Enhancing the essential
products of life
Coats Group plc Annual Report 2015
About Coats
Coats is the world’s leading
industrial thread manufacturer
serving the apparel and footwear
industries and Speciality
markets such as automotive
and fibre optics. We are also a
major player in the Americas
textile crafts market, and have
operations in the UK.
Enhancing
the essential
products of life
Every day we use our industry
knowledge and global expertise
to design and deliver products
and services that enhance
life’s essentials.
See more on pages 6, 14, 17 and 18.
For more on latest news and products,
history and heritage, business operations,
financial performance and Corporate Responsibility:
www.coats.com
Strategic report
Highlights
2015 highlights1
Revenue
Pre-exceptional operating profit
Operating profit
+3% $1,490m +19% $139m +7% $111m
(2014: $1,445m)
(2014: $117m)
(2014: $103m)
Adjusted earnings per share
Adjusted free cash flow
Net working capital % sales
+38% 3.96c $74m
10%
(2014: 2.88 cents)
(2014: $88m)
(2014: 12%)
On 4 March 2016, the United States Environmental Protection Agency announced a final Record of Decision for the remediation of the lower 8 miles of the Lower Passaic River (see
note 28). The implications of this announcement have been reflected in the Annual Report and audited financial statements. Consequently, the results presented in the Annual Report
supersede the Group’s unaudited results announced on 25 February 2016.
Strong operating performance and improved quality
of earnings
• Pre-exceptional operating profit up 19% like-for-like;
operating margins up 130bps
• Adjusted earnings per share up 38% like-for-like; reported
loss ($51m) due to discontinued items
• Adjusted free cash flow of $74m (2014: $88m)
• Return on capital employed increased to 33% (2014: 24%)
Strategic progress
• Disposed of loss-making EMEA Crafts business and
completed first acquisition (GSD)
• Good market share gains in Industrial
Highly engaged and safe workforce
• Recordable accident rate down 12%; overall employee
engagement score up to 83% (global top 10%)
Normalising as a UK plc
• Change of name, combined Board, UK focused share
register, intention to delist from NZX and ASX
• Pensions investigations: initiated settlement discussions
with Trustees of the three UK schemes
1 2014 figures restated to reflect the change in accounting policies for presentation currency, operating profit and exceptional items and the results of EMEA Crafts business as a
discontinued operation. See note 1 to the accounts for further details. Revenue, pre-exceptional operating profit and adjusted earnings per share (EPS) are stated on a like-for-like
(constant currency) basis that restates 2014 figures at 2015 exchange rates. Exceptional items excluded from pre-exceptional operating profit are set out in note 4. Adjusted EPS is
before exceptional items and foreign exchange gains/losses on Parent Group cash balance. Adjusted free cash flow is adjusted for exceptional and discontinued items, acquisitions,
purchase of own shares for the Employee Benefits Trust and UK pension recovery payments, as set out in note 36. ROCE – pre-exceptional operating profit divided by capital
employed, 24% in 2014 includes EMEA Crafts (27% excluding) as set out in note 36.
Contents
Strategic report
01 Highlights
02 Group at a glance
04 Chairman’s statement
07 Market trends
08 Business model
10 Group Chief Executive’s
statement
15 Operating review:
– Industrial
– Crafts
20 People
22 Corporate Responsibility
24 Financial review
27 Key performance indicators
28 Principal risks and uncertainties
33 Long term viability statement
Corporate governance
Financial statements
Other information
134 Group structure
136 Shareholder information
34 Board of Directors
36 Management Board
37 Chairman’s introduction
38 Corporate governance report
43 Audit and Risk
66 Independent auditor’s report
72 Consolidated income statement
73 Consolidated statement of
comprehensive income
74 Consolidated statement of
Committee report
financial position
47 Nomination Committee report
48 Directors’ remuneration report
62 Directors’ report
65 Directors’ responsibilities
76 Consolidated statement of
changes in equity
77 Consolidated statement of
cash flows
statement
78 Notes to the financial statements
128 Company balance sheet
129 Company statement of
changes in equity
130 Company cash flow statement
131 Notes to the Company
financial statements
Coats Group plc Annual Report 2015
01
Strategic report Group at a glance
Overview
Coats is the world’s leading industrial thread
manufacturer and a major player in the Americas
textile crafts market. Headquartered in the UK,
we employ 19,000 people and in 2015 generated
revenues of $1.5 billion.
Organisation
Industrial
Revenue (2015)
$1,213m
Read more on page 15
No. 1
Leading
position
world’s leading thread
producer for the apparel and
footwear industries
in Speciality – high
performance threads
and yarns
No. 2
supplier of zips
to global brands
Largest
player
in North America
textile crafts market
Revenue (2015)
Employees (2015)
$1.5bn
19,000
Apparel and Footwear
Speciality
Crafts
66%
16%
18%
Industrial
Crafts
Other
90%
9%
1%
Apparel and Footwear
Speciality
• Apparel, footwear
and accessories threads
• Zips and trims products
• Coats Global Services
• High technology
threads and yarns from
performance materials
for non-apparel and
footwear uses
Crafts
Revenue (2015)
$277m
• Foundation and fashion
handknitting products
Read more on page 19
• Needlecrafting – includes
consumer sewing and
lifestyle fabrics
Global footprint
Revenue by region (2015)
We operate on a global
basis employing people
across six continents at
some 50 sites and a sales
presence in over
100 countries.
Presence
Manufacturing sites
02
Coats Group plc Annual Report 2015
$1.5bn
Americas
EMEA
Asia
35%
17%
48%
Strategic report
Our vision, principles and goals
At Coats we have a clearly defined vision and a way of working that is guided by our core principles
and goals and supported by our business model and investment case.
Vision
‘We will be the world leader in value added engineered yarns and threads for industrial and
consumer use. We will develop and supply highly complementary products and services, where
they add significant value to customers. We will achieve success through customer-focused
innovation and winning propositions driven by motivated people and global teamwork.’
Principles and goals
The way we work to achieve our vision is guided by five principles and three goals.
Energy
for change
Freedom
to operate
5
Principles
3
Goals
Profitable sales growth
Increased productivity
Positive teamwork
Delivery (keep
our promises)
Customer led
innovation
Openness
and honesty
Key differentiators
Our business model and the five elements to our investment case
give us the confidence we can achieve the above.
Business model
Core strengths
Operational and
commercial expertise
Leading products
and services
Read more on page 8
Benefits for stakeholders
Five elements to our investment case
Read more on page 11
Global market
leader with robust
fundamentals
Strong and
defendable core
business
Global presence
and capabilities
Defined growth
strategy
Experienced
management team
Cash generative:
consistent growth
Key differentiators
that provide a
platform for growth
Targeting known
markets through
organic and
acquisitive growth
Leadership, people
and systems to
deliver growth
Focus on sales,
earnings and free
cash flow growth
Coats Group plc Annual Report 2015
03
Strategic report Chairman’s statement
The past year has been one of significant
progress, even for a company with a
heritage as long as ours.
Mike Clasper
Chairman
Delisting announcement
Our re-emergence as a UK-headquartered
global industrial manufacturing business
has resulted in a change in the regional
diversity of our shareholder base. Over 70%
of our shareholders are now UK-based
(mainly institutional investors), with fewer
than 12% in New Zealand and Australia.
In light of this, in November we announced
our intention to delist from the New
Zealand and Australia stock exchanges.
We have no material operations or
Executive Directors in New Zealand or
Australia and, during the year, both Sir Ron
Brierley and Blake Nixon ended their long
associations with the company by stepping
down from the Board. This delisting move
– approved in principle by both the NZX
and ASX authorities – will also eliminate
the costs and complexities arising from
a triple listing and share register structure.
A resolution will be put to shareholders
for approval at the Annual General Meeting
in May.
Performance in 2015
During the year we delivered a strong
operating performance and improved
quality of earnings. The core Apparel
and Footwear business continued to
gain market share and in Speciality we
maintained growth through product
innovation and geographic expansion,
despite tough conditions in certain key
markets.
In our Americas Crafts business we
delivered an encouraging second half profit,
while across the Group margins increased
due to volume growth, lower input prices
and procurement and productivity savings.
Overall these factors contributed to
pre-exceptional operating profit increasing
by 19% on a constant currency basis to
$139 million. However, discontinued losses
related to the sale of our loss-making
EMEA Crafts business, negatively impacted
reported earnings.
Dear shareholder
The past year has been one of significant
progress, even for a company with
a heritage as long as ours.
In February 2015, we established
Coats Group plc as a standalone, listed
entity. All major investments apart from
the Coats business have been sold,
culminating in the Company changing
name from Guinness Peat Group to Coats
Group. We are now a UK-headquartered,
global industrial manufacturing business
with a new role and direction as a publicly
traded company with FTSE 250 ambitions.
Board and governance
In March 2015, we established the Coats
Group plc Board, with Directors chosen
for their FTSE, geographic, industry and
functional talents. David Gosnell and
Alan Rosling both became Independent
Non-Executive Directors – joining
Mike Allen, Ruth Anderson and me –
while Paul Forman, Group Chief Executive,
Richard Howes, Chief Financial Officer,
and Rajiv Sharma, Global CEO Industrial,
became Executive Directors.
In April, Nicholas Bull was appointed
as Senior Independent Director (SID).
Nicholas – a chartered accountant with
over 30 years of global banking experience
– has also joined both our Audit and Risk,
and Nomination Committees. Part of his
role as SID is to act as a sounding board
for me as the Chairman and to serve as
an intermediary for the other stakeholders
when necessary.
Drawing on the varied talents of our
Non-Executive Directors is important
to the success of the business and we
will continue to monitor the Board’s
composition, so that we maintain the
best possible mix of skills and industry
knowledge to support our strategy and
ambitions. In line with best practice,
Directors will stand for re-election on an
annual basis. For more detail, see the
corporate governance section of this report.
04
Coats Group plc Annual Report 2015
As a Group we enter 2016 on a solid
footing with improving returns and quality
of earnings and a stronger business
portfolio. More details on performance
during the year can be found in the Group
Chief Executive’s statement on page 10
and Operating review on page 15.
Pensions
Another matter of significance for the Group
is pensions – namely the investigations by the
UK Pensions Regulator (‘tPR’) that have been
ongoing for the past two years.
We have recently initiated settlement
discussions with all three sets of
Trustees and have stated we would like to
conclude the pension investigations with
a solution that is in the interests of all
parties. To that end we have committed
not to return to shareholders any of the
cash balance held by the parent group,
currently $505 million (£342 million).
Whilst we are committed to finding a
solution, it must be one that enables us
to reward our investors with a dividend
flow from our successful operational
performance. If such a settlement cannot
be reached in respect of all the schemes
on this basis and the investigations proceed
a hearing in front of the ‘Determinations
Panel’ would be unlikely before the second
half of 2016 at the earliest. For full detail of
the pension schemes and tPR investigations
see page 26.
Personal highlights of 2015
For me there were two particular
aspects to our performance in the year
that I would like to highlight. One is
innovation – our approach to new
product development – the other is
the recognition of the quality of
our people and products.
Strategic report Innovation During 2015 we launched
more new products than ever, in part
thanks to the agility of our Research
and Development (R&D) model. This
model’s foundations are our customer
understanding and our manufacturing base
and dedicated R&D managers who interact
with our customer teams to look for
innovation opportunities. They create
teams from employees as and when
needed – enabling us to use existing
talent, machinery and operational
time to test new ideas within the heart
of the business – on the factory floor
and with the customer. In 2015, this led
to major breakthroughs such as Signal,
our retro-reflective sewing and embroidery
thread; and a new conductive thread
developed for a major supplier to secure
its wireless tracking tags to fabrics.
Recognition It was also another year
in which both our people and products
were publicly recognised. Our Red
Heart brand was awarded the Women’s
Choice Award in the United States;
in Bangladesh, brand retailer Decathlon
gave us a sustainable development
award; our Footwear division received an
adidas Quality award for Tier 2 suppliers;
and, in Vietnam, our Managing Director
Bill Watson received a Certificate of Merit
from the office of the Prime Minister.
People
In a year of transition and change, our
employees have remained committed
and focused and I would like to thank
them for their steadfast efforts as we
settle into this new phase in our history.
Coats is proud of its strong global
presence. We employ 19,000 people in
over 60 countries worldwide and we
recognise it is their talent and commitment
that sets us apart as a business, ensuring
that we remain leaders in our sector. We
will therefore continue to focus on diversity
and inclusion (cultural and gender) across
the organisation to ensure that we make
the most of that considerable talent.
One of the ways we benchmark
our culture is through our employee
engagement survey and, in 2015, our
engagement score (which shows how
proud people are to work at Coats and
how willing they are to work toward
achieving common goals) is up to
83% (compared with 81% in 2014),
strengthening our position in the top
10% of companies globally.
Our Health and Safety figures also
continued in the right direction. During
2015, our recordable accident rate was
0.29 work-related injuries and illnesses
per 100 Full Time Employees – well below
industry average figures reported by the
US Occupational Safety and Health
Administration.
Looking ahead
In the year ahead we will continue the
process of ‘normalisation’ as a UK-listed,
global manufacturing company, while
increasing the pace of product and service
development and acquisitions – exploring
ways in which we can translate our successes
into greater value for shareholders.
Mike Clasper
Chairman
10 March 2016
London Stock Exchange opening
To mark the 125th anniversary year of our
initial listing, in June members of the Board
and employees were invited to open the day’s
trading on the Main Market of the London
Stock Exchange (LSE).
Coats delisting from the New Zealand and Australia stock exchanges:
Key dates
18 May 2016 Annual General Meeting – shareholder approval sought to delist
from NZX
21 June 2016 Coats shares and CDIs to be suspended from trading on NZX and
ASX respectively (at close of trading)
24 June 2016 Closing date of Share Sale Facility*
24 June 2016 Coats to be delisted from NZX and ASX
* (unless extended by notice released to the LSE)
See page 136 for Registrar contact details and information on delisting
Coats Group plc Annual Report 2015
05
Strategic report Enhancing the essential products of life
Satisfying
global demand
Our unrivalled global footprint and longstanding
local presence in places such as Bangladesh, China,
India, Sri Lanka and Vietnam puts us right at the
heart of the rapidly growing Asia Pacific region.
Global reach
Our global capability comes
from years of working locally
– all around the world. In
Bangladesh and Vietnam we
recently celebrated 25 years
of successful partnership.
The world’s
favourite thread
Coats Epic is the world’s
leading premium sewing
thread – popular with brands
because of its high quality,
wide product range and
global availability.
Improving industry
performance
In May we acquired GSD.
As part of Coats Global
Services, GSD offers solutions
that analyse time, cost and
production capability in the
sewn products sector, to
maximise productivity and costs.
06
Coats Group plc Annual Report 2015
Strategic report
Market trends
Coats is a global leader in growing
markets and well positioned to take
advantage of global socio-economic
trends and specific factors affecting
the environment in which we operate.
Global socio-economic trend
The continued growth of the urban middle
class in Asia is fundamentally changing
our world (see map).
What it means for us:
• Increasing global demand for
apparel and footwear;
• Increasing demand for consumer
products with Speciality thread and yarn;
• Asia Pacific moving from production
base to world’s largest consumer market;
• Asia Pacific will challenge developed
economies in the production of
high-end consumer goods.
Apparel and Footwear thread
Consumer demand for clothes and shoes
tends to grow faster than overall economic
growth. Historically, there is a strong
link between clothing retail sales and
GDP growth.
Thread is a critical component to the
performance of a garment and, as the
world’s leader in Apparel and Footwear
(A&F) thread, we are a key supplier
to the global $1.5 trillion apparel industry.
Globally, the industry is expected to grow
by 2% per year over the medium term,
but this will be double in Asia as – not
only will more consumers demand more
garments – but more affluent consumers
will demand higher-end garments. The
global footwear industry is c$350 billion in
size and has similar growth prospects.
Garment production has been highly
mobile; with the flight from West to East at
the end of the 20th century and more
recently between developing economies.
The supply chain to the industry has had
to follow and is highly fragmented.
Within these demand and supply dynamics,
Coats has not only remained the global
market leader (we are almost double the
size of our nearest competitor) but has
also gained market share.
The garment industry is currently facing
a number of pressures, to which brands,
garment manufacturers and component
suppliers are having to respond:
• Speed (to market, in sampling, in sourcing);
• Productivity (low-cost locations
scarcer due to inflationary pressures);
• Innovation (product, process
and consumer experience);
Middle class growth projections
in emerging markets
100 million
500 million
1 billion
Europe
North America
Northern
Africa
Asia Pacific
Central &
South America
(Source: Standard
Chartered Bank)
Southern Africa
2009 2030
• Quality (as a differentiator);
• Compliance (environmental,
labour, sourcing)
Coats is leading the industry in meeting
these needs. We are positioning ourselves
as the leading value added partner to the
global apparel and footwear industries.
Speciality threads and yarns
Coats defines Speciality as thread and
yarn not used in apparel and footwear.
This ranges from thread used in traditional
markets such bedding and air bags,
emerging applications such as tea bags,
and fibre optics cables and value added
engineered yarns used in composites
and conductive products.
Demand for Speciality thread is increasing
due to growing consumer and government
demand, and tends to grow in excess
of economic growth. The main drivers
currently are:
• Pace of urbanisation in developing
countries (for example, the rollout
of fibre optic cables);
• Economic growth, which means
consumers purchase more products with
Speciality thread (for example, leisure
goods, cars with airbags, tea bags);
• Consumers demanding more innovative
products which can use smart thread
to enhance their functionality
(for example, wearable technology);
• Increasing public sector spending and
safety compliance in developing countries
(for example, utility infrastructure, flame
retardant protective clothing for military
and industrial uses).
manufacturing localisation and global
supply solutions, with ways to apply
threads and yarns both in enhancing
existing products and in creating new
ones.
Coats is the leader in its addressable
market and is gaining market share by
leveraging its core global capabilities:
• We have leading innovative brands;
• Our size means we can out-invest
in new technologies;
• Our global customer relationships;
• We can leverage our global, world class
A&F asset base to develop centres of
excellence beyond the US and Europe;
• As the market leader we are in a
position to use bolt-on acquisitions
to access new geographies and
adjacent end-markets.
Crafts
Coats is the market leader in the ~$1.8
billion Americas textile crafting industry.
Growth in Crafts is driven by inspiring our
customers and consumers to spend more
time crafting.
In the North American market we are
leaders in handknittings, which can be
split into ‘foundation’ and ‘fashion’ yarns.
Foundation yarns tend to be longstanding,
value products characterised by steady
growth, and our market-leading brand Red
Heart has made share gains over the last
few years. Demand for fashion yarns tends
to more transitory and unpredictable and
follows consumer trends which are
driven by a variety of on and offline media
sources.
Coats estimates the addressable market (in
to which we currently or could realistically
serve in the near term) is currently $1.8
billion in size and likely to grow over time.
Speciality customers are demanding
In Latin America Coats has a market
leading presence in both needlecrafts and
handknittings. Here the dynamics of the
region are different with the needlecrafts
market the largest.
Coats Group plc Annual Report 2015
07
Strategic report Business model
How Coats
creates value
Our business model is driven
by our ability to design,
manufacture, market and
deliver high quality products
and services.
It is underpinned by our
principles and goals, our
commitment to operating
responsibly, a robust risk
management framework,
our financial strength and
our ability and commitment
to continually reinvest.
08
Coats Group plc Annual Report 2015
Core strengths
Operational and
commercial expertise
> Global assets
> Strong customer
relationships
> R&D network
> Global, engaged workforce
> Financial strength
> Leading brands
> Manufacturing excellence
> Technical capabilities
> Digital services
> Colour management
> Product and process
innovation
> Marketing expertise
> Supply chain
Reinvestment (organic and inorganic)
Risk management/Corporate Responsibility/Health and Safety
Principles and goals
Our resources
Led by an experienced Board with a
breadth of geographic and functional
experience we have an international
workforce that is both highly engaged
and committed.
In addition to our corporate brand
reputation, which is based on a long
heritage, we have market leading brands
recognised for excellence in the market
place. Through our global R&D network
we are also at the forefront of innovation
in the industries in which we operate.
This provides us with access to the widest
range of garment manufacturers and
brands in the world from which we gather
deep market insight. This is all supported
by a strong balance sheet allowing us
to reinvest and continually upgrade.
Our skills
We are able to service our customers
on a short-lead time, with a globally
consistent quality and colour that has
been manufactured to high employment,
ethical and environmental standards.
We use our expertise to create new
products and applications for existing
products, as well as supporting our
customers by making thousands of
technical interventions on the shop
floor every year.
We offer leading digital services such
as colour sampling, online training and
ecommerce, making it easier to do
business with us and offering greater
value and time benefits to customers.
Strategic report Leading products
and services
Appare
l
rafts
C
Value
enhancing
Specia l
y
t
i
a
n
d
F
o
o
t
w
e
ar
Benefits for stakeholders
Customers
Brands and
retailers
Consumers
> Safe, respectful workplace
> Shareholders
> Communities
> Pension schemes
> Profitable, cash generative
operating business
Reinvestment (organic and inorganic)
Our products and services
We leverage our market leading
resources and skills to provide innovative
value adding products and services to
our customers.
Whether it’s manufacturing Epic thread
for fashion apparel, delivering leading
cost benchmarking tools to garment
manufacturers, developing conductive
thread for use with a revolutionary RFID
tag, or producing America’s leading
handknitting yarn, we make the most
of our resources and knowhow to
maintain a competitive edge.
Our outputs
Delivering innovative products and
services directly benefits our customers
and brands. If we do this successfully, and
use our resources and skills productively
and efficiently, we will deliver profitable
sales growth and generate cash.
In turn this allows us to generate value
and returns for our shareholders and
enables us to reinvest in the business,
through organic or acquisitive means.
This creates a virtuous circle of being
able to attract, retain and motivate
employees with the necessary skills
and talent across the Group.
Coats Group plc Annual Report 2015
09
Strategic report
Group Chief Executive’s statement
In 2015 we delivered a strong
performance with like-for-like
operating profit growth of 19%.
Paul Forman
Group Chief Executive
Dear shareholder,
I am pleased to report that in 2015 – our
first year of reporting as Coats Group plc
– we delivered a strong performance.
currency) basis reflected the strengthening
of the US Dollar against a number of
currencies, particularly the Euro and
Brazilian Real.
2015 performance1
Coats’ revenues increased 3% to $1,490
million in 2015 from $1,445 million.
Industrial sales growth of 5% was driven
by a strong performance in the Apparel and
Footwear business, almost wholly driven
by volumes given a challenging pricing
environment, and product innovation and
geographic expansion in the Speciality
business despite tough conditions in the
global oil and gas sector. Crafts sales fell
6% to $277 million (2014: $295 million),
reflecting tough comparators in the first
half (impact of the decline in fashion
handknittings demand) and the mild
North American autumn/winter in 2015
which impacted consumer demand.
Pre-exceptional operating profit increased
19% year-on-year to $139.4 million (2014:
$117.0 million). Industrial profit grew 20%
and margins were up 130 basis points
(bps) to 11.1% due to strong volume
growth, lower input prices, productivity
and non-raw material procurement
improvements (which more than offset
labour and energy inflation). The 14%
increase in Crafts profit was primarily due
to lower input prices and cost reduction
initiatives. Margins also benefited from
lower Group costs year-on-year and initial
cost savings from an overhead reduction
programme that resulted from a review of
our cost base following the disposal of the
EMEA Crafts business. Operating profit,
post-exceptional items, on a reported
(actual currency) basis increased 7% to
$111 million (2014: $103.4 million).
Currency movements continued to
impact results on both a translational
and transactional basis throughout 2015.
As we report in US Dollars and given that
our global footprint generates significant
revenues and expenses in a number of
other currencies, a translational currency
impact can arise. In 2015 a decline in
Group sales of 5% on a reported (actual
Financial summary
Adjusted earnings per share attributable to
equity shareholders on a like-for-like basis
increased by 38% to 3.96 cents (2014:
2.88 cents). This was achieved by higher
operating profit and a reduction in the
underlying tax rate. We generated a
reported attributable loss of $50.6 million
(2014: $15.0 million profit), due to a
significant loss ($75.5 million) from
discontinued items related to the disposal of
the loss-making EMEA Crafts business, as
well as a higher level of exceptional charges.
The disposal of EMEA Crafts, which
generated a trading loss of $12.7 million
in 2015, has improved the Group’s quality
of earnings and returns and allowed
management to better focus on the high
performing global Industrial and strong
Americas Crafts businesses.
In 2015, Coats generated an adjusted free
cash inflow of $73.9 million compared to
$87.8 million in 2014. Higher operating
profits, lower interest and tax paid were
more than offset by the implementation of
a revised supplier payment approach that
negatively impacted working capital (see
financial review section for more details).
Total net cash at 31 December 2015 was
$241 million, a year-on-year decline of
$80 million, primarily due to foreign
exchange losses on the parent group balance
and the cash outflow related to EMEA Crafts
and its disposal (although the cash cost was
significantly lower than the impact on the
income statement).
Return on capital employed (‘ROCE’)
increased to 33% from 24% in 2014, driven
by higher profitability and the disposal of
EMEA Crafts, underpinning the rationale for
disposing the loss-making business (2014:
27% excluding EMEA Crafts). Over the last
three years, ROCE increased 13 percentage
points from 20% in 2013.
2015 performance
Key performance indicators
Revenue
$1,490m +3%
Pre-exceptional operating profit
$139m +19%
Adjusted earnings per share
3.96c +38%
Adjusted free cash flow
$74m
(2014: $88m)
Return on capital employed
33% +900bps
Recordable accident rate
(injuries per 100 FTE per year)
0.29
12% improvement on 2014
Employee engagement
83% +200bps
For more information see
key performance indicators
on page 27.
1 In the following commentary, all comparisons
with 2014 are on a like-for-like currency basis
(restates 2014 figures at 2015 exchange rates)
and all references to operating profit are on
a pre-exceptional basis.
10
Coats Group plc Annual Report 2015
Strategic report Investment case
Five elements to our value
The five elements to our investment case work alongside our business model to sustain and build
Coats’ market leadership and deliver cash generative, consistent growth to our shareholders.
For more go online www.coats.com/investors
Benefits for stakeholders
Core strengths
1
1
Global market
Global market
leader with robust
leader with robust
fundamentals
fundamentals
Strong and
defendable core
Strong and
business
defendable core
business
5
5
Cash
Cash
generative:
consistent growth
generative:
consistent growth
Focus on sales,
earnings and free
Focus on sales,
cash flow growth
earnings and free
cash flow growth
2
2
Global
Global
presence and
capabilities
presence and
capabilities
Key differentiators
that provide a platform
Key differentiators
for growth
that provide a platform
for growth
4
4
Experienced
management team
Experienced
Leadership, people and
management team
systems to deliver growth
Leadership, people and
systems to deliver growth
3
3
Defined
growth strategy
Defined
Targeting known markets
growth strategy
through organic and
acquisitive growth
Targeting known markets
through organic and
acquisitive growth
Leading products
and services
For a more detailed breakdown of
performance, see the Operating review
from page 15 and the Financial review
from page 24.
is a strong fit with our existing business
and an example of the type of M&A
transaction which we see as delivering
future growth for the business.
Strategic highlights
Acquisition of GSD
I am delighted to be able to report that,
in a year of change and consolidation,
we also achieved our first acquisition in
over ten years. In May we acquired 100%
of GSD Corporate Limited, a UK-based
consultancy that supplies the garment
industry with methods of analysis and
productivity improvement solutions. GSD,
which has customers in over 60 countries
and a strong Asian presence, is now part
of Coats Global Services. This acquisition
Crafts: Refocus
During the year we disposed of the
non-UK part of EMEA Crafts to Aurelius, a
German private equity firm. This followed
a comprehensive review of the business
and its strategic fit within Coats, and it is
a decision that will better position Coats
for future profitable growth. It will also
enable management to focus its attention
on our high-performing global Industrial
and strong Americas and UK Crafts
businesses where we have seen good
margin improvement overall.
Operational and
commercial expertise
Five elements to our value
I believe that our success as a company
is underpinned by five core elements.
These work together to sustain and build
Coats’ market leadership and to deliver
cash generative, consistent growth. Each
element is a strength in itself but, together,
they combine to set us apart from our
competitors, giving us a solid platform
from which to innovate and grow.
I would like to take this opportunity
to talk about them in more detail and
provide pertinent examples.
Coats Group plc Annual Report 2015
11
Strategic report
Group Chief Executive’s statement
continued
1
2
Global market leader with robust
fundamentals and capabilities
Our global footprint – some 50 manufacturing
sites across the world and a sales presence in
over 100 countries – means we maintain
market positions that are several times larger
than our competition. It also enables us to
satisfy customer demand wherever it occurs
globally and to pursue global growth
in Speciality. This is a key differentiator and one
that provides a sound basis for our growth.
In addition, we have our strong corporate
brand reputation, which is based on a deep
heritage stretching back over 200 years,
and market leading brands that stand
for excellence in the market place. These
provide the basis for strong relationships
with the widest range of brands and
manufacturers in the world from which
we constantly gather in depth market
insight. This unique combination
of relationships, resources and reach,
when coupled with our agile global
R&D network, provide us with an unrivalled
leadership position in the market.
We maintain that position with a
comprehensive range of products and
services, sustained by a culture of continual
product and service innovation. This enables
us to lead the industry in anticipating
and meeting the changing needs of our
customers and consumers. Over the past
five years we have launched over 200 new
products. In 2015 these included:
• Signal thread Our new premium
reflective thread which couples an
extraordinarily high level of retro-
reflectance with good sewability
(intended for mainly decorative use,
though it also helps enhance visibility
at night time and in difficult
weather conditions);
• Secura thread A heat-activated fusible
thread that we developed in response
to feedback from our customers to
help secure buttons and decorative
applications such as sequins and beads;
• Conductive thread Developed by us
for a major supplier to secure its wireless
tracking tags to fabrics (the thread
acts as an antenna, introducing the
possibility of incorporating intelligence
into sewing processes; thus opening
up a whole range of new product
markets);
• Opti LUX Trio zips These have been
specifically created for high-end
goods, with a longer, more complex
manufacturing process, which results
in features such as individually polished
teeth, smooth slider running and a
wide range of finishes.
We are also innovators in the field of digital,
creating products to meet and pre-empt
a diverse range of industry needs.
• eCommerce A real-time online system
designed to make thread ordering as
quick and easy as possible for customers,
allowing them to check things such
as thread orders, stock availability and
payment status from a mobile device.
• Coats Colour Express A web-based
application, using Coats Colour Capsure
(our electronic shade card), backed up by
Coats colour experts, which allows
customers to accurately match, sample
and order thread quickly and easily.
• Coats Match A highly portable and
user-friendly colour-reading device that
connects via Bluetooth to two mobile
Apps, Coats Colour Select and Coats
Colour Compare, allowing customers
to share measured colour standards;
set tolerances within which a colour is
acceptable; and compare physical fabric
with their chosen colour for accuracy.
This reduces lead times and the high
costs associated with traditional colour
design and approval processes.
• Redheart.com A website for Red Heart
customers worldwide, with an ordering
system that allows users to shop for Red
Heart products with a one-click function
that gathers all the required supplies,
and incorporating tutorial, blog and
community sections.
3
Defined growth strategy
Our defined growth strategy is well
established and targets known markets
through organic and acquisitive growth.
We have Market Goals in place to guide
us right through to 2018.
Apparel and Footwear (A&F) We aim
to be the leading value added partner
to the apparel, footwear and accessories
industries and will achieve this with share
gains garnered from innovation in products
and services – for instance, anticipating
trends in the increasing demand for A&F
driven by a growing middle class in Asia
Pacific. We will continue to make strategic
choices in areas such as digital, innovation
First metallized thread antenna
In 2015 we launched a metallized thread
antenna specifically for use with a revolutionary
radio frequency identification (RFID) tag for
tracking applications in the industrial laundry,
leather, textile and uniform sectors.
Coats Match digital colour reader
Coats Match is a highly portable, digital colour
reading device that can significantly reduce
time and costs for customers at design
and approval stages.
12
Coats Group plc Annual Report 2015
Strategic report and partnership, utilising the excellence
of our marketing, sales, enhanced products
and transformative services. This, combined
with the skills of our workforce; the agility
and responsiveness of our systems; our
operational excellence; and compliance,
gives us the leading edge we need
to compete as an industry leader.
Speciality To remain the leading global
player in Speciality threads and yarns we
must increase our global reach – accessing
new geographies and end-markets and
seizing appropriate merger and acquisition
opportunities as they arise – while continuing
to bring innovative products to market.
This means a move away from our
traditional segments into value added
engineered yarns, which we are achieving
through product innovation, performance
materials and best in class service.
Crafts To be the leading global player in
textile crafts means focusing on our strong
and profitable Americas and UK businesses.
There is much opportunity within the
~$1.8 billion Americas textile crafting
industry, and a smaller – but expanding
– presence in Latin America. In North
America our strategy is two pronged –
firstly, deliver digital inspiration by
establishing direct relationships with
consumers, via our redheart.com and
makeitcoats.com web sites; secondly,
deliver best in class category management
and customer service to major retailers
such as Walmart.
4
Experienced management team
and people
At Coats we are led by an experienced
Board and management team who
are supported by a highly motivated
workforce. We have made great strides
during 2015 to ensure that the composition
of our Board of Directors possess the
right breadth of geographic, industry and
functional experience to ensure our success
as a global manufacturing business.
Alongside this we have continued to uphold
and embed the values and behaviours that
ensure we have an engaged workforce
and a healthy working environment.
Our commitment to both is reflected in
us formally adopting these measures
as non-financial key performance
indicators for the Group. For more on this,
see page 27.
Commitment to Health and Safety
A safe and healthy working environment
is our number one priority – and everyone
has a part to play in contributing to
our safety culture. 2015 was a year of
continued improvement and significant
highlights – for example, in Pakistan we
achieved 4 million accident-free hours.
There is, of course, always more work to
be done and we are targeting a reduction
from our already low base while at the
same time extending our reporting
to cover any commuting accidents our
employees may experience getting
to and from work.
Employee engagement In 2015, 98%
of our employees took part in our employee
engagement survey and we were pleased
to see that our employee engagement
score has risen by two percentage points
to 83%, keeping us in the top 10% of
all global surveyed companies.
People We currently have over 70
nationalities among our employees, and
more than 20 (out of ~100 people) in our
global leadership team, and we recognise
that we must retain the best talent from
the widest possible pool to ensure the
ongoing success and relevance of the
business. In 2015, we launched a diversity
and inclusion (D&I) programme, which will
address the number of women in
leadership positions, and our ongoing
Management Capability Development
Programme has now been completed
by more than 400 people from over
40 countries. For more details, go to
the People section on page 20.
5
Cash generative, consistent growth
The four elements outlined above allow us
to generate improving financial returns and
quality of earnings. A continued focus on
sales and earnings growth and free cash
flow generation gives us a strong base for
the future, and we continue to focus on
working capital management and capital
discipline, with internal initiatives such as
a recent review of all fixed costs, as well
as our annual operational productivity and
purchasing programmes (saving approx.
$15 million per annum) and the
implementation of new operational
structures.
Operating responsibly
We pride ourselves on being a responsible
company and recognise the increasing
importance of compliance in all the markets
in which we operate. Two elements that
are essential for us as a Group maintaining
our reputation within the industry are our
approach to Corporate Responsibility
(CR) and managing risk.
Corporate Responsibility Our CR
programme is integrated with our business
strategy and helps us build and maintain
both our reputation and our relationships
with key stakeholders. It is structured
around our seven strategic themes which
we review on a bi-annual basis to ensure
they remain appropriate and relevant.
This year we held workshops with over
70 key suppliers in China to ensure that
they are meeting the standards set out in
our supplier code of practice, maintaining
those high environmental and social
standards that we demand from all our
industry partners. For more detail see
Corporate Responsibility on page 22.
Managing risk We take a robust approach
to risk management, which underpins our
operations and ensures that we have the
necessary systems in place to identify risk
appropriate for a global manufacturer.
During the year we put in place a three-
level risk programme, and sought advice
from global risk consultants on how best to
protect ourselves as we conduct business in
new and existing markets. We have
continued to invest in facilities through our
capex programme and also established
a dedicated risk function at a Group level.
For more detail see Principal risks and
uncertainties on page 28.
Our outlook
We delivered a strong performance in 2015
supported by market share gains, product
innovation, lower input prices and
productivity and procurement gains. These
factors have put the business on a solid
footing for the year ahead.
Additionally, we will realise incremental
savings from our overhead reduction
programme, which aims to reduce costs
following the disposal of EMEA Crafts.
However, as we continue to grow there is
a need to reinvest into the business to
support our growth ambitions.
Furthermore, against a backdrop of mixed
economic conditions with uncertainties
on consumer demand in the US and
Western Europe, demand from the oil
and gas industry and the potential for
the US Dollar to further strengthen,
Group performance could be adversely
impacted. On balance, we expect to
deliver modest year-on-year growth in
Group pre-exceptional operating profit with
improvements to non-operating items
further benefiting adjusted EPS.
Paul Forman
Group Chief Executive
10 March 2016
Coats Group plc Annual Report 2015
13
Strategic report Enhancing the essential products of life
Experts in
developing better
products and services
We constantly draw on our expertise to explore new ideas.
This allows us to identify areas for growth and to create
products and services that give us a competitive edge.
Coats eComm
A mobile real-time, online
ordering service making
thread ordering easier and
faster than ever. Now live in
25 markets, Coats eComm
accounts for over 50% of
total thread orders.
Coats Secura
During the year we
launched Coats Secura,
a fusible polyester
corespun thread, which
helps to secure items
such as buttons and
decorative applications
like sequins.
14
Coats Group plc Annual Report 2015
Strategic report
Operating review
Industrial
Rajiv Sharma
Global CEO, Industrial
Our core Apparel
and Footwear
business continued
to gain market share,
and in Speciality
we continue to
grow through
product innovation
and geographic
expansion.
Revenue in 2015 (year on year)
Revenue in 2015
$1,213m +5%
$1,213m
Segment profit
Apparel and Footwear
$979m
Speciality
$233m
+5%
+8%
$135m +20%
Segment margin
11.1% +130bps
In the following commentary, all
comparisons with 2014 are on a like-for-
like currency basis (restates 2014 figures at
2015 exchange rates) and all references
to segment profit are to pre-exceptional
segment profit.
Despite a challenging pricing environment,
Industrial revenue rose 5% year-on-year
from $1,150 million in 2014 to $1,213
million in 2015 due to good levels of
volume growth. This was driven by
underlying market growth and market
share gains, the latter based on product
and digital service innovation and excellent
service levels.
Revenue in Apparel and Footwear
(which includes accessories, zips and trims and
global services) grew 5% year-on-year, almost
wholly due to volume growth. This included
double-digit sales growth in key markets
such as Bangladesh, Colombia, Mexico and
Vietnam. Coats increased its market share,
with the increasing adoption of Coats’ digital
services being a key driver. For instance, in Q1
2015 the Company rolled out an eCommerce
platform: within one year it is already live in
25 countries; is used by approximately 7,500
customers; and accounts for over 50% of
total thread orders. In a general deflationary
environment, pricing was relatively flat in
2015, although there were regional variations.
