08 to 24.10.15
15.03.09 to 15.03.16
09.03.10 to 09.03.17
10.04.11 to 10.04.18
No options were exercised by Directors during the year. The table above reflects options
that lapsed.
No options have been exercised since the year end. Options over 2,877,177 shares have
lapsed since the year end in respect of Sir Ron Brierley (697,495 options) and B A Nixon
(2,179,682 options).
From the year end to the date of approval of this Annual Report, no further options have
been granted to Sir Ron Brierley or B A Nixon.
The middle market price of GPG’s shares at 31 December 2014 was 21.00p and the range
during the year was 19.0p to 36.63p.
38
Annual Report 2014
Corporate governanceDirectors’ remuneration report continuedfor the year ended 31 December 2014 Performance graph (unaudited)
The graph shows the difference between
investing £100 in the Company and the
constituents of the FTSE All Share index
and FTSE250 from 1 January 2009 to
31 December 2014. It is assumed
dividends are reinvested over that period.
The Board feels the FTSE All Share index
and the FTSE250 each provide an
appropriate comparator given the
Company’s market capitalisation and its
presence on the London Stock Exchange.
The Company did not have any Executive
Director who performed the role as Chief
Executive during the five years ending
31 December 2014 and so no table of
historic CEO data has been included.
Total shareholder return 5 year comparison of Coats Group plc shares
against FTSE All–Share Equity Investment Instruments Index and FTSE250
£350
£300
£250
£200
£150
£100
£50
£–
1 Jan
2009
1 Jan
2010
1 Jan
2011
1 Jan
2012
1 Jan
2013
1 Jan
2014
1 Jan
2015
FTSE 250 Index
FTSE All-Share Index
Coats Group plc
Comparison to CEO pay
The Company did not have any Executive Directors during the year ended 31 December 2014, and so it is not possible to provide a
comparison between the changes in remuneration of the Chief Executive Officer and the remuneration of employees during the year.
Relative importance of spend on pay
The table below shows the total pay for all of the Company’s employees compared to other key financial indicators.
Employee costs (£’m)
Distributions to shareholders1 (£’m)
Average number of employees
Revenues from continuing operations (£’m)
Profit before tax from continuing operations (£’m)
1 By way of dividends and share buybacks
Year to
31 December
2014
259
–
20,579
1,023
43
Year to
31 December
2013
274
45
20,969
1,089
14
% change
(5.5)%
(100)%
(1.9)%
(6.1)%
207.1%
Additional information on number of employees, total revenues and profit has been provided for context.
Statement of implementation of Remuneration Policy for 2015
The current Chairman’s fee is £225,000 per annum which is the same level that applied upon his appointment as Chairman of Coats plc,
a subsidiary of Coats Group plc. Basic fees were reviewed and maintained at the same level that applied from 1 October 2013; and the
current basic fee for each Non-Executive Director is £60,000 per annum (although Sir Ron Brierley and Waldemar Szlezak have agreed
not to receive any fee). The Chair of the Pensions Committee receives an additional fee of £20,000 because of the significant time
commitment required. An additional fee of £10,000 per annum is paid to the Chairman of the Remuneration Committee and the Audit
and Risk Committee.
Following the appointment of three Executive Directors on 2 March 2015 the Committee has determined that the following performance
measures and weightings will apply in respect of the annual bonus arrangements and awards under the Long Term Incentive Plan
(provided that the Committee retains absolute discretion to determine the level of grant of such awards up to the permitted maximum).
These performance measures and weightings are generally in line with the measures and weightings that are set for other senior
employees within the Group. Salaries, pensions and benefits will be provided to Executive Directors in accordance with the policy table
shown above.
Annual bonus
Measure
Attributable Profit
EBIT
Net Working Capital
Individual objectives
Weighting
25%
25%
30%
20%
Long Term Incentive Plan
Measure
Profit After Tax/Attributable Profit
Free Cash Flow (before dividends)
Total Shareholder Return
Weighting
40%
40%
20%
Annual Report 2014
39
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Performance targets
Annual bonus
The Committee has not disclosed prospective targets for the 2015 annual bonus in this report for reasons of commercial sensitivity
although full details will be provided in the Directors’ remuneration report for 2015.
Underpin: in order for any annual bonus to be payable, the underpin condition based on Attributable Profit must be met. The underpin
condition would require Attributable Profit for the year ending 31 December 2015 to at least equal Attributable Profit for the year ended
31 December 2014 (subject to adjustment for fluctuations in exchange rates and any disposals or acquisitions).
Long Term Incentive Plan
The measures for the Long Term Incentive Plan to be awarded in 2015 are shown in the following table:
Target ranges for 2015
Measure
Attributable profit growth (CAGR over 3 years)
Cumulative free cash flow ($m)
Total Shareholder Return vs FTSE250 (excluding investment trusts)
Vesting % of award allocated to each measure
Threshold
5%
210
Median
25%
Mid
15%
231
Percentile 62.5
62.50%
Maximum
20%
250
Upper Quartile
100%
Consideration by the Directors of matters relating to directors’ remuneration
The members of the Committee were: S L Malcolm (Chairman), R Anderson, R J Campbell, M Allen, Sir Ron Brierley, M Clasper, B A Nixon
and W R Szlezak. The responsibilities of the Committee are set out in the Corporate Governance section of the Annual Report. From
2 March 2015 the Committee members are: D Gosnell (Chairman), M Allen and A Rosling.
The Committee also received assistance from C Healy (Legal Director and Company Secretary for the Company) until 30 June 2014 and
from 15 September 2014 from S Morgan (who also acted as Secretary to the Committee), A Speak (HR Director) and B Fahey
(Reward Director) from Coats plc. No Directors are involved in deciding their own remuneration.
The Company received advice from Herbert Smith Freehills LLP in relation to legal matters relating to the Group’s incentive plans and
considered the recommendations from the Remuneration Committee of Coats plc during the year ended 31 December 2014.
Statement of voting at general meeting
At the Annual General Meeting of the Company on 22 May 2014 the results of the vote regarding Resolution 2 (to approve the
Remuneration Report) were:
VOTES FOR
VOTES AGAINST
Number
781,305,413
%
98.83
Number
9,284,992
%
1.17
Votes Total
790,590,405
Votes Withheld
1,988,374
The results of the vote regarding Resolution 3 (to approve the Remuneration Policy) were:
VOTES FOR
VOTES AGAINST
Number
749,188,151
%
94.78
Number
41,268,185
%
5.22
Votes Total
790,456,336
Votes Withheld
2,122,443
The Remuneration Report was approved by the Board of Directors on 18 March 2015 and signed on its behalf by:
David Gosnell
Chairman
Remuneration Committee
18 March 2015
40
Annual Report 2014
Corporate governanceDirectors’ remuneration report continuedfor the year ended 31 December 2014 The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the directors
are required to prepare the Group financial
statements in accordance with International
Financial Reporting Standards (IFRSs) as
adopted by the European Union and Article
4 of the IAS Regulation and have elected to
prepare the parent company financial
statements in accordance with United
Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards and applicable law). Under
company law the directors must not
approve the accounts unless they are
satisfied that they give a true and fair view
of the state of affairs of the Company and
of the profit or loss of the Company for that
period.
In preparing the parent company financial
statements, the Directors are required to:
•
select suitable accounting policies and
then apply them consistently;
• make judgements and accounting
estimates that are reasonable and
prudent;
state whether applicable UK Accounting
Standards have been followed, subject
to any material departures disclosed and
explained in the financial statements;
and
•
• prepare the financial statements on the
going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
In preparing the Group financial statements,
International Accounting Standard 1
requires that directors:
• properly select and apply accounting
policies;
• present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures when
compliance with the specific
requirements in IFRSs are insufficient to
enable users to understand the impact
of particular transactions, other events
and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Company’s
ability to continue as a going concern.
The Directors’ responsibilities statement was
approved by order of the Board.
Mike Clasper
Chairman
Coats Group plc
18 March 2015
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose with
reasonable accuracy at any time the
financial position of the Company and
enable them to ensure that the financial
statements comply with the Companies Act
2006. They are also responsible for
safeguarding the assets of the Company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the
United Kingdom governing the preparation
and dissemination of financial statements
may differ from legislation in other
jurisdictions.
Each of the persons who is a Director at the
date of approval of this Annual Report
confirms that:
•
•
so far as the Director is aware, there is
no relevant audit information of which
the Company’s auditor is unaware; and
the Director has taken all the steps that
he ought to have taken as a director in
order to make himself aware of any
relevant audit information and to
establish that the Company’s auditor is
aware of that information.
This confirmation is given and should be
interpreted in accordance with the
provisions of section 418 of the Companies
Act 2006.
Responsibility statement
We confirm that to the best of our
knowledge:
1. the financial statements, prepared in
accordance with International Financial
Reporting Standards as adopted by the
EU, give a true and fair view of the
assets, liabilities, financial position and
profit or loss of the Company and the
undertakings included in the
consolidation taken as a whole; and
2. the Strategic Report includes a fair
review of the development and
performance of the business and the
position of the Company and the
undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face.
Annual Report 2014
41
Overview and strategic reportCorporate governanceFinancial statementsDirectors’ responsibilities statementCoats financial information Independent auditor’s report to the Members of Coats Group plc
Opinion on financial statements of
Coats Group plc
Separate opinion in
relation to IFRSs as
issued by the IASB
Going concern
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group’s and of
the parent company’s affairs as at 31 December 2014 and of the group’s profit for
the year then ended;
the group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European
Union;
the parent company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements
of the Companies Act 2006 and, as regards the group financial statements, Article
4 of the IAS Regulation.
The financial statements comprise the Consolidated Income Statement, the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Company Balance Sheet, the Consolidated Statement of Cash
Flows, the Consolidated Statement of Changes in Equity and the related notes 1 to
36. The financial reporting framework that has been applied in the preparation of the
group financial statements is applicable law and IFRSs as adopted by the European
Union. The financial reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
As explained in note 1 to the group financial statements, in addition to complying with
its legal obligation to apply IFRSs as adopted by the European Union, the group has also
applied IFRSs as issued by the International Accounting Standards Board (IASB).
In our opinion the group financial statements comply with IFRSs as issued by the IASB.
As required by the Listing Rules we have reviewed the directors’ statement contained
within note 1 on page 53 that the group is a going concern. We confirm that:
• we have concluded that the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate; and
• we have not identified any material uncertainties that may cast significant doubt on
the group’s ability to continue as a going concern.
However, because not all future events or conditions can be predicted, this statement is
not a guarantee as to the group’s ability to continue as a going concern.
Our assessment of risks of material
misstatement
The assessed risks of material misstatement described below are those that had the
greatest effect on our audit strategy, the allocation of resources in the audit and
directing the efforts of the engagement team:
Risk
How the scope of our audit responded to the risk
We considered the appropriateness of management’s assumptions and estimates
used in their cash flow model, challenging those assumptions and considering
supporting forecasts, estimates and sensitivities by examining past performance against
management’s budgets and external industry data. We considered the appropriateness
of management’s conclusions over the impact of the Pensions Regulator’s investigations
through reviewing board minutes, correspondence with the pension trustees and
meeting with the legal advisers.
Going Concern and the impact of the
Pensions Regulator’s investigations
Significant judgement is required by
management in assessing the going
concern considerations for the group.
This includes assessing the impact of the
Pensions Regulator’s investigations into the
funding gap of the existing UK defined
benefit schemes. The Director’s evaluation
of the business as a going concern is given
on page 53 and further details of the
Pension Regulator’s investigation in note 29
of the financial statements.
42
Annual Report 2014
Material assumptions underlying
retirement benefit obligations
The net defined benefit liability of Coats
Group plc is £375 million (2013: £178
million) which represents an area of
significant judgement for the financial
statements, particularly in relation to the
assumptions adopted such as discount,
inflation and mortality rates. The key
assumptions underlying the valuation of
the pensions schemes are presented in note
9 of the financial statements. This is also
identified as a critical judgment in note 1 of
the financial statements.
Provisions and litigation
Provisions require significant management
judgment including assessing the likely
outcome of litigation, the most significant
of which is related to the US Environmental
Protection Agency’s claim in respect
of the Lower Passaic River Study Area.
Management have set out their
considerations in respect of this litigation
in note 29 of the financial statements,
concluding that it is not possible to reliably
estimate the future remediation costs.
This is also identified as a critical judgment
in note 1 of the financial statements.
Carrying value of intangible assets and
tangible assets
The group holds £156 million of brands
(2013: £147 million) and £8 million of
other intangible assets (2013: £7 million)
described in note 13 to the financial
statements. Management is required to
assess whether the carrying value has been
impaired where assets have an indefinite
life or where there are indications of
impairment. The impairment test requires
significant management judgement and
is based on assumptions about future
profitability, cost of equity and cost of debt.
This is also identified as a critical judgment
in note 1 of the financial statements.
Taxation
Due to the nature and complexity of tax
legislation in the multiple jurisdictions in
which the group operates, management are
required to exercise a degree of judgement
as to the application of corporation tax
laws and the recoverability of deferred tax
assets of £10 million (2013: £8 million). The
tax reconciliation is included in note 8 and
the deferred tax in notes 17 and 24 of the
financial statements.
We worked with our own actuarial experts to test the assumptions such as discount,
inflation and mortality rates underlying management’s calculation of the group defined
benefit schemes. We have compared these assumptions to industry benchmarks and
prior year rates.
We challenged management’s assumptions including a review of relevant
correspondence with management’s experts used in determining provisions for
litigation, environmental and other provisions both in terms of appropriateness of
recognition and in terms of valuation. We carried out testing on movements in the
provisions. We considered the legal advice management had obtained in relation to
litigation and held calls with key legal advisers. We have reviewed the disclosures in the
financial statements and considered the presentation of the Lower Passaic River Study
Area litigation as a contingent liability.
We tested management’s assumptions used in the impairment model for tangible
and intangible assets including cash flow projections, discount rate and sensitivities
used. We considered the historical accuracy of management’s forecasts, challenged
the assumptions used in management’s model by comparing to industry data sources,
reviewing supporting evidence and applying further sensitivities.
We worked with our tax specialists in key jurisdictions to evaluate the appropriateness
of judgements and assumptions made by management with respect to their assessment
and valuation of tax risks, including a review of applicable third party evidence and
correspondence with tax authorities.
We evaluated management’s forecasts and assessed management’s conclusions on the
sufficiency and availability of future profits to support the recognition of deferred tax
assets.
Last year our report included a risk that concerned the appropriate accounting
for investment disposals. The group’s programme of disposal of investments was
completed in 2013 and as such this is not considered a significant risk of material
misstatement in the current year.
The description of risks above should be read in conjunction with the significant issues
considered by the Audit and Risk Committee discussed on page 30.
Our audit procedures relating to these matters were designed in the context of
our audit of the financial statements as a whole, and not to express an opinion on
individual accounts or disclosures. Our opinion on the financial statements is not
modified with respect to any of the risks described above, and we do not express an
opinion on these individual matters.
Annual Report 2014
43
Independent auditor’s report to the Members of Coats Group plc continued
Our application of materiality
An overview of
the scope of our audit
Opinion on other matters prescribed
by the Companies Act 2006
Matters on which we are required to
report by exception
Adequacy of explanations received and
accounting
records
Directors’ remuneration
44
Annual Report 2014
We define materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality for the group to be £6.3 million (2013: £6.4 million), which
is below approximately 1% (2013: 1%) of adjusted net assets, and below 3% (2013:
2%) of net assets. Adjusted net assets is calculated as net assets of £241.3 million
adjusted for deemed pension liabilities of £375.0 million. Due to Coats Group plc being
an investment company during 2014 we considered the adjusted net asset basis as the
most relevant to the members.
We agreed with the Audit and Risk Committee that we would report to the Committee
all audit differences in excess of £0.35 million (2013: £0.35 million), as well as
differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit and Risk Committee on disclosure matters that we
identified when assessing the overall presentation of the financial statements.
Our group audit was scoped by obtaining an understanding of the group and assessing
the risks of material misstatement at the group level. Based on that assessment, we
scoped our work primarily under two components: Coats Group plc (referred to as the
parent group entities) and Coats plc. Both components were subject to a mixture of full
scope audit and audit of specified balances.
Due to the geographically widespread nature of the group there are a number of
component auditors involved. Our involvement in these component audits is as follows:
we work with component auditors during the audit planning stage to ensure the
global audit meets our requirements, we follow a programme of planned site visits
to meet with components and review local procedures and we perform the audit of
some significant components (the US companies) within the group audit team. Our
involvement in the component audit is designed to ensure that the Senior Statutory
Auditor has sufficient oversight to assess the suitability for inclusion in the group results.
75% (2013: 70%) of the group’s net assets, 81% (2013: 78%) of the group’s profit
before tax and 85% (2013: 77%) of the group’s turnover are subject to full scope audit
or audit of specified account balances.
The components were selected to provide an appropriate basis for undertaking audit
work to address the risks of material misstatement identified above. Our audit work
at the components identified above was executed at levels of materiality which were
lower than group materiality.
At the parent entity level we also tested the consolidation process and carried out
analytical procedures to confirm our conclusion that there were no significant risks
of material misstatement of the aggregated financial information of the remaining
components not subject to audit or audit of specified account balances.
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be audited has been properly
prepared in accordance with the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the
financial year for which the financial statements are prepared is consistent with the
financial statements.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit;
or
• adequate accounting records have not been kept by the parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
•
the parent company financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made or the part of the Directors’
Remuneration Report to be audited is not in agreement with the accounting records
and returns. We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part of the Corporate
Governance Statement relating to the company’s compliance with ten provisions of the
UK Corporate Governance Code. We have nothing to report arising from our review.
Our duty to read other information in the
Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report
to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies
between our knowledge acquired during the audit and the directors’ statement that
they consider the annual report is fair, balanced and understandable and whether the
annual report appropriately discloses those matters that we communicated to the Audit
and Risk Committee which we consider should have been disclosed. We confirm that
we have not identified any such inconsistencies or misleading statements.
As explained more fully in the Directors’ Responsibilities Statement, the directors are
responsible for the preparation of the financial statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit and express an opinion on
the financial statements in accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors. We also comply with International
Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim
to ensure that our quality control procedures are effective, understood and applied. Our
quality controls and systems include our dedicated professional standards review team
and independent partner reviews.
This report is made solely to the company’s members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken
so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
An audit involves obtaining evidence about the amounts and disclosures in the financial
statements sufficient to give reasonable assurance that the financial statements are
free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the group’s and the
parent company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the directors;
and the overall presentation of the financial statements. In addition, we read all
the financial and non-financial information in the annual report to identify material
inconsistencies with the audited financial statements and to identify any information
that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware
of any apparent material misstatements or inconsistencies we consider the implications
for our report.
