COATS GROUP PLC
ANNUAL REPORT 2019
Delivering with
every fibre
Connecting – Pioneering – Trusted
DELIVERING WITH EVERY FIBRE
CONTENTS
Strategic report
01 2019 full year results
and highlights
02 Coats at a glance
04 Chairman’s foreword
Investment case
05
06 Group Chief Executive’s
statement
08 Market trends
10 Business model
13 Our strategic framework
14 Our strategic goals
15 Our strategic pillars
17 Key performance indicators
19 Stakeholder engagement
25 Working responsibly
31 Principal risks and uncertainties
40 Operating review
44 Financial review
Corporate Governance
47 Chairman’s introduction
50 Board of Directors
53 Corporate Governance Report
59 Audit and Risk Committee
Report
64 Nomination Committee Report
66 Directors’ Report
69 Directors’ responsibilities
statement
70 Director’s Remuneration Report
86 Director’s Remuneration Policy
Financial statements
Independent auditor’s report
95
105 Primary financial statements
111 Notes to the
financial statements
176 Company financial statements
179 Notes to Company financial
statements
Other information
181 Group structure
187 Five-year summary
188 Shareholder information
WE ARE CONTINUING TO TRANSFORM FOR
GROWTH AND ARE COMMITTED TO DELIVERING
SUSTAINABLE VALUE
Coats is the world’s leading industrial thread company. Through innovative solutions
and sustainable values, we create durable products that touch humanity, protect and improve
lives, and form the fabric of life.
This report details how we are delivering for our customers, their industries, our
shareholders, our people and the communities in which we operate.
We are achieving this by focusing on three key areas.
• Connecting – for over two centuries, we have developed a global footprint and
unrivalled talent base connecting with our stakeholders to give us unrivalled access to
markets, garment manufacturers and brand owners.
•
•
Pioneering – we are always seeking to create advanced products and services. We
partner with customers across multiple industries to understand and meet the challenges
they face by delivering innovative solutions.
Trusted – our success rests on our reputation. It is enabled by the trust of the people we
do business with, the communities we operate in, our employees and our shareholders.
Sustainability sits at the heart of this.
Find out more online:
For a more visually engaging way to read about our progress in the year see our
online ‘Year in Review’ at www.coats.com/ara2019
A full copy of this Annual Report can also be downloaded from
www.coats.com/investors
Throughout this document you will see references to where supporting information
can also be found online at www.coats.com
Sustainability Report
To read our Sustainability Report, and for more on our policies, their impact and our
approach to ‘Pioneering a sustainable future’, go to www.coats.com/sustainability
Strategic report
Corporate governance
Financial statements
Other information
2019 FULL YEAR RESULTS
AND HIGHLIGHTS
Continuing operations:
Revenue ($m)
2019
2018
2017
1,389
1,415
1,356
Adjusted operating profit ($m)
Financial performance
Continuing
operations 3
Adjusted 1
Operating profit
Operating margin
Basic earnings per
share
Free cash flow
Return on capital
employed (ROCE)
2019
2018
Change
CER
change 1
Organic
change 1
$198m
14.3%
7.0c
$195m
13.8%
6.9c
2%
50bps
1% *
$107m *
$96m
11%
42.3% *
42.6%
(30)bps
5%
50bps
6% *
60bps
2019
2018
2017
Operating profit ($m)
2019
2018
2017
198
195
161
191
147
154
Key Performance Indicators
We have indicated with * those
measures we consider KPIs. See
pages 17 and 18 for more details
and historical performance.
1. Adjusted measures are non-statutory measures
(Alternative Performance Measures). These are
reconciled to the nearest corresponding statutory
measure in note 37. Constant exchange rate (CER)
figures are 2018 results restated at 2019 exchange
rates. Organic figures are results on a CER basis and
excluding contributions from bolt-on acquisitions
(Threadsol). Revenue figures are an IFRS measure;
however CER and Organic growth rates constitute
Alternative Performance Measures.
2. Reported refers to values contained in the IFRS
column of the primary financial statements in either
the current or comparative period.
3. All figures on a continuing basis (i.e. exclude North
America Crafts which is presented as a discontinued
operation), unless otherwise stated.
4. IFRS 16 (leases) applied on a prospective basis from 1
Jan 2019; 2018 as previously reported, and excludes
impacts of IFRS 16.
•
5. Underlying effective tax rate removes the tax
impact of exceptional and acquisition related items
and net interest on pension scheme assets and
liabilities.
Alternative Performance Measures –
see note 37 on page 172 to 175
Reported 2,3
Revenue
$1,389m
$1,415m
Operating profit
$191m
$147m
Basic earnings per share
6.7c
3.9c
Net cash generated by
operating activities
Net debt (incl. IFRS 16 4)
Full year dividend per
share
$144m
$102m
$215m
$223m
1.85c
1.66c
(2)%
30%
73%
41%
n/a
11%
1%
34%
1% *
35%
Financial highlights
•
Revenue growth of 1% on a CER basis in line with November trading update; 2% decline on a
reported basis as a result of H1 foreign exchange translation headwinds.
Apparel & Footwear CER revenue growth of 1.0%; core thread sales up 2.1% driven by on-
going share gains;
Performance Materials CER revenue growth of 1.4%; growth in Personal Protection, and
Telecoms and Energy, offset by Transportation.
• Adjusted operating profit up 5% on a CER basis to $198 million; adjusted operating margin up
50bps to 14.3%.
• Adjusted EPS up 1% to 7.0 cents; 200bps reduction in underlying effective tax rate5 to 29%, offset
by certain non-operational one-offs (e.g. initial impact of IFRS16 (leases) and higher year-on-year
pension finance charge).
• Adjusted free cash flow of $107 million reflecting strong cash conversion; supporting 11% growth
in dividend.
• Closing net debt (excl. IFRS 16) of $150 million; net debt (incl. IFRS 16) of $215 million (0.9x
leverage).
•
Reported operating profit of $191 million (up 30%) and basic EPS of 6.7 cents (up 73%); continued
strategic progress and significantly lower net exceptional costs in the year.
Strategic highlights
• Connecting for Growth two-year transformation programme now concluded:
Cost actions completed ahead of original expectations and faster than scheduled; final two-
year net savings of $28 million; exceptional reorganisation charge $31 million;
On-going focus now on driving reinvestments in innovation and digital; three innovation hubs
now open; $16 million incremental sales from innovation in 2019.
Sustainability: significant progress towards 2022 targets; dedicated ESG Investor Event hosted in
London.
• Acquisition of Pharr High Performance Yarns, announced in November 2019, now completed;
combination with existing Personal Protection business delivers significant scale and market
leadership in attractive growth market.
•
Balance Sheet in a strong position to drive ongoing operational growth initiatives, fund further
value-added M&A in key strategic focus areas, and deliver shareholder returns.
coats.com/investors
Coats Group plc Annual Report 2019
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COATS AT A GLANCE
COATS IS THE WORLD’S LEADING INDUSTRIAL THREAD COMPANY.
HEADQUARTERED IN THE UK, WE OPERATE GLOBALLY AND IN 2019
GENERATED REVENUES OF $1.4BN.
What we do
We deliver innovative and value add product and service
solutions for our c.40,000 global customers to meet the design
specifications they require.
Our products are a small but critical component in international
global industries such as Apparel and Footwear, Telecoms and
Energy, Personal Protection and Automotive industries.
Sustainability is at the heart of our core business values. We look
to do business at all times in an ethical manner, respectful of our
environment, and delivering peace of mind for our customers.
Each year we aim to produce more from less of the planet’s
resources.
2019
Revenue
$1,389m
2019
Revenue
by Region
77% Apparel & Footwear
23% Americas
23% Performance Materials
58% Asia
19% EMEA
$1.4bn Group revenues
14.3% Operating margins
$107m Free Cash Flow
42% Return on Capital Employed
Where we operate
Headquartered in the UK and quoted on the London Stock Exchange, we have a global sales presence and digital platforms to enable us
to serve customers wherever they are located. Our unrivalled global reach and footprint serve as one of our competitive advantages.
Sales in around
100
countries
c.40,000
Customers globally
250
Years of textiles experience
How we operate: Our Sustainability Strategy
Our strategy ‘Pioneering a sustainable future’
focuses on five priority areas:
- Water
Energy
-
Effluent & emissions
-
Social
-
Living sustainably
-
We launched our strategy in 2019 with challenging targets for 2022
and 2024. We have made good progress towards the targets, but
much remains to be done.
Action plans are in place to deliver across all of them. In 2019 we
revisited our materiality assessment, and though there have been
changes we can confirm that our strategy continues to align to our
key material issues.
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COATS AT A GLANCE
CONTINUED
APPAREL & FOOTWEAR
2019 revenue: $1,063m
2019 operating profit: $156m
(14.7% margin)
We are the trusted value adding partner, providing critical supply
chain components and services to the $1.8tn global Apparel and
Footwear industry. Our portfolio of world class products and
services exist to serve the needs and requirements of our
customers and brand owners.
Main customer markets
We ultimately supply products and services to premium global
brands across many end uses such as active sportswear, denim,
sports footwear, and apparel tailoring.
30,000
Apparel & footwear
manufacturers
4,000
Retailers & brands
Product type
End uses
Key Coats brands
Apparel, footwear
& accessories threads
(c.85% of A&F sales)
Zips, trims and
crafting
(c.14% of sales)
Menswear, ladieswear, activewear, outdoor, denim,
workwear, intimates and footwear
Epic, Dual Duty, Seamsoft, Nylbond, Gral,
Gramax, Astra, Sylko and Knit
Zips, interlinings, reflective tapes, and Crafting
products (Latin America)
Opti, Permess, Signal and Connect
Software solutions
(c.1-2% of sales)
Enabling supply chain productivity gains, increasing
speed of supply and facilitating compliance
Coats Digital – including Fast React, Vision, GSD,
Evolve, ThreadSol, Intellocut and Intellobuy
PERFORMANCE MATERIALS
2019 revenue: $326m
2019 operating profit: $42m
(12.8% margins)
We are experts in the design and supply of a diverse range of
technical products that serve a variety of strategic end use
markets.
Derived from our longstanding global market leading Apparel and
Footwear thread expertise, which has been built up over 250
years, we are able to provide niche solutions to meet our
customers’ needs by incorporating specific design features into
various thread and yarn based products.
Main customer markets
These include hi-tech applications for the Telecoms and Energy
sector, Personal Protection clothing and solutions for
Transportation sector.
$16m
Incremental new
product sales in 2019
from innovation
End use sector
Telecoms and Energy
(c.20% of PM sales)
Personal Protection
(c.30% of sales)
Transportation
(c.15% of sales)
End uses
Protective layers for cables / steel replacement composites Ultrabloc, Gotex ARG, Gotex FG,
Key Coats brands
Aptan
Combining comfort, safety and protection – fire retardant
and cut resistant threads and yarns
FlamePro, Flame Master, FlamePro
Splash Protect, Firefly, Protos
High performance threads and yarns for various parts of
the automotive industry
Neophil, Aptan XTRU
Household and Recreation
(c.20% of sales)
Everyday consumer applications, including bedding /
quilting / tea bags
Gral, Opti
Other Industrial Applications
(c.15% of sales)
Various other technical applications for light / strong /
flexible / innovative threads
Admiral FH, Prolene, Magellan
coats.com/investors
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CHAIRMAN’S FOREWORD
Dear Shareholder,
Coats has a long standing heritage and our success has, and
will always rely on, our ability to continually evolve the business
and refocus our activities to meet the needs of our current and
future customers. Our purpose, behaviours and principles guide
all that we do and we never lose sight of our core values. 2019
presented some difficult market conditions given disruptions to
trade, sluggish market growth and high political and economic
uncertainty. Although some of these headwinds will continue
into 2020, along with the current uncertainty around the
Covid-19 (Coronavirus) outbreak, we have a great opportunity
to gain market share as we leverage our market leadership and
customer relationships as trading opportunities improve.
Increasing agility whilst maintaining responsible business
practices are consistent themes. We will continue to operate in
an ethical and sustainable way to ensure that when we develop
innovative, digital solutions, and provide quality products and
services, we also deliver sustainable value and long term
benefits for all our stakeholders.
Sustainable progress
Coats is a leader in the area of sustainability, underpinned by a
long-standing commitment to high standards of corporate
behaviour and responsibility. In March 2019, we launched our
sustainability strategy, publishing our ESG priorities alongside
ambitious targets across all of our operations. We are a
business that strives to do the right thing, including from an
environmental and sustainability angle, and developing the
people and the communities in which we operate. From a
governance perspective, we have also steadily improved the
way we operate, both at Board level and across the world. I am
proud of the fact that we have set stringent goals and made a
very public commitment to these targets.
It is also clear that these approaches are important to our
investors, our customers, and our staff. External recognition of
our strengths in these areas also counts. In addition to our
listing on the FTSE4Good index, I am pleased to announce that
Coats is now a participant in the UN Global Compact, an
initiative for businesses committed to aligning their strategies
with 10 universally accepted principles in human rights, labour,
environment and anti-corruption.
Looking back at the year under review
Due to the tough market conditions, delivering our
commitment to growth has inevitably been challenging.
However, following the successful execution of our global
strategic transformation programme, we have now created the
space to invest in the business and as a result of this I see
significant opportunities in 2020.
At the end of the year, we agreed to purchase the business and
assets of Pharr HP which further complements Patrick Yarns,
the business we acquired at the end of 2017. We are building
critical mass in our Personal Protection business, a key part of
our Performance Materials segment. We have also continued to
strengthen our innovation agenda by opening a further two
Innovation Hubs in EMEA and Asia in April 2019, in addition to
the Innovation Hub opened in the US in the latter part of 2018.
Bringing our customers to these hubs and working together,
we generate new ideas and we are now focused on
accelerating the pace at which we commercialise these great
ideas. We have already produced new products such as
FlameproTM Splash Protect from work undertaken in the hubs.
Coats Digital is our integrated software solutions business with
great growth potential. It provides us with tools in which to
improve the productivity and agility in the apparel supply chain,
particularly as fashion cycles are increasingly getting shorter.
Over recent years, we have acquired a suite of products that
will enable our customers to run an increasingly agile and
efficient business. Our long standing heritage gives us the
experience and contacts across the sector, so joining the
products together with that access and experience in the
industry makes for a powerful combination.
A world class team
The Board visited several sites during the course of the year and
also some key customers. What strikes me is the consistency
with which we follow the sustainability agenda and the high
health and safety standards at all of our sites, so that wherever
we are in the world we recognise we are at a Coats site. When
we visit our customers, I see that they are also embracing the
sustainability agenda and are meeting the need to bring
technology to bear to make them more agile to meet the
tighter cycle times and mass customisation of products
demanded by consumers today.
Coats has celebrated some key milestones this year, with the
50th anniversary of our operations in Bursa, Turkey, and our
Vietnamese business celebrating 30 years of operations. Being
global has been part of our DNA for most of our history and as
one of the first truly global manufacturing multinationals, I take
great pride in hearing the stories from our long serving staff in
our sites and I am always impressed by the dedication and
specialist knowledge of our teams across the world.
Dividend
The Board is proposing a final dividend of 1.30c per share
which, combined with the interim dividend of 0.55c per share,
gives a total dividend for the year of 1.85c (2018 full year
dividend: 1.66c per share), which represents an 11% increase
on the previous year. Subject to approval at the forthcoming
AGM, the final dividend will be paid on 26 May 2020 to
ordinary shareholders on the register at 1 May 2020, with an
ex-dividend date of 30 April 2020.
Looking ahead
2019 was a year of significant change for Coats. We have
focused on moving out of B2C and our sale of North American
Crafts at the beginning of the year marks the culmination of
this. We are now an organisation firmly focused on our core
businesses and sectors, with an exciting digital agenda and a
commitment to investing in innovation. I would like to thank
our dedicated and highly engaged Board, our Group Executive
Team and all our workforce across the world for their
commitment and contribution to making Coats the success it is
today. As we move into the next decade, our consistent
performance coupled with the determined execution of our
strategy ensures that the Board continues to look to the future
with confidence.
Mike Clasper
Chairman
4 March 2020
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Coats Group plc Annual Report 2019
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INVESTMENT CASE
There are five elements to our investment case – 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 we can innovate, grow and deliver consistently strong shareholder returns.
Throughout 2019 we continued to review each element of our investment case and looked to align these more closely to the future
core operations of our key business segments and the ongoing integration of recent acquisitions.
Which provides us as
an organisation with:
Key attributes
of this element
Element
1. Global market
leader in Apparel
and Footwear
(A&F)
A strong and defendable
core business representing
some 77% of Group sales
2. Leading player in
Performance
Materials market
Ability to build scale through
technology, innovation and
acquisition. Representing
some 23% of Group sales
3. Track record of
delivering
continuous
improvements
and operational
excellence
Focused improvement
programmes and experienced
management to deliver
margin and other financial
improvements
Ensuring the Group is ‘fit for
purpose’ and agile in the
modern high-paced world
Global leader in A&F thread market
Consistently increasing market share
in a stable market
Leading the response to meet
changing industry needs – speed,
productivity, innovation, quality,
responsibility and sustainability
Global presence in multiple but
focused end use sectors; building
scale both organically and
inorganically
Performance Materials offer products
that guarantee performance and
safety, and solve customer solutions
through applying our vast textile
expertise
Innovation in developing or acquiring
new competencies and technologies –
such as lightweight carbon and
innovative composites
Productivity gains and procurement
initiatives
Investing in energy / waste reduction
to improve operational efficiencies
Global transformation programme –
Connecting for Growth (C4G) –
delivered ahead of schedule
General cost discipline around
the organisation
Highlights in 2019
+2%
Sales growth in A&F thread – continued market share
expansion
+5%
Sales growth in premium brands such as Epic
and Nylbond
+1%
Revenue growth
+6%
Organic sales growth in key strategic focus area of
Personal Protection
>20%
Of revenues from products that did not exist
5 years ago
+6%
Adjusted organic operating profit growth through
focussing on operational improvement initiatives – for
example procurement and productivity savings,
general cost control and C4G savings more than
offsetting input cost pressures
+30%
Reported operating profit – significantly reduced
exceptional items
$28m
Net benefits from 2-year C4G programme
42%
Sustained strong return on capital employed (ROCE)
4. Track record
of delivering free
cash flow
Strong cash flow generation
and high ROCE
Balancing key cash demands
of organic investment, pension
schemes and shareholder returns
Sustained high levels of ROCE over
recent years
+11%
Full year dividend payment of 1.85c
per share
$107m
Adjusted free cash flow
5. Value adding
acquisitions
Ability to build scale in
the strategic focus areas
which are currently
fragmented competitively
Continue to identify strategic and
value add bolt-on acquisitions
principally in the areas of hi-tech
Performance Materials and software
solutions for the Apparel and
Footwear industry
Completion of Pharr HP acquisition delivering further
scale and presence in the attractive Personal
Protection growth market
0.6x
Strong balance sheet leverage position providing
significant fire power to complete further value-
added deals
For more go online www.coats.com/investor
Alternative Performance Measure see note 37 on page 172.
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GROUP CHIEF EXECUTIVE’S STATEMENT
Strategic update
We have delivered excellent strategic progress in 2019. At the
start of the year we completed the exit of our non-core North
American Crafts business, which means we are now a fully
focused industrial B2B business producing thread for the
Apparel and Footwear industry, and chosen attractive end-
markets in our Performance Materials segment.
On the acquisition front, we are pleased to have acquired Pharr
High Performance Yarns (Pharr HP). The Pharr acquisition adds
to our five previously completed deals, and further takes us
down our value-add acquisition journey.
The latest Pharr HP acquisition is in line with our stated strategy
in Performance Materials of building scale in our chosen end-
markets; in this case, combined with our existing organic
business, this gives us around 20% share of the addressable
market in the attractive growth end-market of Personal
Protection. We will drive forward performance and margins in
this business to extract significant incremental shareholder
value.
Connecting for Growth - reducing cost & complexity
We have now successfully closed the two-year Connecting for
Growth programme, ahead of schedule, delivering higher
benefits than originally anticipated, and for broadly the same
overall cost. In total, we delivered $28m of net annualised
savings from the programme, which is after the planned
reinvestments, for a cost of $31m.
We are now a lean and agile business, ready to thrive in the
modern business world. As part of the programme we have
rationalised our regional structure from around 45 separate
country management teams to seven scalable and coordinated
clusters, and we have extracted our back office local support
functions to being global expert teams (e.g. finance / legal / HR)
supporting the wider business. We have continued to trim the
portfolio effectively by exiting some small tail-markets, and
rationalised certain tail customers / products; we have exited
five smaller markets during the year, and during the course of
the C4G programme reduced our SKUs down by over 1/3, with
minimal loss to our customer experience. This continuous
review of the edges of our portfolio is required to reduce
non-value-added complexity. There is a small negative sales
impact in 2019 due to exiting smaller markets which has partly
impacted headline group sales growth, but this will help us get
fitter and faster as an organisation in 2020.
‘WE ENTER 2020 AS A PURE
INDUSTRIAL B2B BUSINESS THAT IS
FITTER, FASTER AND AGILE.
WE ARE A GLOBAL MARKET
LEADER WITH A CLEAR STRATEGY,
STRONG TEAM AND ROBUST END-
MARKETS.’
Dear Shareholder,
Coats is entering 2020 having made significant positive
strategic progress during 2019. We have successfully completed
our strategic transformation programme called Connecting for
Growth (C4G), that we launched in 2018. We have completed
this ahead of schedule, with greater cost savings than originally
expected, and with minimal reputational or operational risk. It
has been one of the best planned and executed transformation
programmes over my career. We have been able to start
reinvesting a proportion of the gross savings from C4G to
accelerate our capabilities in digital, innovation and
sustainability. Today, the organisation is fitter, faster and more
agile than ever before which will allow us to navigate market
volatility and uncertainty (e.g. the recent Coronavirus outbreak)
with greater confidence and speed.
2019 performance
I am pleased to report another year of growth in profits,
margins and cash, despite a market backdrop where we saw
lower than normal growth in retail sales of Apparel and
Footwear (exacerbated by US-China trade tensions), and
temporary softness in some of the industrial end-markets that
we serve in Performance Materials. We delivered sales growth
in Apparel & Footwear by taking market share, improving our
product mix and effective pass through of raw material
inflation. 2019 was a year where ESG and sustainability was
firmly and increasingly on the agenda of many brands and
companies in our industry. It is fast becoming a license to do
business with several global brands.
Globally, industrial output was dampened and this notably
impacted two of our five end-markets in Performance
Materials. Global automotive production was down year-on-
year and Telecoms (in H2) had large infrastructure investment
projects delayed in Europe. We launched several new products
in 2019 with the best seller being Flame pro, an innovative yarn
that goes into the manufacture of protective clothing.
Despite this market backdrop, we delivered growth in profit,
margins and cash by executing well with our internal
productivity and self-help programs. Coats has a high ROCE
and a strong Balance Sheet. This allows us to invest in growing
the company organically and through acquisitions.
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GROUP CHIEF EXECUTIVE’S STATEMENT
CONTINUED
In 2019 we launched our inaugural Sustainability Report, and
alongside this Annual Report, we have launched our latest
update report on sustainability. This outlines our progress
towards our medium term targets, which are on track, as well
as our many other activities in this space, for example the
hosting of a dedicated ESG event for financial investors/analysts
at the London Stock Exchange in June 2019.
For more details of our activities/targets in this area, please see
www.coats.com/sustainability
Looking ahead
We enter 2020 as a lean and agile organisation, having
delivered significant positive strategic change through 2019.
We are well placed to take advantage of the fast-paced and
rapidly changing modern world, by capturing the many
opportunities this presents to Coats as a truly global business.
Absent a material impact from Covid-19, Coats remains well
placed to execute our strategy and deliver another year of
growth in 2020.
Rajiv Sharma
Group Chief Executive
4 March 2020
Connecting for Growth – reinvestments in
innovation, digital and talent
Our focus now turns to driving incremental sales and value
from the planned reinvestments of some of the gross project
savings in the areas of innovation, digital and talent. This allows
us to further raise the bar in delighting customers. It also allows
us to move quickly and smartly in deploying resources to take
advantage of market volatility and uncertainty.
In the area of innovation, we now have three Innovation Hubs
open with China and Turkey opening in the spring of 2019
following the opening of our US Hub in October 2018. These
are proving, as expected, to be of significant value for our
customers as they work with our technical experts in real-time,
on dedicated machinery, to develop innovative solutions for
their specific design needs. In 2019 alone, we have seen $16
million of incremental sales driven largely from these new
facilities. The innovation infrastructure we have now built will
allow for faster and bigger levels of customer innovation in the
coming years, and we will continue to invest in new technical
talent to drive this progress.
In the digital space, we continue to make progress on our
customer facing tools to enable better customer experience and
more value delivery. The analytics engine allows us to better
serve customers and organise our internal supply chain. On the
latter we have launched pilots during the year to stream data
insights from our manufacturing lines to manage inventory and
labour more efficiently. We also track in real time the
performance of a number of our effluent treatment plants. We
are continuing to roll out investment in the digital space,
including investing in appropriate technology and talent.
Sustainability
There is an ever-increasing momentum around the sustainability
agenda within our industry, and from other key stakeholder
groups (e.g., financial markets). This has long been at the
forefront of Coats’ thinking, and “doing the right thing” has
always been core to our values. We are delighted that this
focus on responsible business and ethical behaviour is now
becoming mainstream in the industry, and we intend to
leverage our leadership position in this space not only for our
own benefit but also for the good of the industry and our
planet. This is one of many key differentiators in our offering,
and the incremental peace of mind this delivers for our partners
partly underpins our market share gains. We expect this to
become an increasingly important differentiator in the coming
years, and reflecting this we will be linking management
remuneration from 2020 onwards in part to our performance
on key sustainability metrics.
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MARKET TRENDS
What markets do we serve?
Apparel and Footwear (A&F)
Coats is the global market leader in supplying premium thread
to the A&F industries, and are estimated to be more than twice
the size of our nearest thread competitor. The global market for
thread is estimated to be c.$4 billion and while thread
represents only 1-2% of the cost of a typical garment, it is
recognised to be a critical component in the overall garment
performance and efficiency of the production process. We are
one of the few global players of a key supply chain component
in the $1.5 trillion global apparel and c.$350 billion footwear
industries which are projected to grow at low single digits in
the medium term. We also provide software solutions to our
customers which help drive speed, productivity, efficiency, and
savings in their operations.
Performance Materials
We are global experts in the design and supply of high
technology, high performance technical threads and yarn used
in a range of industries which include personal protection,
transportation, household and recreation, telecoms and energy,
and other industrial end uses. We estimate the addressable
market (i.e. into which we currently or could realistically serve in
the near term) is c.$3.5 billion in size, of which c.$2.5 billion is
in relation to high technology end uses (e.g. personal
protection, telecoms and energy, and transportation), and as a
result a market share of around 10%. We anticipate upper
single digit medium term organic percentage growth in this
area, with growth weighted towards higher technology end
uses.
Trends that are impacting our
businesses:
1. Speed to market
The rise of fast fashion, which has dramatically reduced the
time between catwalk to high street, and consumers demanding
more than just the traditional two season cycle has put
tremendous pressure on the full garment supply chain. Not only
do all participants need to act faster to respond to shorter lead
times, they need to act smarter, focusing on productivity.
Our unrivalled global footprint means we are uniquely placed,
across the entire component supply chain, to manufacture and
distribute consistently high quality products to service retailers’
multi-location sourcing strategies. We also have the industry
leading digital tools such as our web-based service Coats
Colour Express, the fastest thread sampling service in the world.
Trend #1: Our response in the year
Continued development and refinement of our customer
facing digital tools – online payment facilities rolled out to
14 markets, 94% customer adoption.
Our new geographic cluster structure and back office
support functions put in place through Connecting for
Growth make us more agile and nimble as an organisation
and enable us to respond to our customer needs in a quick
and coordinated way on a global basis.
We have initiated pilot programmes within certain factories
to retrofit sensors to our existing machines to stream data
and drive insights into our production processes.
2. Innovative uses of threads, yarns and fabrics
Consumers are demanding more innovative products in every
area of their lives and as a result new thread based application
end uses continue to be identified. We are at the forefront of
innovating smart thread and yarns to enhance the functionality
or performance of many products in multiple end markets. This
is a core competency in our Performance Materials business in
which we have developed and grown sales in many new
products such as flame retardant threads used in protective
wear, and water swellable threads that protect fibre optic
cables and composites that deliver high performance, light-
weight solutions in industries such as oil and gas (e.g. deep
water pipes) and automotive.
In addition in A&F, we continue to partner closely with global
brands to help support their ambitious innovation agendas. We
listen to their requirements and work with them to develop the
required solutions. As a global market leader, with unrivalled
customer connections and a history of delivering excellent
customer service and solutions, we are at the forefront of the
industry in working to develop these innovation solutions.
Trend #2: Our response in the year
All three of our Innovation Hubs are now open, which span
the globe and reduce innovation lead times for our
customers. Our innovation ecosystem is now largely in place,
which provide customers with a dedicated capacity for us to
develop their new product solutions. These are driving
incremental new product sales; $16 million in 2019.
We have seen increased commercial interest from the
automotive industry in the year in our innovative carbon
composite solution – this provides a lightweight, low waste,
steel replacement solution
3. Operating sustainably, increasing compliance
and ethical standards
The global apparel and footwear market is coming under
increased pressure to become more sustainable, which means
requiring improvements from their supply chains. We are
continuing to maintain our leadership position as a major
component supplier by pursuing a strategy with ambitious
targets related to a broad set of Environmental, Social and
Governance (ESG) issues.
As a result, a growing share of consumers, shareholders,
authorities, brands / retailers and manufacturers are demanding
more sustainable products and becoming increasingly focused
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MARKET TRENDS
CONTINUED
on operating in a compliant and ethical way. Entire supply
chains are coming under pressure not just to conform to local
requirements but also to higher international standards as well
– be these environmental, labour or sourcing.
Increasingly shareholders seek to protect the long term viability
of their businesses and investments and ESG standards are
being used by current and potential investors as a critical part
of their assessment criteria. These challenges present both a
need for driving change at scale but also an opportunity for
long term value creation. This goes to the heart of Coats’ values
and standards. Our sustainability programme is integrated with
our business strategy and helps us build and maintain both our
reputation and our relationships with key stakeholders.
Specifically in relation to climate change we treat this as an
emerging risk which means that it is considered at Board level
and we will be developing our mitigation approaches during
2020. For more information in relation to our response to the
climate change risk please see our separate Sustainability
Report.
Trend #3: Our response in the year
During the year we undertook a strategic review of our
sustainability activities, building on our long-standing
leading credentials and commitments in this area, and
launched the ‘Pioneering a sustainable future’ programme;
this is based around our five key priority areas and aligned
to clear targets to be achieved by 2022.
We also hosted a dedicated investor event on ESG related
matters at the London Stock Exchange in June. This
highlighted the commercial benefits of our leading
sustainability credentials, as well as our fundamental belief
that operating ethically is the right way to do business.
Our 100% post-consumer recycled thread, Epic EcoVerde,
saw significant interest and traction in the market place
during the year, especially with brands who are aligned to
our ambitious sustainability targets.
4. Growth of the urban middle class in Asia
Globally, the A&F thread market is expected to grow by low
single digits percentage over the medium term, but this is
projected to be higher in Asia. In 2018 retail sales in North
America and Western Europe for the first time accounted for
less than 50% of all global sales. Not only will Asian consumers
demand more garments in the future, but more affluent
consumers will demand higher-end garments, so we expect
that regional sales from our many factories in Asia will increase
over time.
Demand for Performance Materials threads and yarns is
increasing due to the pace of urbanisation (for example, the
rollout of fibre optic cable networks) and economic growth,
which means consumers purchase more products which require
high performance materials (for example, leisure goods,
automotive and personal protection).
Trend #4: Our response in the year
Our China Innovation Hub was opened, which focuses on
A&F product solutions.
We have further invested in incremental capacity in select
Asia markets to reflect the increased production demand in
those territories.
Asia domestic sales whilst currently relatively small to the
Group, grew by 8% in the year, which included a number of
key customer wins.
5. Increasing adoption of digital services
Digital solutions and services are playing an ever-increasing role
in everyday life and this is replicated in the industries in which
we operate, giving us a market leading online proposition.
Together with our Coats Digital software solutions business, we
are applying digital technology and services proactively for the
benefit of both our internal operations and as a service offering
for our customers.
Our customer facing E-commerce platform has now seen
adoption reach 86% (proportion of thread orders) and 94%
(customer adoption) by the end of 2019. This is a crucial
platform for us to engage with our customers online to deliver
speed, convenience, transparency and efficiency and we
continue to improve customer experience through further
digitisation of the order to cash process.
We have been at the forefront of digital innovation by
component suppliers to the global garment industry for several
years now. Our Coats Colour Express service is the fastest
thread sampling service in the world and Opti Express is a
revolutionary zip sampling service. We are continuing to
enhance the services of our online sales organisation to manage
sales to smaller customers. Our Online Business teams provide
high levels of service and technical support to customers, as
well as enabling customers to place, monitor and pay for their
orders using our market leading e-commerce platform.
Trend #5: Our response in the year
We have rebranded our software solutions business under
the Coats Digital umbrella brand name, which provides a
wide array of productivity / planning / efficiency software
solutions for our customers.
Twine Solutions launch of the protype digital thread printing
system in June 2019, at ITMA (Barcelona). Unique water-free
printing technology received with significant positive interest
in marketplace.
Continued progression of our Digital Advisory Council,
reporting directly to the Board, provides latest insights and
developments in technology and its impact / opportunity for
Coats.
For more information on our market environment go online
www.coats.com/investors
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BUSINESS MODEL
Our business model
The elements of our business model
Goals and culture
We deliver both our purpose and our strategy through the way we work
Our purpose is to harness talent and technology to create thread, yarn and service-based solutions to benefit all our stakeholders
– our customers and their industries, our shareholders, our people and the communities in which we operate
Our business model is built on our foundations of safety, compliance, sustainability, performance, speed, agility and technology
Our strategy ‘Transforming from the Industrial to the Digital Age’
Apparel and Footwear
Performance Materials
Products
We are the world’s leading manufacturer
and supplier of a range of industrial
sewing threads, with leading products
such as Epic (fashion apparel), EcoVerde
(recycled thread), Dual Duty (denim) and
Nylbond (footwear); under the Opti brand
we are a major global manufacturer of
metal, plastic and spiral zippers; we offer
a growing range of other trim products to
the global garment industry, such as
reflective tape and premium interlinings.
Services
Our newly launched brand offers a
technology business with deep industry
expertise delivering great customer value
and ideally placed to solve the Apparel
and Footwear industry’s big problems –
cost, speed, and transparency.