Revenue by business
Apparel and Footwear3
Speciality
Total
Revenue by region
Asia
Americas
EMEA
Total
Segment profit4
Segment margin4
2015
2014
Like-for-like increase/(decrease)
Reported
$m
Reported1
$m
Reported
increase
%
Like-for-like1,2
$m
Full year
%
First half
%
Second half
%
979.3
233.2
1,212.5
1008.1
235.0
1,243.1
934.4
(3)%
(1)%
216.0
(2)% 1,150.4
714.9
266.4
231.2
1,212.5
679.8
288.6
274.7
1,243.1
665.6
5%
253.0
(8)%
(16)%
231.8
(2)% 1,150.4
5%
8%
5%
7%
5%
0%
5%
4%
13%
6%
8%
8%
(1)%
6%
5%
3%
5%
7%
3%
1%
5%
135.2
11.1%
117.9
15%
9.5% 160bps
112.2
9.8%
20%
130bps
15%
90bps
26%
190bps
1 Restated to reflect the change in accounting policies for presentation currency, operating profit and exceptional items. See note 1 to the accounts for further details.
2 2014 like-for-like restates 2014 figures at 2015 exchange rates.
3 Includes accessories, zips and trims and global services.
4 Pre-exceptional items (see note 2 to the accounts).
Coats Group plc Annual Report 2015
15
Strategic report
Operating review
Industrial continued
Speciality revenue grew 8% year-on-year,
in line with recent guidance, through
geographic expansion of existing products,
such as furniture and upholstery in Asia,
and new product innovation, notably a
strong uptake in demand within the
engineered performance fabrics and
wire and cable markets. As previously
announced, overall growth slowed
between July and October due to the
slowdown in the global oil and gas sector
and tough year-on-year comparators.
The oil and gas sector represented 15-20%
of Specialty sales in 2015 through the
supply of components for thermoplastic
pipes and protective wear. Speciality
growth improved in the last two months
of 2015, demonstrating the diversification
of the end markets in which the business
operates. Given its relative importance, a
continued slowdown in the oil and gas
sector may marginally impact growth
in 2016.
Revenue in Asia increased by 7% year-on-
year, with good levels of growth across
most countries driven by both domestic
and export demand in Apparel and
Footwear, as well as Speciality growth.
The Americas delivered a 5% increase,
primarily due to Speciality sales growth
in North America, while Latin America
delivered good Apparel and Footwear
growth. However, weak market conditions
adversely impacted performance in the
loss-making Brazilian business and these
are expected to continue in 2016. Sales
were marginally lower in EMEA for the full
year, primarily due to weak zip demand in
H1 2015, especially in Italy. However, sales
improved in the second half supported by
growth in key Apparel and Footwear
markets and Speciality, and a better
performance in zips.
Industrial operating profit increased 20%
to $135.2 million (2014: $112.2 million) and
margins increased 130bps to 11.1% (2014:
9.8%) reflecting good volume growth. In
addition, there were cost benefits in a
general deflationary environment, however
this did lead to a challenging pricing
environment, and the business also
continued to deliver productivity and
non-raw material procurement
improvements.
16
Coats Group plc Annual Report 2015
Apparel and Footwear
Factors that make Coats Apparel and Footwear well placed to extend its market
leading position.
Long standing
customer relationships
built on high levels
of customer satisfaction
Applying market
leading resources
and skills to enhance
value for customers
through products
and services
Geographic
reach – unrivalled
global footprint
Industry reach –
unrivalled breadth
of offer
Speciality
Coats Speciality is moving
beyond its ‘Traditional’ core
by expanding into ‘Emerging
Segments’ and ‘Value
Added Engineered Yarns’
through new product
innovation and geographic
expansion.
Addressable
market
‘Value Added
Engineered Yarns’
Coats level
of competence
‘Traditional’
‘Emerging
Segments’
Acquisition of GSD
As previously reported, in May 2015
Coats acquired GSD Corporate Ltd
(‘GSD’), a UK based company, for a total
consideration of $5.5 million. GSD supplies
expert management solutions that analyse
time, cost and production capability in
the sewn products sector with a focus on
maximising productivity and controlling
costs. Strategically it is a good fit within
Coats Global Services’ end-to-end
Operational Excellence offering, which
provides practical, industry-specific
technical services, training, technology
solutions, quality assurance and
compliance. GSD is performing in line
with management expectations.
Strategic report Coats Ultrabloc
A unique swellable yarn
that protects fibre optic
cables from water damage.
Its flexible and lightweight
properties means the
cable industry can repair
and install quicker than
ever before.
Aptan Xtru
A high temperature
resistant yarn created
to function in extreme
environments and applied
to wire harnesses used
in industries such as
emergency, construction
and military.
Coats Synergex
In our state of the art
carbon room we create
composite yarns that
can be custom moulded
into lighter, more flexible
parts for the automotive
and aerospace industries.
Enhancing the essential products of life
Pioneering
clever thin lines
We have a proven track record of applying innovative
technologies to threads and yarns to improve their
performance and create high value added products
that go into new end uses.
Coats Group plc Annual Report 2015
17
Strategic report America’s best loved brand
Red Heart has been voted America’s
most recommended yarn brand
in 2015 and 2016 by the Women’s
Choice Award. Consumers appreciate
the combination of its rich heritage
and our digital platform which offers
one-click ordering and a range of tools
and resources for its online community.
Focused on customers
We manage our relationships with
the world’s leading brands and
retailers through our Global
Accounts programme offering
customers an integrated, end
to end global sales experience.
Enhancing the essential products of life
Understanding
customer and
consumer needs
Our deep industry understanding and supply chain
management means we provide customers and
consumers with the right products, in the right place,
at the right time and in a way that works best for them.
18
Coats Group plc Annual Report 2015
Strategic report
Operating review
Crafts
The disposal
of EMEA Crafts
has allowed
management
to better focus
on the Americas
and UK Crafts
businesses.
Michael Schofer
Global CEO, Crafts
Revenue in 2015 (year on year)
Revenue in 2015
$277m
Needlecrafts
Handknittings
$127m
$150m
(3)%
(9)%
$277m (6)%
Segment profit
$14m +14%
Segment margin
5.2% +90bps
2015
2014
Like-for-like (decrease)
Reported
$m
Reported1
$m
Reported
(decrease)
%
Like-for-like1,2
$m
Full year
%
First half
%
Second half
%
149.5
127.5
277.0
169.7
148.6
318.3
(12)%
(14)%
(13)%
163.7
130.8
294.5
(9)%
(3)%
(6)%
(9)%
(3)%
(7)%
(8)%
(2)%
(5)%
14.4
13.8
4%
12.6
14%
(55)%
84%
5.2%
4.3% 90bps
4.3% 90bps
(230)bps
400bps
Revenue
Handknittings
Needlecrafts3
Total
Segment
profit4
Segment
margin4
1 Restated to reflect the change in accounting policies for presentation currency, operating profit and exceptional items
and the results of EMEA Crafts business as a discontinued operation. See note 1 to the accounts for further details.
2 2014 like-for-like restates 2014 figures at 2015 exchange rates.
3 Includes other textile craft products such as consumer sewings and lifestyle fabrics.
4 Pre-exceptional items (see note 2 to the accounts).
In the following commentary, all
comparisons with 2014 are on a like-for-
like currency basis (restates 2014 figures
at 2015 exchange rates) and exclude
EMEA Crafts; and all references to profit
are to pre-exceptional segment profit.
Crafts revenues declined 6% year-on-year
from $295 million in 2014 to $277 million
in 2015. Handknitting sales declined 9%,
predominantly due to tough comparators
following the strong demand for fashion
handknitting products in H1 2014. This
more than offset sales growth in
foundation handknitting products, in
both North America and Latin America.
The mild autumn/winter in North America
in 2015 negatively impacted sales in the
final quarter and signs of continued
softness in the handknittings market have
persisted in early 2016. Needlecrafts sales
declined 3%, reflecting the continued
decline in the Americas needlecrafts
market, however this was partly offset by
strong sales in the smaller but growing
lifestyle fabrics business.
Crafts made a profit for the period of
$14.4 million (2014: $12.6 million). The
14% increase was mainly due to lower
input prices and a focus on reducing
operating costs, which more than offset the
decline in sales. This resulted in 90bps
improvement in segment margin to 5.2% in
2015 (2014: 4.3%). The increase in
profitability from H1 2015 ($2.8 million) to
H2 2015 ($11.6 million) was driven by
increased sales, operational gearing, a
greater benefit from lower input prices and
cost reduction initiatives.
Disposal of EMEA Crafts
As previously reported, Coats completed
the disposal of its loss-making EMEA Crafts
business in July 2015. The sale has improved
the Group’s quality of earnings and returns
and allowed management to better focus
on the high performing global Industrial
and strong Americas Crafts businesses. The
business generated a loss of $12.7 million
in 2015, which is recognised within
discontinued items. See page 25, Financial
review for further information.
Coats Group plc Annual Report 2015
19
Strategic report
People
Our employees are the core of our business.
Their leadership, talent and commitment
ensure we remain leaders in our sector.
We value our workforce highly and employ
nearly 19,000 people in over 60 countries.
Our 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. In return,
we offer a safe, respectful and inclusive
environment in which our employees
can thrive.
Employee engagement survey
To achieve our business goals, we rely
on our employees being engaged and
driving our business forward. For the past
five years we have conducted employee
engagement surveys, to make sure we
are on the right track. These surveys
benchmark our workplace culture,
assess how people feel about working
at Coats and help us identify areas that
need attention.
We are especially committed to
maintaining high standards of employee
safety and engaging with our workforce
on issues that matter to them. Reflecting
our commitment to reporting performance
in these areas, we have formally adopted
our annual recordable accident rate and
employee engagement score as two
non-financial key performance indicators
for the Group. More details can be found
on page 27.
Maintaining a safe environment
Providing a safe and healthy working
environment is our number one priority.
We ask everyone to contribute to our
safety culture by taking care of themselves
and looking out for those around them.
They do this by reporting problems,
hazards or unsafe conditions immediately
so that they can be resolved, preventing
the risk of injury.
Our 2015 recordable accident rate was 0.29
work related injuries and illnesses per 100
Full Time Employees (FTEs) compared to
0.33 in 2014 and 0.37 in 2013. See chart
right. This is well below the average of 3.2
for US textile mills2 and has been dropping
steadily since 2011. We are also pleased
that our recordable accident rates are
70% lower than the UK average data for
the manufacture of textiles, as reported
by the Health and Safety Executive
for 2014/15.
With a high participation rate of 98%
in the 2015 survey, we were pleased
to see that our employee engagement
score has increased to 83% (two
percentage points higher than last year and
three percentage points higher than 2013).
This positions Coats in the top 10%
of all global surveyed companies3.
83%
2015 employee engagement score
top 10% globally
Recordable accident rate – no.
of injuries per 100 FTEs per year
0.37
0.40
0.35
0.30
0.25
0.20
0.33
0.29
2013
2014
2015
A diverse workforce:
Gender diversity at Coats
Male
Female
59%
41%
Senior management1
Male
Female
81%
19%
1 Senior management: Coats employees Grade 12 and above
2 Reported by the US Occupational Safety and
Health Administration (OSHA), October 2015
3 As benchmarked by IBM’s specialist survey organisation
4 Available on www.coats.com
20
Coats Group plc Annual Report 2015
Strategic report Global diversity and inclusion
We need to attract and retain the best
talent from the widest pool to ensure
the ongoing success and relevance of
our business. Our aim is to be a
meritocracy where everyone has an equal
opportunity to succeed. A truly diverse
workforce has many benefits – it brings
different perspectives, ideas, skills and
experience to an organisation and has
a proven positive impact on employee
engagement and business performance.
We want our employees to feel valued,
respected and supported, and for
the right conditions to be in place for
everyone to reach their potential.
We are aiming to increase the diversity
of our workforce through a range of
activities. In January 2015 we launched
a global diversity and inclusion (D&I)
initiative, initially focused on increasing
the number of women in senior positions
across the company. We carried out a spot
survey of 500 employees exploring the
subject of gender diversity; we are tracking
responses by gender to equal opportunity
questions in our annual engagement
survey; and we have reviewed our
approach to recruitment and development.
Our new global D&I network holds regular
virtual meetings, featuring guest speakers,
which are open to everyone across the
business – at least 150 of our employees
regularly join the calls – and we have a
dedicated intranet microsite which holds
key diversity resources and materials,
accessible by some 7,500 employees. In
addition, the proportion of women
enrolled on our management development
programmes is increasing and we have
invested in unconscious bias training
which is being rolled out across our
senior teams and the business more
widely. We will report on our progress
next year as these initiatives develop.
Human rights and
employment standards
Our worldwide employment standards
set out the principles which are observed
across our global operations4. 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.
Coats Turkey is one of the many operations
that has recently launched a local diversity
and inclusion programme.
Case study:
Making Coats an employer
of choice in a highly
mobile market
Maintaining a skilled and motivated
workforce is a key driver for our business.
During 2015 we began working on a
new global employee value proposition
and carried out a survey across our
businesses and functions involving over
2,000 people. The results of the survey
helped us understand what makes
Coats an employer of choice in the
markets where we operate.
We tested our thinking with a pilot
project in China where we ran focus
groups with our employees to try to
understand what motivates them to
work for Coats and what they value in
their daily working lives. Some of the
themes raised included respect, work-life
balance, health benefits, development
opportunities and compensation. We are
now working with the local management
team to ensure Coats remains an
attractive employer in the highly mobile
Chinese employment market.
Coats Group plc Annual Report 2015
21
Strategic report Corporate Responsibility
We behave responsibly wherever we operate.
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.
Our global scale enables us to build close
relationships with our customers wherever
they are located, leverage our expertise
from around the world and develop local
market opportunities. But the diversity
and complexity of our operations bring
many social and environmental challenges.
Some of these are unique to a particular
country or location; others apply globally.
It is important that we understand these
and our impact on society, so we can
manage our business responsibly wherever
we operate.
Assessing what’s important
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.
To supplement these, we have developed a
robust approach to materiality assessment.
This assessment helps us to identify and
prioritise what are the important CR issues
for the business and provides a focus for
the future CR programme. We review our
materiality analysis on a regular basis,
as a minimum every two years.
Identifying and prioritising the issues
We began our analysis by identifying a long
list of CR issues of potential relevance
to Coats. The topics were gathered using
a range of benchmarks including the Dow
Jones Sustainability Indices and the Global
Reporting Initiative (GRI) framework. This
was supplemented by the interests of our
peers and key stakeholders, especially our
employees, the brands and our customers.
Fifty-three issues were highlighted during
the 2015 review and grouped according to
our seven strategic themes shown opposite.
An assessment framework measured
the relative importance of the 53 issues
and helped focus our thinking.
In considering each area we asked
ourselves two questions:
• Does addressing the issue help us
meet our company goals?
• Is the issue of importance to our
key stakeholders, and hence to Coats?
Ranking each of the issues against these
questions enabled us to identify the list
of priorities for our CR programme. Our
top 10 material CR issues are illustrated in
the chart below, but our CR programme
extends beyond this into all areas that
support and contribute to the achievement
of our business goals.
For more information on
our approach to CR and our
seven strategic themes, go to
our website. www.coats.com/
corporateresponsibility
Identifying our key priorities
The chart to the right illustrates the
top 10 material CR issues that we have
identified for our CR programme. This
is the minimum that we aim to address.
Having said that, our CR programme
extends beyond this and relates both
to our own operations and the wider
impact we have on the environment,
the communities in which we operate,
and the markets we serve.
For each of our CR issues we have
established relevant policies and
programmes, and have identified
actions to manage our impacts. Our
activities are co-ordinated by the Head
of CR and monitored by a CR Advisory
Group which is chaired by the Chief
Human Resources Officer.
22
Coats Group plc Annual Report 2015
Our top 10 material CR issues
Economic
environment
Water
consumption
Energy
consumption
Waste
generation
and
recycling
Transparency
and
reporting
Emissions
and
effluents
Health
and
Safety
Talent
attraction
and
retention
Resource
scarcity
Labour
issues
Strategic report Our Corporate Responsibility strategic themes
Our Products
Being a responsible
manufacturer of
compliant products
Our Manufacturing
Committed to ensuring
the most efficient use of
materials and resources
Our People
Committed to safe,
respectful and inclusive
working environments
Our Standards
Operating to the highest
ethical, business and
employment standards
Our Environment
Continuously seeking
to reduce the
environmental impact
of our production processes
Our Communities
Being part of the
communities in which
we operate
Our Partners
Working alongside
partners throughout
our supply chain
Here are some of the highlights and achievements from our CR programme in 2015. More details of our activities can
be found at www.coats.com/corporateresponsibility
Our Standards
• All 4,000+ senior employees and
those with external facing roles
have now been trained in ethics,
anti-bribery and corruption, and
competition policies and laws.
Our People
• Our health, safety and welfare
programmes have been successful
in keeping our recordable accident
rates nearly 91% lower than the latest
average reported by OSHA for US
textile mills.
• Almost 250 new starters were enrolled
on our award-winning Management
Capability Development programme,
bringing us to a total of over 500
employees currently working their
way through the 18-month course.
• Our global diversity and inclusion
(D&I) initiative was launched
in January 2015 and over 7,500
employees now have access to
our global D&I network.
1 www.ghgprotocol.org/calculation-tools/faq
• In 2015 we continued to receive
awards from a wide range of
organisations.
Our Products
• We believe our Restricted Substances
List (RSL) is the most comprehensive
in the industry and incorporates
the requirements of all the major
internationally recognised environmental
standards (eg REACH, Oeko-Tex, CPSIA).
Our Manufacturing
• Through a combination of ongoing
efficiency programmes and investment
in energy reduction projects and new
technology, we have managed to
reduce our energy consumption per unit
of production by 8% compared to 2014.
Our Environment
• Greenhouse gas as measured in kilos
per kilo of dyed product went down
by 11% in the last year (4.6 kg CO2e
per kg of dyed product compared
to 5.1 in 2014).
• In 2015, the total carbon footprint
of our manufacturing operations
(Scope 1 and Scope 21) was 319,000
tonnes, down 7% compared to
the previous year.
Our Partners
• Our new supplier code of practice
is currently being rolled out across
70 markets.
• During 2015, we held four successful
supplier engagement workshops
in China involving 75 of our key
local suppliers.
Our Communities
• Last year our local managers
implemented over 120 community
engagement plans – an increase of
nearly 40% over the previous year.
These activities took place in almost
50 different operating units and
helped lay the foundations for
exciting community projects in the
future.
Coats Group plc Annual Report 2015
23
Strategic report Financial review
Financial highlights
• Successfully refinanced
$680m revolving debt facility;
facility oversubscribed, margin
reduced and changed group
of international banks
to better reflects Coats’
global footprint
• Commenced overhead
reduction programme
following disposal
of loss-making EMEA
Crafts business
• Ongoing improvement in
underlying tax rate which
is benefiting both earnings
and cashflow
• Net working capital as a
percentage of sales fell by
200bps to 10% at the
end of 2015
• Leverage ratio of operating
business of 1.4x, comfortably
within 1-2x range we aim to
operate in
24
Coats Group plc Annual Report 2015
Return on capital employed increased
to 33% in 2015. A 13 percentage point
increase from 2013.
Richard Howes
Chief Financial Officer
Overhead reduction programme
As previously reported, with the sale of
EMEA Crafts Coats commenced a review
of elements of its cost base, including costs
previously allocated to that business, to
establish the appropriate cost structure for
a smaller and less complex Group. During
the first half of 2015, the review identified
savings within specific support services,
resulting in $2.6 million of restructuring
costs. With the sale of the business
completed in July, the review identified
further areas of savings during the second
half. As a result, additional restructuring
costs were incurred in H2 2015, leading to
$14.1 million of restructuring costs for the
full year. The programme has delivered
initial savings of approximately $4 million
in 2015, supporting the improvements in
Industrial and Crafts margins. Savings will
continue to be realised in 2016 and H1
2017; although, as the Company continues
to grow, some of these savings will be
reinvested to support growth plans in 2016.
Exceptional items
Net exceptional costs before taxation and
discontinued items totalled $29.9 million in
2015 (2014: $20.0 million). This included
$13.2 million for US environmental costs,
which included a provision for remedial
work on the Lower Passaic River, New
Jersey, USA (see page 26 for further details).
There was also a charge of $3.3 million
related to the consolidation of Coats’
Mexican operations from three sites to two,
which will increase utilisation and efficiency
while reducing operational costs. In
December, the property was sold resulting
in a gain on disposal of $9.2 million, thereby
generating an overall positive contribution
of $5.9 million. Coats has provided for an
additional $5.7 million in 2015 in relation
to the expected costs of the ongoing
tPR investigations. As mentioned above,
$14.1 million of costs were incurred in
relation to the overhead reduction
programme; no further charges are
expected in 2016. A $1.5 million loss on
disposal was recognised on the sale of
Coats’ share in a Philippines joint venture
in November 2015.
Non-operating results
Finance costs, net of investment income,
were $31.2 million in 2015, up from
$8.0 million in 2014. The increase was
mainly driven by full year foreign exchange
losses of $3.2 million (2014: $18.9 million
gain) on the parent group cash balance in
relation to movements between the
British Pound, New Zealand Dollar and
Australian Dollar. Following a gain of
$9.1 million in H2 2015, the Company
moved substantially all of the cash to
Pound Sterling. IAS19 pensions interest
charges increased from $11.3 million to
$17.1 million as a function of the higher
pensions accounting deficit at the end of
2014. Based on the deficit at the end of
December 2015, the Company estimates
the charge in 2016 will be approximately
$15 million (subject to any pensions
investigations settlement and additional
support to the schemes). In addition there
was a decrease in investment income from
$11.5 million in 2014 to $10.5 million in
2015, despite compensation ($3.2 million)
received in respect of a compulsory state
financing arrangement in Latin America in
the 1980s and 1990s, and a reduction in
interest on borrowings from $20.2 million
to $16.8 million in 2015. The decrease was
largely a result of a lower cost of local
financing and fixed interest rate swaps
coming to an end.
The taxation charge for 2015 was
$43.7 million (2014: $45.1 million) resulting
in a reported tax rate of 55% (2014: 47%).
Excluding exceptional items, the impact
of IAS19 finance charges and foreign
exchange gains/losses on the parent group
cash balance, the underlying effective rate
on pre-tax profits reduced 600bps to 35%
(2014: 41%). This was driven by a reduction
in unrelieved losses and withholding tax
suffered, together with a favourable
change in profit mix for the period. Profit
attributable to minority interests increased
to $11.2 million (2014: $9.6 million) and
is predominantly related to Coats’
operations in Vietnam and Bangladesh
(in which it has controlling interests).
Strategic report Adjusted EPS increased by 38%, on a
like-for-like basis, to 3.96 cents (2014: 2.88
cents). This was generated through the
higher operating profit and improvements
in the underlying tax rate. Reported EPS
for continuing operations declined from
2.99 cents in 2014 to 1.78 cents in 2015
due to foreign exchange losses on the
parent group cash balance, a $22 million
negative year-on-year movement, and a
higher level of exceptional costs. The
company generated a reported loss from
continuing and discontinued operations of
$50.6 million (2014: $15.0 million profit)
primarily due to the disposal of the
loss-making EMEA Crafts business.
Discontinued items
There was a loss from discontinued
operations of $75.5 million in 2015
related to the sale of the loss-making
EMEA Crafts business. This comprised
trading losses of $12.7 million, a loss on
disposal of $55.8 million and net exchange
losses of $7.0 million. The loss on disposal
comprised $17.0 million of cash retained
in the business and $37.3 million of net
working capital left in the EMEA Crafts
business and $13.5 million of other assets
and liabilities (including disposal related
costs and completion adjustments), which
were partly offset by $11.5 million of
pensions and other liabilities transferred to
the buyer. The $23.8 million loss from
discontinued operations recognised in the
second half of 2015 (H1 2015: $51.7
million) included additional trading losses,
disposal related costs, completion
adjustments and the net exchange loss.
Investment
In 2015 capital expenditure amounted to
$44.3 million (2014: $46.0 million) and
was 1.0 times depreciation, in line with
previous guidance. Key investment areas
during the year were digital services, such
as the roll-out of the eCommerce platform,
which has enabled market share gains and
reduced operating costs, and spend on
environmental projects, such as effluent
treatment plants, which help ensure
Coats maintains its leading corporate
responsibility credentials in the industry.
It is expected that capital expenditure will
remain around 1.0 times depreciation in
the medium term, with the key investment
areas in 2016 being new product/process
development, capacity expansion and
ongoing environmental spend.
Cash flow
Coats generated a $73.9 million adjusted
free cash inflow in 2015, compared to
$87.8 million in 2014 (excluding EMEA
Crafts). The basis for this measure has
changed from 2014 to exclude UK pension
recovery payments which totalled
$25.8 million in 2014 (2015: $33.8 million).
The year-on-year variance was mainly due
to the implementation of a revised supplier
payment approach, which negatively
impacted working capital.
EBITDA (defined as pre-exceptional
operating profit before depreciation and
amortisation) was $183.0 million, up from
$170.0 million in 2014 (on a reported basis)
due to the factors that contributed to the
increase in pre-exceptional operating profit
outlined earlier in the report.
There was a $15.2 million net working
capital outflow in 2015 (2014: $27.5 million
inflow). The outflow was mainly due to the
implementation of a revised payment
approach to suppliers, which is in keeping
with Coats’ commitment to treating all of
its partners along the supply chain in an
ethical and sustainable way. This led to a
material trade payable outflow. With the
year-on-year increase in trading activity
there was also an outflow related to
inventories and trade receivables; however
this was somewhat offset by an ongoing
improvement in inventory management
through a reduction in stock days.
Interest paid decreased to $15.3 million
(2014: $21.6 million) as a result of a
reduction in interest rates achieved on
borrowings. Tax paid reduced year-on-year
from $55.1 million to $49.3 million in 2015
and as a percentage of pre-exceptional
profit before tax the rate fell in line with
the continued reduction in the underlying
effective tax rate of the Group. Payments
to minority interests increased year-on-year
to $10.1 million (2014: $6.7 million).
There was a $21.4 million free cash outflow
in 2015 (2014: $46.5 million inflow). This
included UK pension recovery payments of
$33.8 million (2014: $25.8 million), of which
approximately $21 million was paid to the
Coats Plan and $3 million to the Staveley
scheme, the same as in 2014 in Pound
Sterling terms, and $9 million was paid to
the Brunel scheme (2014: nil) following
agreement of its triennial funding valuation
and deficit recovery plan in November 2015
(see pensions section below). There was a
$37.0 million outflow (2014: $2.2 million)
related to the disposed loss-making EMEA
Crafts business, comprising $14.7 million on
trading performance and $22.3 million of
disposal charges. A $7.6 million outflow
(2014: nil) related to the establishment and
purchase of own shares for an Employee
Benefits Trust. This was to cover the
requirements for a share-based long term
incentive scheme (in line with the standards
of a FTSE 250 company) for senior
employees, that more clearly aligns their
interests with those of shareholders.
Exceptional items included $8.9 million
spent on the pensions investigation (2014:
$12.2 million), $5.3 million on the overhead
reduction programme and a net inflow of
$5.1 million related to the restructuring and
subsequent property disposal of a Mexican
operation. In addition, $5.5 million was
spent on the acquisition of GSD (2014: no
acquisitions).
Balance sheet
The Group had a net cash position of
$241 million at 31 December 2015
(31 December 2014: $321 million).
This included a parent group cash balance
of $505 million (£342 million), compared
to $584 million (£375 million) at the end
of 2014. The decline was primarily related
to foreign exchange losses, due to the
strengthening of the US dollar, spend
on the UK pensions investigations and
recovery payments to the Brunel and
Staveley pensions schemes.
The Coats operating business
maintained its year end net debt position
(31 December 2015: $264 million, end
2014: $263 million), see note 30. An
important metric for the Company is
the leverage ratio of net debt (excluding
parent group cash) to EBITDA. At the
end of 2015, it stood at 1.4 times, well
within the 3x covenant limit of the
Company’s $680 million trade finance
facility, comfortably within the 1-2x range
Management aim to operate within and
lower than 31 December 2014 (1.5 times).
Pensions and other post-
employment benefits
The net obligation for the Group’s
retirement and other post-employment
defined benefit liabilities, on an IAS19
financial reporting basis, was $469 million
as at 31 December 2015, down from $584
million at 31 December 2014 ($526 million
at 30 June 2015). The deficits in the
Group’s UK defined benefit schemes,
namely the Coats Plan, Brunel and Staveley
schemes, decreased to $423 million (£286
million) from the position at 31 December
2014 ($508 million, £326 million). This was
primarily due to a decrease in liabilities
largely driven by a 25bps increase in the
discount rate to 3.60% (derived using a
yield curve approach, based on Sterling AA
corporate bonds), while the inflation rate
remained flat at 2.95% (based on a market
implied long term rate). See table on
page 26 for more detail.
Coats Group plc Annual Report 2015
25
Strategic report Financial review
continued
Other
Pensions – triennial funding valuations
As previously announced, the March 2013
triennial funding valuation for the Brunel
scheme was agreed with the trustee in
November 2015. This revealed a Technical
Provisions deficit of £94 million which is
to be repaired by a deficit recovery plan
of £5.5 million per annum (approximately
$8 million at 31 December 2015 rates)
over 10 years. The payment in November
2015 was made from the Company’s
parent group cash balance.
Coats continues to have constructive
discussions with the Trustee of the
Staveley scheme in respect of the
December 2013 triennial funding
valuation, which management believe
will reveal a Technical Provisions deficit of
approximately £100 million, and expects
to reach agreement on the details of the
recovery plan during the first half of 2016.
The Coats UK Plan valuation, as at 1 April
2015 is ongoing and due to be agreed by
the end of H1 2016. It is anticipated that
agreement on the Coats triennial valuation
will coincide with any agreed settlement.
Coats currently pays £14 million per
annum (approximately $21 million at
31 December 2015 rates) on the basis
of the last agreed triennial valuation in
October 2013 to repair a deficit of £215
million. The technical provisions approach
for valuing pension liabilities is used for
agreeing triennial valuations and recovery
plans and will need to be more prudent
than the IAS19 accounting basis, Coats
anticipates that the technical provisions
deficit for the Coats UK Plan will therefore
follow a similar pattern to that of the
Brunel and Staveley schemes.
Pensions – investigations
As mentioned earlier in the report, Coats
has initiated settlement discussions with
the three sets of Trustees of the Brunel,
Staveley and Coats UK pension schemes
to resolve the ongoing pensions
investigations, agreement from tPR
will also be needed.
As part of the discussions Coats has
committed to all parties to retain the entire
parent group cash balance of $505 million
(£342 million) within the Group to support
the schemes and not return this cash to
shareholders. The cash balance is the
proceeds generated from Guinness Peat
Group’s (‘GPG’s’), as the Company was
known at the time, asset realisation
programme between 2011-2013 when it
sold its share in approximately
50 businesses leaving Coats as the only
remaining operating business. GPG’s
Directors had envisaged returning
the proceeds of the programme to
shareholders, and distributions were
made in the form of capital returns and
share buybacks between 2011 and the
first quarter of 2013. However, GPG’s
Directors decided to stop returns in the
second quarter of 2013 when tPR began
its investigations, initially into the Coats UK
and Brunel schemes in April 2013 and then
later that year into the Staveley scheme.
Coats’ commitment to retain the entire
parent group cash balance within the
Group, and any settlement agreement,
is based on a number of principles and
conditions. These include tPR withdrawing
the Warning Notices on the three schemes,
thereby ending the investigations, and for
Coats to have the ability to commence the
payment of normal course dividends to its
shareholders and have sufficient cash to
invest in growth opportunities.
The support structure could be any of, or
a combination of, cash directly paid into
the schemes, contingent cash earmarked
for the schemes, if subsequently required,
and/or cash retained within the Group.
IAS19 deficit
Coats Plan
Brunel
Staveley
UK defined benefit schemes
Other Coats net employee
benefit obligations
Total
26
Coats Group plc Annual Report 2015
31 Dec 2015
31 Dec 2014
31 Dec 2015
31 Dec 2014
£m
179
48
59
286
£m
214
54
58
326
US$m
264
72
87
423
46
469
US$m
334
84
90
508
76
584
At this stage the level of ongoing annual
deficit recovery payments following any
settlement is not known.
If a settlement cannot be reached in
respect of all of the schemes and the
investigations proceed, tPR has previously
indicated that it believes it would be
appropriate for the Determinations Panel
(‘DP’) of tPR to hear the cases for the
Brunel and Staveley pension schemes at
the same time as the Coats Plan, which
means that any hearing is unlikely before
the second half of 2016 at the earliest.
Lower Passaic River
As previously reported, the US Environmental
Protection Agency (‘EPA’) notified Coats and
Clark Inc. (‘CC’), a subsidiary of Coats, and
many other companies, of potential
responsibility for certain historical
environmental costs for the Lower Passaic
River (‘LPR’), New Jersey, USA. In April 2014,
the EPA released a Focused Feasibility Study
(‘FFS’) for the lower eight miles of the LPR
with an estimated cost of its preferred
remedy of approximately $1.7 billion, on a
net present value basis. Coats, and certain
other companies, submitted a petition in Q1
2015 to the EPA asserting that it is a de
minimis party and is seeking resolution on
that basis.
A Cooperating Parties Group (‘CPG’), of
which Coats is one of approximately 55
members, submitted a remedial investigation
and feasibility study (‘RI/FS’) in H1 2015 with
an estimated cost of between $518 million
and $772 million, on an undiscounted basis.
Consequently Coats, as reported in its half
year results, recorded a $6.0 million charge,
net of insurance, that will cover a proportion of
incurred and expected legal and remediation
costs, based on the mid-point of the RI/FS
range (as a de minimis party). Following a 4
March 2016 remedial decision by the EPA, this
provision (reflecting the same de minimis share
of the larger remedy) was increased by $6.8
million as at 31 December 2015. See note 28
for further details.
Coats believes that CC’s predecessors did not
generate any of the contaminants which are
driving the current and anticipated remedial
actions in the LPR, that it has valid legal
defences which are based on its own analysis
of the relevant facts, that it is a de minimis
party, and that additional parties not
currently in the CPG will be responsible for a
significant share of its ultimate costs of
remediation. Negotiations among parties
and with the EPA, remedial design and
implementation of remedial action are
expected to take more than 10 years.
Additional revisions may be appropriate
depending on future developments.
Strategic report Key performance indicators
How we measure performance
Our key performance indicators (KPIs)
have been chosen by the Board to measure
the Group’s progress, development and
ongoing performance.
The KPIs below replace the two measures formerly reported, namely Net Asset Value per Share and Shareholder Returns.
While these were appropriate for an investment firm such as GPG, one of whose assets was Coats, they are no longer appropriate
for Coats Group plc, a standalone global industrial manufacturing company.
What we measure
Definition
3 year performance
Comment
Financial
Revenue growth1
Annual growth in sales at like-for-like
exchange rates.
2013
2014
2015
5%
3%
3%
Strong performance in A&F business, almost
wholly driven by volumes given a challenging
pricing environment, and product innovation and
geographic expansion in Speciality business.
Pre-exceptional
operating profit
growth2, 3
Annual growth in operating profit,
adjusted for exceptional items,
at like-for-like exchange rates.
14% 0%
19% Strong volume growth, lower input prices, productivity
and non-raw material procurement improvements in
Industrial, and lower input prices and cost reduction
initiatives in Crafts.
Adjusted earnings per
share growth3, 4
Adjusted free
cash flow
Return on capital
employed4
Non financial
Recordable accident
rate (RAR)
Employee engagement
Annual growth in reported EPS
from continuing activities, excluding
exceptional charges and foreign
exchange movements on parent
group cash balances.
Cash generated from continuing
activities less capital expenditure,
interest, tax, dividends to minority
interests and other items, and
excluding exceptional and
discontinued items, acquisitions,
purchase of own shares for Employee
Benefits Trust and UK pension
recovery payments (see note 36).
Pre-exceptional operating profit
from continuing operations for the
year divided by capital employed
(property, plant and equipment plus
net working capital) at year end.
Number of work-related injuries and
illnesses per 100 Full Time Employees
per year that are considered
recordable by the US Occupational
Safety and Health Administration
(‘OSHA’).
Annual global survey with results
benchmarked by IBM Kenexa,
a leading specialist survey
organisation.
56% 73% 38% EPS growth in 2015 at like-for-like exchange rates was
38 per cent driven by higher operating profit and
a reduction in the underlying tax rate. Prior year
growth rates stated at reported rates, on the same
basis 2015 growth was 29%.
$60m $88m $74m Generated good level of free cash, higher
year-on-year operating profits, lower interest and tax
paid were more than offset by implementation of a
revised supplier payment approach that negatively
impacted working capital.
20% 24% 33% Higher profitability and disposal of EMEA Crafts,
underpinning the rationale for disposing
the loss-making business.
0.37
0.33
0.29
Providing a safe and healthy working environment is our
number one priority. We ask everyone to contribute to
our safety culture by taking care of themselves and
others by reporting problems, hazards or unsafe
conditions immediately so that they can be resolved,
preventing the risk of injury.
80% 81% 83% Continued to benchmark our workplace culture,
assessed how people feel about working at Coats,
identified areas that need attention and implemented
actions plans to maintain Coats’ position in the top
10% of all global companies surveyed by IBM Kenexa.
1 Revenue growth excludes EMEA Crafts from all years
2 Pre-exceptional operating profit growth in 2014 and 2013 includes EMEA Crafts
3 Parent group costs and cash outflow during 2013 and 2012 are assumed to be in line with 2014
4 EPS growth in 2014 and 2013 is stated at reported rates and EMEA Crafts is excluded from all years
5 Return on capital employed in 2014 and 2013 includes EMEA Crafts
Coats Group plc Annual Report 2015
27
Strategic report Principal risks and uncertainties
Balancing risk and rewards
The effective management of our risks
and uncertainties is essential in creating
and protecting value for our shareholders,
employees, customers and communities.
Overview
Timely identification of risks, combined
with their appropriate management,
mitigation and escalation, enables us
effectively to run our business and
deliver our strategy in the knowledge
that the likelihood and/or impact
associated with such risks is understood
and managed within our risk appetite.
As a global industrial manufacturer,
we recognise that risk is inherent within
our geographical footprint and activities,
and, with our transition to Coats Group
plc in early 2015 and the ongoing
development of our business and
the internal and external operating
environment, we have remained
focused on working to ensure that
our risk management framework and
processes continue to evolve accordingly.