Annual Report 2014
45
Respective responsibilities of directors
and auditor
Scope of the audit of the financial
statements
Georgina Robb, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
18 March 2015
Financial statements
Consolidated income statement
Year ended 31 December
Continuing operations
Revenue
Cost of sales
Gross profit
Interest receivable – Parent Group
Distribution costs
Administrative expenses
Other operating income
Operating profit
Interest and other income – Coats
Share of profit of joint ventures
Finance costs (net)
Profit before taxation from continuing operations
Tax on profit from continuing operations
Profit/(loss) for the year from continuing operations
Discontinued operations
Profit from discontinued operations
PROFIT FOR THE YEAR
Attributable to:
EQUITY HOLDERS OF THE PARENT
Non-controlling interests
Notes
Coats
Other
2,3
2,4
15a)
2,6
5
8
2,32
1,023
(648)
375
–
(172)
(138)
–
65
2
1
(21)
47
(28)
19
–
19
13
6
19
–
–
–
6
–
(7)
–
(1)
–
–
(3)
(4)
–
(4)
–
(4)
(4)
–
(4)
2014
IFRS
£m
Total
1,023
(648)
375
6
(172)
(145)
–
64
2
1
(24)
43
(28)
15
–
15
9
6
15
Coats
Other
1,089
(709)
380
–
(183)
(118)
–
79
3
1
(27)
56
(32)
24
–
24
19
5
24
–
–
–
4
–
(43)
1
(38)
–
–
(4)
(42)
–
(42)
46
4
4
–
4
EARNINGS PER ORDINARY SHARE FROM CONTINUING AND DISCONTINUED OPERATIONS:
Basic & diluted
10
0.64p
2013
IFRS
£m
Total
1,089
(709)
380
4
(183)
(161)
1
41
3
1
(31)
14
(32)
(18)
46
28
23
5
28
1.62p
EARNINGS/(LOSS) PER ORDINARY SHARE FROM CONTINUING OPERATIONS:
Basic & diluted
10
0.66p
(1.58)p
46
Annual Report 2014
Notes on pages 53 to 100 form part of these financial statements Consolidated statement of comprehensive income
Year ended 31 December
PROFIT FOR THE YEAR
Items that will not be reclassified subsequently to profit or loss:
Net actuarial (losses)/gains on retirement benefit schemes (note 9)
Tax on items that will not be reclassified
Items that may be reclassified subsequently to profit or loss:
Losses on revaluation of fixed asset investments
Exchange losses on translation of foreign operations
(Losses)/gains on cash flow hedges
Tax on items that may be reclassified
Transferred to profit or loss on sale or impairment of fixed asset investments
Transferred to profit or loss on sale of businesses
Transferred to profit or loss on cash flow hedges
NET COMPREHENSIVE (EXPENSE)/INCOME FOR THE YEAR
Attributable to:
EQUITY HOLDERS OF THE PARENT
Non-controlling interests
2014
IFRS
£m
15
(201)
(1)
(202)
–
(11)
(1)
–
–
–
2
(10)
(197)
(204)
7
(197)
2013
IFRS
£m
28
106
1
107
(5)
(36)
1
1
(11)
(30)
3
(77)
58
53
5
58
Annual Report 2014
47
Overview and strategic reportCorporate governanceFinancial statementsNotes on pages 53 to 100 form part of these financial statementsCoats financial information Financial statements
Consolidated statement of financial position
31 December
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Investments in joint ventures
Fixed asset investments
Deferred tax assets
Pension surpluses
Trade and other receivables
CURRENT ASSETS
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets held for sale
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Current income tax liabilities
Borrowings
Derivative financial instruments
Provisions
NET CURRENT ASSETS
NON-CURRENT LIABILITIES
Trade and other payables
Deferred tax liabilities
Borrowings
Derivative financial instruments
Retirement benefit obligations:
Funded schemes
Unfunded schemes
Provisions
TOTAL LIABILITIES
NET ASSETS
48
Annual Report 2014
Notes
13
14
15
15
17
9
19
18
19
20
32
21
23
22
25
21
24
23
22
9
9
25
2014
IFRS
£m
165
191
9
2
10
33
10
420
166
196
3
474
839
1
2013
IFRS
£m
155
206
8
2
8
27
12
418
170
207
3
458
838
1
1,260
1,257
236
7
73
6
48
370
469
10
25
195
–
312
77
14
633
1,003
257
228
11
50
3
48
340
498
11
22
224
1
118
68
16
460
800
457
Notes on pages 53 to 100 form part of these financial statements Consolidated statement of financial position continued
31 December
EQUITY
Share capital
Share premium account
Translation reserve
Capital reduction reserve
Other reserves
Retained (loss)/earnings
EQUITY SHAREHOLDERS’ FUNDS
Non-controlling interests
TOTAL EQUITY
Notes
27
28
28
28
28
28
28
2014
IFRS
£m
70
1
10
48
126
(14)
241
16
257
2013
IFRS
£m
70
1
22
48
124
179
444
13
457
Net asset backing per share
17.2p
31.5p
Paul Forman, Group Chief Executive
Richard Howes, Chief Financial Officer
Approved by the Board on 18 March 2015
Company Registration No.103548
Annual Report 2014
49
Overview and strategic reportCorporate governanceFinancial statementsNotes on pages 53 to 100 form part of these financial statementsCoats financial information Financial statements
Company balance sheet
31 December
FIXED ASSETS
Investments
TOTAL FIXED ASSETS
CURRENT ASSETS
Loans to subsidiary undertakings
TOTAL CURRENT ASSETS
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Loans from subsidiary undertakings
TOTAL CURRENT LIABILITIES
NET CURRENT LIABILITIES
TOTAL ASSETS LESS CURRENT LIABILITIES
PROVISIONS FOR LIABILITIES
NET ASSETS
CAPITAL AND RESERVES
Share capital
Share premium account
Capital redemption reserve
Capital reduction reserve
Share options reserve
Other reserves
Profit and loss account
EQUITY SHAREHOLDERS’ FUNDS
Notes
15
25
27
28
28
28
28
28
28
2014
UK GAAP
£m
2013
UK GAAP
£m
371
371
3
3
179
179
(176)
195
13
182
70
1
11
48
8
1
43
182
371
371
3
3
175
175
(172)
199
10
189
70
1
11
48
8
1
50
189
Paul Forman, Group Chief Executive
Richard Howes, Chief Financial Officer
Approved by the Board on 18 March 2015
Company Registration No.103548
50
Annual Report 2014
Notes on pages 53 to 100 form part of these financial statements Consolidated statement of changes in equity
Balance as at 1 January 2013
Net comprehensive (expense)/income
for the year
Share buybacks
Dividends
Share issues
Disposal of subsidiaries
BALANCE AS AT 31 DECEMBER 2013
Net comprehensive (expense)/income
for the year
Dividends
Share based payments
BALANCE AS AT 31 DECEMBER 2014
Share
capital
£m
78
Share
premium
account
£m
–
Translation
reserve
£m
89
Unrealised
gains
reserve
£m
14
Capital
reduction
reserve
£m
93
Other
reserves
£m
112
Retained
(loss)/
earnings
£m
48
130
–
–
–
1
179
–
(8)
–
–
–
70
–
–
–
70
–
–
–
1
–
1
–
–
–
1
(67)
–
–
–
–
22
(12)
–
–
10
(14)
–
–
–
–
–
–
–
–
–
–
(45)
–
–
–
48
–
–
–
48
4
8
–
–
–
124
1
–
1
126
(193)
–
–
(14)
(204)
–
1
241
Total
£m
434
53
(45)
–
1
1
444
Non-
controlling
interests
£m
24
5
–
(5)
–
(11)
13
7
(4)
–
16
Annual Report 2014
51
Overview and strategic reportCorporate governanceFinancial statementsNotes on pages 53 to 100 form part of these financial statementsCoats financial information Financial statements
Consolidated statement of cash flows
Year ended 31 December
Cash inflow from operating activities
Net cash inflow from operating activities**
Interest paid
Taxation paid
Net cash generated by operating activities
Cash (outflow)/inflow from investing activities
Investment income
Net capital expenditure and financial investment
Acquisitions and disposals**
Net cash (absorbed in)/generated by investing activities
Cash outflow from financing activities
Buyback of Ordinary Shares
Dividends paid to non-controlling interests
Net decrease in borrowings
Net cash absorbed in financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange gains/(losses) on cash and cash equivalents
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
Cash and cash equivalents per the Consolidated Statement of Financial Position
Bank overdrafts
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
Summary of net cash
– Parent Group* cash
– Other group cash
– Other group debt
Total group net cash
Notes
31a)
31b)
31c)
31d)
31e)
31f)
31g)
23
23
2014
IFRS
£m
101
(13)
(34)
54
1
(23)
–
(22)
–
(4)
(27)
(31)
1
447
8
456
474
(18)
456
375
99
(268)
206
2013
IFRS
£m
149
(18)
(35)
96
3
(6)
129
126
(45)
(5)
(28)
(78)
144
311
(8)
447
458
(11)
447
383
75
(274)
184
*
**
Parent Group comprises the Group’s central investment activities.
Acquisitions and disposals include the proceeds of sale of Parent Group operating subsidiary and associated undertakings and joint ventures. Proceeds of sale of other Parent Group fixed
and current asset investments are included within cash inflow from operating activities.
52
Annual Report 2014
Notes on pages 53 to 100 form part of these financial statements previously recognised in other
comprehensive income in relation to that
subsidiary are reclassified and recognised
through the income statement as part of
the gain or loss on disposal.
These financial statements incorporate the
consolidated results of Coats Group Limited
(“CGL”) as adjusted to account for the Coats
capital incentive plan (“CIP”), on a basis
consistent with that required to be adopted
by GPG.
Joint Ventures
Joint ventures are entities in which the
Group has joint control, shared with a party
outside the Group. The Group reports its
interests in joint ventures using the equity
method.
Going concern
Giving due consideration to the nature of
the Group’s business and underlying
investments, taking account of the
following matters: the ability of the Group
to realise its liquid investments and to
manage the timing of such liquidations;
the Group’s foreign currency exposures; the
potential requirement to provide financial
support to the Group’s UK pension
schemes; the appropriate capital structure
to be adopted by the Group in the future;
and the factors which will determine further
returns of surplus cash to shareholders; and
also taking into consideration the cash flow
forecasts prepared by the Group and the
sensitivity analysis associated therewith, the
directors consider that the Company and
the Group are going concerns and these
financial statements are prepared on that
basis. Further detail is contained in the
corporate governance section on page 28.
1. Principal accounting policies
The following are the principal accounting
policies adopted in preparing the financial
statements.
GROUP
Critical accounting policies
The principal accounting policies adopted by
the Group are set out in this note to the
consolidated financial statements. Certain
of the Group’s accounting policies
inherently rely on subjective assumptions
and judgements, such that it is possible over
time the actual results could differ from the
estimates based on the assumptions and
judgements used by the Group. Due to the
size of the amounts involved, changes in the
assumptions relating to the following
policies could potentially have a significant
impact on the result for the period and/or
the carrying values of assets and liabilities in
the consolidated financial statements:
> Pension and other employee benefit
obligations
The retirement benefit obligations
recognised in the statement of financial
position in respect of defined employee
benefits are the present values of the
defined benefit obligations at the year
end less the fair value of any associated
assets. Key assumptions involved in the
determination of the present values of the
defined benefit obligations include
discount rates, beneficiary mortality and
benefits in payment inflation rates.
Changes in any or all of these
assumptions could materially change the
employee benefit obligations recognised
in the statement of financial position.
A sensitivity analysis relating to the
Group’s major defined benefit pension
arrangements is included in note 9.
> Carrying value of intangible assets and
tangible assets
The carrying value of intangible assets
and tangible assets is dependent on the
calculation of discounted cash flows
arising from the cash-generating units to
which those assets relate. Changes in
either the discount rates applied or the
estimated cash flows could materially
change the carrying values of these
assets.
> Provisions
In determining the level of provisions held
at year end the Board takes advice from
external experts as appropriate. The
nature of the estimates adopted is such
that the final liability that crystallises may
differ from these estimates.
A) Accounting convention and format
The consolidated financial statements have
been prepared in accordance with
International Financial Reporting Standards
(“IFRS”) as adopted by the European Union,
which comprise standards and
interpretations approved by the
International Accounting Standards Board
(“IASB”) and International Accounting
Standards and Standing Interpretations
Committee interpretations approved by the
predecessor International Accounting
Standards Committee that have been
subsequently authorised by the IASB and
remain in effect.
The accounting policies set out below have
been applied consistently to all periods
presented in these consolidated financial
statements.
B) Basis of preparation
Subsidiaries
The principal subsidiaries are listed in note
16. Subsidiaries are consolidated from the
effective date of acquisition or up to the
effective date of disposal, as appropriate, or
the subsidiary meets the criteria to be
classified as held for sale. The effective date
is when control passes to or from the Group.
Control is achieved when the Group has the
power over the investee and is exposed, or
has the rights to variable returns from its
involvement with the investee and has the
ability to use its power to affect its returns.
The existence and effect of potential voting
rights that are currently exercisable or
convertible are considered in determining
the existence or otherwise of control. Where
necessary, adjustments are made to the
financial statements of subsidiaries to align
their accounting policies with those used by
the Group.
Where subsidiaries are not 100% owned by
the Group, the share attributable to outside
shareholders is reflected in non-controlling
interests. Non-controlling interests are
identified separately from the Group’s
equity, and may initially be measured at
either fair value or at the non-controlling
interests’ share of the fair value of the
subsidiary’s identifiable net assets. The
choice of measurement is made on an
acquisition-by-acquisition basis. Changes in
the Group’s interests in subsidiaries, that do
not result in a loss of control, are accounted
for as equity transactions. Where control is
lost, a gain or loss on disposal is recognised
through the consolidated income
statement, calculated as the difference
between the fair value of consideration
received (plus the fair value of any retained
interest) and the Group’s previous share of
the former subsidiary’s net assets. Amounts
Annual Report 2014
53
Overview and strategic reportCorporate governanceFinancial statementsNotes to financial statementsCoats financial information C) Foreign currencies
Foreign currency translation
The Company’s functional and the Group’s
presentation currency is the Pound Sterling.
Transactions in foreign currencies are
recorded at the rate ruling at the date of the
transaction. Monetary assets and liabilities
denominated in foreign currencies are
translated at the rates of exchange ruling at
the period end. All currency differences on
monetary items are taken to the
consolidated income statement with the
exception of differences on receivables and
payables that represent a net investment in
a foreign operation, which are taken directly
to equity until disposal of the net
investment, at which time they are recycled
through the consolidated income
statement.
Non-monetary items that are measured in
terms of historical cost in a foreign currency
are translated using the exchange rate as at
the date of initial transaction.
Group companies
Assets and liabilities of subsidiaries whose
presentation currency is not the Pound
Sterling are translated into the Group’s
presentation currency at the rates of
exchange ruling at the period end and their
income statements are translated at the
average exchange rates for the year. The
exchange differences arising on the
retranslation since 1 January 2004 are taken
to a separate component of equity. On
disposal of such an entity, the deferred
cumulative amount recognised in equity
since 1 January 2004 relating to that
particular operation is recycled through
the consolidated income statement.
Translation differences that arose before the
date of transition to IFRS in respect of all
such entities are not presented as a separate
component of equity.
Goodwill and fair value adjustments arising
on acquisition of such operations are
regarded as assets and liabilities of the
particular operation, expressed in the
currency of the operation and recorded at
the exchange rate at the date of the
transaction and subsequently retranslated at
the applicable closing rates.
E) Property, plant and equipment
Owned assets
Items of property, plant and equipment are
stated at cost less accumulated depreciation
and any accumulated impairments.
Leased assets
Leases where the lessor retains substantially
all the risks and benefits of ownership of
the asset are classified as operating leases.
Operating lease payments are recognised as
an expense in the income statement on a
straight-line basis over the lease term.
Subsequent expenditure
Expenditure incurred to replace a
component of an item of property, plant
and equipment that is accounted for
separately, including major inspection and
overhaul expenditure, is capitalised. Other
subsequent expenditure is capitalised only
when it increases the future economic
benefits embodied in the item of property,
plant and equipment. All other expenditure
is recognised in the income statement as an
expense as incurred.
Depreciation
Depreciation is charged to the income
statement on a straight-line basis over the
estimated useful lives of property, plant and
equipment, and major components that are
accounted for separately. Land is not
depreciated. The estimated useful lives are
as follows:
Freehold buildings
– 50 years to
100 years
Leasehold buildings
– 10 years to
50 years or over
the term of the
lease if shorter
Plant and equipment
– 3 years to
20 years
Vehicles and office
equipment
– 2 years to
10 years
Assets’ residual values and useful lives are
reviewed, and adjusted if appropriate, at
each period end.
goodwill is included in the determination of
the profit or loss on disposal.
Goodwill is allocated to cash-generating
units (“CGUs”) for the purpose of
impairment testing. CGUs represent the
Group’s investment in each of its business
segments.
In respect of acquisitions prior to
1 January 2004, goodwill is included on the
basis of its deemed cost, which represents
the amount recorded previously under UK
GAAP.
Negative goodwill is recognised immediately
in the income statement.
Brands
Brands with finite useful lives are carried at
cost less accumulated amortisation.
Amortisation is calculated using the
straight-line method over their useful lives
of up to 10 years. Brands with indefinite
useful lives are carried at cost less any
accumulated impairment charges.
Other intangibles
Acquired computer software licences
and computer software development costs
are capitalised on the basis of the costs
incurred to acquire and bring to use the
specific software and are amortised over
their estimated useful lives of up to 5 years.
Intellectual property, comprising
trademarks, designs, patents and product
development which have a finite useful life,
are carried at cost less accumulated
amortisation and impairment charges.
Amortisation is calculated using the
straight-line method to allocate the cost
over the assets’ useful lives, which vary from
5 to 10 years.
Impairment of assets
Assets that have an indefinite useful life
are not subject to amortisation and are
tested annually for impairment. Assets
that are subject to amortisation are
reviewed for impairment whenever events
or changes in circumstances indicate that
the carrying amount may not be
recoverable.
D) Segment reporting
Operating segments are the components of
the Group about which separate financial
information is available that is evaluated
regularly by the Company’s directors in
deciding how to allocate resources and in
assessing performance. The information
presented within the operating segment
analysis is reported on the same basis as
that used internally by the Company’s
directors in evaluating operating segment
performance.
F) Intangible assets
Goodwill
Goodwill arising on consolidation represents
the excess of the cost of acquisition over the
Group’s interest in the fair value of the
identifiable assets and liabilities of a
subsidiary at the date of acquisition.
Goodwill is recognised as an asset and
reviewed for impairment at least annually.
Any impairment is recognised immediately
in the income statement. On disposal of a
subsidiary, the attributable amount of
An impairment charge is recognised for the
amount by which the asset’s carrying
amount exceeds its recoverable amount.
The recoverable amount is the higher of an
asset’s fair value less costs to sell and its
value in use. In assessing value in use, the
estimated future cash flows are discounted
to their present value using a pre-tax
discount rate that reflects current market
assessments of the time value of money and
the risks specific to the asset for which the
estimates of future cash flows have not
54
Annual Report 2014
Financial statementsNotes to financial statements continued been adjusted. For the purposes of
assessing impairment, assets are measured
at the CGU level.