Our most recent acquisition ThreadSol,
which was completed early in 2019,
complements our previous acquisitions of
GSD and Fast React allowing us to offer
an ever broader suite of industry leading
consultancy, tools (e.g. cost
benchmarking) and PLM software to
garment manufacturers and brands /
retailers.
Products
We produce multiple innovative threads
and yarns for traditional and high
technology uses and sell directly to global
original equipment manufacturers. End-
markets include household and
recreation, healthcare (medical sutures),
transportation (airbag thread), telecoms
(coated fibreglass to provide strength to
fibre optic cables), oil and gas (composite
tapes for reinforcing pipes), personal
protection (flame retardant yarn) and
composites (combinations of carbon fibre
aramids, para and meta aramids, fibre
glass, nylon, polyester).
Our recent acquisition of Pharr HP
expands our existing manufacturing
capabilities, widens our innovation
offering and drives further penetration
into the Personal Protection market.
‘Through our activities we make an economic impact that stretches far beyond the boundaries of our own operations as we buy
from local, regional and global suppliers.’
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BUSINESS MODEL
CONTINUED
Sales and
marketing
Through our network of customer and supplier relationships we have close interactions with the world’s
leading global retailers, brands and manufacturers and are able to respond quickly to their specific needs,
pressures and aspirations.
Manufacturing We are able to service our customers with a globally consistent quality and colour that has been
manufactured to high ethical, labour, and environmental standards. Whilst only 1-2% of the cost of a
typical garment, seam failure as a result of lower cost threads can involve costly returns as well as
reputational damage. Our products are tested and measured against stringent quality and safety
standards. Above all, we provide ‘peace of mind’ to our customers.
New product /
process
innovation
Through our global network we have a culture of seeking to innovate in the industries in which we
operate. Following the opening of our first innovation hub in the US in 2018, we opened further hubs in
China and Turkey in 2019, giving us a global innovation offering across both A&F and Performance
Materials. These facilities provide a dedicated space to collaborate with our customers to deliver
prototypes for their specific requirements. We expect these hubs to drive incremental new product sales
which form a key part of our future growth prospects.
Our R&D team works with customers to understand their needs, with support from academic institutions
and specialist companies, developing new product solutions with our customers’ needs always in mind.
Technical
Digital
We use our expertise to support our customers by making thousands of technical interventions to help
our customers on the shop floor every year.
By offering an industry leading set of services, from colour sampling to online training, e-commerce to
supply chain management tools, we make it easier to do business with us and offer greater value and
time benefits to customers. We rebranded our software solutions business to Coats Digital during the
year which brings all of our software solution tools under one single umbrella brand.
Customer
relationships
We work with nearly 30,000 apparel, footwear and accessories customers, approximately 4,000 retailers
and brands globally and around 8,500 customers in our Performance Materials business. These strong
relationships, across all levels of our customers’ organisations provides us with deep market insight.
Global asset
base
We manufacture at some 50 sites, on six continents, with 100+ warehouses, the majority of which are
connected by a global ERP system; this ensures we are uniquely positioned to deliver consistently high
service levels for the industries we serve on a short lead time basis.
People
Suppliers
Our diverse international workforce of nearly 18,000 with an entrepreneurial and solution-focused culture
is both highly engaged and committed, and valued by the organisation.
We have a diverse and global supplier base of raw materials (predominantly polyester and nylon),
intermediates (grey thread) and other materials (cones and chemicals). We proactively review market
developments and continue to monitor and manage our supply chain carefully, as well as looking to
transition to recycled inputs wherever possible (for more detail see our separate Sustainability Report). See
Supplier Risk in the Principal Risks and Uncertainties table on page 27.
Responsibility
‘Doing the right thing’ is in our DNA. Our strong environmental, social and governance (ESG) and
corporate social responsibility (CSR) credentials and ethical reputation amongst all garment suppliers to
the global garment industry helps us build and maintain both our reputation and our relationships with
key stakeholders.
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‘WE USE OUR EXPERTISE TO SUPPORT OUR CUSTOMERS
BY MAKING THOUSANDS OF TECHNICAL INTERVENTIONS
ON THE SHOP FLOOR EVERY YEAR.’
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BUSINESS MODEL
CONTINUED
Employees
Customers
Shareholders
Environment
l
s
r
e
d
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h
e
k
a
t
S
Communities
Suppliers
We are committed to the safety, rights and wellbeing of our
17,000 employees. Our aspiration is to create a culture that
nurtures innovative, solutions-focused performance.
Year-on-year reduction in
our recordable accident rate
KPI; remains well below
industry averages
We aim to better address customer needs and adjust our
operations to meet market demands. As customer
expectations evolve, we are also proactively marketing our
products as responsibly sourced and sustainably produced.
c.40,000 customers served
We are committed to delivering superior returns – and aim
to deliver long term value.
3 year TSR (total shareholder
return) vs FTSE 250 – Coats
in 87th percentile
We are developing new ways to work more sustainably as a
business to meet the challenges of a sustainable future. This
includes producing less waste, lower carbon emissions, and
less water / energy usage.
CO2 emissions intensity -3%
Water intensity -2%
Energy intensity -1%
Waste intensity +6%
We create jobs for local communities and pay millions of
US$ in taxes. We also contribute to local economic and
social development, the impact of which is often felt even
after our operations have ended.
Opening of employee crèche
in our Turkey facility
Donation of excess thread in
Vietnam to community
textile initiatives
We look for the right balance of global, national and local
capability, working with partners to drive innovation and
create local supply chains wherever we can.
>$0.8bn paid to suppliers
You can read more about the way we engage with our stakeholders on page 22.
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OUR STRATEGIC FRAMEWORK
EACH ASPECT OF OUR STRATEGIC FRAMEWORK
IS ALIGNED TO DELIVERING LONG TERM VALUE
Our purpose
Our vision
Our purpose is to harness talent and technology in an ethical
manner to benefit all our stakeholders – our customers and
their industries, our shareholders , our people and the
communities in which we operate
To be the world’s leading industrial thread company
delivering innovation, digital solutions and sustainable value
Our strategic goals
How we are working to achieve our visions
1. Profitable
sales growth
2. Increased
productivity
3. Delivering
value
Our strategic pillars
Guided by four pillars to enable us to create value over the long term
Innovation
Sustainability
Digital
Acquisition
Our strategy is aligned to the key strengths of our business model and investment case
Business model pages 10-12
Investment case page 5
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OUR STRATEGIC GOALS
Strategic goal
2019 progress
2020 priorities
Relevant risks
1. Profitable sales growth
For A&F we must remain relevant to the
global industry supply chain, ensuring we
meet the industry imperatives of speed,
productivity, quality, innovation and
sustainability. We achieve this through
continually developing our industry leading
brands, strong market positions and
customer relationships, and by offering new
software services and operational excellence
tools delivered digitally.
For Performance Materials this means
focusing our efforts in those markets where
we have the ability to build scale through
innovation, technical excellence and
acquisition. Our global footprint allows us to
connect growth technologies to new markets
and customers.
2. Increased productivity
As a Group this means we are always
focused on meeting our commitments to
generate consistent and strong free cash flow
each year, and ultimately deliver more output
from less inputs (e.g. materials, labour,
energy). This enables us to fund our organic
growth ambitions and facilitate further value-
enhancing acquisitions.
3. Value delivery
For us as a Group this means providing
superior value to our customers and
shareholders through balancing our growth
and efficiency agenda. Furthermore, we seek
to provide a value proposition to all of our
employees where they can develop to their
full potential within a safe, respectful and
inclusive workspace.
During 2019 we have
continued to deliver sales
growth at enhanced margins,
despite mixed end-market
performance.
Our key focus areas have
performed well (A&F thread,
Personal Protection, Telecoms
and Energy).
Incremental new product sales
have been driven through
leveraging our enhanced
innovation capabilities and
global hubs.
For 2020 our priority is to
strive to generate sales
growth across all our
regions. Incremental sales
from innovation will be
key, as well as continuing
to meet customer needs
for speed, quality, peace of
mind, innovation and
sustainability to drive
further market share gains.
•
•
Economic
Talent and
capability
•
Supplier non-
performance
• Health and safety
•
•
Environmental
non-performance
Supplier non-
performance
• Cyber
•
Talent and
capability
• Health and safety
During 2019 we made
good progress in this area
with ongoing cost control,
productivity and procurement
savings. We also delivered
further incremental net savings
from our Connecting for
Growth (C4G) programme,
which is allowing us to deploy
reinvestments back into the
business (in the areas of
innovation, digital and talent)
to support future growth
initiatives.
This has been reflected in a
50bps increase in our
operating margins, despite
limited top line sales growth.
Looking ahead to 2020 we
will continue to embed our
new ways of working
following the successful
roll out of C4G – this
enables us to be a more
nimble and agile
organisation, take
decisions quickly, and drive
efficiencies in the
organisation.
We will also continue to
roll out the digitisation
initiatives within our own
factories – including the
retro fitting of sensors to
our assets to stream data /
insights and ultimately
productivity improvements.
During 2019 we have
continued to invest selectively
in organic growth
opportunities and in support
of our ESG related credentials
(e.g. effluent treatment
plants).
Our strong cash performance,
allows us to continue to
adequately support all of our
stated capital allocation
priorities, which also includes
pensions, shareholder
dividends and M&A.
Looking ahead to 2020 we
have a strong Balance
Sheet position, expect
further organic cash
generation, and this will
allow us to continue to
support our key capital
priorities. Notably our
strong Balance Sheet will
allow us to complete
further value-add
acquisitions in our chosen
focus areas.
•
•
Pensions scheme
deficit funding
Talent and
capability
•
Supplier non-
performance
• Health and safety
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OUR STRATEGIC PILLARS
OUR STRATEGIC PILLARS ARE OUR LEVERS FOR CHANGE AND
PROVIDE THE TOOLS THAT WILL ENABLE US TO DELIVER VALUE
Our strategic pillars anticipate the continuing challenges from the macro trends that are shaping the world – be that urbanisation, the
drive to sustainability or the ever-increasing adoption of digital technology – and give us the tools that will enable us to deliver value to
customers, shareholders, employees and communities over the long term.
The pillars – Digital, Innovation, Acquisition and Sustainability – are the building blocks to help us meet these challenges.
Pillar
DIGITAL
Description
Example
To stay relevant, we recognise the need to evolve
in new directions. This requires us to think ‘beyond
the stitch line’ to collaborate with internal and
external stakeholders, to repurpose our products
into new areas and use machine learning and
artificial intelligence for new ways of operating,
fit for the digital age.
We are leveraging data science and advanced analytics.
We have manufacturing machines streaming data with
two million new data points every day from our pilot
programmes within certain of our factories.
Our Digital Advisory Council, which incorporates external
digital / technology advisors, provides up to date advice
and insights as to how we can adapt and benefit from
the latest technological developments.
INNOVATION
This is at the heart of everything we do. We
recognise that big, bold, game-changing ideas
are crucial to our success.
SUSTAINABILITY
Our customers are increasingly pursuing their
own ambitious sustainability agendas, so it is
fundamental to our success to support them
and align our material issues with theirs.
Leading in this area will enable us to access new
markets and opportunities to grow our business.
ACQUISITION
We look to identify companies with unique
capabilities, technology, innovations, or Intellectual
Property that can be scaled to deliver value for
customers and shareholders.
Any acquisition must allow us to solve complex
customer problems with ease.
Innovation Hubs – These are areas dedicated to
innovation and new product development which will help
us to deliver sales growth from new product launches
and to put the customer at the heart of innovation by
providing dedicated spaces to collaborate with them
on, creating exciting new products together.
More than 20% of our organic Performance Materials
revenues are in relation to products that did not exist five
years ago. Our Epic EcoVerde, 100% post-consumer
recycled thread, continues to see significant increase
demand from our brands as they pursue their own
sustainability agendas / targets.
Real time monitoring of effluent and emissions – we
are using technology to bring greater visibility and
transparency across our manufacturing operations.
Solid progress towards our targets for effluent, social
certification and recycled polyester, modest progress in
water and energy, underpinned by developed plans for
delivery in 2020, and greater consistency in non-
manufacturing waste reporting that has led to an
increase of reported waste, but a clearer understanding
on which to base our 2020 action plans.
Dedicated ESG investor / analyst event held at London
Stock Exchange for financial stakeholder groups –
outlining industry dynamics, the Coats response, and the
commercial benefits this can deliver.
The acquisition of Pharr HP provides us with further
manufacturing / innovation expertise, and together with
our existing Personal Protection business delivers scale
and presence in this attractive growth market.
Our Balance Sheet remains strong and will enable us to
do further value-add acquisitions in the future.
The exit of our non-core B2C North America Crafting
business allows us to focus entirely on our B2B
capabilities, which is where our core strengths lie.
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OUR STRATEGIC PILLARS
CONTINUED
A TRANSFORMATION PROGRAMME ACCELERATING OUR
TRANSITION FROM THE INDUSTRIAL TO THE DIGITAL AGE
Connecting for Growth is our two year global transformation programme, launched in 2018, designed to drive speed, agility, innovation
and lower costs across the organisation, whilst enabling the next phase of growth at Coats and accelerating our transition from the
industrial age to the digital age.
Leadership of the programme throughout has been provided by the Group Executive Team, supported by a team of project managers.
The programme is reviewed regularly, including through the use of key performance and risk indicators, at both executive management
and Board level.
This programme has focused on simplification across many aspects of the organisation, connecting the business end-to-end, and
releasing funds for reinvestment in our customer-focused initiatives (e.g. innovation, marketing), digitisation and our people.
Activities in 2019
The programme extends beyond productivity improvements to delivering process excellence, improving customer satisfaction,
and creating a wider pool of world class talent, all of which underpin our growth strategy and increase shareholder value.
We have continued the accelerated progress made in 2018 and were pleased to report that the majority of cost actions in relation to
Connecting for Growth were completed ahead of schedule, and driving higher than expected net savings, in the first half of 2019. Since
we reported this in our half year results, we have completed the remaining cost actions (this part of the programme now being closed)
and will continue to drive the “reinvestment phase” of the programme. This includes continuing to reinvest a proportion of the total
gross savings from the programme in the areas of innovation, digital and talent which will underpin our growth and agility as an
organisation.
Leaner processes
Organisational agility
Speed and harmonisation Empowering teams
Smaller markets – In smaller
markets we have changed our
operating model by exiting these
territories (e.g. South Korea),
without any impact on service
levels for our global customers.
This has included us helping local
management teams buy Coats
businesses.
Our geographic structure is now
based around seven scalable
clusters, as opposed to previously
where we ran c.45 separate
country management units.
Product harmonisation –
Simplifying our product ranges
and portfolios (e.g. lower margin
products) has allowed us to
improve our speed of operation
and customer service. We have
moved from a range of 300+
brands to less than 150 and
delivered a reduction of some
c.400,000 SKUs.
Training and tools – To
support and embed the new
function operating model,
training programmes have been
developed. These include
Business Partner Training and
Sales Accelerator Programmes.
New talent – Introducing
new specialists into the
organisations. These hires
provide the skills, talents and
experience to deliver new digital
growth programmes.
Digitising our manufacturing
footprint – A programme for
enhancing our manufacturing
effectiveness. For example,
collecting digital data from the
thousands of machines we have
across our supply chain allows us
to gather data and insights to
better understand root causes of
efficiency losses and address
them proactively.
Our organisation, which is now
in a matrix structure, is now fit
for purpose for a global
organisation. Our back office
support functions operate on a
global basis providing quick
support and underpinning rapid
decision making.
Final cumulative net benefits for the programme are $28 million (of which $13 million in 2019), which is significantly ahead of the initial
estimate of $15 million net benefits expected by 2020, when the programme commenced in 2018. The increased level of net savings
have been delivered through exceptional project management and continuous course correction, for example by reducing the originally
planned geographical cluster structure from 10 (previously c.45 geographic markets) to 7. We have achieved this whilst making
reinvestments to embed our innovation, digitisation and people strategy initiatives which are an integral part of the programme.
The final net exceptional reorganisation charge for the programme was $31 million ($8 million in 2019), marginally higher than the
initial $30 million estimate at the start of the programme as further opportunities for savings were identified.
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KEY PERFORMANCE INDICATORS
Approach in 2019
MONITORING PERFORMANCE TO MEASURE THE GROUP’S PROGRESS
TODAY AND ONGOING PERFORMANCE TOMORROW
During 2019 we continued to monitor our performance and progress using the consistent range of key performance indicators used in
the prior year, each of which is a non-GAAP measure. For further details of how these financial Alternative Performance Measures are
reconciled to the nearest corresponding statutory measure see note 37 on page 172.
KPI
Definition
Why we measure this
Performance
(% Year-on-year)
Annual organic growth
in sales at like-for-like
exchange rates.
Revenue
growth1
Linked to our
strategic goal
Adjusted
operating profit
growth2
Linked to our
strategic goals
Annual organic growth in
operating profit, adjusted
for exceptional and
acquisition related items,
at like-for-like exchange
rates.
Measures the ability of the
Company to grow sales
by operating in selected
geographies and segments
and offering differentiated,
cost competitive products
and services.
Measures the underlying
profitability progression
of the Company.
Adjusted
earnings
per share
growth3
Linked to our
strategic goal
Adjusted free
cash flow4
Linked to our
strategic goal
Annual growth in reported
EPS from continuing
activities, excluding
exceptional and acquisition
related items.
Measures the underlying
progression of the returns
generated for shareholders.
Cash generated from
continuing activities less
capital expenditure, interest,
tax, dividends to minority
interests and other items,
and excluding exceptional
and discontinued items,
acquisitions, and UK pension
recovery payments.
Measures the Company’s
underlying cash generation
that is available to service
shareholder dividends,
pension obligations and
acquisitions.
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
2017
All figures are in $(m)
1
3
5
6
23
14
1
21
42
2019 commentary
1% sales growth despite
mixed end-market
conditions.
Growth in both Apparel
and Footwear (1%) and
Performance Materials
(1%).
6% growth in organic
operating profit.
Successful pass through of
inflationary pressures via
pricing, productivity,
procurement, cost control
and C4G savings.
EPS growth despite year-
on-year foreign exchange
translation headwinds.
200bps reduction in
effective tax rate, broadly
offset by certain non-
operational one-offs (e.g.
IFRS16 and pension finance
charge).
107
96
76
Strong free cash flow
performance driven by
operating profit growth,
controlled working capital,
and lower tax / interest
spend.
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KEY PERFORMANCE INDICATORS
CONTINUED
KPI
Description
Why we measure this
Performance (%)
(% Year-on-year)
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 (FTEs)
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.
Return on
capital employed
(ROCE)5
Linked to our
strategic goal
Recordable
accident rate
(RAR)
Linked to our
strategic goal
Employee
engagement
score
Linked to our
strategic goal
Measures the ability of the
Company’s assets to
deliver returns.
Measures the performance
of the Company in
delivering a safe and healthy
working environment
for employees.
2019
2018
2017
2019
2018
2017
2019 commentary
Broadly stable on 2018 as
operating profit growth in
line with movement of
effectively controlled capital
base.
42
43
35
Remains significantly below
Occupational Health, Safety
& Environment (OHSE)
industry averages.
0.50
0.62
0.56
Work related injuries per 100 FTEs
2018 figure restated for delayed
impact incidents
Measures the Company’s
performance in delivering
an effective and efficient
work place culture and
how proud and willing
people are to work towards
achieving common goals.
2019
n/a
2018
2017
83
83
Whilst it remains a KPI, we
are enhancing our approach
to Employee Engagement
Surveys in 2020 by moving
to a ‘continuous listening’
model. In 2019, while we
undertake the transition, we
held three pulse surveys on
key areas of employee
engagement (see pages 19
and 25)
Paying for Performance
The incentive plans used to reward the Directors and our senior managers, include Performance Measures linked to
our Key Performance Indicators. For more detail see the Directors’ Remuneration Report on pages 73 to 94.
1 Revenue growth in 2017 and 2018 excludes contribution from acquisitions made during the period. Revenue growth in 2017 also excludes the discontinued North America Crafts business.
2 Adjusted operating profit growth in 2017 excludes contribution from acquisitions made during the period. Adjusted operating profit growth in 2017 also excludes the discontinued North America
Crafts business.
3 Adjusted EPS growth in 2017 excludes the discontinued North America Crafts business.
4 Adjusted free cash flow in 2017 excludes the discontinued North America Crafts business.
5 ROCE based on adjusted operating profits and excludes the discontinued North America Crafts business. With effect from 1 January 2017 capital employed used in the definition of ROCE includes
intangible assets in relation to recent acquisitions.
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STAKEHOLDER ENGAGEMENT
HOW WE CREATE VALUE FOR OUR STAKEHOLDERS
Responsible business practice is at the core of everything that we do. For over two centuries our purpose has remained the provision of
good service and the creation of long term value for all of our stakeholders. In order to create this value, it is important to first identify
who our stakeholders are and understand what matters to them.
Shareholders
Environment
Customers
Our
stakeholders
Local
communities
Suppliers
Workforce
Honest and regular engagement with our shareholders and wider stakeholders is a vital ingredient of building the sustainable business
we are so proud to be a part of.
As a company, we recognise that our responsibilities go far beyond delivering excellent returns to our shareholders. For us it is as much
about confirmation that we are doing the right thing as it is about healthy profits. Our reputation as a Group is founded on always
meeting the highest ethical standards. This is evident in the suppliers and all our other stakeholders, as detailed on the next page.
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STAKEHOLDER ENGAGEMENT
CONTINUED
Employees
Our 17,000 strong
workforce is at the
heart of making our
business a success and
we recognise that
listening to them and
keeping them engaged
is essential to that
success continuing.
How the Board engaged in 2019
The Board has always paid close attention to workforce engagement and in March we appointed Fran
Philip, Non-Executive Director, as Board representative for workforce engagement. The Non-Executive
Directors have all carried out site visits throughout the year. For example, in 2019, we visited our facilities
in Vietnam and Indonesia and in addition to this Fran held specific meetings with representative groups
at all those locations to find out about their experience of working at Coats and what are the important
issues to them. She also met with employees in the UK and joined various conference calls with globally
representative groups to gain more insights and bring the voice of employees into Board meetings.
What we learnt
Employees are proud to work at Coats. When it comes to improvements, it is the little things that count
and go a long way to improving employee experience. For example, having private spaces for breast
feeding was cited as something that would make a difference.
What we are going to do in 2020
To help address the ‘little things that count’, in 2020 Coats will take a more strategic approach to health
and well-being (see page 25).
In 2020 Coats will be transitioning to a new ‘continuous listening’ approach to the Employee
Engagement Survey so the Board will benefit from these additional regular insights into employee
sentiment (see page 25), allowing us to hear feedback and react more regularly.
Customers
We have been helping
to connect and form
the fabric of daily life
on our planet for over
200 years, and our
global footprint
provides unrivalled
access to markets and
customers.
How the Board engaged in 2019
Three Innovation Hubs have been opened in 2019. These are centres of excellence where we can develop
new and potentially industry disrupting ideas, collaborating with customers, and other innovation
partners such as brands, suppliers, universities and start-ups. The Group Chief Executive attended the
opening of the Shenzhen and Bursa Innovation Hubs.
Coats exhibited at the ‘Made in Tunisia Made for Fashion’ trade show in December, a move which was
highly anticipated by Tunisian brands from the textile clothing, leather and footwear sectors. Coats
showcased its industry leading products with a focus on sustainability which produced very positive
feedback from existing and prospective customers, designers, textile engineers and students.
In October members of the Board attended a gala celebration dinner with customers, suppliers,
employees and joint venture partners to commemorate 30 years of operating in Vietnam.
What we learnt
The Group marketing team carried out a customer experience survey which gave a useful insight into the
customer experience. The Board reviewed the outcome of that survey as part of the review of the
strategy.
What we are going to do in 2020
In 2020 we intend to focus on areas of improvement that have been identified through improved
education programmes and smarter use of technology.
The Board will be considering the outcome of a country-by-country level deep dive into customer needs
at the Board Strategy day in 2020. The Board will also be considering customers as part of the segmental
reviews.
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Shareholders
The Board maintains
and values regular
dialogue with
shareholders
throughout the year.
How the Board engaged in 2019
The AGM is an important event in our annual programme of engagement activities. The AGM is
attended by our Board and some of our senior management team and is open to all our shareholders to
attend. A summary presentation of financial results is given before the Chairman deals with the formal
business of the meeting. All shareholders present can ask questions of the Board during the meeting.
We gave formal trading updates to the market in March, May, August and November. Following the full-
year and interim results a presentation call was made to shareholders and analysts.
Throughout the year, meetings and conference calls were organised in the UK, across continental Europe
and in the US, at which the Group Chief Executive / Chief Financial Officer / Investor Relations meet with
investors, either individually or in groups, to discuss Group strategy and performance and respond to any
questions raised. In addition, throughout the year our senior management team presented at multiple
conferences organised by investor bodies and investment banks for their institutional investor bases, in
order to further widen the breadth of reach of our investment case. In June 2019 we hosted an inaugural
ESG investor / analyst event at the London Stock Exchange, to lay out our Sustainability strategy and the
benefits this is expected to deliver for our various stakeholder groups, including our shareholders, and in
October we hosted a group of investors / analysts to our production site in Bursa, Turkey.
The Chairman and Senior Independent Director also attend an appropriate cross section of the
shareholder meetings, and investor events, to maintain an active dialogue and understanding of
shareholder sentiment. They also proactively offer availability for one-on-one consultations with
shareholders, aside from these executive interactions.
The Board receives regular updates on investor communication activity, changes to the shareholder
register, analysis of share price performance and particular investment themes such as ESG compliance.
In addition, the feedback from shareholder / analyst interactions is shared with the Board on a regular
basis, via our dedicated in house Investor Relations function and our Corporate Brokers.
We were pleased to see that the sell-side analyst research on Coats continued to increase during 2019,
with eight independent analysts now writing research coverage on our business, and the large majority
expressing a positive view of our strategy and prospects.
What have we learnt
Shareholders have indicated that they were pleased to hear commercial benefits of the sustainability
trends in our industry, and the execution of the Connecting for Growth transformation. They understand
our future growth plans, including the technological and innovation solutions but are keen to see the
traction from these C4G reinvestments, as well as delivery of our active M&A pipeline.
What we are going to do in 2020
We will continue to engage with our shareholders throughout 2020, including consulting with key
investors on the proposed new remuneration policy. We look forward to welcoming shareholders at our
AGM in May where the policy and other resolutions will be put to a vote, and at the investor conferences
and roadshows which are being held through the year.
Environment
Coats is working
proactively with
customers and
suppliers to help them
improve the
sustainability of their
products.
How the Board engaged in 2019
Engaging with the environment is reliant on representative proxy bodies that can act as a voice. The Zero
Discharge of Hazardous Chemicals Association, the UN Global Compact, and the UN Fashion Industry
Charter for Climate Change have been identified by Coats as the most relevant bodies to the business.
The Board has held discussions on each of these organisations, to drive decision making with regards to
action the business takes to each one. The combined individual experiences and contacts of each Board
member, outside their direct Board commitments, have helped to inform such decisions. The inclusion of
Climate Change as an emerging Risk on the company Risk Register, and the transparency of the related
issues that this brings to the Board has been especially relevant in the decision making process.
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STAKEHOLDER ENGAGEMENT
CONTINUED
Environment
(continued)
What we learnt
That Coats has been working on the right things for many years in terms of reducing energy use,
switching to renewables, using less water and recycling more, applying global effluent control limits,
moving to more sustainable products, increasing the efficiency of material use and applying a
sustainability hierarchy to waste management. Given the complex and evolving nature of environmental
concerns, especially in terms of climate change, and the multi-tier nature of textile supply chains, the
Board has decided that Coats should play a much more active part in external bodies that relate to the
environment, rather than working in relative isolation. Dealing with and mitigating the environmental
impacts of the textile industry is not best achieved by individual action from companies but by
collaboration along the supply chain so that the impacts between companies can be properly addressed.
What we are going to do in 2020
The Board has decided that Coats will take a participative (rather than merely signatory) approach to
working with the proxy bodies that represent the environment. This will entail participating in working
groups and looking to share best practice with other companies and learn from what has worked for
other companies. The key areas for this work in the coming year will be around climate change and
controls on effluent. More details on the activities sanctioned by the Board can be found in the
Sustainability Report and online.
Communities
We operate in 50
countries across six
continents around the
world.
How the Board engaged in 2019
Whilst the Board does not generally engage directly with the communities within which Coats operates,
it receives regular updates from senior management within our clusters on the activities which the Group
participates in each year. These cover a wide range of community engagement activities, through which
we strive to directly benefit the communities Coats operates in globally. During 2019, around 350
community programmes were implemented. Examples include, but were not limited to: free health care
check-ups for local community residents; community clean-up campaigns designed to raise awareness
surrounding the importance of reducing plastic use; and the provision of essential educational tools for
underprivileged school children. Please see our Sustainability Report, available on our website, for further
information and examples of community engagement initiatives that have taken place throughout the
past year.
What we learnt
Coats has longstanding and fruitful relationships with many communities in the countries where it has
operations. The company has had successful collaborations with local non-government organisations in
the past where mutual alignment of focus has been found, but the Board believes that working with
partners with a similar global footprint to Coats will allow the company to give more consistent
engagement across the many countries in which we operate. This will ensure that the company is able to
respond to local needs with a global level of expertise.
What we are going to do in 2020
The trials underway with Save the Children will be the pilot for this revised approach. The charity is able
to provide the technical expertise and the methodology for assessing impact, while Coats is able to
provide on-the-ground resources and access to target groups. The Board is hopeful that the pilots will
deliver tangible and measurable benefits and that they can then endorse the extension of the pilots to
form a global and long-term partnership between Save the Children and Coats. More detail on
community activities can be found in the Coats Sustainability Report and online.
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Suppliers
We believe it is important
that our suppliers are not
only price competitive but
also have a strong
compliance, quality, service,
sustainability and innovation
ethos.
How the Board engaged in 2019
Engagement with suppliers is key to our Modern Slavery statement (which can be found on our
website). One of the key pillars supporting this statement is our Supplier Code. We continue to
engage with suppliers about our Supplier Code, and in particular with those identified as requiring
improvement. As part of our Route to Excellence initiative, during 2019 we started talking to our
key suppliers about how they can mirror our Sustainability Strategy by 2025.
What we learnt
Compliance is key for our suppliers. Training on our Supplier Code ensures standard processes are
being followed and the refresher workshops we offer to suppliers are valued. Sustainability is an
important part of any business strategy and suppliers are keen to work with us on this.
What we are going to do in 2020
We will continue our engagement with our suppliers, providing support and guidance to ensure
adherence with our Supplier Code, including running new workshops. The supplier portal will allow
suppliers to measure their performance through a KPI scorecard and through the newly created
innovation hub we will continue to drive supplier-led innovation. We will expand the roll-out of our
Sustainability Strategy.
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STAKEHOLDER ENGAGEMENT
CONTINUED
SECTION 172 STATEMENT
The Board of Directors of Coats Group plc have always taken decisions for the long term, and collectively and individually our aim is
always to uphold the highest standards of conduct. We expect all of our colleagues, at every level of the business, to do the same.
Similarly, we understand that our business can only grow and prosper over the long term if we understand and respect the views and
needs of our customers, colleagues and the communities in which we operate, as well as our suppliers and the shareholders to whom we
are accountable. This is reflected in our five strategic priorities and our sustainability report sets out more detail on how we manage our
relationships with them.
As the Board receives presentations and make decisions, we ensure that the impact on any of these groups is considered. We review
annually which are our key stakeholder relationships and examine how we engage with them. A summary of this is set out on page 19.
We also consider ways to ensure that we maintain open lines of communication with those stakeholder groups and whether there are
ways that the Board’s engagement can be improved to help us operate more effectively.
Culture: We have a strong culture with shared values.
We are proud that Coats people continue to live by our values –
connecting, pioneering, trusted – and that their engagement
keeps improving.
Our purpose is to harness talent and technology to benefit all
our stakeholders.
Strategy
As an example, during a meeting where the Board considered three particular potential acquisition targets, preliminary due
diligence findings were presented by management which detailed the strategic rationale, synergy case, risks, financial valuation,
customer reactions and cultural impact as well as potential investor reactions. The Board discussed the value creation potential and
risks as well as integration effort and approach. Consequently, the Board decided which potential targets would be in the best
interests of the Company to take to the next stage of the acquisition process and which ones to cease.
See page 13 for a detailed description of our strategy.
Governance
As an example, in February 2019 the Board considered the operation of the Pensions Committee, an ad-hoc committee, originally
established following the initiation of the UK Pensions Regulator’s investigation and with sole focus on the UK defined benefit
schemes. Following the conclusion of that investigation and the consequential changes implemented the Directors agreed that the
Pensions Committee was no longer required and that it would be disbanded with effect from 6 March 2019. Pensions are now
considered, when required, at the main Board meetings.
See the governance section which starts on page 47 for more detail.
Stakeholder
As an example, in September at the Strategy Day, the Board examined how the Group engages with customers and suppliers,
looking at the customer experience and how our Sustainability story was driving our relationships. The Directors also agreed to
explore making more use of the DAC’s expertise to further improve the customer experience.
See page 19 for a deeper dive into our stakeholder engagement process.
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WORKING RESPONSIBLY
PEOPLE
Highlights of 2019
•
•
•
•
Journey to Zero Health and Safety strategy launch resulted
in a 20% decrease in injury rate
Embedding our culture of focussing on leading rather than
lagging Health and Safety indicators
Results of the Health and Safety Climate Survey
Launch of refreshed Leadership Capability Framework and
focus on growth mindset
Success of Diversity and Inclusion initiatives
•
• Commencement of the digitisation of key People processes
Priorities for 2020
• Move to ‘continuous listening’ approach to Engagement
surveys
• Continued digitisation and simplification of key People
•
processes
Building our approach to ensure our remuneration policies
are globally consistent and align with ‘living wage’
requirements
• Global approach to health and well being
• Achieve ‘Great Place to Work’ for seven countries in 2020
People culture and principles
Coats is a truly global organisation with 17,000 employees
working in some 50 countries across six continents. The
successful delivery of our company strategy is dependent on us
uniting all those people together within our group culture – the
character and personality of our organisation which is set at the
leadership level and is an outcome of our values, behaviours
and beliefs.
As we continue on our journey to transform for the Digital Age
we recognise that our culture needs to evolve. To support this
evolution, in 2019 we launched our refreshed Leadership
Capability Framework describing the skills and competencies
our employees need for the future success of Coats. The four
capabilities are to the right with digital embedded across all of
them.