Governance structure
We operate a formal governance
structure to manage risk across the
Group. The roles and responsibilities of
the main stakeholders involved in this
structure are set out below:
• Board – The Board has overall
responsibility for assessing the Group’s
principal risks, monitoring the Group’s
risk management and internal controls
and setting the level of risk which
the Group is willing to take in order to
achieve its strategic objectives. Discussion
and determination of these matters
forms a regular part of Board meetings.
Audit and Risk Committee –
The Audit and Risk Committee’s
principal role in relation to risk
management is to review
the effectiveness of the Group’s risk
management systems and processes
and to report to the Board if it is not
satisfied with any key aspect of those
systems and processes.
More details about the work and
responsibilities of the Audit and Risk
Committee can be found in its report
on pages 43 to 46.
28
Coats Group plc Annual Report 2015
Audit and Risk Committee
Responsible for reviewing
effectiveness of
the Group’s risk management
systems and processes
Governance structure
The Board
Overall responsibility for
assessing the Group’s principal risks,
monitoring the Group’s internal
controls, setting risk appetite and
reviewing the Group’s risk profile
Group Risk
Management Committee
Responsible for formulating risk
management strategies and policies
and monitoring risk management
throughout the Group
Divisional Management/
Business Units/
Group Central Functions
Responsible for identifying,
managing and mitigating
appropriate sets of risks
Key
Report for evaluation
Direct and monitor
• Group Risk Management
Committee – The Group Risk
Management Committee is responsible
for formulating risk management
strategies and policies and monitoring
risk management throughout the
Group. Its specific responsibilities
include reviewing risk management
activities across the Group; reviewing
the Group Risk Register which includes
the principal risks determined by the
Board along with a number of
additional material risks; supervising the
management of the key risks in the
Group Risk Register and monitoring the
progress and effectiveness of related
mitigating actions and controls;
receiving reports on such risks and
activities from relevant business areas,
functions and individuals; and making
reports and recommendations to the
Board and the Audit and Risk
Committee as appropriate. The Group
Risk Management Committee meets on
a quarterly basis and its membership
includes representatives from across the
Group’s business areas and enabling
functions, drawing together the
risk management activities across the
Group, divisions, business units and
functions and facilitating a streamlined
business risk and control environment.
Strategic report During the year, we have focused
on further strengthening this governance
structure by enhancing the individual
country/function-level and division-level
risk management and assurance systems
and processes, with supporting tools
and training, and will continue to
reinforce this going forward.
Culture
The Board is keenly aware that the
effectiveness of our risk management
is dependent not only on systems
and processes but also on behaviours.
During 2015 we continued to review
and reinforce our Ethics Code and
supporting ethics and risk policies,
training, communications and
compliance activities, and through
those our required values and
behaviours, all of which were actively
supported, endorsed and championed
by the Board and senior executive
management and which all help
to strengthen our risk culture.
How we manage risk
Our approach to risk management
is based around an ongoing cycle of
identifying risks; setting risk appetite
levels for those risks; testing those risks
and risk appetite levels through deep
dive analysis into likelihood of occurrence,
impacts, mitigation plans and resource
and capital expenditure implications;
then reviewing those risks and risk
appetite levels accordingly. This continuous
process helps to ensure that we remain
focused on the appropriate risks and that
we are taking the appropriate actions
to manage and mitigate those risks and
to deliver our business strategy and
objectives within agreed risk parameters.
We are committed to continuing to
review and, as appropriate, refine our
risk management and reporting processes
and activities, in order to enhance our
ability to identify issues promptly and
in turn proactively to manage risks.
How we manage risk
Reviewing
Identifying
Risk
Testing
Setting appetite
Our risk assessment and risk appetite
We assess risks through a standardised
process which includes measuring
likelihood and impact levels, with and
without controls, against a pre-defined
scoring matrix. This assessment process
assists the Board in prioritising risks
and determining its level of risk appetite
for each of the principal risks, as well
as helping to evaluate the adequacy of
existing controls and mitigating actions
and the cost-benefit analysis of potential
further such controls and actions.
How we identify risk
Our approach to identifying risks follows
a dual approach, using:
• A top-down approach based on
regular input and insights from the
Board and the Group Risk Management
Committee, drawing on a broad range
of internal and external operational,
commercial, economic and other
perspectives and helping to establish the
key risks, and potential future risks,
which could threaten the Group and its
ability to deliver its strategy. This gives
colleagues throughout the Group a clear
direction and set of priorities in their
ongoing discharge of their own risk
management responsibilities.
• A bottom-up approach based on
regular individual country/function-level
input which helps to identify the risks
which could threaten local business or
functional activities. While these risks
are managed at the local level, they
are also consolidated and escalated
as appropriate to the Group Risk
Management Committee and the
Board to help in the ongoing cycle
of identification, testing and
reviewing described above.
Coats Group plc Annual Report 2015
29
Strategic report Principal risks and uncertainties
Balancing risk and rewards continued
Principal risks
During the year the Board, supported
by the Group Risk Management
Committee, has continued to consider a
broad range of risks and uncertainties
and has carried out a robust assessment
of the principal risks facing the Group
along with the current levels of risk
appetite for each of those risks.
Currently, the Board has identified
12 principal risks, which fall into one
of the following three categories:
• High impact operational risks
– risks inherent in our ongoing
commercial operations and
geographic footprint, which,
if not effectively managed, would be
liable to cause significant commercial
disruption.
• Material legacy risks – risks relating
to the Group’s past operations and
activities, including through historical
mergers and acquisitions, which could
create material financial exposure for
the Group in its present form.
• Risks to strategy delivery – risks
that could adversely impact the
Group’s ability to achieve its defined
strategic objectives.
These principal risks, along with a
summary of the measures in place to
manage and mitigate them, are set
out in the table below.
As stated above, the Board will continue
to keep these principal risks, as well as
the appropriateness of this list and the
ever evolving broader risk environment,
under ongoing review.
Principal risk
Risk nature/potential impact
Change*
Action/mitigation
High impact operational risks
Product liability
Environmental
non-performance
Failure of critical
infrastructure
Our expanding product range, in
particular in our growing Speciality
business, could potentially create
more product liability exposure
for the Group.
Potential non-compliance with
environmental control procedures
and/or local requirements could lead to a
discharge of pollution resulting in legal and
regulatory action, financial penalties,
damage to reputation and an adverse
impact on ongoing operations.
Key information systems and data
stores could malfunction; and/or key
manufacturing and distribution centres
could be adversely affected as a result
of a number of different scenarios.
Disproportionate reliance on such
systems and plants could have a
significant impact on profitability
in the event of such disruption.
Products are tested and measured against
stringent quality standards. Controls in
the Speciality area specifically have been
strengthened with enhanced batch by
batch testing of safety critical products.
Coats’ global insurance programme
includes product liability cover.
Coats’ Environmental Policy applies
across the Group and effluent discharge
quality of all dyeing operations is
monitored against a pre-determined
schedule.
The Group’s manufacturing and supply
chain function monitors and reviews
internal supply chains, fire protection
and other systems and creates and tests
disaster recovery plans. Rolling property
risk surveys are conducted and acted
upon in respect of all Coats’ critical
supply chain nodes. Actions in relation
to information systems and data stores
are set out in ‘Data controls and security’.
Coats’ global insurance programme
includes property destruction and business
interruption cover.
*Risk exposure trend vs previous year
Up
Flat
Down
30
Coats Group plc Annual Report 2015
Strategic report Principal risk
Risk nature/potential impact
Change*
Action/mitigation
High impact operational risks continued
Data controls
and security
As a data controller of personal data
and a processor of third party data,
failure by the Group to comply with
ever-more stringent data protection
laws in different countries could
lead to significant financial and other
penalties and adverse relationship
and reputational consequences. The
Group also maintains other business
critical electronic information, and
inappropriate access to and use of such
information, including through cyber-
attack, could again create significant
financial and commercial exposure.
Bribery and
anti-competitive
behaviour
Non-compliance with applicable bribery
and corruption and/or competition/
anti-trust laws, regulations and standards
by the Group or one of its partners could
result in material civil or criminal penalties,
exclusion from future contract bidding
processes and reputational damage.
Material legacy risks
Pensions investigation
and pension scheme
deficit funding
The UK Pensions Regulator’s
investigations could lead to a Financial
Support Direction being imposed on
one or more of the three UK Schemes.
Additionally, the UK pension scheme
triennial valuations could lead to increased
and/or accelerated cash contributions.
These potential scenarios could impact
one or more of the cash held from
divestments, free cash flow targets
and dividend payments.
Coats coordinates its technology
infrastructure on a global basis and
has a number of cyber security controls
in place. Internal data networks are
monitored on a 24/7 basis by a central
team. External internet access is controlled
by policy-based web filtering and access
management tools. Other technologies,
including data encryption, are deployed
to protect data assets hosted at its data
centres and on mobile devices. Further
controls are being progressively added
as part of an ongoing cyber security
risk management process.
Coats ensures all internal users have
appropriate access rights and permissions
for their roles and has a global data
protection policy in place. Provisions are
underway to ensure compliance with the
EU General Data Protection Regulation
expected to be enforced in 2018.
The Group has clear and well publicised
ethics policies including in relation
to partners, contractors and suppliers
which are reinforced through the ongoing
implementation of a comprehensive
Supplier Code. There is extensive online
and face-to-face training and regular
communications through a range of
channels. A sub-committee of the Group
Risk Management Committee comprising
key business and functional leaders meets
quarterly to consider risks, legislative and
regulatory developments and mitigation
plans. The Group actively maintains a whistle
blower system, enabling employees and
others who are aware of or suspect unethical
behaviour to report it confidentially.
The strategy relating to the ongoing
investigations, and the schemes’ funding
position more generally, are regularly
reviewed by the Board in light of
recommendations from the
Pensions Committee.
The funded pension schemes are
overseen by their Trustees, who are
required to have the appropriate
knowledge and understanding in this
area and who take professional and
actuarial investment advice as necessary.
Where appropriate independent
professional trustees are appointed to
schemes to provide additional expertise.
The Group and the scheme trustees
routinely review de-risking of the
schemes through liability management
and investment strategies.
Coats Group plc Annual Report 2015
31
Strategic report Principal risks and uncertainties
Balancing risk and rewards continued
Principal risk
Risk nature/potential impact
Change*
Action/mitigation
Material legacy risks continued
Legacy environmental risks
Under the laws of certain countries,
Coats’ subsidiaries could potentially be
responsible for investigating and/or
remediating conditions alleged to be
associated in whole or in part with
former operations.
Risks to strategy delivery
Mergers and acquisitions
(M&A) programme –
execution and integration
Given the important role of inorganic
growth in the Group’s strategic plans,
failure properly to execute, integrate and
capitalise on the potential ongoing value
in M&A projects could pose a material
risk to the Group’s ability successfully
to deliver its strategy.
Appropriate capability
development
Failure to identify and retain key staff
and/or continue to develop key skill
sets among them could result in
an inability to execute the Group’s
growth strategy.
Joint ventures/minority
shareholder relationships
Failure to ensure that appropriate
governance and risk management
arrangements are maintained for all
of the Group’s joint ventures and with
all minority shareholding partners
could cause significant disruption
to the Group’s operations, financial
performance and strategic plans.
The Board continues to monitor the
strategy and developments in relation
to the Lower Passaic River proceedings,
more detail of which can be found in
note 28. Beyond that the Group continues
to refine its policies and procedures for
managing and mitigating potential legacy
risks associated with former operations.
All M&A projects are overseen and
closely monitored by the Board and by
senior executive management. Clear
processes including specified roles and
responsibilities for all aspects of M&A
projects exist along with focused project
management resources during both
execution and integration phases. Post-
completion/integration reviews are
conducted to ensure that learnings are
identified and built into subsequent
projects as part of a continuous
enhancement process.
The Board and senior management
remain very focused on talent and
capability development, as well as
retention and succession planning. 2015
capability development actions have
included record numbers of new cohorts
on a range of sales force, management
and senior management development
programmes and individual coaching for
selective senior managers. In addition,
our annual Talent Management and
Succession Planning process reviews
talent in the top 300 roles.
We conduct appropriate due diligence
on all our joint venture partners and take
steps to ensure that the same standards of
risk management that exist in our
subsidiaries are applied throughout our
joint venture partnerships. In 2015
we completed an exit from our only
minority stakeholding joint venture (in
the Philippines).
*Risk exposure trend vs previous year
Up
Flat
Down
32
Coats Group plc Annual Report 2015
Strategic report Principal risk
Risk nature/potential impact
Change*
Action/mitigation
Risks to strategy delivery continued
Supply and supplier risk
Emergence of disruptive
competitor behaviour
in core markets
The availability of key resources (energy,
water, labour, etc.) and/or the inability
or unwillingness of one or more major
external suppliers to supply raw materials,
dye stuffs and/or finished goods could
cause major disruption to the Group’s
supply chain, leading to lost revenue and
long term impact on customer relations.
Furthermore, actions by suppliers and
other agents of the Group inconsistent
with legal and regulatory requirements
and/or the Group’s own ethical standards
could create significant legal and
reputational exposure for the Group.
Planned or irrational strategies or
behaviours by one or more industry
competitors in relation to the Group’s
core markets could adversely impact its
position, profitability and strategic goals.
Supplier relationships and external resource
and supply chains are actively monitored
and managed, with multiple sourcing of
materials and strategic inventories. Risk
is spread by dealing with multiple suppliers
of key materials and continuous scrutiny
to identify new supply sources. Ethics
and compliance obligations are reinforced
and enforced through the ongoing
implementation of a comprehensive
Supplier Code (see above). Coats’ global
insurance programme includes supplier
dependency cover.
We strongly believe in the importance of
healthy competition and the benefits that
brings to both our customers and
ourselves. We maintain a deep
understanding of emerging industry trends
through our relationships and contacts
with customers and global brands and
through our R&D activities with university
and specialist led research projects.
Outputs and insights from these allow us
to undertake ongoing ‘horizon scanning’
and planning strategies.
Long term viability statement
In accordance with provision C.2.2
of the 2014 revision of the Corporate
Governance Code, the Directors have
assessed the longer term viability of the
Group over the period to December
2018. The Directors’ assessment has
been made with reference to the
Group’s current position and prospects,
the Group’s existing committed finance
facilities, the Group’s strategy and the
potential impact of the principal risks
and how these are managed, as detailed
in this strategic report.
The Group’s strategic objectives and
associated principal risks are underpinned
by a set of market goals for the next
three years and an annual Medium Term
Plan process which comprises a financial
forecast for the current year and
financial projections for the next three
years. The Medium Term Plan represents
a common process with standard outputs
and requirements at the Group level.
The Medium Term Plan is reviewed by the
Board annually as part of its strategy
review process. Although this period
provides less certainty of outcome, the
underlying methodology is considered
to provide a robust planning tool against
which strategic decisions can be made.
For these reasons, the Directors have
determined that a three year time
horizon to December 2018 is an
appropriate period over which to
provide its viability assessment.
The Directors have considered the
impact of the principal risks facing the
business in severe but plausible scenarios
(by modelling sensitivities applied to the
base case Medium Term Plan), and the
effectiveness of any mitigating actions,
including, but not limited to, an
evaluation of:
• the possible outcomes of the current
investigations into the Group’s three
UK pension schemes by tPR, including
severe but plausible scenarios which
take into account the current status
of the investigations, the strength
of the company’s defences and
the timescales for resolution.
See page 26 for an update on
the investigation;
• the range of possible outcomes
in respect of legacy environmental
matters as described in note 28,
to the financial statements; and
• a range of strategic, operational
and external risks which could
affect the group’s ability to achieve
its strategy.
Based on this assessment, the Directors
have a reasonable expectation that
the Group will be able to continue
in operation and meet its liabilities
as they fall due over the period to
December 2018.
The strategic report was approved by the Board and signed on its behalf by the Group Chief Executive.
Paul Forman
Group Chief Executive, 10 March 2016
Coats Group plc Annual Report 2015
33
Strategic report Board of Directors
1
2
3
4
5
6
1. Mike Clasper, CBE
Chairman
N
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 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).
2. Paul Forman
Group Chief Executive
N
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 is
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).
3. Richard Howes1
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).
1 Richard will remain Chief Financial Officer and
a Director of Coats until 6 April 2016 after which
he will leave the Board.
4. Rajiv Sharma
Global CEO, Industrial
Rajiv joined Coats in November 2010 to lead
the Industrial business and is responsible
for its global operations.
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).
5. Nicholas Bull
Senior Independent Non-Executive
Director
A N
Nicholas has over 30 years’ experience in
global banking and, until the completion
of its asset disposal programme in
early 2015, was Chairman of De Vere,
the hotel and leisure group.
A qualified chartered accountant,
Nicholas has worked at Morgan Grenfell
(subsequently Deutsche Bank), Société
Générale and ABN AMRO in London,
Hong Kong, Singapore and Sydney.
He is currently Senior Independent Director
of Fidelity China Special Situations plc and
was previously Chairman of the Advisory
Board of City stockbroker, Westhouse
Securities, and Smith’s Corporate Advisory
Limited. Nicholas is a trustee of the Design
Museum and the Conran Foundation
and a member of the Council of
the University of Exeter.
Nicholas has a BSc in Chemistry from
the University of Exeter and is a Fellow
of the Institute of Chartered Accountants
in England and Wales.
34
Coats Group plc Annual Report 2015
Prior to joining Coats, Rajiv worked at
companies such as Westinghouse, Saab,
Appointed: April 2015.
Corporate governance 9
7
8
6. Mike Allen
Independent Non-Executive Director
N R
Mike has over 25 years’ experience
in investment banking and general
management, both in New Zealand
and the UK.
He is a Deputy Chairman of Watercare
Services Ltd, Godfrey Hirst NZ Ltd and
Tainui Group Holdings Ltd and an
Independent Non-Executive Director at
China Construction Bank (New Zealand) Ltd.
Mike was previously Chairman of PGG
Wrightson Finance and held various senior
roles at Southpac Corporation and Westpac
in New Zealand.
Appointed: September 2010.
7. Ruth Anderson
Independent Non-Executive Director
A N
Ruth joined KPMG, the global accounting
firm, as a student accountant and retired
from the firm 33 years later in 2009 as a
Partner and UK Vice Chairman.
She is currently a Non-Executive Director
and Chairman of the audit committee at
Ocado Group plc and at Travis Perkins plc,
both of which are UK listed companies. Ruth
is also a director of The Royal Parks, which
manages London’s eight royal parks. She is
also a Trustee and Director of the Duke of
Edinburgh’s Award.
Ruth is a Fellow of the Institute of Chartered
Accountants in England and Wales, a
member of the Chartered Institute of
Taxation and holds a degree in French and
Spanish from the University of Bradford.
Appointed: April 2014 (previously
appointed to Coats plc Board, January 2014).
8. David Gosnell
Independent Non-Executive Director
A N R
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 and Chairman of Old
Bushmills Distillery Company Ltd.
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).
Appointed: March 2015 (previously
appointed to Coats plc Board,
February 2015).
9. Alan Rosling, CBE
Independent Non-Executive Director
A N R
Alan has wide international business,
experience, especially in emerging markets,
and has worked in diverse sectors including
energy, branded goods, distribution,
Government and banking.
Alan chairs Griffin Growth Partners,
a specialist strategic advisory firm that
assists clients in developing and
implementing winning strategies in India.
Committee memberships
A
N
Audit and Risk
R
Remuneration
Nomination
Committee Chairman
He is also co-founder of Kiran Energy, a
solar power developer based in Mumbai
a Director of Vyome Biosciences and a
Senior Advisor to both Navam Capital and
Apex Avalon Consulting Pte. Ltd. He was
previously an Executive Director of Tata
Sons, where his responsibility was
internationalisation of the Tata Group.
Earlier in his career Alan’s positions included
Chairman of the Jardine Matheson Group in
India; Special Advisor to the British Prime
Minister, The Rt. Hon. John Major MP;
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).
Coats Group plc Annual Report 2015
35
Corporate governance Management Board
1
2
3
4
5
6
7
1. Paul Forman
Group Chief Executive
Paul provides business, operational and
strategic leadership to the Group.
He 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.
Joined: December 2009.
2. Richard Cammish
Chief Information Officer
Richard has global responsibility for
Technology within the organisation.
Over the last 20 years he has worked in a
number of international businesses including
Cadbury, BAT, Heineken and Mars, as well
as being involved in a technology start up.
He has a Manufacturing Engineering degree
from Manchester University and in his
career has held roles in Asia, Europe
and North America.
His experience with Information Technology
includes delivering global transformation
programmes in Sales & Marketing, Supply
Chain, HR and Finance.
Joined: March 2011.
3. Richard Howes*
Chief Financial Officer
Richard leads the Group’s global finance
function and has responsibility for its
financial management.
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.
Previously, he held an equivalent position at
Topaz Energy and Marine, an oil field
services company, and he also worked for
FTSE 250 company Geest plc, an
international food manufacturer, where he
was made CFO following its takeover by the
Bakkavor Group.
Joined: February 2012.
* Richard will remain Chief Financial Officer and a
Director of Coats until 6 April 2016 after which he will
leave the Board.
4. Stuart Morgan
Chief Legal & Risk Officer and Group
Company Secretary
Stuart is responsible for legal and
compliance, governance, risk management
and company secretarial matters.
He was previously General Counsel,
Global Retail and Wealth with Lloyds
Banking Group where he led international
teams and provided legal and regulatory
advice, risk management guidance
and strategic support.
Prior to working at Lloyds Banking Group,
Stuart was Executive Director, Law and
Compliance, at Morgan Stanley and
before that was a solicitor and mediator
at Freshfields Bruckhaus Deringer LLP.
Joined: September 2014.
5. Michael Schofer
Global CEO, Crafts
Michael leads the Crafts business
globally and has more than 20 years
of management experience.
Prior to this current role he was Chief
Operating Officer, Crafts Division, and has
also served as Chief Supply Chain Officer
for Coats. Michael has over 20 years of
experience in supply chain management and
IT, and has lived and worked in South
America, North America, Europe and Asia.
He has a degree in Business and Production
Management from Reutlingen University
and completed the Harvard General
Manager Program.
Joined: July 1990.
6. Rajiv Sharma
Global CEO, Industrial
Rajiv leads the Group’s 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.
His experience spans sales, marketing, M&A,
business development and operations and
the majority of his career has been
dedicated to growing or turning around
businesses.
Joined: November 2010.
7. Andy Speak
Chief Human Resources Officer
Andy directs global human resources
for Coats and is based in the UK. Prior
to his appointment Andy worked for
BP Lubricants, where he held the role
of Global Head of Human Resources.
He brings over 30 years of HR experience
to Coats, having worked for blue-chip
companies including Bristol-Myers
Squibb Pharmaceuticals, Kellogg,
PepsiCo and Unilever.
Andy has lived and worked in many
countries including the Czech Republic,
Poland, Russia, France and the US and
has a first class Biochemistry degree
from the University of Leeds.
Joined: March 2013.
36
Coats Group plc Annual Report 2015
Corporate governance Chairman’s introduction
Key areas of this
corporate governance
section:
Leadership
The Directors believe that the Board
has an appropriate balance of skills,
experience, knowledge and
independence to satisfy the
requirements of good corporate
governance.
Compliance
Significant time and resource is given
to governance matters by the Board
and within the everyday operations
of the Group. This ensures compliance
within the framework of regulations
but is also central to delivering
sustainable business success.
Effectiveness
The Board understand that an
effective corporate governance
framework is an inherent part of
running a business.
Accountability
A key element of ensuring sound
governance is guaranteeing an
appropriate system of controls
and accountability.
Good governance is essential in
supporting the development of a
sustainable and successful business
such as Coats.
Mike Clasper
Chairman
Dear shareholder,
I am pleased to introduce our corporate
governance report for the year. As a
Board, we are responsible for ensuring that
an appropriate governance structure is in
place. I believe that the framework we
have established (and which is set out
on page 38) is appropriate for a Company
of our size and nature, and supports the
delivery of the Group’s strategic objectives
whilst also ensuring accountability,
transparency and fairness in our dealings
with all of our stakeholders, in particular
our shareholders, customers, employees
and suppliers.
The Board is fully committed to the
principles of best practice in corporate
governance, and collectively believes that
good governance is essential in supporting
the development of a sustainable and
successful business.
Activity in the year
2015 has been an extremely busy year for
the Board and the evolution of the Group
as a whole. We have overseen the change
of name from Guinness Peat Group plc
and the consolidation of the previous dual
board structure into a single Board to lead
the Group. There have also been a number
of changes to the composition of our
Board. In the latter part of the year we
announced our intention to de-list from
both the Australian Stock Exchange and
the New Zealand Stock Exchange during
2016, subject to shareholder approval. All
of these changes are intended to focus the
Board and the Group to deliver long term
value for our shareholders.
Governance
The Company is subject to the provisions
of the UK Corporate Governance Code
(the Code) which is published and
regularly updated by the Financial
Reporting Council (FRC) and 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.
The Company has complied with
the main and supporting principles of
the Code and where this has not been
possible an explanation has been
provided.
Committees
As part of our transition at both a Board
and Group level, we have separated into
two Committees, the Remuneration
Committee and the Nomination
Committee, so facilitating a clearer
separation of responsibilities for each.
Terms of reference are available at
www.coats.com/governance.
Evaluation
Given this period of transition at both
Board and Group level, we decided not
to carry out a formal evaluation of the
Board and Committees during 2015 and
have determined that such an evaluation
will be conducted during 2016.
Mike Clasper
Chairman
10 March 2016
Coats Group plc Annual Report 2015
37
Corporate governance Corporate governance
Corporate governance report
Leadership
Governance structure
The Board
Audit and Risk
Committee
See Audit and Risk
Committee report on
page 43
Remuneration
Committee
See Directors’
remuneration report
on page 48
Nomination
Committee
See Nomination
Committee report on
page 47
Other Committees
• Pensions
• Disclosure
• Group Risk
Management
page 39
Management
Board
Responsibilities:
The Board
The Board’s role is to provide leadership of
the Company, and it is responsible to the
shareholders for the long term success of
the Company. 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
authority. These can be seen in the
governance structure chart above. A
schedule of delegated authorities is
reviewed by the Board annually.
Chief Executive
Paul Forman was appointed to the Board on
2 March 2015, having been Group 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,
biographical details of whom can be found
on page 36.
Until March 2015, the Company (then
named GPG) was an investment holding
company which had no Executive
Directors. On the appointment of Paul
Forman to the Board as Group Chief
Executive on 2 March 2015, the separate
roles of Chairman and Chief Executive
were documented in writing and approved
by the Board.
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.
38
Coats Group plc Annual Report 2015
Senior Independent Director
As noted above, the Board of the Company
comprised only Non-Executive Directors
until the name change to Coats Group plc
in March 2015 and the appointment of a
single Board to lead the Group. Nicholas
Bull was appointed as a Non-Executive
Director and as the Senior Independent
Director (‘SID’) on 10 April 2015, bringing
the Company into compliance with Code
provision A.3.1.
In his role as SID, Nicholas provides a
sounding board for the Chairman and
serves as an intermediary for the other
Directors when necessary. Nicholas is
available to shareholders if they have
concerns which contact through the
normal channels of Chairman, Chief
Executive or other Executive Directors have
failed to resolve, or for which such contact
is inappropriate.
Non-Executive Directors
The Non-Executive Directors provide
constructive challenge to executive
management, and bring experience and
objectivity to the Board’s discussions and
decision making. They monitor the delivery
of the Group’s strategy against the
governance, risk and control framework
established by the Board. The Non-
Executive Directors, led by the SID, are also
responsible for evaluating the performance
of the Chairman.
The Company Secretary
Stuart Morgan joined the Group as Chief
Legal & Risk Officer and Group Company
Secretary in 2014. In his role as Company
Secretary, Stuart is responsible for working
with the Chairman to develop Board and
Committee agendas and to ensure that all
Board procedures are complied with.
Stuart also advises the Board on corporate
governance, legal, regulatory and
compliance matters and developments.
Other Committees
Pensions
The Committee is an ad hoc committee of
the Board which has been formed
specifically to provide advice and make
recommendations to the Board on the
Group’s strategy in relation to the ongoing
pension scheme investigations and the
robustness of the operating systems
around those schemes. The Committee is
chaired by Mike Allen and, from 2 March
2015, its other members are Ruth
Anderson, David Gosnell, Blake Nixon and
Richard Howes. Nicholas Bull joined the
Committee following his appointment on
10 April 2015. Blake Nixon left the
Committee, when he left the Company on
31 December 2015.
Disclosure
The Committee’s primary duty is to
determine whether, what and when any
Group information needs to be disclosed
to the market and to verify such
information ahead of its disclosure to the
market via a Regulatory Information
Service in accordance with the Financial
Conduct Authority’s Disclosure Rules and
Transparency Rules. This includes providing
appropriate reassurances to the Board and,
as required, individual Directors.
Composition of the Board and independence
As at the date of this report, the Board comprises the Chairman, five Non-Executive
Directors (all of whom are considered to be independent) and three Executive Directors.
The Board is therefore in compliance with the requirements of the Code that, excluding
the Chairman, at least half the Board comprises independent Non-Executive Directors.
Balance of independence, tenure, skills and experience
Independence (excl. Chairman)
Non-Executive Director tenure
Independent NEDs
Exec Directors
63%
37%
0 - 3 yrs
3 - 6 yrs
83%
17%
UK Corporate Governance Code Compliance Statement
The Committee is chaired by Paul Forman
and its other members are Richard Howes
and Stuart Morgan.
Coats Group plc 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.
Group Risk Management
This Committee is responsible for
formulating risk management strategies
and policies and monitoring risk
management throughout the Group.
Further details on this Committee can be
found on page 28.
The Committee is chaired by Paul Forman
and includes the Group’s Executive
Directors Richard Howes and Rajiv Sharma.
It also includes other senior executives
including the Chief Legal & Risk Officer
and Group Company Secretary, Group
Head of Internal Audit and others who
collectively have the skills and experience
to discharge the Committee’s duties.
Except as noted below, the Company has complied in full with the provisions of
the 2014 UK Corporate Governance Code (the Code) during the year. Compliance
with and deviation from the Corporate Governance Council’s Corporate
Governance Principles and Recommendations (3rd edition) (the ASX Governance
Principles) have been disclosed in accordance with ASX rules.
Non-Compliance with the Code:
Code provision
Explanation
A.3.1
B.3.2
Main Principle B6
Page 38
Page 41
Page 41
The Code can be found at
www.frc.org.uk. More information on
the ASX Governance Principles can be
found at www.asx.com.au. The
Company is not obliged to comply with
the principles of NZX’s Corporate
Governance Best Practice Code.
Coats Group plc Annual Report 2015
39
Corporate governance
Corporate governance
Corporate governance report
continued
Directors’ attendance at meetings of the Board during the year:
Director
Mike Clasper (Chairman)
Paul Forman
Mike Allen
Ruth Anderson
Nicholas Bull
David Gosnell
Richard Howes2
Alan Rosling
Rajiv Sharma
Sir Ronald Brierley
Rob Campbell
Scott Malcolm
Blake Nixon
Waldemar Szlezak
Date appointed or
resigned in the year
appointed 02.03.15
appointed 10.04.15
appointed 02.03.15
appointed 02.03.15
appointed 02.03.15
appointed 02.03.15
resigned 20.04.15
resigned 02.03.15
resigned 02.03.15
resigned 31.12.15
resigned 02.03.15
Board1
Meetings attended/
Maximum number of
meetings to attend
12/12
9/9
12/12
12/12
8/9
8/9
9/9
9/9
9/9
0/3
1/3
1/3
9/12
2/3
1
Includes meetings of Guinness Peat Group plc prior to name change on 26 February 2015.
2 Richard Howes will step down from the Board on 6 April 2016.
The Board’s standard agenda covers standing items, such as Health & Safety, a revolving
review of principal risks, pensions and financial matters. When relevant, M&A and
specific strategic and financial projects were considered. The below list shows some of
the other matters considered by the Board in the year:
Noteworthy matters considered by the Board in 2015
• General M&A approach
• Refinancing
• Year end and half year results
• Medium Term Plan
• Purchasing transformation plan
• IT transformation plan
• General risk review
• Senior executive succession planning and talent pipeline
• Annual Report and Accounts planning
• Future business plans
• Currency exposure
• 2016 budget
• Gender diversity
• Review of 2018 Market Goals
In addition, several Board meetings were devoted exclusively to discussions on
the Group’s strategy.
Effectiveness
Board meetings in 2015
The Board met regularly throughout the
period. There were 12 scheduled meetings
in 2015. The overall number of meetings
includes those called to manage the
transition of the Company.
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 Hong
Kong and this geographical diversity
meant that it was not always possible for
every Director to attend all Board and
Committee meetings in person. In the
event that Directors were unable to attend
a meeting, they were given time to
comment on papers to be considered at
the meeting and discussions were held in
advance with the Chairman so that their
contribution could be included in the wider
Board discussion.
Board activity in 2015
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, as shown in the adjacent list.
In addition to the formal Board meetings,
the Chairman seeks to ensure that he
meets on a periodic basis with the
Non-Executive Directors without the
Executive Directors present. These
meetings support the constructive
contribution of the Non-Executive
Directors, and allow the Chairman to
ensure that all views are taken into account
and aired, as appropriate, at full Board
meetings. All Directors are aware that
should they have concerns about the way
the Board operates these are recorded in
the minutes. No such concerns were raised
during the reporting period.
40
Coats Group plc Annual Report 2015
Induction of new Directors
On joining the Board, all Directors are
offered a thorough and tailored induction
programme, the key elements of which
comprise meetings with Executive
Directors and senior management across
the Group, site visits, specific training
relating to current issues affecting the
Group (including from external advisers as
appropriate), meetings with advisers, and
the provision of Group training manuals
and other written information relevant to
their role.
In June 2015 the Board reviewed and
standardised the Non-Executive Directors’
letters of appointment. The changes were
made to reflect the new Company
structure. In accordance with good
governance, the letters of appointment
were amended to require all Non-Executive
Directors to stand for election at every
AGM and to set out more explicitly
Non-Executive Directors’ duties and
expectations, along with the treatment of
conflicts of interest.
Given the demands that have arisen out of
the transition process, together with the
ongoing demands in relation to 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.
Consequently, the letters of appointment
of Non-Executive Directors do not set out
their expected time commitment, and the
Company does not therefore comply with
Code provision B.3.2 in this respect.
However all Directors have undertaken to
provide sufficient time to meet their
obligations, and the Board is satisfied that
each of the Non-Executive Directors has
been able to devote sufficient time to the
Company’s business during the year.
It is the Board’s intention to keep the time
requirement for Non-Executive Directors
under review, and to seek to formalise a
time requirement for the purposes of
Non-Executive appointment letters at an
appropriate time in the future.
Training and development
The Chairman is responsible for reviewing
the training needs of each Director, and for
ensuring that the Directors continually
update their skills, and knowledge of the
Company. All Directors are advised of
changes in relevant legislation and
regulations and changing risks, with the
assistance of the Company’s advisers
where appropriate. The Directors are also
provided with regular corporate
governance updates to highlight changes
in governance regulations and best
practice.
Evaluation
As we have been in a period of transition
during 2015, and given the significant
changes to the composition of the Board
during the year, it was not considered
appropriate to conduct a formal and
rigorous evaluation process during the year
and, consequently, the Company has not
complied with Main Principle B6 of the
Code. The effectiveness of the Board has
been discussed informally by the Chairman
and Non-Executive Directors and no issues
have been identified. A formal evaluation
process will be undertaken during 2016.
C
o
r
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r
a
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e
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r
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a
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c
e
Directors’ interests and conflicts
The interests of the Directors (including
interests of their connected persons) in
the share capital of the Company and its
subsidiaries are set out in the Directors’
remuneration report on pages 48 to 61.
There is an established process to capture
details of any interests that a Director may
have which conflict with, or could
potentially conflict with, the interests of
the Company. The Company’s Articles of
Association permit the Board to authorise
any actual or potential conflicts of interest
if considered appropriate. At each meeting
the Board considers Directors’ conflicts of
interest, and Directors are reminded of
their duty to disclose any conflicts and
potential conflicts, as well as any interests
in the matters to be discussed at the
meeting.
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.
It is intended that individual training and
development needs will be further
reviewed as part of the formal evaluation
process to be carried out in 2016.
Information and support
In conjunction with the Company
Secretary, the Chairman ensures that all
Directors receive papers and other
information relevant to matters to be
discussed at Board meetings at least one
week before the meeting. As Directors
were during the reporting period situated
in the UK, Australia, New Zealand, Hong
Kong, Singapore and the US, suitable
communication and reporting systems
have been established which enable
them to monitor, on a timely basis, the
Group’s activities.
Senior management and professional
advisers are invited to attend Board and
Committee meetings. Where appropriate,
they 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.
All 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
providing advice on corporate governance
matters to the Board.
Coats Group plc Annual Report 2015
41
Relations with shareholders
The Group has a dedicated Investor Relations function and a
website focused 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, and the Chairman ensures that any views
expressed by shareholders are communicated to the Board at the
earliest opportunity.
The Board considers transparency and openness to be a key
feature of its stated strategy and endeavours to ensure that both
shareholders and the market remain appropriately informed and
that regular updates are released to the market.
Presentations are made to analysts and shareholders covering the
Company’s Preliminary Results and its half year results each year.
These have been attended by the Chairman, and will in future
include the Senior Independent Director.
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 2015 AGM the Chairman provided an
additional report to shareholders.
Copies of these presentations and reports and the results of proxy
voting at the 2015 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 18 May 2016 in London.
Mike Clasper
Chairman
10 March 2016
42
Coats Group plc Annual Report 2015
Corporate governance reportcontinuedCorporate governance Audit and Risk Committee report
We now have a Committee which provides
a strong combination of longstanding
knowledge of the business with fresh
perspectives.
In 2014 the Company instigated the
Finance Review, an important internal
project which is establishing centres of
excellence in management reporting,
treasury and tax, with the implementation
of standard and consistent global
processes leveraging the use of
technology. During the year. the
Committee has maintained its focus on
the progress of this project, receiving
regular reports on the roll-out to different
countries and monitoring how lessons
learned early on are helping the
implementation at later stages.
I will be available at the Annual General
Meeting to answer any questions about
our work.
Ruth Anderson
Chairman, Audit and Risk Committee
10 March 2016
Ruth Anderson
Chairman, Audit and Risk Committee
Dear shareholder,
As Chairman of the Audit and Risk
Committee (‘the Committee’), I am pleased
to report on the Committee’s activities
during the year.
The combining of the Boards of Coats plc
and Coats Group plc and the transition of
the listed company from an investment
holding company to a UK headquartered
global manufacturing business have
brought significant changes to the
membership of the Committee.
During the year three new members joined
– Alan Rosling (who had been a Director of
Coats plc), David Gosnell and Nicholas Bull,
each of whose biographies can be found
on page 34 and 35. Blake Nixon was a
member of the Committee until he
stepped down on 20 May 2015.
We now have a Committee which provides
a strong combination of longstanding
knowledge of the business with fresh
perspectives to deal with a very full
agenda. As required by the UK Corporate
Governance Code, Nicholas Bull and I are
considered to have recent and relevant
financial experience.