Research and Development
All research costs are expensed as
incurred.
An internally-generated intangible asset
arising from development is recognised only
if all of the following conditions are met:
> An asset is created that can be separately
identified;
> It is probable that the asset created will
generate future economic benefits;
and
> The development costs can be measured
reliably.
Internally-generated intangible assets are
amortised on a straight-line basis over their
useful lives.
Where no internally-generated intangible
asset can be recognised, development
expenditure is recognised as an expense in
the period in which it is incurred.
G) Financial instruments
Financial assets and financial liabilities are
recognised when the Group becomes a
party to the contractual provisions of the
relevant financial instrument.
Financial assets
(i)
Investments
Investments are recognised and
derecognised on a trade date basis and are
initially measured at fair value, plus directly
attributable transaction costs for fixed asset
investments. Investments are classified as
either current assets (held-for-trading) or
fixed assets (available-for-sale), dependent
upon the Group’s intention at the time of
purchase, and are measured at subsequent
reporting dates at fair value. Gains and
losses arising from changes in fair value of
current asset investments are included in
the income statement for the period. For
fixed asset investments, gains and losses
arising from changes in fair value are
recognised directly in equity, until the
security is disposed of or is deemed to be
impaired, at which time the cumulative gain
or loss previously recognised in equity is
included in the income statement for the
period. Impairment charges recognised for
equity investments classified as fixed asset
investments are not subsequently reversed
through the income statement until such
time as the equity investment is disposed of.
Net gains and losses recognised in profit or
loss on disposal of investments do not
incorporate dividends or interest receivable
on those assets.
Listed investments held as part of the
Group’s investment portfolio are stated at
market value.
Unlisted investments are stated at fair value
based on directors’ valuation, which is
supported by external experts’ advice or
other external evidence.
(ii) Cash and cash equivalents
Cash and cash equivalents in the
statement of financial position comprise
cash at bank and in hand and short-term
deposits. For the purposes of the
statement of cash flows, cash and cash
equivalents consist of cash and cash
equivalents as defined above, net of
outstanding bank overdrafts.
(iii) Trade and other receivables
Trade receivables are recognised and carried
at original invoice amount less an allowance
for any uncollectable amounts. An estimate
for doubtful debts is made when collection
of the full amount is no longer probable.
Bad debts are written off when identified.
Financial liabilities
(i) Trade payables
Trade payables are not interest-bearing and
are stated at nominal value.
(ii) Borrowings
Interest-bearing loans and overdrafts are
initially measured at fair value, net of
direct issue costs. These financial
liabilities are subsequently measured at
amortised cost using the effective
interest method, with interest expense
recognised over the period of the
relevant liabilities.
(iii) Compound instruments
The component parts of compound
instruments are classified separately as
financial liabilities and equity in accordance
with the substance of the contractual
arrangement. At the date of issue, the fair
value of the liability component is estimated
using the prevailing market interest rate for
a similar non-convertible instrument, and
this amount is recorded as a liability at
amortised cost. The equity component is
the fair value of the compound instrument
as a whole less the amount of the liability
component, and is recognised in equity, net
of income tax effect, without subsequent
remeasurement.
Derivatives embedded in other financial
instruments or other host contracts are
treated as separate derivatives when
their risks and characteristics are not
closely related to those of the host
contracts, and the host contracts are not
measured at fair value with changes in
fair value being recognised in the income
statement.
(iv) Derivative financial instruments
and hedge accounting
The Group’s activities expose it to the
financial risks of changes in foreign
exchange rates and interest rates.
The use of financial derivatives is
regulated by the Board or that of the
relevant operating subsidiary in
accordance with their respective risk
management strategies. Changes in
values of all derivatives of a financing
nature are included within investment
income and finance costs in the income
statement.
Derivative financial instruments are
initially measured at fair value at contract
date and are remeasured at each
reporting date.
The Group designates hedging instruments
as either fair value hedges, cash flow
hedges or hedges of net investments in
foreign operations. Hedges of currency risk
on fixed commitments are accounted for as
cash flow hedges.
At the inception of each hedge
transaction the issuing entity documents
the relationship between the hedging
instrument and the hedged item and the
anticipated effectiveness of the hedge
transaction, and monitors the ongoing
effectiveness over the period of the
hedge. Hedge accounting is discontinued
when the issuing entity revokes the
hedging relationship, the hedge
instrument expires, is sold, exercised or
otherwise terminated, and the adjustment
to the carrying amount of the hedged
item arising from the hedged risk is
amortised through the income statement
from that date.
(v) Fair value hedges
Changes in the fair values of derivatives that
are designated and qualify as fair value
hedges are recognised immediately through
the income statement, together with any
changes in the fair value of the related
hedged items due to changes in the hedged
risks. On discontinuation of the hedge the
adjustment to the carrying amount of the
hedged item arising from the hedged risk is
amortised through the consolidated income
statement from that date.
Annual Report 2014
55
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information (vi) Cash flow hedges
The effective portion of changes in the
fair value of derivatives that are
designated and qualify as cash flow
hedges is deferred in equity. Once the
related hedged item is recognised in the
income statement, the amounts deferred
in equity are recycled through the
consolidated income statement. The gain
or loss arising from any ineffective portion
of the hedge is recognised immediately
through the consolidated income
statement.
(vii) Hedges of net investments in
foreign operations
Gains and losses on hedging instruments
relating to the effective portion of such
hedges are recognised through the
translation reserve, and recycled through
the consolidated income statement on
disposal of the respective foreign
operations. The gain or loss arising from any
ineffective portion of such hedges is
recognised immediately through the
consolidated income statement.
H) Revenue
Revenue comprises the fair value of the sale
of goods and services, net of sales tax and
discounts, and after eliminating sales within
the Group. Revenue is recognised as
follows:
(i) Sales of goods
Sales of goods are recognised in revenue
when the associated risks and rewards of
ownership of the goods have been
transferred to the buyer.
(ii) Sales of services
Sales of services are recognised in the
period in which the services are rendered,
by reference to the stage of completion of
those services at the period end.
(iii) Income from sales of property
Income from sales of property is recognised
on completion when legal title of the
property passes to the buyer.
The costs of finished goods and work in
progress include direct materials and labour
and a proportion of manufacturing
overheads based on normal operating
capacity but excluding borrowing costs. Net
realisable value is the estimated selling price
in the ordinary course of business, less
estimated costs of completion and the
estimated costs necessary to make the sale.
Provision is made for obsolete, slow-moving
and defective inventories.
Land for resale, which is included in
development work in progress, is valued at
the lower of cost and net realisable value.
Cost includes capitalised interest and those
costs necessary to prepare the land for sale.
J) Employee benefits
(i) Retirement and other post-
employment obligations
For retirement and other post-employment
benefit obligations, the cost of providing
benefits is determined using the Projected
Unit Credit Method, with actuarial
valuations being carried out at the end of
each reporting period by independent
actuaries. Remeasurement comprising
actuarial gains and losses, the effect of the
asset ceiling (if applicable) and the return on
scheme assets (excluding interest) are
recognised immediately in the consolidated
statement of financial position with a
charge or credit to the consolidated
statement of comprehensive income in the
period in which they occur. Remeasurement
recorded in the consolidated statement of
comprehensive income is not recycled. Past
service cost is recognised in profit or loss in
the period of scheme amendment. Net
interest is calculated by applying a discount
rate to the net defined benefit liability or
asset. Defined benefit costs are split into
three categories:
– current service cost, past-service cost and
gains and losses on curtailments and
settlements;
– net interest expense or income; and
– actuarial gains and losses.
(iv) Investment revenue
Investment revenue comprises proceeds
receivable from the sale (trade date) of
current asset investments during the
year.
The Group presents current and past service
costs within cost of sales and administrative
expenses in its consolidated income
statement. Curtailments gains and losses
are accounted for as past-service cost.
I) Inventories
Inventories are valued at the lower of cost
and net realisable value. Costs incurred in
bringing each product to its present
location and condition are accounted for as
follows:
Net interest expense or income is
recognised within finance costs.
Actuarial gains and losses are recognised in
the consolidated statement of
comprehensive income.
Raw materials are valued at cost on a
first-in, first-out basis.
In addition, pension scheme administrative
expenses including the PPF (Pension
Protection Fund) levy and actuary, audit,
legal and trustee charges are recognised as
administrative expenses.
The retirement benefit and other post-
employment benefit obligation recognised
in the consolidated statement of financial
position represents the deficit or surplus in
the Group’s defined benefit schemes. Any
surplus resulting from this calculation is
limited to the present value of any economic
benefits available in the form of refunds
from the schemes or reductions in future
contributions to the schemes.
For defined contribution plans, the Group
pays contributions to publicly or privately
administered pension plans on a mandatory,
contractual or voluntary basis. The
contributions are recognised as employee
benefit expenses when they are due.
Prepaid contributions are recognised as an
asset to the extent that a cash refund or a
reduction in the future payments is
available.
(ii) Share-based compensation
Cash-settled
The Group operates a cash-settled share-
based compensation plan for the benefit of
certain employees of Coats plc. Cash-settled
share-based payments are measured at fair
value (excluding the effect of non market-
based vesting conditions) at each reporting
date. The fair value is expensed on a
straight-line basis over the vesting period,
with a corresponding increase in liabilities.
Equity-settled
The Group operates equity-settled
compensation plans for the granting of
non-transferable options to employees.
Equity-settled share-based payments are
measured at fair value (excluding the effect
of non market-based vesting conditions) at
the date of grant. The fair value determined
at the grant dates of the equity-settled
share-based payments is expensed on a
straight-line basis over the vesting period,
based on the Group’s estimate of the shares
that will eventually vest and adjusted for the
effect of non market-based vesting
conditions, with a corresponding increase in
equity. For shares granted to employees, the
fair value of the shares is measured at the
market price of the shares, adjusted to take
into account the terms and conditions upon
which the shares were granted. The fair
value of share options is measured using an
adjusted version of the Black-Scholes pricing
model to reflect the terms and conditions of
the options granted, based on
management’s best estimate of the effects
of non-transferability, exercise restrictions
and behavioural considerations.
56
Annual Report 2014
Financial statementsNotes to financial statements continued (iii) Non-share-based long term
incentive schemes
The anticipated present value cost of
non-share-based incentive schemes is
charged to the consolidated income
statement on a straight-line basis over the
period the benefit is earned, based on
remuneration rates that are expected to be
payable.
probable that future profits will be available
against which the asset can be utilised.
Deferred tax assets are reduced to the
extent that it is no longer probable that the
related tax benefit will be realised.
Additional income taxes that arise from the
distribution of dividends are recognised at
the same time as the liability to pay the
related dividend.
(iv) Termination benefits
Termination benefits are payable when
employment is terminated before the
normal retirement date, or whenever an
employee accepts voluntary redundancy in
exchange for these benefits. The Group
recognises termination benefits when it is
demonstrably committed to either:
terminating the employment of current
employees according to a detailed formal
plan without possibility of withdrawal; or
providing termination benefits as a result of
an offer made to encourage voluntary
redundancy. Benefits falling due more than
12 months after the period end are
discounted to present value.
K) Taxation
The tax expense represents the sum of the
tax currently payable and deferred tax.
The tax currently payable is based on
taxable profit for the year. Taxable profit
differs from net profit as reported in the
consolidated income statement because it
excludes items of income and expense that
are taxable or deductible in other years and
it further excludes items that are never
taxable or deductible. The Group’s liability
for current tax is calculated using tax rates
that have been enacted or substantively
enacted by the period end.
Deferred tax is provided using the liability
method, providing for temporary
differences between the carrying amounts
of assets and liabilities for financial
reporting purposes and the amounts used
for taxation purposes. Deferred taxation is
measured on a non-discounted basis. The
following temporary differences are not
provided for: goodwill not deducted for tax
purposes, the initial recognition of assets or
liabilities that affect neither accounting nor
taxable profit and differences relating to
investments in subsidiaries to the extent
that they will probably not reverse in the
foreseeable future.
The amount of deferred tax provided is
based on the expected manner of
realisation or settlement of the carrying
amount of assets and liabilities, using tax
rates enacted or substantively enacted at
the period end. A deferred tax asset is
recognised only to the extent that it is
The carrying values of deferred tax assets
are reviewed at each period end.
Deferred tax is charged or credited in the
income statement, except when it relates to
items charged or credited directly to equity
in which case the deferred tax is also dealt
with in equity.
L) Investment income
Income from equity investments is
recognised when the legal entitlement
vests. Dividends from UK companies are
presented net of the attributable tax credit.
Dividends received from overseas
companies include any withholding taxes,
but exclude any underlying tax paid by the
investee company on its own profit. Special
dividends arising from the Group’s
investments are included as income in the
income statement and, where appropriate,
an impairment provision is recognised
against the investment.
M) Borrowing costs
Borrowing costs directly attributable to the
acquisition, construction or production of
qualifying assets, which are assets that
necessarily take a substantial period of time
to prepare for their intended use or sale, are
added to the cost of those assets, until such
time as the assets are substantially ready for
their intended use or sale. Investment
income earned on the temporary
investment of specific borrowings pending
their expenditure on qualifying assets is
deducted from the borrowing costs eligible
for capitalisation.
All other borrowing costs, except where
otherwise stated, are recognised in the
income statement in the period in which
they are incurred.
N) Provisions
A provision is recognised in the consolidated
statement of financial position when the
Group has a legal or constructive obligation
as a result of a past event, and it is probable
that an outflow of economic benefits will
be required to settle the obligation. If the
effect is material, a provision is determined
by discounting the expected future cash
flows at a pre-tax rate that reflects current
market assessments of the time value of
money and, where appropriate, the risks
specific to the liability. Where discounting is
used, the increase in the provision due to
the passage of time is recognised as a
borrowing cost.
O) Onerous contracts
A provision for onerous contracts is
recognised when the expected benefits to
be derived by the Group from a contract are
lower than the unavoidable cost of meeting
its obligations under the contract.
P) Restructuring
A provision for restructuring is recognised
when the Group has approved a detailed
and formal restructuring plan, and the
restructuring has either commenced or has
been announced publicly. Future operating
costs are not provided for.
Q) Assets held for sale and
discontinued operations
Non-current assets and businesses which
are to be sold (“disposal groups”) classified
as held for sale are measured at the lower
of carrying amount and fair value less costs
to sell.
Non-current assets (and disposal groups) are
classified as held for sale if their carrying
amount is expected to be recovered
through a sale transaction rather than
through continuing use. This condition is
regarded as met only when such a sale is
highly probable and the asset (or disposal
group) is available for immediate sale in its
present condition. Management must be
committed to the sale, which should be
expected to qualify for recognition as a
completed sale within one year from the
date of classification.
Non-current assets are classified as held for
sale from the date these conditions are met,
and such assets are no longer depreciated.
Discontinued operations are classified as
held for sale and are either a separate
business segment or a geographical area of
operations that is part of a single
coordinated plan to sell. Once an operation
has been identified as discontinued, or is
reclassified as discontinued, the comparative
information in the Income Statement is
restated.
R) Cash flow
In accordance with the Directors’ views, the
consolidated statement of cash flows
reflects cash flows arising in the normal
course of the Parent Group’s investment
business as part of operating cash flows.
The proceeds of sale of Parent Group
operating subsidiary and associated
undertakings and joint ventures are
included within acquisitions and disposals
within cash flows from investing activities.
Annual Report 2014
57
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Equity-settled
The Company operates an equity-settled
compensation plan for the granting of
non-transferable options to directors and
other employees. For share options granted,
the fair value of the shares is measured at
the market price of the Company’s shares,
adjusted to take into account the terms and
conditions upon which the share options
were granted, using an adjusted version of
the Black-Scholes model, based on
management’s best estimate of the effects
of non-transferability, exercise restrictions
and behavioural considerations. The charge
to the profit and loss account has no impact
on net assets since the credit is reflected in
equity.
D) Taxation
Provision is made for taxation assessable on
the profit or loss for the year as adjusted for
disallowable and non-taxable items.
Deferred taxation is provided in full in
respect of timing differences which have
arisen but not reversed at the balance sheet
date, except that deferred tax assets
(including those attributable to tax losses
carried forward) are only recognised if it is
considered more likely than not that they
will be recovered. Deferred taxation is
measured on a non-discounted basis.
E) Dividends payable
Dividends proposed are recognised in the
period in which they are formally approved
for payment.
Acquisitions and disposals of fixed asset
investments, associated undertakings and
joint ventures, together with dividends
received from associated undertakings and
joint ventures, in respect of the Group’s
operating subsidiaries, remain within cash
flows from investing activities, as these are
strategic investments by those subsidiaries
rather than being held for investment
gains.
New IFRS accounting standards and
interpretations adopted in the year
During the year, the Group has adopted the
following standards and interpretations:
Amendments to IAS 36 (“Recoverable
amount disclosures for non-financial
assets”);
Amendments to IAS 39 (“Novation of
derivatives and Continuation of hedge
accounting”); and
Investment Entities (Amendments to IFRS
10, IFRS 12 and IAS 27).
The adoption of these standards and
interpretations has had no significant
impact on these consolidated financial
statements.
New IFRS accounting standards and
interpretations not yet adopted
The following published standards and
amendments to existing standards, which
have not yet all been endorsed by the EU,
are expected to be effective as follows:
From the year beginning 1 January 2016:
IFRS 14 (“Regulatory Deferral Accounts”);
Amendments to IAS 1 (“Disclosure
Initiative”);
Amendments to IAS 16 and IAS 38
(“Clarification of Acceptable Methods of
Depreciation and Amortisation”);
Amendments to IFRS 10, IFRS 12 and IAS 28
(“Investment Entities: Applying the
Consolidation Exception”);
Amendments to IFRS 10 and IAS 28 (“Sale
or Contribution of Assets between an
Investor and its Associate or Joint Venture”);
and
Amendments to IFRS 11 (“Accounting for
Acquisitions of Interests in Joint
Operations”).
From the year beginning 1 January 2017:
IFRS 15 (“Revenue from Contracts with
Customers”).
From the year beginning 1 January 2018:
IFRS 9 (“Financial instruments”).
The directors do not expect that the
adoption of the Standards and
Interpretations listed above will have a
material impact on the financial statements
of the Group in future periods, except that
IFRS 9 will impact both the measurement
and disclosure of financial instruments.
Company
The financial statements comply with
applicable UK law and accounting
standards, modified where appropriate to
present a true and fair view, and have been
prepared under the historical cost
convention.
A) Fixed assets – investments
Investments in subsidiary undertakings are
reflected at cost less provisions for any
impairment.
B) Investment income
Income from equity investments is
recognised when the legal entitlement
vests. Dividends from UK companies are
presented net of the attributable tax credit.
Dividends received from overseas
companies include any withholding taxes,
but exclude any underlying tax paid by the
investee company on its own profit. Special
dividends arising from the Company’s
investments are included as income in the
profit and loss account and, where
appropriate, an impairment provision is
recognised against the investment.