Innovate – pioneers with the customer through disruptive
thinking, digital and data to drive sustainable value
Collaborate – connects across the business to share learnings
and create value together for One Coats, in an inclusive and
respectful way
Energise – inspires energy for change to drive outcomes and
shape Coats for the future
Develop – leverages diverse talent to build a robust talent
pipeline, fluid teams and amplify performance
The capabilities are underpinned by a growth mindset which
we see as a key enabler and will encompass everything that we
do going forward. People with a growth mindset at Coats
demonstrate a hunger for growth through learning, courage
and resilience in order to evolve in a dynamic context.
The Leadership Capability Framework is a cornerstone of our
People Strategy and, as well as supporting our cultural change,
is being embedded across our talent and development
processes.
Listening to our people
Employee engagement remains extremely important. We are
enhancing our approach to Employee Engagement Surveys in
2020 – as well as carrying out our annual survey we will move
to a ‘continuous listening’ model for every stage of the
employee life cycle to allow us to make course corrections
instead of a taking a reactive approach.
In 2019, while we undertake the transition, we held three pulse
surveys on key areas of employee engagement – Health and
Safety, Communications and Ethics and Compliance.
Also in 2019 Fran Philip, our Non-Executive Director was
appointed as our Board Representative for Workforce
Engagement. In her role, Fran regularly meets with groups of
employees to hear about their experiences of working at Coats.
In 2019 Fran met with employees in the US, the UK, Vietnam
and Indonesia, she also led calls with our Cluster Managing
Directors. Fran reports her findings back to the Board twice a
year and helps us bring the voice of the employee into board
decisions.
Health, Safety and well being
Health and Safety remains our number one priority and in 2019
we launched our new Journey to Zero strategy. Based on the
belief that all injuries can be prevented, our approach is focused
on establishing a proactive safety culture.
Through our digital incident and data management tool,
Intelex, we are now able to trend hazard and incident data to
gain insights into potential risks allowing us to mitigate against
them before they become injuries. These improvement actions
have become a foundation of our success – in 2019, we
completed 46,377 improvement actions and increased near
miss reporting by 36%. Both of these directly contributed to a
20% reduction in our injury rates versus 2018.
Training is another important contributor to our safety culture
and on average each employee received 29 hours of safety-
related training in 2019. Our unique Generative Behaviour
Safety programme, designed to increase discussions between
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supervisors and their teams about ‘at-risk’ behaviour has been
implemented across the Americas. The programme will be
rolled out globally in 2020 and is supported by the introduction
of our Intelex mobile app to make it even easier to report
hazards, incidents and at-risk behaviour.
Our proactive approach to health and safety was brought to life
in 2019 during our inaugural ‘Journey to Zero’ week. The week
generated great levels of engagement with activities taking
place in more than 24 countries and over 200 conversations on
our enterprise social networking tool Yammer. This event has
now become embedded in our annual calendar.
Our 2019 Health and Safety Climate Survey results show that
we are well on our way to establishing the desired safety
culture. 62% of our units had improved scores compared with
2018 and our overall results increased to 99% of all units
scoring better than the industry benchmark.
We are continuing our efforts to achieve industry certifications
and have nine sites certified to OHSAS 18001 and three sites
certified to the new ISO 45001 standard. Our aim is to have all
our sites achieving the latter by 2025.
We believe that safety should extend beyond our gates and so
we also take commuting safety very seriously. To support this in
2019 we continued to deliver defensive driving courses, driving
lessons, and driver awareness training and campaigns. Many
units now lend helmets to motorcycle passengers and, where
necessary, we have arranged shuttle transport for employees to
reduce travel-related risks.
As well as safety it is also important to look after the well-being
of our employees. In 2019 we launched our Sustainability
Strategy and well-being is an important part of our Social pillar.
We have increased our activity in this area and have focused in
different countries on issues that are relevant to our employees
and families in those locations. So, for example, we have had a
multi-faceted campaign in Brazil around skincare, hydration and
coping with heat stress; a number of locations, including India,
China and Brazil, have had campaigns around wellness issues
pertaining specifically to women; and locations like the USA
and China have focused on developing confidence and
involvement in sporting activities.
99%
of our units scored better
than the industry benchmark
in the Health and Safety
Climate Survey
Digitising key People processes
With the introduction of our HR Information System,
SuccessFactors, at the end of 2018, we are starting to digitise
our key HR processes to make them simpler, quicker and more
visible and improve the experience for our employees. For
example, in 2019 we automated the salary review process and
reduced the time it took by three weeks.
Training
Leveraging the power of growth mindset become a key focus in
2019. To support this, among other things, we have been
working with the NeuroLeadership Institute to deliver growth
mindset training. Following positive feedback from an initial
group of 100 employees (80% of participants felt extremely or
very prepared to embrace a growth mindset), it will be rolled
out to 500 more people during 2020.
Other training in 2019 included:
-
‘Learning zones’ – more than 1,000 people attended these
sessions which are delivered both virtually and face to face
and covered 13 topics.
- Our Transcend leadership training programme to increase
the talent in our pipeline for senior leadership positions –
over two years, 29% of participants were women, 44
employees have graduated the programme, of those 47%
started new or expanded roles.
Compliance, Controls and Culture Workshops across the
globe as part of our ‘Doing the right thing’ programme
(see more on page 32 ) – 12 sessions have taken place for
more than 600 employees in five countries and we will
continue these in 2020.
-
Diversity
Our Group strategy on inclusion and diversity is mainly focused
on increasing gender diversity as that is where we have the
biggest opportunity. We recognise that to increase the diversity
of our workforce, an inclusive culture is a must and our
activities are structured around four areas:
-
-
-
Education and capability building – once again we
marked International Women’s Day globally and our teams
considered actions that are being taken that could be
rolled out globally to have even more impact. Our
employees were very engaged with the day, events took
place in many locations, with a great level of online
involvement.
Our quarterly Diversity and Inclusion Network calls
continued which Fran Philip attended in her role as Board
Representative for Workforce engagement. The calls
continued to be well attended with over 200 people
joining from across the world.
Resource groups – in 2019 we built out our flexible
working initiatives both globally and locally. In addition
these groups delivered over 400 community activities
during the year ranging from refurbishing schools and
libraries to running health and well-being events.
Talent acceleration and development – in 2019 we
connected with external organisations that have well
embedded Diversity and Inclusion programmes. Internally
our Digital and Technology function started its own
‘Women in Tech’ programme to encourage more women
to enter the world of technology.
- Measurement and aspirations – 41% of our workforce
are women, the Board is now 33% women and 24% of
our senior leaders are now women compared with 23% in
2018.
In 2020 we will continue to build on our progress across all
aspects of our People Strategy to support Coats to achieve its
goals.
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Highlights for 2019
•
Foundations laid for
delivery of targets
•
•
Joining the United Nations
Global Compact
Strong absolute and
relative progress in
FTSE4Good index
Priorities for 2020
• Complete renewables
strategy
• Accelerate progress
towards targets
•
Establish climate change
strategy
Comparison of top material
issues in 2019 and 2017
materiality assessments in
ranked order:
2019
Environmental
compliance
Environmental
footprint
Talent
attraction
Energy
Water
Business ethics
Materials
Waste
Employee
engagement
Brand
management
2017
Water
Energy
Environmental
footprint
Waste
Health & safety
Resource
scarcity
Child labour
Forced labour
Transparency &
reporting
Environmental
compliance
Water usage
(litres per kg of production)
2019
2018
2017
90
*92
112
*2018 restated without NA Crafts and
incorporating Gotex and Patrick Yarns.
2017 not restated
CORPORATE RESPONSIBILITY
Sustainability Strategy
We launched our sustainability strategy; Pioneering a Sustainable Future in 2019, as part of our
Annual Report and through our first stand-alone Sustainability Report. One year on, in this
document and through our second Sustainability Report (available on our website), we are giving
an update on progress towards our strategy targets while also reviewing our strategy itself to
ensure that it is still appropriate to the needs of our business and our stakeholders.
The development of our current strategy was done during 2018 based on our 2017 materiality
assessment. We run a materiality assessment process every two years and have completed a new
one in 2019. We reviewed 69 issues in our latest iteration (up from 66 in 2017), evaluating them
for relevance to each of our commercial goals (Profitable Sales Growth, Increased Productivity and
Value Delivery) and for importance to each of our key Stakeholder groups (Shareholders,
Customers, Employees, Suppliers, Communities and the Environment). Our top ten issues for each
of the 2017 and 2019 assessments are shown in the table (sidebar). While there is quite a lot of
movement in the assessment, we have reviewed this in detail and it accurately reflects changes in
our business and in the external environment that have prioritised some issues at the expense of
others. A clearer definition of our stakeholders has impacted on the results as has the clarity
provided by our strategy. The relative movements of key issues such as Water, Energy and
Environmental issues reflect these changes, but are not significant. More analysis of the changes
can be found in our Sustainability Report.
We have reviewed our existing strategy based on the new materiality assessment and concluded
that the strategy remains appropriate and still relates to the key issues facing our business and our
key stakeholders. The mapping of our material issues to our strategic pillars is shown in the chart
below:
Priority area
Water
Energy
Effluent & emissions
Social
Living sustainably
Materiality issue
Water consumption
Energy consumption
Environmental compliance, Environmental footprint
Talent attraction, Business ethics, Employee engagement
Materials, Waste, Brand management
During 2019 our Board confirmed their full commitment to the Ten Principles of the United Nations
Global Compact, and as a result we were delighted to join as a Participant of the United Nations
Global Compact. Taking an active role in helping extend the United Nations Principles, which are
already embedded in our business, and promoting action in our business and through our supply
chain to help deliver the 2030 Sustainable Development Goals comes through a natural alignment
of our culture and strategy to those principles and goals.
Our 2019 Sustainability Report is our first Communication on Progress (COP) that formally renews
our commitment, reports on our activities and outcomes in support of the Principles, covering
human rights, labour, environment and anti-corruption, and identifies the Sustainable Development
Goals that our activities relate to. We will continue to align our Sustainability Report to the COP
reporting obligations of the Global Compact in the future.
Water
Water is predominantly used in our dyeing processes. Here it acts as the medium for applying dyes
to our yarns or is used for rinsing and washing yarns before and after dyeing. In the form of steam
it is also the medium used for heating water used in processing or for applying curing heat in some
coating processes.
Our long-term vision is of processes that are waterless, and our investment in 2018 in Twine, a
start-up company developing yarn digital dyeing processes that use no water, was partly aimed at
helping to deliver that long-term goal. Twine launched their first generation of sampling machines
in June 2019, to much industry interest, and we look forward to working with them on the
development and implementation of their technology in the coming years.
In the meantime, our goal is to continue to reduce our use of water and hence to help safeguard
this natural but limited resource. Our goal is to reduce our water usage intensity by 40% by 2022
against our 2018 baseline. This requires a further acceleration in water saving initiatives compared
to the 28% saving that we achieved in the six years up to 2018. Up to the end of 2019 we have
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Energy use
(Kwh per kg of production)
2019
2018
2017
9.3
*
9.4
11.5
* 2018 restated without NA crafts and
including Gotex and Patrick Yarns.
2017 not restated
Renewable energy
(% of total energy used in year)+
2019
2018
2017
2015
32
*32
29
27
+ Based on supplier information,
partially certified.
*2018 restated without NA crafts and
including Gotex and Patrick Yarns.
Prior years not restated
Emissions intensity†
(tonnes CO2e/$m sales)
2019
2018
2017
2015
198
204
206
208
† To provide an accurate comparison,
2018 data has been restated to
exclude NA Crafts (sold on 20
February 2019). Previous years include
NA Crafts.
undertaken detailed water balance studies in 31 of our major plants, accounting for 62% of our
total water usage. These studies enable us to map the water into each process in the plant and
then determine the opportunities for reducing water usage through process changes.
A number of global and site level projects have been initiated during 2019 as a result of these
studies which will impact on water usage in 2020 and beyond. During 2019 our water usage
dropped by 2% against 2018, and we are confident that we will see this accelerate in 2020.
Energy
Most of our energy use is for powering motors in our process equipment or for heating used in
those processes. The split between the two uses of energy is (2018 in brackets) 55% (55%) for
electrical energy used for process power and 45% (45%) for fuels used for generating heat. Most
of the heat energy is used during dyeing processes, along with a substantial part of the electrical
energy, which therefore makes this our most energy intensive process. Spinning and twisting,
which are very significant users of electrical energy account for most of the remainder, with
finishing winding and yarn coating processes and ancillary activities such as warehouses and offices
making up the total.
Our targets for the energy pillar are two-fold; to reduce energy usage intensity by 7% by 2022
against our 2018 baseline (compared to a 22% reduction in the six years up to 2018), and to shift
the sources of our energy much more towards renewables by 2022. During 2019 we have been
assessing the scope for accessing renewable energy across our operational footprint and we will
complete this work in 2020. The situation varies from country to country and is also changing
rapidly. We are proposing to increase the use of biofuels in our operations and to enter more long-
term Power Purchase Agreements (PPAs) for onsite and offsite renewable electricity generation
projects.
Up to the end of 2019 we have undertaken detailed energy surveys across a number of our larger
units that account for 29% of our energy usage, and a large number of detailed energy saving
plans are emerging from those surveys, most of which will be implemented in 2020. During 2019
our energy usage intensity dropped by 1% against 2018 on a like for like basis, having restated
2018 to remove Crafts NA and to incorporate Gotex and Patrick Yarns. We expect the rate of
reduction in 2020 to be higher as the new projects are implemented.
During 2019 we signed an agreement for a 1 MW on-site solar installation in our Ho Chi Minh
plant in Vietnam, which was installed and started functioning in October. We are currently
negotiating additional long term supply agreements in the Americas and Asia.
Effluent and Emissions
As noted before, our long term vision is to cease to use water for dyeing, but there is no
technology currently available at industrial level to achieve that goal, so while we continue to use
aqueous technology we will have a need to manage our effluent to avoid detrimental impacts on
the environment. Since 2011 all of our units have worked to an internal set of effluent standards.
These are, in most cases, considerably more stringent than the local requirements. In 2016 we
joined the Zero Discharge of Hazardous Chemicals (ZDHC) association as this was gathering
momentum across the textile industry with the goal of creating common standards that would be
applicable across the whole industry. In 2019 we adopted the ZDHC standards as our standards
instead of the Coats standards. Our target is to have all units meeting the ZDHC standards by 2022,
and thanks to the work already done over 60% of our effluent was compliant by the end of 2019.
Late in 2019 the ZDHC standard was updated to include sludge testing as well as effluent. During
2020 we will be adding sludge testing to our targets and adjusting plans accordingly. Early results
indicate that we will have to undertake additional actions to achieve uniform sludge compliance.
Ensuring that all of our units are capable of meeting the required limits is important but it is equally
important to ensure that effluent treatment plants are working consistently and to ensure this we
installed, during 2018, automated measurement systems in all of our key units. These take
measurements of core parameters every 30 seconds and issue automated warnings if the systems
begin to approach control units. We also piloted, in 2019, a system that automatically shuts off
discharge if a standards breach is likely and will install this across other units in 2020.
As a significant user of energy, Green House Gas (GHG) emissions are a key concern for us. Our
activities have been described above in the Energy section; reduction of energy usage and transition
of energy sourcing to renewables. Our target, will be determined once we have established our
renewable energy target in 2020. In 2019 we achieved a reduction of 3% in GHG emissions
intensity and a reduction of 5% in absolute GHG emissions compared to 2018 (excluding NA Crafts
from 2018 data and including Gotex and Patrick Yarns).
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Waste
Waste is generated in various ways during textile processing, and over 70% of it is reused internally
or recycled externally.
Our target is to reduce the waste we generate, as a percentage of all materials used, by 25%. The
first stage is to ensure that we have comprehensive global reporting and analysis of waste and we
have been focussing on this in 2019. As a percentage our waste increased by 6% in 2019 to
9.2%. We believe that this is related mainly to the increase in accuracy in reporting from the global
reporting system, but highlights the work that needs to be done to achieve our ambitious 2022
target. Action plans for waste reductions in 2020 are being developed.
Sustainability Management
Sustainability in Coats is regularly reviewed by the Board and is championed by the Group Chief
Executive and the whole Group Executive Team (GET).
Delivery of the strategy is managed by the Sustainability Delivery Team (SDT). This is led by 3
members of the GET, the Chief Supply Chain Officer, the Chief Human Resources Officer and the
President, Apparel & Footwear.
The Head of Sustainability manages the SDT which comprises eight further core members from a
range of functional areas, and each of these has a designated area of responsibility for delivery of
SDT workstreams or representation for stakeholders in the SDT.
There are then a large number of people in the organisation associated to the SDT via their
participation in projects related to the sustainability strategy. In our view delivery of the
Sustainability Strategy demands the participation and support of the whole organisation. The SDT
meets monthly, and there are a number of sub-groups meeting as per the needs of their workplans.
Underpinning all of our sustainability efforts is a deep commitment to running our business in an
ethical, responsible and transparent way. We expect our employees and our suppliers to behave
ethically in all their dealing relating to our business. All our senior employees and those with
customer or supplier facing roles receive regular training in ethics and compliance, including on
modern slavery. These training programmes, available in 12 languages form part of the induction
for new starters and are done every two years by all relevant employees. The last global round of
training took place in 2018 and will be repeated again in 2020. This training is delivered to over
4,000 employees. To retain focus in 2019 relevant staff are required to do an Ethics Code self-
certification exercise annually.
We support the United Nations Guiding Principles on Business and Human Rights in all our
operations. Underpinned by our global policies, we uphold the requirements of the United Nations
Declaration of Human Rights and the Convention on the Rights of the Child, the core International
Labour Organisation Conventions and The Organisation for Economic Co-operation and
Development Guidelines for Multinational Enterprises. We uphold the aims of the California
Transparency in Supply Chains Act of 2010 and the UK Modern Slavery Act 2015 and publish on
our website a statement on our actions to prevent modern slavery in our operations and in our
supply chain.
Reporting
Our goal is to make our sustainability reporting as clear and transparent as possible. We want to
make it as easy as possible for all of our stakeholders to understand the sustainability profile of our
business. Each year we are broadening the scope of our reporting and making it easier for
interested parties to find the information that they need.
A full data pack that contains all our published sustainability data is available to download on the
sustainability section of our website. We have used the Global Reporting Initiative (GRI) reporting
guidelines since 2011 and this year again we report against the latest version, the GRI Standard. A
full mapping of our report against the GRI Standard is available on our website, We have also
developed and made available again this year a mapping of our data against common ESG
(Environmental, Social and Governance) criteria.
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WORKING RESPONSIBLY
CONTINUED
Non-Financial Information Statement
Policy
Description
Health and Safety Policy
This policy outlines our commitment and actions for the prevention of injury and ill health, and
ensuring health and safety excellence across our business.
Ethics Code
The purpose of the Ethics Code is to ensure that employees across Coats have a clear understanding
of the principles and ethical values that the Company wants to uphold. It applies to all employees in
all Coats group companies globally.
Whistleblowing Policy
The policy outlines the reasons for maintaining high standards of ethical and legal business conduct
and describes the procedures for reporting acts which are thought to contravene these standards.
Also outlined are the actions to be taken by the Company.
Employment Standards
As a global employer, Coats strives to follow ethical employment standards and believes the human
rights of its employees at work are an absolute and universal requirement. Coats subscribes to the
United Nations Universal Declaration of Human Rights and the Convention of the Rights of the
Child.
Equal Opportunities
Statement
The Company supports equal opportunities in employment and considers it to be an integral part of
our employee relations policy.
Modern Slavery statement
This statement has been prepared for the year ending 31 December 2019 and is in accordance with
the requirements of the UK Modern Slavery Act 2015 and the California Transparency in Supply
Chains Act of 2010. Furthermore, we support the United Nations Guiding Principles on Business and
Human Rights throughout all our operations.
Anti-bribery and Anti-
corruption Policy
This policy outlines the control of actual and suspected corruption and bribery within Coats, and the
processes to be followed in the event of actual or suspected instances of corruption or bribery being
discovered.
Gifts and Entertainment
Policy
This policy sets forth the rules related to employees accepting and offering gifts, entertainment,
hospitality and meals from and to current customers, suppliers, joint venture partners, brand
representatives and others conducting (or proposing to conduct) business, directly or indirectly, with
Coats.
Competition Law Policy
This policy supports Coats’ commitment to observing and complying with all applicable competition
laws, rules and regulations wherever it operates around the world while acting with the highest
ethical standards, in an open and honest way.
Supplier Code (including a
statement of transparency
in supply chains)
Conflict Minerals Policy
The Supplier Code outlines our expectations required of suppliers and covers labour practices,
environmental management, responsible sourcing of materials and products, and business conduct.
Coats is committed to the responsible sourcing of all raw materials and purchased goods and we
continually review our approach to ethical and sustainable supply chain management. This policy
refers specifically to our approach to avoiding ‘Conflict Minerals’ entering our supply chain and
supplements our wider supply chain management standards.
Environmental Policy
Reducing any negative impact on the environment is a fundamental part of our business and is
something everyone in Coats takes seriously. Coats senior management has defined objectives and
targets to achieve the highest practicable standard of environmental performance for the Group.
Animal Welfare Policy
This policy covers all the materials and products we buy, but special attention is given to Angora and
Merino wool, as they can raise specific ethical concerns.
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PRINCIPAL RISKS AND UNCERTAINTIES
EFFECTIVE RISK MANAGEMENT IS ESSENTIAL TO SMARTLY
AND PRUDENTLY ACHIEVING OUR STRATEGIC GOALS
Overview
Risk is inherent in all business activities and as a global
industrial manufacturer, we maintain a comprehensive risk
management framework that serves to identify, assess and
respond to such principal risks.
Our approach is focused on the timely identification of risks
and related opportunities, combined with their appropriate
mitigation and escalation. We have embedded throughout the
Group, the structural means to identify, prioritise and manage
the risks involved in all of our activities. This enables us to run
our business effectively and deliver our strategy in the
knowledge that the likelihood and / or impact associated with
such risks is understood and managed within our risk
tolerance.
Governance structure
The Group is constantly alert to new and evolving risks. We
operate a formal governance structure to manage risk across
the Group and assign clear accountability for managing our
risks. Overall responsibility for reviewing the Group’s risk profile
and setting risk tolerance, as well as assessing the Group’s
principal risks, rests with the Board. However, the management
of risk using our common risk management framework
is embedded throughout our global manufacturing,
distribution, sales and other business operations, as well as our
enabling functions, with all our employees having an important
role to play.
Top-down
Define risk
tolerance,
monitor
exposure
oversight
of risk
management
•
•
The Board
Overall responsibility for identification of
risk, effectiveness of risk management and
reviewing the Group’s risk profile
Setting risk tolerance generally and, in
particular, for each of the principal risks
• Monitoring risk experience
•
•
Audit and Risk Committee
Supports Board in monitoring the
effectiveness of the systems of risk
management and internal control
Reviews reports from Group Risk
Management Committee (GRMC), Group
Executive Team (GET), Group Internal
Audit (GIA) and the external auditor
relating to effectiveness
•
•
Group Risk Management
Committee (GRMC)
Responsible for formulating risk
management strategies and policies and
monitoring risk management throughout
the Group
Business Units / Senior
Management / Risk Champions
Regularly review a broad range of
individual current strategic and operational
risks
Key
Enabling Functions
•
Responsible for identifying, managing and
mitigating appropriate sets of risks
• Monitoring of key risk indicators
•
Report and provides feedback to GRMC,
Audit and Risk Committee and the Board
Report for evaluation
Direct and monitor
Identify,
monitor,
report
Bottom-up
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PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
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. At Coats, there is a culture of openness
and transparency in how we make decisions and manage risk.
During 2019, we continued to review and reinforce our Ethics
Code and supporting policies, training, communications and
compliance activities – this also included further training and
auditing in relation to our comprehensive Supplier Code.
Our focus on reinforcing ethical business behaviour and
compliance has been enhanced through an ongoing Coats
Ethical Culture programme at both Group and local levels.
Ethics and integrity, along with Health & Safety, are at the core
of our organisation’s DNA, and we continue to embed our
ethical culture in order to mitigate against potential scenarios
which could put the organisation at risk. Employees are
proactively encouraged, through training, discussions and other
means, to act with integrity and to question any unethical
behaviour. Our programme of ‘Doing the Right Thing’ in 2019
also included sharing numerous positive examples of when
employees clearly did the right thing, as well as examples of
employees calling out unethical practices and behaviours – all
of which drives greater understanding, engagement, discussion
and transparency among employees across the Group.
Risk tolerance structure
Our risk tolerance is determined using four categories which
are listed below:
• Very Risk Averse: where we are very cautious and seek
to minimise the financial and reputational risk as far as
possible. Mitigation costs are accepted albeit that they
might exceed the potential loss
• Risk Averse: where we are cautious and seek to reduce
the financial and reputational risk. Mitigation actions are
proportional and based on cost effectiveness
•
Somewhat Risk Tolerant: where we are willing to take
some financial and reputational risk to achieve our
objectives. Mitigation actions are again proportional and
based on cost effectiveness and
• High Degree of Risk Tolerance: where we are willing to
take significant financial risk to achieve our objectives.
Mitigation involves an active management of risk-return
trade-offs.
Identification and management of risk
Understanding the risks that our business is exposed to, and
deploying strategies that ensure residual exposures remain
within acceptable parameters, is key to managing our business
well. Our risk framework is based around four categories of
principal risks (strategic, external, operational and legacy), as
well as key and emerging risks which are used to build the
Group Risk Register which is managed by our GRMC. Minutes
from this committee are reviewed by the Audit and Risk
Committee.
During 2019, the Audit and Risk Committee and the Board
received a number of presentations from senior executives on a
number of risks including the principal risks, and gave input on
the steps planned to mitigate these risks. The risks are
considered not only in isolation but also the correlation
between risks and the likelihood of one risk occurring at the
same time as another or even triggering it, and the potential
combined impact of that and any further mitigating actions
that can be taken.
Based on the principal risks of the organisation, our Group
Internal Audit (GIA) team updates and embeds the key Group
risks in its audit process, for instance, compliance with anti-
bribery and corruption requirements as well as health and
safety requirements.
Every quarter, GIA reviews the Group Risk Register and local
Risk Registers from the cluster management committees. This
review includes an assessment of the risk management
practices of the business units / clusters in areas such as the
frequency and adequacy of the cluster risk management
committee meetings, minutes of the meetings and following
through on actions contained in the local risk register. This
provides an assurance that the risk management exercise is
carried out periodically throughout the Group and that the
risks are reviewed and kept up to date by the respective
stakeholders. These updates / key highlights are then presented
and discussed in the GRMC meetings.
Taking the insights from these GIA and business unit / cluster
risk management activities and focusing on the risks that may
impact the strategic objectives of Coats, the Board has defined
nine principal risks, as well as a number of key and emerging
risks within that Group Risk Register. These risks, and the steps
we have taken to mitigate these risks, are detailed on the
following pages.
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CONTINUED
Throughout the year, the Board has kept each of the principal risks under review with support from the GET and the GRMC. The Board
also undertook a comprehensive assessment of the principal risks facing the Group, along with the current levels of risk tolerance for
each of those risks. Due to the ever-changing global risk environment, the following risks have been updated since the last report:
NEW
The health and safety of our workforce and other interested parties is, along with ethics and integrity, our top priority,
and has been for very many years. The Board has now decided that, having treated it in practice as a principal risk
throughout that time, it is now appropriate to acknowledge this formally by including this risk on the list of principal
risks, to reinforce the degree of focus applied to it at all levels within the Group.
DEMOTED
The Connecting for Growth programme execution risk has been moved off the list of principal risks in light of the
progress and results of the programme at the end of 2019. It is now categorised as a key risk which will continue to be
monitored by the GET to ensure that new ways of working are fully embedded.
DEMOTED
Products and services liability risk has been moved off the list of principal risks in light of the ongoing focus, monitoring
and actions taken by the management team throughout the course of 2019. It is now categorised as a key risk which
will continue to be monitored by the GRMC.
Our principal risks, along with a summary of the measures we have put 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 trend
Action / mitigation
Stable
1 Strategic
Appropriate
talent and
capability
development
Risk of failure to
attract and retain
talent and
capability given
business changes
and growth in
new areas.
The Board and senior management remain very focused on talent and capability development,
as well as retention and succession planning. 2019 capability development actions included
completion of our senior leader development programme, ‘Transcend’, with 47% of
participants assuming new roles or expanded roles. Business Partnering and Sales Accelerator
training were also continued from 2018 efforts.
2019 was also the second year of our three year People strategy and we incorporated our new
Leadership Capability Framework in our succession planning and performance management
processes. As part of this launch, we provided specific Growth Mindset training as a pilot to
select groups of employees. Further Growth Mindset training will be run in 2020 as a
continuation of our commitment to transforming Coats through building capability.
Additionally, we confirmed a new vendor for our employee engagement surveys and are
finalising a new programme around career mapping for all employees to be launched in early
2020.
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PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
Principal risk
Risk trend Action / mitigation
2. External
Economic risk
Economic risk
arising from
political and
demand
uncertainty –
including risk
to free trade
conventions.
Increasing in
light of the
ongoing
political
uncertainty
in various
parts of the
world
Stable
Cyber risk
Risk of cyber
incidents leading
to corruption of
applications,
critical IT
infrastructure,
compromised
networks,
operational
technology
and / or loss of
data.
The economic outlook for many of the markets in which Coats operates remains highly
uncertain. Geopolitical events in recent years and, in particular, the risks to free trade, including
in light of ongoing US / China trade discussions, and the potential consequences for economic
growth, add to this uncertainty. More recently, the outbreak of Coronavirus has added to
concerns that global growth may slow.
However, the breadth of our portfolio and our geographic reach help to mitigate our exposure
to any particular localised risk and enable us to meet demand if brands / customers were to
transition to other countries.
As a global industrial manufacturing company with no UK manufacturing facilities and minimal
direct sales in the UK, Coats is of the view that there would be limited direct adverse impacts
on the Group from the UK leaving the European Union (Brexit). Both the UK and the European
Union, however, are significant markets for both Apparel and Footwear and Performance
Materials. Therefore any impact on sales and future growth expectations for these markets
could have an indirect consequence for our business. We also maintain an appropriate dialogue
with our key customers and suppliers regarding their own risk management and mitigation
plans including in relation to Brexit.
Whilst there continue to be a number of uncertainties in connection with the UK’s future
trading relationship with the European Union, there are also other potential indirect impacts,
primarily the effect of lower discount rates on the accounting valuation of pension liabilities
and the movement of sterling / USD exchange rate on our UK costs.
Many years of exposure to emerging markets have given us experience of operating and
developing our business successfully during periods of economic and political volatility. We
continually monitor and analyse economic and demand indicators to ensure that our supply
chain remains flexible and our product portfolio remains relevant. This analysis provides a key
input to our product development, business planning and pricing strategies. The Group’s
international footprint and comprehensive portfolio also provide a mitigating balance in our
exposure to both European Union and non-European Union markets.
In 2019, we refined the existing policies & standards as well as continued to train our user
population on IT security and data protection. We educated our workforce on how their
diligence and adherence to processes will help to prevent a data breach or data loss incident.
Much like enhancements in 2018, 2019 saw improvements in our vulnerability management
programme where all new servers undergo an assessment before they may be put into
production. This has helped to reduce the threat landscape across our enterprise. By June 2019,
Coats completed deploying multifactor authentication (MFA) for our users. This enhancement
minimises the risk of leaked or compromised credentials becoming an entry point to our
network.
In early Q2 2019, Coats shifted to a new training provider which allowed us to add new
training content as well as a new phishing service which has helped us educate our user
population on how to identify, handle and report phishing or spam messages. This, along with
the MFA project, minimises the likelihood of a successful phishing incident which could lead to
a potential data breach.
In early Q3, Coats engaged an external party to review our security posture in October 2019.
That assessment confirmed that our security level has further improved since 2016 and 2017,
with Coats now in the upper quartile for manufacturing organisations, demonstrating the
return on the investment to the programmes and how security is engrained in our
environment.
In late Q3 2019, Coats entered into a partnership with GoSecure to receive managed detection
and response services from them. This is a managed SOC (Security Operations Centre) service.
This gives Coats greater capabilities to detect suspicious and / or malicious software in our
organisation. This also gives us trained / skilled analysts monitoring our environment on a 24/7
basis. This includes enhancement software in addition to the service, mainly an EDR (Endpoint
Detection and Response) solution which can detect and quarantine malware on a system.
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PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
Principal risk
Risk trend Action / mitigation
Stable
Environmental non-
performance risk
Environmental non-
performance risk given
changing standards
and increased scrutiny
resulting in disruption
of existing business,
fines and /
or reputational
damage.
On 1 March 2019, along with our Sustainability Report for 2018, we launched our ambitious
new Sustainability strategy that builds on the good work we have already done in the area of
Corporate Responsibility (CR) and accelerates our progress towards a more sustainable future.
The strategy places sustainability at the heart of our transformation process and decision
making. It is much more than just doing the right thing in the communities where we work, or
protecting the environment near our factories; it's about enhancing our business and creating
new opportunities to be more efficient and to innovate, developing better products and
building stronger relationships with our customers, investors and stakeholders. Our
sustainability strategy, which replaces our previous CR strategic themes, includes seven
ambitious targets in the five priority areas of water, energy, effluent & emissions, social and
living sustainably that we are aiming to achieve by 2022.
We also added a Sustainability Projects Tracking Application which allows us to track projects
that help us meet our sustainability targets for water, energy and waste. Our progress towards
the 2022 targets is good with relative reductions across the Group in water, energy and waste.
During 2019, baselining activities took place to understand where we can further reduce water,
energy and waste.
Our environmental policy applies across the Group. The Coats Global Environmental Policy was
updated during 2019 with a greater focus on partnering with our customers to improve our
environmental performance.
We also improved our global digital platform that is used for our environmental management
system by adding an environmental (and health and safety) legal compliance application. This
allows us to create a legal register for each jurisdiction we operate in, and to measure and
enhance our compliance with it. It also allows us to track all environmental permits and licences
we hold in each country we operate in.
The Board has approved the implementation of a harmonised global system to effectively
manage our energy and environmental impacts in a documented, systematic way. This includes
an environmental management system aligned to ISO 14001 and an energy management
system aligned to ISO 50001. Implementation of this system will be informed by the materiality
assessment that we complete on a biannual basis. This materiality assessment measures the
relative importance of issues to our business and to our stakeholders, by reference to our new
sustainability strategy (see above) – Pioneering a sustainable future – with its five key areas of
focus for our business over the coming years (i.e. water, energy, effluent & emissions, social
and living sustainably).