The Committee has an annual work plan
framed around the Group’s financial
reporting cycle, which ensures that it
considers all matters as delegated to it by
the Board and covers significant
accounting estimates and judgments –
which are set out in the table on page 45.
Inevitably there are also ‘one-off’ matters
which require the Committee’s attention
and which this year included the disposal
of EMEA Crafts; the Committee scrutinised
the accounting implications for this major
transaction, which has also been reviewed
by the external auditors.
Coats Group plc Annual Report 2015
43
Corporate governanceCorporate governance Key areas of focus for the Committee
The key matters considered by the
Committee during the year are set out on
page 45.
The financial statements and reporting
The Committee monitored the integrity of
the financial statements of the Company,
including its annual and half yearly reports
and any informal reports, such as
preliminary yearly financial statements and
analyst presentations, reviewing and
reporting to the Board on significant
financial reporting issues and judgments
and any issues raised by the external
auditor.
Accountability
Membership and meetings
The composition of the Committee changed significantly during the year as set out
below, together with details of Committee members’ attendance at meetings:
Date joined or stepped down
from the Committee in the year
Meetings attended/
Maximum number of
meetings to attend
Ruth Anderson
Nicholas Bull
David Gosnell
Alan Rosling
Blake Nixon
David Wadsworth
Joined 10.04.15
Joined 02.03.15
Joined 02.03.15
Left 20.05.15
Left 25.02.15
Committee responsibilities
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 Group, and any other formal
announcements relating to its financial
performance and reviewing significant
financial reporting judgments
contained in them;
• the effectiveness of the internal financial
controls and the internal control 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.
6/6
3/3
3/4
4/4
1/3
2/2
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’s terms of reference, which
were updated during 2014 and are
reviewed annually, can be found at
www.coats.com/governance.
All Committee members are now
considered to be independent and
Nicholas Bull and I are considered by the
Board to have the recent and relevant
financial experience required under
the Code.
Regular attendees at Committee Meetings
in the year included the Group Chief
Financial Officer, Head of Financial Control,
Group Head of Internal Audit, and the
Chief Legal & Risk Officer and Group
Company Secretary, together with the
external auditor. At most meetings the
Group Chairman and Group Chief
Executive were also in attendance.
The Committee met regularly with the
Group Head of Internal Audit and the
external auditor without management
present.
The Deputy Company Secretary is the
Committee’s secretary.
44
Coats Group plc Annual Report 2015
Audit and Risk Committee reportcontinuedCorporate governance Significant accounting judgments and estimates:
Significant financial and reporting issues considered by the Committee in the year, in no particular order, are set out in the table below.
The Committee reached its conclusions having considered the explanations given by management, discussed and challenged each
matter, and asked for further information where it thought appropriate.
Significant financial and reporting issue
How the Committee addressed the issue
Disposal of EMEA Crafts
Pension matters – valuation of
obligations and disclosure
The carrying value of intangible assets
The carrying value of tangible assets
US environment provision
Other provisions
Taxation
The Committee reviewed the accounting implications of the sale including the validity of
any judgments and estimates which included the calculation of the loss on sale within
discontinued operations.
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 the appropriateness of provisions for
costs associated with defending the Company’s position. The Committee is satisfied
that the disclosure relating to these provides an appropriate balance.
The Group has significant balance sheet values relating to intangible assets with
indefinite lives (brands). During the year management presented a detailed paper
setting out the approach to impairment assessment measurements and how key
judgments and assumptions applied. Following input from executive management, the
Committee has considered these carrying values and impairment adjustments where
necessary.
The Committee also reviewed evidence presented by management of impairment of
tangible assets based on identifying loss making business activities and interrogating
the related business plans.
The Committee has considered at length management’s position on the accounting and
disclosure implications surrounding the Lower Passaic River following the submission of
the Remedial Investigation and Feasibility Study by the Cooperating Parties Group, of
which the Group is a member. The Committee has also been briefed by management
on the very recent remedial decisions taken by the EPA with respect to the lower 8 miles
of the river and how this has been reflected in the calculation of the increased provision.
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
the Pension Regulator’s investigation.
The Group operates in numerous jurisdictions around the world, with different
regulations applying in different territories. This complexity together with intra-group
cross-border transactions give rise to inherent risks. The Committee has reviewed
management’s reports on tax risks and, in addition, during the year the Group Head of
Tax outlined to the Committee the Group’s approach to managing its global tax affairs
and the key judgments being taken, resulting in a formal tax strategy being approved by
the Board.
The external auditor also reviewed the
accounting treatment of all significant
accounting judgments and estimates.
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, and discussed it with the
external auditor. The Committee also
considered, in particular, issues relating to
tPR’s investigations and possible outcomes
of the Lower Passaic River environmental
matter, and satisfied itself 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, which also
considered Going Concern in detail.
Internal audit
The Group Head of Internal Audit agrees
the department’s programme of work
annually in advance with the Committee,
and at each Committee meeting the
progress of Internal Audit’s activity is
reviewed and progress against agreed
actions by management is monitored.
In assessing the performance of Group
Internal Audit, the Committee considered
whether it provided timely assurance and
practical recommendations to
management to ensure the effectiveness
of the Group’s internal control and risk
management systems whilst mitigating
control deficiencies. The views of the
external auditor were also sought.
The Committee is satisfied that the Internal
Audit Function is sufficiently resourced to
carry out its role, and that there is an
effective relationship between Internal
Audit and executive management.
Coats Group plc Annual Report 2015
45
Corporate governance from the beginning of the 2014 financial
year in line with this requirement. In
addition, Deloitte has a structure of peer
reviews for its engagements which is
aimed at ensuring that its independence is
maintained.
Maintaining an independent relationship
with the Company’s auditor is a critical
part of assessing the effectiveness of the
audit process. The Committee regularly
reviews the level of audit and non-audit
fees paid to Deloitte 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. The key
principles of the policy on non-audit
services are:
Summary of non-audit services
policy
(i) Prohibited services include services
remunerated on a success fee or
participation in activities normally
undertaken by management.
(ii) The Committee approved a list of all
permitted non-audit services. These
include audit-related reviews of the
Group’s interim results or any other
review of accounts for regulatory
purposes. It also includes certain tax
compliance and advisory services for
Group subsidiaries incorporated
outside the European Union.
During 2015 the external auditor
provided services in relation to the
Group’s interim results and tax
compliance.
(iii) The Committee maintains a list of
prohibited services which is aligned
to ‘black-list’ services set out in the
EU Audit Regulations and Directives.
(iv) Any service that is not on the list of
permitted or prohibited services if in
excess of US$15,000 requires the
approval of the audit and risk
committee.
The Committee confirms that no
prohibited services were provided by the
external auditors and it is satisfied that the
policy on the supply of non-audit services
could not lead to audit objectivity and
independence being compromised.
Audit tender
Deloitte LLP was appointed the Company’s
auditor in 2003. During the year the
Company established the policy that the
external audit contract be put out to
competitive tender at least every ten years.
However, the transitional provisions under
the EU Statutory Audit Directive (which will
be brought into force in the UK with effect
from 17 June 2016) permit the Company
to put the external audit contract out to
tender no later than in 2023. The
Company has not yet made a decision as
to the timing of the audit tender.
There are no contractual obligations that
restrict the Company’s choice of external
audit firm.
Assessment of audit process
effectiveness
The scope of the external audit is formally
documented by the auditor. They discuss
the draft proposal with management
before it is referred to the Committee who
reviews its adequacy and holds further
discussions with management and the
auditor before final approval.
The Committee also reviewed the
effectiveness of the audit process based on
its own experience and by seeking
feedback, via a questionnaire, from others
in the Company involved in the audit.
The Committee then considered overall
performance of the auditor, their
independence and objectivity, and
reported to the Board that it should
recommend to the Shareholders the
reappointment of Deloitte LLP as auditor
for the year ending 31 December 2016.
Committee performance
The Committee has undertaken a review
of its own performance, seeking input
from the members, regular attendees at
the Committee and from the external
auditor. Time has been scheduled at the
May Committee meeting to analyse the
results of the survey. This will enable the
Committee to continue to improve the way
in which it operates.
The Audit and Risk Committee report was
approved by the Board of Directors on
10 March 2016 and signed on its behalf by:
Ruth Anderson
Chairman, Audit and Risk Committee
10 March 2016
Internal control and risk management
The Board has overall responsibility for
determining the nature and extent of its
principal risks and the extent of the
Group’s risk appetite, and for monitoring
and reviewing the effectiveness of the
Group’s systems of risk management and
internal control. The principal risks and
uncertainties facing the Company are
addressed in the Strategic report and in
the table on pages 30 to 33 of this report.
The Board has delegated to the Committee
within its terms of reference the responsibility
for monitoring the effectiveness of the risk
management and internal control systems.
The Committee receives regular reports
from management, Internal Audit and the
external auditor relating to the
effectiveness of the control environment.
The reporting process ensures that all
significant business units regularly report
on their internal control. Group systems
are reviewed annually with results reported
to the Committee and to the Board.
During 2015 a controllership function was
established to provide greater focus on the
key decisions and operational effectiveness
of internal controls.
The Committee and the Board are satisfied
that these systems operate effectively in all
material respects and that this process
provides appropriate assurance regarding
the Group’s financial condition, operational
results, risk management and internal
compliance and control systems.
Whistleblowing procedure
Whistleblowing is a standing item on the
Committee’s agenda. The Company has a
whistleblowing procedure which enables
employees who are aware of, or suspect,
misconduct, illegal activities, fraud, abuse
of assets or violations of any Company
policy to report these confidentially. There
were 31 incidents of whistleblowing
during the year, all of which were
investigated appropriately, with disciplinary
action taken where there was any evidence
of misdemeanour.
External audit
Independence
The Committee is responsible for reviewing
the independence of the Company’s
auditor, Deloitte LLP and making a
recommendation to the Board on its
engagement. Deloitte has a policy of
partner rotation, which complies with
regulatory standards, and the audit
engagement partner changed with effect
46
Coats Group plc Annual Report 2015
Audit and Risk Committee reportcontinuedCorporate governance
Nomination Committee report
The Committee is responsible for
ensuring that appropriate succession
and development plans are in place.
Mike Clasper
Chairman
Date joined or stepped down
from the Committee in the year
Meetings attended/Maximum
number of meetings to attend
Mike Clasper (Chairman)
Mike Allen
Ruth Anderson
Nicholas Bull
Paul Forman
David Gosnell
Alan Rosling
Blake Nixon
Joined 10.04.15
Joined 02.03.15
Left 31.12.15
2/2
2/2
2/2
2/2
2/2
2/2
2/2
1/2
The Committee’s written terms of reference are available via www.coats.com/governance.
Composition and meetings
The Nomination Committee is chaired by
Mike Clasper (the Chairman of the Group)
and its members comprise all of the
Non-Executive Directors along with the
Group Chief Executive. The Nomination
Committee met on 2 occasions during
2015 to discuss proposed appointments,
succession and development and to
evaluate the balance of skills, experience,
independence and knowledge on the
Board.
Diversity
When searching for candidates for Board
appointments, the Nomination Committee
takes into account a number of factors,
including the benefits of diversity,
including gender diversity, and the balance
of the composition of the Board. The
overriding requirement is to ensure that
recommendations for appointments are
made on merit against objective criteria,
and that the best candidates are put
forward for Board appointments.
Appointments
The Committee members recommended the
appointment of Nicholas Bull as a Non-
Executive Director and SID of the Company
during the year. The appointment process
involved the services of an executive search
agency, the Inzito Partnership, which has no
other connection with the Company. The
Inzito Partnership provided a shortlist of
candidates who were interviewed by
members of the Nomination Committee,
following which the recommendation to
appoint Nicholas Bull was submitted to and
approved by the Board.
The Committee is currently coordinating a
search for a new Chief Financial Officer
following the resignation of Richard Howes
with effect from 6 April 2016.
Succession planning
The Committee is responsible for ensuring
that appropriate succession and
development plans are in place for
appointments to the Board. We are
satisfied that the succession planning
structure in place is appropriate for a
Company of the size and nature of the
Group, and accords with our FTSE 250
ambitions. Succession planning
arrangements will be kept under regular
review in the future.
Election of Directors
In accordance with provision B.7.1 of the
Code and the Company’s Articles of
Association, all Directors will offer
themselves for re-election by shareholders
at the 2016 Annual General Meeting.
Coats Group plc Annual Report 2015
47
Dear shareholder,
I’m pleased to present the first annual
report of the Nomination Committee
following the separation of the previous
combined Remuneration and
Nominations Committee, with effect
from 2 March 2015, in line with the
establishment of a single, combined
Board of Directors under Coats
Group plc.
Although there have been many
Board changes during the year, the
majority of these resulted from the
internal restructuring of the previous
Guinness Peat Group plc and Coats
plc Board to form the single,
combined Board referred to above.
The Committee did, however,
recommend to the Board the
appointment of Nicholas Bull, who we
were delighted to welcome as a new
Non-Executive Director with effect
from April 2015.
The Committee’s primary focus has
been on Board succession and
development plans. As part of a
Group focus on these matters we
have also considered plans for the
continued development of key
personnel within the business to
ensure a pipeline of executive talent,
and have worked with the Chief
Human Resources Officer to monitor
the implementation of these plans.
We are satisfied that the plans in place
will position us well to deal with
succession at Board and senior
management levels in the future, but
will continue to keep succession
planning and talent development
under close review.
Mike Clasper
Chairman
10 March 2016
Corporate governance Directors’ remuneration report
for the year ended 31 December 2015
I am pleased to present the Directors’
remuneration report for the year
ended 31 December 2015.
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 2015.
This report consists of two main sections
following my introduction here. The first
section contains the Annual Report on
Remuneration for 2015 and the second
section is a Remuneration Policy
Summary which sets out the terms of
the policy approved by shareholders at
the 2014 AGM.
Following the change of the Company’s
name to Coats Group plc, three
Executive Directors were appointed to
the Board in March 2015. The
remuneration arrangements for the new
Executive Directors are in accordance
with the remuneration policy that was
approved by shareholders at the 2014
AGM. This policy had been developed
and proposed on the basis that the
Company would complete the transition
from being an investment company with
only Non-Executive Directors to a UK
headquartered global manufacturing
business with a Board consisting of
Executive and Non-Executive Directors.
The incentive compensation structure for
Executive Directors aims to incentivise
and reward the achievement of
demanding targets that underpin the
operational performance and growth of
the Coats business. These measures are
critical to the creation of future value for
shareholders. A significant proportion of
annual and long term remuneration for
Executive Directors is directly linked to
the value of the company’s shares to
ensure that there is an alignment with
the interests of shareholders.
The bonus outcome for 2015, which
does not apply to any Non-Executive
Director, reflects the strong operational
performance and focus on cash
management by Coats. A significant
amount of executive time and focus
remains, of course, on dealing with the
on-going investigations by the UK
pensions regulator. However, it is
important and in the interests of all
shareholders and stakeholders that the
continuing Coats business continues to
grow profitably and produce strong
cash flows.
The Committee also approved the key
elements of the 2016 annual bonus and
2016 Long Term Incentive award
including the setting of targets.
The level of fees for the Chairman and
Non-Executive Directors was reviewed
during the year but no changes were
made.
During 2015 an Employee Benefit Trust
was established and mechanisms were
put in place to enable the Trustee to buy
the Company’s shares in the market that
may be used for any future vested share
awards.
The Annual Report on Remuneration
also contains a statement on how the
policy will be implemented in 2016. I am
pleased to confirm that all incentive
measures are directly linked to the
performance of Coats Group plc. In
particular, the profit element of the 2016
Long Term Incentive grant will be based
on compound annual growth in Coats
Group plc earnings per share and free
cash flow.
During the year, the Committee
approved the grants of awards under
the Group’s Long Term Incentive Plan
and Deferred Annual Bonus Plan,
approved the remuneration terms for
each Executive Director and considered
the impact on existing incentive targets
and arrangements of the disposal of the
EMEA Crafts business.
The Committee remains focused on
ensuring that the remuneration policy
enables the Company to attract and
retain the calibre of people it needs to
meet its strategic objectives while at the
same time adopting incentive targets
that are challenging and directly linked
to measures that will create shareholder
value.
Director
Mike Allen
David Gosnell
Alan Rosling
Date joined
the Committee in the year
Joined 02.03.15
Joined 02.03.15
Meetings attended/
Maximum number of
meetings to attend
5/5
5/5
5/5
David Gosnell
Chairman, Remuneration Committee
10 March 2016
Details of members that left the Committee in the year can be found on page 55 of
this report.
48
Coats Group plc Annual Report 2015
Corporate governance Annual Remuneration Report for 2015
A summary of the Remuneration Policy as approved by shareholders on 22 May 2014 follows after this section of the report. This
Annual Report on Remuneration has been prepared in accordance with the relevant provisions of the Companies Act 2006 and as
prescribed in The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in 2013 (the
Regulations). Where indicated data has been audited by Deloitte LLP.
The Annual Report on Remuneration will be subject to an advisory vote at the AGM on 18 May 2016.
Executive Directors
On 2 March 2015 three Executive Directors were appointed to the Board. These appointments reflected the Company’s planned
transition from being an investment company to a global manufacturing business. All of the Executive Directors were employed by one
of the Coats group of companies prior to their appointment. In accordance with the Remuneration Policy approved by shareholders on
22 May 2014 any existing legacy terms and conditions of existing service contracts or remuneration terms continue to apply after their
appointment.
Single total figure for Executive Directors’ remuneration for 2015 (audited information)
Base Salary
£000
Benefits
£000
Annual incentive
(cash & shares)
Paul Forman
Richard Howes
Rajiv Sharma
Total
2015
2014
2015
2014
2015
450.1
301.2
389.9
1,141.2
–
–
–
–
21.2
13.3
216.6
251.1
395.7
–
276.9
–
–
352.5
– 1,025.1
£000
2014
–
–
–
–
2015
–
–
–
–
LTIP
£000
2014
–
–
–
–
Pension
£000
2015
2014
2015
150.0
60.2
77.4
287.6
– 1,017.0
651.6
–
– 1,036.4
– 2,705.0
Total
£000
2014
–
–
–
–
The figures in the table above have been calculated on the basis of the following:
• The figures for Mr Rajiv Sharma include the value of additional benefits that were provided to him following his relocation and
secondment from Singapore to Dubai which commenced in June 2015. The contractual terms of the secondment were confirmed by
his employer in December 2014 prior to his appointment as an Executive Director. The benefits figure for Mr Sharma includes an
international allowance of $100,000 per annum which is paid as cash and the full cost of paying in advance a one year lease and
utilities cost of $219,126 per annum on his accommodation in Dubai. Mr Sharma’s remuneration arrangements are determined and
paid in US dollars and have been converted to UK currency in the table above at an average exchange rate of $1 = £0.6543.
• Base salaries: represent the actual base salaries paid in the period from the date of appointment as an Executive Director on 2 March
2015 to 31 December 2015.
• Benefits: is the value of all taxable benefits in kind including a company car allowance, private medical insurance and life insurance. In
the case of Mr Sharma this also reflects the additional benefits provided in connection with his secondment to Dubai as described
above.
• Annual bonus (cash and shares): the total value of the annual incentive that is attributable to the time spent during 2015 as an
Executive Director is shown in the table. One quarter of any bonus outcome is compulsorily awarded in shares under the terms of the
Deferred Annual Bonus Plan that was approved by shareholders at the AGM in May 2014.
• Long Term Incentive Plan (LTIP): the value of any awards that were granted during a period as an Executive Director or which
contained a performance period that ended during 2015 would be reflected in this table. As the Directors were only appointed in
March 2015 no awards have yet vested.
• Pension: represents the value of all employer contributions to any pension plan or cash payments paid in lieu of a pension benefit. No
Executive Director participates in any defined benefit pension arrangement.
• Paul Forman is a Non-Executive Director of Tate & Lyle plc. He received total fees of £52,375 (not included in the table above) during
the year to 31 December 2015. The policy of the Board is that he is entitled to retain any fee in respect of this appointment.
Annual bonus outcome 2015 (audited information)
The annual bonus for 2015 was determined in accordance with the details provided in the 2014 Directors’ remuneration report.
Details of the bonus measures and opportunities are provided in the table below.
Annual bonus 2015
Performance Measure
Attributable Profit (AP)
Earnings Before Interest and Taxation (EBIT)
Net Working Capital as % of Sales (NWC)
Individual objectives
Total
All figures are as a % of salary
Weighting
Bonus opportunity
Performance achieved in 2015
Threshold
Target
Maximum Paul Forman Richard Howes
Rajiv Sharma
25.0%
25.0%
30.0%
20.0%
100.0%
1.75%
3.0%
0%
0%
4.75%
25.0%
12.5%
25.0%
12.5%
30.0%
15.0%
20.0%
10.0%
50.0% 100.0%
25.0%
22.3%
24.0%
15.8%
87.1%
25.0%
22.3%
24.0%
18.8%
90.1%
25.0%
22.3%
24.0%
18.3%
89.6%
Coats Group plc Annual Report 2015
49
Corporate governance Annual Report on Remuneration
The measures were selected to incentivise a balance of outcomes that reflected the strategic priorities for the Group. In particular these
were to increase the attributable profit (profit after tax) that was available for shareholders, to achieve strong growth in trading profit
through continued efficiency and growth in EBIT performance, ensure consistent and increasing level of cash generation from
operations through working capital management, and achieve certain key strategic objectives that were specific for each Executive
Director.
Annual bonus 2015
Weighting
Bonus targets
Performance achieved in 2015
Performance targets
AP
EBIT
NWC
Individual objectives
25.0%
25.0%
30.0%
20.0%
Threshold
$m
46.4
126.6
15.9%
53.3
137.1
15.4%
61.3
150.8
14.9%
Strategic objective
25.0%
22.3%
24.0%
See table above
Target
$m
Maximum
$m
% bonus
opportunity received
During the year the Committee adjusted the annual bonus targets in order to reflect the disposal of the EMEA Crafts business. Targets
are set in relation to Budget for the upcoming financial year, and were adjusted so that they reflected continuing businesses only,
excluding Budget for the disposed EMEA Crafts business and any exceptional costs relating to the disposal. As the EMEA Crafts business
was expected to make a loss and to increase the level of NWC for 2015, performance ranges were consequently increased.
Long Term Incentive award outcome
No awards vested in 2015 that were either previously granted to an Executive Director or arose from a performance period that ended
during the current financial year.
Share awards granted in 2015
The following share awards were granted to Executive Directors during the financial year ended 31 December 2015.
The targets for achieving minimum performance for each measure are shown in the tables on the following pages.
Executive Director
Date of grant
Number of
options
awarded
Face
value at
award date
Award
value as a
% of salary
Share price
to calculate
no of shares
Number of options
for achieving minimum
performance
Performance period
Vesting date
Coats Group plc Long Term Incentive Plan
Paul Forman
Richard Howes
Rajiv Sharma
07-Apr-15
3,160,396
£798,000
07-Apr-15
2,079,207
£525,000
07-Apr-15
2,687,266
£678,535
150%
150%
150%
£0.2525
£0.2525
£0.2525
790,099
1 Jan 2015 to 31 Dec 2017
519,801
1 Jan 2015 to 31 Dec 2017
671,816
1 Jan 2015 to 31 Dec 2017
07-Apr-18
07-Apr-18
07-Apr-18
Executive Director
Date of
conversion
Number of
options
awarded
Face
value at
award date
Award
value as a
% of salary
Share price
to calculate
no of shares
Number of options
for achieving minimum
performance
Performance period
Vesting date
Coats plc Interim Long Term Incentive Plan
Paul Forman
Richard Howes
Rajiv Sharma
26-Feb-15
2,313,043
£798,000
26-Feb-15
1,521,739
£525,000
26-Feb-15
1,719,682
£593,291
150%
150%
150%
£0.345
£0.345
£0.345
578,260
1 Jan 2014 to 31 Dec 2016
380,434
1 Jan 2014 to 31 Dec 2016
429,920
1 Jan 2014 to 31 Dec 2016
09-Feb-17
09-Feb-17
09-Feb-17
Executive Director
Date of
award
Number of
options
awarded
Face
value at
award date
Award
deferred cash
value as a
% of salary
Share price
to calculate
no of shares
Coats Group plc Deferred Bonus Plan
Performance period
Vesting date
Paul Forman
Richard Howes
Rajiv Sharma
07-Apr-15
07-Apr-15
07-Apr-15
438,241
279,651
482,925
£110,656
£70,612
£121,939
21%
20%
27%
£0.2525
£0.2525
£0.2525
None
None
None
07-Apr-18
07-Apr-18
07-Apr-18
The share price used to calculate the number of options awarded under the terms of the Coats Group plc Long Term Incentive Plan and
the Coats Group plc Deferred Annual Bonus Plan is based on the mid-market closing price for the day immediately preceding the grant
date, which was £0.2525. For awards under the Coats plc Interim Long Term Incentive Plan a share price of £0.345 was used in order to
reduce the number of shares awarded as described on the following page.
50
Coats Group plc Annual Report 2015
Directors’ remuneration reportfor the year ended 31 December 2015continuedCorporate governance Coats Group plc
Long Term Incentive Plan
Awards were granted on 7 April 2015 as
nil cost options under the terms of the
Coats Group plc Long Term Incentive Plan
that was approved by shareholders on
22 May 2014. The LTIP awards will vest,
subject to the achievement of performance
conditions, on the third anniversary of the
date of grant. The notional value of any
dividends paid on any vested share during
the period from grant to vesting is payable
as a cash sum. Details of the performance
measures are provided in the table below.
Coats plc Interim
Long Term Incentive Plan
All of the Executive Directors were
employed by Coats prior to 1 January 2015
and participated in the Coats plc Interim
Long Term Incentive Plan at a time when
they were not Executive Directors. Awards
were granted during 2014 as deferred cash
awards that were conditional on achieving
three year performance targets over the
performance period 1 January 2014 to
31 December 2016. Under the terms of
the awards the Company had the right to
convert the deferred cash award into an
award over the Company’s shares in the
form of nil cost options. In order to ensure
a greater alignment of the 2014 Long Term
Incentive award with the interests of
shareholders the maximum deferred cash
award was converted to an award over a
maximum number of shares on
26 February 2015. The share price used to
determine the maximum number of shares
awarded was £0.345 which was the
mid-market price on the date of the AGM
on 22 May 2014. The mid-market price on
the date of the conversion was £0.223.
The higher share price was applied in order
to reduce the maximum number of share
options awarded than if the share price on
the date of conversion had been applied.
The performance measures and targets
that applied to the original deferred cash
award were not changed and the original
terms and conditions remain the same. The
earliest date that the award will vest is the
date of the public announcement of the
financial results for 2016. Any vested
shares can only be settled by using market
purchased shares. The Company has the
right to make a cash payment in lieu of
providing any shares.
Coats Group plc
Deferred Annual Bonus Plan
For all Executive Directors one quarter of
the bonus outcome relating to the financial
year 2014 was awarded in the form of nil
cost options during the year. The annual
bonus arrangements for 2014 were in
respect of a financial performance period
prior to their appointment as Executive
Directors. The awards were granted on
7 April 2015 under the terms of the
Deferred Annual Bonus Plan that was
approved by shareholders
on 22 May 2014. Awards are not subject
to additional performance conditions
but are subject to clawback in certain
circumstances such as gross misconduct,
a material misstatement of results and
malus.
Long Term Incentive awards performance measures
The performance conditions applicable to awards granted in respect of the three year performance periods that commenced on
1 January 2014 (2014 Interim LTIP) and 1 January 2015 (2015 LTIP) are shown below.
2014 Interim LTIP
Measure
Weighting
Threshold
Mid
Maximum
Compound Annual Growth (CAGR) in Attributable Profit
Vesting % of total award
Cumulative Free Cash Flow over 3 years
Vesting % of total award
Total Shareholder Return versus the FTSE250 excluding investment trusts
Vesting % of total award
Total
20%
40%
40%
100%
17.4%
5%
$185m
10%
20.8%
10%
$210m
25%
27.2%
20%
$230m
40%
Median 62.5 Percentile Upper Quartile
40%
100%
25%
60%
10%
25%
2015 LTIP
Measure
Weighting
Threshold
Mid
Maximum
Compound Annual Growth (CAGR) in Attributable Profit
Vesting % of total award
Cumulative Free Cash Flow over 3 years
Vesting % of total award
Total Shareholder Return versus the FTSE250 excluding investment trusts
Vesting % of total award
Total
40%
40%
20%
100%
15%
25%
$231m
25%
5%
10%
$210m
10%
20%
40%
$250m
40%
Median 62.5 Percentile Upper Quartile
20%
12.5%
100%
62.5%
5%
25%
For this purpose Attributable Profit growth is defined as the Cumulative Compound Annual Growth in Attributable Profit in the
performance period. The Board will consider the growth in normalised Attributable Profit which is Profit After Tax, adjusted to exclude
the impact of exceptional costs such as property gains or losses and the impact of IAS19 (pensions finance charges). Attributable Profit
is defined as retained profit after tax and post minority interests.
Free Cash Flow targets are based on cumulative Free Cash Flow generated for each year of the performance period after maintaining
the Company’s asset base ie operating cash flow minus capital expenditure, adjusted to reflect any disposals, acquisitions or property
gains or losses.
Coats Group plc Annual Report 2015
51
Corporate governance Total Shareholder Return is the total
returns to shareholders which includes
share price growth and ordinary dividend
payments. The performance condition is
measured against a comparator group
consisting of the FTSE250, excluding
investment trusts.
The targets and measures that refer to
Attributable Profit Growth and Cumulative
Free Cash Flow in the above table are
based on the performance of Coats plc, a
subsidiary of Coats Group plc. Awards from
2016 onwards are based on the
performance of Coats Group plc. The
performance assessment for the
Attributable Profit Growth measure is
calculated on the basis that removes the
impact from any variation in the IAS19
pension finance charge. The Committee
reviewed the impact of the sale of the
EMEA Crafts business during 2015 and
determined that the original targets would
be maintained. The Committee retains the
discretion to consider whatever adjustments
it considers are fair and reasonable when
considering the performance against the
targets shown. The Committee may adjust
the level of vesting if it considers that the
performance measures do not reflect the
overall performance of the Company during
the performance period or if there has
been a material event such as an acquisition
or disposal during the course of the
performance period.
Non-Executive Directors
The membership of the Coats Group plc
Board has changed considerably during
2015 as a consequence of the planned
transition of the company from an
investment company to a global
manufacturing business. Three new
Non-Executive Directors were appointed to
the Board and five Non-Executive Directors
resigned. All fees paid to Non-Executive
Directors during 2015 were paid in
accordance with the Remuneration Policy
approved by shareholders on 22 May
2014. In July 2015 the fee levels for the
Chairman were reviewed by the
Remuneration Committee and for the
Non-Executive Directors by a sub-
committee consisting of the Chairman and
the Executive Directors. No changes were
proposed to any of the fees and they
have remained at the same level since
1 October 2013.
Single total figure for Non-Executive Directors’ remuneration for 2015 (audited information)
Base fee
£000
Supplementary fee
£000
Benefits
£000
Other fee1
£000
2015
2014
2015
2014
2015
2014
2015
2014
2015
Total
£000
2014
Comment
Mike Clasper
Mike Allen
Ruth Anderson
Sir Ron Brierley
Nicholas Bull
Rob Campbell
David Gosnell
Scott Malcolm
Blake Nixon
Alan Rosling
Waldemar Szlezak
Total
225.0
60.0
60.0
0
43.5
10.0
50.0
10.0
60.0
50.0
0
131.2
60.0
35.0
0
0
80.0
0
60.0
60.0
0
0
568.5 426.2
0
20.0
10.0
0
7.2
0
8.3
1.6
0
0
0
47.1
0
11.7
5.8
0
0
0
0
5.8
0
0
0
23.3
2.1
0
0
0
0
0
0
0
0
0
0
2.1
0
0
0
0
0
0
0
0
0
0
0
0
3.3
3.3
3.3
0
0
0
0
0
0
0
0
86.7 230.4
32.5
21.7
0
0
0
0
0
0
0
0
217.9
83.3 104.2
62.5
73.3
Resigned 20 April 2015
0
0
Appointed 10 April 2015
0
50.7
Resigned 2 March 2015
80.0
10.0
Appointed 2 March 2015
0
58.3
65.8
11.6
Resigned 2 March 2015
60.0 Resigned 31 December 2015
60.0
Appointed 2 March 2015
50.0
Resigned 2 March 2015
0
0
0
9.9 140.9 627.6 590.4
1 Mike Clasper, Mike Allen and Ruth Anderson were also Non-Executive Directors of the Board of Coats plc. A fee of £20,000 per annum was payable by Coats plc in connection
with the additional time commitment involved for being a member of two Boards at the same time. The fee payable by Coats plc is shown under ‘Other fee’ in the table above. No
fee was paid to any Director by Coats plc with effect from 1 March 2015.
The figure under benefits for M Clasper relates to business expense re-imbursements which are deemed to be taxable in the UK and include the tax paid by the Company directly
to HMRC.
The figure for base fees represents the fee paid by Coats Group plc. A supplementary fee is paid to the Senior Independent Director and
Chairs of the Audit Committee and Remuneration Committee (£10,000 per annum). Mike Allen receives a supplementary fee of
£20,000 per annum as Chair of the Pensions Committee. Alan Rosling’s services are provided through Griffin Growth Partners.
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 and no Director who resigned from the Board
during 2015 received any payment for loss of office.
52
Coats Group plc Annual Report 2015
Directors’ remuneration reportfor the year ended 31 December 2015continuedCorporate governance 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 2015, are set out below. The Executive Directors’ condition must be
met by 2 March 2020.
Shareholding
requirement in 2015
Equivalent
% of 2015
Salary
Condition
Met?
Shares
Shares beneficially owned1
Deferred bonus
shares subject to
vesting period
LTIP share options (subject to
performance conditions)
Share options
(no performance conditions)
01-Jan-151
31-Dec-152
01-Jan-151
31-Dec-152
01-Jan-151
31-Dec-152
01-Jan-151
31-Dec-152
Executive Directors
Paul Forman
Richard Howes
Rajiv Sharma
2,000,000
1,300,000
1,700,000
100%
100%
100%
No
No
No
310,000
200,000
–
535,933
490,000
–
Chairman and Non-Executive Directors
Mike Clasper
Mike Allen
Ruth Anderson
Sir Ron Brierley
Nicholas Bull
Rob Campbell
David Gosnell
Scott Malcolm
Blake Nixon
Alan Rosling
Waldemar Szlezak
1. Or date of appointment, if later.
2. Or date of resignation, if earlier.
1,490,000
1,490,000
200,000
100,000
200,000
100,000
16,882,765 16,882,765
–
525,043
386,475
570,000
250,000
525,043
786,475
570,000
17,815,623 14,286,406
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
438,241
2,313,043
5,473,439
279,651
1,521,739
3,600,946
482,925
1,719,682
4,406,948
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,888,369
794,572
–
–
–
–
–
–
–
–
7,863,560
3,702,350
–
–
–
–
On 26 February 2016, Executive Directors were awarded the following nil cost options as part of their deferred bonus for 2015;
P Forman 470,154 shares, R Howes 328,994 shares, R Sharma 449,386 shares. The options are exercisable after a period of three years.
In addition, the following nil cost options were awarded in respect of awards under the LTIP, P Forman 3,240,594 shares, R Sharma
2,908,071 shares. On 3 March 2016 P Forman purchased an additional 500,000 shares.
No other Directors have entered into any transactions since the year end.
Options under the Group’s share option schemes
The previous sections of this report detail the awards granted to Executive Directors during 2015. No share option awards were granted
to the Executive Directors prior to 26 February 2015 and there are no other share option awards that are outstanding.
Options under the terms of the Guinness Peat Group plc 2002 Executive Share Option Scheme remain outstanding and capable of exercise
and are not subject to performance conditions. All of the options were granted with an exercise price which represented the market value at
the date of grant. The outstanding awards that are currently retained by Sir Ron Brierley and Blake Nixon are shown below.
Ordinary 5p shares
Sir Ron Brierley
Ordinary 5p shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Blake Nixon
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31-Dec-14
Number
697,495
396,302
237,779
360,278
196,515
2,179,682
1,981,528
951,131
1,441,115
1,310,104
Lapsed
during year
31-Dec-15
Exercise price
(per share)
Exercise period
697,495
396,302
2,179,682
1,981,528
0
0
£0.48229
£0.51097
237,779 £0.566480
360,278 £0.565534
196,515 £0.499961
0
0
£0.48229
£0.51097
951,131 £0.566480
1,441,115 £0.565534
1,310,104 £0.499961
9 Mar 08 to 9 Mar 15
24 Oct 08 to 24 Oct 15
15 Mar 09 to 15 Mar 16
9 Mar 10 to 9 Mar 17
10 Apr 11 to 10 Apr 18
9 Mar 08 to 9 Mar 15
24 Oct 08 to 24 Oct 15
15 Mar 09 to 15 Mar 16
9 Mar 10 to 9 Mar 17
10 Apr 11 to 10 Apr 18
No options were exercised by Directors during the year. The table above reflects options that lapsed during the year.
Coats Group plc Annual Report 2015
53
Corporate governance No options have been exercised and no options have lapsed since the year end.
The middle market price of Coats Group plc shares at 31 December 2015 was 24.92 pence and the range during the year was
20.975 pence to 30.061 pence.
Review of performance
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 2015. 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.
£350
£300
£250
£200
£150
£100
£50
£–
Key:
FTSE250 Index
FTSE All-Share Index
Coats Group
1 Jan
2009
1 Jan
2010
1 Jan
2011
1 Jan
2012
1 Jan
2013
1 Jan
2014
1 Jan
2015
1 Jan
2016
Source: Datastream
CEO single figure of remuneration (£k)
Annual Bonus as a % of maximum opportunity
LTIP award as a % of maximum opportunity
2009
2010
2011
2012
2013
2014
2015
n/a
1,017.0
87.1%
–
Chief Executive total remuneration
The Company did not have any Executive Director who performed the Role as Chief Executive until 2 March 2015 and so no table of
historic CEO data is provided.
Salary
Benefits
Annual bonus
% change in remuneration
between 2014 and 2015
CEO1
n/a
n/a
n/a
1 The company did not have an Executive Director who performed the role of CEO until 2 March 2015, when the company completed its transition from Guinness Peat Group plc to
Coats Group plc. There is therefore no preceding financial year with which to provide a comparison for either the CEO or for an average Group company employees as a whole.
The % change in remuneration will therefore not be available until next year’s annual report on remuneration, when we will be able to compare 2 years of data for the CEO.
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) – like-for-like
Operating profit pre-exceptional ($m) – like-for-like
1 By way of dividends and share buybacks.
Year to
31 December
2015
Year to
31 December
2014
343.1
Nil
19,397
1,490
139
399.8
Nil
19,756
1,445
117
% change
(14)%
–%
(2)%
3%
19%
Additional information on number of employees, total revenues and profit has been provided for context. The figures for employee
costs and average number of employees in 2015 and 2014 have been stated on the basis of continuing operations only. The figures
have been amended from prior years to reflect the revenue and profit on the basis of like-for-like comparison and to reflect Coats
Group reporting currency of US dollars.