C) Share-based compensation
Cash-settled
The Company operates a cash-settled
share-based compensation plan for the
benefit of certain employees of Coats plc.
Cash-settled share-based payments are
measured at fair value (excluding the effect
of non market-based vesting conditions) at
each reporting date. The fair value is
expensed on a straight-line basis over the
vesting period, with a corresponding
increase in liabilities.
58
Annual Report 2014
Financial statementsNotes to financial statements continued 2. Segmental analysis
Operating segments
2014
a) Revenue
External sales
b) Results
Continuing operations:
Operating profit/(loss)
Interest income – Coats
Share of joint ventures’ results
Finance costs (net)
Tax charge
Profit/(loss) after tax
c) Assets and liabilities
Assets
includes share of joint ventures’ net assets
Liabilities
d) Other disclosures
Property, plant and equipment – additions
Intangible assets – additions
Impairment of property, plant and equipment
Depreciation charge
Impairment of intangible assets
Amortisation charge
Thread
manufacture
£m
Investment
£m
Non-operating
(see note (i))
£m
1,023
–
65
2
1
(21)
(28)
19
(1)
–
–
(3)
–
(4)
–
–
–
–
–
–
–
Total
£m
1,023
64
2
1
(24)
(28)
15
756
9
(560)
376
–
(129)
128
–
(314)
1,260
9
(1,003)
24
5
10
26
1
4
–
–
–
–
–
–
–
–
–
–
–
–
24
5
10
26
1
4
Annual Report 2014
59
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information
2. Segmental analysis continued
2013
a) Revenue
External sales
b) Results
Continuing operations:
Operating profit/(loss)
Interest income – Coats
Share of joint ventures’ results
Finance costs (net)
Tax charge
Profit/(loss) after tax
Discontinued operations:
Profit after tax
c) Assets and liabilities
Assets
includes share of joint ventures’ net assets
Liabilities
Thread
manufacture
£m
Investment
£m
Unallocated
£m
Non-operating
(see note (i))
£m
1,089
–
79
3
1
(27)
(32)
24
–
767
8
(401)
(38)
–
–
(4)
–
(42)
30
386
–
(78)
–
–
–
–
–
–
–
16
–
–
–
Total
£m
1,089
41
3
1
(31)
(32)
(18)
46
–
–
–
–
–
–
–
–
104
–
(321)
1,257
8
(800)
d) Other disclosures
Property, plant and equipment – additions
Intangible assets – additions
Depreciation charge
Impairment of intangible assets
Amortisation charge
Investment impairment
The accounting policies of the reportable operating segments are the same as the Group’s accounting policies described in note 1.
Operating profit is the measure reported to the Company’s directors for the purpose of resource allocation and assessment of segment
performance for continuing operations.
24
2
(29)
(1)
(3)
–
–
–
–
–
–
(1)
–
–
–
–
–
–
–
–
–
–
–
–
24
2
(29)
(1)
(3)
(1)
Geographic segments
United Kingdom
Europe, Middle East & Africa (EMEA)
– Germany
– Rest of EMEA
Americas
– USA
– Rest of North America
– Brazil
Asia & Rest of world
– New Zealand
– India
– China & Hong Kong
– Australia
– Other
Total
Notes:
(i)
(ii)
60
Annual Report 2014
External revenue
By origin
£m
13
By destination
£m
19
2014
Non-current
assets
(see note (ii))
£m
168
External revenue
By origin
£m
14
By destination
£m
21
2013
Non-current
assets
(see note (ii))
£m
157
64
179
181
11
67
1
103
100
3
301
1,023
43
191
176
15
67
1
100
90
3
318
1,023
2
32
23
–
17
–
24
26
–
74
366
74
194
194
13
78
1
105
106
3
307
1,089
50
210
188
16
78
1
100
92
4
329
1,089
8
45
20
–
17
–
24
26
–
73
370
Non-operating items comprise:
Assets – cash and cash equivalents, derivatives and investments held by operating subsidiaries, which are not considered to be financial operations, plus taxation assets and non-current
assets classified as held for sale; and Liabilities – borrowings, taxation liabilities and liabilities directly associated with non-current assets classified as held for sale.
Non-current assets exclude financial instruments, deferred tax, pension assets and non-current assets held for sale.
Financial statementsNotes to financial statements continued
3. Revenue
Year ended 31 December
Continuing operations:
Sale of industrial thread, Speciality and zips
Sale of consumer textiles crafts
Total sales – continuing operations
Interest receivable and other investment income
Discontinued operations:
Sale of investments
Unallocated
Total sales – discontinued operations
Interest receivable and other investment income
Total
4. Operating profit
Year ended 31 December
Cost of sales
Gross profit
Interest receivable – Parent Group
Distribution costs
Administrative expenses
Net operating expenses
Other operating income
Operating profit
2014
£m
2013
£m
754
269
1,023
8
1,031
–
–
–
–
–
775
314
1,089
7
1,096
9
2
11
5
16
1,031
1,112
2014
£m
(648)
375
2013
£m
(709)
380
6
4
(172)
(145)
(317)
–
64
(183)
(161)
(344)
1
41
Annual Report 2014
61
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 5. Profit before taxation from continuing operations
Year ended 31 December
Profit before taxation is stated after charging/(crediting):
Amortisation of intangible assets
Impairment of intangible assets
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Fees charged by Deloitte LLP
Group audit fees:
– Fees payable for the audit of the Company’s annual accounts
– Fees payable for the audit of the Company’s subsidiaries
Other Deloitte LLP services:
– Taxation services
Total fees charged by Deloitte LLP
Operating lease rentals:
– Plant and equipment
– Other
Research and development expenditure
Bad and doubtful debts
Net foreign exchange (gains)/losses
Rental income from land and buildings
Inventory as a material component of cost of sales
Inventory write-downs to net realisable value
6. Finance costs (net)
Year ended 31 December
Employee benefits (note 9):
Interest on defined benefit obligations
Interest on scheme assets
Effect of asset cap
Net finance cost of employee benefits
Interest payable on bank loans and overdrafts
2014
£m
4
1
26
10
–
2
–
2
4
9
1
3
(11)
(1)
385
2
2014
£m
(92)
86
(1)
(7)
(17)
(24)
2013
£m
3
1
29
–
–
2
1
3
5
11
1
1
2
(2)
417
4
2013
£m
(84)
74
(1)
(11)
(20)
(31)
62
Annual Report 2014
Financial statementsNotes to financial statements continued 7. Employee information
Year ended 31 December
The average monthly number of employees (including Executive Directors)
in the Group during the year was:
Continuing operations:
Corporate – Parent Group
Thread manufacture
Discontinued operations
TOTAL NUMBER OF EMPLOYEES
The average monthly number of employees (including executive directors)
in the Company during the year was:
Corporate – Parent Group
Employment costs – all employees including directors:
Year ended 31 December
Continuing operations
Aggregate gross wages and salaries
Employer’s national insurance contributions or foreign equivalents
Employer’s pension cost
Discontinued operations
Aggregate gross wages and salaries
Directors’ emoluments
Aggregate emoluments
Pension contributions
2014
2013
2
20,577
20,579
–
20,579
14
20,925
20,939
30
20,969
–
9
2014
£m
2
–
–
2
Company
2013
£m
4
–
–
4
2014
£m
228
21
10
259
–
259
1
–
1
Group
2013
£m
241
24
6
271
3
274
1
–
1
Annual Report 2014
63
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 8. Tax on profit from continuing operations
Year ended 31 December
Current tax:
UK corporation tax at 21.5% (2013: 23.25%)
Overseas tax charge
Deferred tax credit
Total tax charge
The tax charge for the year can be reconciled as follows:
Profit before taxation from continuing operations
Profit before taxation multiplied by standard rate of tax in the UK of 21.5%
(2013: 23.25%)
Impact of differences in overseas tax rates
Other non-deductible expenditure
Impact of tax losses and other unprovided deferred tax
Total tax charge
The tax charge for both years reflects the impact of unrelieved losses around the Group.
9. Employee benefit costs
(a) Pension and other post-employment costs
Pension and other post-employment costs for the year were:
Year ended 31 December
Defined contribution schemes
Defined benefit schemes – Coats UK funded
Coats US funded
Other Coats funded and unfunded
Staveley
Brunel
Administrative expenses for defined benefit schemes
2014
£m
–
(29)
(29)
1
(28)
43
9
4
6
9
28
£m
(2)
2
3
2013
£m
–
(32)
(32)
–
(32)
14
3
3
5
21
32
2013
£m
3
3
–
–
6
12
£m
2
2
4
2014
£m
2
8
–
–
8
18
(b) Defined contribution schemes
The Group operates a number of defined contribution plans around the world to provide pension benefits.
(c) Defined benefit schemes
The Group operates three significant defined benefit schemes in the UK, namely the Brunel Holdings Pension Scheme (“Brunel”), the
Staveley Industries Retirement Benefits Scheme (“Staveley”) and the Coats Pension Plan (“Coats UK”) which offer both pensions in
retirement and death benefits to members. In addition, Coats operates the Coats North America Pension Plan (“Coats US”) in the US as
well as various pension and other post-retirement arrangements around the globe (most significantly in Germany). The assets of the
Brunel, Staveley, Coats UK and Coats US plans are held under self-administered trust funds and hence are separate from the Group’s
assets.
64
Annual Report 2014
Financial statementsNotes to financial statements continued
9. Employee benefit costs continued
The following disclosures do not include information in respect of schemes operated by joint ventures.
The Group is exposed to actuarial risks including:
Interest rate risk – the present value of the defined benefit plan liabilities is calculated using a discount rate determined by reference to
high quality corporate bond yields. A decrease in bond yield rates will increase defined benefit obligations;
Longevity risk – the present value of the defined benefit plan liability is calculated by reference to the best estimate of member life
expectancies. An increase in life expectancy will increase liabilities;
Inflation risk – the present value of the defined benefit liabilities are calculated by reference to assumed future inflation rates. An increase
in inflation rates will increase defined benefit obligations; and
Salary risk – certain of the Group’s employee benefits are linked to salary and, hence, a faster than assumed increase in salaries may
adversely impact on defined benefit liabilities. However, this is not a significant risk to the Group.
Pension costs in respect of these plans are assessed in accordance with the advice of independent, professionally qualified actuaries.
The information provided below for defined benefit plans has been prepared by independent qualified actuaries based on the most
recent actuarial valuations of the schemes, updated to take account of the valuations of assets and liabilities as at 31 December 2014.
For the principal schemes, the date of the most recent actuarial valuations were 1 April 2012 for the Coats UK scheme, 31 December
2014 for the Coats US scheme, 5 April 2011 for the Staveley scheme and 31 March 2010 for the Brunel scheme.
Principal assumptions at
31 December 2014
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Principal assumptions at
31 December 2013
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Coats
UK
%
4.0
2.9
3.4
3.0
Coats
UK
%
4.3
3.1
4.5
3.3
Coats
US
%
4.0
–
3.9
2.5
Coats
US
%
4.0
–
4.6
2.5
Coats
other
%
4.0
1.9
3.8
2.8
Coats
other
%
4.0
2.9
4.9
2.8
Staveley
%
–
Various
3.4
3.0
Brunel
%
–
Various
3.4
3.0
Staveley
%
–
Various
4.5
3.3
Brunel
%
–
Various
4.5
3.3
Annual Report 2014
65
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 9. Employee benefit costs continued
Amounts recognised in income in respect of these defined benefit schemes are as follows:
For the year ended 31 December 2014
Current service cost
Administrative expenses
Included in operating profit
Interest on defined benefit obligations –
unwinding of discount
Interest on pension scheme assets
Effect of asset cap
Included in finance costs –
net interest (expense)/income
For the year ended 31 December 2013
Current service cost
Past service credit
Administrative expenses
Included in operating profit
Interest on defined benefit obligations –
unwinding of discount
Interest on pension scheme assets
Effect of asset cap
Included in finance costs –
net interest (expense)/income
UK
£m
(2)
(4)
(6)
(68)
65
–
(3)
UK
£m
(2)
4
(4)
(2)
(63)
56
–
(7)
US
£m
(2)
(1)
(3)
(4)
6
(1)
1
US
£m
(2)
–
–
(2)
(4)
6
(1)
1
Coats
Coats total
£m
(8)
(5)
(13)
other
£m
(4)
–
(4)
Staveley
£m
–
(2)
(2)
(4)
2
–
(2)
other
£m
(3)
–
–
(3)
(3)
1
–
(2)
(76)
73
(1)
(4)
Coats
Coats total
£m
(7)
4
(4)
(7)
(70)
63
(1)
(8)
(9)
8
–
(1)
Staveley
£m
–
–
(1)
(1)
(8)
7
–
(1)
Brunel
£m
–
(1)
(1)
(7)
5
–
(2)
Brunel
£m
–
–
(1)
(1)
(6)
4
–
(2)
Group
£m
(8)
(8)
(16)
(92)
86
(1)
(7)
Group
£m
(7)
4
(6)
(9)
(84)
74
(1)
(11)
During the year ended 31 December 2013 the Group offered certain pensioners within the Coats UK scheme the opportunity to uplift
their pension with effect from March 2014, in return for giving up rights to annual inflationary increases. The level of pensioner
acceptance resulted in a past service credit of £4 million for the year ended 31 December 2013, net of costs, reflecting the reduction in
liabilities which had arisen.
The actual return on scheme assets was £117 million (2013: £145 million) for the Coats UK scheme, £16 million (2013: £3 million) for the
Coats US scheme, £2 million (2013: £2 million) for the other Coats schemes, £5 million (2013: £16 million) for the Staveley scheme and
£3 million (2013: £12 million) for the Brunel scheme.
66
Annual Report 2014
Financial statementsNotes to financial statements continued 9. Employee benefit costs continued
The amounts included in the statement of financial position arising from the Group’s defined benefit arrangements are as follows:
As at 31 December 2014
Cash and cash equivalents
Equity instruments:
US
UK
Eurozone
Other regions
Debt instruments:
Corporate bonds
Government/sovereign instruments
Real estate
Derivatives:
Inflation swap
Assets held by insurance company:
Insurance contracts
Other
Total market value of assets
Actuarial value of scheme liabilities
Gross net (liability)/asset in the scheme
Adjustment due to surplus cap
Recoverable net (liability)/asset in the scheme
UK
£m
40
–
235
–
234
873
41
129
(20)
2
–
1,534
(1,748)
(214)
–
(214)
US
£m
2
24
3
8
10
80
24
–
–
–
3
154
(105)
49
(14)
35
Coats
Coats total
£m
45
other
£m
3
Staveley
£m
3
Brunel
£m
2
1
–
–
5
7
3
–
–
3
–
22
(103)
(81)
(3)
(84)
25
238
8
249
960
68
129
(20)
5
3
1,710
(1,956)
(246)
(17)
(263)
–
87
–
–
84
6
–
–
1
–
181
(239)
(58)
–
(58)
–
55
–
–
37
19
–
–
–
–
113
(167)
(54)
–
(54)
This amount is presented in the statement of financial position as follows:
Non-current assets:
Funded
Current assets:
Funded
Current liabilities:
Funded (within provisions)
Unfunded (within provisions)
Non-current liabilities:
Funded
Unfunded
Group
£m
50
25
380
8
249
1,081
93
129
(20)
6
3
2,004
(2,362)
(358)
(17)
(375)
33
4
(18)
(5)
(312)
(77)
(375)
Annual Report 2014
67
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information
9. Employee benefit costs continued
As at 31 December 2013
Cash and cash equivalents
Equity instruments:
US
UK
Eurozone
Other regions
Debt instruments:
Corporate bonds
Government/sovereign instruments
Real estate
Derivatives:
Inflation swap
Assets held by insurance company:
Insurance contracts
Other
Total market value of assets
Actuarial value of scheme liabilities
Gross net (liability)/asset in the scheme
Adjustment due to surplus cap
Recoverable net (liability)/asset in the scheme
UK
£m
42
–
280
–
296
613
151
105
1
2
–
1,490
(1,568)
(78)
–
(78)
US
£m
2
23
4
8
10
65
20
–
–
–
6
138
(88)
50
(22)
28
Coats
Coats total
£m
47
other
£m
3
Staveley
£m
3
Brunel
£m
4
1
–
–
7
6
3
–
–
1
–
21
(90)
(69)
(3)
(72)
24
284
8
313
684
174
105
1
3
6
1,649
(1,746)
(97)
(25)
(122)
–
91
–
–
86
6
–
–
1
–
187
(215)
(28)
–
(28)
–
60
–
–
40
16
–
–
–
–
120
(148)
(28)
–
(28)
This amount is presented in the statement of financial position as follows:
Non-current assets:
Funded
Current assets:
Funded
Current liabilities:
Funded (within provisions)
Unfunded (within provisions)
Non-current liabilities:
Funded
Unfunded
Group
£m
54
24
435
8
313
810
196
105
1
4
6
1,956
(2,109)
(153)
(25)
(178)
27
3
(18)
(4)
(118)
(68)
(178)
Included in the tables above are UK equity instruments of £55 million (2013: £60 million), corporate bonds of £140 million (2013:
£128 million), government/sovereign instruments of £29 million (2013: £25 million), derivative liabilities of £20 million (2013: £1 million
asset), insurance contracts of £7 million (2013: £4 million) and other assets of £3 million (2013: £6 million) without a quoted price in an
active market. All other assets have a quoted price in an active market.
For the UK funded schemes the investment policy is centred around establishing for each scheme a cash flow-matching portfolio (“CFM”)
and a separate return-seeking asset portfolio (“RSA”). The aim of the proposed investment policy is for the CFM to match a pre-
determined number of years’ liability cash flows, with additional return being targeted via the RSA portfolio, so that the schemes have a
high probability of being able to move to a fully matched position at some point in the future.
68
Annual Report 2014
Financial statementsNotes to financial statements continued
9. Employee benefit costs continued
The CFM is targeted to be low risk relative to meeting the agreed number of years’ cash flows and the focus of the schemes’ investment
risk will be in respect of the RSA portfolio. The Coats UK scheme also holds inflation swap contracts to provide hedging against
movements in inflation. Market implied inflation inside the CFM period is monitored against an agreed set of inflation triggers with the
intention of implementing further inflation hedging should these triggers be breached.
The US scheme is fully funded and has a significant proportion of fixed income investments. The fixed income is invested directly to
protect the funded status of the scheme. Trustees work with investment managers to consider the liabilities (including key period
durations, credit spread duration and convexity) and have created a custom fixed income benchmark to match the liabilities and protect
the funded status.
The recoverable surplus on the US scheme has been recognised in line with the benefit from contribution holidays, plus annual refunds
expected from the scheme to fund the US post-retirement medical scheme in accordance with relevant US legislation.
The Coats UK and US schemes as well as the Staveley and Brunel schemes are funded arrangements. Of the other schemes’ actuarial
liabilities as at 31 December 2014, £82 million (2013: £72 million) related to wholly unfunded arrangements.