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PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
Principal risk
Risk trend Action / mitigation
Decreasing
The Board continues to receive and discuss with management – as a priority item at each
Board meeting – detailed reviews of health and safety performance and monitoring of
progress against established annual health and safety objectives. Senior management and
employees throughout the Group likewise remain intently focused on creating an injury-
free work environment and it is the first topic discussed at any management committee
team meeting and during any site visit.
3. Operational
Health and Safety
Risk
Risk of health and
safety incident(s)
leading to injury or
fatality involving our
employees or other
interested parties such
as contractors, visitors,
onsite suppliers, etc,
along with potential
resulting prosecution,
financial costs,
business disruption
and / or reputational
damage.
Stable
Risk of supplier
non-performance
and / or
unavailability
and / or price
increases
of raw materials
Risk of local and
broader economic and
regulatory market
developments leading
to limited availability
of key raw materials
and / or restricted
number of suppliers
for such materials,
leading to major
disruption to Coats’
supply chain.
During 2019, a new strategy was deployed alongside the suite of existing measures, to
enhance the focus on prevention of health and safety incidents and proactive risk
mitigation. This new ‘Journey to Zero’ strategy, with its emphasis on leading indicators,
trends and insights, is supported by investment in, and deployment of, an enterprise-wide
incident and data management system which facilitates the analysis necessary to predict
and prevent injury. Coats voluntarily extends this safety strategy to encompass a commuter
safety programme designed to improve non-work-related travel safety. This includes
defensive driving training, education and campaigns aimed at increasing road safety of
workers whilst commuting to and from work. More information on commuting safety can
be found on pages 25-26.
As a result of these efforts, 2019 saw a 20% reduction in the recordable injury rate* (0.50
versus 0.62 in 2018) and a 15% reduction in the lost time case rate (0.31 versus 0.37 in
2018). These rates are far below the US OSHA industry average rates of 3.00 and 2.00,
respectively.
In 2020, the Board, senior management and employees throughout the Group will
continue to refine this approach to identify and mitigate key health and safety risks and to
further increase the Group’s focus on creating an injury-free work environment.
For more information on our deeply embedded approach to health and safety across the
Group and additional performance metrics, please see pages 25-26.
* Injury rates represent % of FTE workers injured and are calculated as: number of injuries multiplied by 200,000
divided by the total number of hours worked.
The Group conducts scenario analysis and continuity planning on each of our key raw
materials to assess what counter measures can be put in place if certain events were to
occur. Regular assessment of financial performance of key suppliers and evaluation of
suppliers’ own risk management plans is undertaken and our dependency on key suppliers
and raw materials is reviewed frequently. The recent outbreak of the Coronavirus resulted
in these continuity plans being initiated, including a series of actions to limit the impact on
the business and proactively leverage our global footprint and supply chain to provide the
best possible service to our customers.
While in some instances – e.g. flame retardant fibres used in some personal protection
yarns; some nylon filaments for threads used in automotive safety critical applications; or
some aramid filaments used in energy pipes – supplier selection is at times dictated by
downstream customers, we take all appropriate steps to keep our supplier portfolio as
balanced as possible with a view to minimising risk from over exposure to a singular
supplier, geographic concentration and corporate responsibility risk. There is ongoing
development of a pipeline for alternative suppliers and product substitution
In order to remain alert to market developments, procurement teams maintain access to
good market intelligence on key raw materials and feedstocks. In addition to this we
continue to work with third party experts on market developments and market insights,
especially as it relates to trade law, where recent changes in NAFTA / CAFTA along with
tariffs (US / China) can have an impact on our supplier base.
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PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
Principal risk
Risk trend Action / mitigation
Stable
Bribery and
anti-competitive
behaviour risk
Risk of breach of anti-
corruption law or
competition law
resulting in a material
fine and / or
reputational damage.
Stable
4. Legacy risks
Pension scheme
deficit funding risk
Risk of potential
volatility in UK pension
gross liabilities and
total assets leading to
increased annual cost
of repair plan to fund
deficit (which could
impact one or more of
free cash flow and
dividend payment).
The Group continues to maintain clear and well publicised policies and processes, spanning
bribery and anti-competitive behaviour along with a number of other ethics issues,
including in relation to partners, contractors and suppliers which are reinforced through a
comprehensive Supplier Code (covering initial due diligence processes, on-boarding,
training, ongoing compliance and auditing). These policies are reviewed annually.
There is extensive online and face-to-face training and regular communications through a
range of channels including through our global ethical champions network. A sub-
committee of the GRMC comprising key business and functional leaders meets quarterly to
consider a range of ethics risks (including key risk indicators for those risks), legislative and
regulatory developments and mitigation plans.
The Group actively maintains a whistleblower system, enabling employees and others who
are aware of, or suspect unethical behaviour to report it confidentially. Awareness of the
system, together with the risk and the policies, has been increased through an ongoing
Ethical Culture Campaign which operates at a Group and local level. See page 67 for more
details.
The funded UK pension scheme is overseen by its Trustee Board, which is required to have
the appropriate knowledge and understanding in this area. Independent professional
Trustee Directors are appointed to the Trustee Board to provide additional expertise. In
particular, professional investment advice is taken as necessary; investment strategy aligns
with funding objectives; and scheme assets are diversified accordingly.
Following the merger of its three UK pension schemes in June 2018, the Group and the
scheme Trustee successfully concluded the first valuation of the Coats UK Pension Scheme
with a 1 July 2018 effective date.
The Group has agreed ongoing annual deficit recovery payments effective from 1 April
2019 and are payable until 31 December 2028. The Scheme’s next triennial valuation will
have an effective date of 31 March 2021 to realign with the valuation cycle of the previous
three UK schemes.
Following consolidation of the UK schemes, and completion of the 2018 actuarial valuation,
the Trustee of the Coats UK Pension Scheme is currently over 80% (2018: 80%) hedged
against interest rate and inflation movements by reference to the Technical Provisions
liability.
The Group and the Trustee Board routinely review de-risking of the scheme through liability
management and investment strategies.
See note 10 on page 130 for more details.
Stable
The Board continues to monitor developments very closely and oversees the strategy in
relation to the Lower Passaic River proceedings.
More details can be found in note 28 on page 153.
Lower Passaic River
Legacy
environmental
matter risk
Detail of the Lower
Passaic River legacy
environmental matter
can be found in note
28 on page 153.
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CONTINUED
Key risks
In addition to these principal risks, the Group has also identified a number of key risks. These are monitored by the GET and the GRMC,
who receive regular updates, and periodic deep dives, on them from the risk champions assigned to each risk.
An example of such a key risk is the risk of disruption to our business operations as a result of events such as natural catastrophes (flood,
hurricane, monsoon, earthquake, etc.), fire, water shortage or pandemics. Discussions on this risk, and the steps taken to mitigate it,
include regularly stress testing the business continuity plans prepared by units and functions across the Group to ensure we are able to
respond quickly and effectively to any such event. The recent outbreak of the Coronavirus resulted in these business continuity plans
being activated, including the immediate implementation of procedures to protect our employees and anyone entering our premises, and
actions to limit the financial impact on the business and proactively leverage our global footprint and supply chain to provide the best
possible service to our customers.
The list of key risks also includes a number of potential disruptive risks arising from, for example, new competitors and new technology.
The GET, GRMC and the Board, as appropriate, continue to monitor these potential disruptive risks and also the opportunities that these
may present. See page 32 for more information.
Emerging risks
The 2018 UK Corporate Governance Code which came into effect from 1 January 2019, requires Boards to assess emerging risks in
addition to principal risks. In adherence with this, we have integrated emerging risks into our current risk management practices
monitoring the internal and external business environment to identify and review new and emerging risks to the Group.
The key emerging risk is climate change risk and its potential impacts on the Group. We have assessed this risk through the lens of a
number of potential emission level scenarios. During the course of that initial assessment, we have identified a range of risks and related
opportunities for the Group, our customers and suppliers, and the communities in which we operate.
In order to mitigate this risk, the Group has previously considered a number of aspects of potential climate change risk in the context of
other risk discussions such as, for example, the availability of certain resources in business continuity planning. However, in recognition of
the growing awareness and analysis of climate change risk, the Board has decided to identify it as a discrete emerging risk to be
considered alongside those other risks.
Following this initial assessment, the Board will in 2020, with the support of executive management, undertake a more in-depth analysis
of the risks and related opportunities, including in the context of various potential emission level scenarios. This analysis will include an
assessment of the physical risks to our business operations from climate change (including the risks to our supply chain and our
customers); additional financial risks from, for example, increased capital requirements and / or operating expenditures such as insurance
premiums or resulting from enhanced climate-related expectations from customers; and the transitional risks which might emerge,
particularly as the economy moves towards a lower emissions model with associated legislation.
Opportunities which will be assessed as part of this analysis include the competitive advantages from being a leader in this area such as
our ability to supply recycled threads, as well as specific opportunities such as the year-on-year increase in our sourcing of non-fossil fuel-
generated energy and decrease in our use of water in our production processes, and climate change requirements potentially leading to
an increased demand for our lightweight composites for the transportation industries.
The analysis will also include a review of the actions already in hand, and potential additional actions, to mitigate the risks and further
leverage the opportunities, and of the metrics and targets used in this regard. We will report further on the outcome of this analysis in
our Annual Report for the year ending 31 December 2020. For more information on our Group Sustainability Strategy generally, see
page 27 of this Annual Report.
The Board and management continue to remain alert to other emerging risks. These are identified through internal discussions and
experiences as well as conversations with external third parties and insights from observing and reflecting on the broader environment in
which the Group operates.
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CONTINUED
Long Term Viability Statement
In accordance with provision one of the revision of the 2018 UK Corporate Governance Code, the Directors have assessed the longer
term viability of the Group over the period to December 2022.
The Directors’ assessment has been made with reference to the Group’s current position and prospects, as detailed in the Strategic
Report. This takes into account the Group’s business model, strategy, approach to allocating capital and the potential impact of the
principal risks and how these are managed. The Directors have also considered committed finance facilities which, following the
refinancing exercise concluded in December 2017, all have a maturity of two years or longer.
The Group’s strategic objectives and associated principal risks are underpinned by 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 Board reviews the Medium Term Plan annually.
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.
The Directors have considered a range of severe but plausible scenarios that explore the Group’s resilience to the potential impact of the
principal risks as set out on pages 31 to 38 as well as other risks that could crystallise during the medium term. The Directors also
considered the Brexit risk which sits within the Group’s principal Economic Risk, but for the reasons set out on page 34 in the principal
risks table, did not include that element within the set of risks specifically modelled in preparing this statement.
The risks considered to have the most potential impact on viability were:
Potential developments in the Lower Passaic River proceedings.
• A global economic downturn (including the impact of the Coronavirus)
• UK pension scheme deficit funding; and
•
These risks have been modelled both individually and in combination, notwithstanding the fact that the likelihood of all of these risks
occurring simultaneously is considered to be very low. The Directors have also taken into account a number of assumptions that they
consider reasonable within these assessments including:
•
The assumption that funding facilities will continue to be available throughout the period under review: the core US private
placement borrowings are due in 2024 and 2027, the revolving facility matures in 2022 and it has been assumed that the revolving
facility will be successfully renewed in 2021;
The assumption that the Group will be able to mitigate risks effectively through other available action.
The assumption that following a material risk event, the Group would adjust capital management to preserve cash; and
•
•
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 of the assessment.
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Revenue 2
By segment
Apparel and Footwear 3
Performance Materials
Total
By region
Asia
Americas 3
EMEA
Total
Adjusted operating profit 2,4
By segment
Apparel and Footwear 3
Performance Materials
Total adjusted operating
profit
Exceptional and acquisition
related items
Operating profit
Adjusted operating margin 2,4
By segment
Apparel and Footwear 3
Performance Materials
Total
2019
2018
Inc / (dec)
2018 CER
1
CER 1
inc/(dec)
Organic 1
inc/(dec)
$m
$m
%
$m
%
%
1,063
326
1,389
800
323
266
1,389
156
42
198
(7)
191
1,083
332
1,415
791
349
275
1,415
148
47
195
(48)
147
(2)%
(2)%
(2)%
1%
(7)%
(3)%
(2)%
6%
(11)%
2%
n/a
30%
1,053
321
1,374
777
341
257
1,374
145
44
189
1%
1%
1%
3%
(5)%
4%
1%
8%
(6)%
5%
1%
1%
1%
3%
(5)%
4%
1%
9%
(6)%
6%
14.7%
12.8%
14.3%
13.7%
14.1%
13.8%
100bps
(130)bps
50bps
13.7%
13.8%
13.8%
100bps
(100)bps
50bps
110bps
(100)bps
60bps
1
2
3
4
2018 figures at 2019 exchange rates. Organic on a CER basis excluding contributions from bolt-on acquisitions (ThreadSol).
Includes contribution from bolt-on acquisitions made during the period.
Includes Latin America Crafts.
On an adjusted basis which excludes exceptional and acquisition-related items. Segmental split reflects new operating segments of Apparel and Footwear
and Performance Materials.
Revenues
Group revenues increased 1% in the year on an organic and
CER basis. On a reported basis, Group revenues reduced 2% as
a result of the previously flagged year-on-year currency
translation headwinds (notably Indian Rupee, Turkish Lira and
Brazilian Real) that predominantly impacted in H1. All
commentary below is on a CER basis unless otherwise
mentioned.
Apparel and Footwear (A&F)
In A&F, our core thread business (c.85% of segment sales)
continued its resilient growth (up 2%) and was ahead of global
retail markets which grew by around 1%. The ongoing market
share gains in thread were underpinned by our continued focus
on product innovation, digital solutions and our strong
corporate responsibility and sustainability credentials. The
headline A&F growth of 1% was impacted by slower demand
for zips and trims (c.10% of segment sales) due to certain in-
year fashion trends and conscious low margin product
rationalisation (zips and trims down 3% year-on-year), ongoing
difficult trading conditions in Latin America Crafts (albeit with
an improving trend in H2) as well as the impact of tail market
exits (part of the Connecting for Growth programme) and other
customer / product portfolio rationalisation actions.
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Coats’ ability to perform resiliently in mixed retail market
conditions was assisted by several factors including deepening
its relationships with retailers and brand owners through its
global accounts programme and high levels of customer
service, and with manufacturers, through the adoption of
digital services and software solutions which deliver speed,
accuracy and efficiency. This was demonstrated by the launch
of online payment functionality in 14 countries, as well as
improved functionality / automation of our well established
eComm platform (which now has 94% customer adoption, and
accounts for 86% of thread sales). We have also seen our
sustainability credentials becoming an ever-increasing
differentiator as brands and garment manufacturers seek
“peace of mind” within their complex supply chains and set
their own ambitious sustainability goals. On the latter, we have
seen significant increased interest in our EcoVerde products
(100% post-consumer recycled threads) with sales of $7 million
in 2019, with a further significant increase expected in 2020,
and excitement around the launch of the Twine Solutions
digital thread prototype printing machine in June 2019.
Performance Materials
Following a review of our Performance Materials strategy
during the year we are now reporting our sales activity in five
different end-use categories: Personal Protection (c.30% of
Performance Materials sales), Telecoms and Energy (c.20%),
Household and Recreation (c.20%), Transportation (c.15%),
and Other Industrial Applications (c.15%).
Performance Materials revenues grew 1% in the year on an
organic CER basis (2% decline reported) marginally lower than
the 2% October YTD reported in the November trading update,
which was driven by a continuation of the slower H2
performance within the Transportation sector (down 5% for
the year and down 8% in H2), largely due to the slowdown in
global automotive production, and on-going delayed industry
infrastructure investment in Telecoms and Energy. The
Telecoms and Energy sector remains a fundamentally attractive
growth area (up 7% in the year), however, it has been
temporarily impacted by the phasing of customer programmes
linked to infrastructure investment decisions.
Growth in our other key strategic focus area of Personal
Protection remained robust at 6%, underpinned by our
innovative product solutions that deliver both safety and
comfort, which has driven penetration into a number of
emerging markets. Household and Recreation related products
and Other Industrial Application revenues (previously
“traditional” end uses) saw an encouraging trend in the year,
with a return to marginal growth in H2 (down 3% for the year).
Our innovation credentials across both Performance Materials
and A&F have been further enhanced by the opening of two
more global Innovation Hubs in Turkey and China in H1 2019,
following the opening of the first hub in North Carolina in
2018. These facilities provide opportunities to collaborate with
our customers and brands, and work with them to create
innovative new product solutions to meet their specific design
needs; this helped to deliver incremental new product sales
($16 million in 2019), and a vitality index (% of sales of
products launched within the last 5 years) of over 20% in
Performance Materials.
Geographical performance
By geography, we saw resilient revenue growth in Asia (up 3%
on a CER basis) which was underpinned by Apparel and
Footwear growth across key non-China markets (e.g. Indonesia
and Vietnam) as they continued to benefit from incremental
volumes moving out of China (a dynamic that was exacerbated
by US-China Trade War uncertainty in 2019). This resilient
performance in Asia was also despite a slowdown in the smaller
Performance Materials segment in that territory (mainly due to
softness in the China automotive market).
Revenues in EMEA rose 4%, driven by Performance Materials,
albeit impacted in the second half by the temporary slowdown
in Telecoms and Energy as referred to earlier.
In the Americas, revenues decreased 5% as a result of the
decline in Latin America Crafts (albeit with an improving trend
in H2), the impact of portfolio rationalisation actions, and lower
Transportation revenues. This was offset to some extent by an
encouraging performance in certain LATAM Performance
Materials markets, and an improving trend in US consumer
durables in H2 (which includes Household and Recreational).
Operating profit
At a Group level, adjusted operating profit increased 5% to
$198 million on a CER basis (2018: $189 million) and adjusted
operating margins were up 50 bps to 14.3% (2018: 13.8%).
Year-on-year productivity and procurement initiatives continued
to broadly offset structural inflation (e.g. wages and energy).
The anticipated continued raw material cost inflation incurred
during the year (partly linked to oil price) was recovered in full,
however, gross margin percentage was impacted by lower
activity levels and stock adjustments in certain territories
(predominantly Americas). Operating margin progression was
driven by continued cost control and the incremental year-on-
year benefits from the Connecting for Growth programme.
Group organic adjusted operating profit and margins grew 6%
and 60bps respectively, which is ahead of the CER performance
referred to above, due to the initial post-acquisition operating
losses made by ThreadSol as it becomes integrated with the
wider Coats Digital business.
On a reported basis, Group operating profit (including
exceptional and acquisition-related items) increased 30% to
$191 million (2018: $147 million), primarily due to significantly
lower net exceptional and acquisition related items in the year
when compared to 2018 (which included the initial Connecting
for Growth reorganisation cost). Exceptional and acquisition-
related items are not allocated to segments, and as such the
segmental profitability referred to below is on an adjusted basis
only.
Segmental profit
In A&F we are the global market leader and deliver a
compelling value proposition for our customers (for example
speed, quality, innovation, digital solutions and corporate
responsibility). There is significant scale to our A&F operations
(A&F orders represent over 90% of total Group orders) which
drives production efficiencies, and in turn gross margin upside.
In Performance Materials we are seeking to build market
leading positions and scale in specific strategic focus areas
where we excel in designing new product solutions to solve
customer needs. As a result, Performance Materials production
processes involve more specialisation which drives a higher
average sales price and often significantly higher order size
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CONTINUED
compared to A&F (and with that a lower average selling,
general and administrative (SG&A) cost).
In 2019, we saw strong progression in A&F operating margins
(100bps) on a CER basis, largely due to the reasons set out
above which explain the movement in Group operating
margins.
Performance Materials margins declined 100bps on a CER basis,
which was largely driven by H2 factors, including the lower
sales levels in the period and resulting operating inefficiencies,
and inventory adjustments in our Americas business. Year-on-
year progression of Performance Materials margins were also
impacted by the investment in our innovation centres which
have been opened in the last 12 months, which over time are
expected to deliver further significant new product sales. Going
forward, we expect underlying Performance Materials margins
to progress as we return to higher levels of sales growth,
although 2020 and beyond will be partly impacted by the initial
dilutive effect of the lower margin Pharr High Performance
Yarns business (see below).
Connecting for Growth programme
As announced in February 2018, Connecting for Growth was a
two-year transformation programme designed to drive speed,
agility, innovation and lower costs across the organisation,
whilst enabling the next phase of growth at Coats and
accelerating our transition from the industrial age to the digital
age.
Good progress continued to be made during 2019 and the
programme has now finished, ahead of schedule, with the new
operating structures embedded successfully within the
organisation. Reinvestment projects, funded from the
programme savings, are progressing well in the areas of digital
(e.g. retro fitting sensors to our existing manufacturing
equipment and effluent treatment plants to stream production /
compliance data to drive business insights), innovation (e.g. two
new innovation hubs opened in 2019), and appropriate talent
acquisition. These will all support the ongoing strategy delivery
of the Group and our next phase of growth.
Final cumulative net benefits for the programme are $28 million
(of which $13 million in 2019), which is significantly ahead of
the initial estimate of $15 million net benefits expected by
2020, when the programme commenced in 2018. The
increased level of net savings have been delivered through
exceptional project management and continuous course
correction, for example by reducing the originally planned
geographical cluster structure from 10 (previously c.45
geographic markets) to 7. We have achieved this whilst making
reinvestments to embed our innovation, digitisation and people
strategy initiatives which are an integral part of the programme.
The final net exceptional reorganisation charge for the
programme was $31 million ($8 million in 2019), marginally
higher than the initial $30 million estimate at the start of the
programme as further opportunities for savings were identified.
Acquisition of Pharr High Performance Yarns (Pharr
HP)
On 26 November 2019, the Group announced a binding
agreement to acquire the business and assets of Pharr HP. This
acquisition was completed on 10 February 2020 following the
necessary regulatory approvals and other closing conditions.
Pharr HP is a market-leading manufacturer of high-performance
engineered yarns based in McAdenville, North Carolina, US.
Founded in 1939, it has around 350 employees. In its latest
financial year to 31 March 2019, Pharr HP's annual sales were
c.$110 million and adjusted EBITDA of c.$5 million. The
transaction consideration was $37 million.
Pharr HP specialises in providing technical yarn solutions to the
growing markets of Industrial Thermal Protection, Defence and
Fire Service industries. The acquisition of Pharr HP's
manufacturing capabilities and customer base provides further
expertise and scale to Coats' existing Personal Protection
business (part of the Performance Materials segment), and gives
us a leadership position in this attractive growth market. Coats
will enhance Pharr HP's performance by leveraging its extensive
textile experience, strong industry connections, existing
operational footprint in North America, and Coats' strong
global brand to deliver high performance solutions for its
customers.
On a pro-forma basis, combined 2019 sales in Personal
Protection, including Pharr HP would have been c.$210 million,
which represents a c.20% of the estimated addressable market,
and c.50% of our total Performance Materials sales. As a result
of the initial dilutive effect of Pharr HP lower operating margins,
2019 Performance Materials and Group operating margins
would have been 10.5% (as reported: 12.8%), and 13.5% (as
reported: 14.3%) respectively. Over time, we expect Pharr HP
margins to trend towards Group levels.
Discontinued operations - sale of North America
Crafts
As announced on 22 January 2019, it was agreed to sell the
non-core North America Crafts business to Spinrite Acquisition
Corp, a leading provider of craft products in North America.
This transaction was subsequently completed on 20 February
2019. The final acquisition proceeds were $34 million, which
was on a debt and cash free basis, and was subject to an
adjustment for the level of net working capital as at the time of
completion.
The sale of our standalone North America Crafts business has
allowed the Group to focus completely on the business-to-
business global Apparel and Footwear and Performance
Materials businesses.
Coats retains the control and responsibility for the eventual
outcome of the ongoing Lower Passaic River environmental
matters. There is no change in the Group's overall position in
relation to this matter, from that previously reported.
Board change
Alan Rosling, a Non-Executive Director since 2011, will not be
standing for re-election as a Director at the 2020 AGM, to be
held on 20 May 2020. The Board would like to thank Alan for
his insightful guidance and contribution to the Board over the
nine years of his tenure including setting up and chairing the
Digital Advisory Council. Alan has played a key part in steering
significant change to the Group, as we restructured the
Guinness Peat Group and Coats Boards, transitioned from an
investment holding company to a UK headquartered FTSE 250
manufacturing business and accelerated our Digital journey.
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OPERATING REVIEW
CONTINUED
Dividend
Coats has a track record of delivering good levels of free cash
through profitable sales growth, delivering self-help initiatives
and investing in organic growth opportunities. The Board aims
to use this free cash flow to fund its pension schemes, self-
finance bolt-on acquisitions, and make returns to shareholders.
As underlying earnings and cash flows increase, the Board
intends to continue to pursue a progressive dividend policy.
As a result of this established policy, and reflecting the financial
performance in 2019, the Board is proposing a final dividend of
1.30c per share which, combined with the interim dividend of
0.55c per share, gives a total dividend for the year of 1.85c
(2018 full year dividend: 1.66c per share), which represents a
11% increase on the previous year. Subject to approval at the
forthcoming AGM, the final dividend will be paid on 26 May
2020 to ordinary shareholders on the register at 1 May 2020,
with an ex-dividend date of 30 April 2020.
Coronavirus (Covid-19)
As a business we continue to monitor the recent Covid-19
outbreak closely. We are focused on ensuring the safety and
protection of our employees, implementing the necessary
business continuity procedures and supporting our global
customer base.
The impact for Coats to date has been in our China business
which currently represents approximately 12% of Group sales,
and 4 of our 50 global manufacturing facilities are in the
country. These 4 facilities are now operational following the
enforced government closures after the Chinese New Year with
the majority of our employees now back at work. We are in
the process of returning the 4 facilities to full capacity, which
we expect to happen by the end of March.
Following the temporary shutdown of our facilities we have
seen an $8 million year-on-year reduction in our China sales in
the first two months of 2020.
China remains important to the wider A&F supply chain,
producing around 40% of the world’s garments and footwear.
Looking forward we face uncertainty around the impact of the
virus on the industry supply chain, both inside and outside of
China. We will continue to monitor the situation carefully and
respond as necessary.
Coats has an unrivalled global footprint and is uniquely placed
to help brands and manufacturers as they look to further de-
risk their own exposures to the largest sourcing market of
China by moving incremental production volumes to alternative
locations. .
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FINANCIAL REVIEW
Summary
Adjusted operating profit from continuing operations increased
5% to $198 million on a CER basis (2018: $189 million) and
operating margins were up 50 bps to 14.3% (2018: 13.8%).
On a reported basis, operating profit (which is after exceptional
and acquisition related items) increased 30% to $191 million,
as a result of the increase in adjusted operating profit, along
with the significant reduction in net exceptional and
acquisition-related items in the year when compared to 2018
(where the initial Connecting for Growth reorganisation cost
was incurred, along with exceptional charges in relation to the
Lower Passaic River environmental claim and UK pension
equalisation).
The Income Statement on a reported basis was impacted by the
relative strength of the US Dollar; particularly compared to the
first half of 2018 where we saw FX tailwinds. This resulted in a
decline of 2% in reported revenues year on year (vs a 1%
growth on a CER basis), and 2% growth in adjusted operating
profit (vs a 5% growth on a CER basis). As the Company
reports in US Dollars and given that its global footprint
generates significant revenues and expenses in a number of
other currencies, a translational currency impact can arise. The
main currency impact during the period was the strengthening
US Dollar against the Indian Rupee, Turkish Lira and Brazilian
Real. At current exchange rates we expect broadly neutral
translation impact in 2020.
Adjusted earnings per share (‘EPS’) for the period increased 1%
to 7.0 cents (2018: 6.9 cents). This was broadly in line with the
reported 2% increase in adjusted operating profit (which
includes the H1 weighted translation headwinds). A year-on-
year increase in interest costs (including the initial impact of
IFRS 16 (leases) and some one-off legacy charges in H1), was
offset by a further reduction of 200bps in the underlying
effective tax rate to 29% (2018: 31%). The mark-to-market
foreign exchange losses on future hedging contracts incurred in
H1, largely in relation to Sterling, reversed in the second half
due to the Sterling appreciation seen in the period.
On a reported basis, the Group generated an attributable profit
from continuing operations of $96 million compared to $55
million in 2018. The increase was primarily due to significantly
lower net exceptional and acquisition related items in the year
when compared to 2018 where the initial Connecting for
Growth reorganisation cost was incurred, as well as charges in
relation to the Lower Passaic River environmental claim and UK
pensions equalisation.
The Group delivered an adjusted free cash flow of $107 million
in 2019 (2018: $96 million) which reflects the adjusted
operating profit growth, well controlled levels of working
capital, marginally lower spend on capital expenditure, and
lower levels of interest and cash tax paid (see later for details).
Return on capital employed (ROCE) remained strong at 42.3%
which was broadly in line with 2018 (42.6%) as both adjusted
operating profits (including year-on-year foreign exchange
translation headwinds) and our asset base grew by 2%.
Non-operating results
Net finance costs in the year were $27.9 million (pre-
exceptional), an increase from $24.4 million in 2018. The key
drivers of the increase in net finance costs in the year was a
$1.7 million increase in the IAS19 pensions finance charge, a
$3.7 million impact following the adoption of IFRS 16 (see
below), the impact of certain legacy charges in Brazil/China that
were booked in H1 ($1.7 million), with some offset from lower
interest on borrowings ($1.4m reduction year-on-year). The
mark-to-market foreign exchange losses on forward hedging
contracts incurred in H1, largely in relation to Sterling, reversed
in the second half based on the Sterling appreciation seen in
the period (2018: $1.6 million mark-to-market loss).
The taxation charge for 2019 was $50.5 million (2018: $49.0
million) resulting in a reported tax rate of 30% (2018: 40%).
Excluding exceptional and acquisition-related items and the
impact of IAS19 finance charges, the underlying effective tax
rate on pre-tax profits reduced 200 bps to 29% (2018: 31%).
This was driven by a reduction in withholding taxes, a
favourable change in profit mix for the period and the impact
of a reduction in the headline India corporation tax rate during
the year.
Profit attributable to minority interests was broadly in line with
2018 at $20.1 million, and was predominantly related to Coats’
operations in Vietnam and Bangladesh (in which it has
controlling interests).
Exceptional and acquisition-related items
Net exceptional and acquisition-related items before taxation
were $4.4 million in 2019; which consisted of the remaining
exceptional C4G reorganisation charge of $8 million (net of the
profit on the sale of property as part of the C4G programme)
and acquisition related costs of $2 million (see below), offset by
a $6 million credit in relation to a significant historical legacy
tax claim in Brazil (includes the operating profit impact and
associated historical interest recovery). These were significantly
reduced year-on-year (2018: $47.8 million) due to the
weighting of the exceptional reorganisation charge from the
Connecting for Growth programme ($23 million in 2018), as
well as 2018 charges in relation to the Lower Passaic River
environmental claim ($8 million) and UK pensions equalisation
($10 million).
Acquisition-related items in the year were $2.2 million (2018:
$7.3 million) which consisted of the amortisation of intangible
assets acquired ($2.9 million), acquisition transaction costs
($1.0 million) with some offset from the reversal of contingent
consideration ($1.7 million).
Investment
Capital expenditure in the year, in addition to ongoing
maintenance requirements, related to new product
development (e.g. development of our two further global
innovation hubs in Turkey and China), process improvements,
digital tools, capacity expansion (e.g. in Bangladesh), health and
safety, environmental spend (e.g. completion of a zero liquid
discharge system at one of our major India plants), and
employee welfare (e.g. a creche in our Turkey facility). These
help to ensure that Coats maintains its strong corporate
responsibility credentials and ethical reputation in the industry
as well as benefiting the local communities that we do business
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CONTINUED
in. Total capital spend for the period amounted to $44 million
(1.2x depreciation and amortisation), which was slightly lower
than 2018 ($48 million).
In order to continue to support our growth strategy and further
reinforce our strong environmental compliance credentials we
anticipate capital spend to be in the $45-55 million range for
2020.
Cash flow
The Group generated $107 million of adjusted free cash flow in
2019. This was an 11% increase on 2018 ($96 million) due to
the increase in adjusted operating profit and controlled net
working capital, alongside continued capital expenditure. This
free cash flow measure is before annual pension deficit
recovery payments, acquisitions and dividends, and excludes
exceptional items such as the Connecting for Growth
exceptional reorganisation cost.
Adjusted EBITDA (defined as pre-exceptional operating profit
before depreciation and amortisation, and excluding the impact
of higher depreciation as a result of IFRS 16 (leases)) from
continuing operations for the year was $233 million (2018:
$231 million). Net working capital outflow in the year was $6
million which was an improvement on 2018 (2018: $17 million
outflow) as working capital continues to be effectively
controlled. Interest paid was $15 million, $4 million lower
than 2018 as a result of lower levels of net debt.
Tax paid was $46 million, a decrease of $4 million from 2018
($50 million). This reduction is primarily driven by cash tax
benefits which arose on 2018 exceptional items crystallising in
H1 2019, together with a favourable change in profit mix for
the period and the reduction in India corporation tax rate, as
well as the timing of certain items that will instead be incurred
in 2020 cash tax.
The Group generated a free cash inflow of $72 million in the
year (2018: $25 million), as the adjusted free cash inflow of
$107 million and the proceeds of the North American Crafts
disposal ($30 million; net of pre disposal operating cash
outflows and transaction costs), were offset by UK pension
payments ($27 million), shareholder dividends ($24 million) and
exceptional and acquisition related items ($10 million).
As a result of the above free cash inflow in the year, net debt
(excluding the impact of IFRS 16) as at 31 December 2019 was
$150 million, $73 million below 31 December 2018 ($223
million).
Balance sheet
An important metric for the operating business is the leverage
ratio of net debt to adjusted EBITDA (excluding the impact of
IFRS 16 – see below), which improved to 0.6x adjusted EBITDA
at 31 December 2019 (1.0x at 31 December 2018), and is
below the lower end of the 1-2x stated target leverage range,
although does not reflect the recent $37 million consideration
in relation to the Pharr HP acquisition.
The sale of the North America Crafts business further supports
our strong balance sheet and will enable us to invest in our
business both organically and inorganically, as well as meet our
other key capital demands of funding our pension schemes and
making returns to shareholders.
IFRS 16 (leases)
Following the release of IFRS 16, which is effective for
accounting periods beginning on or after 1 January 2019, the
Group has reviewed and updated its accounting treatment for
leases. The primary impact of this new standard for Coats is
the requirement to use a single model for lessees which
recognises a right of use asset and lease liability for all leases,
and as such a removal of the distinction between finance and
operating leases.
As at 31 December 2018, the Group held a significant number
of operating leases which were previously expensed within
operating profit on a straight line basis. The Group has chosen
to apply the modified retrospective approach from the new
accounting standard transitional date of 1 January 2019 and
has therefore not restated comparatives. This has involved
calculating the right-of-use asset and lease liability based on the
present value of remaining lease payments on all applicable
operating lease contracts.