54
Coats Group plc Annual Report 2015
Directors’ remuneration reportfor the year ended 31 December 2015continuedCorporate governance Statement of implementation of Remuneration Policy for 2016
Base salaries for Executive Directors will be reviewed on 1 July 2016. The fee levels for the Chairman and Non-Executive Directors will
also be reviewed.
No changes are expected to the provision of retirement or other benefits during 2016.
The 2016 annual bonus incentive opportunities and Long Term Incentive award grants will be unchanged from 2015 and will be
implemented in accordance with the Remuneration Policy.
For Long Term Incentive awards to be granted in 2016 the key changes will be to reflect the performance of Coats Group plc rather than
the subsidiary Coats plc. The material changes relating to 2016 will be that the Profit measure for Long Term Incentive awards will no
longer be the Compound Annual Growth Rate (CAGR) in Attributable Profit but will be the CAGR in Earnings Per Share. Cumulative Free
Cash Flow targets will also be on the basis of a measure that is calculated before any UK pension scheme deficit repair contributions.
Performance measures and weightings – annual bonus and LTIP
Annual bonus
Measure
Attributable Profit
Earnings Before Interest and Taxation
Net Working Capital
Individual objectives
Long Term Incentive
Weighting
Measure
25%
25%
30%
20%
Earnings Per Share CAGR
Free Cash Flow
Total Shareholder Return
Weighting
40%
40%
20%
The targets for the Long Term Incentive awards to be granted in 2016 are expected to made with following targets.
Measure
EPS CAGR over three years
Cumulative Free Cash Flow ($m) over three years
Total Shareholder Return vs FTSE250 excluding investment trusts
Vesting % of each measure for Threshold and Maximum performance
Straight line vesting occurs between Threshold and Maximum.
Threshold
5%
$220m
Median
25%
Maximum
20%
$260m
Upper Quartile
100%
The cumulative Free Cash Flow target is subject to adjustment and is before dividends and before any deficit repair contributions to UK
pension schemes.
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 from the start of the year until 2 March 2015. There were no meetings held in this period. From 2 March 2015, and the
transition to Coats Group plc, the Committee members were: D Gosnell (Chairman), M Allen and A Rosling.
The responsibilities of the Committee are set out in the Corporate governance section of the Annual Report. The Committee also
received assistance from S Morgan (who also acted as Secretary to the Committee), A Speak (HR Director) and B Fahey (Reward
Director). 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 2015. Kepler, a
brand of Mercer, provided independent advice to the company principally in relation to the design and performance targets set for the
Group’s incentive plans. Kepler were paid fees of £43,000 for time spent and materials used in providing advice to the Company during the
period to 31 December 2015. Kepler previously provided advice to the Remuneration Committee of Coats plc. Kepler provide no other
advice to the Company and the Committee is satisfied that the advice provided was fair and objective.
Statement of voting at general meeting
At the Annual General Meeting of the Company on 21 May 2015 the results of the vote regarding Resolution 2 (to approve the
Remuneration Report) were:
Number
800,774,198
VOTES FOR
%
91.25
VOTES AGAINST
Number
76,809,864
%
8.75
Votes Total
877,584,062
Votes Withheld
441,138
The Remuneration report was approved by the Board of Directors on 10 March 2016 and signed on its behalf by:
David Gosnell
Chairman, Remuneration Committee 10 March 2016
Coats Group plc Annual Report 2015
55
Corporate governance Remuneration Policy Summary
The Remuneration Policy was approved by
shareholders at the Annual General
Meeting on 22 May 2014. The policy
applies for a period of three years from the
date of approval. This section of the
Annual Report is not subject to any
shareholder resolution at the AGM in May
2016 and is provided for reference only.
The policy table below has been updated
for context only. No changes were made
to the policy since its approval and the
policy continues to apply. A copy of the
Remuneration Policy, as approved by
shareholders at the AGM in 2014, is
available at www.coats.com.
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.
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.
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 in the
Annual Report on Remuneration.
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
Section below.
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.
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.
56
Coats Group plc Annual Report 2015
Directors’ remuneration reportfor the year ended 31 December 2015continuedCorporate governance 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 elected not to receive any
fee as from 1 October 2013.
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 was
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 was 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 and he did not receive
any compensation for loss of office
following his resignation from the Board
on 20 April 2015.
All Non-Executive Director letters of
appointment are available for inspection at
1 The Square, Stockley Park, Uxbridge,
Middlesex UB11 1TD during normal hours
of business, and will also be available at
the Company’s AGM.
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 following
tables.
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.
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.
Executive Directors
The policy that applies following the
appointments of any Executive Directors 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.
Coats Group plc Annual Report 2015
57
Corporate governance 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, 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.
58
Coats Group plc Annual Report 2015
Directors’ remuneration reportfor the year ended 31 December 2015continuedCorporate governance 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, 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.
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%.
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 clawback 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 have 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 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.
Coats Group plc Annual Report 2015
59
Corporate governance 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.
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.
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.
60
Coats Group plc Annual Report 2015
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.
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.
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.
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.
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.
Directors’ remuneration reportfor the year ended 31 December 2015continuedCorporate governance 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.
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.
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.
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.
A copy of the Remuneration Policy, as approved by shareholders at the AGM on 22 May 2014, is available at www.coats.com.
Coats Group plc Annual Report 2015
61
Corporate governance Directors’ report
The Directors present their annual report
and audited financial statements for the
year ended 31 December 2015.
At the year end the Group had
cash totalling $649.9 million (2014:
$739.0 million). The Board expects to be
able to meet any actual and contingent
liabilities from existing resources. Further
information on the net cash position of the
Group is set out in note 30(g).
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
also taking into consideration the cash
flow forecasts prepared by the Group and
the sensitivity analysis associated therewith
– the Directors consider that the Group is a
going concern and these financial
statements are prepared on that basis.
Directors
The names and biographical details of the current Directors are shown on pages 34 and
35. Particulars of their emoluments and interests in shares are given on pages 49 and 50.
Changes to the composition of the Board since 1 January 2015 up to the date of this
report are shown in the table below:
Paul Forman
Richard Howes1
Rajiv Sharma
Nicholas Bull
David Gosnell
Alan Rosling
Sir Ronald Brierley
Rob Campbell
Scott Malcolm
Blake Nixon
Waldemar Szlezak
Joined the Board
Left the Board
2 March 2015
2 March 2015
2 March 2015
10 April 2015
2 March 2015
2 March 2015
20 April 2015
2 March 2015
2 March 2015
31 December 2015
2 March 2015
1 Richard Howes will leave the Board and the Group on 6 April 2016.
Appointment and retirement of
Directors
The appointment of Directors is governed
by the Company’s Articles of Association,
the UK Corporate Governance Code and
the Companies Act 2006. The Directors
may, from time to time, appoint one or
more directors.
In the interests of good governance and in
accordance with the provisions of the UK
Corporate Governance Code, all Directors
will retire and submit themselves for
re-election at the forthcoming Annual
General Meeting.
Corporate Governance Statement
The strategic report and corporate
governance report found on pages 1 to 61
and, together with this report of which it
forms part, fulfils section 414C of the
Companies Act 2006 and the Financial
Conduct Authority’s Disclosure Rules and
Transparency Rules requirements by
including, by cross reference, details of the
Group’s financial risk management
objectives and policies, business review,
future prospects and environmental policy.
Results and dividends
The results of the Group are shown on
page 76 and movements in reserves are
set out in note 27 to the financial
statements.
The Company paid no interim dividend in
respect of the year ended 31 December
2015 (2014: £Nil). The Directors do not
propose a final dividend (2014: £Nil).
Environment matters
On 4 March 2016, the United States
Environmental Protection Agency
announced a final record of decision for
the remediation of the lower 8 miles of the
Lower Passaic River. Further details can be
found in note 28 to the financial
statements.
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 34 to the financial
statements includes the Group’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 Group is well
placed to manage its business risks
successfully.
62
Coats Group plc Annual Report 2015
Corporate governance 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
26. 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.
Shareholder authority for the Company to
purchase up to 210,944,275 (15%) of its
own shares was granted at the 2015
Annual General Meeting. No shares were
purchased pursuant to this authority
during the year.
Shareholder authority for the Company to
allot shares up to an aggregate nominal
amount of £23,460,260 was granted at
the 2015 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 2015 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 in CDI form. The principal
register is held in the UK. Branch registers
are maintained in New Zealand and
Australia.
In the latter part of 2015, the Company
announced its intention to de-list from
both the Australian Stock Exchange and
the New Zealand Stock Exchange subject
to shareholder approval. This decision is to
be put to the Company’s shareholders at
the Annual General Meeting in May.
Substantial interests
As at 31 December 2015 the Company had been notified, in accordance with Chapter 5
of the Disclosure Rules and Transparency Rules, of the following voting rights as a
shareholder of the Company (see table below).
Substantial interests
Name of shareholder
Invesco Limited
Prudential plc group of companies (M&G)
FIL Limited
Quantum Strategic Partners*
MSD Capital
Odey Asset Management LLP
Shares
155,070,757
140,851,167
140,761,228
133,201,970
79,606,443
70,631,886
%
11.01
10.00
9.99
9.01
5.66
5.02
* Soros Fund Management LLC is the principal investment advisor to Quantum Strategic Partners.
As required by Chapter 5 of the Disclosure Rules and Transparency Rules, there have been
no changes since the year end.
Directors’ indemnities
The Directors of the Company, including
former Directors who retired during the
year, have entered into individual deeds of
indemnity with the Company which
constituted ‘qualifying third party
indemnity provisions’ for the purposes of
the Companies Act 2006. The deeds
indemnify the Directors, and the directors
of the Company’s subsidiary companies, to
the maximum extent permitted by law.
The deeds were in force for the whole of
the year, or from the date of appointment
for those appointed in the year. In addition
the Company had Directors’ and Officers’
liability insurance cover in place.
Auditor
A resolution to re-appoint Deloitte LLP
as auditor will be proposed at the 2016
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 65.
Property, plant and equipment
Details of property, plant and equipment
are set out in note 14 to the financial
statements.
Research and Development (R&D) and
future development
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. Further information on future
development initiatives can be found in
note 5.
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 20 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 arrangements are
made. 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.
Coats Group plc Annual Report 2015
63
Corporate governance The methodology for Scope 1 direct
emissions is to convert fuel consumed in
kWh to GHG equivalent using the DEFRA
published global conversion factors. The
methodology for Scope 2 indirect
emissions is to convert the electricity or
other purchased energy in each country
from KWh to GHG equivalent using the
country level conversion factors published
by DEFRA. The resultant figures are then
consolidated globally.
Greenhouse gases emitted per unit
of production (kg per kg of dyed
product).
2015
4.6
2014
5.1
2013
5.3
2012
5.6
2011
5.7
Further details can be found on page 23 of
this report.
This Directors’ report was approved
by order of the Board.
On behalf of the Board
Stuart Morgan
Company Secretary
10 March 2016
Political donations
No contributions were made to political
parties during the year (2014: £Nil).
Directors and their responsibilities
The current Directors who served during
the year and up to the date of this report
are detailed on page 62.
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.
Further discussion of the Board’s activities,
powers and responsibilities appears within
the corporate governance section on
pages 37 to 42. Information on
compensation for loss of office is
contained in the Directors’ remuneration
report on pages 48 to 61.
Greenhouse gas emissions
For the year ended 31 December 20151,
Coats reported the following emissions:
Global tonnes of CO2ea,b
Direct (Gas, coal, oil)
Indirect (Electricity)
2015
2014
74.6
244.5
93.1
251.5
1 Calendar year 2015, all units, (incl. EMEA Crafts
(7 months) and Coats Manila Bay, Inc.
(11 months)).
a Based on 2015 and 2014 UK DEFRA GHG reporting
guidance respectively. 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
global operations.
This represents a decrease of 7% versus
2014 total emissions.
Branches and financial risk
management objectives and policies
The Company operates in over 60
countries, through branches and offices in
the UK and overseas. Information about
internal control and financial risk
management objectives and policies in
relation to the use of financial instruments
can be found in note 34 to the financial
statements, which are incorporated into
this report by reference. Further
information on risk management more
generally can be found on page 28.
Financial instruments
Disclosure of the use of financial
instruments by the Group can be found
in note 34 to the financial statements.
Disclosures required under Listing
Rule 9.8.4R
Additional information required to be
disclosed by Listing Rule 9.8.4R, where
applicable to the Group, can be found in
the following pages of the Annual Report:
Amount of interest capitalised
Publication of unaudited
financial information
Details of Long Term
Incentive schemes
Allotment of equity securities
Significant contracts
Page
n/a
n/a
50
n/a
n/a
Change of control
The Company is not party to any
significant agreements that would take
effect, alter or terminate upon a change of
control of the Company following a
takeover bid. However, the Group’s
Revolving Credit Facility Agreement would
terminate upon a change of control of the
Company. The Company does not have
agreements with any director or employee
providing compensation for loss of office
or employment that occurs because of a
takeover bid, except for provisions in the
rules of the Company’s share schemes
which result in options or awards granted
to employees vesting on a takeover.
64
Coats Group plc Annual Report 2015
Directors’ reportcontinuedCorporate governance Directors’ responsibilities statement
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), including FRS 102 ‘The
Financial Reporting Standard applicable in
the UK and Republic of Ireland’. 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 judgments 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:
Responsibility statement
We confirm that to the best of our
knowledge:
• properly select and apply accounting
• the financial statements, prepared in
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 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 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.
accordance with the relevant financial
reporting framework, 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;
• 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; and
• 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.
This responsibility statement was approved
by the Board of Directors and is signed on
its behalf by:
Mike Clasper
Chairman
10 March 2016
Coats Group plc Annual Report 2015
65
Corporate governance Independent auditor’s report to the Members of
Coats Group plc
Opinion on financial statements of
Coats Group plc
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 2015 and of the Group’s loss 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, including FRS 102
“The Financial Reporting Standard applicable in the UK and Republic of Ireland”; 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 Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows, the related Group notes 1 to 36 the Company Balance Sheet,
the Company Statement of Changes in Equity, the Company Cash Flow Statement and
the related Company notes 1 to 8. 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), including FRS 102 “The Financial Reporting Standard applicable in
the UK and Republic of Ireland”.
Separate opinion in relation to IFRSs
as issued by the IASB
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.
Going concern and the directors’
assessment of the principal risks that
would threaten the solvency or
liquidity of the Group
As required by the Listing Rules we have reviewed the directors’ statement regarding
the appropriateness of the going concern basis of accounting contained within note 1
to the financial statements and the Directors’ statement on the longer-term viability of
the Group contained within the strategic report on page 33.
We have nothing material to add or draw attention to in relation to:
• the Directors’ confirmation on page 30 that they have carried out a robust
assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity;
• the disclosures on pages 30 to 33 that describe those risks and explain how they are
being managed or mitigated;
• the Directors’ statement in note 1 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing
them and their identification of any material uncertainties to the Group’s ability to
continue to do so over a period of at least twelve months from the date of approval
of the financial statements;
• the Directors’ explanation on page 33 as to how they have assessed the prospects of
the group, over what period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern basis of accounting and
we did not identify any such material uncertainties. 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.
66
Coats Group plc Annual Report 2015
Financial statements Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for
Auditors and we confirm that we are independent of the Group and we have fulfilled
our other ethical responsibilities in accordance with those standards. We also confirm
we have not provided any of the prohibited non-audit services referred to in those
standards.
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
Revenue recognition
As discussed in the Annual Report and
financial statements, from early 2015 the
Coats Group plc activities were reviewed
by the Board as that of a UK-
headquartered, global industrial
manufacturing business. We have
considered the risk of fraud in revenue
recognition to be more relevant in 2015
due to this transition. This risk is primarily
focused on appropriateness of cut-off due
to the volume and lead times of sales
made over the year-end and the
judgement in respect of the point of
transfer of risks and rewards of goods to
customers. The revenue recognition policy
is disclosed in note 1 (K) and the
classification of revenue in note 3 of the
financial statements.
Disposal of EMEA Crafts
The disposal of the EMEA Crafts business
was a significant one-off transaction with
a material impact on the results of the
Group, as explained in the Group Chief
Executive’s Statement on page 10 of the
Annual Report. The loss on disposal has
been calculated by management to be
$76.0 million, see note 32 in the financial
statements. This results from operating
losses in the EMEA Crafts business of
$12.7 million, loss on the assets and
liabilities disposed of $55.8 million and
exchange losses of $7.5 million recycled to
the consolidated income statement.
Going concern and the impact of the
Pensions Regulator’s investigations
Significant judgement is required to assess
the impact of the Pensions Regulator’s
investigations on the going concern basis
of 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 79 of the
financial statements and their
consideration of the long term viability of
the Company on page 33. Further details
of the Pension Regulator’s investigation is
given in the Chairman’s Statement on page
4 of the Strategic Report and in note 24 of
the financial statements.
We have considered the revenue recognition policies of the Group, challenged the basis
of significant adjustments to revenue and considered the cut-off of sales around the
year-end to assess the appropriate transfer of risks and rewards of goods to customers.
We have audited the closing balance sheet of the disposal Group, reviewed the
contractual commitments and challenged key inputs in the calculation determining the
loss on disposal. We have audited the $7.5 million exchange loss recycled to the
consolidated income statement upon completion of the transaction and confirmed the
reduction in consideration from $10 million to a nominal amount.
The Pensions Regulator’s investigation impacts the Brunel, Staveley and Coats UK
schemes operated by the Group. 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. 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 met with the legal advisers.
Coats Group plc Annual Report 2015
67
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 used in determining the provision for the
Lower Passaic River, including: a review of relevant correspondence with management’s
experts, consultation with independent experts and carrying out testing on movements
in the provision. We considered information provided by outside legal counsel in
relation to the investigation and held calls with key legal advisers. We considered the
implications of the EPA releasing their ROD and concluded it was an adjusting post-
balance sheet event. We audited the insurance policies held against the potential
liabilities and considered the accounting adopted by management and specifically the
implications of using the EPA’s ROD in the calculation of the provision.
We considered indicators of impairment in respect of the tangible fixed assets, focusing
on the performance of the various components of the Group where material tangible
fixed assets are held. We tested management’s assumptions used in the impairment
model for intangible assets and tangible assets, where indicators of impairment were
found, 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 models by comparing to industry data sources,
reviewed supporting evidence and applied further sensitivities.
Material assumptions underlying
retirement benefit obligations
The net defined benefit liability of Coats
Group plc is $3,249.1 million (2014:
$3,679.1 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 retirement benefit obligations are
presented in note 10 of the financial
statements. This is also identified as a
critical accounting judgement in note 1 of
the financial statements.
Lower Passaic River
The Lower Passaic River provision requires
significant management judgement,
including assessing the likely outcome of the
US Environmental Protection Agency’s (‘EPA’)
investigation. Management has set out their
considerations in respect of the Lower
Passaic River Study Area litigation in note 28
of the financial statements. During 2015 the
Cooperating Parties Group submitted their
Remedial Investigation Report and Focused
Feasibility Study to the US Environmental
Protection Agency, providing a reliable basis
for management to make an initial provision.
Subsequent to the year end, and considered
an adjusting post balance sheet event, the
EPA issued their Record of Decision (‘ROD’) in
respect of this matter and management
updated the basis for their estimate, resulting
in an additional charge to the income
statement of $6.8 million from the
recognition of the provision together with
the related insurance reimbursement asset.
The provision is currently considered by
management to be the best estimate of a
future liability under accounting standards
based on the EPA’s decision and current
information available. Management identify
provisions as a critical accounting judgement
in note 1 of the financial statements.
Carrying value of intangible assets
and tangible assets
The Group holds $239.6 million of brands
(2014: $239.6 million) and $5.5 million of
goodwill (2014: $2.2 million) shown in note
13 of the financial statements. The Group
also holds tangible fixed assets of
$273.0 million (2014: $298.2 million) as
shown in note 14 of 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 judgement in note 1 of
the financial statements.
68
Coats Group plc Annual Report 2015
Independent auditor’s report to the Members of Coats Group plccontinuedFinancial 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. The Group effective
tax rate is 54.8% (2014: 46.6%), with
deferred tax assets of $12.5 million and
deferred tax liabilities of $33.0 million
recognised in the statement of financial
position. Management make a number of
judgements on the future profitability of
key components of the Group when
recognising deferred tax assets on brought
forward trading losses. The tax
reconciliation is included in note 9 and the
deferred tax in notes 16 and 23 of the
financial statements.
Our application of materiality
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.
The description of risks above should be read in conjunction with the significant issues
considered by the Audit and Risk Committee discussed on page 45. We have
reported two new risks in 2015: revenue recognition and the disposal of EMEA Crafts.
We have reported revenue recognition due to the re-positioning of the Group as a
UK-headquartered manufacturing business in 2015 and EMEA Crafts as a significant
one-off transaction. We have refined the risk on provisions to be specific to the Lower
Passaic River provision in 2015.
These matters were addressed in the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
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 $7.9 million, which is approximately 8%
of adjusted profit before tax; determined as forecast profit adjusted for exceptional
costs related to the disposal of EMEA Crafts, Lower Passaic River provision and the
impact of restructuring in Mexico. In 2014 materiality was determined to be £6.3 million
(equivalent to $9.8 million), which was below 1% of net assets adjusted for the deemed
pension liabilities. We have changed the basis of materiality from adjusted net assets
to an adjusted profit measure, subsequent to the merger of the Coats Group plc
and Coats plc Boards and the change of focus from an investment company to a
UK-headquartered, global industrial manufacturing business.
We agreed with the Audit and Risk Committee that we would report to the Committee
all audit differences in excess of $560,000 (2014: $545,000), 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.
Coats Group plc Annual Report 2015
69
Financial statements An overview of the scope of our audit Coats Group plc and all head office entities were subject to full statutory audit by the
Group auditor. Due to the geographically widespread nature of the Group, the audit is
subject to scoping decisions on overseas components; we also regularly rotate countries in
and out of scope to ensure an element of unpredictability in our scoping. In 2015 we
brought Tunisia into audit scope in place of a German entity. Our involvement in the audit
of the overseas components is as follows: the senior members of the audit team and Senior
Statutory Auditor follow a programme of planned site visits, planning calls and closing
meetings. The Group auditor also reviews the work of overseas component auditors.
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. We included 17 entities in scope in 2015 (2014: 17) which
included entities across all major geographic regions operated in by the Group,
including key markets USA, Mexico, Brazil, China, Vietnam, India, Bangladesh and
significant entities in Europe, including the head office companies in the UK.
Revenue
Adjusted profit
Audit scope
Non-audit scope
84%
16%
Audit scope
Non-audit scope
99%
1%
Our audit provided coverage of 99% (2014: 81%) of the Group’s profit before tax and
84% (2014: 85%) of the Group’s revenue is subject to full scope audit or audit of
specified account balances.
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.
Opinion on other matters prescribed
by the Companies Act 2006
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.
Matters on which we are required to
report by exception
Adequacy of explanations received and
accounting records
70
Coats Group plc Annual Report 2015
Independent auditor’s report to the Members of Coats Group plccontinuedFinancial statements
Directors’ remuneration
Corporate Governance Statement
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.
Under the Listing Rules we are also required to review part of the Corporate Governance
Statement relating to the company’s compliance with certain 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:
Respective responsibilities of
directors and auditor
Scope of the audit of the financial
statements
• 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). 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.
Georgina Robb, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
10 March 2016
Coats Group plc Annual Report 2015
71
Financial statements Consolidated income statement
For the 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/(loss) for the year
Attributable to:
Equity shareholders of the company
Non-controlling interests
Earnings per ordinary share from
continuing operations:
Basic and diluted (cents)
(Loss)/earnings per ordinary share from
continuing and discontinued operations:
Basic and diluted (cents)
Adjusted earnings per share (cents)
Before
exceptional
items
US$m
Exceptional
items
US$m
Notes
2015
Total
US$m
Before
exceptional
items
US$m
Exceptional
items
US$m
1,561.4
(993.4)
568.0
(221.4)
(224.2)
1.0
123.4
1.5
11.5
(19.5)
116.9
(45.0)
71.9
(8.4)
63.5
53.9
9.6
63.5
–
–
–
–
(23.1)
3.1
(20.0)
–
–
–
(20.0)
(0.1)
(20.1)
(18.8)
(38.9)
(38.9)
–
(38.9)
2,3 1,489.5
(930.1)
559.4
(202.9)
(217.8)
0.7
139.4
1.5
10.5
(41.7)
109.7
(46.2)
63.5
2,4
15
6
7
9
5
– 1,489.5
(946.6)
542.9
(202.9)
(238.9)
9.9
111.0
–
10.5
(41.7)
79.8
(43.7)
36.1
(16.5)
(16.5)
–
(21.1)
9.2
(28.4)
(1.5)
–
–
(29.9)
2.5
(27.4)
32
(12.7)
50.8
(62.8)
(90.2)
(75.5)
(39.4)
39.6
11.2
50.8
(90.2)
–
(90.2)
(50.6)
11.2
(39.4)
11
11
36(a)
1.78
(3.61)
3.96
2014*
Total
US$m
1,561.4
(993.4)
568.0
(221.4)
(247.3)
4.1
103.4
1.5
11.5
(19.5)
96.9
(45.1)
51.8
(27.2)
24.6
15.0
9.6
24.6
2.99
1.06
3.08
* Restated to reflect the change in accounting policies for presentation currency, operating profit and exceptional items and the results of EMEA Crafts business as a discontinued
operation (see note 1).
Notes on pages 78 to 127 form part of these financial statements.
72
Coats Group plc Annual Report 2015
Financial statements Consolidated statement of comprehensive income
Year ended 31 December
(Loss)/profit for the year
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains/(losses) on retirement benefit schemes
Tax on items that will not be reclassified
Items that may be reclassified subsequently to profit or loss:
Losses on cash flow hedges arising during the year
Transferred to profit or loss on cash flow hedges
Exchange differences on translation of foreign operations
Exchange differences transferred to profit or loss on sale of businesses
Exchange differences transferred to profit or loss on sale of investment
Transferred to profit or loss on sale of fixed asset investment
Other comprehensive income and expense for the year
Net comprehensive income and expense for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
* Restated to reflect the change in presentation currency (see note 1).
Notes on pages 78 to 127 form part of these financial statements.
2015
US$m
(39.4)
2014*
US$m
24.6
67.2
(3.4)
63.8
(330.9)
(1.7)
(332.6)
(1.7)
3.0
(66.2)
7.5
(0.5)
–
(57.9)
(1.5)
3.7
(44.7)
–
–
0.2
(42.3)
5.9
(374.9)
(33.5)
(350.3)
(44.0)
10.5
(33.5)
(359.7)
9.4
(350.3)
Coats Group plc Annual Report 2015
73
Financial statements Consolidated statement of financial position
31 December
Non-current assets
Intangible assets
Property, plant and equipment
Investments in joint ventures
Available-for-sale investments
Deferred tax assets
Pension surpluses
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Available-for-sale investments
Pension surpluses
Cash and cash equivalents
Non-current assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Current income tax liabilities
Bank overdrafts and other borrowings
Retirement benefit obligations:
– Funded schemes
– Unfunded schemes
Provisions
Net current assets
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Borrowings
Retirement benefit obligations:
– Funded schemes
– Unfunded schemes
Provisions
Total liabilities
Net assets
* Restated to reflect the change in presentation currency (see note 1).
74
Coats Group plc Annual Report 2015
Notes
2015
US$m
2014*
US$m
2013*
US$m
13
14
15
15
16
10
18
17
18
15
10
30(g)
32(c)
20
22
10
10
24
20
23
22
10
10
24
261.2
273.0
10.8
1.5
12.5
52.5
16.4
627.9
204.0
261.9
0.2
6.6
649.9
–
1,122.6
256.7
298.2
13.7
3.0
15.3
51.0
16.0
653.9
256.1
341.3
13.7
3.5
13.6
44.6
20.1
692.9
257.8
304.1
0.4
5.6
739.0
1.5
1,308.4
281.0
343.0
0.6
4.7
758.7
0.9
1,388.9
1,750.5
1,962.3
2,081.8
(320.7)
(12.5)
(20.2)
(33.9)
(6.2)
(44.4)
(437.9)
(374.0)
(10.8)
(113.5)
(27.7)
(7.7)
(42.9)
(576.6)
(383.0)
(19.1)
(82.4)
(28.8)
(7.3)
(42.4)
(563.0)
684.7
731.8
825.9
(12.4)
(33.0)
(389.1)
(394.1)
(94.2)
(35.8)
(958.6)
(13.6)
(39.2)
(304.6)
(485.9)
(119.3)
(22.5)
(985.1)
(19.1)
(36.8)
(371.7)
(195.8)
(112.6)
(26.7)
(762.7)
(1,396.5)
(1,561.7)
(1,325.7)
354.0
400.6
756.1
Financial statements 31 December
Equity
Share capital
Share premium account
Own shares
Translation reserve
Capital reduction reserve
Other reserves
Retained (loss)/profit
Equity shareholders’ funds
Non-controlling interests
Total equity
* Restated to reflect the change in presentation currency (see note 1).
Notes
26
27
26,27
27
27
27
27
27
2015
US$m
2014*
US$m
2013*
US$m
127.0
11.6
(7.6)
(123.1)
85.2
250.5
(14.3)
329.3
24.7
354.0
127.0
11.6
–
(64.6)
85.2
249.2
(32.1)
376.3
24.3
400.6
127.0
11.4
–
(20.1)
85.2
246.8
284.2
734.5
21.6
756.1
Paul Forman, Group Chief Executive
Richard Howes, Chief Financial Officer
Approved by the Board on 10 March 2016
Company Registration No. 103548
Notes on pages 78 to 127 form part of these financial statements.
Coats Group plc Annual Report 2015
75
Financial statements Consolidated statement of changes in equity
Balance as at
1 January 2014*
Net comprehensive
income and expense
for the year
Dividends
Share issues
Share based payments
Balance as at
31 December 2014
Net comprehensive
income and expense
for the year
Dividends
Purchase of own shares
Share based payments
Balance as at
31 December 2015
Share
capital
US$m
Share
premium
account
US$m
Own
shares
US$m
Translation
reserve
US$m
Capital
reduction
reserve
US$m
Other
reserves
US$m
Retained
(loss)/profit
US$m
Non-
controlling
interests
US$m
Total
US$m
127.0
11.4
–
–
–
–
–
–
0.2
–
127.0
11.6
–
–
–
–
–
–
(20.1)
85.2
246.8
284.2
734.5
21.6
(44.5)
–
–
–
–
–
–
–
2.4
–
–
–
(317.6)
–
–
1.3
(359.7)
–
0.2
1.3
9.4
(6.7)
–
–
(64.6)
85.2
249.2
(32.1)
376.3
24.3
–
–
–
–
–
–
–
–
–
–
(7.6)
–
(58.5)
–
–
–
–
–
–
–
1.3
–
–
–
13.2
–
–
4.6
(44.0)
–
(7.6)
4.6
10.5
(10.1)
–
–
127.0
11.6
(7.6)
(123.1)
85.2
250.5
(14.3)
329.3
24.7
* Restated to reflect the change in presentation currency (see note 1).
Notes on pages 78 to 127 form part of these financial statements.
76
Coats Group plc Annual Report 2015
Financial statements Consolidated statement of cash flows
For the year ended 31 December
Cash inflow from operating activities
Net cash inflow from operations
Interest paid
Taxation paid
Net cash generated by operating activities
Cash outflow from investing activities
Investment income
Net capital expenditure and financial investment
Acquisitions and disposals
Net cash absorbed in investing activities
Cash outflow from financing activities
Proceeds on issue of shares
Purchase of own shares
Dividends paid to non-controlling interests
Net increase/(decrease) in debt and finance leasing
Net cash absorbed in financing activities
Net (decrease)/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 cash
Net (decrease)/increase in cash and cash equivalents
Net (increase)/decrease in debt and lease financing
Change in net debt resulting from cash flows (free cash flow)
Other non-cash movements
Foreign exchange losses
(Decrease)/increase in net cash
Net cash at start of year
Net cash at end of year
* Restated to reflect the change in presentation currency and operating profit accounting policy (see note 1).
Notes on pages 78 to 127 form part of these financial statements.
Notes
30(a)
30(b)
30(c)
30(d)
30(e)
30(f)
30(g)
30(g)
2015
US$m
2014*
US$m
108.9
(15.3)
(49.3)
44.3
10.0
(31.9)
(26.1)
(48.0)
–
(7.6)
(10.1)
1.3
(16.4)
(20.1)
710.4
(58.9)
631.4
(20.1)
(1.3)
(21.4)
(3.1)
(55.8)
(80.3)
320.9
240.6
158.4
(21.8)
(55.7)
80.9
9.8
(37.7)
–
(27.9)
0.2
–
(6.7)
(44.0)
(50.5)
2.5
740.7
(32.8)
710.4
2.5
44.0
46.5
(2.3)
(27.9)
16.3
304.6
320.9
Coats Group plc Annual Report 2015
77
Financial statements 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 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.
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.
Notes to the financial statements
1 Principal accounting policies
The following are the principal accounting
policies adopted in preparing the financial
statements.
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) 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.
Except as set out below the same
accounting policies, presentation and
methods of computation have been
followed in these consolidated financial
statements as applied in the Group’s
annual financial statements for the year
ended 31 December 2014.
B) Changes in the Group’s accounting
policies
Following the change in the name of the
Company to Coats Group plc and its focus
as a global manufacturing business a
number of the Group’s accounting policies
have been changed:
• presentation currency changed from
Great Britain pounds sterling (‘Sterling’)
to United States Dollars (‘USD’);
• operating profit accounting policy
changed to exclude interest income and
foreign exchange gains and losses on
cash and cash equivalents used in
investing activities;
• exceptional items accounting policy
A sensitivity analysis relating to the
Group’s major defined benefit pension
arrangements is included in note 10.
adopted; and
• operating segments changed to
Industrial and Crafts.
• 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.
In addition to the above changes,
following the sale of the EMEA Crafts
business which was completed on 31 July
2015, the results of that business are
presented as a discontinued operation.
Accordingly, prior period amounts in the
consolidated income statement have been
reclassified to discontinued operations.
C) Basis of preparation
Subsidiaries
Subsidiaries are listed on pages 134 to 135.
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
78
Coats Group plc Annual Report 2015
Financial statements
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, including the
appropriate capital structure to be adopted
by the Group in the future; 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 62.
D) Foreign currencies
Foreign currency translation
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.
Presentation currency
The financial statements of Coats Group
plc have previously been presented in
Sterling. Following the change in focus of
the Group to a global manufacturing
business and the change in name of the
Company to Coats Group plc, the currency
in which the Group presents its financial
results has been changed from Sterling to
USD. Accordingly, the Board determined
that, with effect from 1 January 2015,
Coats Group plc will present its results in
USD. The Board believes that this change
will help to provide a clearer
understanding of the Group's financial
performance by more closely reflecting the
profile of its operations.
In order to satisfy the requirements of IAS
21 ’The Effects of Changes in Foreign
Exchange Rates’ with respect to a change
in presentation currency, the financial
information previously reported has been
restated from Sterling into USD using the
procedures outlined below:
• assets and liabilities were translated into
USD at the relevant closing rates of
exchange;
• income and expenses were translated
into USD at the average exchange rate
for the relevant period;
• differences arising from the retranslation
of the opening net assets and the
income and expenses for the period
have been taken to the translation
reserve; and
• the cumulative foreign currency
translation reserve was set to nil at
1 January 2004, the date of transition
to IFRS. All subsequent movements
comprising differences on the
retranslation of the opening net assets
of non-USD subsidiaries have been
taken to the translation reserve. Share
capital, share premium and other
reserves were translated at the historic
rates prevailing at the dates of
transactions.
The change in presentation currency
represents a change in accounting policy
which is accounted for retrospectively. The
comparative year has been restated from
Sterling into USD using the following
exchange rates:
Average
Year end
December 2014
0.61
0.64
Assets and liabilities of subsidiaries whose
presentation currency is not US Dollars 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) Operating segments
Following the change in focus of the Coats
Group plc Board to that of leading a global
manufacturing business the format of the
segmental reporting has changed to
reflect the information viewed by the
Board to allocate resources. As such the
Group's reportable segments under IFRS 8
are now Industrial and Crafts. The results
of the operating segments are set out in
note 2; the change has been applied
retrospectively with comparative
information restated on a consistent basis.
F) Operating profit
The Group has adopted a new policy for
operating profit following the change in
focus of the Group to a global
manufacturing business. The new policy is
as follows:
Operating profit is stated before the share
of results of joint ventures, investment and
interest income, finance costs and foreign
exchange gains and losses from cash and
cash equivalents used in investing
activities.
The new policy has been applied
retrospectively with restatement of
comparative numbers in the consolidated
income statement. The impact of the
change in the policy on the results for the
year ended 31 December 2014 is as
follows:
• interest and other income – Parent
Group of $9.2 million is now classified
below operating profit as part of
investment income;
• foreign exchange gains and losses on
cash and cash equivalents used in
investing activities of $18.9 million gain
are now reported as part of finance
costs rather than administrative
expenses; and
• profit on sale of property of $3.1 million
is now reported as part of other
operating income rather than
administrative expenses.
Coats Group plc Annual Report 2015
79
Financial statements The new policy has been applied
retrospectively with restatement of
comparative numbers in the consolidated
income statement. The exceptional items
for the prior year are set out in note 4.
H) 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.
I) 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 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 20 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.
The impact of the change in operating
profit policy on the results for the year
ended 31 December 2014 is summarised
below:
Consolidated income statement:
Interest and other income
– Parent Group
Administrative expenses
Other operating income
Operating profit
Investment income
Finance costs
Consolidated cash flow statement:
Net cash (absorbed in)/generated
by operating activities
Net cash absorbed in investing
activities
US$m
(9.2)
(22.0)
3.1
(28.1)
9.2
18.9
(8.6)
8.6
There was no impact on profit before
taxation from continuing operations or
equity shareholders’ funds.
G) Exceptional items
The consolidated income statement format
has been changed to include results both
before and after exceptional items. The
Group's accounting policy for exceptional
items is as follows:
The Group has adopted an income
statement format which seeks to highlight
significant non-recurring items within the
Group results for the year. Such items may
include significant restructuring associated
with a business or property disposal,
litigation costs and settlements, profit or
loss on disposal of property, plant and
equipment, acquisition related costs, gains
or losses arising from de-risking of defined
benefit pension obligations, regulatory
investigation costs, adjustments to
deferred and contingent consideration and
impairment of assets.
Judgement is used by the Group in
assessing the particular items, which by
virtue of their scale and nature, should be
presented in the income statement and
disclosed in the related notes as
exceptional items. In determining whether
an event or transaction is exceptional,
quantitative as well as qualitative factors
such as frequency or predictability of
occurrence are considered. This is
consistent with the way financial
performance is measured by management
and reported to the Board.