Year ended 31 December
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Current service cost
Past service credit
Interest on defined benefit obligations – unwinding of discount
Actuarial losses on obligations
Benefits paid
Exchange difference
At 31 December
Movements in the fair value of scheme assets were as follows:
At 1 January
Interest on scheme assets
Actuarial gains on assets
Contribution from sponsoring companies
Benefits paid
Administrative expenses paid from plan assets
Exchange difference
At 31 December
Actuarial gains and losses were as follows:
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Return on plan assets (excluding interest income)
Adjustment due to surplus cap
Included in the statement of comprehensive income
2014
£m
2013
£m
(2,109)
(8)
–
(92)
(276)
127
(4)
(2,362)
1,956
86
65
23
(127)
(8)
9
2,004
(4)
(267)
(5)
65
10
(201)
(2,148)
(7)
4
(84)
(5)
127
4
(2,109)
1,893
74
110
16
(125)
(6)
(6)
1,956
–
17
(22)
110
1
106
Annual Report 2014
69
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 9. Employee benefit costs continued
For the principal schemes, the assumed life expectancy on retirement is:
Retiring today at age 60:
Males
Females
Retiring in 20 years at age 60:
Males
Females
Year ended 31 December 2014
Year ended 31 December 2013
Coats UK
Years
Coats US
Years
Staveley
Years
Brunel
Years
Coats UK
Years
Coats US
Years
Staveley
Years
Brunel
Years
25.7
27.4
27.6
29.5
26.1
28.5
27.9
30.3
25.7
28.7
27.7
30.8
26.3
28.9
28.4
31.0
25.6
27.6
24.1
25.9
27.6
29.6
25.7
26.8
25.3
28.4
26.9
30.1
25.9
26.1
27.5
27.8
Sensitivities regarding the discount rate, inflation (which also impacts the rate of increases in salaries and rate of increase for pension in
payments assumptions for the UK scheme) and mortality assumptions used to measure the liabilities of the principal schemes, along with
the impact they would have on the scheme liabilities, are set out below. Interrelationships between assumptions might exist and the
analysis below does not take the effect of these interrelationships into account:
Year ended 31 December
Coats UK discount rate
Coats US discount rate
Staveley discount rate
Brunel discount rate
Coats UK inflation rate
Coats US inflation rate
Staveley inflation rate
Brunel inflation rate
+0.1%
£m
(24)
(1)
(3)
(2)
20
–
2
1
2014
–0.1%
£m
26
1
3
2
(19)
–
(2)
(1)
+0.1%
£m
(22)
(1)
(3)
(2)
18
–
2
1
2013
–0.1%
£m
23
1
3
2
(17)
–
(2)
(1)
If members of the Coats UK scheme live one year longer the scheme liabilities will increase by £58 million (2013: £53 million). If members
of the Coats US scheme live one year longer scheme liabilities will increase by £3 million (2013: £2 million), however there would be no
overall impact on the recoverable surplus. If members of the Staveley and Brunel schemes live one year longer scheme liabilities will
increase by £11 million (2013: £11 million) and £8 million (2013: £7 million) respectively.
In presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected
unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation
liability recognised in the consolidated statement of financial position. There was no change in the methods and assumptions used in
preparing the sensitivity analysis from prior years.
70
Annual Report 2014
Financial statementsNotes to financial statements continued 9. Employee benefit costs continued
Year ended 31 December
Sensitivity of medical schemes to medical cost trend rate assumptions:
Effect on total service cost and interest cost components of other schemes
Effect on defined benefit obligation of other schemes
+1%
£m
–
2
2014
–1%
£m
–
(1)
Valuation
trend
2013
–1%
£m
–
(1)
+1%
£m
–
1
The triennial valuation of the Coats UK pension plan as at April 2012 showed an actuarial deficit of £215 million, which equated to a
funding level of 87%. A fourteen year recovery plan has been agreed with the trustee, under which contributions of £16 million per
annum are payable from November 2013 (of which £2 million per annum relates to future service). This recovery plan will be reviewed at
the next triennial valuation as at April 2015. A triennial valuation for Staveley was undertaken as at April 2011 and was finalised during
2012, resulting in an actuarial funding deficit of £20 million, which equated to a funding level of 90%. A recovery plan was agreed,
comprised of an initial payment of £5 million followed by monthly payments commencing from July 2012 amounting to £1.3 million per
annum for eight years. The trustee of the Staveley scheme has called for a funding valuation with an effective date of 31 December 2013.
The last triennial valuation of the Brunel scheme, as at April 2010, was completed in 2011. This did not result in a requirement to make
contributions. The triennial valuations for both Staveley and Brunel are on-going and have been delayed by tPR’s investigations. The total
estimated amount to be paid in respect of all of the Group’s retirement and other post-employment benefit arrangements during the
2015 financial year is £23 million.
The weighted average duration of benefit obligations is 15 years (2013: 14 years) for the Coats UK scheme and 9 years (2013: 8 years) for
the Coats US scheme, 13 years (2013: 13 years) for the Staveley scheme and 12 years (2013: 12 years) for the Brunel scheme.
10. Earnings/(loss) per Ordinary Share
Basic earnings per share (“EPS”) from continuing and discontinued operations is calculated by dividing the profit attributable to equity
holders of the parent company of £9 million (2013: £23 million) by the weighted average number of Ordinary Shares in issue during the
year of 1,407,431,333 (2013: 1,433,827,035).
Basic earnings/(loss) per share from continuing operations is calculated by dividing the earnings attributable to equity holders of the
parent company of £9 million (2013: loss £23 million) by the weighted average number of Ordinary Shares in issue during the year of
1,407,431,333 (2013: 1,433,827,035).
For the calculation of diluted EPS, the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of all
dilutive potential Ordinary Shares, being share options granted to employees. There are no differences between the calculated basic
earnings/loss per share and the diluted earnings/loss per share for either year.
Year ended 31 December
Continuing and discontinued operations:
Earnings attributable to equity holders of the parent company
Year ended 31 December
Continuing and discontinued operations:
Earnings attributable to equity holders of the parent company
Year ended 31 December
Continuing operations:
Earnings attributable to equity holders of the parent company
Year ended 31 December
Continuing operations:
Loss attributable to equity holders of the parent company
*
Calculations based on results to the nearest £’000s.
Profit
2014
£m
Shares
2014
m
Amount
per share*
(pence)
9
1,407
0.64p
Profit
2013
£m
Shares
2013
m
Amount
per share*
(pence)
23
1,434
1.62p
Profit
2014
£m
Shares
2014
m
Amount
per share*
(pence)
9
1,407
0.66p
Loss
2013
£m
Shares
2013
m
Amount
per share*
(pence)
(23)
1,434
(1.58)p
Annual Report 2014
71
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 11. Dividends
No dividend in respect of the year ended 31 December 2014 was paid to GPG shareholders during the year (2013: £Nil).
12. Results of holding company
The Company made a loss of £7 million for the year ended 31 December 2014 (2013: £27 million). As permitted by Section 408 of the
Companies Act 2006, the Company has not published a separate profit and loss account in these financial statements.
13. Intangible Assets
Group
COST
At 1 January 2013
Currency translation differences
Additions
Disposals
At 31 December 2013
Currency translation differences
Additions
Disposals
AT 31 DECEMBER 2014
CUMULATIVE AMOUNTS CHARGED
At 1 January 2013
Currency translation differences
Impairment charge for the year
Amortisation charge for the year
Disposals
At 31 December 2013
Impairment charge for the year
Amortisation charge for the year
Disposals
AT 31 DECEMBER 2014
NET BOOK VALUE AT 31 DECEMBER 2014
Net Book Value at 31 December 2013
Goodwill
£m
1
–
–
–
1
–
–
–
1
Goodwill
£m
–
–
–
–
–
–
–
–
–
–
1
1
Brands
£m
153
(4)
–
(1)
148
10
–
–
158
Brands
£m
2
(1)
1
–
(1)
1
1
–
–
2
156
147
Other
intangibles
£m
50
(1)
2
–
51
–
5
(1)
55
Other
intangibles
£m
42
(1)
–
3
–
44
–
4
(1)
47
8
7
Total
£m
204
(5)
2
(1)
200
10
5
(1)
214
Total
£m
44
(2)
1
3
(1)
45
1
4
(1)
49
165
155
The carrying value of brands at 31 December 2014 and 31 December 2013 related to Coats. There is no foreseeable limit to the net cash
inflows from royalties, which are generated from continued sales of thread resulting from the Coats brands, and those brands are
therefore assessed as having indefinite useful lives. The recoverable amount of these brands has been estimated using the value in use
and is re-assessed annually by reference to the discounted cash flow arising from the royalties generated by those brands. The valuation
has been based on management’s recent budgets and forecasts covering the period to 31 December 2015, applying a pre-tax weighted
average cost of capital of the relevant business unit and a terminal value including no growth. The pre-tax weighted average cost of
capital applied above is 10%. An increase in the weighted average cost of capital to 20% would reduce the value in use of these brands
to book value.
72
Annual Report 2014
Financial statementsNotes to financial statements continued 14. Property, plant and equipment
Group
COST
At 1 January 2013
Currency translation differences
Additions
Transfer to non-current assets held for sale
Reclassifications
Disposals
At 31 December 2013
Currency translation differences
Additions
Transfer to non-current assets held for sale
Disposals
AT 31 DECEMBER 2014
ACCUMULATED DEPRECIATION
At 1 January 2013
Currency translation differences
Depreciation charge for the year
Transfer to non-current assets held for sale
Disposals
At 31 December 2013
Currency translation differences
Depreciation charge for the year
Impairment charge for the year
Transfer to non-current assets held for sale
Disposals
AT 31 DECEMBER 2014
NET BOOK VALUE AT 31 DECEMBER 2014
Net Book Value at 31 December 2013
Land and
buildings
£m
131
(5)
3
(6)
–
–
123
(2)
3
(6)
–
118
Land and
buildings
£m
60
(2)
4
(3)
–
59
–
3
6
(3)
–
65
53
64
Plant and
equipment
£m
441
(25)
14
–
(1)
(18)
411
4
17
–
(23)
409
Plant and
equipment
£m
299
(18)
21
–
(17)
285
1
20
4
–
(22)
288
121
126
Vehicles
and office
equipment
£m
89
(3)
7
–
1
(4)
90
–
4
–
(8)
86
Vehicles
and office
equipment
£m
76
(2)
4
–
(4)
74
–
3
–
–
(8)
69
17
16
Total
£m
661
(33)
24
(6)
–
(22)
624
2
24
(6)
(31)
613
Total
£m
435
(22)
29
(3)
(21)
418
1
26
10
(3)
(30)
422
191
206
Annual Report 2014
73
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Land and
buildings
£m
Plant and
equipment
£m
Vehicles
and office
equipment
£m
–
–
1
2
–
–
2014
£m
46
1
6
53
Group
Company
2014
£m
9
1
1
–
11
2013
£m
8
1
1
–
10
2014
£m
–
–
–
371
371
2014
£m
7
2
9
Total
£m
1
2
2013
£m
57
1
6
64
2013
£m
–
–
–
371
371
£m
8
1
(1)
1
9
2013
£m
6
2
8
14. Property, plant and equipment continued
Assets charged as security for borrowings:
31 December 2014
31 December 2013
31 December
Analysis of net book value of land and buildings
Freehold
Leasehold:
Over 50 years unexpired
Under 50 years unexpired
15. Non-current investments
31 December
Interests in joint ventures (see note a) below)
Fixed asset investments (see note b) below):
listed investments
unlisted investments
Interests in subsidiary undertakings
(see note c) below)
a) Group – Interests in joint ventures
At 1 January 2014
Currency translation differences
Dividends receivable
Share of profit after tax
AT 31 DECEMBER 2014
31 December
Share of net assets on acquisition
Share of post-acquisition retained profits
Share of net assets
74
Annual Report 2014
Financial statementsNotes to financial statements continued
15. Non-current investments continued
The following table provides summarised financial information on the Group’s share of its joint ventures, relating to the period during
which they were joint ventures, and excludes goodwill:
Year ended 31 December
SUMMARISED INCOME STATEMENT INFORMATION
Revenue
Profit before tax
Taxation
PROFIT AFTER TAX
31 December
SUMMARISED BALANCE SHEET INFORMATION
Non-current assets
Current assets
Liabilities due within one year
NET ASSETS
2014
£m
25
1
–
1
2014
£m
6
11
17
(8)
9
2013
£m
18
1
–
1
2013
£m
5
8
13
(5)
8
The Group’s share of joint ventures’ borrowings is £Nil (2013: £Nil).
See note 29 for details of a guarantee provided by the Group in respect of the banking facilities of Australian Country Spinners Ltd.
No joint ventures are held directly by the Company.
b) Group – Fixed asset investments
At 1 January 2014 and 31 December 2014
c) Company
At 1 January 2014 and 31 December 2014
Listed
investments
£m
1
Unlisted
investments
£m
1
Total
£m
2
Investments
in subsidiary
undertakings
£m
371
Annual Report 2014
75
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 16. Principal subsidiary undertakings
The Group’s principal subsidiary undertakings at 31 December 2014, all of which are included in the Group’s consolidated financial
statements, are set out below:
Company name
Coats plc*
Brown Shipley Holdings Ltd**,***
GPG Securities Trading Ltd**,***
GPG (UK) Holdings plc
Guinness Peat Group (Australia) Pty Ltd**
Country of incorporation/registration
England and Wales
England and Wales
England and Wales
England and Wales
Australia
Class and percentage of shares held
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% ordinary shares
100% preference shares
Nature of business
Thread manufacture
Investment company
Investment company
Investment company
Investment company
*
56.7% owned directly by the Company.
** These subsidiaries are owned indirectly by the Company.
*** GPG Securities Trading Ltd is the sponsor company for the Staveley pension scheme and Brown Shipley Holdings Ltd is the sponsor company for the Brunel pension scheme.
The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:
Profit allocated to
non-controlling interests
Accumulated
non-controlling interests
2014
£m
16
2014
£m
10
2014
£m
8
2
10
2014
£m
46
30
90
166
2013
£m
13
Group
2013
£m
8
2013
£m
9
(1)
8
Group
2013
£m
49
34
87
170
2014
£m
6
2013
£m
5
Within Coats plc
17. Deferred tax assets
31 December
Deferred tax assets
The Group’s deferred tax assets are included within the analysis in note 24.
The movements in the Group’s deferred tax asset during the year were as follows:
At 1 January
Credited/(charged) to the income statement
AT 31 DECEMBER
18. Inventories
31 December
Raw materials and consumables
Work in progress
Finished goods and goods for resale
76
Annual Report 2014
Financial statementsNotes to financial statements continued 19. Trade and other receivables
31 December
Non-current assets
Current income tax assets
Other receivables
Current assets
Trade receivables
Amounts due from joint ventures
Current income tax assets
Prepayments and accrued income
Pension surpluses
Other receivables
2014
£m
1
9
10
157
1
3
8
4
23
196
Group
2013
£m
1
11
12
162
1
5
10
3
26
207
The fair value of trade and other receivables is not materially different to the carrying value.
The average credit period taken on sales of goods is 56 days (2013: 60 days). Interest charged in respect of overdue trade receivables is
immaterial.
Credit risk is minimised as the exposure is spread over a large number of customers. An allowance has been made for estimated
irrecoverable amounts on trade receivables of £10 million (2013: £8 million). This allowance has been determined by reference to past
default experience, and the movements in the allowance are analysed as follows:
At 1 January
Currency translation differences
Charged to the income statement
Amounts written off during the year
AT 31 DECEMBER
2014
£m
8
–
3
(1)
10
2013
£m
11
(1)
1
(3)
8
Annual Report 2014
77
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 20. Derivative financial instruments – assets
Derivative financial instruments within Group current assets comprise:
31 December
Fair value through the income statement:
Forward foreign currency contracts
2014
£m
3
Group
2013
£m
3
The fair values of these financial instruments are calculated by discounting the future cash flows to net present values using appropriate
market interest and foreign currency rates prevailing at the year end.
21. Trade and other payables
31 December
Amounts falling due within one year
Trade payables
Amounts owed to joint ventures
Other tax and social security payable
Other payables
Accruals and deferred income
Employee entitlements (excluding pensions)
Amounts falling due after more than one year
Other payables
Employee entitlements (excluding pensions)
2014
£m
146
10
7
26
33
14
236
9
1
10
Group
2013
£m
135
7
8
22
40
16
228
11
–
11
The fair value of trade and other payables is not materially different to the carrying value.
Trade payables comprise amounts outstanding in respect of trade purchases and ongoing costs. The average credit period taken for trade
purchases is 73 days (2013: 68 days).
Interest paid to suppliers in respect of overdue trade payables is immaterial.
31 December
Loans from subsidiary undertakings
Amounts falling due within one year
2014
£m
179
Company
2013
£m
175
78
Annual Report 2014
Financial statementsNotes to financial statements continued 22. Derivative financial instruments – liabilities
Derivative financial instruments within non-current and current liabilities comprise:
31 December
Fair value through the income statement:
Forward foreign currency contracts
Fair value hedges through the statement of
comprehensive income:
Other derivative financial instruments
Amounts shown within non-current liabilities
Amounts shown within current liabilities
2014
£m
5
1
6
–
6
Group
2013
£m
2
2
4
(1)
3
The fair values of these financial instruments are calculated by discounting the future cash flows to net present values using appropriate
market interest and foreign currency rates prevailing at the year end.
The Company has no derivative financial liabilities (2013: £Nil).
23. Borrowings
31 December
Bank overdrafts
Borrowings repayable within one year
Due within one year
Borrowings repayable between one and two years
Borrowings repayable between two and five years
Due after more than one year
Bank overdrafts
Bank borrowings
2014
£m
18
55
73
195
–
195
268
18
250
268
Group
2013
£m
11
39
50
47
177
224
274
11
263
274
At 31 December 2014, the Group’s borrowings shown above comprised £264 million of secured borrowings (2013: £260 million) and
£4 million of unsecured borrowings (2013: £14 million). Of the borrowings at 31 December 2014 described here as secured, £262 million
(2013: £225 million) are subject to guarantees issued by Coats and certain of its principal subsidiaries.
The currency and interest rate profile of the Group’s borrowings is included in note 35 on page 93.