The impact on the 2019 Income Statement has been a net
increase to adjusted operating profits (due to the replacement
of operating lease charges offset by depreciation on the newly
recognised assets) of $2.3 million, and an increase to the
interest charge of $3.7 million reflecting the newly reflected
lease liability. Overall, the impact on profit before tax of this
change was therefore an adverse $1.4 million movement in the
year.
In relation to the Balance Sheet, the newly recognised assets
(previously operating leases) at 31 December 2019 amount to
$63 million, with an associated lease liability of $65 million.
Net debt, including this lease liability at 31 December 2019 was
$215 million. For financial covenant purposes, our leverage
remains calculated on the basis without the impact of IFRS 16
(0.6x at 31 December 2019). Including IFRS 16, leverage at 31
December 2019 was 0.9x.
Pensions and other post-employment benefits
The net obligation for the Group’s retirement and other post-
employment defined benefit liabilities (UK and other group
schemes), on an IAS19 financial reporting basis, was $181
million as at 31 December 2019, which is broadly in line with
31 December 2018 ($168 million). This includes a reduction in
the UK scheme liabilities, broadly offset by a reduction in the
recognised US surplus, as explained further below.
The Group’s UK defined benefit schemes, namely the Coats UK
Pension Scheme, which is a key constituent of the Group
defined benefit liabilities, shows a $92 million IAS19 deficit at
31 December 2019 (£69 million), which is $17 million less than
at 31 December 2018 ($109 million, £85 million). This
reduction predominantly relates to the cash contributions made
into the scheme in the year (net actuarial movements minimal).
Following the disposal of North America Crafts, Coats retains
the previously incurred pension obligations from the business.
The pension scheme was in a recoverable surplus position of
$18 million as at 31 December 2019, which is a $30 million
reduction from 31 December 2018 ($48 million). This
reduction is as a result of fewer serving employees in the US
remaining in the Group following disposal of the Crafts
business, and in December 2019 the scheme was closed to new
entrants from 2020 and closed to future accrual for current
members from 2022, which resulted in an associated non-cash
curtailment gain.
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FINANCIAL REVIEW
CONTINUED
UK pension triennial valuation
As reported previously, following the merger of its three UK
pension schemes in June 2018, the Group and the scheme
Trustee successfully concluded the first valuation of the Coats
UK Pension Scheme with a 1 July 2018 effective date.
The Group has agreed ongoing annual deficit recovery
payments of £20 million ($27 million) per annum increasing
annually by the increase in the Retail Price Index (first increase
in January 2020) based on a Technical Provisions deficit of £252
million ($334 million). As before, the Group will also meet
Scheme administrative expenses and levies estimated at £4
million ($5 million) per annum in the future (i.e. total ongoing
payments of £24 million ($32 million) per annum). The new
deficit recovery payments have been effective from 1 April
2019 and are payable until 31 December 2028.
The previously agreed level of deficit recovery contributions was
£17.5 million ($23 million), including estimated administration
expenses and levies. As a result of the timing of the start of the
new contributions (from April 2019), 2019 deficit recovery
contributions, including estimated administration expenses and
levies, were £22 million ($27 million).
The Scheme’s next triennial valuation will have an effective date
of 31 March 2021 to realign with the valuation cycle of the
previous three UK schemes.
Simon Boddie
Chief Financial Officer
4 March 2020
The Strategic Report comprising pages 1 to 46 was approved
by the Board and signed on its behalf by the Group Chief
Executive.
Rajiv Sharma
Group Chief Executive
4 March 2020
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CHAIRMAN’S INTRODUCTION
Dear Shareholder,
One of the strong threads that runs through Coats is the idea
that we should always ‘Do the right thing’. Whether we are
thinking of our approach to sustainability, which you can read
more about in our Sustainability Report available on our
website, or on the launch of our ‘Journey to Zero’ health and
safety strategy, which you can read more about on page 25,
doing the right thing is something that is part of the fabric of
our everyday lives and actions from the factory floor all the way
up to the board room.
The Group Risk Management Committee (GRMC) agreed
during 2019 that climate change is included in the Group Risk
Register as an emerging Risk (see page 38 for more information
on our emerging and principal risks). This means that it is a
Board level issue and therefore that evaluation of risks and
opportunities and decisions on appropriate strategies and
actions have board oversight. The Company is in the process of
evaluating the impacts of climate change risks and
opportunities on the business, strategy and financial planning.
This evaluation will be completed in 2020 and the Company
will report on the results and implications.
Doing the right thing when it comes to corporate governance is
something the Board takes very seriously. Good governance is
important because it leads to a better run and more successful
company, delivering more for all of our stakeholders.
This Governance section of the 2019 Annual Report contains an
overview of the roles and responsibilities of the Board and its
Committees together with a summary of the activities
undertaken during the course of the year ended 31 December
2019.
During 2019 the Board considered the strategy through to
2022 to ensure this continues to address industry headwinds.
Although the strategy remains broadly unchanged this has led
to a refresh of the pillars which underpin the purpose. You can
read more about our purpose and our strategy on page 13. The
Board has also spent time considering the changes brought in
by the 2018 UK Corporate Governance Code (the Code) and
The Companies (Miscellaneous Reporting) Regulations 2018 to
ensure Coats’ compliance.
Culture and values
The Board recognises the importance of its role in setting the
tone of Coats’ culture and embedding it throughout the Group
and I am committed to instilling and upholding this and the
values we expect to see from all of our employees. Our Ethics
Code underpins everything that we do and is reinforced
through the ‘Doing the Right Thing’ programme, which sets
out the type of organisation we want to be. Everyone who
works for and with us is encouraged to actively engage with
the programme and to understand its importance to them as
well as the Group. In addition to the Board, the Group
Executive Team and senior management understand that how
we work is as important as what we achieve. This ensures that
the importance of compliance and integrity is recognised at all
levels throughout the Group.
During the year the Board has been kept abreast of
whistleblowing incidents, including an overview of any trends,
and details on action taken when our employees and suppliers
do not display the values and behaviours expected of them.
The Global Ethics Day in 2019 looked at which thread best
described different employees’ approach to ‘Doing the right
thing’. This event ran across the entire Group. Participants
discussed within their teams how well balanced they were
across the different types and what they could learn from
that. The discussions took many different forms including
workshops, town hall meetings, quizzes and stage plays.
As part of the event a YamJam was run which had 600
messages posted, 54,000 read messages and nearly
3,500 ‘likes’.
Governance
This is the first year of reporting for Coats under the revised
Code and I am pleased to confirm that Coats has applied the
principles and complied with all of the provisions except as set
out on page 49. The Regulations and Code put more emphasis
on engagement with stakeholders, diversity, remuneration
structures and the strengthening of corporate culture. We have
enhanced our disclosures on these throughout this report
which I hope demonstrate the high levels of corporate
governance maintained within Coats.
Board composition and succession
The 2019 AGM marked the retirement of Mike Allen
from the Board. I would like to thank Mike for his insightful
guidance and contribution to the Board. Mike played a key part
in steering through the significant change to the Group during
his tenure. Looking forward Alan Rosling will step down at the
AGM to be held in May 2020 following completion of his term
on the Board. I would like to thank Alan for his insightful
guidance and contribution to the Board over the nine years of
his tenure including setting up and chairing the Digital Advisory
Council.
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CHAIRMAN’S INTRODUCTION
CONTINUED
Diversity and inclusion
The Board places great emphasis on ensuring that its
membership reflects diversity in its broadest sense to bring a
range of perspectives and insights to support and challenge
management and good decision making.
To us, diversity and inclusion means understanding,
appreciating and valuing the visible and invisible differences in
our colleagues, and understanding that these differences enrich
our culture and benefit the business. Recognising this diversity
and inclusion is an integral part of our cultural agenda and we
continue to have a strong focus on all areas of diversity, not just
gender, but including ethnic, geographic and diversity in
experience at both the Board and Group Executive Team level
and beyond. Further details on the Board’s Diversity Policy and
our wider approach to diversity and inclusion are contained in
the Nomination Committee report set out on page 64 and on
page 26 of this Annual Report.
Board effectiveness
This year the Board undertook an externally-facilitated
effectiveness review in accordance with the requirements under
the Code. The review was undertaken by Independent Audit
Ltd. The review highlighted the strengths of our Board but also
gave us some pointers for our continued efforts to make the
Board as effective as we can. Details of the review, its outcomes
and how this will inform the development of the Board’s
objectives for 2020 can be found on pages 57 to 58.
Board activities
It is said that knowing something and seeing something are
two different things. In January 2019 I, together with Mike
Allen, Nicholas Bull, David Gosnell and Fran Philip attended the
Global Leadership conference in Charlotte, US, alongside Rajiv
Sharma and Simon Boddie. During the conference most of the
Board members attending took part in the site visits to the
Innovation Hub and Patrick Yarns Mill. The theme of the
conference was ‘Transforming for Growth: Connecting,
Pioneering, Trusted’ and senior executives from a customer
attended and spoke about their opportunities and challenges.
I was very proud to attend the celebration in Vietnam in
October 2019 of our highly successful thirty year old joint
venture during which we discussed with external experts the
future direction and challenges for Vietnam as a country.
During the course of the Board visit to Vietnam and Indonesia
the Board met and toured the facilities of certain key
customers. In January 2020, along with Nicholas Bull, Anne
Fahy, David Gosnell and Echo Lu, I attended the Deliver 2020
Workshop where we discussed growth imperatives with
business leaders from across Coats.
You can read about the visits that Fran Philip has made and the
work she has done as the designated Non-Executive Director to
represent the workforce voice on page 25.
An overview of the range of matters that the Board discussed
and debated at its meetings during the year is presented on
page 56. The reports of the Audit and Risk and Remuneration
Committees for 2019 are available on pages 59 to 63 and 70 to
94 respectively.
Our people and our culture
Ensuring the right culture and environment for our people to
succeed is critical for business success. During the Board
Strategy Day held in September 2019, the Board considered the
two strategic themes of ‘Moving from the Industrial to the
Digital Age’ and ‘Moving beyond the stitch line with new
products and services’ which were launched in 2018 with
emphasis on the four strategic pillars of Digitisation,
Simplification, Innovation, and Acquisition. Management will
focus on embedding the understanding of the Coats brand,
purpose and values in 2020 throughout the business and the
Board will have oversight of this. Information about how the
Board has assessed and monitored culture can be found on
page 32.
Engagement with stakeholders
We believe strongly that responsibility for the long-term success
of the Company is linked to ensuring accountability,
transparency and fairness in our dealings with all of our
stakeholders. You can read more about how we have engaged
with and responded to the challenges raised by our
shareholders, customers, people, suppliers, the communities in
which we operate and our environmental impact on pages 19
to 24.
In addition to the Board’s focus on our people, as I refer to
above, the Board receives regular updates on the matters most
important to our key external stakeholders and is kept abreast
of relevant developments from the interactions between the
business and these stakeholders through regular reporting. The
Board receives an investor update at each Board meeting and
receives regular reports, particularly in relation to assessing risk,
on interactions with customers and suppliers. A good example
of how this has worked in practice is how this helped to ensure
a better clarity around Performance Materials strategy to be
more customer driven rather than ‘our technology driven’.
Sustainability
Coats is a member of the FTSE4Good UK Index. This
recognition of our strong ESG and SRI credentials, as detailed in
the Corporate Responsibility section on pages 27 to 30 of this
Annual Report shows our demonstrable commitment to the
environment and communities in which we operate. We have
also published a separate Sustainability Report which can be
found on our website. In this we have set out seven ambitious
targets in the five priority areas of water, energy, effluent &
emissions, social and living sustainably that we are aiming to
achieve by 2022 and our progress against these. As explained
in the Remuneration Report on page 70, to reflect the
importance of the sustainability agenda to our business we will
be linking management remuneration from 2020 onwards in
part to our performance on key sustainability metrics.
I am proud of Coats’ leadership ambitions in all our
programmes and the hard work that has gone into supporting
these initiatives.
Mike Clasper
Chairman
4 March 2020
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CHAIRMAN’S INTRODUCTION
CONTINUED
THE UK CORPORATE GOVERNANCE CODE
COMPLIANCE STATEMENT
Coats complied with the relevant principles and provisions of
the 2018 UK Corporate Governance Code (the ‘Code’)
during the course of the year ended 31 December 2019
except as set out below:
• Principle O, provision 25 – the terms of reference for the
Audit and Risk Committee were updated in February
2019 to reflect the Code and internal governance
processes are being restructured to reflect this change.
• Principle O, provision 29 – a discussion encompassing
any improvements that could be made to the process for
monitoring the Company’s risk management and
internal control systems is being held in the Audit and
Risk Committee forum and any recommendations will be
reported to the Board. A report on this will be included
in the 2020 Annual Report.
We expect to be fully compliant with the Code by the end of
2020. Other information relating to the corporate
governance structures is set out over the following pages.
‘I LIKE TO USE THE WORDS ‘SILENT
RUNNING’ TO DESCRIBE A GOOD
COMPLIANCE AND GOVERNANCE
CULTURE. REPUTATION IS KEY TO
ONGOING SUCCESS, IT TAKES YEARS
AND YEARS TO BUILD BUT SECONDS
OR MINUTES TO DESTROY. THAT IS
WHY WE ARE DOING MORE TO
ENSURE THE GLOBAL FUNCTIONS
ENABLE AND UNDERPIN A STRONG
COMPLIANCE AND GOVERNANCE
CULTURE.’
ANNE FAHY,
NON-EXECUTIVE DIRECTOR
Board leadership and company
purpose
Promoting the long-term sustainable success of
the company
Generating value for shareholders
Contributing to wider society
Purpose, values and strategy, and how these
and our culture are aligned
Resources available to allow Coats to meet its
objectives and measure performance against them
Control framework
Stakeholder engagement
Workforce policies and practices
Division of responsibilities
The Chairman
Division of responsibilities
Non-Executive Directors
Information and support
Composition, succession and
evaluation
Succession planning
Board diversity
Board evaluation
Read more
Page 5
Page 5
Page 19
Page 10
Page 59
Page 62
Page 19
Page 30
Read more
Page 53
Page 53
Page 53
Page 54
Read more
Page 65
Page 64
Page 57
Audit, risk and internal control
Independence and effectiveness of internal and
external audit functions
Read more
Page 62
Fair, balanced and understandable reporting
Page 60
Principal risks
Page 31
Remuneration
Remuneration policies and practices support
strategy and promote long-term sustainable
success
A formal and transparent procedure for
developing policy on executive remuneration
Read more
Page 70
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BOARD OF DIRECTORS
Mike Clasper CBE
N
Rajiv Sharma
N
Chairman
Position
Nationality British
Tenure
Appointed as a Non-Executive Director on 20
February 2014, Chairman on 16 April 20141
Group Chief Executive
Position
Nationality Singaporean
Tenure
Appointed as an Executive Director in March
2015, Group Chief Executive
since 1 January 2017
Key skills and experience:
•
Extensive executive and non-executive experience,
including in general management and marketing for global
companies
•
Long-term track record of value creation and change
External appointments
Chairman of SSP Group plc and Bioss, Trustee of Heart Cells
Foundation, Governor of the Royal Shakespeare Company,
Advisory Board member for Arora International. Previously
Senior Independent Director at Serco Group plc and
ITV plc, Chairman of Which? Ltd, Chief Executive Officer of
BAA plc, Chairman of HM Revenue & Customs, President of the
Chartered Management Institute and Operational Managing
Director at Terra Firma. He has also held a number of senior
management positions at Procter & Gamble.
Qualifications
Mike holds an MA in Engineering from the University of
Cambridge.
Simon Boddie
Position
Nationality
Tenure
Chief Financial Officer
British
Appointed as Chief Financial Officer
on 4 July 2016
Key skills and experience
•
Strong financial expertise within an international emerging
markets and digital context
• Wealth of finance experience in large listed multinationals
External appointments
Non-Executive Director and chair of the Audit Committee of
PageGroup plc, a specialist recruitment company. Previously
Group Finance Director at Electrocomponents plc. Formerly
worked for Diageo, where he held a variety of senior finance
positions, Hill Samuel Bank and Price Waterhouse.
Qualifications
Simon is a member of the Institute of Chartered Accountants in
England and Wales and has an MA in Economics from the
University of Cambridge.
See the Financial Review on page 44.
30 years global multi-industry leadership experience
Key skills and experience:
•
•
•
Strategy and transformation
Leading large complex businesses
External appointments
Rajiv joined Coats in November 2010 as Global CEO Industrial
and was responsible for developing and executing a growth
strategy. He has lived and worked in the US, Europe and Asia.
Non-Executive Director of Senior plc. Rajiv has been on the
board of joint ventures at both GE and Shell and held
management positions with Saab, Honeywell, GE and Shell.
Qualifications
Rajiv holds a degree in Mechanical Engineering, as well as
an MBA from the University of Pittsburgh, USA.
See the Group Chief Executive’s statement on page 6.
Nicholas Bull
A N
Position
Nationality
Tenure
Senior Independent Non-Executive Director
British
Appointed as a non-Executive Director and
Senior Independent Director on 10 April
2015
Key skills and experience
• Global financial services and banking experience
•
International business experience and insights,
especially in China
• Advocate for ESG and SRI matters at the Board
External appointments
Chairman of Fidelity China Special Situations plc and Conran
Holdings Ltd, Trustee of the Design Museum, Camborne School
of Mines Trust, The Creative Education Trust and the Conran
Foundation. Previously served as Chairman of De Vere,
Chairman of the Advisory Board of Westhouse Securities and of
Smith’s Corporate Advisory Limited. He had a global career in
banking with Morgan Grenfell (subsequently Deutsche Bank),
Société Générale and ABN AMRO.
Qualifications
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.
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BOARD OF DIRECTORS
CONTINUED
Anne Fahy
A N
David Gosnell, OBE
R A N
Position
Nationality
Tenure
Independent Non-Executive Director
Irish
Appointed 1 March 2018
Key skills and experience:
•
Experienced audit committee chairman with
extensive financial and internal controls experience
• Global business and developing markets experience
External appointments
Non-Executive Director and Chairman of the Audit Committee
of SThree and Non-Executive Director of Nyrstar. Trustee of
Save the Children; formerly a Non-Executive Director of
Interserve. Previously at BP, Anne gained extensive experience
of global business, developing markets, risk management,
internal control, compliance and strategy development in the
aviation, petrochemicals, trading and retail sectors.
Qualifications
Anne is a Fellow of the Institute of Chartered Accountants in
Ireland and a Bachelor of Commerce in Economics, Accounting
and Business from University College Galway, Ireland.
See the Audit and Risk Committee Report on page 59.
Position
Nationality
Tenure
Independent Non-Executive Director
British
Appointed 2 March 20151
Key skills and experience
•
Strong and deep supply and procurement background in
global multi-national companies
•
International and strategic mindset
External appointments
Was previously Chairman of Old Bushmills Distillery Company
Ltd and a Non-Executive Director of Brambles Ltd. David retired
from Diageo plc in 2014 where he had most recently held the
role of President of Global Supply and Procurement. Prior to
joining Diageo, David spent 25 years at HJ Heinz in various
operational roles.
Qualifications
David holds a Bachelor of Science degree in Electrical and
Electronic Engineering from Middlesex University. He is a Fellow
of the Institute of Engineering and Technology (FIET). He has
completed Supply Chain Manufacturing – Drive Operational
Excellence at INSEAD (Singapore).
See the Remuneration Committee Report on page 70.
Board profiles
Expertise
Length of service
Key to committee memberships
Committee chair
Committee member
R
A
N
Remuneration
Audit
Nomination
Financial
Digital
Strategy
Retail
0-3 years
3-6 years
6-9 years
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BOARD OF DIRECTORS
CONTINUED
Hongyan Echo (‘Echo’) Lu
Position
Nationality
Tenure
Independent
Non-Executive Director
Chinese
Appointed 1 December 2017
R N
Fran Philip
Position
Nationality
Tenure
R N
Independent Non-Executive
Director, Designated Non-Executive
Director for workforce engagement
American
Appointed 1 October 2016
Key skills and experience
• Global business experience gained in different sectors in
Europe, Asia and the US
•
Strong background in general management and track
record of delivering positive change
External appointments
Chief Executive Officer of Haulfryn Group Ltd, a UK leisure
business. Previously Managing Director, International of Holland
& Barrett International, Managing Director of Homebase Ltd as
part of Home Retail Group plc. Echo spent ten years at Tesco
plc in a variety of senior leadership roles. Echo was a Non-
Executive Director of Dobbies Garden Centres and a steering
committee member of the Trestle Group Foundation.
Qualifications
Echo has a Bachelor of Arts in International Economy and
Finance from Fudan University, Shanghai and a Master of
Science in Industrial Relations and Human Resources from West
Virginia University.
Key skills and experience
•
• Workforce dynamics experience
Extensive speciality retailing business experience
External appointments
Non-Executive Director of Vera Bradley Inc., Totes Isotoner and
Regent Holding and an industry executive for Freeman Spogli, a
US private equity firm specialising in retail and consumer
brands. Previously Fran worked for The Gap, Williams-Sonoma
and The Nature Company, and LL Bean, where she initially
served as Director of Product Development, Home Furnishings
going on to hold a number of roles including Vice President,
Affiliated Brands, before becoming Chief Merchandising Officer
until her retirement.
Qualifications
Fran has a degree in English and Sociology from Bowdoin
College, Maine, and an MBA from the Harvard Business School.
See the People section on page 25 for more information about
workforce engagement.
Alan Rosling, CBE
A R N
1 Date of appointment to Coats Group plc
Position
Nationality
Tenure
Independent Non-Executive
Director, Chairman of the
Digital Advisory Council
British/Irish
Appointed 2 March 20151
Key skills and experience
•
International business experience across a diverse range
of sectors including textiles and Government
•
Start-up and technology insights
External appointments
Chairman of Griffin Growth Partners, Director of Insolight SA,
Peotic Technologies and Vyome Therapeutics Inc. Co-founder
and director of ECube Investment Advisors. Previously Executive
Director of Tata Sons Limited, Chairman of the Jardine
Matheson Group in India, Strategy Development Director at
United Distillers, co-founder of Kiran Energy Solar Power, a
member of The Policy Unit at No. 10 Downing Street. He was
CEO of Piersons, a division of Courtaulds Textiles, and an
investment banker with S.G. Warburg & Co.
Qualifications
Alan has an MA in History from the University of Cambridge
and an MBA from the Harvard Business School.
You can read more about the DAC on page 55.
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CORPORATE GOVERNANCE REPORT
Leadership and engagement
The Board
The Board is collectively responsible for the long-term success of the Group and for ensuring leadership within a framework of
effective controls. The key roles of the Board are:
•
•
•
providing entrepreneurial leadership within a framework of prudent and effective controls which enables risk to be assessed
and managed;
overseeing implementation of the strategy by ensuring that the Group is suitably resourced to achieve its strategic aspirations;
setting the strategic direction of the Group;
•
•
ensuring that the necessary financial and human resources are in place for the Group to meet its objectives; and
setting the Group’s culture supported by its values.
Chairman
•
Primarily responsible for overall
operation, leadership and
governance of the Board.
•
•
•
Leads the Board, sets the agenda
and promotes a culture of open
debate between Executive and non-
Executive Directors. Ensures that
there is a focus on Board succession
plans to maintain continuity of
skilled resource.
Provides advice and acts as a
sounding board.
Ensures effective communication
with our shareholders.
Committees
Audit and Risk Committee
• Oversees and monitors the
Company’s financial statements,
accounting processes and audits
(internal and external).
•
•
Ensures that risks are carefully
identified and assessed, and that
sound systems of risk management
and internal control are in place.
Reviews matters relating to fraud
and whistleblowing reports
received.
Senior Independent Director
Non-Executive Directors
•
•
Provides a sounding board to the
Chairman.
Leads the appraisal of the
Chairman’s performance with the
other Non-Executive Directors
annually.
• Acts as intermediary for other
Directors, if needed.
• Available to respond to shareholder
concerns if contact through the
normal channels is inappropriate.
• Contribute to developing our
strategy.
•
•
Scrutinise and constructively
challenge the performance of
management in the execution of
our strategy.
Bring their diverse expertise to the
Board and Board Committees.
Remuneration Committee
Nomination Committee
•
•
Reviews the structure, size and
composition of the Board and its
Committees.
Identifies and nominates suitable
executive candidates to be
appointed to the Board and reviews
the talent pool.
• Considers wider elements of
succession planning below Board
level, including diversity.
•
Reviews and recommends the
framework and policy for the
remuneration of the Chairman, the
Executive Directors, the Company
Secretary and senior executives in
alignment with the Group’s reward
principles.
•
Reviews workforce remuneration
and related policies and alignment
of incentives and rewards with
culture, to help inform setting of
Directors’ remuneration policy.
• Consults with shareholders on the
remuneration policy.
• Considers the business strategy of
the Group and how the
remuneration policy reflects and
supports that.
See page 59 for more information
See page 70 for more information
See page 64 for more information
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CORPORATE GOVERNANCE REPORT
CONTINUED
Other committees
Group Executive Team (GET)
The GET is responsible for the
operational delivery of the Group’s
strategy. This includes day-to-day
management of operations and
responsibility for monitoring detailed
performance of all aspects of our
business.
See below for more details on the
members and their individual roles and
responsibilities.
Disclosure Committee
The Disclosure Committee oversees the
Company’s compliance with its
disclosure obligations. The Committee is
chaired by Group Chief Executive and its
other members are Chief Financial
Officer and the Group Company
Secretary.
Digital Advisory Council (DAC)
The DAC advises on how to enhance
the Digital and Technology strategy and
its execution and provides input and
insights to the Board and GET on
emerging technology, digital business
and change management. It has no
formal decision-making authority. See
page 55 for more information.
GET members roles and responsibilities
Group Chief Executive
•
• Delivers strategic and commercial objectives within the Board’s stated risk
Responsible for executive management of the Group as a whole.
appetite. See page 31 for more detail on key risks.
Responsible for fiscal control.
Chief Financial Officer
•
•
Leading the finance management teams.
• Overseeing Coats’ relationships with the
•
Builds positive relationships with all the Group’s stakeholders (see page 19).
investment community.
Ronan Cox, President,
Performance Materials
•
Responsible for delivering the
overall strategy for Performance
Materials, including commercial
activities and developing talent.
Sector review is on page 41.
Hizmy Hassen, Chief Digital
and Technology Officer
• Global responsibility for technology
including leading on digitising
Coats’ customer facing interactions.
You can read more about this on page
55.
Adrian Elliott, President,
Apparel and Footwear
•
Responsible for delivering the overall
strategy for A&F, including the
development and delivery of value adding
products and customer propositions.
Sector review is on page 40.
Kevin Finn, President, Business
Operations
• Global accountability for business
operations which include inclusive
working environment and robust
business controls across the
geographic clusters.
Monica McKee, Chief Human
Resources Officer
•
Responsible for delivering the Coats
global HR strategy.
Stuart Morgan, Chief Legal & Risk
Officer and Group Company Secretary
•
Responsible for legal and compliance,
governance, risk management,
communications and company
secretarial matters. He has oversight of the
Group Internal Audit function.
You can read more about the Group Internal
Audit function’s work during the year on page
62.
Michael Schofer, Chief Supply
Chain Officer
•
Leads the supply chain business
with responsibility for procurement,
manufacturing, logistics and the
programme to digitise Coats’
supply chain.
Our seven geographic Clusters are led by a Cluster Managing Director, who report into the GET, supported by a Cluster Management
Committee.
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CONTINUED
Council members
Name
Member since
Alan Rosling (Chairman)
David Gosnell
Hizmy Hassen (GET)
2018
2018
2018
In addition, there are two external members; Celso
Guiotokois, the former CIO of an automotive OEM, and
Srikanth Velamakanni, a digital entrepreneur who has
founded a leading company in data analytics. The DAC is
advised by Gartner who are permanent invitees. An
additional GET member, invited on a rotating basis, also
attends meetings. The DAC meets four times a year.
Principal objective of the Digital
Advisory Council
The Council exists to provide the executive team and Board
guidance on strategic direction, commercial and leadership
on advancing the company’s digital transformation. It helps
to ensure that the business embraces modern technology to
remain competitive and address the risk of competition.
Key responsibilities
•
Providing guidance on strengthening the organisation’s
commercial position while ensuring it will be digitally
enabled, data driven, and cyber ready.
• Making introduction to leading entrepreneurs,
technology talent networks, potential investments &
partnerships.
•
Providing insight as to how the company may drive
business value from digital assets and stay in front of
digital trends.
• Considering ways to improve to drive digitisation into
existing business processes.
•
•
Further strengthening relationships with leading
organisations.
Reviewing the Group’s digital strategy and ensuring this
aligns with the digital programme.
The Digital Advisory Council (DAC) was formed in 2018 to
consider our Digital and Technology strategy and its execution
to ensure the appropriate expertise and focus in this area by
harnessing focused external expertise. The Board is updated on
the DACs activities by Alan Rosling.
Digital transformation is about leveraging data to build a
smarter business.
Lead with
disruption
Explore new
revenue streams
Transform the
customer
experience
Build better
products faster
Eliminate
inefficiencies,
increase
productivity
Key factors for a successful digital transformation
Goal
Key factors
New business
+
Re-engineer
current business
1. Customer focus
2. Transform current
business operation
Strategic
programme
Business value
innovation
Shift to data
driven
technology
platform
3. By utilizing the data
lake, gain insights and
drive relevant actions to
be a true data driven
organisation
Digital technology
platform
People, process
and culture
transformation
4. Speed and continuous
improvement
5. Challenge mindset
Information
systems agility
and quality
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CORPORATE GOVERNANCE REPORT
CONTINUED
Board activities
Focus area
Key
stakeholders
Activities
• Applying the Board’s strategic understanding of geopolitical and
economic risks in international markets to the Company’s challenges.
• Consider acquisitions and divestments as identified and determine
appropriate course.
Link to
strategic
priorities
Strategy and
operations
See Strategic
Report starting
on page 1
Employees and
culture
See page 25 of
the Strategic
Report
Finance
See page 44 of
the Strategic
Report
Governance
See page 47 of
the Governance
Report
Profitable sales growth
Increased productivity
Delivering value
Received an update on employee views and engagement.
•
• Designated non-executive director attended meetings with employees on
•
culture.
Ensure the Company remains at the forefront of developing and
embedding best practice in responsible business behaviour.
• Maintain and enhance Coats’ culture and values and key policies and
procedures and ensure these are rolled out to existing and acquired
businesses.
• Continue to monitor senior executive talent management and
development plans to provide succession for all key positions.
Reviewed and approved the Group budget.
•
• Approved full year results, half year results, trading update and the
•
•
•
Annual Report.
Reviewed financial Key Performance Indicators (KPIs).
Reviewed the Group’s dividend policy.
Reviewed the key risks to the Group and the controls in place for their
mitigation.
• Considered and monitored the Group’s risk appetite and principal risks
and uncertainties.
• Approved the viability and going concern statements.
•
Reviewed and approved the tax strategy.
Reviewed and approved the Modern Slavery statement.
Reviewed the results from the external Board effectiveness evaluation.
•
•
• Approved updated Committees’ terms of reference.
• Approved a new Board Diversity Policy.
• Continued to keep key policies updated and monitor ongoing
compliance.
Received and considered feedback from shareholder engagement.
•
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CORPORATE GOVERNANCE REPORT
CONTINUED
Board and Committee attendance
Mike Clasper
Rajiv Sharma
Simon Boddie
Nicholas Bull
Mike Allen1
Anne Fahy
David Gosnell
Echo Lu
Fran Philip
Alan Rosling
Board
11/11
11/11
11/11
11/11
4/5
11/11
11/11
10/11
10/11
11/11
Audit and Risk
Nomination
Remuneration
AGM
-
-
-
5/5
-
5/5
5/5
-
-
5/5
3/3
3/3
-
3/3
1/1
3/3
3/3
3/3
3/3
3/3
-
-
-
-
2/2
-
4/4
4/4
4/4
4/4
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1. Mike Allen stepped down from the Board on 23 May 2019.
In addition to the eight Board meetings, three Board calls were held to discuss business matters that the Chairman and Group Chief
Executive decided should be considered by the Board.
All Directors received papers for all meetings. Where Directors were unable to attend a meeting they had the opportunity to comment in
advance and received a briefing on any decisions taken. Mike Allen, Echo Lu and Fran Philip were unable to participate in the Board call
in February 2019 due to prior business commitments.
In addition to the scheduled meetings, the Senior Independent Director and the Non-Executive Directors meet once a year without the
Chairman present in order to appraise his performance. The Chairman and the Non-Executive Directors schedule one Board dinner
without the Executive Directors present.
Board evaluation
Formal evaluation is a valuable tool for improvement. With internal evaluations having been carried out in each of the last two years, an
external evaluation of the Board and its Committees was conducted during 2019 in keeping with the guidance provided under the UK
Corporate Governance Code. Following a tender process run by the Chief Legal & Risk Officer and Group Company Secretary in
consultation with the Chairman and the Senior Independent Director, Independent Audit Ltd was appointed, a specialist consultancy
which undertakes no other business for the Company and has no links with any individual Director. A formal assessment process was
undertaken and the Chairman, together with the Chief Legal & Risk Officer and Group Company Secretary, provided a comprehensive
briefing to Independent Audit Ltd.
Observation and
questionnaire
Evaluation
and report
Discussion and
action plan
The Board evaluation process
The review was conducted from September to November 2019. As part of the process Independent Audit Ltd attended and observed a
Board meeting and were given access to Board papers to enhance their understanding of how the Board and its Committees operate.
Views were gathered using Independent Audit’s online governance platform, Thinking Board. A questionnaire was tailored to Coats’
needs and covered the Board’s role, composition, dynamics, chairmanship and access to information. Separate Committee questionnaires
were used which looked in detail at all the major aspects of the Committees’ responsibilities.
The questionnaires were completed by all Board members and executives attending the Board and/or Committees on a regular basis (24
individuals). Independent Audit analysed the results and prepared a report, combining their observations with the views of questionnaire
respondents. The report was discussed with the Chairman, Senior Independent Director and Chief Legal & Risk Officer and Group
Company Secretary and no material revisions were made. It was then distributed to the Board and Board Committees and was discussed
at the December Board and Board Committee meetings. Independent Audit attended to give an overview of the results and answer
directors’ questions.
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CORPORATE GOVERNANCE REPORT
CONTINUED
Outcomes
The review noted many areas of strength of the Board and Committees, including:
•
•
•
•
•
clear contribution to development of strategy;
strong oversight of the major risks and uncertainties facing the business;
good focus on compliance and the control framework;
a diverse Board composition, covering a relevant range of skillsets and backgrounds; and
trust and openness between Board members with effective chairing of both Board and Committee meetings.