80
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 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.
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
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.
J) 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) Available for sale investments
Available for sale investments are
recognised and derecognised on a trade
date basis and are initially measured at fair
value, plus directly attributable transaction
costs and are remeasured at subsequent
reporting dates at fair value. Listed
investments 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.
(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.
(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.
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 interest rate
risk 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.
(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
Coats Group plc Annual Report 2015
81
Financial statements 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.
K) 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.
L) 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:
Raw materials are valued at cost on a
first-in, first-out basis.
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.
82
Coats Group plc Annual Report 2015
M) 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.
The Group presents current and past
service costs within cost of sales and
administrative expenses in its consolidated
income statement. Curtailment gains and
losses are accounted for as past service
cost.
Net interest expense or income is
recognised within finance costs.
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. 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 an equity-settled Long
Term Incentive Plan for executives and
senior management. Awards under this
plan are subject to both market-based and
non market-based vesting criteria.
The fair value at the date of grant is
established by using an appropriate
simulation method to reflect the likelihood
of market-based performance conditions
being met. The fair value is charged to the
consolidated income statement on a
straight-line basis over the vesting period,
with appropriate adjustments being made
during this period to reflect expected
vesting for non market-based performance
conditions and forfeitures. The
corresponding credit is to equity
shareholders’ funds.
Actuarial gains and losses are recognised
in the consolidated statement of
comprehensive income.
The shares awarded under this plan are
purchased in the market by the Employee
Benefit Trusts over the vesting period.
(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.
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 obligations
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.
Notes to the financial statementscontinuedFinancial statements (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.
N) Taxation
The tax expense represents the sum of the
current tax 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
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.
Deferred tax liabilities are recognised for
taxable temporary differences arising on
investments in subsidiaries and associates,
and interests in joint ventures, except
where the Group is able to control the
reversal of the temporary difference and it
is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred tax assets arising from deductible
temporary differences associated with such
investments and interests are only
recognised to the extent that it is probable
that there will be sufficient taxable profits
against which to utilise the benefits of the
temporary differences and they are
expected to reverse in the foreseeable
future.
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
other comprehensive income or equity, in
which case the deferred tax is also dealt
with in other comprehensive income or
equity.
O) 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.
P) 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.
Q) 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.
R) 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.
S) 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.
Coats Group plc Annual Report 2015
83
Financial statements New IFRS accounting standards and
interpretations adopted in the year
During the year, the Group has adopted
the following standards and
interpretations:
• IFRIC 21 (’Levies’); and
From the year beginning 1 January 2018:
• IFRS 9 (‘Financial instruments’); and
• IFRS 15 (‘Revenue from Contracts with
Customers’).
From the year beginning 1 January 2019:
• Annual Improvements to IFRSs 2011–
2013 Cycle.
• IFRS 16 (‘Leases’).
Other than IFRS 9, 15 and 16 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.
IFRS 9 ‘Financial Instruments’ will impact
both the measurement and disclosure of
financial instruments. IFRS 15 ‘Revenue
from Contracts with Customers’ may
change the timing of revenue recognition.
IFRS 16 ‘Leases’ will change how the
Group recognises, measures, presents and
discloses leases. The standard requires the
Group to recognise assets and liabilities for
all leases, unless the lease term is 12
months or less or the underlying asset has
a low value.
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 1 (‘Disclosure
Initiative’);
• Amendments to IAS 16 and IAS 38
(‘Clarification of Acceptable Methods of
Depreciation and Amortisation’);
• Amendments to IAS 19 (‘Defined
Benefit Plans: Employee Contributions’);
• 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’);
• Amendments to IFRS 11 (‘Accounting
for Acquisitions of Interests in Joint
Operations’);
• Annual Improvements to IFRSs
2010–2012 Cycle; and
• Annual Improvements to IFRSs
2012–2014 Cycle.
From the year beginning 1 January 2017:
• Amendments to IAS 12 (‘Recognition of
Deferred Tax Assets for Unrealised
Losses’); and
• Amendments to IAS 7 (‘Disclosure
Initiative’).
84
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 2 Segmental analysis
The Group has two reportable segments: Industrial and Crafts. Both segments include businesses with similar operating and
market characteristics. These segments are consistent with the internal reporting as reviewed by the Coats Group plc Board (the
‘Chief Operating Decision Maker’).
The reportable segments have changed in the year and therefore comparative results have been restated on the same basis. The
previous operating segments of Coats Group plc were Thread manufacturing and Investment activities.
a) Segment revenue and results
2015
Revenue
Segment profit
UK pension scheme administrative expenses
Pre-exceptional operating profit
Exceptional items
Operating profit
Share of profit of joint ventures
Investment income
Finance costs
Profit before taxation from continuing operations
2014 (Restated)
Revenue
Segment profit
UK pension scheme administrative expenses
Pre-exceptional operating profit
Exceptional items
Operating profit
Share of profit of joint ventures
Investment income
Finance costs
Profit before taxation from continuing operations
Industrial
US$m
1,212.5
135.2
Crafts
US$m
277.0
14.4
Industrial
US$m
1,243.1
117.9
Crafts
US$m
318.3
13.8
Total
US$m
1,489.5
149.6
(10.2)
139.4
(28.4)
111.0
–
10.5
(41.7)
79.8
Total
US$m
1,561.4
131.7
(8.3)
123.4
(20.0)
103.4
1.5
11.5
(19.5)
96.9
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.
b) Assets and liabilities
Assets
31 December 2015
31 December 2014 (Restated)
Liabilities
31 December 2015
31 December 2014 (Restated)
Adjustments,
eliminations
and
unallocated
assets and
liabilities
US$m
2.7
2.6
Total
US$m
474.6
567.5
(44.7)
(41.2)
(319.0)
(368.5)
Industrial
US$m
Crafts
US$m
366.1
388.4
(231.9)
(256.7)
105.8
176.5
(42.4)
(70.6)
Segmental assets includes trade and other receivables (excluding derivative financial instruments and current income tax assets) and
inventories. Segmental liabilities includes trade and other payables (excluding derivative financial instruments and current income tax
payables of $9.6 million (2014: $10.0 million) within other payables due after one year). Adjustments, eliminations and unallocated
assets and liabilities consist of elimination of intra group balances as well as assets and liabilities which have not been allocated to
reportable segments.
Coats Group plc Annual Report 2015
85
Financial statements
2 Segmental analysis continued
c) Other segment information
Industrial
Crafts
Unallocated
Additions to non-current assets
Depreciation and amortisation
2015
US$m
31.9
3.3
7.1
42.3
Restated
2014
US$m
35.2
3.3
8.6
47.1
2015
US$m
33.0
3.7
6.9
43.6
Restated
2014
US$m
37.2
4.1
5.3
46.6
Additions to non-current assets and depreciation and amortisation excludes EMEA Crafts for both 2015 and 2014.
d) Geographic information
Europe, Middle East & Africa (EMEA)
– UK
– Germany
– Rest of EMEA
Americas
– USA
– Brazil
– Mexico
– Rest of Americas
Asia & Rest of World
– India
– China and Hong Kong
– Bangladesh
– Vietnam
– Other
Revenue by origin
Revenue by destination
Non-current assets
2015
US$m
18.4
43.3
186.7
291.2
74.2
61.9
98.9
169.1
173.9
77.2
139.4
155.3
1,489.5
Restated
2014
US$m
22.3
51.7
223.4
298.2
110.5
64.0
111.6
169.7
164.6
66.9
123.6
154.9
1,561.4
2015
US$m
26.3
11.8
208.3
279.8
73.9
64.5
105.1
163.2
166.4
78.3
127.8
184.1
1,489.5
Restated
2014
US$m
32.0
20.8
242.2
290.2
110.1
64.5
117.7
164.0
147.1
68.7
124.2
179.9
1,561.4
2015
US$m
267.5
3.5
44.5
42.6
16.6
16.9
10.5
37.7
38.0
18.2
27.1
35.4
558.5
Restated
2014
US$m
265.6
3.7
53.6
38.4
27.8
22.1
11.7
40.7
41.1
17.4
27.3
37.8
587.2
Non-current assets excludes derivative financial instruments, pension surpluses and deferred tax assets.
e) Information about products and customers
The Group’s revenue by product type are as follows:
Industrial – Apparel and Footwear
Industrial – Speciality
Crafts – Handknittings
Crafts – Needlecrafts
The Group had no revenue from a single customer, which accounts for more than 10% of the Group’s revenue.
2015
US$m
979.3
233.2
149.5
127.5
1,489.5
Restated
2014
US$m
1,008.1
235.0
169.8
148.5
1,561.4
86
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 3 Revenue
An analysis of the Group’s revenue is as follows:
Year ended 31 December
Continuing operations:
Sales of goods
Other operating income
Investment income
Discontinued operations:
Sales of goods
Investment income
Total
4 Exceptional items
Cost of sales:
US environmental costs (note 28)
Reorganisation costs – Mexico
Administrative expenses:
Capital incentive plan charge
UK Pensions Regulator (‘tPR’) investigation costs
Reorganisation costs – overhead reduction programme
Other operating income:
Profit on the sale of property
Share of profits of joint ventures:
Loss on disposal of joint venture
2015
US$m
1,489.5
9.9
10.5
1,509.9
47.8
0.1
47.9
1,557.8
2015
US$m
13.2
3.3
16.5
1.3
5.7
14.1
21.1
Restated
2014
US$m
1,561.4
4.1
11.5
1,577.0
124.5
0.1
124.6
1,701.6
Restated
2014
US$m
–
–
–
4.2
18.9
–
23.1
(9.2)
(3.1)
1.5
29.9
–
20.0
Coats Group plc Annual Report 2015
87
Financial statements 2015
US$m
9.0
34.6
0.3
1.8
0.4
0.1
2.6
5.0
11.8
2.1
1.5
7.1
0.8
541.5
0.8
2015
US$m
4.9
4.9
0.7
10.5
2015
US$m
16.8
17.1
3.2
4.6
41.7
Restated
2014
US$m
5.9
40.7
0.3
2.1
0.4
–
2.8
5.8
13.8
2.0
2.5
(18.9)
1.0
579.8
1.0
Restated
2014
US$m
9.2
1.6
0.7
11.5
Restated
2014
US$m
20.2
11.3
(18.9)
6.9
19.5
5 Profit before taxation from continuing operations
Year ended 31 December
Profit before taxation is stated after charging/(crediting):
Amortisation of intangible assets
Depreciation 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 services:
– Taxation services
– Other 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 losses/(gains)
Rental income from land and buildings
Inventory as a material component of cost of sales
Inventory write-downs to net realisable value
6 Investment income
Interest receivable on Parent Group cash*
Other interest receivable and similar income
Income from other investments
* Cash relating to the realisation of investments previously held by Coats Group plc.
7 Finance costs
Interest on bank and other borrowings
Net interest on pension scheme assets and liabilities
Foreign exchange losses/(gains) on Parent Group cash*
Other
* Cash relating to the realisation of investments previously held by Coats Group plc.
88
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 8 Staff costs
The average monthly number of employees was:
Year ended 31 December
Continuing operations:
Direct
Indirect
Other staff
Discontinued operations
Total number of employees
Comprising:
UK
Overseas
The total numbers employed at the end of the year were:
UK
Overseas
Year ended 31 December
Their aggregate remuneration comprised (including directors):
Continuing operations:
Wages and salaries
Social security costs
Other pension costs (note 10)
Discontinued operations
9 Tax on profit from continuing operations
Year ended 31 December
UK Corporation tax at 20.25% (2014: 21.5%)
Overseas tax charge
Deferred tax credit
Total tax charge
2015
Number
12,408
2,267
4,722
19,397
601
19,998
232
19,766
19,998
194
18,776
18,970
Restated
2014
Number
12,333
2,189
5,234
19,756
823
20,579
258
20,321
20,579
267
20,027
20,294
2015
US$m
Restated
2014
US$m
300.6
27.8
14.7
343.1
12.4
355.5
2015
US$m
–
(52.6)
8.9
(43.7)
354.8
29.5
15.5
399.8
27.2
427.0
Restated
2014
US$m
–
(47.2)
2.1
(45.1)
Coats Group plc Annual Report 2015
89
Financial statements 9 Tax on profit from continuing operations continued
The tax charge for the year can be reconciled as follows:
Underlying
US$m
130.0
Exceptional
items
US$m
(29.9)
Other
adjustments*
US$m
(20.3)
26.3
8.4
6.1
(0.6)
(1.1)
(3.7)
(0.4)
(1.3)
0.3
10.7
0.4
(3.0)
(6.1)
(0.7)
0.4
–
–
–
–
–
0.3
3.6
–
–
3.9
–
(4.1)
–
0.7
–
–
–
–
–
3.6
–
–
–
–
2015
Total
US$m
79.8
16.1
7.7
7.2
(0.6)
(1.1)
(3.7)
(0.4)
(1.3)
4.2
14.3
0.4
(3.0)
Underlying
US$m
109.3
Exceptional
items
US$m
(20.0)
23.5
7.3
5.5
(0.4)
(1.8)
(7.2)
–
–
–
12.2
–
(2.0)
(4.3)
(0.5)
0.4
–
–
–
–
–
–
4.5
–
–
3.9
8.4
–
–
46.0
35.4%
–
(2.5)
8.4%
–
0.2
(1.0%)
–
43.7
54.8%
(0.5)
45.0
41.2%
–
0.1
(0.5%)
Restated
2014
Total
US$m
96.9
20.8
6.8
5.9
(0.4)
(1.8)
(7.2)
–
–
–
Other
adjustments*
US$m
7.6
1.6
–
–
–
–
–
–
–
–
(1.6)
–
–
15.1
–
(2.0)
–
–
–
–
8.4
(0.5)
45.1
46.6%
Profit before taxation
Tax charge at the UK statutory
rate of 20.25% (2014: 21.5%)
Differences between overseas
and UK taxation rate
Non-deductible expenses
Non-taxable income
Local tax incentives
Utilisation of unrecognised
losses
Recognition of previously
unrecognised deferred tax
assets
Recognition of previously
unrecognised deferred tax
assets on losses
Potential deferred tax assets
not recognised
Potential deferred tax assets in
respect of losses not recognised
Impact of changes in tax rates
Prior year adjustments
Withholding tax on remittances
(net of double tax credits) and
other taxes not based on
profits
Impact of profit from joint
ventures recognised net of tax
Income tax expense/(credit)
Effective tax rate
* Other adjustments consist of net interest on pension scheme assets and liabilities of $17.1 million (2014: $11.3 million) and foreign exchange losses arising on cash relating to the
realisation of investments previously held by Coats Group plc of $3.2 million (2014: gain of $18.9 million).
90
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 10 Retirement and other post-employment benefit arrangements
(a) Pension and other post-employment costs
Pension and other post-employment costs for the year were (continuing and discontinued operations):
Defined contribution schemes
Defined benefit schemes – Coats UK funded
Coats US funded
Staveley
Brunel
Other funded and unfunded
Administrative expenses for defined benefit schemes
Restated
Year ended
31 December
2014
$m
3.0
Year ended
31 December
2015
$m
2.2
$m
4.4
3.8
–
–
4.6
$m
4.2
2.9
–
–
5.9
12.8
13.3
28.3
13.0
15.7
31.7
(b) Defined contribution schemes
The Group operates a number of defined contribution plans around the world to provide pension benefits. The total cost relating to
discontinued operations is $0.1 million (2014: $0.2 million).
(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.
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 – 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 the 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 2015.
For the principal schemes, the date of the most recent actuarial valuations were 1 April 2012 for the Coats UK scheme, 31 December
2015 for the Coats US scheme, 5 April 2011 for the Staveley scheme and 31 March 2013 for the Brunel scheme.
Coats Group plc Annual Report 2015
91
Financial statements 10 Retirement and other post-employment benefit arrangements continued
Principal assumptions at 31 December 2015
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Principal assumptions at 31 December 2014
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Coats UK
%
Coats US
%
Staveley
%
4.0
2.9
3.6
3.0
4.0
–
4.3
2.5
–
Various
3.6
3.0
Brunel
%
–
Various
3.6
3.0
Other
%
3.8
2.8
4.0
2.7
Coats UK
%
Coats US
%
Staveley
%
Brunel
%
Other
%
4.0
2.9
3.4
3.0
4.0
–
3.9
2.5
–
Various
3.4
3.0
–
Various
3.4
3.0
4.0
1.9
3.8
2.8
Amounts recognised in income in respect of these defined benefit schemes are as follows (both continuing and discontinued
operations):
For the year ended 31 December 2015
Current service cost
Administrative expenses
Interest on defined benefit obligations –
unwinding of discount
Expected return on pension scheme assets
Effect of asset cap
For the year ended 31 December 2014 (Restated)
Current service cost
Administrative expenses
Interest on defined benefit obligations –
unwinding of discount
Expected return on pension scheme assets
Effect of asset cap
Coats UK
$m
Coats US
$m
Staveley
$m
(4.4)
(7.9)
(12.3)
(86.7)
76.0
–
(10.7)
(3.8)
(1.0)
(4.8)
(6.0)
8.9
(0.8)
2.1
Brunel
$m
–
(2.2)
(2.2)
–
(2.1)
(2.1)
(11.9)
9.0
(8.4)
5.6
(2.9)
(2.8)
Coats UK
$m
Coats US
$m
Staveley
$m
(4.2)
(7.9)
(12.1)
(112.9)
107.6
–
(5.3)
(2.9)
(0.9)
(3.8)
(6.3)
10.2
(1.7)
2.2
–
(3.9)
(3.9)
(15.5)
13.4
–
(2.1)
Brunel
$m
–
(2.9)
(2.9)
(10.6)
8.5
–
(2.1)
Other
$m
(4.6)
(0.1)
(4.7)
(4.5)
2.0
(0.4)
(2.9)
Other
$m
(5.9)
(0.1)
(6.0)
(6.2)
2.5
(0.5)
(4.2)
Group
$m
(12.8)
(13.3)
(26.1)
(117.5)
101.5
(1.2)
(17.2)
Group
$m
(13.0)
(15.7)
(28.7)
(151.5)
142.2
(2.2)
(11.5)
Included in the table above are amounts that have been reclassified to discontinued operations following the disposal of the
EMEA Crafts business. Total amounts reclassified included service cost of $0.2 million (2014: $0.3 million) and net interest expense
of $0.1 million (2014: $0.2 million). No administrative expenses are included in discontinued operations (2014: $Nil). Liabilities of
$9.7 million were extinguished and assets of $0.4 million were transferred as a result of the disposal.
The actual return on scheme assets was $15.3 million (2014: $192.7 million) for the Coats UK scheme, $9.3 million fall in asset values
(2014: $26.6 million return) for the Coats US scheme, $1.4 million (2014: $8.5 million) for the Staveley scheme, $0.2 million (2014:
$4.2 million) for the Brunel scheme and $0.1 million (2014: $3.5 million) for the other schemes.
92
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 10 Retirement and other post-employment benefit arrangements 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 2015
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
Diversified investment fund
Other
Total market value of assets
Actuarial value of scheme liabilities
Net (liability)/asset in the scheme
Adjustment due to surplus cap
Recoverable net (liability)/asset in the scheme
Coats UK
$m
46.8
Coats US
$m
3.8
Staveley
$m
2.9
–
85.7
–
646.3
1,172.2
59.4
183.9
(58.6)
2.8
–
–
37.2
4.2
7.5
18.1
111.7
27.8
–
–
0.5
–
1.3
–
–
–
55.5
159.7
33.3
–
–
0.9
–
–
2,138.5
(2,402.5)
(264.0)
–
(264.0)
212.1
(149.3)
62.8
(5.0)
57.8
252.3
(339.3)
(87.0)
–
(87.0)
Brunel
$m
2.3
–
44.6
–
–
48.0
34.0
–
Other
$m
2.2
1.9
–
–
6.1
8.2
2.6
0.1
Total
$m
58.0
39.1
134.5
7.5
726.0
1,499.8
157.1
184.0
–
–
(58.6)
0.7
32.3
–
161.9
(233.4)
(71.5)
–
(71.5)
1.3
–
0.1
6.2
32.3
1.4
22.5
(124.6)
(102.1)
(2.5)
(104.6)
2,787.3
(3,249.1)
(461.8)
(7.5)
(469.3)
This amount is presented in the statement of financial position as follows:
Non-current assets
Funded
Current assets
Funded
Current liabilities
Funded
Unfunded
Non-current liabilities
Funded
Unfunded
52.5
6.6
(33.9)
(6.2)
(394.1)
(94.2)
(469.3)
Coats Group plc Annual Report 2015
93
Financial statements
10 Retirement and other post-employment benefit arrangements continued
As at 31 December 2014 (Restated)
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
Net (liability)/asset in the scheme
Adjustment due to surplus cap
Recoverable net (liability)/asset in the scheme
Coats UK
$m
62.3
Coats US
$m
2.7
Staveley
$m
5.2
–
366.1
–
363.6
1,359.8
63.9
201.2
36.7
4.4
11.8
16.3
124.1
37.9
–
–
134.8
–
–
131.4
9.6
–
Brunel
$m
3.3
–
85.3
–
–
57.9
28.8
–
Other
$m
3.8
1.4
–
0.3
8.2
10.0
5.3
0.2
Total
$m
77.3
38.1
590.6
12.1
388.1
1,683.2
145.5
201.4
(31.6)
–
–
–
–
(31.6)
3.1
–
2,388.4
(2,722.0)
(333.6)
–
(333.6)
0.5
5.5
239.9
(163.8)
76.1
(21.3)
54.8
1.0
–
282.0
(371.7)
(89.7)
–
(89.7)
0.8
–
176.1
(260.6)
(84.5)
–
(84.5)
4.9
0.1
34.2
(161.0)
(126.8)
(4.2)
(131.0)
10.3
5.6
3,120.6
(3,679.1)
(558.5)
(25.5)
(584.0)
This amount is presented in the statement of financial position as follows:
Non-current assets:
Funded
Current assets:
Funded
Current liabilities:
Funded
Unfunded
Non-current liabilities:
Funded
Unfunded
51.0
5.6
(27.7)
(7.7)
(485.9)
(119.3)
(584.0)
Included in the tables above are $185.8 million (2014: $85.3 million) of UK equity instruments, $234.1 million (2014: $217.7 million) of
corporate bonds, $81.9 million (2014: $44.8 million) of government/sovereign instruments, derivative liabilities of $58.6 million
(2014: $31.6 million), $32.3 million of diversified investment funds (2014: $Nil), $6.2 million (2014: $10.3 million) of insurance contracts
and $0.7 million (2014: $4.9 million) of other assets without a quoted price in an active market. All other assets have a quoted price in
an active market.
For the Coats UK Plan the investment policy is centred around establishing 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 Plan has a high probability of being
able to move to a fully matched position at some point in the future.
The CFM is targeted to be low risk relative to meeting the agreed number of years’ cash flows and the focus of the Plan’s investment
risk will be in respect of the RSA portfolio. The Plan 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.
94
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements
10 Retirement and other post-employment benefit arrangements continued
The US scheme is fully funded and has a significant proportion of fixed income. The fixed income is invested directly to protect the
funded status of the scheme. Trustees work with fixed income managers to consider the liabilities (including key period durations, credit
spread duration and convexity) and have created a custom fix 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 2015, $100.4 million (2014: $127.0 million) related to wholly unfunded arrangements.
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Current service cost
Interest on defined benefit obligations – unwinding of discount
Actuarial gains/(losses) on obligations
Liabilities extinguished on disposal of business
Liabilities extinguished on settlement
Contributions from members
Benefits paid
Exchange difference
At 31 December
Movements in the fair value of scheme assets were as follows:
At 1 January
Expected return on scheme assets
Actuarial (losses)/gains on assets
Assets distributed on disposal of business
Assets distributed on settlement
Contributions from members
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
(Loss)/return on plan assets (excluding interest income)
Adjustment due to surplus cap
Included in the statement of comprehensive income
Year ended
31 December
2015
$m
Restated
Year ended
31 December
2014
$m
(3,679.1)
(12.8)
(117.5)
132.0
9.6
2.6
(0.7)
232.0
184.8
(3,249.1)
3,120.6
101.5
(82.0)
(0.4)
(2.6)
0.7
45.6
(232.0)
(11.8)
(152.3)
2,787.3
(3,491.8)
(13.0)
(151.5)
(455.2)
–
–
(0.8)
209.9
223.3
(3,679.1)
3,238.3
142.2
106.4
–
–
0.8
37.8
(209.9)
(13.1)
(181.9)
3,120.6
(5.5)
120.4
17.1
(82.0)
17.2
67.2
(7.7)
(439.4)
(8.1)
106.4
17.9
(330.9)
Coats Group plc Annual Report 2015
95
Financial statements 10 Retirement and other post-employment benefit arrangements 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 2015
Year ended 31 December 2014
Coats UK
Years
Coats US
Years
Staveley
Years
Brunel
Years
Coats UK
Years
Coats US
Years
Staveley
Years
Brunel
Years
26.6
28.6
28.5
30.6
26.1
28.5
27.9
30.3
25.4
28.5
27.3
30.6
26.1
28.7
28.0
30.8
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
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:
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
Year ended
31 December
2015
– 0.1%
$m
37.1
1.3
4.3
2.6
(30.8)
(0.1)
(3.1)
(1.8)
+ 0.1%
$m
(36.7)
(1.3)
(4.5)
(3.3)
31.2
0.1
4.3
1.1
Restated
Year ended
31 December
2014
– 0.1%
$m
40.6
1.4
4.6
2.9
(28.8)
–
(2.9)
(1.5)
+ 0.1%
$m
(37.8)
(1.4)
(4.2)
(3.3)
29.5
–
3.3
1.0
If members of the Coats UK scheme live one year longer the scheme liabilities will increase by $72.5 million (2014: $90.6 million). If
members of the Coats US scheme live one year longer scheme liabilities will increase by $3.8 million (2014: $4.2 million), however, there
would be no overall impact on the recoverable surplus. If members of the Staveley and Brunel schemes live one year longer the scheme
liabilities will increase by $11.7 million (2014: $17.6 million) and $7.0 million (2014: $11.9 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.
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
Year ended
31 December
2015
Valuation
trend
– 1%
$m
(0.1)
(2.1)
+ 1%
$m
0.1
2.4
Restated
Year ended
31 December
2014
Valuation
trend
– 1%
$m
(0.1)
(2.3)
+ 1%
$m
0.1
2.6
96
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 10 Retirement and other post-employment benefit arrangements continued
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 14 year recovery plan has been agreed with the trustees, under which contributions of £14 million per annum
are payable from November 2013 plus £2 million per annum relating to future service. This recovery plan and future service
contributions will be reviewed at the next triennial valuation as at April 2015 which is ongoing. A triennial valuation for Staveley was
undertaken as at April 2011 and 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 March 2013, was
completed in 2015 resulting in an actuarial funding deficit of £94 million, which equated to a funding level of 56%. A recovery plan was
agreed, comprised of an initial payment of £5.5 million followed by quarterly payments commencing from January 2016 amounting to
£5.5 million per annum for 9 years.
The total estimated amount to be paid in respect of all of the Group’s retirement and other post-employment benefit arrangements
during the 2016 financial year is $41.2 million.
The weighted average duration of benefit obligations is 15 years (2014: 15 years) for the Coats UK scheme and 9 years (2014: 9 years)
for the Coats US scheme, 13 years (2014: 13 years) for the Staveley scheme and 12 years (2014: 12 years) for the Brunel scheme.
11 Earnings/(loss) per Ordinary Share
Basic (loss)/earnings per share (‘EPS’) from continuing and discontinued operations is calculated by dividing the (loss)/earnings
attributable to equity holders of the parent company of $50.6 million (2014: $15.0 million profit) by the weighted average number of
Ordinary Shares in issue during the year, excluding shares held by the Employee Benefit Trust, of 1,400,765,325 (2014: 1,407,431,333).
Basic earnings per share from continuing operations is calculated by dividing the earnings attributable to equity holders of the parent
company of $24.9 million (2014: $42.2 million) by the weighted average number of Ordinary Shares in issue during the year. The
weighted average number of Ordinary Shares used for the calculation is the same as that used for basic earnings per Ordinary Share
from continuing and discontinued operations.
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
(loss)/earnings per share and diluted (loss)/earnings per share for either year.
Year ended 31 December
Continuing and discontinued operations:
Loss 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:
Earnings attributable to equity holders of the parent company
Loss
2015
$m
Shares
2015
m
Amount
per share
(cents)
(50.6)
1,400.8
(3.61)
Restated
Profit
2014
$m
Shares
2014
m
Restated
Amount
per share
(cents)
15.0
1,407.4
1.06
Profit
2015
$m
Shares
2015
m
Amount
per share
(cents)
24.9
1,400.8
1.78
Restated
Profit
2014
$m
Shares
2014
m
Restated
Amount
per share
(cents)
42.2
1,407.4
2.99
Coats Group plc Annual Report 2015
97
Financial statements 12 Dividends
No dividend in respect of the year ended 31 December 2015 was paid to Coats Group plc shareholders during the year (2014: $Nil).
13 Intangible assets
Cost
At 1 January 2014
Currency translation differences
Additions
Disposals
At 31 December 2014
Currency translation differences
Acquisition of subsidiary
Additions
Assets of business sold
Disposals
At December 2015
Cumulative amounts charged
At 1 January 2014
Currency translation differences
Impairment charge for the year
Amortisation charge for the year
Disposals
At 31 December 2014
Currency translation differences
Amortisation charge for the year
Assets of business sold
Disposals
At 31 December 2015
Goodwill
US$m
2.2
–
–
–
2.2
(0.1)
3.4
–
–
–
5.5
–
–
–
–
–
–
–
–
–
–
–
Brands
US$m
245.5
–
–
–
245.5
–
1.1
–
(3.8)
–
242.8
1.8
–
2.0
–
–
3.8
–
0.1
(3.8)
–
0.1
Net book value at 31 December 2015
Net book value at 31 December 2014 (Restated)
5.5
2.2
242.7
241.7
Goodwill, brands and other intangible assets were acquired through acquisitions of businesses.
Computer
software
US$m
Other
intangibles
US$m
83.9
(4.7)
8.7
(1.9)
86.0
(5.0)
–
9.3
(9.2)
(4.0)
77.1
73.7
(4.6)
0.1
5.9
(1.9)
73.2
(4.2)
8.8
(9.2)
(3.3)
65.3
11.8
12.8
–
–
–
–
–
(0.1)
1.4
–
–
–
1.3
–
–
–
–
–
–
–
0.1
–
–
0.1
1.2
–
Total
US$m
331.6
(4.7)
8.7
(1.9)
333.7
(5.2)
5.9
9.3
(13.0)
(4.0)
326.7
75.5
(4.6)
2.1
5.9
(1.9)
77.0
(4.2)
9.0
(13.0)
(3.3)
65.5
261.2
256.7
The carrying value of the Coats brands at 31 December 2015 and 31 December 2014 is $239.6 million. 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
relief from royalty method to calculate the fair value 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 the latest budget approved by the Board covering the period
to 31 December 2016, applying a pre-tax discount rate of 10% and a terminal value including no growth. An increase in the pre-tax
discount rate to 27% would reduce the value in use of these brands to book value.
The acquisition of GSD in May 2015 generated provisional goodwill of $3.4 million. In addition a further $2.5 million intangible assets
were also identified (see note 31). GSD forms a single Cash Generating Unit (‘CGU’) as it generates cash inflows that are largely
independent from other CGUs. The carrying value of the GSD CGU of $5.5 million has been tested for impairment during the year by
comparing the carrying value of the CGU to its value in use. The value in use calculations were based on projected cash flows, derived
from the latest budget approved by the Board, discounted at CGU specific, risk adjusted, discount rates to calculate the net present
value.
98
Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 13 Intangible assets continued
The calculation of ‘value in use’ is most sensitive to the following assumptions:
– CGU specific operating assumptions that are reflected in the budget period for the financial year to December 2016;
– Discount rates; and
– Growth rates used to extrapolate risk adjusted cash flows beyond the budget period.
CGU specific operating assumptions are applicable to the budgeted cash flows for the year to 31 December 2016 and relate to revenue
forecasts, expected project outcomes and forecast operating margins. A short-term growth rate is applied to the December 2016
budget to derive the cash flows arising in 2017 and 2018 and a long term rate is applied to these values for the year to December 2019
and onwards.
The discount rate is based on estimations of the assumptions that market participants operating in similar sectors to Coats would make,
using the Group’s economic profile as a starting point and adjusting appropriately. Management do not currently expect any significant
change in the present base discount rate of 10%. The base discount rate has been adjusted for economic risks that are not already
captured in the specific operating assumptions. This results in the impairment testing using a 12.5% pre-tax discount rate.
Management believes that no reasonable potential change in any of the above key assumptions would cause the carrying value of
either the GSD CGU or Coats brand to exceed its recoverable amount.
14 Property, plant and equipment
Cost
At 1 January 2014
Currency translation differences
Additions
Transfer to non-current assets held for sale
Disposals
At 31 December 2014
Currency translation differences
Additions
Transfer to non-current assets held for sale
Assets of business sold
Disposals
At December 2015
Accumulated depreciation
At 1 January 2014
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
Currency translation differences
Depreciation charge for the year
Assets of business sold
Disposals
At 31 December 2015
Net book value at 31 December 2015
Net book value at 31 December 2014 (Restated)
Land and
buildings
US$m
Plant and
equipment
US$m
Vehicles and
office
equipment
US$m
202.2
(14.1)
5.3
(9.2)
–
184.2
(14.0)
5.7
(1.7)
(16.1)
(4.7)
153.4
96.8
(6.5)
5.7
9.5
(5.0)
–
100.5
(7.3)
4.3
(16.1)
(5.3)
76.1
77.3
83.7
682.0
(35.2)
28.7
–
(38.4)
637.1
(51.8)
25.1
–
(15.7)
(17.6)
577.1
472.5
(26.3)
32.2
7.2
–
(36.9)
448.7
(41.4)
26.7
(15.1)
(16.2)
402.7
174.4
188.4
149.4
(9.0)
5.9
–
(12.7)
133.6
(9.0)
2.8
–
(21.0)
(7.9)
98.5
123.0
(7.5)
4.8
–
–
(12.8)
107.5
(5.1)
3.6
(21.0)
(7.8)
77.2
21.3
26.1
Total
US$m
1,033.6
(58.3)
39.9
(9.2)
(51.1)
954.9
(74.8)
33.6
(1.7)
(52.8)
(30.2)
829.0
692.3
(40.3)
42.7
16.7
(5.0)
(49.7)
656.7
(53.8)
34.6
(52.2)
(29.3)
556.0
273.0
298.2
Coats Group plc Annual Report 2015
99
Financial statements 14 Property, plant and equipment continued
Assets charged as security for borrowings
31 December 2015
31 December 2014 (Restated)
Analysis of net book value of land and buildings
31 December
Freehold
Leasehold:
Over 50 yea rs unexpired
Under 50 years unexpired
15 Non-current investments
31 December
Interests in joint ventures (see below)
Available for sale investments
Listed investments
Unlisted investments
Land and
buildings
US$m
Plant and
equipment
US$m
Vehicles and
office
equipment
US$m
–
–
1.3
2.2
–
–
2015
US$m
65.1
1.2
11.0
77.3
2015
US$m
10.8
1.5
–
12.3
Available for sale investments included within current assets were $0.2 million at 31 December 2015 (2014: $0.4 million).
Interests in joint ventures
At 1 January 2015
Dividends receivable
Share of profit after tax
Disposal
At 31 December 2015
31 December
Share of net assets on acquisition
Share of post-acquisition retained profits
Share of net assets
2015
US$m
10.6
0.2
10.8
Total
US$m
1.3
2.2
Restated
2014
US$m
72.8
1.2
9.7
83.7
Restated
2014
US$m
13.7
1.5
1.5
16.7
US$m
13.7
(1.8)
1.5
(2.6)
10.8
Restated
2014
US$m
11.9
1.8
13.7
During the year the Group disposed of its joint venture in the Philippines for a consideration net of disposal costs of $1.1 million resulting
in a loss on disposal of $1.5 million.
100 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 15 Non-current investments continued
The following table provides summarised financial information on the Group’s share of its joint ventures, relating to the period during
which they were joint ventures, and excludes goodwill:
Year ended 31 December
Summarised income statement information
Revenue
Profit before tax
Taxation
Profit after tax
31 December
Summarised balance sheet information
Non-current assets
Current assets
Liabilities due within one year
Net assets
2015
US$m
37.0
1.4
(1.0)
0.4
2015
US$m
7.7
12.8
20.5
(14.0)
6.5
Restated
2014
US$m
40.6
2.1
(1.0)
1.1
Restated
2014
US$m
9.8
17.1
26.9
(13.4)
13.5
See note 28 for details of a guarantee provided by the Group in respect of the banking facilities of Australian Country Spinners Ltd.
16 Deferred tax assets
31 December
Deferred tax assets
The Group’s deferred tax assets are included within the analysis in note 23.
The movements in the Group’s deferred tax asset during the year were as follows:
At 1 January
Currency translation differences
Disposal of business
Reclassified from deferred tax liabilities
Transfer to current tax
(Charged)/credited to the income statement
(Charged)/credited to other comprehensive income and expense
At 31 December
17 Inventories
31 December
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2015
US$m
12.5
Restated
2014
US$m
15.3
2015
US$m
15.3
(1.8)
(1.3)
2.4
(0.1)
(1.9)
(0.1)
12.5
2015
US$m
75.1
32.8
96.1
204.0
Restated
2014
US$m
13.6
(1.8)
–
–
–
3.0
0.5
15.3
Restated
2014
US$m
71.9
46.8
139.1
257.8
Coats Group plc Annual Report 2015
101
Financial statements 18 Trade and other receivables
31 December
Non-current assets
Trade receivables
Income tax assets
Other receivables
Derivative financial instruments
Current assets
Trade receivables
Amounts due from joint ventures
Current income tax assets
Prepayments and accrued income
Derivative financial instruments
Other receivables
2015
US$m
0.1
0.6
15.6
0.1
16.4
209.4
0.3
3.7
8.7
3.3
36.5
261.9
Restated
2014
US$m
0.2
1.4
14.0
0.4
16.0
245.3
1.6
4.4
12.4
4.2
36.2
304.1
The fair value of trade and other receivables is not materially different to the carrying value.