Annual Report 2014
79
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 24. Deferred tax liabilities
At 1 January
Currency translation differences
Charged/(credited) to the income statement
Charged/(credited) to other comprehensive income and expense
AT 31 DECEMBER
2014
£m
22
1
1
1
25
Group
2013
£m
25
(1)
(1)
(1)
22
31 December
The Group’s net deferred tax liabilities/(assets) are analysed as follows:
Accelerated tax depreciation
Short-term timing differences
Revenue losses carried forward
Capital losses carried forward
Unremitted overseas earnings
Brands
Retirement benefit obligations
2014
Provided
£m
2014
Unprovided
£m
2013
Provided
£m
2013
Unprovided
£m
13
(9)
(36)
–
12
30
5
15
(4)
(5)
(183)
(223)
–
–
(48)
(463)
16
(9)
(35)
–
10
28
4
14
(2)
(5)
(171)
(224)
–
–
(19)
(421)
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for
financial reporting purposes:
Deferred tax assets (note 17)
Deferred tax liabilities
(10)
25
15
(8)
22
14
At the year end, the Group had approximately £2.0 billion (2013: £1.9 billion) of unused tax losses available for offset against future
profits. A deferred tax asset has been recognised in respect of £183 million (2013: £164 million) of such losses. No deferred tax asset has
been recognised in respect of the remaining losses due to lack of certainty regarding the availability of future taxable income. Such losses
are only recognised in the financial statements to the extent that it is considered more likely than not that sufficient future taxable profits
will be available for offset.
At the period end, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which
deferred tax liabilities have not been recognised is £Nil (2013: £Nil).
80
Annual Report 2014
Financial statementsNotes to financial statements continued 25. Provisions
31 December
Provisions are included as follows:
Current liabilities
Non-current liabilities
Provisions are analysed as follows:
Onerous leases
Other provisions
Retirement and other post employment obligations in current liabilities
Total provisions
Group
At 1 January 2014
Currency translation differences
Utilised in year
Charged to the income statement
At 31 December 2014
2014
£m
48
14
62
Group
2013
£m
48
16
64
2014
£m
12
1
13
2014
£m
5
34
39
23
62
Onerous
leases
£m
9
–
(3)
(1)
5
Other
provisions
£m
33
(1)
(13)
15
34
Company
2013
£m
9
1
10
2013
£m
9
33
42
22
64
Total
£m
42
(1)
(16)
14
39
Provisions for onerous leases are held in respect of leasehold properties for which the Group has rent and other commitments in respect
of properties which are vacant or sublet. The majority of head leases expire before 2020.
The currency profile of onerous leases is included in note 35 on page 95 and the maturity of onerous leases is included in note 35 on
page 96.
Other provisions include the following:
– amounts set aside to cover certain legal and other regulatory claims which are expected to be substantially utilised within the next ten
years;
– costs expected to be incurred in responding to the Warning Notice received from the UK Pensions Regulator (“tPR”) in relation to the
Coats UK Pension Plan and for progressing the process around the Staveley and Brunel schemes, for the Company and the trustees of
these schemes; and
– amounts provided in respect of certain employee incentive arrangements which are expected to be utilised within the next three years.
Company
At 1 January 2014
Charged to the profit and loss account
Utilised in year
At 31 December 2014
Onerous
leases
£m
1
–
(1)
–
Other
Provisions
£m
9
10
(6)
13
Total
£m
10
10
(7)
13
Other provisions at the Company level includes costs expected to be incurred dealing with the tPR’s investigations as set out above.
Annual Report 2014
81
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 26. Operating lease commitments
31 December
Outstanding commitments under non-cancellable operating leases:
Payable within one year
Payable between one and five years
Payable after more than five years
2014
£m
12
14
4
30
Group
2013
£m
12
16
6
34
2014
£m
–
–
–
–
At the balance sheet date, the Group had contracted with tenants for receipt of the following minimum lease payments:
31 December
Receivable within one year
Receivable between one and five years
Receivable after more than five years
Operating leases relate principally to land and buildings and vehicles.
27. Share capital
Issued and fully paid
Ordinary Shares of 5p each
31 December 2014
31 December 2013
Number
1,407,612,282
£m
70
Number
1,407,152,123
2014
£m
1
1
–
2
Company
2013
£m
–
1
2
3
2013
£m
1
2
2
5
£m
70
£m
70
–
70
The issued Ordinary Share capital of the Company increased during the year to 31 December 2014 as follows:
Date of event
1 January 2014
Various dates
31 December 2014
Stock event
Brought forward
Exercises of options
Carried forward
No. of shares
1,407,152,123
460,159
1,407,612,282
82
Annual Report 2014
Financial statementsNotes to financial statements continued 27. Share capital continued
Options outstanding under the Group’s 2002 share option scheme at 31 December 2014 were as set out below:
Share Option Scheme
2002 Share Option Scheme
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Number
Date granted
Exercise price
(p per share)
Exercise period
8,369,973
6,800,570
13,066,072
317,040
39,625
9,614,248
317,034
3,242,505
12,126,967
9,282,068
3,800,376
09.03.05
04.04.05
24.10.05
07.11.05
14.12.05
15.03.06
05.05.06
11.10.06
09.03.07
10.04.08
30.06.09
48.2294
44.4444
51.0967
51.0967
51.0967
56.6480
56.7743
58.9820
56.5534
49.9961
25.9529
09.03.08 to 09.03.15
04.04.08 to 04.04.15
24.10.08 to 24.10.15
07.11.08 to 07.11.15
14.12.08 to 14.12.15
15.03.09 to 15.03.16
05.05.09 to 05.05.16
11.10.09 to 11.10.16
09.03.10 to 09.03.17
10.04.11 to 10.04.18
30.06.12 to 30.06.19
Options exercised during the year comprised 460,159 under the schemes operated by the Group, and 16,647,436 options lapsed.
28. Reserves and non-controlling interests
GROUP
At 1 January 2014
Dividends
Share based payments
Currency translation differences
Decreases in fair value
Transfers to income statement
Actuarial losses on employee benefits
Tax on actuarial gains and losses
Profit for the year
At 31 December 2014
COMPANY
At 1 January 2014
Loss for the year
At 31 December 2014
Share
premium
account
£m
1
–
–
–
–
–
–
–
–
1
Translation
reserve
£m
22
–
–
(12)
–
–
–
–
–
10
Capital
reduction
reserve
£m
48
–
–
–
–
–
–
–
–
48
Share
premium
account
£m
1
–
1
Capital
redemption
reserve
£m
11
–
11
Capital
reduction
reserve
£m
48
–
48
Other
reserves
£m
124
–
1
–
(1)
2
–
–
–
126
Share
options
reserve
£m
8
–
8
Retained
earnings
£m
179
–
–
–
–
–
(201)
(1)
9
(14)
Other
reserves
£m
1
–
1
Non-
controlling
interests
£m
13
(4)
–
1
–
–
–
–
6
16
Profit
and loss
account
£m
50
(7)
43
Annual Report 2014
83
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 29. Contingent liabilities
Coats’ borrowings at the year end include £262 million (2013: £225 million) secured by guarantees issued by Coats plc and certain of its
principal subsidiaries.
The Group has guaranteed the banking facilities of Australian Country Spinners Ltd, on a joint and several basis with the other
shareholder. The Group’s liability under that guarantee, which is limited to 50% of those facilities, amounts to A$3 million (2013:
A$3 million).
Guarantees
The Group has guaranteed certain amounts that may become payable in respect of a former subsidiary in Australia. At 31 December
2014, the Group’s liability under these guarantees amounted to A$1.7 million (2013: A$1.7 million). At the time of the sale of that former
subsidiary, in 2013 the Group was paid A$1.2 million by the former subsidiary in support of any potential claims against the guarantee.
The Group holds that A$1.2 million in an interest-bearing bank account on trust for the former subsidiary. On expiry of these guarantees
any unutilised balance from the A$1.2 million bank balance, together with any interest received on that account, will be repaid to the
former subsidiary. This liability is fully accrued in these financial statements.
Environmental contingent liabilities
As noted in previous reports, the US Environmental Protection Agency (“USEPA”) has notified Coats & Clark, Inc. (“CC”) that it is a
“potentially responsible party” under the US Superfund law for investigation and remediation costs at the Lower Passaic River Study Area
(“LPRSA”) in New Jersey in respect of an alleged predecessor’s former facilities which operated in that area prior to 1950. Approximately
70 companies to date have formed a cooperating parties group (“CPG”) to fund and conduct a remedial investigation and feasibility
study (“RI/FS”) of the area. CC joined the CPG in 2011. The total costs of the RI/FS and related expenditures are currently estimated by the
CPG to be approximately $136 million.
Under the interim allocation in place when CC joined the CPG, CC was responsible for approximately 1.7% of the total RI/FS and related
CPG costs. During 2012, three companies that had shared a common allocation within the CPG – Tierra Solutions, Inc, Maxus Energy
Corporation and Occidental Chemical Corporation (collectively ‘TMO’) – withdrew from the CPG. TMO is not currently funding the RI/FS,
and CC’s interim allocation of future RI/FS and related CPG costs is now approximately 2%. The interim allocation is expressly limited to
the RI/FS and other authorised expenditures; it does not relate to the ultimate LPR remediation and is subject to reallocation after the RI/
FS has been issued. CC believes that there are many parties that will participate in its remediation that are not currently funding the study
of the river, including those that are the most responsible for its current contamination, which will reduce CC’s allocation.
In April 2014, the EPA released a Focused Feasibility Study (‘FFS’) for the lower 8 miles of the LPRSA. The FFS analyses a series of remedial
alternatives and the EPA has estimated the cost of its preferred remedy at approximately $1.7 billion on a net present value basis. The
CPG has submitted extensive comments opposing the FFS during the comment period. The EPA is required to review and respond to all
substantive comments submitted by both the CPG and other parties. The EPA is not currently expected to issue a Record of Decision
(‘ROD’) selecting a remedy until the end of H2 2015.
It is not yet known which, if any, of the proposed FFS remedies EPA will select, and there are a number of uncertainties that could have a
material effect on the scope and cost of EPA’s preferred remedy including:
– The development by the CPG of a Sustainable Remedy proposal that combines targeted dredging of the most contaminated sediment
with other pollution control and risk management policies, at a lower cost than EPA’s preferred remedy;
– The RI/FS is currently expected to be submitted to EPA in H1 2015, before the expected selection of an FFS remedy for the lower
8 miles, and it is possible that EPA will combine the RI/FS and the FFS to select a single remedy for the entire LPRSA;
– The EPA has specifically requested comment on several aspects of its preferred FFS remedy that could materially affect the scope and
estimated cost of the remedy.
Once the RI/FS has been submitted to the EPA and the EPA has issued a ROD for the FFS and/or the RI/FS, it is expected to begin
negotiations with PRPs to implement the selected remedy. These negotiations are likely to involve parties that are not currently in the
CPG, including TMO and other PRPs who have previously been identified by EPA. While the cost of the remedial design and the FFS and/
or RI/FS remedy are expected to be shared among hundreds of parties, the allocation of such costs among these parties is not yet known.
The interim CPG allocation does not apply to remedial actions, and non-CPG members not included in the interim allocation are expected
to participate in the funding of the remedy.
During 2012, the members of the CPG, including CC, agreed to fund the remediation of one part of the LPRSA (River Mile 10.9).
CC’s interim allocation of the cost of this is estimated at approximately $0.6 million, which was provided.
84
Annual Report 2014
Financial statementsNotes to financial statements continued 29. Contingent liabilities continued
Coats believes that CC’s predecessors did not generate any of the contaminants which are driving the current and anticipated remedial
actions in the LPRSA, that it has valid legal defences which are based on its own analysis of the relevant facts, and that additional parties
not currently in the CPG will be responsible for a significant share of the ultimate costs of remediation. Therefore, while the foregoing
factors could reduce CC’s relative allocation of remedial costs, the Company cannot predict what CC’s share of any such costs would be
in light of the significant uncertainties surrounding the selection and cost of EPA’s FFS remedy, the number of parties who will participate
in the remediation and the relative allocation of costs among such parties. The Company believes, in light of the significant uncertainties
at this stage in the process, that it is not possible to reliably estimate future remediation costs nor CC’s share of those costs. Accordingly,
no provision has been made for such costs at the present time.
Pensions
As described on pages 3 and 4 in the Chairman’s Statement, the Group is dealing with investigations by tPR into its three UK defined
benefit pension schemes. The outcome of these investigations remains uncertain, but may result in changes to the current deficit recovery
plans for these schemes.
30. Capital commitments
As at 31 December 2014, the Group had commitments of £2 million in respect of contracts placed for future capital expenditure
(2013: £1 million).
31. Notes to the consolidated statement of cash flows
a) Reconciliation of pre-tax profit to net cash inflow from operating activities
Year ended 31 December
Profit before taxation from continuing operations
Interest and other income – Coats
Share of profit of joint ventures
Finance costs (net)
Operating profit
Adjustments for:
Depreciation
Impairment of property, plant and equipment
Amortisation of intangible assets
Impairment of intangible assets
Profit on disposal of property, plant and equipment
Decrease/(increase) in trade and other receivables
Decrease in inventories
Decrease in provisions
Increase in trade and other payables
Discontinued operations (including proceeds of sales of Parent Group fixed and
current asset investments)
Currency and other adjustments
NET CASH INFLOW FROM OPERATING ACTIVITIES
b) Taxation paid
Year ended 31 December
Overseas tax paid
Discontinued operations
c) Investment income
Year ended 31 December
Interest and other income – Coats
2014
£m
43
(2)
(1)
24
64
26
10
4
1
(2)
10
5
(14)
1
2013
£m
14
(3)
(1)
31
41
29
–
3
1
(12)
(24)
11
(7)
19
–
(4)
101
80
8
149
2014
£m
(34)
–
(34)
2014
£m
1
2013
£m
(34)
(1)
(35)
2013
£m
3
Annual Report 2014
85
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 31. Notes to the consolidated statement of cash flows continued
d) Net capital expenditure and financial investment
Year ended 31 December
Payments to acquire property, plant and equipment
Receipts from the disposal of property, plant and equipment
Purchase of fixed asset investments (operating subsidiaries)
Intangible assets acquired
Discontinued operations
e) Acquisitions and disposals
Year ended 31 December
Net receipts from sales of businesses (operating subsidiaries)
Discontinued operations (2013 includes proceeds of sales of Parent Group former operating
subsidiaries of £37 million and former associated undertakings of £91 million)
f) Buyback of Ordinary Shares
Year ended 31 December
Share buybacks
g) Net decrease in borrowings
Year ended 31 December
New loans taken out
Loans repaid
2014
£m
(24)
6
–
(5)
–
(23)
2014
£m
–
–
–
2014
£m
–
–
2014
£m
57
(84)
(27)
2013
£m
(22)
18
(1)
(2)
1
(6)
2013
£m
1
128
129
2013
£m
(45)
(45)
2013
£m
91
(119)
(28)
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Annual Report 2014
Financial statementsNotes to financial statements continued 32. Discontinued operations
The combined results of discontinued operations were as follows:
Year ended 31 December
Revenue
Cost of sales
Expenses
Other income
Finance costs
Profit before tax
Attributable tax
Profit after tax
Gain on disposal of businesses
Gain on discontinued operations
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
Property, plant and equipment
Other fixed asset investments
Assets held for sale
2014
£m
Total
–
–
–
–
–
–
–
–
–
–
–
2014
£m
1
–
1
2013
£m
Total
11
(11)
(6)
(6)
36
(1)
29
–
29
17
46
2013
£m
–
1
1
Annual Report 2014
87
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 33. Related party transactions
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the
categories specified in IAS 24 – Related Party Disclosures. Further information regarding the remuneration of individual directors is
provided on page 37 in the audited part of the Directors’ remuneration report.
Year ended 31 December
Short-term employee benefits
2014
£m
1
2013
£m
1
Trading transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its Joint Ventures are disclosed below.
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
Joint Ventures
Sales of goods
Purchases of goods
Other income
2014
£m
4
2013
£m
4
2014
£m
29
2013
£m
28
2014
£m
–
2013
£m
3
Transactions with Joint Ventures are conducted on an arm’s length basis.
Amounts owing by/(to) Joint Ventures at the year end are disclosed in notes 19 and 21.
34. Post balance sheet event
On 19 February 2015 Coats agreed to sell its EMEA Crafts business for a consideration of US$10 million (£6 million at 2014 year end rate)
payable in cash on completion subject to customary adjustments. The sale is conditional upon, inter alia, a limited number of conditions
usual for this type of transaction and is expected to complete in the second quarter of 2015. The UK Crafts business will remain within
Coats.
For the year ended 31 December 2014, EMEA Crafts (excluding UK) generated external sales of £76 million and an operating loss of
£17 million, which includes a property, plant and equipment and intangible assets exceptional impairment charge of £11 million. As at
31 December 2014, after impairment, the business had net tangible assets of £23 million, including cash retained within the business as
part of the sale. Given the total consideration for the business of US$10 million (£6 million at 2014 year end rate) and its net tangible
asset position of £23 million at 2014 year end, and taking into account completion adjustments and disposal-related costs, a substantial
loss on disposal is expected to be recognised on completion of the transaction. The precise quantum will be finalised on completion and
will in addition include historical foreign exchange translation gains and losses previously recognised in equity.
The results of the EMEA Crafts business (excluding UK) together with the loss on disposal will be presented as a discontinued operation
when the Group reports its 2015 half year results.
35. Derivatives and other financial instruments
The Group’s main financial instruments comprise:
FINANCIAL ASSETS:
– cash and cash equivalents;
– trade and other receivables that arise directly from the Group’s operations; and
– derivatives, including forward foreign currency contracts and interest rate swaps.
FINANCIAL LIABILITIES:
– trade, other payables and certain provisions that arise directly from the Group’s operations;
– bank borrowings and commercial bills; and
– derivatives, including forward foreign currency contracts and interest rate swaps.
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Financial statementsNotes to financial statements continued 35. Derivatives and other financial instruments continued
FINANCIAL ASSETS
The Group’s financial assets are summarised below:
31 December
Financial assets carried at amortised cost (loans and receivables):
Cash and cash equivalents
Trade receivables (note 19)
Due from joint ventures (note 19)
Other receivables (note 19), net of non-financial assets £12 million (2013: £13 million)
Financial assets carried at fair value through the income statement:
Derivative financial instruments (note 20)
Other financial assets carried at fair value through the statement of comprehensive income:
Non-current asset investments (available-for-sale – note 15b))
Non-current asset investments (operations held for sale – note 32)
Total financial assets
FINANCIAL LIABILITIES
The Group’s financial liabilities are summarised below:
31 December
Financial liabilities carried at amortised cost:
Trade payables (note 21)
Due to joint ventures (note 21)
Other financial liabilities
Provisions (note 25)
Borrowings (note 23)
Financial liabilities carried at fair value through the income statement:
Derivative financial instruments (note 22)
Derivatives designated as effective hedging instruments and
carried at fair value through the statement of comprehensive income:
Derivative financial instruments (note 22)
Total financial liabilities
Other financial liabilities include other payables, other than taxation and other statutory liabilities.