Areas which emerged for the Board’s future development of management succession planning were:
•
•
•
deeper development of the succession planning process to meet the future needs of the business;
greater focus on talent development within the senior management population to identify potential internal successors; and
further understanding of how technology can be utilised to contribute to strategic development.
Action plan
Recommendation
Management succession planning and talent development During the quarterly People updates to the Board, carry out
deeper dives on succession planning and talent development,
career mapping, development programmes, gender diversity and
recruiting and developing talent for the future versus the present.
Strategy
Working with the DAC, improve understanding of how
technology underpins the strategy, particularly in driving
transformation of the customer experience and supply chain.
‘GOOD GOVERNANCE HELPS ENSURE WE DO THE RIGHT THINGS FOR OUR
KEY STAKEHOLDERS AND DO THINGS IN THE RIGHT WAY. IT IS NOT ONLY
THE RESPONSIBILITY OF THE BOARD, BUT ALSO IS CONSISTENT WITH OUR
VALUES. ‘DOING THE RIGHT THING’ IS OUR KEY GUIDING PRINCIPLE, AND
IS AN IMPORTANT PART OF OUR VALUES.’
ECHO LU,
NON-EXECUTIVE DIRECTOR
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AUDIT AND RISK COMMITTEE REPORT
Dear Shareholder,
On behalf of the Audit and Risk Committee, I am pleased to
present its Report for the year ended 31 December 2019. This
report sets out how the Committee has discharged its duties in
accordance with the UK Corporate Governance Code 2018
(2018 Code) and its key activities and findings during the year.
We have continued to discuss and challenge the assumptions
and judgments made by management in the preparation of
published financial information and to oversee the internal
controls, including oversight of the external and internal audit
functions.
The Committee has an annual work plan linked to the Group’s
financial reporting cycle, which ensures that it considers all
matters delegated to it by the Board. In addition to its annual
work plan, it reviewed Treasury controls and policy and the
potential risks to internal controls from the organisational
change in moving from countries to cluster and group
functional structure and considered the adequacy of mitigations
put in place by management.
The Committee considers all accounting policy changes and
approved the methodology for implementation of IFRS 16
‘Leases’. The Committee also reviewed and recommended to
the Board the revised segmental reporting adopted in 2019
arising from the disposal of the North America Crafts business.
During 2020, in addition to carrying out its ongoing
responsibilities the Committee is intending to conduct an
external audit tender with the intention of making a
recommendation to the Board on the appointment of new
auditors for 2021. You can read more about this on page 63.
This year the Board undertook an externally-facilitated
effectiveness review of the effectiveness of the Board and
Board Committees, including this Committee, in accordance
with the requirements under the Code and you can read more
about this on page 57.
Anne Fahy
Chairman, Audit and Risk Committee
4 March 2020
Committee members
Name
Anne Fahy (Chairman)
Member since
2018
Nicholas Bull
David Gosnell
Alan Rosling
2015
2015
2015
Principal objectives of the Audit
and Risk Committee
•
•
To monitor the integrity of the Group’s financial
reporting processes.
To ensure that risks are carefully identified and assessed,
and that sound systems of risk management and
internal control are in place.
Key responsibilities
• Oversee the accounting principles, policies and practices
adopted in the Group’s accounts.
• Oversee the external financial reporting and associated
announcements.
• Overseeing the appointment, independence,
effectiveness and remuneration of the Group’s external
auditor, including the policy on the supply of non-audit
services.
• Conducting a competitive tender process for the
external audit when required.
•
•
Reviewing the resourcing, plans and effectiveness of
Internal Audit, which is independent from the Group’s
external auditor.
Ensuring the adequacy and effectiveness of the internal
control environment.
• Monitor the Group’s risk management processes and
performance.
•
•
•
Ensure the establishment and oversight of fraud
prevention arrangements and reports under the
whistleblowing policy.
Ensure the Group’s compliance with the 2018 UK
Corporate Governance Code.
Provide advice to the Board on whether the Annual
Report and accounts, when taken as a whole, is fair,
balanced and understandable and provides all the
necessary information for shareholders to assess the
Company’s performance, business model and strategy.
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AUDIT AND RISK COMMITTEE REPORT
CONTINUED
Membership and Meetings
During the year, the Committee met four times and met
privately with the external auditor once. Details of individual
Directors’ attendance can be found on page 57. In addition to
the Committee members, the Group Chief Financial Officer, the
Chief Legal & Risk Officer and Group Company Secretary, the
Group Financial Controller, the Senior Financial Reporting
Manager, the Head of Group Internal Audit, and the external
auditor attended parts of these meetings by invitation. The
Group Chairman and Group Chief Executive may also attend
meetings. The Head of Secretariat acts as Secretary to the
Committee. The Chairman of the Committee holds regular
meetings with both internal and external auditors, and each has
an opportunity to discuss matters with the Committee without
management being present.
Meetings of the Committee are scheduled close to the end of
the half and full year, as well as before the publication of the
associated half and full year financial reports, so as to ensure
the Committee is informed fully, and on a timely basis, on areas
of significant risks and judgement.
The Committee received sufficient, reliable and timely
information from management to enable it to fulfil its
responsibilities.
The Board has confirmed that it is satisfied that Committee
members possess an appropriate level of independence and
depth of financial and commercial, including sectoral, expertise.
For the financial year ended 31 December 2019, Anne Fahy and
Nicholas Bull were the members of the Committee determined
by the Board as having recent and relevant financial experience.
Going concern and viability statements
The Committee reviewed the updated wording of the Group’s
longer-term viability statement, set out on page 39. To do this,
the Committee ensured that the model used was consistent
with the approved Business Plan and that scenario and
sensitivity testing aligned clearly with the principal risks of the
Group. Committee members challenged the underlying
assumptions used and reviewed the results of the detailed work
performed. The Committee was satisfied that the analysis
supporting the viability statement had been prepared on an
appropriate basis. The Committee also reviewed the going
concern statement, set out on page 67 and confirmed its
satisfaction with the methodology including appropriateness of
sensitivity testing.
Fair, balanced and understandable
The Committee considered whether the Annual Report is ‘fair,
balanced and understandable’, in line with the requirements of
the 2018 Code. The Committee members were consulted at
various stages during the drafting process and gave input to the
planning process, as well as having the opportunity to review
the Annual Report as a whole and discuss, prior to the February
2020 Committee meeting, any areas requiring additional clarity
or better balance in the messaging.
In this respect the Committee focused on ensuring consistency
and completeness in non-financial reporting (for example ESG),
use of alternative performance measures, progress on
Connecting for Growth and principal risks and uncertainties.
On the basis of this work together with the views expressed by
the external auditor, the Committee recommended and, in turn
the Board confirmed, that it could make the required statement
that the Annual Report is ‘fair, balanced and understandable’.
‘CONSTRUCTIVE CHALLENGE FROM
THE BOARD EXPANDS THE
EXECUTIVE TEAM’S PERSPECTIVE
AND ENSURES THAT ISSUES ARE
DISCUSSED AND REVIEWED
THROUGH DIFFERENT LENSES.
EXPERIENCES FROM DIFFERENT
INDUSTRIES CAN ENABLE A BETTER
OUTCOME.’
RAJIV SHARMA,
GROUP CHIEF EXECUTIVE
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CONTINUED
Significant issues relating to the financial statements
The Committee considered the following issues relating to the financial statements during the year. These include the matters relating to
risks disclosed in the external auditor’s report:
Issue
Review and conclusion
Pension matters – valuation of
obligations and disclosure
US legacy environment provision
Taxation
At 31 December 2019, the Group’s IAS19 Pension deficit was $181.3 million. The Committee
reviewed the methodology for determining key assumptions underpinning the valuation of
liabilities of the Group’s most significant pension schemes. The Committee also reviewed in
detail the various aspects of the continuing obligations to the Group’s ongoing schemes.
The Committee is satisfied that these, and the disclosures provided in note 10 to the financial
statements are appropriate.
The Group has recognised a provision, net of insurance reimbursements, of $14.6 million in
respect of remediation and legal / professional costs for the Lower Passaic River. The
Committee considered at length management’s position on the accounting and disclosure
implications surrounding this environmental case, taking into account advice received from
external counsel Sive Paget & Riesel P.C.. Following the delivery of the US Environmental
Protection Agency’s Record of Decision in March 2016, the Committee has continued to
review whether subsequent events, including those impacting other parties considered to
be responsible for the most significant contamination in the river, triggered the requirement
to re-measure the level of remediation provisioning previously established. The Committee is
satisfied that there is no requirement to re-measure the remediation provision at
31 December 2019 and that the disclosures provided in note 28 to the financial
statements are appropriate.
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. In addition to reviewing the Group’s underlying
effective tax rate, which has reduced from 31% to 29%, the Committee also considered the
Group’s uncertain tax provisions which amount in total to $14.1 million. The Committee is
satisfied with the approach and disclosures adopted by management as reflected in the
financial statements in note 9 to the financial statements.
The Committee also received regular updates from Chief Legal & Risk Officer and Group Company Secretary on provisions made for
litigation and tax matters and the Committee considered the appropriateness of the methodology applied.
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AUDIT AND RISK COMMITTEE REPORT
CONTINUED
Internal control and risk management
The Board has overall responsibility for determining the nature
and extent of its principal and emerging 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 33 to 37. The Board has delegated to the Committee
the responsibility for monitoring the effectiveness of the
systems of risk management and internal control.
The Committee receives reports from management, Internal
Audit and the external auditor relating to the effectiveness of
the control environment. During the year, the Committee
specifically looked at the treasury controls and policy and
reviewed the impact of the changes arising from a
cluster/function structure. The Committee and the Board are
satisfied that these systems operate effectively in all material
respects with weaknesses remediated in a timely fashion.
The Committee reviews the minutes of the Group Risk
Management Committee meetings regularly, and discusses
matters arising therefrom with management.
Internal audit
The Head of Group Internal Audit agrees the Internal Audit
department’s programme of work annually in advance with the
Committee. At each Committee meeting, the Committee
reviews key findings from internal audit reports, receives
detailed reports from management where appropriate, and
monitors the rate at which actions agreed with management
are implemented. The Committee carries out an annual internal
review of the effectiveness of the Internal Audit function to
satisfy itself that the quality, experience and expertise of the
function is appropriate for the business. Key themes considered
in the internal audit reports throughout the year included
checking for any impact of changes to management oversight
of certain operations following the move to a cluster structure,
as a result of the Connecting for Growth global transformation
programme and reviewing the reasons behind the increase in
whistleblowing reporting (noting the continuing year on year
downward trend in the uphold rate) (see page 67 for more
detail on our whistleblowing policy and how it operates)
including ascertaining reasons for control weaknesses
highlighted during an investigation and the adequacy of control
measures implemented as a result of these investigations. In
2019, the Committee has also focused on supporting
management’s re-enforcement of control systems for
regulatory compliance, notably in India and Central America.
The Head of Group Internal Audit also consolidated and
presented to the Committee a biannual review of in-country
operational risks, which included a summary of any new risks
that have arisen in the period with agreement on appropriate
actions and interventions.
External audit
Independence
The Committee is responsible for reviewing the independence
of the Company’s external auditor, Deloitte LLP, agreeing the
terms of engagement with them and the scope of their audit.
Deloitte has a policy of partner rotation, which complies with
regulatory standards, and, in addition, Deloitte has a structure
of peer reviews for its engagements, which are aimed at
ensuring that its independence is maintained.
Maintaining an independent relationship with the Company’s
external auditor is a critical part of assessing the effectiveness of
the audit process. The Committee has agreed the Company’s
policy on non-audit fees, and this was reviewed by the
Committee during the year ended 31 December 2019. The
Committee also regularly reviews the level of audit and non-
audit fees paid to Deloitte. The key principles of the policy on
non-audit services are:
•
The Committee has approved a list of all permitted non-
audit services which are allowed under UK statutory
legislation and complies with the European Union Directive
on audit and non-audit services. Permitted services include
audit-related services such as reviews of interim financial
information or any other review of accounts required by
law to be provided by the auditor.
•
•
The list includes certain tax compliance services for Group
subsidiaries incorporated outside the European Union.
The Committee has approved a list of prohibited services
which include services remunerated on a success fee or
participation in activities normally undertaken by
management.
• Any service that is not on the list of permitted services,
if in excess of US$25,000, requires the approval of the
Committee.
During 2019, the external auditor provided services in relation
to the Group’s interim results and tax advisory services outside
the European Union. The external auditor has confirmed to the
Committee that they did not provide any prohibited services
and that they have not undertaken any work that could lead to
their objectivity and independence being compromised.
The non-audit services supplied by the external auditor can be
found in note 5 of the financial statements. The ratio is 76/24
audit to non-audit services. The non-audit services primarily
relate to tax compliance and advisory services in India and the
Committee considered and approved a proposal for the
external auditor to continue these works in India. In the case of
each engagement, it was considered appropriate to engage
Deloitte LLP for the work because of their existing knowledge
and experience from prior Group engagements. The Committee
discussed with, and received confirmation from, the external
auditor that the audit team have not relied on the work
performed by their tax teams as part of the audit and their
objectivity and independence has been safeguarded.
The lead partner is rotated every five years. Ed Hanson was
appointed as the lead audit engagement partner in 2018.
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Looking forward
As well as the regular cycle of matters that the Committee
schedules for consideration each year and conducting the audit
tender, we are planning over the next 12 months to:
• Continue to monitor legislative and regulatory changes
that may impact the work of the Committee.
• Consider the impact of proposed audit industry changes.
• Consider a wider range of topics for Committee training.
The Committee’s report was approved by a Committee of the
Board of Directors on 4 March 2020 and signed on its behalf
by:
Anne Fahy
Chairman, Audit and Risk Committee
4 March 2020
Consideration of Audit tender
The UK Corporate Governance Code recommends that FTSE
350 companies put their external audit provider out to tender
at least once every ten years. The EU Audit Regulation, effective
across all Member States from the 17 June 2016, enforces
mandatory audit firm rotation after a period of maximum
tenure, set at 20 years. Deloitte LLP was appointed the
Company’s external auditor in 2003 and therefore a new audit
firm must be appointed for the year ending 31 December 2023
at the latest. The Board intends on undertaking a competitive
tender process for the external audit during 2020, with the
intention of the Board appointing a new audit firm for the year
ended 31 December 2021.The tender process will consider Big
Four as well as non-Big Four audit firms. There are no
contractual obligations that restrict the Company’s choice of
external audit firm but the restrictions on audit rotation as set
out in the EU Audit Regulation preclude Deloitte from the
tender process.
Assessment of audit process
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.
In respect of the financial year ended 31 December 2019, the
Committee assesses the performance and effectiveness of the
external auditor, as well as their independence and objectivity,
on the basis of meetings and a questionnaire-based internal
review which was completed by the Committee members,
regular attendees to the Committee and those Coats colleagues
globally who interact most frequently with the external auditor.
The summary of the results of the questionnaire has been
reviewed by the Committee and appropriate feedback has been
shared with the external auditor. The Committee is satisfied
that it can recommend to the Board that the Board should
propose to shareholders the reappointment of Deloitte LLP as
auditor for the year ending 31 December 2020.
Assessment of the effectiveness of the Committee
The Committee effectiveness in respect of the year ended
31 December 2019 was evaluated as part of the external review
undertaken by Independent Audit Ltd, described on page 57.
The key issues that were identified in the previous year’s
assessment were discussed by the Committee to ensure these
were adequately addressed and the Chairman provided an
update where appropriate.
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NOMINATION COMMITTEE REPORT
Committee members
Name
Mike Clasper (Chairman)
Member since
2014
Rajiv Sharma
Nicholas Bull
Anne Fahy
David Gosnell
Echo Lu
Fran Philip
Alan Rosling
2015
2015
2018
2015
2017
2016
2015
Principal objective of the Nomination
Committee
To make sure the Board comprises individuals with the
necessary skills, knowledge and experience to ensure that it
is effective in discharging its responsibilities and has
oversight of all matters relating to corporate governance.
Key responsibilities
•
Reinforcing the culture and diversity expertise in the
Board’s and senior management team’s composition
and maintaining ongoing succession plans.
• Considering ways to improve diversity in the pipeline for
senior management roles.
•
•
Further strengthening of the senior management team.
Reviewing the Group’s talent management process.
‘WHEN THINKING ABOUT NEW
APPOINTMENTS, THEY SHOULD HAVE
INTEGRITY, AUTHENTICITY, A TRACK
RECORD OF DELIVERY AND
STRATEGIC VISION. FOR THE
NOMINATION COMMITTEE THE
CHALLENGE IS HOW DO WE
MAINTAIN THE BALANCE OF TEXTILE
KNOWLEDGE, GEOGRAPHICAL
KNOWLEDGE AND BOARD
EXPERIENCE ON THE BOARD.’
DAVID GOSNELL,
NON-EXECUTIVE DIRECTOR
Dear Shareholder,
The following Nomination Committee Report summarises our
work over the past year and I am pleased to update you on the
matters that we have considered. This year, the focus of the
Committee continues to be on Board composition and
succession planning matters.
During the year, the Committee continued to focus on the
combined skillset and capabilities of the directors to ensure
their effectiveness in driving our strategy forward. It also
continued to fulfil its core responsibilities of reviewing the
structure of the Board and Committees.
Board diversity policy
Our objective of driving the benefits of a diverse Board, senior
management team and wider workforce is underpinned by our
Board Diversity Policy (the Policy), which can be viewed on our
website. The Board will continue to keep the Policy under
review to ensure that it remains an effective driver of diversity
in its broadest sense, having due regard to gender, ethnicity,
social background, skillset and breadth of experience.
Diversity and inclusion have continued to be promoted across
the business with a number of initiatives, including education
and capacity building, resource groups, talent acceleration and
development and leveraging data and analytics to help achieve
our ambitions. You can read more about the work that has
been done in this area and the benefits they bring to the Group
on page 26.
The Committee has focused on these areas for a number of
years and will continue to consider the various diversity factors
set out in the UK Corporate Governance Code 2018 (the 2018
Code) and the Hampton-Alexander and Parker Reports
appropriately. We have 33% female representation on the
Board and have two ethnic minority Directors. You can see
more information on the gender split across the Board, senior
management team and the Group as a whole on pages 50-52.
Skills matrix
Building the right Board for the Group and the right pipeline
means the Committee needs to ensure a good balance of
competencies to address the challenges faced as they arise.
The Committee considers the experience, skills, attributes and
capabilities of existing Board members and challenges the skills
matrix in the talent pool. It routinely:
•
Reviews the competencies and skills the Board, as a whole,
should possess;
• Assess what competencies and skills each incumbent
director possesses; and
• Considers the character of directors and their fit with the
current Board culture, looking at wider attributes including
self-awareness, integrity and high ethical standards.
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Board Director induction programme example
•
•
Training on ethics and
other topics
Briefed on outcomes of most
recent effectiveness review
• Meeting with investors
• Meeting with employees
during sit visits
• Meeting with key customers
Effectiveness
Leadership
/
• Meeting senior executives
•
Site visits
Accountability
Relations with
stakeholders
•
•
Information on the Group
budget and strategy
Last Annual Report
Succession planning
The Committee, on behalf of the Board, regularly assesses the
balance of Executive and Non-Executive Directors, and the
composition of the Board in terms of skills, experience, diversity
and capacity. As I mentioned in my Chairman’s letter on page
47, Alan Rosling will be standing down after the AGM on 20
May 2020 and on behalf of the Board, I would like to thank
Alan for his valuable contribution to Board discussions.
We are in the process of recruiting a new Non-Executive
Director. A role specification has been agreed with Russell
Reynolds Associates, an external agency which undertakes no
other business for the Company and has no links with any
individual Director. Candidates are being interviewed by a
number of the Executive and Non-Executive Directors and then
the Committee will then make a recommendation to the Board.
When making decisions on new appointments, Board members
consider the skills, experience and knowledge already
represented on the Board and the benefits of diversity, in all its
forms including gender and ethnicity.
The Committee has continued to monitor the Group Executive
Team (GET) and senior management talent pool to ensure that
succession planning for business-critical roles is proactively
reviewed. The Board considered the implications of the new
requirements relating to the development of a diverse pipeline
for succession for the Board and the GET contained within the
2018 Code.
Independence
During 2019, the Committee reviewed the balance of skills,
experience and independence of the Board. For Non-Executive
Directors independence in thought and judgment is vital to
facilitating constructive and challenging debate in the
boardroom and is essential to the operational effectiveness of
the Coats Board and its committees.
The Committee is satisfied that the external commitments of its
Chairman and members do not conflict with their duties as
Directors of the Company.
Committee performance and effectiveness
The Committee’s performance was evaluated as part of the
external effectiveness survey carried out by Independent Audit
Ltd, as described on page 57. The review was completed by all
Committee members and routine meeting attendees. A deeper
dive into succession planning was recommended. The
Committee agreed that this should be addressed by the full
Board.
Mike Clasper
Chairman, Nomination Committee
4 March 2020
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DIRECTORS’ REPORT
Coats Group plc (the Company) is the holding company of the
Coats group of companies (the Group).
Annual General Meeting
The Annual General Meeting (AGM) of the Company will be
held on Wednesday, 20 May 2020 at 2.30pm at FTI Consulting,
200 Aldersgate, London EC1A 4HD.
Corporate Governance statement
The Corporate Governance statement, prepared in accordance
with rule 7.2 of the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules, comprises of the following
sections of the Annual Report: the ‘Strategic Report’; the
‘Corporate Governance Report’; the ‘Audit and Risk Committee
Report’; the ‘Nomination Committee Report’; the
‘Remuneration Committee Report’; together with this Directors’
Report. As permitted by legislation, some of the matters
required to be included in the Directors’ Report have been
included in the Strategic Report by cross reference including
details of the Group’s financial risk management objectives and
policies, business review, future prospects and environmental
policy.
Directors
The names and biographical details of the current Directors are
shown on pages 50 to 52 of this Annual Report. Particulars of
their emoluments and beneficial and non-beneficial interests in
shares are given in the Directors’ Remuneration Report on page
79 and 80.
The appointment and removal of Directors is governed by the
Company’s Articles of Association, the 2018 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 2018
Code, all Directors, with the exception of Alan Rosling who is
not standing for re-election, will retire and submit themselves
for re-election at the forthcoming AGM.
Directors Powers
The Board manages the business of the Company under the
powers set out in the Company’s Articles of Association. These
powers include the Directors’ ability to issue or buy back shares.
Shareholders’ authority to empower the Directors to make
market purchases of up to 10% of its own ordinary shares is
sought at the AGM each year (as set out in the Share Capital
section below). The Company’s Articles of Association can only
be amended, or new Articles adopted, by a resolution passed
by shareholders in a general meeting by at least three quarters
of the votes cast.
Further discussion of the Board’s activities, powers and
responsibilities appears within the Corporate Governance
Report on pages 53 and 56 of this Annual Report. Information
on compensation for loss of office is contained in the Directors’
Remuneration Report on page 87 of this Annual Report.
Directors’ conflicts of interests
The Company has procedures in place for managing conflicts of
interest. Should a Director become aware that they, or any of
their connected parties, have an interest in an existing or
proposed transaction with the Company, they should notify the
Board in writing or at the next Board meeting. Internal controls
are in place to ensure that any related party transactions
involving Directors, or their connected parties, are conducted
on an arm’s length basis. Directors have a continuing duty to
update any changes to these conflicts.
Directors’ indemnities
The Directors of the Company have entered into individual
deeds of indemnity with the Company which constitute
‘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 during the year. In
addition, the Company had Directors’ and Officers’ liability
insurance cover in place throughout the year.
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 to the financial
statements. The Company has one class of ordinary shares with
a nominal value of 5 pence each (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 144,011,000 (representing
approximately 10% of the Company’s issued shares as at the
latest practicable date before the publication of the notice of
the annual general meeting held in May 2019) of its own
Ordinary Shares was granted at the 2019 AGM. No shares were
purchased pursuant to this authority during the year.
Shareholder authority for the Company to allot Ordinary Shares
up to an aggregate nominal amount of £23,977,000 was
granted at the 2019 AGM. No shares were allotted pursuant to
this authority during the year. The issued share capital of the
Company at 31 December 2019 was approximately
£72,240,801 divided into 1,444,816,041 Ordinary Shares.
Since 31 December 2019, 1,234,543 new shares have been
issued as a result of the exercise of share options by the
Company’s share option scheme participants and the total
issued share capital at 4 March 2020 is 1,446,050,584
Ordinary Shares. The Company’s Ordinary Shares are listed on
the London Stock Exchange. The register of shareholders is held
in the UK.
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Substantial interests
Information provided to the Company pursuant to the Financial
Conduct Authority’s Disclosure Guidance and Transparency
Rules (DTRs) is published on a Regulatory Information Service
and on the Company’s website. The following information has
been received, in accordance with DTR 5, from holders of
notifiable interests in the Company’s issued share capital.
As at 31
December
2019*
As at 4
March
2020*
Nature
of holding
7.03%
7.03%
Indirect
5.31%
5.31%
Indirect
5.15%
5.15%
Direct
Kempen Capital
Management
N.V.
AXA Investment
Managers
Liontrust
Investment
Partners LLP
Blackrock Inc
-
5.01%
Indirect
* % holding based on total number of shares in issue at the time of respective notification.
The Company has not been notified of any other substantial
interests in its securities. The Company’s substantial
shareholders do not have different voting rights. The Group,
so far as is known by the Company, is not directly or indirectly
owned or controlled by another corporation or by any
government.
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 and US Private
Placement 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.
Political donations
No contributions were made to political parties during the year
(2018: £Nil).
Whistleblowing procedure
A whistleblowing, ethics and fraud report is a standing item on
the agenda at each Board meeting. Coats has a well-publicised
whistleblowing procedure, which can be found on our website.
This is designed to empower all employees, contractors and
anyone else who is aware of, suspects, or is concerned about
potential misconduct, illegal activities, fraud, abuse of assets or
other violations of Company policy / Ethics Code to report these
confidentially. ‘Doing the right thing’ and ways to raise
concerns was covered as part of the Global Ethics Day, held
each year in October.
During the course of the year ended 31 December 2019, there
were 119 whistleblowing concerns raised (2018: 99). Of these
concerns raised, following investigation 30% were upheld
(2018: 40%). In the case of substantiated concerns, disciplinary
action was taken whenever there was any evidence of
misdemeanour and training and enhanced controls were
implemented wherever appropriate.
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.
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(f).
Giving due consideration to the nature of the Group’s business
and taking account of the following matters: the financing
facilities available to the Group; the Group’s foreign currency
exposures; and also taking into consideration the cash flow
forecasts prepared by the Group and the sensitivity analysis
associated therewith, the Directors consider that the going
concern basis of accounting is appropriate for the Company
and the Group and the financial statements have been
prepared on that basis.
Concern is raised
via whistleblowing
procedure
Investigated by a team
independent of the relevant
operational business or
function
Findings are presented to
an appropriate member
of the GET
Appropriate remedial
actions are determined
Reports and outcomes are
reviewed by the Board
and the Audit and Risk
Committee
Remedial actions may
be recommended
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DIRECTORS’ REPORT
CONTINUED
Results and dividends
The results of the Group are shown on page 105 and
movements in reserves are set out in note 27 to the financial
statements.
On 28 May 2019 a final dividend in respect of 2018 of 1.16 US
cent per Ordinary Share was paid. In addition the Company
paid an ordinary interim dividend per share of 0.55 US cents on
15 November 2019 to shareholders recorded on the register on
25 October 2019.
The Company recommends to shareholders payment of a final
dividend of 1.30 US cents per share in respect of the year
ended 31 December 2019 on 26 May 2020 to shareholders
recorded on the register on 1 May 2020. The Ordinary Shares
will become ex-dividend on 30 April 2020.
Environmental matters
The Group Risk Management Committee (GRMC) agreed
during 2019 that climate change is included in the Group Risk
Register as a Principal Risk. This means that it is a Board level
issue and therefore that evaluation of risks and opportunities
and decisions on appropriate strategies and actions have board
oversight. The GRMC assesses risks and opportunities in detail
and makes recommendations to the Board for review and
decision.
The involvement of the Group in relation to the Lower Passaic
River matter is reported in the Principal Risks section of this
Annual Report and can be found on page 37. Further details
are contained in note 28 to the financial statements.
Greenhouse gas emissions
For the year ended 31 December 2019, Coats reported the following emissions:
Global tonnes of CO2e¹’²
Scope 1, Direct (Gas, Oil, Coal)
Scope 2, Indirect (Electricity)
2019
58.3
216.4
2018
64.5
223.9
2017
71.8
238.8
1. Based on IEA CO2 Emissions from Fuel Combustion location based factors for Scope 2 conversions, and the UK DEFRA GHG reporting guidance and factors for Scope 1 conversions.
2. Emissions reported are from energy consumption in our global operations, including continuing and discontinued operations for 2017. 2018 figures have been restated to remove the North America
Crafts business (sale completed on 20 February 2019), and to include Gotex and Patrick Yarn Mills
This represents a decrease of 4.8% versus 2018 total emissions on a like-for-like basis.
The methodology for Scope 1 direct emissions is to convert fuel consumed in kWh to GHG equivalent using 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 the IEA for all countries. Scope 2 emissions are therefore location
based. The resultant figures are then consolidated globally.
Greenhouse gas emissions intensity per unit of production (kg per kg of dyed or finished product)
2019¹
3.3
2018³’⁴
3.4
2017
4.3
2016
4.6
2015
4.5
Greenhouse gas emissions intensity per sales value (tonnes per million $ sales)
2019¹
198
2018³
204
2017
206
2016
219
2015
208
2014
5.1
2014
201
2013²
5.3
2013²
212
2012
5.6
2012
226
1. 2014 – 2019 reported figures are based on IEA location based conversion factors for Scope 2 emissions.
2. Scope 2 emissions for 2012 – 2013 continue to be calculated using DEFRA country level figures derived from IEA data.
3. All 2018 numbers, including sales, used for these have been restated compared to the 2018 report to exclude discontinued operations, accordingly the North America Crafts business (sale completed
on 20 February 2019) is excluded, and to include new acquisitions, Gotex and Patrick Yarns. 2019 and 2018 are therefore on a like-for-like basis
4. To reflect the increasing growth of the undyed yarn business in our company, from 2018 the production basis for these intensity calculations is based on finished production while for 2012-2017 it
continues to be based on dyed production
Further details can be found in the Corporate Responsibility section on pages 27 to 30 and in the separate Sustainability Report which
can be found on our website.
Auditor
A resolution to re-appoint Deloitte LLP as auditor will be
proposed at the 2020 AGM. A statement in respect of the
auditor, in accordance with Section 418 of the Companies Act
2006, has been included below.
Disclosure of information to the auditor
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are aware, there is no
relevant audit information of which the Company’s auditor is
unaware, and each Director has taken all reasonable steps to
ascertain any relevant audit information and to ensure that the
Company’s auditor is aware of that information.
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DIRECTORS’ REPORT
CONTINUED
Other information
Other information relevant to this Directors’ Report, and which
is incorporated by reference, including information required in
accordance with the UK Companies Act 2006 and Listing Rule
9.8.4R, can be located as follows:
Subject matter
Important events since the financial year-end
Page
172
Likely future developments in the business
Research and development
Information on financial instruments
Employment of disabled persons
Employee involvement
Stakeholder engagement
Information on branches
7
8
45
30
25
19
181
Diversity policy
* - also on our website
This Directors’ Report was approved by order of the Board.
On behalf of the Board
64 *
Stuart Morgan
Company Secretary
4 March 2020
Directors’ responsibilities
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 such 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 also chosen to prepare the parent
Company financial statements in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework. Under
company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period.
In preparing the parent Company financial statements, the
Directors are required to:
•
select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
•
•
state whether Financial Reporting Standard 101 Reduced
Disclosure Framework has been followed, subject to any
material departures disclosed and explained in the financial
statements; and
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
•
provide additional disclosures when compliance with the
specific requirements in IFRSs is 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 hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
•
the financial statements, prepared in 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 position, performance, business model and
strategy.
This responsibility statement was approved by the Board of
Directors on 4 March 2020 and is signed on its behalf by:
Rajiv Sharma
Group Chief Executive
4 March 2020
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REMUNERATION COMMITTEE REPORT
Committee members
Name
David Gosnell (Chairman)
Member since
2015
Echo Lu
Fran Philip
Alan Rosling
2017
2016
2015
Key objectives of the
Remuneration Committee
• Our main objectives are to have fair, equitable and
competitive reward packages that support our vision
and help ensure that rewards are performance-based
and encourage long term shareholder value creation.
Implementing the remuneration policy.
Key responsibilities
• Developing and approving the Remuneration Policy.
•
•
• Designing the incentive plans.
•
•
Ensuring the competitiveness of reward.
Setting incentive targets and determining award levels.
Review workforce remuneration and related policies and
the alignment of incentives and rewards with culture.
‘THE REMUNERATION COMMITTEE
REMAINS FIRMLY COMMITTED TO
THE PRINCIPLE OF PAY FOR
PERFORMANCE, ENSURING THAT
REWARDS FOR THE SENIOR
LEADERSHIP TEAM ARE ALIGNED
WITH THE EXPERIENCE OF LONG-
TERM SHAREHOLDERS.’
DAVID GOSNELL,
CHAIRMAN OF THE
REMUNERATION COMMITTEE
Dear Shareholder,
I am pleased to introduce the Directors Remuneration Report
for 2019. This report consists of two sections. The first section
is the Annual Report on Remuneration for 2019 and the second
section is a revised Remuneration Policy. Both sections of the
report will be the subject of a shareholder resolution at the
AGM on 20 May 2020.
Overview of 2019
The Group continues to make excellent progress in its
transformation and is creating a global platform for long term
sustainable growth. The Group’s second and third innovation
hubs were opened in Turkey and China following the opening
of the first hub in the United States in 2018. Coats’ teams are
working collaboratively with customers across the globe to
develop pioneering value adding products and services. During
2019 the Group developed and launched its Sustainability
Strategy and made a commitment to achieve stretching
sustainability objectives by 2022. The sale of the Crafts North
America business was completed during 2019 and the
acquisition of Pharr HP was announced in line with the Group’s
continuing long term growth strategy.
Despite the, at times uncertain, global outlook the Group has
performed well during 2019 and this is reflected in the annual
bonus outcome for the Executive Directors which paid out at
84.1% and 77.1% for the Group Chief Executive and Chief
Financial Officer respectively. The Long Term Incentive Plan
award granted in 2017 will vest at 95.8% which reflects the
Company’s strong performance in Earnings Per Share growth,
Free Cash Flow generation and Total Shareholder Return.