The average credit period taken on sale of goods is 54 days (2014: 56 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 $11.3 million (2014: $15.4 million). This allowance has been determined by reference to
past default experience, and the movements in the allowance are analysed as follows:
At 1 January
Currency translation differences
Charged to the income statement
Amounts written off during the year
Disposal of business
At 31 December
2015
US$m
15.4
(1.6)
1.7
(2.6)
(1.6)
11.3
Restated
2014
US$m
13.7
(1.4)
5.2
(2.1)
–
15.4
102 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 19 Derivative financial instruments – Assets
Derivative financial instruments within non-current and current assets comprise:
31 December
Fair value through the income statement
Forward foreign currency contracts
Fair value hedges through the statement of comprehensive income:
Other derivative financial instruments
Amounts shown within non-current assets
Amounts shown within current assets
2015
US$m
Restated
2014
US$m
3.1
0.3
3.4
0.1
3.3
4.0
0.6
4.6
0.4
4.2
The fair values of these financial instruments are calculated by discounting the future cash flows to net present values using appropriate
market interest and foreign currency rates prevailing at the year end.
20 Trade and other payables
31 December
Current liabilities
Trade payables
Amounts owed to joint ventures
Other tax and social security payable
Other payables
Accruals and deferred income
Derivative financial instruments
Employee entitlements (excluding pensions)
Non-current liabilities
Other payables
Employee entitlements (excluding pensions)
Derivative financial instruments
The fair value of trade and other payables is not materially different to the carrying value.
Interest paid to suppliers in respect of overdue trade payables is immaterial.
2015
US$m
Restated
2014
US$m
191.6
11.7
6.6
40.2
51.8
4.3
14.5
320.7
11.2
1.0
0.2
12.4
227.5
15.1
11.1
37.3
51.9
9.0
22.1
374.0
12.4
1.1
0.1
13.6
Coats Group plc Annual Report 2015
103
Financial statements 21 Derivative financial instruments – liabilities
Derivative financial instruments within non-current and current liabilities comprise:
31 December
Fair value through the income statement
Forward foreign currency contracts
Other derivative financial instruments
Fair value hedges through the statement of comprehensive income:
Other derivative financial instruments
Amounts shown within non-current liabilities
Amounts shown within current liabilities
2015
US$m
Restated
2014
US$m
4.2
–
0.3
4.5
0.2
4.3
6.4
0.7
2.0
9.1
0.1
9.0
The fair values of these financial instruments are calculated by discounting the future cash flows to net present values using appropriate
market interest and foreign currency rates prevailing at the year end.
22 Borrowings
31 December
Bank overdrafts
Borrowings repayable within 1 year
Due within 1 year
Borrowings repayable between 1 and 2 years
Borrowings repayable between 2 and 5 years
Due after more than 1 year
Bank overdrafts
Bank borrowings
2015
US$m
18.5
1.7
20.2
0.6
388.5
389.1
18.5
390.8
409.3
Restated
2014
US$m
28.6
84.9
113.5
304.0
0.6
304.6
28.6
389.5
418.1
At 31 December 2015, the Group’s borrowings shown above comprised $406.1 million of secured borrowings (2014: $411.5 million)
and $3.2 million of unsecured borrowings (2014: $6.6 million).
The currency and interest rate profile of the Group’s borrowings is included in note 34 on page 120.
104 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 23 Deferred tax liabilities
31 December
At 1 January
Currency translation differences
Reclassified from deferred tax assets
Transfer to current tax
(Credited)/charged to the income statement
Charged to the other comprehensive income and expense
At 31 December
31 December
The Group’s net deferred tax liabilities/(assets) are analysed as follows:
Accelerated tax depreciation on tangible fixed assets
Other temporary differences
Revenue losses carried forward
Capital losses carried forward
Investment in subsidiaries
Brands
Revenue losses offset against brands
Retirement benefit obligations
2015
US$m
39.2
(1.0)
2.4
(0.1)
(10.8)
3.3
33.0
Restated
2014
US$m
36.8
(0.7)
–
–
0.9
2.2
39.2
2015
Provided
US$m
2015
Unprovided
US$m
Restated
2014
Provided
US$m
Restated
2014
Unprovided
US$m
20.3
(11.6)
(8.8)
–
12.2
41.5
(41.5)
8.4
20.5
(5.3)
(10.1)
(249.8)
(294.3)
2.5
–
–
(52.0)
(609.0)
21.0
(14.4)
(10.2)
–
19.4
46.1
(46.1)
8.1
23.9
(5.5)
(7.8)
(285.8)
(347.1)
–
–
–
(75.4)
(721.6)
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 16)
Deferred tax liabilities
(12.5)
33.0
20.5
(15.3)
39.2
23.9
At the year end, the Group had approximately $2.9 billion (2014: $3.1 billion) of unused tax losses available for offset against future
profits. A deferred tax asset has been recognised in respect of $260 million (2014: $285 million) of such losses. Of these losses,
$230 million (2014: $230 million) have been recognised to offset the potential deferred tax liability recognised on the Group’s brands.
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.
The Group’s income tax losses can be analysed as follows:
Expiring within 5 years
Expiring in more than 5 years
Available indefinitely
2015
$m
31.0
10.9
1,292.4
1,334.3
Restated
2014
$m
39.5
40.2
1,340.9
1,420.6
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 $2.5 million (2014: $Nil).
Coats Group plc Annual Report 2015
105
Financial statements 24 Provisions
Provisions are included as follows:
31 December
Current liabilities
Non-current liabilities
Provisions are analysed as follows:
31 December
Onerous leases
Other provisions
Total provisions
At 1 January 2015
Currency translation differences
Utilised in year
Charged to the income statement
Disposal of business
At 31 December 2015
2015
US$m
44.4
35.8
80.2
2015
US$m
7.1
73.1
80.2
Onerous
leases
US$m
Other
provisions
US$m
8.1
(0.5)
(0.7)
0.2
–
7.1
57.3
(2.9)
(34.6)
55.5
(2.2)
73.1
Restated
2014
US$m
42.9
22.5
65.4
Restated
2014
US$m
8.1
57.3
65.4
Total
US$m
65.4
(3.4)
(35.3)
55.7
(2.2)
80.2
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 34 on page 120 and the maturity of onerous leases in included in note 34 on
page 122.
Other provisions include the following:
– amounts set aside to cover certain legal and other regulatory claims, including in respect of the Lower Passaic River (see note 28 for
further details), which are expected to be substantially utilised within the next 10 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 2 years.
106 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 25 Operating lease commitments
31 December
Outstanding commitments under non-cancellable operating leases:
Payable within 1 year
Payable between 1 and 5 years
Payable after more than 5 years
2015
US$m
15.3
28.7
9.6
53.6
At the balance sheet date, the Group had contracted with tenants for receipt of the following minimum lease payments:
31 December
Receivable within 1 year
Receivable between 1 and 5 years
Receivable after more than 5 years
2015
US$m
0.5
0.6
0.1
1.2
Restated
2014
US$m
17.8
22.1
6.4
46.3
Restated
2014
US$m
1.2
1.1
0.2
2.5
Operating leases relate principally to land and buildings and vehicles.
26 Share capital
Ordinary Shares of 5p each
31 December 2015
Restated
31 December 2014
Number
US$m
Number
1,407,612,282
127.0
1,407,612,282
US$m
127.0
The own shares reserve of $7.6 million at 31 December 2015 (2014: $Nil) represents the cost of shares in Coats Group plc purchased in
the market and held by an Employee Benefit Trust to satisfy awards under the Group’s share based incentive plans.
The number of shares held by the Employee Benefit Trust at 31 December 2015 was 17,625,636 (2014: Nil).
Options outstanding under the Group’s 2002 share option scheme at 31 December 2015 were as set out below:
Share Option Scheme
2002 Share Option Scheme
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Number
Date granted
Exercise price
(pence per share)
Exercise period
9,590,475
317,034
3,242,505
12,105,351
9,262,417
3,778,722
15.03.06
05.05.06
11.10.06
09.03.07
10.04.08
30.06.09
56.6480
56.7743
58.9820
56.5534
49.9961
25.9529
15.03.09 to 15.03.16
05.05.09 to 05.05.16
11.10.09 to 11.10.16
09.03.10 to 09.03.17
10.04.11 to 10.04.18
30.06.12 to 30.06.19
Options exercised during the year comprised nil (2014: 460,159) under the schemes operated by the Group, and 28,679,974 (2014:
16,647,436) options lapsed.
Coats Group plc Annual Report 2015
107
Financial statements 27 Reserves and non-controlling interests
Cost
At 1 January 2015
Dividends
Share based payments
Currency translation differences
Foreign exchange recycled to income statement on disposal
Transfers to income statement
Actuarial gains on employee benefits
Tax on actuarial gains and losses
Purchase of own shares
(Loss)/profit for the year
At December 2015
Share
premium
account
US$m
Own
shares
US$m
Translation
reserve
US$m
Capital
reduction
reserve
US$m
Other
reserves
US$m
Retained
earnings
US$m
Non-
controlling
interests
US$m
11.6
–
–
–
–
–
–
–
–
–
11.6
–
–
–
–
–
–
–
–
(7.6)
–
(7.6)
(64.6)
–
–
(65.5)
7.0
–
–
–
–
–
(123.1)
85.2
–
–
–
–
–
–
–
–
–
85.2
249.2
–
–
–
–
1.3
–
–
–
–
250.5
(32.1)
–
4.6
–
–
–
67.2
(3.4)
–
(50.6)
(14.3)
24.3
(10.1)
–
(0.7)
–
–
–
–
–
11.2
24.7
The table below shows financial information of non-wholly owned subsidiaries of the Group that have non-controlling interests:
Asia
Rest of world
Profit allocated to
non-controlling interests
Accumulated non-
controlling interests
Year
ended 31
December
2015
$m
Restated
Year
ended 31
December
2014
$m
10.8
0.4
11.2
9.2
0.4
9.6
31
December
2015
$m
Restated
31
December
2014
$m
22.5
2.2
24.7
22.0
2.3
24.3
The proportion of ownership interests and voting rights of non-wholly owned subsidiaries of the Group held by non-controlling
interests is set out on pages 134 and 135.
28 Contingent liabilities and environmental matters
Guarantees
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 $1.9 million (2014:
$2.1 million).
The Group has guaranteed certain amounts that may become payable in respect of a former subsidiary in Australia. At 31 December
2015, the Group’s liability under these guarantees amounted to $1.2 million (2014: $1.4 million). At the time of the sale of that former
subsidiary, in 2013 the Group was paid $0.9 million (2014: $1.0 million) by the former subsidiary in support of any potential claims
against the guarantee. The Group holds that $0.9 million (2014: $1.0 million) in an interest-bearing bank account on trust for the former
subsidiary. On expiry of these guarantees any unutilised balance from the $0.9 million (2014: $1.0 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.
Pensions
As described on page 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 remain uncertain, but may result in changes to the current deficit recovery plans
for these schemes.
Environmental matters
As noted in previous reports, the US Environmental Protection Agency (‘EPA’) has notified Coats & Clark, Inc. (‘CC’) that CC is a
‘potentially responsible party’ (‘PRP’) under the US Superfund law for investigation and remediation costs at the 17-mile Lower Passaic
River Study Area (‘LPR’) in New Jersey in respect of alleged operations of a predecessor’s former facilities in that area prior to 1950.
Approximately 55 PRPs are currently members of a cooperating parties group (‘CPG’) of companies, formed to fund and conduct a
remedial investigation and feasibility study of the area. CC joined the CPG in 2011.
CC has analysed its predecessor’s operating history prior to 1950, when it left the LPR, and has concluded that it was not responsible
for the contaminants and environmental damage that are the focus of the EPA process. CC also believes that there are many parties
that will participate in the LPR’s remediation that are not currently funding the study of the river, including those that are the most
responsible for its contamination.
108 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 28 Contingent liabilities and environmental matters continued
In April 2014, the EPA released a Focused Feasibility Study and Proposed Plan (‘FFS’) for the lower 8 miles of the LPR. The FFS analyses a
series of remedial alternatives. The EPA had estimated the cost of its preferred remedy under the FFS at approximately $1.7 billion on a
net present value basis. The CPG submitted extensive comments opposing the FFS during the comment period.
In March 2015, CC and other companies submitted a petition to EPA, asserting that they are de minimis parties and seeking a meeting
to commence settlement discussions.
In February and April 2015, respectively, the CPG delivered a draft remedial investigation and a draft feasibility study to the EPA relating
to the entire 17 miles of the LPR. The draft feasibility study sets out various alternatives for remediating the LPR with a targeted remedy
which would involve removal, treatment and disposal of contaminated sediments from specific locations within the entire 17 miles of
the river. The estimated cost for the targeted remedy ranged from approximately $518 million to $772 million on an undiscounted basis.
On 4 March 2016 EPA issued a Record of Decision selecting a remedy for the lower 8 miles of the LPR pursuant to its FFS at an
estimated cost of $1.38 billion on a net present value basis. The EPA’s Record of Decision did not include a remedial decision for the
upper 9 miles of the LPR. The EPA may consider the CPG’s proposed remedial alternative for the upper 9 miles (for which a reserve has
been established), or it may select a different remedy. Discussions with the EPA regarding the nature and timing of such a decision are
ongoing.
The EPA is expected to begin negotiations with PRPs in H1 2016 to design the selected remedy for the lower 8 miles of the LPR. In
addition to addressing the de minimis petition submitted by CC and other PRPs, these negotiations are likely to involve parties that are
not currently in the CPG, including those most responsible for the contamination, as well as other PRPs who have previously been
identified by the EPA and others. While the ultimate costs of the remedial design and the final remedy are expected to be shared
among hundreds of parties, the allocation of such costs among these parties is not yet known.
As noted in previous reports, Coats has identified a number of insurance policies that could provide coverage for some of the legal and
other costs previously incurred and to be incurred in respect of this matter. During the period, CC negotiated a settlement agreement
with one insurer under which a proportion of previously incurred and to be incurred legal defence and remediation costs will be
reimbursed up to a specified amount. Thereafter, either party could seek to renegotiate the terms of payment.
Based on the mid-point of the range of the estimated costs for targeted remediation under the remedial investigation and feasibility
study proposed by the CPG, and CC’s estimate of its de minimis share of those costs, a provision of $2.2 million was recorded during
the six months ended 30 June 2015. A separate provision of $6.8 million was recorded for associated legal and professional costs in
defence of CC’s position. Both of these charges to the income statement were net of insurance reimbursements and were stated on a
net present value basis. As at 31 December 2015, $1.5 million of this provision has been utilised. Following the EPA’s issuance of Record
of Decision, an additional charge of $6.8 million has been recorded to reflect CC’s estimate of the same de minimis share applied to
(a) the EPA’s larger selected remedy for the lower 8 miles of the LPR on 4 March 2016 and (b) the Sustainable Remedy proposed by the
CPG for the upper 9 miles of the LPR. The total charge to the Income Statement in 2015, net of insurance reimbursements, is $12.8
million. As noted, the process concerning the LPR continues to evolve and these estimates are subject to change based upon the scope
of the remedy selected by EPA, the share of remedial costs to be paid by the major polluters on the river, and the share of remaining
remedial costs apportioned among CC and other companies.
Coats believes that CC’s predecessor did not generate any of the contaminants which are driving the current and anticipated remedial
actions in the LPR, that it has valid legal defences which are based on its own analysis of the relevant facts, that it is a de minimis party,
and that additional parties not currently in the CPG will be responsible for a significant share of the ultimate costs of remediation.
However, as this matter evolves, CC could record additional provisions and such provisions could increase materially based on further
decisions by the EPA, negotiations among the parties, and other future events.
29 Capital commitments
As at 31 December 2015, the Group had commitments of $2.0 million in respect of contracts placed for future capital expenditure
(2014: $3.9 million).
Coats Group plc Annual Report 2015
109
Financial statements 30 Notes to the consolidated cash flow statement
a) Reconciliation of operating profit to net cash inflow from operations
31 December
Operating profit
Depreciation
Amortisation of intangible assets
Reorganisation costs – Mexico (see note 4)
Reorganisation costs – overhead reduction programme (see note 4)
Exceptional profit on sale of property (see note 4)
Other operating exceptional items (see note 4)
Pre-exceptional operating profit before depreciation and amortisation (EBITDA)
Decrease in inventories
(Increase)/decrease in debtors
(Decrease)/increase in creditors
Provision movements
Currency and other non-cash movements
Discontinued operations
Net cash inflow from operations
b) Interest paid
31 December
Interest paid
Discontinued operations
c) Taxation paid
31 December
Overseas tax paid
Discontinued operations
d) Investment income
31 December
Interest and other income
Dividends received from joint ventures
Discontinued operations
e) Capital expenditure and financial investment
31 December
Acquisition of property, plant and equipment and intangible assets
Disposal of available-for-sale investments
Disposal of property, plant and equipment
Discontinued operations
110 Coats Group plc Annual Report 2015
2015
US$m
111.0
34.6
9.0
3.3
14.1
(9.2)
20.2
183.0
2.9
(11.5)
(6.6)
(47.4)
3.2
(14.7)
108.9
2015
US$m
(15.3)
–
(15.3)
2015
US$m
(49.3)
–
(49.3)
2015
US$m
8.2
1.8
–
10.0
2015
US$m
(44.3)
0.1
12.9
(0.6)
(31.9)
Restated
2014
US$m
103.4
40.7
5.9
–
–
(3.1)
23.1
170.0
6.0
11.3
10.2
(40.5)
5.6
(4.2)
158.4
Restated
2014
US$m
(21.6)
(0.2)
(21.8)
Restated
2014
US$m
(55.1)
(0.6)
(55.7)
Restated
2014
US$m
8.2
1.5
0.1
9.8
Restated
2014
US$m
(46.0)
0.4
5.2
2.7
(37.7)
Notes to the financial statementscontinuedFinancial statements 30 Notes to the consolidated cash flow statement continued
f) Acquisition and disposals
31 December
Acquisition of business
Net receipt from sale of joint venture
Discontinued operations
g) Summary of net cash
31 December
Parent group cash and cash equivalents*
Other Group cash and cash equivalents
Total cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents
Other borrowings
Total net cash
2015
US$m
(5.5)
1.1
(21.7)
(26.1)
2015
US$m
504.6
145.3
649.9
(18.5)
631.4
(390.8)
240.6
Restated
2014
US$m
–
–
–
–
Restated
2014
US$m
583.5
155.5
739.0
(28.6)
710.4
(389.5)
320.9
* Cash relating to the realisation of investments previously held by Coats Group plc.
31 Acquisition of GSD Holdings Ltd
In May 2015 the Group acquired 100% of the voting equity of GSD Holdings Ltd (‘GSD’), a company based in the United Kingdom that
specialises in management solutions that analyse time, cost and production capability in the sewn products sector with the focus on
maximising productivity and controlling costs. The Group has acquired GSD in order to expand the offerings of Coats Global Services,
helping customers realise productivity and supply chain improvements, develop technical skills and enhance corporate responsibility. The
acquisition has been accounted for using the acquisition method. The consolidated financial statements include the results of GSD for
the period from the acquisition date.
The consideration transferred net of cash and cash equivalents acquired was $5.5 million.
The fair values of the identifiable assets and liabilities of GSD as at the date of acquisition were as follows:
Assets
Intangible assets
Trade receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Total identifiable net assets acquired at fair value
Goodwill recognised on acquisition (provisional)
Purchase consideration transferred
Provisional
fair value
recognised on
acquisition
US$m
2.5
0.2
1.7
4.4
(0.6)
3.8
3.4
7.2
In the provisional accounting, adjustments are made to book values of the net assets of the companies acquired to reflect their
provisional fair values to the Group. Previously unrecognised assets and liabilities at acquisition are included and accounting policies are
aligned with those of the Group where appropriate. Due to their contractual dates, the fair value of receivables acquired (shown above)
approximate to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is
immaterial. There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (revised).
Coats Group plc Annual Report 2015
111
Financial statements 31 Acquisition of GSD Holdings Ltd continued
The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer related
intangibles of $1.0 million, brands and trade names of $1.1 million and technology related intangibles of $0.4 million; with residual
goodwill arising of $3.4 million. The goodwill represents:
– the technical expertise of the acquired workforce;
– the opportunity to leverage this expertise across the Coats Global Services business; and
– the ability to exploit the Group’s existing customer base.
None of the goodwill arising on the acquisition is expected to be deductible for tax purposes.
From the date of acquisition, GSD has contributed $1.0 million of revenues and a loss of $0.2 million (after amortisation charges) to the
profit before tax from the continuing operations of the Group. If the acquisition had taken place at the beginning of the year, revenue
from continuing operations for GSD would have been $1.8 million and the profit from continuing operations for GSD for the period
would have been $0.1 million.
Transaction costs of $0.2 million have been expensed and are included in administrative expenses in the consolidated income statement
and are part of operating cash flows in the consolidated cash flow statement.
32 Sale of EMEA Crafts
As previously announced, in February 2015, Coats agreed to sell its EMEA Crafts business to the Aurelius Group for a consideration of
$10 million receivable in cash on completion and adjusted for the net cash in the EMEA Crafts business at the date of disposal.
On 28 July 2015, Coats announced that the finalisation of the sale had been a complex, multi-jurisdictional, transaction and that
completion had taken place against a backdrop of increasingly poor market conditions which had affected the trading performance of
EMEA Crafts. Accordingly, Coats agreed to a nominal final consideration payable to Coats and adjusted for the net cash in the EMEA
Crafts business at the date of disposal, broadly in line with the original terms of the sale.
The results of the EMEA Crafts business have been reclassified as discontinued operations in the income statement, including prior year
amounts. The sale was completed on 31 July 2015, the date on which control passed to the acquirer.
a) Discontinued operations
The results of the discontinued operations are presented below. All amounts relate to EMEA Crafts other than where stated.
31 December
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating loss
Investment income
Finance costs
Loss before taxation
Taxation
Loss for the year
Loss on disposal (note 32(b))
Loss relating to sale of legacy investments
Exchange loss transferred to profit or loss on disposal
Exchange gain transferred to profit or loss on sale of legacy investment
Total loss from discontinued operations
2015
US$m
47.8
(23.6)
24.2
(25.5)
(11.2)
(12.5)
0.1
(0.3)
(12.7)
–
(12.7)
(55.8)
–
(7.5)
0.5
(75.5)
Restated
2014
US$m
124.5
(74.8)
49.7
(62.4)
(13.4)
(26.1)
0.1
(0.5)
(26.5)
(0.3)
(26.8)
–
(0.4)
–
–
(27.2)
The EMEA Crafts results for the year to 31 December 2014 includes exceptional impairment of property, plant and equipment and
intangible assets of $18.8 million of which $11.8 million is included in cost of sales, $5.3 million is included in distribution costs and $1.7
million is included in administrative expenses.
112 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 32 Sale of EMEA Crafts continued
The loss per Ordinary Share from discontinued operations is as follows:
Loss per Ordinary Share from discontinued operations:
Basic and diluted
The table below sets out the cash flows from discontinued operations:
Net cash outflow from operating activities
Net cash (outflow)/inflow from investing activities
Net cash flows from discontinued operations
b) Loss on disposal
The major classes of assets and liabilities disposed relating to EMEA Crafts was as follows:
Property, plant and equipment
Available-for-sale investments
Deferred tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Trade and other payables
Provisions
Retirement benefit obligations
Total liabilities
Net assets disposed
Consideration received
Disposal costs and completion adjustments
Loss on disposal
c) Assets held for sale
The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:
31 December
Property, plant and equipment
Other fixed asset investment
Assets held for sale
2015
Cents
Restated
2014
Cents
(5.39)
(1.93)
2015
US$m
(14.7)
(22.3)
(37.0)
Restated
2014
US$m
(5.0)
2.8
(2.2)
US$m
0.6
1.5
1.3
26.3
34.1
14.9
78.7
(23.1)
(2.2)
(9.3)
(34.6)
44.1
–
11.7
55.8
2015
US$m
–
–
–
Restated
2014
US$m
0.8
0.7
1.5
Coats Group plc Annual Report 2015
113
Financial statements 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 pages 48-61 in the audited part of the Directors’ remuneration report.
Year ended 31 December
Short-term employee benefits
2015
US$m
5.1
Restated
2014
US$m
1.0
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
Sale of goods
Purchase of goods
Other income
2015
$m
5.5
Restated
2014
$m
5.9
2015
$m
44.1
Restated
2014
$m
47.0
2015
$m
0.1
Restated
2014
$m
0.3
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 18 and 20.
During the year the Group sold its shareholding in its joint venture in the Philippines to its joint venture partner (see note 15 for further
details).
114 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 34 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 overdrafts; and
– derivatives, including forward foreign currency contracts and interest rate swaps.
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 18)
Due from joint ventures (note 18)
Other receivables (note 18), net of non-financial assets $22.3 million (2014: $18.8 million)
Financial assets carried at fair value through the income statement:
Derivative financial instruments (note 19)
Other financial assets carried at fair value through the statement of comprehensive income:
Available-for-sale investments (note 15)
Derivative financial instruments (note 19)
Other fixed asset investment (held for sale — note 32(c))
Total financial assets
Financial liabilities
The Group’s financial liabilities are summarised below:
31 December
Financial liabilities carried at amortised cost:
Trade payables (note 20)
Due to joint ventures (note 20)
Other financial liabilities
Provisions (note 24)
Borrowings (note 22)
Financial liabilities carried at fair value through the income statement:
Derivative financial instruments (note 21)
Derivatives designated as effective hedging instruments and carried at fair value
through the statement of comprehensive income:
Derivative financial instruments (note 21)
Total financial liabilities
Other financial liabilities include other payables, other than taxation and other statutory liabilities.
2015
$m
649.9
209.5
0.3
29.8
889.5
3.1
3.1
1.7
0.3
–
2.0
894.6
2015
$m
191.6
11.7
109.5
7.1
409.3
729.2
Restated
2014
$m
739.0
245.5
1.6
31.4
1,017.5
4.0
4.0
3.4
0.6
0.7
4.7
1,026.2
Restated
2014
$m
227.5
15.1
113.8
8.1
418.1
782.6
4.2
7.1
0.3
733.7
2.0
791.7
Coats Group plc Annual Report 2015
115
Financial statements 34 Derivatives and other financial instruments continued
Fair value 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
Available-for-sale investments
Other fixed asset investment (held for sale)
Trade payables
Due to joint ventures
Other financial liabilities and provisions
Borrowings
Derivative financial instruments:
Forward foreign currency contracts
Other net derivative financial instruments
Net financial assets
2015
Restated
2014
Book value
$m
Fair value
$m
Book value
$m
Fair value
$m
649.9
209.5
0.3
29.8
1.7
–
(191.6)
(11.7)
(116.6)
(409.3)
(1.1)
–
160.9
649.9
209.5
0.3
29.8
1.7
–
(191.6)
(11.7)
(116.6)
(409.3)
(1.1)
–
160.9
739.0
245.5
1.6
31.4
3.4
0.7
(227.5)
(15.1)
(121.9)
(418.1)
(2.4)
(2.1)
234.5
739.0
245.5
1.6
31.4
3.4
0.7
(227.5)
(15.1)
(121.9)
(418.1)
(2.4)
(2.1)
234.5
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 12 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 (ie as prices) or indirectly (ie 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).
116 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 34 Derivatives and other financial instruments continued
Financial assets measured at fair value
31 December
2015
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
Derivatives designated as effective hedging instruments
Total
2014 (Restated)
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
Derivatives designated as effective hedging instruments
Total
Financial liabilities measured at fair value
31 December
2015
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
2014 (Restated)
Financial liabilities measured at fair value through the income statement:
Trading derivatives
Other financial liabilities
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
3.1
1.7
0.3
5.1
4.0
1.9
1.5
0.6
8.0
–
–
–
–
–
–
1.5
–
1.5
3.1
–
0.3
3.4
4.0
–
–
0.6
4.6
–
1.7
–
1.7
–
1.9
–
–
1.9
Total
$m
Level 1
$m
Level 2
$m
Level 3
$m
(4.2)
(0.3)
(4.5)
(6.4)
(0.7)
(2.0)
(9.1)
–
–
–
–
(0.7)
–
(0.7)
(4.2)
(0.3)
(4.5)
(6.4)
–
(2.0)
(8.4)
–
–
–
–
–
–
–
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 rate 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.
Coats Group plc Annual Report 2015
117
Financial statements 34 Derivatives and other financial instruments continued
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 118 to 124 and, except as noted, have remained unchanged since
the beginning of the year to which these financial statements relate.
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 US Dollars, 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 US Dollar statement of financial position will be affected by short-term movements in exchange
rates, particularly the value of the GBP Sterling, the Euro, Indian Rupee and Brazilian Real. 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. Cash held by the Parent Group is held in GBP Sterling pending finalisation of the Pension Regulator investigation into the
Group’s three UK pension schemes.
The Group uses forward foreign currency contracts to mitigate the currency exposure that arises on business transacted in currencies
other than its own functional currency. Such foreign currency contracts are only entered into when there is a firm commitment to the
underlying transaction. The contracts used to hedge future transactions typically have a maturity of between six months and two years.
Interest rate risk
In 2015, the Group financed its operations through shareholders’ funds, bank borrowings and overdrafts. 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
$680.0 million, of which $457.4 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 $3.7 million
(2014: $4.4 million), and would change shareholders’ funds by approximately $10.6 million (2014: $6.9 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 111), and share
capital and reserves attributable to the equity shareholders of the Company.
118 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 34 Derivatives and other financial instruments continued
Currency exposure
The tables below show 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.
Functional currency 2015
Sterling
Australian Dollars
New Zealand Dollars
US Dollars
Euros
Indian Rupees
Brazilian Reals
Other currencies
Sterling
$m
–
–
–
(16.0)
0.6
–
–
(0.5)
(15.9)
Australian
Dollars
$m
New Zealand
Dollars
$m
0.5
–
–
–
–
–
–
–
0.5
–
0.1
–
0.1
–
–
–
–
0.2
Functional currency 2014 (Restated)
Sterling
$m
Australian
Dollars
$m
New Zealand
Dollars
$m
Sterling
Australian Dollars
New Zealand Dollars
US dollars
Euros
Indian Rupees
Brazilian Reals
Other currencies
–
–
–
(6.3)
2.5
–
–
(1.0)
(4.8)
3.5
–
–
–
(0.7)
–
–
(0.1)
2.7
50.6
82.0
–
–
–
–
–
–
132.6
Euro
$m
(2.0)
–
–
(6.2)
–
(0.1)
0.1
10.2
2.0
Euro
$m
(34.5)
–
–
(3.1)
–
(0.1)
(0.5)
6.4
(31.8)
2015
Increase in US Dollar exchange rate
Increase/(decrease) in profit before tax
Increase/(decrease) in shareholders’ funds
2014 (Restated)
Increase in US Dollar exchange rate
Increase/(decrease) in profit before tax
Increase/(decrease) in shareholders’ funds
Sterling
$m
10%
(1.6)
6.6
Sterling
$m
10%
(13.3)
(19.9)
Australian
Dollars
$m
New Zealand
Dollars
$m
10%
–
0.1
10%
–
–
Australian
Dollars
$m
New Zealand
Dollars
$m
10%
(3.5)
8.2
10%
–
–
Net foreign currency financial assets/(liabilities)
US Dollars
$m
Indian
Rupees
$m
Brazilian
Reals
$m
0.1
–
–
–
0.8
(15.3)
15.5
6.0
7.1
–
–
–
0.9
–
–
–
–
0.9
–
–
–
–
–
–
–
–
–
Other
$m
–
–
–
44.3
(1.2)
–
–
(16.6)
26.5
Total
$m
(1.4)
0.1
–
23.1
0.2
(15.4)
15.6
(0.9)
21.3
Net foreign currency financial assets/(liabilities)
US Dollars
$m
Indian Rupees
$m
Brazilian
Reals
$m
126.7
35.4
–
–
(1.8)
(1.3)
(27.6)
(9.2)
122.2
–
–
–
0.9
–
–
–
(1.0)
(0.1)
Other
$m
–
–
–
(11.9)
3.0
–
–
(8.8)
(17.7)
Indian
Rupees
$m
10%
1.6
6.9
Indian
Rupees
$m
10%
0.2
5.5
Total
$m
146.3
117.4
–
(20.4)
3.0
(1.4)
(28.1)
(13.7)
203.1
Brazilian
Reals
$m
10%
(1.5)
2.1
Brazilian
Reals
$m
10%
2.8
8.0
–
–
–
–
–
–
–
–
–
Euro
$m
10%
(0.7)
(3.9)
Euro
$m
10%
(0.1)
(1.5)
Coats Group plc Annual Report 2015
119
Financial statements
Cash and
cash
Investments
$m
equivalents
$m
Trade and
other
receivables
$m
Derivative
financial
instruments
$m
Cash and
cash
Total
$m
Investments
$m
equivalents
$m
Trade and
other
receivables
$m
Derivative
financial
instruments
$m
34 Derivatives and other financial instruments continued
Currency and interest rate profile of financial assets
The currency and interest rate profile of the Group’s financial assets was as follows:
31 December
2015
Currency
Sterling
Australian Dollars
New Zealand Dollars
United States Dollars
Euros
Indian Rupees
Brazilian Reals
Other currencies
Total financial assets
–
–
–
0.1
0.1
1.5
–
–
1.7
504.1
1.0
–
52.0
4.7
21.8
3.2
63.1
649.9
6.4
0.8
0.2
100.2
19.5
21.7
8.7
82.1
239.6
–
1.0
1.0
8.4
(22.3)
20.0
(1.5)
(3.2)
3.4
510.5
2.8
1.2
160.7
2.0
65.0
10.4
142.0
894.6
–
–
–
–
2.3
1.5
–
0.3
4.1
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
New Zealand Dollars
United States Dollars
Euros
Indian Rupees
Brazilian Reals
Other currencies
Total financial
liabilities
Floating
rate
$m
2.8
0.1
–
129.9
56.4
1.3
1.0
2.3
Fixed
rate
$m
–
–
–
215.5
–
–
–
0.1
Interest
free
$m
Derivative
financial
instruments
$m
13.4
1.4
0.1
163.5
14.8
43.0
9.9
73.7
(82.9)
1.5
0.4
152.9
(55.7)
–
0.7
(12.4)
2015
Total
$m
(66.7)
3.0
0.5
661.8
15.5
44.3
11.6
63.7
Floating
rate
$m
0.5
–
–
109.3
38.1
2.2
–
2.1
Restated
2014
Total
$m
291.5
4.0
133.0
281.5
118.8
58.3
21.8
117.3
1,026.2
Restated
2014
Total
$m
(55.9)
1.9
0.1
737.3
15.3
29.1
20.9
43.0
284.4
4.5
132.7
212.3
7.6
32.2
8.0
57.3
739.0
Fixed
rate
$m
–
–
–
265.6
–
0.1
–
0.1
6.3
0.6
0.2
116.7
44.8
22.4
15.6
71.9
278.5
0.8
(1.1)
0.1
(47.5)
64.1
2.2
(1.8)
(12.2)
4.6
Interest
free
$m
Derivative
financial
instruments
$m
14.7
2.4
0.1
172.2
35.9
47.5
20.1
71.7
(71.1)
(0.5)
–
190.2
(58.7)
(20.7)
0.8
(30.9)
193.8
215.6
319.8
4.5
733.7
152.2
265.8
364.6
9.1
791.7
The benchmark for determining floating rate liabilities in the UK is LIBOR for both Sterling and US$ loans.
120 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 34 Derivatives and other financial instruments continued
Details of fixed and non interest-bearing liabilities (excluding derivatives and trade and other payables) are provided below:
31 December
Currency
Sterling
United States Dollars
Weighted average
2015
Financial
liabilities on
which no
interest is
paid
Weighted
average
period until
maturity
(months)
16
–
16
Fixed rate
financial
liabilities
Weighted
average
interest rate
%
–
3.40%
3.40%
Restated
2014
Financial
liabilities on
which no
interest is
paid
Weighted
average
period until
maturity
(months)
25
–
25
Weighted
average
period for
which rate
is fixed
(months)
–
20
20
Fixed rate
financial
liabilities
Weighted
average
interest rate
%
–
2.80%
2.80%
Weighted
average
period for
which rate
is fixed
(months)
–
30
30
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
New Zealand Dollars
United States Dollars
Euros
Indian Rupee
Brazilian Real
Other currencies
Assets
Liabilities
2015
$m
82.8
1.0
1.0
64.1
68.7
20.0
–
33.9
271.5
Restated
2014
$m
2015
$m
Restated
2014
$m
71.8
1.5
0.6
85.2
70.1
7.3
–
56.7
293.2
–
(1.5)
(0.4)
(35.2)
(208.5)
–
(2.2)
(24.8)
(272.6)
–
(1.3)
(0.4)
(58.8)
(210.0)
–
(2.7)
(22.4)
(295.6)
The $1.1 million net liability (2014: $2.4 million) in relation to foreign exchange financial instruments in the table above is split
$3.1 million (2014: $4.0 million) within assets (note 19) and $4.2 million (2014: $6.4 million) within liabilities (note 21).
Market price risk
The Group has equity and bond available-for-sale investments at 31 December 2015 of $1.7 million ($3.4 million) held for strategic
rather than trading purposes. The Group does not actively trade these investments and is not materially exposed to price risk.
The sensitivity analyses below have been determined based on the exposure to reasonably possible price changes for the investments
held at the year end.
31 December
Impact of a 10% increase in prices:
Increase in pre-tax profit for the year
Increase in equity shareholders’ funds
2015
$m
–
0.2
Restated
2014
$m
–
0.3
Coats Group plc Annual Report 2015
121
Financial statements 34 Derivatives and other financial instruments continued
Liquidity risk
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 1 and 2 years
Expiring between 2 and 5 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 1 year or less, or on demand
In more than 1 year but not more than 2 years
In more than 2 years but not more than 5 years
In more than 5 years
Maturity of undiscounted financial liabilities (excluding derivatives)
The expected maturity of the Group’s financial liabilities, using undiscounted cash flows, was as follows:
31 December
In 1 year or less, or on demand
In more than 1 year but not more than 2 years
In more than 2 years but not more than 5 years
In more than 5 years
2015
$m
–
222.6
222.6
2015
$m
875.5
8.2
2.1
6.5
892.3
2015
$m
335.3
7.2
388.7
–
731.2
Restated
2014
$m
245.6
–
245.6
Restated
2014
$m
1,004.8
12.6
0.5
3.0
1,020.9
Restated
2014
$m
471.2
307.3
5.8
0.1
784.4
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.
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 1 year or less, or on demand
In more than 1 year but not more than 2 years
In more than 2 years but not more than 5 years
122 Coats Group plc Annual Report 2015
Assets
Liabilities
2015
$m
271.0
0.6
–
271.6
Restated
2014
$m
295.7
0.7
1.1
297.5
2015
$m
(273.8)
(1.4)
(0.9)
(276.1)
Restated
2014
$m
(303.4)
(2.5)
–
(305.9)
Notes to the financial statementscontinuedFinancial statements 34 Derivatives and other financial instruments continued
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:
Available-for-sale investments
Other fixed asset investment
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
Trade receivables in excess of 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 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
Trade receivables in excess of 6 months over permitted credit period
Total impairment provision
2015
$m
649.9
3.4
209.5
0.3
29.8
892.9
1.7
–
894.6
29.3
6.0
2.4
1.9
0.1
39.7
169.8
209.5
0.1
0.4
0.2
0.3
10.3
11.3
Restated
2014
$m
739.0
4.6
245.5
1.6
31.4
1,022.1
3.4
0.7
1,026.2
24.3
7.2
1.5
3.4
0.2
36.6
208.9
245.5
1.2
0.3
0.7
1.6
11.6
15.4
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.