2014
£m
474
157
1
20
652
3
3
2
–
2
657
2014
£m
146
10
73
5
268
502
5
1
508
2013
£m
458
162
1
24
645
3
3
2
1
3
651
2013
£m
135
7
78
9
274
503
2
2
507
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Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 35. Derivatives and other financial instruments continued
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The fair value of the Group’s financial assets and liabilities is summarised below:
31 December
Primary financial instruments:
Cash and cash equivalents
Trade receivables
Due from Joint Ventures
Other receivables
Non-current asset investments
Trade payables
Due to joint ventures
Other financial liabilities and provisions
Borrowings
Derivative financial instruments:
Forward foreign currency contracts
Other net derivative financial instruments
Book value
£m
2014
Fair value
£m
Book value
£m
2013
Fair value
£m
474
157
1
20
2
(146)
(10)
(78)
(268)
(2)
(1)
474
157
1
20
2
(146)
(10)
(78)
(268)
(2)
(1)
458
162
1
24
3
(135)
(7)
(87)
(274)
1
(2)
458
162
1
24
3
(135)
(7)
(87)
(274)
1
(2)
Net financial assets
149
149
144
144
Market values have been used as proxies for the fair value of all listed investments. Unlisted investments are stated at fair value. For
floating rate financial assets and liabilities, and for fixed rate financial assets and liabilities with a maturity of less than twelve months, it
has been assumed that fair values are approximately the same as book values. Fair values for forward foreign currency contracts have
been estimated using applicable forward exchange rates at the year end. All other fair values have been calculated by discounting
expected cash flows at prevailing interest rates.
FAIR VALUE MEASUREMENTS RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION
The following tables provide an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques which include inputs for the asset or liability that are not
observable market data (unobservable inputs).
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Financial statementsNotes to financial statements continued 35. Derivatives and other financial instruments continued
FINANCIAL ASSETS MEASURED AT FAIR VALUE
31 December
2014
Financial assets measured at fair value through the
income statement:
Trading derivatives
Financial assets measured at fair value through the
statement of comprehensive income:
Equity investments
Bonds
Total
2013
Financial assets measured at fair value through the
income statement:
Trading securities
Trading derivatives
Financial assets measured at fair value through the
statement of comprehensive income:
Equity investments
Total
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
3
1
1
5
3
3
6
–
–
1
1
–
1
1
3
–
–
3
3
2
5
–
1
–
1
–
–
–
Annual Report 2014
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Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 35. Derivatives and other financial instruments continued
FINANCIAL LIABILITIES MEASURED AT FAIR VALUE
31 December
2014
Financial liabilities measured at fair value through the
income statement:
Trading derivatives
Financial liabilities measured at fair value through the
statement of comprehensive income:
Derivatives designated as effective hedging instruments
Total
2013
Financial liabilities measured at fair value through the
income statement:
Trading derivatives
Financial liabilities measured at fair value through the
statement of comprehensive income:
Derivatives designated as effective hedging instruments
Total
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
(5)
(1)
(6)
(2)
(2)
(4)
–
–
–
–
–
–
(5)
(1)
(6)
(2)
(2)
(4)
–
–
–
–
–
–
Level 1 financial instruments are valued based on quoted bid prices in an active market. Level 2 financial instruments are measured by
discounted cash flow. For interest rates swaps future cash flows are estimated based on forward interest rates (from observable yield
curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk of the various
counterparties. For foreign exchange contracts future cash flows are estimated based on forward exchange rates (from observable
forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of
the various counterparties. For equity instruments that are classified as level 3 financial instruments the carrying value approximates to fair
value.
The main risks arising from the Group’s financial instruments are as follows:
– currency risk;
–
interest rate risk;
– capital risk;
– market price risk;
–
liquidity risk; and
– credit risk.
The Group’s policies for managing those risks are described on pages 93 to 98 and, except as noted, have remained unchanged since the
beginning of the year to which these financial statements relate.
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Annual Report 2014
Financial statementsNotes to financial statements continued 35. Derivatives and other financial instruments continued
CURRENCY RISK
The income and capital value of the Group’s financial instruments can be affected by exchange rate movements as a significant portion
of both its financial assets and financial liabilities are denominated in currencies other than Sterling, which is the Group’s presentational
currency. The accounting impact of these exposures will vary according to whether or not the Group company holding such financial
assets and liabilities reports in the currency in which they are denominated.
The Board recognises that the Group’s Sterling statement of financial position will be affected by short term movements in exchange
rates, particularly the value of the Australian, New Zealand and United States dollars and the Euro. The Board takes the view that the
major currencies in which the Group is invested move within a relatively stable range and that currency fluctuations should even out over
the long term. However, the Board recognises the importance of managing currency risk differently in light of the strategy to return value
to shareholders. The current Board strategy is to hold cash in currencies to match known Parent Group liabilities.
At certain times, the Board will make limited use of forward foreign currency contracts and swaps to maintain the Group’s relative
exposure to the Australian, United States and New Zealand dollars. These contracts tend to have a maturity of less than three months.
Coats uses forward foreign currency contracts to mitigate the currency exposure that arises on business transacted in currencies other
than its own functional currency. Coats only enters into such foreign currency contracts when there is a firm commitment to the
underlying transaction. The contracts used to hedge future transactions typically have a maturity of between 6 months and 2 years.
INTEREST RATE RISK
In 2014, the Group financed its operations through shareholders’ funds, bank borrowings and commercial bills. The Group’s trading
subsidiaries use a mixture of fixed and floating rate debt. The Group also has access to bank facilities amounting to some £462 million, of
which £305 million had been drawn down at year end. This includes facilities negotiated by certain trading subsidiaries to meet their local
needs.
Interest rate risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings using interest rate swap
contracts. Hedging activities are evaluated regularly to align with interest rate views and risk appetite.
The Group’s interest income does not vary significantly from the returns it would generate through investing surplus cash at floating rates
of interest since the interest rates are re-set on a regular basis.
A reasonably possible change of one per cent in market interest rates would change profit before tax by approximately £3 million
(2013: £3 million), and would change shareholders’ funds by approximately £4 million (2013: £5 million).
Trade and other receivables and trade and other payables are excluded from the following disclosure (other than the currency disclosures)
as there is limited interest rate risk.
CAPITAL RISK MANAGEMENT
The Group manages its capital so as to ensure that the Company and the Group will be able to continue as a going concern.
The Group’s capital structure comprises cash and cash equivalents and borrowings (see Summary of net cash on page 52), and share
capital and reserves attributable to the equity shareholders of the Company.
CURRENCY EXPOSURE
The table on page 94 shows the extent to which Group companies have financial assets and liabilities, excluding forward foreign currency
contracts, in currencies other than their functional currency. Foreign exchange differences arising on retranslation of these assets and
liabilities are taken to the Group income statement. The table excludes loans between Group companies that form part of the net
investment in overseas subsidiaries on which the exchange differences are dealt with through reserves, but includes other Group balances
that eliminate on consolidation.
Annual Report 2014
93
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 35. Derivatives and other financial instruments continued
Functional currency 2014
Sterling
Australian dollars
US dollars
Other currencies
Functional currency 2013
Sterling
Australian dollars
US dollars
Other currencies
Net foreign currency financial assets/(liabilities)
Australian
dollars
£m
2
–
–
(1)
1
New Zealand
dollars
£m
33
53
–
–
86
US dollars
£m
81
23
–
(26)
78
Other
£m
(22)
–
(9)
–
(31)
Total
£m
94
76
(13)
(26)
131
Net foreign currency financial assets/(liabilities)
Australian
dollars
£m
(11)
–
–
–
(11)
New Zealand
dollars
£m
80
18
–
–
98
US dollars
£m
82
61
–
(7)
136
Other
£m
(69)
–
2
2
(65)
Total
£m
82
79
(5)
(7)
149
Sterling
£m
–
–
(4)
1
(3)
Sterling
£m
–
–
(7)
(2)
(9)
The following table shows the impact on pre-tax profit and shareholders’ funds of reasonably possible changes in exchange rates against
each of the major foreign currencies in which the Group transacts:
Increase in £ Sterling exchange rate:
(Decrease)/increase in profit before
tax
Decrease in shareholders’ funds
US dollars
Australian dollars
New Zealand dollars
2014
£m
(8)
(19)
2013
£m
9%
(7)
(13)
2014
£m
–
(7)
2013
£m
9%
1
–
2014
£m
(3)
–
2013
£m
9%
(7)
(7)
2014
£m
2
(1)
Euros
2013
£m
9%
6
–
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Annual Report 2014
Financial statementsNotes to financial statements continued 35. Derivatives and other financial instruments continued
CURRENCY PROFILE OF FINANCIAL ASSETS
The currency profile of the Group’s financial assets was as follows:
31 December
Currency
Sterling
Australian dollars
New Zealand dollars
United States dollars
Euros
Other currencies
Total financial assets
Investments
£m
–
–
–
–
1
1
2
Cash
and cash
equivalents
£m
182
3
85
136
5
63
474
Trade and
other
receivables
£m
4
–
–
74
29
71
178
Derivative
financial
instruments
£m
1
(1)
–
(30)
41
(8)
3
2014
Total
£m
187
2
85
180
76
127
657
Investments
£m
–
1
–
–
1
1
3
Cash
and cash
equivalents
£m
145
3
131
128
7
44
458
Trade and
other
receivables
£m
6
1
–
70
35
75
187
Derivative
financial
instruments
£m
43
(1)
–
(88)
29
20
3
The investments included above comprise listed and unlisted investments in shares and bonds.
CURRENCY AND INTEREST RATE PROFILE OF FINANCIAL LIABILITIES
The currency and interest rate profile of the Group’s financial liabilities was as follows:
31 December
Currency
Sterling
Australian dollars
United States dollars
Euros
Other currencies
Total financial liabilities
Floating
rate
£m
–
–
70
24
3
97
Interest
free
£m
10
1
111
23
89
234
Derivative
financial
instruments
£m
(46)
–
122
(38)
(32)
6
2014
Total
£m
(36)
1
474
9
60
508
Floating
rate
£m
3
1
–
86
15
105
Fixed
rate
£m
–
–
171
–
–
171
Fixed
rate
£m
–
–
172
–
–
172
Interest
free
£m
18
1
104
26
77
226
Derivative
financial
instruments
£m
1
–
6
6
(9)
4
2013
Total
£m
194
4
131
110
72
140
651
2013
Total
£m
22
2
282
118
83
507
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95
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 35. Derivatives and other financial instruments continued
The benchmark for determining floating rate liabilities in the UK is LIBOR for both Sterling and US dollar loans. In Australia such rates are
based on discounted commercial loan rates.
Details of fixed rate and non interest-bearing liabilities (excluding derivatives and trade and other payables) are provided below:
31 December
Currency
Sterling
United States dollars
Weighted average
2014
Financial
liabilities on
which no
interest is paid
2013
Financial
liabilities on
which no
interest is paid
Fixed rate financial liabilities
Fixed rate financial liabilities
Weighted
average
interest rate
%
Weighted average
period for which
rate is fixed
(months)
Weighted
average period
until maturity
(months)
Weighted
average
interest rate
%
Weighted average
period for which
rate is fixed
(months)
Weighted
average period
until maturity
(months)
–
3.40
3.40
–
20
20
25
–
25
–
4.00
4.00
–
19
19
23
–
23
CURRENCY PROFILE OF FOREIGN EXCHANGE DERIVATIVES
The currency profile of the Group’s foreign exchange derivatives (on a gross basis), all of which mature in less than one year, was as
follows:
31 December
Currency
Sterling
Australian dollars
United States dollars
Euros
Other currencies
2014
£m
46
1
55
45
41
188
Assets
2013
£m
43
1
40
54
40
178
2014
£m
–
(1)
(38)
(135)
(16)
(190)
Liabilities
2013
£m
(1)
(1)
(132)
(31)
(12)
(177)
The £2 million net liability (2013: £1 million net asset) in relation to foreign exchange financial instruments in the table above is split
£3 million (2013: £3 million) within assets (note 20) and £5 million (2013: £2 million) within liabilities (note 22).
Market Price Risk
The Group has equity and bond available-for-sale investments at 31 December 2014 of £2 million (2013: £3 million) held for strategic
rather than trading purposes. The Group does not actively trade these investments and is not materially exposed.
96
Annual Report 2014
Financial statementsNotes to financial statements continued 35. Derivatives and other financial instruments continued
LIQUIDITY RISK
Following the Board’s announcement in February 2011 of the strategy to undertake an orderly value realisation, cash proceeds from the
orderly realisation of investments are being retained in relatively liquid form awaiting the opportunity to return capital to shareholders.
Such return of capital is being executed having regard to the actual and contingent liabilities of the Group and, hence, requires liquidity
risk to be effectively managed. In response to this, the Group typically holds cash balances in deposits with a short maturity. Additional
resources can be drawn through committed borrowing facilities at operating subsidiary level. During the year the Group has complied
with all externally imposed capital requirements.
The Group had the following undrawn committed borrowing facilities, in respect of which all conditions precedent had been met at the
year end.
31 December
Expiring between one and two years
Expiring between two and five years
MATURITY OF UNDISCOUNTED FINANCIAL ASSETS (EXCLUDING DERIVATIVES)
The expected maturity of the Group’s financial assets, using undiscounted cash flows, was as follows:
31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
MATURITY OF UNDISCOUNTED FINANCIAL LIABILITIES (EXCLUDING DERIVATIVES)
The maturity of the Group’s financial liabilities, using undiscounted cash flows, was as follows:
31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
2014
£m
158
–
158
2014
£m
644
8
–
2
654
2014
£m
303
197
4
–
504
2013
£m
–
159
159
2013
£m
636
8
2
2
648
2013
£m
276
50
181
1
508
The above table comprises the gross amounts payable in respect of borrowings (including interest thereon), trade and other
non-statutory payables and certain provisions, over the period to the maturity of those liabilities.
Annual Report 2014
97
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 35. Derivatives and other financial instruments continued
MATURITY OF UNDISCOUNTED FINANCIAL DERIVATIVES
The maturity of the Group’s financial derivatives (on a gross basis), which include interest rate and foreign exchange swaps, using
undiscounted cash flows was as follows:
31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
CREDIT RISK
31 December
The Group considers its maximum exposure to credit risk to be as follows:
Cash and cash equivalents
Derivative financial instruments
Trade receivables (net of bad debt provision)
Due from joint ventures
Other receivables
Financial assets considered not to have exposure to credit risk:
Non-current asset investments
Total financial assets
Analysis of trade receivables over permitted credit period:
Trade receivables up to 1 month over permitted credit period
Trade receivables between 1 and 2 months over permitted credit period
Trade receivables between 2 and 3 months over permitted credit period
Trade receivables between 3 and 6 months over permitted credit period
Total gross trade receivables in excess of permitted credit period
Trade receivables within permitted credit period
Total net trade receivables
Analysis of trade receivables impairment provision:
Trade receivables up to 1 month over permitted credit period
Trade receivables between 3 and 6 months over permitted credit period
Trade receivables in excess of 6 months over permitted credit period
Total impairment provision
2014
£m
190
–
1
191
Assets
2013
£m
179
1
–
180
2014
£m
(195)
(1)
–
(196)
Liabilities
2013
£m
(178)
(2)
–
(180)
2014
£m
474
3
157
1
20
655
2
657
16
5
1
2
24
133
157
1
1
8
10
2013
£m
458
3
162
1
24
648
3
651
17
5
1
2
25
137
162
–
–
8
8
Trade receivables consist of a large number of customers, spread across diverse geographical areas and industries.
Customers requesting credit facilities are subject to a credit quality assessment, which may include a review of their financial strength,
previous credit history with the Group, payment record with other suppliers, bank references and credit rating agency reports. All active
customers are subject to an annual, or more frequent if appropriate, review of their credit limits and credit periods.
The Group does not have a significant credit risk exposure to any single customer.
98
Annual Report 2014
Financial statementsNotes to financial statements continued 35. Derivatives and other financial instruments continued
HEDGES
During 2014, the Group hedged the following exposures:
– interest rate risk – using interest rate swaps; and
– currency risk – using forward foreign currency contracts.
At 31 December 2014, the fair value of such hedging instruments was a net liability of £3 million (2013: £1 million).
Cash flow hedges outstanding at 31 December 2014 are expected to impact the income statement in the following periods:
Within one year
Within one to two years
2014
£m
Loss
(1)
–
(1)
2013
£m
Loss
(1)
(1)
(2)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is three months’ LIBOR.
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow
hedges to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. The amount accumulated in equity
is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss.
GAINS/(LOSSES) ON FINANCIAL ASSETS/LIABILITIES
The net loss from buying and selling financial assets and financial liabilities included in the income statement is analysed as follows:
Year ended 31 December
Gains on disposal of investments (excluding derivatives)
Net investment impairment provision
2014
£m
–
–
–
2013
£m
12
(20)
(8)
Annual Report 2014
99
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 36. Share-based payments
The Company’s share option schemes provide for a grant price equal to the average quoted market price of the Company’s shares for
1 to 5 days prior to the date of the grant. The vesting period was 3 years and all options outstanding at 31 December 2014 had fully
vested. Any options that remain unexercised after 10 years from the date of grant automatically lapse. Option forfeiture where an
employee leaves the Group can occur in certain circumstances.
Only options granted after 7 November 2002 are required to be analysed in this note.
Outstanding at beginning of year
Lapsed during the year
Exercised during the year
Outstanding at end of year
2014
Weighted
average
Options
exercise price
87,579,968
48.43p
(1,778,079)
40.01p
25.95p
(1,717,816)
50.68p 84,084,073
2013
Weighted
average
exercise price
47.53p
29.32p
22.57p
48.43p
Options
84,084,073
(16,647,436)
(460,159)
66,976,478
Exercisable at end of year
66,976,478
50.68p 84,084,073
48.43p
The options outstanding at 31 December 2014 had a weighted average remaining contractual life of 1.6 years (2013: 2.2 years).
Under the Group’s Long Term Incentive Plan total expenses of £1 million related to equity-settled share-based payments were recognised
in the year ended 31 December 2014 (2013: £Nil).