Outlook for 2020
During 2019 the Committee reviewed the Remuneration Policy
which is subject to a regular three-year approval Resolution at
the AGM in May 2020. Further details are provided in this
report. The key changes in the policy are intended to ensure
that the views of shareholders are reflected and that the
Remuneration Policy remains fit for purpose in terms of
enabling the Group to attract, retain and motivate the
individuals that it needs to meet its objectives. The policy
confirms our intention to introduce a post-termination two year
Minimum Shareholding Requirement and to reflect the views of
shareholders to align the pension benefits offered to UK based
Executive Directors with those of the rest of the UK workforce.
Any new Executive Director appointments will be offered a
pension benefit in line with the average of the rest of the UK
based employees (currently 12%) and the pension benefits for
current Executive Directors will be frozen at their respective
current monetary levels and aligned to the rest of the UK
employees by May 2023.
Some of the key changes that we have made to the incentive
arrangements for 2020, within the terms of the current
Remuneration Policy, are to introduce a sales measure in the
annual bonus to incentivise profitable growth and the
introduction of a measure in the Long Term Incentive Plan
award in 2020 that is linked to the long term goals published in
our Sustainability Report.
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REMUNERATION COMMITTEE REPORT
CONTINUED
Shareholder engagement
The Committee considers investor feedback and the AGM
voting results each year and we were pleased to receive a high
level of support for the 2019 Remuneration Report with over
99% of votes cast in favour.
We undertook a consultation with our major shareholders and
proxy advisors concerning the proposed Policy, soliciting their
feedback on the proposals. I would like to thank those
shareholders for their helpful input, which plays an important
part in developing responsible pay practices.
I look forward to receiving your continued support at the AGM
to be held in May.
David Gosnell
Chairman, Remuneration Committee
4 March 2020
The existing Remuneration Policy which was approved by
shareholders in 2017 authorised an increase in maximum
annual bonus for Executive Directors from 100% to 150% of
salary. The Committee did not implement this change
immediately and decided to manage any increase on a selective
and phased basis. As I reported last year the maximum annual
bonus for 2019 was increased to 125% for the CEO and to
115% for the CFO. The Committee is very mindful of
shareholders concerns about any increase in variable pay for
Executive Directors and accordingly the Committee have sought
to manage any change on a limited and progressive basis over
time. However, the Committee have concluded that it is in the
best interests of shareholders to ensure that the Remuneration
Policy will enable the company to attract and retain the
executives that it needs to achieve its objectives. The external
advice received from the Committee’s advisors was that the
level of incentive compensation offered in practice may not be
competitive enough to achieve this. Accordingly, the phased
increase to the maximum permitted annual bonus of 150% for
the CEO only will be completed in 2020. The mandatory
deferral of any 2020 annual bonus for the CEO will be
increased to one half of the bonus outcome so that effectively
all of the potential increase would be awarded in deferred
shares. LTIP awards are unchanged at 150% for both Executive
Directors in 2020. Subject to shareholder approval of the new
Remuneration Policy at the AGM in May 2020 the maximum
permitted LTIP award will be increased from 150% to 175%.
At this stage, subject to continuing strong company and
personal performance, the award to the CEO in 2021 will be
increased from 150% to 175% of salary.
Committee Membership
Mike Allen stepped down from the Committee following his
planned resignation from the Board at the AGM in May 2019. I
would particularly like to thank Mike for his valuable
contribution as a member of the Remuneration Committee
throughout my tenure as Committee Chairman and for many
years before that.
Effectiveness of the Committee
An external evaluation of the Committee was undertaken
during the year by Independent Audit. Further information can
be found on page 48.
Response to 2018 UK Corporate Governance Code
During the year, the Committee discussed the 2018 Code. We
have made good progress in implementing the remuneration
related provisions of the 2018 Code, including recommending
in our new policy the reduction in the pension benefit for any
newly appointed Executive Directors, to provide the
opportunity for additional discretion over remuneration
outcomes and the introduction of a post-employment
shareholding requirement. The Committee’s remit is already
consistent with the 2018 Code, but we are exploring ways in
which the Committee may have greater visibility of pay and
policies for the wider workforce population. We will keep this
under review and will report fully on this next year.
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Other information
REMUNERATION COMMITTEE REPORT
CONTINUED
REMUNERATION AT A GLANCE
The following is a summary of the key features of the Remuneration Policy that is subject to approval at the AGM on 20 May 2020. The
policy is set out in full on pages 86 to 94. The policy that was approved at the Annual General Meeting held 17 May 2017 can be found
at www.coats.com/governance
Components of remuneration
Annual base salary
Rajiv Sharma (CEO)
Simon Boddie (CFO)
Pension
Rajiv Sharma (CEO)
20% of salary
Simon Boddie (CFO)
20% of salary
Policy
Executive Directors’ salaries are reviewed annually with effect from 1 July. Reference is made to
market competitive levels of pay at relevant comparator companies, average salary increases
applied elsewhere across the Group, individual performance and experience as well as any
changes to the size and scope of the role.
£612,000
£436,000
Current Executive Directors receive defined contributions pensions (and/or cash in lieu thereof) of
up to 20% of salary. With effect from 1 January 2020 the pension contributions will be fixed at
their current level and will not increase with any subsequent salary increase. By May 2023 the
pensions policy for current incumbents will be aligned to the benefits provided to the average of
the rest of the UK workforce. Any new appointments will receive a benefit that is aligned to the
average of the UK workforce. Other 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.
Annual bonus
Policy
Maximum opportunities for 2020
Rajiv Sharma (CEO)
150% of salary
Simon Boddie (CFO)
115% of salary
Performance measures and weightings
Sales
EBIT
Free Cash Flow
Individual objectives
10%
50%
20%
20%
Maximum award opportunity: 150% of base salary
Any bonus awarded for the Group Chief Executive for 2020 is subject to mandatory
deferral of 50% and a deferral of 40% for the Chief Financial Officer. Deferred
bonuses are transferred into share awards and are released after a three year retention
period. The performance measures, weightings and targets for the annual bonus are
set by the Committee on an annual basis. Any bonuses paid are subject to malus and
clawback.
LTIP
Policy
Maximum opportunities for 2020
Rajiv Sharma (CEO)
150% of salary
Simon Boddie (CFO)
150% of salary
Performance measures and weightings
Sustainability
3-year EPS CAGR
3-year cumulative
Free Cash Flow
TSR vs FTSE250
(ex. investment trusts)
10%
40%
30%
20%
Maximum LTIP award opportunity: 175% of base salary (200% in exceptional
circumstances)
Awards may be made annually; with vesting conditional on three-year performance
conditions. Any shares vesting after three years are also subject to an additional two-
year holding period. Performance measures and targets are determined by the
Committee, taking into account the balance of strategic priorities for Coats for the
upcoming three-year performance period. Any LTIP shares awarded are subject to
malus and clawback.
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DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 31 DECEMBER 2019
Shareholding requirements
Rajiv Sharma (CEO)
Simon Boddie (CFO)
200% of salary
200% of salary
There is a requirement to maintain a shareholding following termination of employment of at least the lower of the in-post shareholding
requirement and the executive’s actual shareholding on termination of employment for a period of two years.
More details on our policies can be found at www.coats.com/governance
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
ANNUAL REPORT ON REMUNERATION
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 20 May 2020. The current Remuneration Policy
applicable to the year ended 31 December 2019 was approved by shareholders at the AGM on 17 May 2017 and can be found in the
Corporate Governance section at www.coats.com/governance
Executive Directors
Two Executive Directors were employed during 2019. Rajiv Sharma, was originally appointed to the Board on 2 March 2015 and was
appointed as Group Chief Executive with effect from 1 January 2017. Rajiv Sharma was based in Dubai during his previous tenure as
Managing Director, Industrial Division and remained on secondment in Dubai until 31 May 2017. Details of the remuneration
arrangements and relocation assistance offered to Rajiv on his appointment to the role of Group Chief Executive are detailed in this
report and were originally previously disclosed to shareholders in the 2016 Annual Report on Remuneration. The relocation support was
time limited and ceased in May 2019.
Single total figure for Executive Directors’ remuneration for 2019 (audited information)
Base salary
£000
2018
2019
Simon Boddie
429.8
417.8
Rajiv Sharma
603.0
586.0
Benefits
£000
2018
Annual bonus
(cash & shares)
£000
2018
2019
LTIP
£000
2018
2019
30.5
336.2
279.3
796.5
1,198.5
Pension
£000
2018
Total
£000
2018
2019
83.6
1,685.3
2,009.7
2019
86.0
155.0
514.8
396.2
1,171.1
2,102.3
120.6
117.2
2,480.3
3,356.7
2019
36.8
70.8
Total
1,032.8
1,003.8
107.6
185.5
851.0
675.5
1,967.6
3,300.8
206.6
200.8
4,165.6
5,366.4
The figures in the table above have been calculated on the basis of the following:
•
The benefits figures for Rajiv Sharma in 2019 and 2018 include the value of relocation support provided to him following his
relocation to the UK. During 2019 this relocation support included a housing allowance of £5,000 net per month which ceased on
1 June 2019.
•
Benefits: this is the value of all taxable benefits including a car allowance, private medical insurance and life insurance.
A car allowance of £20,000 per annum is paid to Rajiv Sharma and an allowance of £15,000 is paid to Simon Boddie.
• Annual bonus (cash and shares): is the total value of the annual bonus that is attributable to 2019. Forty percent of any bonus
outcome for 2019 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 vested awards that were granted during a period as an Executive Director or which
contained a performance period that ended during the year. The LTIP award value shown for 2019 reflects the vesting of the LTIP
award that was granted to Rajiv Sharma and Simon Boddie in respect of the performance period 1 January 2017 to 31 December
2019. The values shown represent the number of shares that vest multiplied by the average mid-market share price in the last
quarter of 2019 which was £0.7233. Compared to the share price used to calculate the number of shares granted (£0.5475), this
represents a 32% share price increase since the grant date to the end of the performance period. The Committee is satisfied that
the implied values vesting to Executive Directors and the overall single figures of remuneration for the year are appropriate taking
into account the performance of the Company. No discretion has therefore been exercised for the change in share price. The LTIP
values for 2018 have been re-stated to reflect the share price on the vesting dates of 1 March 2019 for Rajiv Sharma and 29 July
2019 for Simon Boddie. The 2019 LTIP values will be re-stated in next year’s report to reflect the value on the vesting date of the
awards. The value shown also reflects the cash value of notional dividend equivalents payable on vested shares which are awarded
as additional shares on exercise.
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.
Rajiv Sharma is a Non-Executive Director of Senior plc and Simon Boddie is a Non-Executive Director of PageGroup plc. They received
respectively fees of £51,500 and £69,500 during the year to 31 December 2019. The policy of the Board is that Directors are
entitled to retain any fees in respect of external appointments.
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Annual bonus outcome 2019 (audited information)
The annual bonus for 2019 was determined in accordance with the details provided in the 2018 Directors’ Remuneration Report.
Details of the bonus measures and opportunities are provided in the table below.
Annual bonus 2019
Weighting
Bonus opportunity
(% of max bonus)
Performance achieved in 2019
(% of max bonus)
Performance Measure
Attributable Profit (AP)
Earnings Before Interest and Taxation
(EBIT)
Free Cash Flow
(adjusted) (FCF)
Individual objectives
Total
Maximum Bonus (% of salary)
Total (% of salary)
Threshold
Target
Maximum
Simon Boddie
Rajiv Sharma
25.0%
25.0%
30.0%
20.0%
100.0%
3.6%
5.4%
0%
0%
9.0%
12.5%
25.0%
12.5%
12.5%
12.5%
25.0%
10.8%
10.8%
15.0%
30.0%
30.0%
30.0%
10.0%
50.0%
20.0%
100.0%
13.8%
67.1%
115%
77.1%
14.0%
67.3%
125%
84.1%
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 strong working capital management, and achieve certain key strategic objectives which are detailed on the next page that were
specific for each Executive Director.
Annual bonus 2019
Weighting
Bonus targets
Performance achieved in 2019
Performance targets
Threshold
Target
Maximum
AP (US$m)
EBIT (US$m)
FCF (adjusted)
Individual objectives
25.0%
25.0%
30.0%
20.0%
94.7
190.6
86.0
102.0
202.0
96.0
112.2
222.2
106.0
102.0
199.2
107.0
Strategic objective
See table above
The targets above were established on a basis which excludes the impact of certain exceptional items and the impact of any exchange
rate fluctuations during the year. Targets are set in relation to budget for the upcoming financial year and the figures in the table above
reflect the 2019 Plan exchange rates. For the 2019 annual bonus challenging individual objectives were established by the Committee
for each Executive Director that reflected activities and initiatives intended to improve the performance of the Group. The objectives
established and assessed for 2019 are reflected in the table on the next page.
Bonus Outcome
Reconciliation of bonus outcome to reported 2019 figures for continuing businesses. As noted above the bonus plan targets are subject
to certain adjustments.
In order to assist shareholders the reconciliation of the actual performance reported in 2019 to the numbers used for bonus purposes
is shown in the table below.
Adjusted 2019 figures as per this report
FX rate movement (i.e. Plan vs Actuals)
Adjustments IAS19 interest variation vs Plan
Actuals for bonus purposes (US$m)
Attributable Profit
100.6
0.6
0.8
102.0
EBIT
198.0
1.2
-
199.2
Free Cash Flow
106.8
0.2
-
107.0.
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CONTINUED
Personal objectives linked to 2019 bonus outcome
Rajiv
Sharma
No
1
2
3
4
Objective
Deliver double digit organic sales
growth in Performance Materials
and deliver innovation sales per
plan
Set up Coats Digital Services for
long term success
Progress on implementing Board-
approved acquisitions and
divestments
Embed the new operating model
and digital. Completion of
Connecting for Growth (C4G)
programme in 2019
Max %
Actual %
6.25%
2.5%
6.25%
3.75%
6.25%
6.25%
6.25%
5.0%
Total (% salary)
25%
17.5%
Simon
Boddie
No
1
2
3
4
Objective
Progress on implementing Board-
approved acquisitions and
divestments
Ensure C4G savings in finance
are delivered, treasury
management system
implemented and new simplified
processes and ways of working
are embedded within the
function
Deliver an effective tax rate of
30% and successfully progress
the APA process
Ensure a minimum of 80%
Group Internal Audit (GIA) audits
are rated at least “Good”
Total (% salary)
Max %
Actual %
5.75%
5.75%
5.75%
3.4%
5.75%
3.4%
5.75%
3.25%
23%
15.8.%
When the Committee assesses the extent to which each objective is achieved, consideration is given to the manner in which the
objective was achieved, the quality of delivery or execution and the personal leadership and impact demonstrated by the Executive
relating to each task. In general, to achieve the maximum for each objective an exceptional level of performance is expected with actions
taken that are consistent with the Group’s values and culture of innovation and teamwork.
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CONTINUED
Long Term Incentive award vesting
On 27 February 2017 Rajiv Sharma and Simon Boddie were granted Long Term Incentive Plan awards in the form of nil cost options over
shares in respect of the performance period 1 January 2017 to 31 December 2019 (referred to as LTIP 2017).
The performance measures were based upon the Total Shareholder Return Performance (TSR), compound annual growth (CAGR)
in Earnings Per Share and cumulative Free Cash Flow relating to Coats Group plc. In considering the outcome the Committee considered
the sale of the Crafts North America business which was divested in February 2019; EPS growth targets remained unchanged although
Crafts North America was removed from the 2016 base year for the purposes of the EPS CAGR calculation and the cumulative Free Cash
Flow target was adjusted downwards by $7.5m to reflect the removal of the discontinued business in 2019. Separately, the Committee
increased the FCF target by $11m to reflect a lower than expected level of capital expenditure during the three year period.
The achievement of the Long Term Incentive Plan performance measures and the consequent vesting of the award is shown in the
table below.
LTIP 2017: Performance period 1 January 2017 to 31 December 2019
Measure
Compound Annual Growth
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
Weighting
Threshold
40.0%
40.0%
20.0%
100.0%
5.0%
10.0%
$231.5m
10.0%
Median
5.0%
25.0%
Mid
10.0%
25.0%
$261.5m
25.0%
Maximum
15.0%
40.0%
$291.5m
40.0%
62.5 Percentile
Upper Quartile
Actual
13.6%
35.8%
$299.0m
40.0%
87th Percentile
12.5%
62.5%
20.0%
100.0%
20.0%
95.8%
Share awards granted in 2019 (audited information)
The following share awards were granted to Executive Directors during the financial year ended 31 December 2019.
The targets for achieving minimum performance for each measure, where these apply, are shown in the tables below.
Coats Group plc Long Term Incentive Plan
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
% vesting
for minimum
performance
Simon Boddie
4-Mar-19
779,447
£635,250
150%
£0.815
Rajiv Sharma
4-Mar-19
1,093,251
£891,000
150%
£0.815
25%
25%
Performance
period
Vesting
date
1 Jan 2019 to
31 Dec 2021
1 Jan 2019 to
31 Dec 2021
4-Mar-22
4-Mar-22
Coats Group plc Deferred Bonus Plan
Executive
Director
Date of
grant
Simon Boddie
4-Mar-19
Rajiv Sharma
4-Mar-19
Number of
options
awarded
114,231
162,044
Face value
at award date
£93,099
£132,066
Award deferred
cash value as a %
of salary
Share price
to calculate
no of shares
Performance
period
Vesting
date
22.0%
22.2%
£0.815
£0.815
None
4-Mar-22
None
4-Mar-22
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 £0.815 for 4 March 2019.
Coats Group plc Long Term Incentive Plan
Awards were granted on 4 March 2019 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 measures, on the third
anniversary of the date of grant. For Executive Directors an additional two year holding period applies. The notional value of any
dividends paid on any vested share during the period from grant to the end of the holding period is awarded as additional shares.
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Coats Group plc Deferred Annual Bonus Plan
For all Executive Directors one third of the bonus outcome relating to the financial year 2018 was awarded in the form of nil cost options
during the year. The awards were granted on 4 March 2019 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 measures but are subject to clawback in certain
circumstances such as gross misconduct or a material misstatement of results.
Long Term Incentive Plan awards performance measures
The performance measures applicable to awards granted in respect of the three year performance period that commenced on 1 January
2019 (LTIP 2019) are shown below. The table on the previous page reflects the performance measures for the award that relates to the
three year performance period that ended on 31 December 2019 (LTIP 2017).
LTIP 2019 Measures
Compound Annual Growth (CAGR)
in Earnings Per Share
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
Weighting
Threshold
Mid
Maximum
40.0%
40.0%
20.0%
100.0%
5.0%
10.0%
$287.1m
10.0%
Median
5.0%
25.0%
10.0%
25.0%
$317.1m
25.0%
15.0%
40.0%
$347.1m
40.0%
62.5 Percentile
Upper Quartile
12.5%
62.5%
20.0%
100.0%
For this purpose, Earnings Per Share (EPS) growth is defined as the cumulative Compound Annual Growth Rate in the performance
period. The Board will consider the growth in normalised EPS, adjusted to exclude the impact of exceptional costs such as property gains
or losses and the impact of variation of the IAS19 (pensions finance) charge.
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 i.e. operating cash flow minus capital expenditure, adjusted to reflect any exceptional items, disposals, acquisitions
or property gains or losses. Targets are established on a basis that is before any UK pension scheme deficit repair contributions.
Total Shareholder Return is the total return to shareholders which includes share price growth and ordinary dividends (reinvested on the
ex-dividend date). The performance measure is assessed against a comparator group consisting of the FTSE250, excluding investment
trusts.
The Committee retains the discretion to consider whatever adjustments it considers are fair and reasonable when considering
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
In July 2019 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. The Chairman’s fee was not increased because the fee had
been adjusted in 2017 to a level that was appropriate considering the company’s scale and profile in comparison with other FTSE 250
companies. For other Non-Executive Directors no changes were proposed during 2019 and the base fees have remained at the same
level since 1 October 2013. The fees for the Chairs of the Remuneration and Audit and Risk Committee remained unchanged at £12,500
per annum and the fee for the Senor Independent Director remained £10,000 per annum. Until May 2019 a fee of £20,000 per annum
was paid to the Chair of the Pensions Sub-Committee; this sub-committee ceased in May 2019. Additional fees of £7,500 per annum are
paid to the Non-Executive Directors who separately fulfil the roles of Chair of the Digital Advisory Council and act as the designated
Director with responsibility for workforce engagement.
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Single total figure for Non-Executive Directors’ remuneration for 2019 (audited information)
Non-Executive Directors, excluding the Chairman, who are required to travel long haul (more than five hours one-way) to meetings
are entitled to an additional travel allowance of £1,500 for each round-trip subject to a maximum of five trips per annum. Additional
fees may be paid for additional duties and time commitments that are undertaken outside the terms of appointment.
Base fee
£000
2018
250.0
60.0
60.0
50.0
60.0
60.0
60.0
60.0
2019
250.0
25.0
60.0
60.0
60.0
60.0
60.0
60.0
Supplemen-
tary fee
£000
2018
2019
--
8.3
10.0
12.5
--
20.0
10.0
7.1
12.5
11.3
--
7.5
7.5
--
--
2.5
50.9
635.0
660.0
58.3
Mike Clasper
Mike Allen
Nicholas Bull
Anne Fahy
David Gosnell
Echo Lu
Fran Philip
Alan Rosling
Total
Benefits1
£000
2018
2019
Other fee2
£000
2018
2019
3.8
--
3.3
0.3
3.2
0.4
--
--
0.9
--
1.1
--
1.1
--
--
--
--
4.5
1.5
1.5
1.5
1.5
7.5
7.5
--
7.5
1.5
1.5
1.5
1.5
7.5
7.5
Total
£000
2018
2019
253.8
250.9
37.8
87.5
74.8
74.3
77.2
61.9
75.0
75.0
72.6
58.6
73.9
61.5
67.5
70.0
11.0
3.1
25.5
28.5
729.8
742.5
Com-
ments
Resigned
23 May-19
Appointed
1-Mar-18
1 The figure under benefits for Non-Executive Directors 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.
2 Fees under Other Fee represent the £1,500 per trip travel fee payable for Directors (excluding the Chairman) who travel long-haul to attend Board meetings. The travel fee is capped at a maximum
of £7,500 per annum.
The base fee paid by Coats Group plc is £60,000 per annum for Non-Executive Directors and £250,000 for the Chairman.
A supplementary fee is paid to the Senior Independent Director (£10,000 per annum) and Chairs of the Audit and Risk Committee and
Remuneration Committee (£12,500 per annum). Mike Allen received a supplementary fee of £20,000 per annum as Chair of the
Pensions Committee until his resignation from the Board. Alan Rosling receives an additional fee of £7,500 per annum fulfilling a role as
Chair of the Company’s Digital Advisory Committee and Fran Philip receives £7,500 for undertaking additional responsibilities concerning
employee engagement.
Payments to past Directors (audited information)
The following former Directors exercised options that were originally granted under the rules of the Coats Group Long Term Incentive
Plan (LTIP) and Coats Group PLC Deferred Annual Bonus Plan (DABP). The value shown under gain represents the difference between the
price paid for any option and the market value on exercise. For all of these awards appropriate values were disclosed in the Single Figure
disclosure for each relevant former Director.
Name
Paul Forman
Plan
Coats Group plc DABP
Paul Forman
Coats Group plc LTIP
Richard Howes
Coats Group plc DABP
Granted
26-Feb-16
26-Feb-16
26-Feb-16
Max no.
of options
481,155
773,881
336,692
Exercise
Price
per share
£0
£0
£0
Date of
exercise
1-Mar-19
No. of
options
481,155
MV per
share
on
exercise
£0.856520
Gain
(£000)
£412.1
5-Mar-19
773,881
£0.831584
£643.5
25-Mar-19
336,692
£0.807600
£271.9
No other payments were paid to former Directors.
Payments for loss of office
There have been no payments for loss of office during the year. Mike Allen resigned from the Board on 23 May 2019.
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Statement of Directors’ shareholding and share interests (audited information)
The interests of the Directors who held office during the year, and their closely associated persons (if any), in the shares, options
and listed securities of Coats Group plc and its subsidiaries as at 31 December 2019, are set out below.
Shareholding
requirement in 2019
Shares
beneficially owned
Deferred bonus shares
subject to vesting period
LTIP share options
(subject to performance
conditions)
Share options
(no performance
conditions)
Number of
Shares
Equivalent
% of
Salary3
Condition
Met?
Executive Director
Simon Boddie 1,100,000
Rajiv Sharma
1,550,000
200%
200%
Chairman and Non-Executive Directors
Mike Clasper
Mike Allen
Nicholas Bull
Anne Fahy
David Gosnell
Echo Lu
Fran Philip
Alan Rosling
–
–
–
1. Or date of appointment, if later.
2. Or date of resignation, if earlier.
Yes
Yes
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
01-Jan-191 31-Dec-192
01-Jan-191 31-Dec-192
01-Jan-191 31-Dec-192
01-Jan-191
31-Dec-192
300,000
300,000
201,890
316,121
3,564,605
2,619,915
--
1,451,723
400,000
400,000
845,142
557,800
5,489,635
3,674,815
2,845,065
5,743,046
1,490,000
1,490,000
200,000
200,000
400,000
500,000
–
–
786,475
786,475
15,000
15,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. The target number of shares is based on the average share price for 2019 which was 78.9p.
The Executive Directors’ shareholding requirement must be met within five years of their appointment to the Board (2 March 2020 for
Rajiv Sharma and 4 July 2021 for Simon Boddie). There is no requirement for Non-Executive Directors. For the purposes of achieving this target
the total number of shares beneficially owned by the Executive Director or a closely associated person is considered as well as the
estimated post-tax number of vested but unexercised share options or deferred bonuses that are not subject to a performance condition. All
Long Term Incentive Plan awards granted to Executive Directors from 29 July 2016 onwards include a requirement to retain any vested
shares (save for any shares that may be sold to satisfy income tax liabilities) until a minimum of the fifth anniversary of the date of grant.
Details of Scheme Interests as at 31 December 2019 (audited information)
Rajiv Sharma
Award
Vesting Date
Retention Period Expiry Date
No.
Status
Performance
conditions?
Deferred bonus shares subject to vesting period
27-Feb-20
DABP17
4 -Mar-21
DABP18
DABP19
4-Mar-22
Sub-total
N/A
N/A
N/A
LTIP share options (subject to performance conditions)
LTIP17
LTIP18
LTIP19
Sub-total
27-Feb-22
4-Mar-23
4-Mar-24
5-Mar-20
4-Mar-21
4-Mar-22
Share options (no performance conditions)
N/A
LTIP14
N/A
LTIP15
N/A
DABP15
N/A
LTIP16
DABP16
N/A
Sub-total
24-Feb-17
7-Apr-18
7-Apr-18
2-Mar-19
26-Feb-19
27-Feb-27
4-Mar-28
4-Mar-29
27-Feb-27
4-Mar-28
4-Mar-29
24-Feb-25
7-Apr-25
7-Apr-25
26-Feb-26
26-Feb-26
211,214
184,542
162,044
557,800
1,536,986
1,044,578
1,093,251
3,674,815
749,781
1,612,359
482,925
2,448,595
449,386
5,743,046
Unvested
Unvested
Unvested
Unvested
Unvested
Unvested
Vested
Vested
Vested
Vested
Vested
No
No
No
Yes
Yes
Yes
No
No
No
No
No
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CONTINUED
Simon Boddie
Award
Vesting Date
Retention Period Expiry Date
No.
Status
Performance
conditions?
Deferred bonus shares subject to vesting period
5-Mar-20
DABP17
N/A
DABP18
DABP19
Sub-total
4-Mar-21
4-Mar-22
N/A
N/A
LTIP share options (subject to performance conditions)
27-Feb-27
4-Mar-28
4-Mar-29
LTIP17
LTIP18
LTIP19
Sub-total
27-Feb-20
27-Feb-22
27-Feb-27
4-Mar-21
4-Mar-22
4-Mar-23
4-Mar-24
4-Mar-28
4-Mar-29
71,506
130,384
114,231
316,121
1,095,890
744,578
779,447
2,619,915
Unvested
Unvested
Unvested
Unvested
Unvested
Unvested
No
No
No
Yes
Yes
Yes
Share options (no performance conditions)
LTIP16
29-Jul-19
29-Jul-21
29-Jul-26
1,451,723
Vested
No
No options have been exercised by any Director during the year or between the year end and the signing of this report.
No other Directors have entered into any transactions since the year end.
The middle market price of Coats Group plc shares at 31 December 2019 was 74.9 pence and the range during the year was
67.2 pence to 90.7 pence.
Review of performance
The graph (below left) shows the difference between investing £100 in the Company and the constituents of the FTSE All Share Index
and FTSE 250 from 1 January 2010 to 31 December 2019. It is assumed dividends are reinvested over that period. The Board feels the
FTSE All Share Index and the FTSE 250 each provide an appropriate comparator given the Company’s market capitalisation and its
presence on the London Stock Exchange.
To enable comparison with the LTIP performance period an additional graph (below right) is shown on the same basis that reflects the
three year performance period ending 31 December 2019.
£350
£300
£250
£200
£150
£100
£50
£0
01 Jan
2010
01 Jan
2011
01 Jan
2012
01 Jan
2013
01 Jan
2014
01 Jan
2015
01 Jan
2016
01 Jan
2017
01 Jan
2018
01 Jan
2019
01 Jan
2020
FTSE250 Index
FTSE All-Share Index
Coats
£200
£180
£160
£140
£120
£100
£80
£60
£40
£20
£0
01 Jan 2017
01 Jan 2018
01 Jan 2019
01 Jan 2020
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Chief Executive total remuneration for the last 10 years1
Executive Director
CEO single figure of
remuneration (£k)
Annual Bonus as a % of
maximum opportunity
LTIP award as a % of
maximum opportunity
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,017.0
1,760.3
2,566.9
3,356.7
2,480.3
87.1%
77.0%
79.5%
66.7%
67.3%
–
43.6%
60.0%
84.2%
95.8%
Chief Executive Officer remuneration – percentage change from 2018 to 2019
Executive Director
CEO Remuneration (Single Figure data)
Average of all employees2
Salary
Benefits3
2.9%
3.5%
-54.3%
0%
Bonus
29.9%
-0.1%
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.
The increase in CEO remuneration from 2015 to 2016 is therefore largely influenced by the 2015 single figure data being part year data. The CEO figures for 2017, 2018 and 2019 reflect the
appointment of Rajiv Sharma and in particular the increase in benefits reflect the relocation and expatriate support that was offered to him following his appointment as CEO on 1 January 2017.
2 The average of all employees reflects the total number of employees based in the UK. The UK has been chosen as the most appropriate comparator group because the CEO is based in the UK and the
majority of Coats employees who are employed outside the UK are working in locations with very different inflationary and market pressures. The UK employee population includes employees across
all levels of the organisation.
3. The significant decrease for benefits in 2019 for the CEO arises because of the level of one-time relocation related benefits provided in 2018. The increase in bonus for the CEO is a consequence of
the increase in maximum bonus opportunity from 100% of salary to 125% of salary.
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 (US$m)
Distributions to shareholders1 (US$m)
Average number of employees
Revenues from continuing operations (US$m) – CER basis
Operating profit pre-exceptional (US$m) – CER basis
1. By way of dividends.
Year to
31 December
2019
303.0
24.4
16,876
1,388.7
198.0
Year to
31 December
2018
305.9
21.1
17,881
1,374.3
189.0
% change
(1)%
16%
(6%)
1%
5%
Additional information on number of employees, total revenues and profit has been provided for context. The figures for employee
costs, average number of employees, revenues and operating profit in 2019 and 2018 have been stated on the basis of continuing
operations only. Information for 2019 includes acquisitions made during the year. The figures for revenues and operating profit are on a
constant exchange rate (CER) basis with amounts for 2018 restated at 2019 exchange rates.
CEO pay ratio
Coats is not required to publish a CEO pay ratio as the Group employs less than 250 employees in the UK. However, as disclosed in last
year’s report the company intends to publish a disclosure on a voluntary basis.
Financial year
Calculation
Method
2019
A
CEO Pay Ratio
P25
P50
P75
Lower Quartile
Median
Upper Quartile
Base
Base and bonus
Total remuneration
1:21
1:37
1:64
1:12
1:20
1:40
1:8
1:11
1:21
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The lower quartile, median and upper quartile employees were identified on the basis of full time equivalent total remuneration and
benefits in the twelve-month period ending 31 December 2019 (this is referred to as methodology A according to the reporting
Regulations). This calculation methodology was selected as it was the closest comparative methodology to the basis on which the
remuneration for the CEO is disclosed for the year ended 31 December 2019. Considering the relatively low number of UK based
employees compared to our total global workforce this data was not administratively difficult to obtain nor calculate.
The Committee has considered the pay data for the three individuals identified and believes that is fairly reflects the remuneration levels
for the relevant quartiles among the UK based employees. Specifically the data was compared to the average of five individuals above
and below their remuneration in terms of total compensation and mix of pay for the year to 31 December 2019. No adjustments have
been made to the remuneration other than to ensure that the remuneration is equivalent to a full-time employee and where a
performance bonus is relevant an assumption, based on the average attainment for the element linked to personal performance has
been assumed. The Committee is satisfied that any assumptions do not have a material impact on the selected reference employee nor
on the calculated ratio. The remuneration details for the individuals are shown below.
Base Pay
Base and bonus
Total remuneration
CEO
£603,000
£1,117.8
£2,480.3
P25
£27,938
£29,750
£38,722
P50
£50,583
£53,713
£61,944
P75
£78,090
£97,461
£117,250
The Committee notes that the selected individuals are not participants in the Company’s Long Term Incentive Plan. A significant
proportion of the CEO’s remuneration is appropriately linked to the Company’s performance and share price movements over time
which may fluctuate materially over time. To enable a comparison to be made which reflects this element of variable pay a ratio has been
calculated which reflects base pay and base pay and bonus.
Corporate Governance Code requirements
In order to satisfy Provision 40 of the Corporate Governance Code the Directors also reviewed the operation of the policy and considered
the consistency of the Remuneration Policy with the remuneration policies elsewhere in the Group. The Committee reviewed the
incentive pay structures operated throughout the Group and were satisfied that the design of the arrangements sought to achieve an
acceptable balance between the overall financial performance of the group, the various operating businesses and, where appropriate
individual performance. The Remuneration Committee and the full Board is made aware of, and consulted on, the company’s Human
Resources strategy and takes seriously its obligations to have a greater degree of oversight on the operation of fair pay policies elsewhere
in the Group. In particular, the Committee has established additional time to proactively support company projects such as the
development and implementation of a global Living Wage policy in response to a very constructive dialogue with one of the Company’s
shareholders. One of the Committee’s members, Fran Philip, is the designated Director with responsibility for wider employee
engagement and her influence will assist in developing this wider support.