Hedges
During 2015, the Group has hedged the following exposures:
– interest rate risk – using interest rate swaps; and
– currency risk – using forward foreign currency contracts.
At 31 December 2015, the fair value of such hedging instruments was a net liability of $1.1 million (2014: $3.8 million).
Coats Group plc Annual Report 2015
123
Financial statements 34 Derivatives and other financial instruments continued
Cash flow hedges outstanding at 31 December are expected to impact the income statement in the following periods:
Within 1 year
Within 1 to 2 years
2015
$m
Loss
–
–
–
Restated
2014
$m
Loss
(1.3)
(0.1)
(1.4)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is three months’ LIBOR.
All interest rate swap contracts exchanging floating rate interest rate amounts for fixed interest rate interest amounts are designated as
cash flow hedges to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. The amount
accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss.
35 Share-based payments
The total cost recognised in the Consolidated income statement in respect of share-based payment plans was as follows:
Capital incentive plan (‘CIP’)
Long term incentive plan (‘LTIP’)
Deferred bonuses
Total
Equity-
settled
US$m
Cash-
settled
US$m
–
3.1
0.8
3.9
1.3
1.7
–
3.0
2015
Total
US$m
1.3
4.8
0.8
6.9
Equity-
settled
US$m
Cash-
settled
US$m
–
1.3
0.7
2.0
4.2
5.0
–
9.2
Restated
2014
Total
US$m
4.2
6.3
0.7
11.2
CIP
This scheme was a cash settled share based payment arrangement that has now fully vested.
LTIP
Under the terms of the Coats Group plc LTIP, Executive Directors and key senior executives may be awarded each year conditional
entitlements to Ordinary Shares in the Company (in the form of nil cost options). The vesting of awards is subject to the satisfaction of a
three year performance condition, which is determined by the Remuneration Committee at the time of grant. The performance
condition includes both market and non-market based measures.
Details of options outstanding under equity settled awards:
Outstanding at beginning of year
Granted during the year
Lapsed during the year
Outstanding at end of year
Exercisable at end of year
2015
Weighted
average
exercise
price
–
–
–
–
Restated
2014
Weighted
average
exercise
price
–
–
–
–
Options
–
–
–
–
–
Options
–
55,556,769
(1,522,640)
54,034,129
–
During 2015 there were 23,047,525 nil cost options (included in the figures above) granted under the terms of the Coats plc Interim
LTIP. These options were originally deferred cash bonus awards relating to the 3 year performance period 1 January 2014 to
31 December 2016. Awards were converted to nil cost options on 26 February 2015 and will vest, subject to performance conditions,
after the public announcement of results for the year ended 31 December 2016. The performance conditions remained unchanged
upon conversion to nil cost options.
The options outstanding at 31 December 2015 had a weighted average remaining contractual life of 1.6 years (2014: Nil years).
124 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 35 Share-based payments continued
The fair value of the market-based component of these awards was calculated using the Monte Carlo simulation method to reflect the
likelihood of the market-based Total Shareholder Return (‘TSR’) performance condition, which attach to 20% (2014: 40%) of the award,
being met, using the following assumptions:
Vesting period
Share price at valuation date
Exercise price
Risk free rate
Expected dividend yield
Expected volatility
Average correlation
Fair value per share
2015
3 years
25.0p
Nil
0.63%
0.00%
26.34%
20.26%
6.8p
Restated
2014
3 years
34.5p
Nil
0.63%
0.00%
26.34%
20.26%
8.6p
Deferred bonuses
Under the terms of the Coats Group Deferred Bonus Plan, any bonuses awarded to executive directors and key senior management will
be the subject of a mandatory 25% deferment into shares, to be held for a three year retention period. Annual bonuses will be
determined by reference to performance, in the normal course measured over one financial year. Awards are normally exercisable after
three years subject to continued employment.
The options outstanding at 31 December 2015 had a weighted average remaining contractual life of 2.5 years (2014: 3.0 years).
Share option scheme
Guinness Peat Group plc granted a number of awards under a share option scheme prior to 2010. All share options under this scheme
have fully vested and can be exercised up to 10 years from the date of grant.
Outstanding options granted after November 2002 are as follows:
Outstanding at beginning of year
Lapsed during the year
Exercised during the year
Outstanding at end of year
Exercisable at end of year
2015
Weighted
average
exercise
price
Options
50.68p 84,084,073
48.67p (16,647,436)
(460,159)
66,976,478
66,976,478
–
52.18p
52.18p
Restated
2014
Weighted
average
exercise
price
48.43p
40.01p
25.95p
50.68p
50.68p
Options
66,976,478
(28,679,974)
–
38,296,504
38,296,504
The options outstanding at 31 December 2015 had a weighted average remaining contractual life of 1.4 years (2014: 1.6 years).
Coats Group plc Annual Report 2015
125
Financial statements 36 Non-GAAP financial measures
The non-Generally Accepted Accounting Practice (‘non-GAAP’) financial measures included in the Annual Report provide
supplementary information to assist with the understanding of the Group’s financial results and with the evaluation of operating
performance for all the periods presented. Non-GAAP amounts, however, are not a measure of financial performance under IFRS and
should not be considered as a substitute for measures determined in accordance with GAAP. A reconciliation of non-GAAP financial
measures to the most directly comparable GAAP financial measures is included below.
a) Adjusted earnings per share
The calculation of adjusted earnings per share is based on the profit from continuing operations attributable to equity shareholders
before exceptional items and foreign exchange gains and losses arising on cash relating to the realisation of investments previously held
by Coats Group plc as set out below.
31 December
Profit from continuing operations
Non-controlling interests
Profit from continuing operations attributable to equity shareholders
Exceptional items (note 4)
Foreign exchange losses/(gains) on Parent Group cash*
Tax (credit)/charge in respect of exceptional items
Adjusted profit from continuing operations
Weighted average number of Ordinary Shares
Adjusted earnings per share (cents)
* Cash relating to the realisation of investments previously held by Coats Group plc.
2015
US$m
36.1
(11.2)
24.9
29.9
3.2
(2.5)
55.5
1,400,765,325
3.96
Restated
2014
US$m
51.8
(9.6)
42.2
20.0
(18.9)
0.1
43.4
1,407,431,333
3.08
The weighted average number of Ordinary Shares used for the calculation of adjusted earnings per share for the year ended 31 December
2015 is 1,400,765,325 (2014: 1,407,431,333), the same as that used for basic earnings per Ordinary Share from continuing operations
(see note 11).
Adjusted earnings per share for the year ended 31 December 2014 on a like-for-like currency basis (restates 2014 figures at 2015 exchange
rates) is 2.88 cents and is calculated on a basis consistent with the above. Like-for-like adjusted profit from continuing operations for the
year ended 31 December 2014 was $40.4 million. The weighted average number of Ordinary Shares used for the calculation of adjusted
earnings per share for the year ended 31 December 2014 on a like-for-like basis is 1,400,765,325 being the weighted average number
of Ordinary Shares for the year ended 31 December 2015.
b) Adjusted free cash flow
A reconciliation of the change in net cash resulting from cash flows (free cash flow), the most comparable GAAP measure, to adjusted
free cash flow is set out below:
31 December
Change in net cash resulting from cash flows (free cash flow)
Acquisition of business (note 31)
Net cash flows from discontinued operations (note 32(a))
Net cash outflow in respect of reorganisation costs
Net cash inflow from property disposals
UK Pensions Regulator (‘tPR’) investigation costs
Payments to UK pensions schemes
Net cash flows in respect of other exceptional items
Purchase of own shares by Employee Benefit Trust
Tax outflow in respect of adjusted cash flow items
Adjusted free cash flow
2015
US$m
(21.4)
5.5
37.0
10.4
(9.9)
8.9
33.8
1.3
7.6
0.7
73.9
Restated
2014
US$m
46.5
–
2.2
2.4
(4.0)
12.2
25.8
–
–
2.7
87.8
Comparative amounts have reported on a basis consistent with amounts presented for the year ended 31 December 2015.
126 Coats Group plc Annual Report 2015
Notes to the financial statementscontinuedFinancial statements 36 Non-GAAP financial measures continued
c) Return on capital employed
Return on capital employed (‘ROCE’) is defined as pre-exceptional profit divided by capital employed as set out below:
31 December
Pre-exceptional operating profit
Non-current assets
Property, plant and equipment
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Current liabilities
Trade and other payables
Non-current liabilities
Trade and other payables
Capital employed
ROCE
2015
US$m
139.4
273.0
16.4
204.0
261.9
Restated
2014
US$m
123.4
298.2
16.0
226.8
263.8
(320.7)
(341.1)
(12.4)
422.2
33%
(13.6)
450.1
27%
The amounts shown above for non-current assets, current assets, current liabilities and non-current liabilities at 31 December 2014
exclude the discontinued EMEA Crafts business.
Coats Group plc Annual Report 2015
127
Financial statements Company balance sheet
31 December
Fixed assets
Investments
Current assets
Loans to subsidiary undertakings
Cash at bank and in hand
Creditors: amounts falling due within one year
Loans from subsidiary undertakings
Net current liabilities
Total assets less current liabilities
Provisions for liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Capital redemption reserve
Share options reserve
Capital reduction reserve
Own shares
Profit and loss account
Shareholders’ funds
Notes
3
2015
£m
2014
£m
374.1
374.1
371.3
371.3
2.8
2.0
4.8
(202.2)
(202.2)
(197.4)
176.7
(8.9)
167.8
70.4
0.6
11.4
11.5
48.3
(4.9)
30.5
167.8
4
6
6
2.8
–
2.8
(178.9)
(178.9)
(176.1)
195.2
(13.2)
182.0
70.4
0.6
11.4
8.7
48.3
–
42.6
182.0
Paul Forman, Group Chief Executive
Approved by the Board 10 March 2016
Company Registration No.103548
Richard Howes, Chief Financial Officer
128 Coats Group plc Annual Report 2015
Company financial statements Company statement of changes in equity
1 January 2014
Loss for the year
Share issues
31 December 2014
Loss for the year
Share based payments
Purchase of own shares
31 December 2015
Share
capital
£m
70.4
–
–
70.4
–
–
–
70.4
Share
premium
account
£m
Capital
redemption
reserve
£m
Share
options
reserve
£m
Capital
reduction
reserve
£m
0.5
–
0.1
0.6
–
–
–
0.6
11.4
–
–
11.4
–
–
–
11.4
8.7
–
–
8.7
–
2.8
–
11.5
48.3
–
–
48.3
–
–
–
48.3
Own
shares
£m
–
–
–
–
–
–
(4.9)
(4.9)
Profit
and loss
account
£m
50.3
(7.7)
–
42.6
(12.1)
–
–
30.5
Total
189.6
(7.7)
0.1
182.0
(12.1)
2.8
(4.9)
167.8
Coats Group plc Annual Report 2015
129
Financial statements Company cash flow statement
Net cash flows from operating activities
Operating loss
Decrease in debtors
Increase in creditors
Movement in provisions
Net cash flows from operating activities
Net cash flows from financing activities
Proceeds on issue of shares
Purchase of own shares
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash at bank and in hand at the beginning of the year
Cash at bank and in hand at the end of the year
2015
£m
(4.6)
–
15.8
(4.3)
6.9
–
(4.9)
(4.9)
2.0
–
2.0
2014
£m
(10.1)
0.1
6.4
3.5
(0.1)
0.1
–
0.1
–
–
–
130 Coats Group plc Annual Report 2015
Company financial statements Notes to the Company financial statements
1 Accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the current and preceding
year.
A) General information and basis of accounting
The financial statements have been prepared under the historic cost convention, modified to include certain items at fair value, and in
accordance with Financial Reporting standard 102 (‘FRS 102’) as issued by the Financial Reporting Council. FRS 102 was adopted during
the year, the adoption of FRS 102 has not had a material impact on either the current or prior years.
The functional currency of Coats Group plc is considered to be Pounds Sterling because that is the currency of the primary economic
environment in which the Company operates.
B) Fixed assets – investments
Investments in subsidiary and associated undertakings are reflected at cost less provisions for any impairment.
C) Financial assets and liabilities
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.
All financial assets and financial liabilities are initially measured at transaction price. If an arrangement constitutes a financing
transaction, the financial asset or financial liability is measured at the present value of future payments discounted at a market rate of
interest for a similar debt instrument.
D) Impairment of assets
Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is
objective evidence of impairment, an impairment loss is recognised in the profit and loss and the asset is reduced to its recoverable
amount. The recoverable amount is the higher of its fair value less costs to sell and its value in use.
E) Share-based payments
Cash-settled
The Company operates a cash-settled share-based compensation plan for the benefit of certain employees of an operating subsidiary.
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 an equity-settled Long Term Incentive Plan for executives and senior management, settlement is in the form of
Coats Group plc shares. Awards under this plan are subject to both market-based and non-market-based vesting criteria.
The fair value at the date of grant is established by using an appropriate simulation method to reflect the likelihood of market-based
performance conditions being met. As the Long Term Incentive Plan relates to employees of a subsidiary, and there is no recharge of the
cost, the fair value is charged to investments on a straight-line basis over the vesting period, with appropriate adjustments being made
during this period to reflect expected vesting for non market-based performance conditions and forfeitures. The corresponding credit is
to shareholders’ funds.
The shares awarded under this plan are purchased in the market by the Employee Benefit Trusts (‘EBT’) over the vesting period. Coats
Group plc is the sponsoring employer of the EBT and its activities are considered an extension of the Company’s activities. Therefore the
shares purchased by the EBT are included as a deduction from shareholders’ funds and other assets and liabilities of the EBT are
recognised as assets and liabilities of Coats Group plc.
F) 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.
G) Dividends
Dividends proposed are recognised in the period in which they are formally approved for payment.
H) Critical accounting judgements and key sources of estimation uncertainty
Carrying value of investments:
The carrying value of investments is assessed annually for indicators of impairment. If an impairment review is required judgement is
involved in calculating the recoverable amount.
Provisions:
In determining the level of provisions held at year end the directors take 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.
Coats Group plc Annual Report 2015
131
Financial statements Notes to the Company financial statements
continued
2 Result for the year
The Company has not presented its own profit and loss account as permitted by section 408 of the Companies Act 2006. The loss for
the year attributable to shareholders was £12.1 million (2014: £7.7 million).
Details of directors’ remuneration are set out on pages 48 to 61 within the Remuneration Report and form part of these financial
statements.
3 Investments
At 1 January 2014 and 31 December 2014
Additions
At 31 December 2015
Investments
in subsidiary
undertakings
£m
371.3
2.8
374.1
Additions to investments represent equity settled share based payments relating to employees of subsidiaries that has not been
recharged.
Further information about subsidiaries is provided on pages 134 to 135.
4 Provisions
Provisions are analysed as follows:
31 December
Onerous leases
Other provisions
Total provisions
At 1 January 2015
Utilised in year
Charged to the income statement
At 31 December 2015
2015
£m
0.3
8.6
8.9
Onerous
leases
£m
Other
Provisions
£m
0.3
–
–
0.3
12.9
(8.1)
3.8
8.6
Other provisions includes costs expected to be incurred dealing with the tPR’s investigation (see note 24 for further details).
5 Operating lease commitments
31 December
Outstanding commitments under non-cancellable operating leases:
Payable within 1 year
Payable between 1 and 5 years
2015
£m
0.1
–
0.1
At the balance sheet date, the Group had contracted with tenants for receipt of the following minimum lease payments:
31 December
Receivable within 1 year
Receivable between 1 and 5 years
132 Coats Group plc Annual Report 2015
2015
£m
0.1
–
0.1
2014
£m
0.3
12.9
13.2
Total
£m
13.2
(8.1)
3.8
8.9
2014
£m
0.1
0.1
0.2
2014
£m
0.1
0.1
0.2
Company financial statements 6 Share capital
There are 1,407,612,282 Ordinary Shares of 5p issued at 31 December 2015 (2014: 1,407,612,282).
The own shares reserve of £4.9 million at 31 December 2015 (2014: £Nil) represents the cost of shares in Coats Group plc purchased in
the market and held by an Employee Benefit Trust to satisfy awards under the Group’s share based incentive plans. The number of
shares held by the Employee Benefit Trust at 31 December 2015 was 17,625,636 (2014: Nil).
7 Related party transactions
Amounts due from and to other Group companies are disclosed on the face of the Balance sheet on page 128.
Interest payable to other Group companies during 2015 was £7.4 million (2014: interest receivable of £2.5 million).
8 Share based payments
The cost of equity share based payments of £2.8 million (2014: £Nil) has been charged to investments as no amounts are recharged to
subsidiaries.
The charge relates to the Long Term Incentive Plan and Deferred bonuses. Further details on these schemes are set out in note 35 of the
consolidated financial statements.
Coats Group plc Annual Report 2015
133
Financial statements Group structure
Unless otherwise indicated, all shareholdings owned directly or indirectly by the Group represent 100% of issued share capital of the
Subsidiary.
Country
Description and
proportion of shares held (%)
Company
Coats Opti Germany GmbH
Coats Thread Germany GmbH
Country
Germany
Germany
Description and
proportion of shares held (%)
1,000,000 Ordinary shares
10,104,000 Ordinary shares
Company
Subsidiaries:
Direct holdings of the Company
Arrow HJC
B.M. Estates Limited
United Kingdom
1 Ordinary share
United Kingdom
11,00,000 Ordinary shares
Blackwood Hodge Limited
United Kingdom
240,692,884 Ordinary shares
BMM (Predecessors) Limited
United Kingdom
1 Ordinary share
CE (Predecessors) Limited
United Kingdom
2,365,839 Ordinary shares
Coats plc
United Kingdom
1 Ordinary share
Contractors’ Aggregates Limited
United Kingdom
10,000 Ordinary shares
GPG (UK) Holdings plc
United Kingdom
1,436,245,061 Ordinary shares
GPG Coats Finance Limited
United Kingdom
1 Ordinary share
GPG March 2004 Limited
United Kingdom
2 Ordinary shares
GPG Pension Investments Trustees Limited United Kingdom
1 Ordinary share
Guinness Peat International Capital Assets
Limited
Bermuda
12,000 Ordinary shares
MFC (Predecessors) Limited
United Kingdom
513,645 Ordinary shares
S G Warburg Group Limited
United Kingdom
100 Ordinary shares
Staveley Guarantee Company Limited
United Kingdom
Guarantee company
Thomas Robinson Industrial Controls
Limited
United Kingdom
2 Ordinary shares
Subsidiaries:
Indirect holdings of the Company
Coats Cadena S.A. – Argentina
Argentina
2,697,337 Ordinary Nominal shares
1Australian Country Spinners Pty Limited
Australia
2Australian Country Spinners Unit Trust
Australia
2 Ordinary shares
33,065,105 Units
Schwanenwolle Tittel & Krueger AG i. L
Germany
5,700 shares
Centraltex de Guatemala, S.A.
Coats de Guatemala, S.A.
Distribuidora Coats de Guatemala,
Sociedad Anomina
Guatemala Thread Company Sociedad
Anonima
Coats Honduras, S.A.
China Thread Development Company
Limited
Coats (China) Limited
Coats China Holdings Limited
Coats Hong Kong Limited
Coats Opti Hong Kong Limited
Coats Thread HK Limited
Coats Magyarorszag Cernagyarto es
Ertekesito Korlatolt Felelossegu Tarsasag
Kor Investments Private Limited
Madura Coats Private Limited
PT Coats Trading Indonesia
PT. Coats Rejo Indonesia
Coats (Israel) Ltd
Coats Thread Italy Srl
Guatemala
Guatemala
Guatemala
50 Ordinary shares
6,000 Ordinary shares
6,000 Ordinary shares
Guatemala
500 Ordinary shares
Honduras
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hungary
India
India
Indonesia
Indonesia
Israel
Italy
250 Ordinary shares
9,996,000 Ordinary shares
1,491,753 Ordinary shares
7,085,000 Ordinary shares
90 Ordinary shares (90%)
10,000 Issued shares
2 Ordinary shares
20,000 Ordinary shares
249,999 Ordinary shares
6,000,100 Ordinary shares
200,000 Ordinary shares
3,324,000 Ordinary-A shares,
5,926,540 Ordinary-B shares
3,000 Ordinary shares
1 QUOTA shares
Coats Korea Co., Limited
Korea, Republic of
198,000 Ordinary shares
2,500,000 AUD0.54 Ordinary shares
4,000,000 Ordinary shares
Coats Latvija SIA
Coats Lietuva UAB
Coats (Madagascar) International
Coats (Madagascar) S.AR.L (EPZ)
Latvia
Lithuania
Madagascar
Madagascar
600 Ordinary shares
10 Ordinary shares
100 Ordinary shares
100 Ordinary shares
Coats Thread (Malaysia) Sdn. Bhd.
Malaysia
127,500 A shares, 75,000 B shares,
47,500 C shares (99%)
Coats Indian Ocean Holding Co Limited
Mauritius
23,553 Ordinary shares
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Bangladesh
Bangladesh
Bermuda
Brazil
Brazil
Coats Australian Pty Ltd
GPG (Australia Trading) Pty. Limited
GPG (No.6) Pty Limited
GPG Nominees Pty Ltd
GPG Services Pty Limited
GPG Tyndall Holdings Pty. Limited
Guinness Peat Group (Australia) Pty
Limited
Kuvondo Pty Limited
Sabatica Pty Limited
Coats Bangladesh Limited
Coats Crafts Bangladesh Limited
Guinness Peat CH Limited
Coats Corrente Ltda
Coats Corrente Textil Ltda
Coats Andean Limited
Coats Group Limited
Coats Bulgaria Eood
Coats Canada Inc
Staveley Services Canada Inc
Coats Cadena Ltda
The Central Agency Limited – Chile
Dalian Coats Limited
Qingdao Coats Limited
Shanghai Coats Limited
Shenzhen Coats Textile Thread Company
Limited
Coats Opti Shenzhen Limited
Coats Shenzhen Limited
Guangzhou Coats Limited
2 Ordinary shares
2 Ordinary shares
2 Ordinary shares
2 Ordinary shares
4,000,000 Ordinary shares, 913
Redeemable Preference shares
29,282 Ordinary shares
2 Ordinary shares
360,000 Ordinary shares (80%)
800 Ordinary shares (80%)
84,643,990 Ordinary shares
9,384,596,741 Ordinary shares
Grupo Coats Timon S A de C V
79,656,382 Ordinary shares
British Virgin Islands
23,821,000 Ordinary shares
British Virgin Islands
248,131,825 Ordinary shares
Coats Maroc
Mercerie Industrielle de Casablanca
Bulgaria
Canada
Canada
Chile
Chile
China
China
China
China
China
China
China
58,749 Ordinary shares
156,760,833 Common (no par value)
shares
3,500,000 Common shares
10,539 Ordinary shares
42,000 Ordinary shares
1,370,000 shares
1,160,000 shares
1,520,000 shares
500,000 shares
24,750,000 shares (90%)
14,220,000 shares (90%)
106,542,000 shares (90%)
Coats Mauritius International Co Ltd
J & P Coats (Mauritius) Ltd
Administraciones Timon SA de CV
Coats Assets de Mexico SA de CV
Coats Mexico S.A. de C.V.
Mauritius
Mauritius
Mexico
Mexico
Mexico
Mexico
Morocco
Morocco
100 Ordinary shares
418,533 Ordinary shares
4,105,420 Ordinary-B shares,
2,500 Ordinary-A shares
205,880,990 Series A Fixed shares
45,000 Ordinary-A shares,
567,200,257 Ordinary-B shares
500 B1 shares, 23,794,072 B2
shares, 111,425 B2 SPECIAL SERIES
shares
199,990 Ordinary shares
31,980 Ordinary shares
Coats Industrial Europe Holdings B.V.
Netherlands
18,000 Ordinary shares
Coats Industrial Thread Holdings B.V
Netherlands
18,020 Ordinary shares
Coats Northern Holdings B.V.
Coats South America Holdings B.V.
Coats South Asia Holdings B.V.
Coats Southern Holdings B.V
Guinness Peat Group International
Holdings BV
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
18,000 Ordinary shares
18,004 Ordinary shares
18,004 Ordinary shares
18,000 Ordinary shares
484 Ordinary shares
3Australian Country Spinners (NZ) Limited New Zealand
2,000 Ordinary shares
Coats Patons (New Zealand) Ltd
New Zealand
7,000,000 Ordinary shares
Coats de Nicaragua SA
J & P Coats Pakistan (Pvt) Limited
Coats Cadena Investment SA
Coats Cadena SA – Peru
Allied Thread Co., Inc.
Coats Polska Spolka z oganiczona
odpowiedzialnoscia
Coats Comercio de Linhas, Fechos e
Acessorios Para a Industria SA
Nicaragua
Pakistan
Peru
Peru
Philippines
Poland
500 Ordinary shares
2,999,920 Ordinary shares
1,265,973,427 Ordinary shares
(99%)
98,659,340 Ordinary shares (99%)
11,514,496 Common shares
21,092 Ordinary shares
Portugal
150,000 Ordinary Bearer Shares
50,000 Ordinary shares
Companhia de Linha Coats & Clark S.A.
Portugal
5,000,000 Bare Shares
S.C. Coats Odorhei S.R.L.
SC Coats Romania Impex SRL
Romania
Romania
164,516 Ordinary shares
1,019,568 Ordinary shares
Coats LLC
Russian Federation
133,681 shares
3,691,333 Ordinary shares
Coats International Pte Limited
1 Ordinary shares
Coats Overseas Pte Limited
Coats s.r.o
Singapore
Singapore
Slovakia
337,092,726 Ordinary shares
1 Ordinary shares
1 Ordinary shares
Coats Cadena Andina SA — Colombia
Colombia
22,399,888 Ordinary shares
Coats Czecho spol. sr.o
Czech Republic
3,099,000 Ordinary shares
Coats Cadena SA Ecuador
Ecuador
499,002 Ordinary shares
Coats El Salvador, S.A. de C.V.
El Salvador
2,000 Ordinary shares
250,000 Ordinary shares
319,998 Ordinary shares
740 Ordinary shares
4,000 Ordinary shares
Coats Craft Egypt
Coats Egypt for manufacturing and dyeing
sewing thread SAE
Coats Trading Egypt
Egypt
Egypt
Egypt
Coats Eesti AS — Estonia
Coats Opti Oy
Coats France S.A.S.
Coats GmbH
Estonia
Finland
France
Germany
1 100% owned by the joint venture ACS Nominees Pty Limited.
2 100% owned by the joint venture ACS Nominees Pty Limited.
3 100% owned by Australian Country Spinners Pty Limited.
134 Coats Group plc Annual Report 2015
Other information Company
Country
Coats South Africa (Proprietary) Limited
South Africa
Description and
proportion of shares held (%)
98,120,000 Ordinary shares,
3,803,000 Non-redeemable
Preference Shares, 5,000,000
Cumulative Redeemable Preference
shares, 124,000,000 Non-
redeemable Non-cumulative Variable
Rate Convertible Preference shares
Cotnat Properties (Proprietary) Limited
South Africa
2 Ordinary shares
Coats Thread Exports (Private) Limited
Coats Thread Lanka (Private) Limited
Coats Expotex AB
Coats Industrial Scandinavia AB
Coats Stroppel AG
Coats Threads (Thailand) Ltd
Coats Industrial Tunisie
Coats Trading Tunisie
Coats (Turkiye) Iplik Sanayii AS
Sri Lanka
Sri Lanka
Sweden
Sweden
Switzerland
Thailand
Tunisia
Tunisia
Turkey
104,802 Ordinary shares (99%)
2,893,500 Ordinary shares (99%)
100,000 Bearer shares
100 Bearer shares
200 10,000 SWISS FRANC shares
140,000 Ordinary shares
90,000 Ordinary shares
38,500 Ordinary shares
13,216,976 New Ordinary shares
(92%)
Coats Ukraine Ltd
Arrow HJC
Ukraine
14,348,256 Ordinary shares
United Kingdom
99 £1 Ordinary shares
Allen, Solly & Company Limited
United Kingdom
100 £1 Ordinary shares
Allied Mutual Insurance Services Ltd
United Kingdom
2 Ordinary shares
Anfield 1 Limited
Anfield 2 Limited
United Kingdom
199,999 £1 Ordinary shares
United Kingdom
527,526 £1 Deferred shares, 1,000
£1 Ordinary shares
Barbour Threads Limited
United Kingdom
810,500 £10 Ordinary shares
BMM (Predecessors) Limited
United Kingdom
1 Ordinary shares
Brown Shipley Asset Management Limited United Kingdom
6,500,200 Ordinary shares
Brown Shipley Holdings Limited
United Kingdom
51,043,575 Ordinary shares
Brown Shipley Investment Management
United Kingdom
2 Ordinary shares
Brunel Pension Trustees Limited
United Kingdom
1 Ordinary shares
BSH Acquisition Limited
United Kingdom
2 Ordinary shares
Company
Country
Description and
proportion of shares held (%)
Guinness Peat Overseas Holdings Limited United Kingdom
17,089,226 Ordinary shares
Hicking Pentecost Limited
United Kingdom
31,890,849 Ordinary shares
I.P. Clarke & Company Limited
United Kingdom
100 £1 Ordinary shares
J.& P. Coats, Limited
United Kingdom
259,088,835 £1 Ordinary shares
John Murgatroyd Limited
United Kingdom
39,402 Deferred shares, 39,402
Ordinary shares, 30,000 6%
Preference shares
KEP (Predecessors) Limited
United Kingdom
1,100,000 Ordinary shares
Marshaide Limited
MCG Limited
United Kingdom
1,273,272 Ordinary shares
United Kingdom
100 Ordinary shares
Needle Industries Limited
United Kingdom
350,000 Ordinary shares
NUH No. 1 Limited
Pasolds Limited
United Kingdom
1 Ordinary shares
United Kingdom
1,737,500 Ordinary shares
Patons & Baldwins Limited
United Kingdom
10,768,016 Ordinary shares
Patons Limited
United Kingdom
600,000 Ordinary shares, 400,000
7% Preference shares
Simpson, Wright & Lowe, Limited
United Kingdom
100 £1 Ordinary shares
Sir Richard Arkwright & Co. Limited
United Kingdom
1,000 Ordinary shares
SIRBS Pension Trustee Limited
United Kingdom
2 Ordinary shares
Staveley 2005 No 3 Limited
United Kingdom
250,000 £1 Ordinary shares
Staveley Industries plc
Staveley Limited
United Kingdom
116,378,258 25P Ordinary shares
United Kingdom
1 Ordinary shares
Staveley Services Limited
United Kingdom
78,000,001 Ordinary shares
The Central Agency Limited
United Kingdom
1,000 £10 Ordinary shares
The Coats Trustee Company Limited
United Kingdom
2 £1 Ordinary shares
The International Thread Company Limited United Kingdom
100 £1 Ordinary shares
Thomas Burnley & Sons, Limited
United Kingdom
100,000 Ordinary shares
Tootal Clothing Limited
Tootal Group Limited
United Kingdom
12,338,560 Ordinary shares
United Kingdom
292,548,120 Ordinary shares,
5,879,641 3.5 % Cumulative
Preference shares
Cardpad Limited
United Kingdom
1 Ordinary shares
Tootal Limited
United Kingdom
2 Ordinary shares
Chain Insurance Company Limited
United Kingdom
50,000 £10 Ordinary shares
Tootal Textiles Holdings Limited
United Kingdom
16,197,477 Ordinary shares
Coats (UK) Limited
United Kingdom
99,038,462 Ordinary shares
Calico Printers Association (USA) Limited
United States
20,000 Ordinary shares
Coats Finance Co. Limited
United Kingdom
17,000,000 Ordinary shares
Coats & Clark Inc
Coats Global Services Limited
United Kingdom
5,000,100 Ordinary shares
Coats & Clark’s Sales Corporation
Coats Holding Company (No. 1) Limited
United Kingdom
198,876 Ordinary shares
Coats Holding Company (No. 2) Limited
United Kingdom
10,753,227 25P Ordinary shares
Coats American Inc
Coats American, LLC
Coats Holdings Investments Limited
United Kingdom
100,000,000 Ordinary shares
Coats Garments (USA) Inc
Coats Holdings Ltd
United Kingdom
781,621,271 Ordinary shares
Coats Holdings Inc
United States
United States
United States
United States
United States
United States
593,501 Ordinary shares
2,498 Ordinary shares
1,796,064 Common shares
100 shares
500 Ordinary shares
500 Ordinary shares
Coats Industrial Thread Brands Limited
United Kingdom
2 Ordinary shares
Coats North America Consolidated Inc
United States
11,190 Ordinary shares, 10,000 Class
B Voting Shares
Coats Industrial Thread Limited
United Kingdom
37,814,890 Ordinary shares
Coats Patons Limited
United Kingdom
100 Ordinary shares
Coats Pensions Trustee Limited
United Kingdom
2 £1 Ordinary shares
Coats plc
United Kingdom
75,050,100 Ordinary shares
Coats Property Management Limited
United Kingdom
25,000 £1 Ordinary shares
Coats Shelfco (BDA) Limited
United Kingdom
5,937,428 £1 Ordinary shares
Coats Shelfco (CV Nominees) Limited
United Kingdom
100 £1 Ordinary shares
Coats Shelfco (CVG) Limited
United Kingdom
2,950,000 Ordinary shares
Coats Shelfco (HL) Limited
United Kingdom
3,480,000 Ordinary shares
Coats North America de Republica
Dominica Inc
United States
100,000 Ordinary shares
Coats Puerto Rico Inc
Jaeger Sportswear Ltd
Staveley Inc
Westminster Fibers, Inc.
Coats Cadena S.A. – Uruguay
Cambridge Medical Production CA
(Cameproca)
United States
United States
United States
United States
Uruguay
Venezuela
1 Ordinary shares
20 Common shares
141 Ordinary shares
1,000 Common shares
77,152,220 Ordinary shares
1000 Ordinary shares
Coats Shelfco (RR) Plc
United Kingdom
1 Ordinary shares
Coats Cadena SA – Venezuela
Venezuela
4,234,741 Ordinary shares
Coats Shelfco (VL) Limited
United Kingdom
583,200 Ordinary Stock Unit shares
Coats Moderm Accessories C.A. (Comaca) Venezuela
200 Ordinary shares
Coats Shelfco (VV) Limited
United Kingdom
8,131,240,347 1P Ordinary shares,
182,501,287 7.5P Deferred shares
Cothilca S.A.
Venezuela
13,580 Ordinary shares (97%)
Distribuidora El Costurero, S.A. (DICOSA) Venezuela
15,000 Ordinary shares
Coats Shelfco (WMB) Limited
United Kingdom
239,496 Ordinary shares
Coats Shelfco Precision Limited
United Kingdom
2,500 £1 Ordinary shares
Coats Thread (UK) Limited
United Kingdom
1,000 Ordinary shares
Corah Limited
United Kingdom
81,656,791 Ordinary shares, 327,760
4.2% CUMULATIVE Preference
shares
Hilanderia San Joaquin, S.A.
Hilos Cadena, S.A.
Hilos Elefante C.A.
Informatica Robox, S.R.L
International Kroob CA
CV Woven Fabrics Limited
United Kingdom
420,000 £1 Ordinary shares
Representaciones Glenifa, S.A.
D. Byford & Co Limited
United Kingdom
2,800,000 Ordinary shares, 200,000
Preference shares
Embergrange
GPG (UK) Limited
United Kingdom
1 £1 Ordinary shares
United Kingdom
50,000 Ordinary shares,
234,595,817 Ordinary shares
GPG Acquisitions No. 3 Limited
United Kingdom
50,000 Ordinary shares
GPG Australia Nominees Limited
United Kingdom
1 Ordinary shares
GPG Europe Limited
GPG Finance Limited
United Kingdom
181,113 Ordinary shares
United Kingdom
50,000 Ordinary shares
GPG March 2004 Limited
United Kingdom
10 Ordinary shares
GPG Pension Trustees Limited
United Kingdom
1 Ordinary shares
GPG Securities Trading Ltd
United Kingdom
60,000,000 Ordinary shares
Griffin SA Ltd
GSD (Corporate) Limited
GSD Holdings Limited
United Kingdom
2,575,680 £1 Ordinary shares
United Kingdom
40,000 Ordinary shares
United Kingdom
90 Ordinary-A shares,
10 Ordinary-B shares
Venexport S.R.L
Coats Phong Phu Limited Liability
Company
Eighty Eight Plumtree Road (Private)
Limited
Joint ventures:
Venezuela
Venezuela
Venezuela
Venezuela
Venezuela
Venezuela
Venezuela
Vietnam
1,000 Ordinary shares
1,000 Ordinary shares
1,000 Ordinary shares
500 Ordinary shares
8,778 Ordinary shares
950 Ordinary shares
570 Ordinary shares
9,065,143 Ordinary shares (64%)
Zimbabwe
1,629,000 Ordinary shares
ACS Nominees Pty Limited
Australia
9,000,000 Ordinary shares (50%)
Guangying Spinning Company Limited
Tianjin Jinying Spinning Co Ltd
S&P Threads Pvt Limited
Coats VTT Limited
China
China
India
3,120,000 shares (50%)
10,250,000 Ordinary shares (50%)
300,000 Ordinary shares (50%)
United Kingdom
10,000 Ordinary shares (50%)
Coats Group plc Annual Report 2015
135
Financial statementsOther information Shareholder information
United Kingdom
1 The Square, Stockley Park, Uxbridge,
Middlesex UB11 1TD
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.
Tel: 020 8210 5000
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
Corporate changes and delisting
from the NZX and ASX
Coats has announced it intends to
simplify its listing structure and delist
shares from both the Main Board of the
New Zealand Exchange (‘NZX’) and the
Australian Securities Exchange (‘ASX’).
Shareholder approval will be sought to
delist from NZX and ASX on 18 May
2016 at the Annual General Meeting.
The intended date for delisting is 24 June
2016.
For full details of delisting see
www.coats.com/investors/delistings
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:
Telephone and postal enquiries
Inspection of Register
Computershare Investor
Services PLC
The Pavilions, Bridgwater Road,
Bristol BS99 6ZZ
Tel: 0370 707 1022
Facsimile: 0370 703 6143
Australian Branch Register:
Computershare Investor
Services Pty Limited
GPO Box 3329,
Melbourne VIC 3001
The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
Yarra Falls,
452 Johnston Street,
Abbotsford VIC 3067
Freephone: 1 800 501 366 (within Australia)
Tel: 03 9415 4083
Facsimile: 03 9473 2500
New Zealand Branch Register:
Computershare Investor
Services Limited
136 Coats Group plc Annual Report 2015
Private Bag 92119, Auckland 1142
Tel: 09 488 8777
Facsimile: 09 488 8787
Level 2, 159 Hurstmere Road,
Takapuna,
Auckland 0622
Other information
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