100
Annual Report 2014
Financial statementsNotes to financial statements continued Consolidated income statement (unaudited)
Year ended 31 December
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit
Share of profits of joint ventures
Investment income
Finance costs
Profit before taxation
Taxation
Profit from continuing operations
Discontinued operations
Loss from discontinued operations
Profit for the year
Attributable to:
EQUITY SHAREHOLDERS OF THE COMPANY
Non-controlling interests
2014
2013
Before
exceptional
items
Unaudited
US$m
Exceptional
items
Unaudited
US$m
Notes
Total
Unaudited
US$m
Before
exceptional
items
Unaudited
US$m
Exceptional
items
Unaudited
US$m
Total
Unaudited
US$m
1,685.9
(1,056.4)
629.5
(278.5)
(220.1)
–
130.9
1.5
2.5
(34.7)
100.2
(45.5)
54.7
3
2
4
– 1,685.9
(11.8) (1,068.2)
617.7
(11.8)
(283.8)
(5.3)
(229.7)
(9.6)
2.9
2.9
107.1
(23.8)
1.5
–
2.5
–
(34.7)
–
76.4
(23.8)
(45.6)
(0.1)
30.8
(23.9)
–
54.7
45.1
9.6
54.7
–
(23.9)
(23.9)
–
(23.9)
–
30.8
21.2
9.6
30.8
1,703.7
(1,079.5)
624.2
(285.7)
(205.8)
–
132.7
0.7
4.9
(41.7)
96.6
(51.4)
45.2
(0.1)
45.1
37.3
7.8
45.1
–
(30.4)
(30.4)
–
1.8
20.1
(8.5)
–
–
–
(8.5)
0.4
(8.1)
–
(8.1)
(8.1)
–
(8.1)
1,703.7
(1,109.9)
593.8
(285.7)
(204.0)
20.1
124.2
0.7
4.9
(41.7)
88.1
(51.0)
37.1
(0.1)
37.0
29.2
7.8
37.0
Annual Report 2014
101
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Coats financial information
Consolidated statement of comprehensive income (unaudited)
Year ended 31 December
PROFIT FOR THE YEAR
Items that will not be reclassified subsequently to profit or loss:
– Actuarial (losses)/gains in respect of retirement benefit schemes
– Tax relating to components of other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges:
– (Losses)/gains arising during the year
– Transferred to profit or loss on cash flow hedges
Exchange differences on translation of foreign operations
Other comprehensive income and expense for the year
Total comprehensive income and expense for the year
Attributable to:
EQUITY SHAREHOLDERS OF THE COMPANY
Non-controlling interests
2014
Unaudited
US$m
30.8
2013
Unaudited
US$m
37.0
(246.1)
(1.7)
(247.8)
(1.5)
3.7
(13.5)
(11.3)
130.8
1.4
132.2
0.8
4.8
(20.5)
(14.9)
(259.1)
117.3
(228.3)
154.3
(237.7)
9.4
(228.3)
147.0
7.3
154.3
102
Annual Report 2014
Consolidated statement of financial position (unaudited)
At 31 December
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Investments in joint ventures
Available-for-sale investments
Deferred tax assets
Pension surpluses
Trade and other receivables
CURRENT ASSETS
Inventories
Trade and other receivables
Available-for-sale investments
Cash and cash equivalents
Non-current assets classified as held for sale
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Current income tax liabilities
Bank overdrafts and other borrowings
Provisions
NET CURRENT ASSETS
NON-CURRENT LIABILITIES
Trade and other payables
Deferred tax liabilities
Borrowings
Retirement benefit obligations:
Funded schemes
Unfunded schemes
Provisions
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Share premium account
Hedging and translation reserves
Retained loss
EQUITY SHAREHOLDERS’ (DEFICIT)/FUNDS
Non-controlling interests
Total equity
2014
Unaudited
US$m
2013
Unaudited
US$m
Notes
6
257.8
297.4
13.7
3.0
15.3
51.0
16.1
654.3
257.8
307.9
0.4
155.5
721.6
0.8
1,376.7
(371.6)
(9.2)
(113.5)
(57.6)
(551.9)
169.7
(12.6)
(39.2)
(304.6)
(313.7)
(119.1)
(22.8)
(812.0)
(1,363.9)
12.8
20.5
412.1
(51.0)
(393.1)
(11.5)
24.3
12.8
257.2
340.6
13.7
3.5
13.6
44.6
20.7
693.9
281.0
342.4
0.6
124.9
748.9
–
1,442.8
(366.8)
(17.4)
(82.4)
(59.0)
(525.6)
223.3
(19.1)
(36.8)
(371.7)
(105.6)
(112.4)
(23.8)
(669.4)
(1,195.0)
247.8
20.5
412.1
(39.9)
(166.5)
226.2
21.6
247.8
Annual Report 2014
103
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Coats financial information
Consolidated statement of changes in equity (unaudited)
Year ended 31 December
Balance as at 1 January 2013
Profit for the year
Other comprehensive income and expense for the year
Total comprehensive income and expense for the year
Disposal of a non-controlling interest
Dividends paid to non-controlling interests
Balance as at 31 December 2013
Profit for the year
Other comprehensive income and expense for the year
Total comprehensive income and expense for the year
Dividends paid to non-controlling interests
Balance as at 31 December 2014
Share
capital
Unaudited
US$m
20.5
–
–
–
–
–
20.5
–
–
–
–
20.5
Share
premium
account
Unaudited
US$m
412.1
–
–
–
–
–
412.1
–
–
–
–
412.1
Hedging
reserve
Unaudited
US$m
(9.1)
–
5.6
5.6
–
–
(3.5)
–
2.2
2.2
–
(1.3)
Translation
reserve
Unaudited
US$m
(16.4)
–
(20.0)
(20.0)
–
–
(36.4)
–
(13.3)
(13.3)
–
(49.7)
Retained
loss
Unaudited
US$m
(329.2)
29.2
132.2
161.4
1.3
–
(166.5)
21.2
(247.8)
(226.6)
–
(393.1)
Equity
shareholders’
funds/(deficit)
Unaudited
US$m
77.9
29.2
117.8
147.0
1.3
–
226.2
21.2
(258.9)
(237.7)
–
(11.5)
Non-
controlling
interests
Unaudited
US$m
19.9
7.8
(0.5)
7.3
0.7
(6.3)
21.6
9.6
(0.2)
9.4
(6.7)
24.3
Total
equity
Unaudited
US$m
97.8
37.0
117.3
154.3
2.0
(6.3)
247.8
30.8
(259.1)
(228.3)
(6.7)
12.8
104
Annual Report 2014
Consolidated statement of cash flows (unaudited)
Year ended 31 December
Cash inflow from operating activities
Net cash inflow generated by operations
Interest paid
Taxation paid
Net cash generated by operating activities
Cash outflow from investing activities
Dividends received from joint ventures
Acquisition of property, plant and equipment and intangible assets
Disposal of property, plant and equipment and intangible assets
Acquisition of financial investments
Disposal of financial investments
Disposal of businesses
Acquisition of investments in joint ventures
Net cash absorbed in investing activities
Cash outflow from financing activities
Dividends paid to non-controlling interests
Decrease in debt and lease financing
Net cash absorbed in financing activities
Net increase in cash and cash equivalents
Net cash and cash equivalents at beginning of the year
Foreign exchange losses on cash and cash equivalents
NET CASH AND CASH EQUIVALENTS AT END OF THE YEAR
Reconciliation of net cash flow to movement in net debt
Net increase in cash and cash equivalents
Cash outflow from change in debt and lease financing
Change in net debt resulting from cash flows (Free cash flow)
Other non-cash movements
Foreign exchange losses
Decrease in net debt
Net debt at start of year
Net debt at end of year
2014
Unaudited
US$m
2013
Unaudited
US$m
192.6
(21.9)
(56.0)
114.7
1.5
(47.4)
9.3
–
0.4
–
–
(36.2)
(6.7)
(44.0)
(50.7)
27.8
106.8
(7.7)
126.9
27.8
44.0
71.8
(2.3)
(2.9)
66.6
(329.2)
(262.6)
139.6
(26.2)
(53.3)
60.1
0.5
(37.8)
28.3
(1.1)
–
1.5
(0.4)
(9.0)
(6.3)
(43.3)
(49.6)
1.5
110.4
(5.1)
106.8
1.5
43.3
44.8
(2.3)
(4.1)
38.4
(367.6)
(329.2)
Notes
5
6
6
Annual Report 2014
105
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 1. Basis of preparation
The financial information contained in this section of the report represents the unaudited results of Coats as contained within the audited
consolidated financial statements of GPG for the years ended 31 December 2014 and 2013.
It incorporates the consolidated results of Coats Group Limited (“CGL”) as adjusted to account for the Coats capital incentive plan (“CIP”),
on a basis consistent with that required to be adopted by GPG, and for inclusion in the balance sheet both at 31 December 2014 and
31 December 2013 of $6.0 million of intangible assets held at the GPG level but which are associated with its acquisition of Coats.
The CIP is operated by GPG for the benefit of certain senior CGL employees. In accordance with IFRS, this is accounted for by CGL as an
equity-settled compensation plan as CGL has no obligation to settle the share-based payment. Under IFRS, equity-settled share-based
payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant and this fair value
is expensed on a straight-line basis over the vesting period, with a corresponding increase recognised in equity as a contribution from the
parent. GPG accounts for this arrangement as a cash-settled share-based compensation plan and, in accordance with IFRS, is required to
reassess the fair value of the CIP at each reporting date.
CGL is incorporated in the British Virgin Islands. It does not prepare consolidated statutory accounts and therefore the financial
information contained in this section of the report does not constitute full financial statements and has not been, and will not be,
audited, other than in so far as it is included within audited financial information of its ultimate parent company.
The financial information for the year ended 31 December 2014 has been prepared in accordance with the recognition and measurement
requirements of International Financial Reporting Standards (“IFRS”) endorsed by the European Union. The same accounting policies have
been applied to the financial information presented for the year ended 31 December 2013.
The principal exchange rates (to the US dollar) used are as follows:
Average
Year end
Sterling
Euro
Brazilian Real
Indian Rupee
Sterling
Euro
Brazilian Real
Indian Rupee
2014
0.61
0.75
2.35
61.01
0.64
0.83
2.66
63.03
2013
0.64
0.75
2.16
58.55
0.60
0.73
2.36
61.80
106
Annual Report 2014
Coats financial informationNotes to Coats financial information 2. Profit before taxation is stated after charging/(crediting):
For the year ended 31 December
Exceptional items:
Cost of sales:
US antitrust settlement costs
Reorganisation costs
Impairment of property, plant and equipment and intangible assets
US environmental costs
Distribution costs:
Impairment of property, plant and equipment
Administrative expenses:
Impairment of property, plant and equipment
Capital incentive plan charge
UK Pensions Regulator (“tPR”) investigation costs
Transition costs of Coats to a standalone listed entity
UK pension increase exchange offer
Other operating income:
Profit on the sale of property
Total
2014
Unaudited
US$m
2013
Unaudited
US$m
–
–
11.8
–
11.8
5.3
1.7
4.2
3.7
–
–
9.6
7.2
21.6
1.1
0.5
30.4
–
–
0.4
–
4.8
(7.0)
(1.8)
(2.9)
23.8
(20.1)
8.5
An impairment charge of property, plant and equipment and intangible assets of $18.8 million has been made for the year ended
31 December 2014 (2013: $1.1 million) relating to the EMEA Crafts business. Please refer to note 7.
For further details regarding the US environmental costs referred to above see note 29 to the Financial Statements.
3. Finance costs
For the year ended 31 December
Interest on bank and other borrowings
Net interest on pension scheme assets and liabilities
Other
Total
2014
Unaudited
US$m
20.4
7.3
7.0
34.7
2013
Unaudited
US$m
24.3
12.3
5.1
41.7
Annual Report 2014
107
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information 2014
Unaudited
US$m
2013
Unaudited
US$m
4.3
(4.3)
–
51.0
(3.4)
47.6
(2.0)
45.6
(3.3)
1.3
3.5
(3.5)
–
53.4
(0.7)
52.7
(1.7)
51.0
2013
Unaudited
US$m
124.2
44.4
4.5
22.7
(20.1)
5.9
181.6
16.7
(32.9)
26.4
(12.3)
5.6
185.1
(28.2)
(17.3)
139.6
(1.8)
0.1
2014
Unaudited
US$m
107.1
42.7
5.8
18.8
(2.9)
7.9
179.4
8.6
15.4
17.1
(23.1)
5.4
202.8
(3.7)
(6.5)
192.6
4. Taxation
UK taxation based on profit for the year:
Corporation tax at 21.5% (2013: 23.25%)
Double taxation relief
Total UK taxation
Overseas taxation:
Current taxation
Deferred taxation
Prior year adjustments:
Current taxation
Deferred taxation
5. Reconciliation of operating profit to net cash inflow generated by operations
For the year ended 31 December
Operating profit
Depreciation
Amortisation of intangible assets (computer software)
Reorganisation costs and impairment (see note 2)
Exceptional profit on sale of property (see note 2)
Other operating exceptional items (see note 2)
Pre-exceptional operating profit before depreciation and amortisation (EBITDA)
Decrease in inventories
Decrease/(increase) in debtors
Increase in creditors
Provision movements
Other non-cash movements
Net cash inflow from normal operating activities
Net cash outflow in respect of reorganisation costs
Net cash outflow in respect of other operating exceptional items
Net cash inflow generated by operations
108
Annual Report 2014
Coats financial informationNotes to Coats financial information continued 6. Net debt
For the year ended 31 December
Cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents
Other borrowings
Total net debt
2014
Unaudited
US$m
155.5
(28.6)
126.9
(389.5)
(262.6)
2013
Unaudited
US$m
124.9
(18.1)
106.8
(436.0)
(329.2)
7. Post balance sheet event
On 19 February 2015 Coats agreed to sell its EMEA Crafts business for a consideration of $10 million payable in cash on completion
subject to customary adjustments. The sale is conditional upon, inter alia, a limited number of conditions usual for this type of transaction
and is expected to complete in the second quarter of 2015. The UK Crafts business will remain within Coats.
For the year ended 31 December 2014, EMEA Crafts (excluding UK) generated external sales of $124.9 million and an operating loss of
$28.6 million, which includes a property, plant and equipment and intangible assets exceptional impairment charge of $18.8 million. As
at 31 December 2014, after impairment, the business had net tangible assets of $35.4 million, including cash retained within the business
as part of the sale. Given the total consideration of $10 million for the business and its net tangible asset position of $35.4 million at 2014
year end, and taking into account completion adjustments and disposal-related costs, a substantial loss on disposal is expected to be
recognised on completion of the transaction. The precise quantum will be finalised on completion and will in addition include historical
foreign exchange translation gains and losses previously recognised in equity.
The results of the EMEA Crafts business (excluding UK) together with the loss on disposal will be presented as a discontinued operation
when the Group reports its 2015 half year results.
Annual Report 2014
109
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information Supplementary information
Supplementary information required by the Australian Securities Exchange listing rules for the
year ended 31 December 2014 (unaudited)
a) The top 20 registered holdings of the issued Ordinary Shares of 5p each (‘Ordinary Shares’)a at 28 February 2015 were as follows:
Registered Holder
THE BANK OF NEW YORK (NOMINEES) LIMITED UKREITS
HSBC NOMINEES (NZ) LIMITED – NZCSDb
J P MORGAN CLEARING CORP CLIENTSK
HSBC NOMINEES (NZ) LIMITED A/C STATE STREET – NZCSD
JPMORGAN CHASE BANK NA NZ – NZCSD
CHASE NOMINEES LIMITED FISL
NATIONAL NOMINEES NZ LIMITED – NZCSD
CITICORP NOMINEES PTY LIMITED
JP MORGAN NOMINEES AUSTRALIA LIMITED
BNP PARIBAS NOMINEES (NZ) LIMITED – NZCSD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NORTRUST NOMINEES LIMITED TDS
MR B A NIXON
NATIONAL NOMINEES LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
SIR RON BRIERLEY
NEW ZEALAND SUPERANNUATION FUND NOMINEES LIMITED – NZCSD
THE BANK OF NEW YORK (NOMINEES) LIMITED
CITIBANK NOMINEES (NEW ZEALAND) LIMITED – NZCSD
BNP PARIBAS NOMINEES (NZ) LIMITED – NZCSD
Holding
198,134,344
151,909,966
123,903,443
108,010,010
63,355,328
60,207,782
46,368,608
31,734,730
31,004,346
28,806,379
24,362,739
20,000,000
17,811,406
17,516,846
16,905,000
16,882,765
15,094,174
15,059,951
14,064,776
12,500,000
b) The spread of holdings in the issued Ordinary Shares at 28 February 2015 was as follows:
Range
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
No. holders
3,631
5,928
3,144
5,581
498
18,782
%
19.33
31.56
16.74
29.72
2.65
100
No. of shares
1,007,585
15,985,919
22,660,053
153,767,139
1,214,191,586
1,407,612,282
% Issued shares
14.08
10.79
8.80
7.67
4.50
4.28
3.29
2.25
2.20
2.05
1.73
1.42
1.27
1.24
1.20
1.20
1.07
1.07
1.00
0.89
%
0.07
1.14
1.61
10.92
86.26
100
The number of holders holding less than a marketable parcel of GPG Ordinary Shares as at 28 February 2015 was 4,048.
Coats Group plc is incorporated in England and Wales, and is not subject to Chapters 6, 6A, 6B and 6C of the Australian Corporations
Act dealing with the acquisition of shares. The UK Takeover Code, which applies to Coats Group plc, limits acquisition of an interest in
30% or more of the Ordinary Shares in Coats Group plc.
a
b
In Australia, this includes CHESS Depository Interests
NZSCD means New Zealand Central Securities Depository
110
Annual Report 2014
Company and Registrars’ addresses
UNITED KINGDOM
1 The Square, Stockley Park, Uxbridge, Middlesex UB11 1TD
Tel: 020 8210 5000 Facsimile: 020 8210 5025
www.coats.com
AUSTRALIA
c/o BDO East Coast Partnership
Level 10, 1 Margaret Street, Sydney NSW 2000
Tel: 02 9251 4100 Facsimile: 02 9240 9821
NEW ZEALAND
c/o Computershare Investor Services Limited
Private Bag 92119, Auckland 1142
Tel: 09 488 8700 Facsimile: 09 488 8787
Incorporated and registered in England No. 103548
Registered office: 1 The Square, Stockley Park, Uxbridge, Middlesex UB11 1TD
LOCATION OF SHARE REGISTERS
The Company’s register of members is maintained in the UK with branch registers in Australia and New Zealand.
Register enquiries may be addressed direct to the Company’s share registrars named below:
Registrar
UK Main Register:
Computershare Investor
Services PLC
Telephone and postal enquiries
Inspection of Register
The Pavilions, Bridgwater Road,
Bristol BS99 6ZZ
Tel: 0870 707 1022 Facsimile: 0870 703 6143
The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
Australian Branch Register:
Computershare Investor
Services Pty Limited
GPO Box 3329,
Melbourne VIC 3001
Freephone: 1 800 501 366 (within Australia)
Tel: 03 9415 4083 Facsimile: 03 9473 2500
Yarra Falls,
452 Johnston Street,
Abbotsford VIC 3067
New Zealand Branch Register:
Computershare Investor
Services Limited
Private Bag 92119, Auckland 1142
Tel: 09 488 8777 Facsimile: 09 488 8787
Level 2, 159 Hurstmere Road,
Takapuna,
Auckland 0622
MANAGING YOUR SHAREHOLDING ONLINE
UK registered members
To manage your shareholding online, please visit:
www.investorcentre.co.uk
Australia and New Zealand registered members
To change your address, update your payment instructions and to view your investment portfolio including transactions, please visit:
www.investorcentre.com/NZ
General enquiries can be directed to:
enquiry@computershare.co.nz
Please assist our registrar by quoting your CSN or shareholder number.
Annual Report 2014
111
Overview and strategic reportCorporate governanceFinancial statementsCoats financial information
Notes
112
Annual Report 2014
Coats Group plc
1 The Square
Stockley Park
Uxbridge
Middlesex UB11 1TD
Tel: 020 8210 5000
www.coats.com
Incorporated and registered in England No. 103548
Registered office: 1 The Square, Stockley Park
Uxbridge, Middlesex UB11 1TD