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Statement of implementation of Remuneration Policy for 2020
Base salaries for Executive Directors and fees for the Chairman and Non-Executive Directors will be reviewed on 1 July 2020.
Rajiv Sharma will receive a base salary of £612,000 per annum, a fixed pension allowance of £122,400, a car allowance of £20,000 per
annum, medical insurance, life insurance and income replacement insurance.
Simon Boddie will receive a base salary of £423,500 per annum, a fixed pension allowance of £84,700, a car allowance of £15,000 per
annum, medical insurance, life insurance and income replacement insurance.
The 2020 annual bonus opportunities and Long Term Incentive Plan award grants will be implemented in accordance with the limits of
the current Remuneration Policy. The LTIP opportunity for the Chief Executive Officer and Chief Financial Officer will be 150% and the
annual bonus opportunity for the Chief Executive Officer will be increased from 125% to 150%. The Chief Financial Officer bonus
opportunity will be 115%. The compulsory three-year deferral into shares of the 2020 bonus outcome will be increased from 40% to
50% of the annual bonus outcome for the Chief Executive Officer and will remain at 40% for the Chief Financial Officer. In addition the
Company has introduced a post termination minimum shareholding requirement to apply for two years following termination of
employment based on 100% of the MSR or shareholding at termination. Although the Group Chief Executive bonus opportunity is being
increased in 2020, this is still within the limits approved by the Remuneration policy approved by shareholders at the AGM in 2017.
Annual bonus
Measure
Sales
Earnings Before Interest and Taxation
Free Cash Flow
Individual objectives
Weighting
10%
50%
20%
20%
Long Term Incentive
Measure
Earnings Per Share CAGR
Free Cash Flow
Total Shareholder Return
Sustainability
Weighting
40%
30%
20%
10%
Annual bonus targets are based on adjusted operating profit and adjusted free cash flow excluding the impact of any exchange rate
fluctuations. The Company does not publish annual bonus targets in advance but will do so at the time the bonus award is disclosed.
The Long Term Incentive Plan awards granted in 2020 are subject to the following targets:
Measure
EPS CAGR over three years
Vesting % for EPS measure
Cumulative Free Cash Flow (US$m) over three years
Vesting % for FCF measure
Total Shareholder Return vs FTSE250 excluding investment trusts
Vesting % of each measure for TSR measure
Threshold
5%
25%
$296m
25%
Median
25%
Mid
10%
62.5%
$326m
62.5%
62.5 Percentile
62.5%
Maximum
15%
100%
$356m
100%
Upper Quartile
100%
Straight line vesting occurs between Threshold, Mid and Maximum.
The cumulative Free Cash Flow target is subject to adjustment and is calculated before dividends and before any deficit repair
contributions to UK pension schemes. EPS growth is based on EPS growth adjusted to exclude the impact of any variation in the pension
finance charge.
The Committee has recognised the importance of reflecting the concerns of shareholders regarding responsibilities to Environmental,
Social and Governance issues. Sustainability targets have been reflected in the Long Term Incentive measures to address these concerns
and to emphasise the importance of delivering the Company’s 2022 objectives outlined in the 2018 Sustainability Report which was
published in 2019. Specifically these targets will be based on reduction in water usage, sourcing renewable energy, management of
hazardous waste, sustainability sourcing in our supply chain and delivering on employee engagement and community support activities.
Further details regarding the Sustainability targets will be published in next year’s Annual Report on Remuneration or can be viewed in
our Sustainability Report which is available at www.coats.com/sustainability
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Consideration by the Directors of matters relating to Directors’ remuneration
The members of the Committee were: David Gosnell (Chairman), Mike Allen (until May 2019), Echo Lu, Fran Philip and Alan Rosling.
In reviewing remuneration arrangements the Committee considers the terms and conditions of employees across the Group. In this
regard, Fran Philip, as a member of the Committee is able to provide insight and support from her role as the designated director
responsible for wider employee engagement.
The responsibilities of the Committee are set out in the Corporate governance section of the Annual Report. The Committee also
received assistance from Stuart Morgan (who also acted as Secretary to the Committee), Monica McKee (Group HR Director) and
Brendan 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. Mercer
| Kepler provided independent advice to the Company principally in relation to the design and performance targets set for the Group’s
incentive plans, benchmarking of Executive Directors pay, review of the Directors’ Remuneration Report and regulatory developments in
remuneration governance and practice. Mercer | Kepler were paid fees of £75,780 for time spent and materials used in providing advice
to the Company during the period to 31 December 2019. Mercer | Kepler provide no other advice to the Company or any of the
Directors and the Committee is satisfied that the advice provided was fair and objective. Mercer | Kepler were appointed because of
their extensive knowledge of Coats’ strategy and operations when the Company was a subsidiary business of the Guinness Peat Group.
Statement of voting at the General Meeting
At the AGM of the Company on 23 May 2019 the results of the vote regarding Resolution 2 (to approve the Annual Report on
Remuneration) were:
Number
1,144,133,854
Votes for
%
99.3
Number
8,503,589
Votes against
%
0.7
Votes
Total
1,152,637,443
Votes
Withheld
57,136
At the AGM of the Company on 17 May 2017 the results of the vote regarding Resolution 3 (to approve the Directors Remuneration
Policy were):
Number
1,048,569,448
Votes for
%
99.9
Number
153,415
Votes against
%
0.01
Votes
Total
1,048,722,863
Votes
Withheld
150,924
A copy of the Remuneration Policy will be made available at www.coats.com/governance
Assessment of the effectiveness of the Committee
This year the Board undertook an externally-facilitated effectiveness review of the effectiveness of the Board and Board Committees,
including the Committee, in accordance with the requirements under the Code. The review was undertaken by Independent Audit Ltd
and involved a questionnaire of all of the Committee members and regular presenters to the Board. The overall conclusion is that the
Committee is working well and is covering its remit with relatively few areas for improvement highlighted.
The Remuneration Report was approved by a Committee of the Board of Directors on 4 March 2020 and signed on its behalf by:
David Gosnell
Chairman, Remuneration Committee
4 March 2020
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CONTINUED
Remuneration Policy Report
The Remuneration Policy was last approved by shareholders at the AGM on 17 May 2017. This updated policy will be subject to a
binding shareholder Resolution at the AGM on 20 May 2020. If approved, the policy will apply for a period of three years from the date
of approval.
Directors’ Remuneration Policy
The Remuneration Committee has responsibility for determining remuneration for the Company’s Directors including the Chairman but
excluding the Non-Executive Directors. The remuneration for Non-Executive Directors (excluding the Chairman) is determined by a
Committee chaired by the Group Chairman and which also includes the Executive Directors. The Committees take 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.
The Remuneration Committee 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 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). Non-Executive Directors (excluding the
Chairman) may also receive an additional fee in respect of travel if over five hours of one-way flight time is required to attend a Board
meeting, up to an annual cap. The fee for the Chairman is set by the Remuneration 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.
For Non-Executive Directors, the remuneration arrangements 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.
Supple-
mentary
fees
Travel fees
The Board benefits from the diverse global
business experience of its Non-Executive
Directors, some of whom do not reside in the
UK. However, the increasingly global nature of
our business means that our Non-Executive
Directors are required to travel, with recent
meetings held in Brazil, China, Sri Lanka, the USA
and Vietnam. The Board wishes to recognise the
additional time commitment required for Non-
Executive Directors (excluding Chairman) in
travelling to Board meetings.
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 and travel (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 may be payable to the Senior Independent
Director, Chair of the Audit and Risk Committee, and Chair of
the Remuneration Committee.
An additional fee may be payable to any Non-Executive Director
(excluding the Chairman) who is required to travel for more than
a specified length of time to attend a Board meeting. The
maximum total fees for travel will be subject to an annual cap.
For 2020, a travel fee will be payable for any journey longer than
5 hours of one-way flight time and the maximum fee will be
capped at the equivalent of 5 trips. The length of journey and
maximum cap will be reviewed annually to ensure their
continued relevance and appropriateness.
No benefits or other remuneration will be provided to Non-Executive Directors. However in some cases reimbursement of business travel, entertaining and
accommodation expenses claimed in accordance with the UK expenses policy may be deemed taxable benefits under UK tax rules. The Company pays the
resulting tax liability. In addition, professional fees may be paid to assist a non-UK tax resident Director submit appropriate UK income tax returns; the
cost of these fees may be regarded as a taxable benefit
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In determining the level of fees for a new Non-Executive Director, the Committee will take into account all factors it determines to be
relevant, including the skills and experience of the individual and the need to attract Non-Executive Directors of the appropriate calibre. The
Committee will also take into account the level of fees offered by equivalent companies
Terms of appointment
Under their respective Non-Executive Director appointment letters, all of the Non-Executive Directors are entitled to receive an annual fee.
Term and termination provisions
None of the appointment letters contains a set term of office.
None of the appointment letters contains a notice period. Removal of the Non-Executive Directors would be governed by the Articles of
Association of the Company.
All Non-Executive Director letters of appointment are available for inspection at the Company’s registered office during normal hours of
business, and will also be available at the Company’s AGM.
Policy on payment for loss of office
There are no provisions in the Non-Executive Directors’ letters of appointment that would give rise to any compensation payments for
loss of office.
Executive Directors
The policy that applies to the appointment of any Executive Director is shown below. The remuneration package 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.
Executive Directors’ Remuneration Policy table
Fixed remuneration
Purpose and link
to strategy
Salary
To attract and retain the key
talent that the Company needs
to achieve its objectives.
Pension
To provide a market
competitive level of retirement
provision.
Operation and opportunity
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), as well as companies in similar sectors and of a similar international scope
and size to Coats, 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.
In the case of an external appointment or a promotion, 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 a maximum of the average of the UK workforce which is currently
12% of salary, or will be provided with a cash alternative in lieu of any pension benefits of up to
12% of salary.
The benefit levels for current incumbents will remain at the current level of 20% of salary as at 1
January 2020 but will not be applied to any subsequent salary increase. The overall benefit value
will be aligned to the rest of the UK workforce by May 2023.
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Purpose and link
to strategy
Benefits
To provide a market
competitive level
of benefits.
Operation and opportunity
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.
Variable remuneration
Purpose and link
to strategy
Operation and opportunity
Performance
Annual bonus, Cash bonus and deferral into shares under the rules of the Deferred Bonus Plan
Annual bonus incentivises key
individuals to achieve the
objectives of the annual
business plan.
The deferred element ensures
that the final value of the
annual incentive is linked to the
longer term value of the Group.
Annual bonuses will be determined by
reference to performance, measured over one
financial year.
The maximum annual bonus that may be
awarded to any executive director will be 150%
of salary.
Any bonuses awarded will be subject to a
mandatory deferral established by the
Committee.
Deferred bonuses will be transferred 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 annual bonus including cash paid or deferred
element of the bonus may be subject to malus
or clawback in cases of personal misconduct or
a restatement of results that mean the annual
bonus awarded was greater than it should have
been.
The performance measures, weightings and
targets for the annual bonus will be set by the
Committee on an annual basis.
Performance measures will normally include tests
of both business and individual performance.
The weighting for each objective will be
determined annually by the Committee to reflect
the strategic importance of each objective for
the year ahead.
The Target or Budget level of performance will
result in a payment of 50% of the maximum
award. The Committee will determine the
Target/Budget level of remuneration on a basis
that it feels is stretching and challenging. Below
Target, payment will increase between nil (below
Threshold performance) and Target payout, on a
straight- line basis. Above Target, payment will
increase on a straight-line basis up to 100% for
Maximum performance.
The Committee will have the discretion 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.
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Purpose and link
to strategy
Long Term Incentive Plan
To incentivise key individuals to
achieve key long term
objectives, in line with the
Group’s long-term strategy.
To create alignment between
executives and shareholders.
To retain key individuals.
Performance will be assessed
over a period of not less than
three years.
A further 2 year holding period
applies to any vested awards.
Operation and opportunity
Performance
In future years the performance measures used,
the weighting on each measure, the definition
of the measures and the performance targets,
will be determined by the Committee
considering the balance of strategic priorities for
the Company for the upcoming three-year
performance period.
In addition, the Committee may consider
setting an underpin condition which must be
satisfied prior to vesting of an award.
No awards will vest for performance below
Threshold, 25% of each element will vest for
achieving Threshold performance, increasing on
a straight-line basis to 100% for Maximum
performance.
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.
Awards will be made annually, conditional on
the achievement of three-year performance
conditions. Any vested shares will be subject to
an additional two-year holding period.
Award levels for any Director will be up to a
maximum of 175% of salary. 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 200% of salary.
Awards will normally be made in the form of nil
cost options, exercisable between the third and
the tenth anniversary of grant (subject to the
additional two-year holding period), 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 the end of
the holding period.
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.
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Amendments to the approved Remuneration Policy
There are no proposed increases to the maximum annual bonus opportunity which remains 150% of salary. The Committee has applied
the maximum bonus level of 150% from 2020 for the Group Chief Executive only. The minimum deferral of any bonus earned will be
established by the Committee. The revised Policy would increase the normal proportion of bonus deferred for the Group Chief Executive
to 50% from 2020 and for the Chief Financial Officer to 40%.
The maximum face value for an LTIP award allowed by the Policy would be increased from 150% to 175% of salary. However the
maximum level granted in 2020 will remain at 150%. The maximum LTIP award that may be granted in exceptional circumstances
(typically recruitment) would be reduced from 250% to 200%.
The revised Policy would also introduce a requirement for share ownership guidelines to apply for two years post termination of
employment on the basis of the lower of the minimum guideline (currently 200%) or the shareholding at termination of employment.
The revised Policy would reduce the pension benefit for any new external Director appointment from 20% to a level that equates to the
average of the UK workforce; for the year ending 31 December 2020 this is a maximum of 12%. The pension benefit levels for
incumbent Executive Directors will be frozen at their current monetary levels ie no longer a percentage of salary and will be aligned to
the UK workforce by the end of the validity of this policy i.e. May 2023.
Decision-making process for the determination of the policy
The Committee reviewed the operation of all aspects of the previous Remuneration Policy by commissioning Mercer | Kepler to conduct a
structured interview process with all Directors to assess their views on the effective operation of the policy and the extent to which the
objectives of the Policy were met. The scope of the review included an assessment of the current and potentially alternative performance
measures and whether these were aligned to the Group’s strategy. In addition, Mercer | Kepler advised the Committee on the
developing view of shareholders on various aspects of the Remuneration Policy and the extent to which amendments should be made to
reflect these. The conclusions of the review were discussed by all of the Non-Executive Directors and then detailed proposals were
finalised by the Remuneration Committee. In December 2019 the Committee chairman wrote to all shareholders with more than 1% of
issued share capital and several corporate governance advisors to seek their views. Some amendments were made to the proposals as a
consequence of this consultation and have been reflected in this revised Remuneration Policy.
Performance measure selection and target-setting
The measures used under the annual bonus are selected annually to reflect the most important measures for the upcoming year and
include both business and individual performance objectives. Performance targets are set taking into account the objectives for the
business for the year ahead and the need to successfully progress the execution of the Group’s long term growth strategy. Targets are
also established on the basis that they should be stretching within an acceptable degree of risk.
The Committee believes that for the 2020-22 period total shareholder return, earnings per share, free cash flow and the delivery of
commitments made to sustainability targets are the most appropriate measures of long-term performance for the business. TSR
performance is measured against the FTSE 250 (excluding investment trusts) and provides strong alignment between Executive Directors
and shareholders, EPS growth maintains management focus on strong financial performance and free cash flow underpins the
importance of maintaining cash reserves for Coats’ long-term business performance. Sustainability measures and goals are based on the
commitments outlined in the Company’s stakeholder report published in 2019. Performance targets are set taking into account the
sector in which the Group operates and the acceptable risk profile of the Group. The Committee considers a range of reference points,
including broker forecasts and the Company’s strategic plan to ensure targets are challenging.
Differences between Executive Director and general employee remuneration
The structure of remuneration for Coats’ senior management team is consistent with that for the Executive Directors. Senior executives
participate in annual bonus and long-term incentive arrangements based on the same performance measures as Executive Directors.
The remuneration arrangements for other employees reflect the local market practice appropriate for each role and may therefore vary
from those set out in this report for senior executives and Executive Directors.
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 discretion 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 200% of salary. This requirement will
apply for a two year period post termination of employment based on the lower of the in-post requirement and the Executive Director’s
actual shareholding on termination of employment.
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Recruitment Policy
When appointing 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.
External appointment
In the cases of hiring or appointing a new Executive Director from outside the Company, the Committee may make use of all the existing
components of remuneration, as follows:
Component
Approach
Maximum annual grant value
Base salary
Benefits
Salaries for new appointees will be determined by reference to the relative
skills and experience of the individual, the market competitive level of pay in
other companies and any other relevant external or internal comparisons.
New appointees will be eligible to receive benefits which may include
(but are not limited to) the provision of private medical insurance, ill-health
protection and/or life insurance and a cash- for-car-allowance, and, where
appropriate, relocation, international transfer or tax equalisation
arrangements.
Pension
New appointees will receive pension contributions or cash alternative in lieu
of any pension benefit.
12% of salary if UK based
Annual bonus
The structure described in the policy table will apply to new appointees
with the relevant maximum being pro-rated to reflect the proportion of
employment over the year. Targets for the personal element will be
tailored to each Executive Director.
150% of salary
LTIP
New appointees will be granted awards under the LTIP on the same terms
as other Executive Director’s, as described in the policy table.
200% of salary in exceptional
circumstances
For external appointment, 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 determines 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 determines to be relevant, including the need to suitably incentivise and retain the individual during
the initial years of their applicable appointment.
Internal promotion
In cases of appointing a new Executive Director by way of internal promotion, the Committee and Board will be consistent with the
policy for external appointees detailed above.
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).
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Service contracts for 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.
Subject to this, the key elements of a service contract offered to a UK based Executive Director appointment are:
Notice period
The notice period is 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 in the table below.
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.
All Executive Director letters of appointment are available for inspection at the Company’s registered office during normal hours of
business, and will also be available at the Company’s AGM.
Policy on payment for loss of office of 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.
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.
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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.
Incentive plans
Annual bonus
Long Term Incentive Plan
Deferred Bonus Plan
Good leavers
Other leavers
The Company does not consider it appropriate to set
defined ‘good leaver’ and ‘bad leaver’ conditions in
respect of the annual bonus arrangements. Instead,
where an Executive Director has ceased to hold office or
employment with the Group, or is under notice, other
than due to personal misconduct, the Committee will
determine whether or not the individual will be eligible
to receive any annual bonus.
If the Committee determines that a departing Executive
Director is eligible to receive a bonus, the amount of
the bonus will be assessed by reference to the
performance targets set for that financial year.
The deferral requirement in respect of any bonus
awarded will continue to 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.
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.
Awards held by ‘good leavers’ will normally vest on the
normal vesting date (i.e. the third anniversary of grant)
to the extent that the performance conditions are met,
and be pro-rated for time.
Any awards that the Committee determines to have
vested will ordinarily be subject to the additional two-
year holding period, unless the Committee determines
in its discretion to accelerate vesting to the date of
cessation. The Committee also will have discretion to
waive the time pro-rating requirement.
Unvested deferred shares (which represent deferrals of
earned bonus) will vest in full on the normal vesting
date (i.e. 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
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.
Unvested awards will lapse in full where
the cessation of office or employment is
on grounds of personal misconduct.
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.
Where the reason for cessation of office
or employment is personal misconduct
unvested deferred shares will lapse in full.
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Development of this policy
Statement of consideration of employment conditions elsewhere in the Company
When reviewing executive director pay the Committee takes into account the impact on and comparison with pay arrangements throughout
the Company. The Committee does not directly 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 2020 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 will be made available at www.coats.com/governance
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF COATS GROUP PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion:
•
the financial statements of Coats Group plc (the ‘parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the
state of the Group’s and of the parent Company’s affairs as at 31 December 2019 and of the Group’s profit for the year then
ended;
•
•
•
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 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.
We have audited the financial statements which 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 Notes to the Financial Statements 1 to 37;
the Company Balance Sheet;
the Company Statement of Changes in Equity;
the Company Cash Flow Statement; and
the Notes to the Company Financial Statements 1 to 6.
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, including FRS 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-
audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
Lower Passaic River Study Area litigation provision;
•
• material assumptions underlying retirement benefit obligations; and
•
uncertain tax positions.
Materiality
Scoping
The key audit matters are the same as the prior year. We have expanded the key audit matter relating to
uncertain tax provisions as noted below.
The materiality that we used for the Group financial statements was $8.2 million which was determined on
the basis of 5% of adjusted profit before tax. The basis is consistent with the prior year.
Coats Group plc was subject to a full statutory audit by the Group auditor. Due to the widespread nature of
the Group, the audit is subject to scoping decisions on overseas components. Our full-scope audit of
components provided coverage of 75% of the Group’s net assets, 77% of the Group’s revenue and 79% of
the Group’s profit before tax from profit making components.
Significant
changes in
our approach
In our audit of the 2018 financial statements, we focused our key audit matter in respect of uncertain tax
positions to transfer pricing on incremental management recharges. We have expanded this to be focused on
the valuation of the central tax provision.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed 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 and
Company’s ability to continue to do so over a period of at least twelve months from the
date of approval of the financial statements.
We considered as part of our risk assessment the nature of the Group, its business model
and related risks including where relevant the impact of Brexit, the requirements of the
applicable financial reporting framework and the system of internal control. We evaluated
the Directors’ assessment of the Group’s and the Company’s ability to continue as a going
concern, including challenging the underlying data and key assumptions used to make the
assessment, and evaluated the Directors’ plans for future actions in relation to their going
concern assessment.
We are required to state whether we have anything material to add or draw attention to in
relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is
materially inconsistent with our knowledge obtained in the audit.
Going concern is the basis of
preparation of the financial
statements that assumes an entity
will remain in operation for a
period of at least 12 months from
the date of approval of the financial
statements.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these matters.
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Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and the
Company’s ability to continue as a going concern, we are required to state whether we have
anything material to add or draw attention to in relation to:
•
the disclosures on pages 31-39 that describe the principal risks, procedures to identify
emerging risks, and an explanation of how these are being managed or mitigated;
•
•
the Directors' confirmation on page 33 that they have carried out a robust assessment
of the principal and emerging risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity; or
the Directors’ explanation on page 39 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 are also required to report whether the Directors’ statement relating to the prospects of
the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
Key audit matters
Viability means the ability of the
Group to continue over the time
horizon considered appropriate by
the Directors.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these matters.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team.
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.
Lower Passaic River Study litigation provision
Key audit
matter
description
How the scope
of our audit
responded to
the key audit
matter
Along with other textile manufacturers, and chemical producers, the Group is subject to ongoing litigation
proceedings by the US Environmental Protection Agency (EPA) in regard to environmental damage caused by
historic operations of the group in the Lower Passaic River Study Area.
In March 2016, EPA issued a Record of Decision providing a basis for management to estimate a provision in
respect of remediation and legal costs which amounts to $14.6 million, net of insurance proceeds, at 31
December 2019. This is currently considered by management to be the best estimate of the future liability, given
the information available.
Judgement is required to estimate what, if any, the Group’s share of the total remediation costs is likely to be.
The carrying value of the provision and background information to the matter is included in note 28 of the
financial statements and management discuss the matter as a significant financial and reporting issue in the Audit
and Risk Committee Report on page 61.
We evaluated management’s assumptions, including a review of evidence used in estimating the Group’s share of
total remediation costs for the Lower Passaic River Study Area, both in terms of appropriateness of recognition
and the valuation thereof. We verified the material cash outflows relating to the utilisation of the legal provision
and made enquiries of management to confirm whether any further correspondence had been received in
connection with this matter.
We evaluated the competence of management’s external legal advisers. We considered the legal advice
management had obtained in relation to litigation and directly challenged management’s judgements through
discussion with key external legal advisers and our internal environmental specialist.
Key
observations
There were no material developments during 2019 that would result in a remeasurement of the underlying
remediation provision. Management has properly taken into account the latest information available from their
third party legal advisors.
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Material assumptions underlying retirement benefit obligations
Key audit
matter
description
How the scope
of our audit
responded to
the key audit
matter
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. The gross actuarial value of scheme liabilities of Coats Group plc at 31 December 2019 was
$3,276 million.
The assumptions used in the valuation are relatively sensitive to small changes and can result in a material
difference in the net deficit recognised of $181 million. Key assumptions involved in the determination of the
present values of the UK and US defined benefit obligations include discount rates, mortality and inflation rates.
The carrying values of the Group’s pension obligations as well as a sensitivity analysis relating to the Group’s
major defined benefit pension arrangements are included in note 10 of the financial statements. Management
identify UK retirement benefit obligations as a key source of estimation uncertainty in note 1 of the financial
statements and discuss the matter as a significant financial and reporting issue in the Audit and Risk Committee
Report on page 61.
We worked with our own pension specialists to challenge the assumptions underlying management’s calculation
of the Group defined benefit scheme. We have compared the key assumptions to industry benchmarks and prior
year rates.
We evaluated the competence of the experts that management engaged to calculate the defined benefit pension
obligations, by checking they are qualified and affiliated with the appropriate industry body; and we evaluated
the sensitivity of the pension scheme liabilities to differences between our independent reasonable range for key
assumptions and the key assumptions determined by management, both individually and in aggregate.
Key
observations
The key assumptions used in the calculation of the retirement benefit obligations were within our reasonable
ranges.
Uncertain tax positions
Key audit
matter
description
How the scope
of our audit
responded to
the key audit
matter
Key
observations
The Group evaluates uncertain tax items, which are subject to interpretation and agreement of the position with
the local tax authorities and consequently agreement may not be reached for a number of years.
Given the global operations of Coats, the Group is exposed to a large number of tax jurisdictions and this
exposure gives rise to a number of judgemental taxation positions, particularly in respect of cross-border
transactions. The Group’s uncertain tax provisions at 31 December 2019 amount to $14 million.
There is a risk that there are matters excluded from the gross exposure calculation and there is judgement
required to determine the amount to be provided against known exposures. We have therefore identified a key
audit matter relating to the valuation of the central tax provision.
The Group’s effective tax rate reconciliation is provided in note 9 and the matter is discussed as a significant
financial and reporting issue in the Audit and Risk Committee Report on page 61.
We worked with our tax specialists, including transfer pricing tax specialists, in key jurisdictions to evaluate and
challenge the appropriateness of judgements and assumptions made by management with respect to their
assessment and valuation of the central tax provision. This included a review of applicable third party evidence
and inspection of correspondence with tax authorities to assess the adequacy of the associated provision and
disclosures.
We are satisfied that the provisions raised in respect of the potential taxation exposures are appropriate.
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Our application of materiality
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Basis for
determining
materiality
Rationale for
the benchmark
applied
Group financial statements
$8.2 million (2018: $8.5 million)
5% of adjusted profit before tax. This is consistent with the prior year.
Profit before tax has been adjusted in determining materiality to exclude items
which, due to their variable financial impact and/or expected infrequency of the
underlying events, are not considered indicative of continuing operations of the
Group. These items do not form part of the Group’s internally or externally
monitored primary key performance indicators, and which if included, would
distort materiality year-on-year.
Adjusted profit before tax is a key measure used by Coats Group plc in
reporting their results and is determined to be the most appropriate basis for
determining materiality.
Parent Company
financial statements
$7.4 million (2018: $7.2
million)
Parent Company materiality
equates to 0.6% of net assets,
having been capped at 90%
(2018: 85%) of Group
materiality.
The parent Company is
primarily an investment
holding company and net
assets is considered the most
appropriate benchmark.
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Adjusted PBT
$171.2m
Adjusted PBT
Group materiality
Group materiality
$8.2m
Component
materiality range
$0.4m to $6.2m
Audit and Risk
Committee reporting
threshold $0.4m
Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of Group
materiality for the 2019 audit (2018: 70%). In determining performance materiality, we considered our history of auditing the entity,
including the lack of significant deficiencies and errors identified in previous years.
Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of $0.4 million
(2018: $0.4 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Coats Group plc was subject to a 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 focused our Group audit scope on 11 (2018: 11) overseas
components spread across four continents which were subject to full audits. Our involvement in their audits is as follows:
•
For all components, we held planning calls, maintained regular contact throughout the audit process, directed the audit procedures
performed and reviewed the risk assessment and work of overseas component auditors.
• We continued to follow a programme of regular on-site meetings with components that has been designed so that the Senior
Statutory Auditor or another senior member of the Group audit team periodically meets with local management and the component
audit team on a rotational basis. During 2019, the Senior Statutory Auditor visited Coats operations in Vietnam and Indonesia, and
met with the respective component audit team. Senior members of the engagement team also visited the operations in India, Sri
Lanka and USA.
Our audit work at these components was executed at levels of materiality set by the Group engagement team which were lower than
the Group materiality and range from $0.4 million to $6.2 million (2018: $0.5 million to $5.1 million).
The 11 overseas components and UK components subject to full scope audits account for 75% of the Group’s net assets (2018: 76%),
77% of the Group’s revenue (2018: 75%) and 79% of the Group’s profit before tax within the Group’s profit making components
(2018: 79%).
Additionally, four components were subject to specified audit procedures. These components were selected in order to provide an
appropriate basis for undertaking the audit work to address the risks of material misstatement identified above. Our oversight of these
components was the same as for components subject to full audits, maintaining regular contact throughout the audit process, although
the group engagement team did not visit these components.
At the group 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.
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CONTINUED
19%
4%
Revenue
18%
3%
Profit
before tax
19%
6%
Net assets
77%
79%
75%
Full audit scope
Full audit scope
Full audit scope
Specified audit procedures
Specified audit procedures
Specified audit procedures
Review at group level
Review at group level
Review at group level
We have nothing to
report in respect of
these matters.
Coverage of the group’s profit before tax is shown as a percentage of profit making components.
Other Information
The Directors are responsible for the other information. The other information comprises the information
included in the Annual Report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
•
Fair, balanced and understandable – the statement given by the Directors that they consider the
Annual Report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and performance,
business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit and Risk Committee reporting – the section describing the work of the Audit and Risk
Committee does not appropriately address matters communicated by us to the Audit and Risk
Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
Directors’ statement required under the Listing Rules relating to the Company’s compliance with the
UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
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Responsibilities of Directors
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, and for such internal control as the Directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting
unless the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud and non-compliance with laws
and regulations are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities,
including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and
perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a
basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
•
the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
•
•
•
results of our enquiries of management, Group Internal Audit and the Audit and Risk Committee about their own identification and
assessment of the risks of irregularities;
any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
•
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and
•
•
the matters discussed among the audit engagement team including significant component audit teams, and involving relevant
internal specialists, including tax, valuations, pensions, IT and industry specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following area: the valuation of accrued customer rebates in relation to revenue
recognition. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The
key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and tax
legislation.
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In addition, we considered provisions of other laws and regulations, such as environment legislation, that do not have a direct effect on
the financial statements but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty.
Audit response to risks identified
As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-compliance
with laws and regulations.
Our procedures to respond to risks identified included the following:
•
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and
regulations discussed above;
•
•
•
•
enquiring of management, the Audit and Risk Committee and external legal counsel concerning actual and potential litigation and
claims;
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
tax and licensing authorities;
in addressing the risk of fraud in revenue recognition, we have substantively tested a sample to assess whether both the global and
local rebates recognised are accurate and complete; and
•
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Report on other legal and regulatory requirements
Opinions 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.
In our opinion, based on the work undertaken in the course of the audit:
•
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; and
•
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the parent Company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF COATS GROUP PLC
CONTINUED
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
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
We have nothing
to report in
respect of these
matters.
•
the parent Company financial statements are not in agreement with the accounting records and returns.
Directors’ remuneration
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 in
respect of these
matters.
Other matters
Auditor tenure
Following the recommendation of the Audit and Risk Committee, we were appointed by the Board of Directors on 17 June 2003 to
audit the financial statements for the year ending 31 December 2003 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 17 years, covering the years ending 31 December 2003 to 31
December 2019.
Consistency of the audit report with the additional report to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance with
ISAs (UK).
Use of our report
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.
Edward Hanson (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
4 March 2020
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CONSOLIDATED INCOME STATEMENT
Year ended 31 December
Notes
Continuing operations:
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit
Share of profits of joint ventures
Finance income
Finance costs
Profit before taxation
Taxation
2,3
2,4,5
16
6
7
5
9
Profit from continuing operations
Profit/(loss) from discontinued operations
32
Profit for the year
Attributable to:
Equity shareholders of the company
Non-controlling interests
Earnings per share (cents):
11
Continuing operations:
Basic
Diluted
Continuing and discontinued operations:
Basic
Diluted
Before
exceptional
and
acquisition
related
items
US$m
Exceptional
and
acquisition
related
items
(see note 4)
US$m
2019
Total
US$m
Before
exceptional
and
acquisition
related
items
US$m
Exceptional
and
acquisition
related
items
(see note 4)
US$m
1,388.7
(898.1)
490.6
(135.9)
(156.7)
-
198.0
1.1
1.7
(29.6)
171.2
(50.5)
120.7
0.1
120.8
100.7
20.1
120.8
–
0.4
0.4
(2.8)
(7.5)
2.9
(7.0)
-
2.6
-
(4.4)
-
(4.4)
(0.6)
(5.0)
(5.0)
-
(5.0)
–
(4.4)
(4.4)
(4.5)
(38.9)
–
(47.8)
–
–
–
(47.8)
4.8
(43.0)
1,388.7
1,414.7
(897.7)
(901.9)
512.8
(142.7)
(176.0)
0.8
194.9
0.1
1.7
(26.1)
170.6
(53.8)
116.8
491.0
(138.7)
(164.2)
2.9
191.0
1.1
4.3
(29.6)
166.8
(50.5)
116.3
(0.5)
115.8
95.7
20.1
2.8
(18.4)
119.6
(61.4)
100.4
(61.2)
19.2
(0.2)
115.8
119.6
(61.4)
6.66
6.60
6.63
6.57
2018
Total
US$m
1,414.7
(906.3)
508.4
(147.2)
(214.9)
0.8
147.1
0.1
1.7
(26.1)
122.8
(49.0)
73.8
(15.6)
58.2
39.2
19.0
58.2
3.85
3.78
2.76
2.70
Adjusted earnings per share
37(d)
6.97
6.87
Notes on pages 111 to 175 form part of these financial statements.
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CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Year ended 31 December
Profit for the year
Items that will not be reclassified subsequently to profit or loss:
Actuarial losses on retirement benefit schemes
Tax on items that will not be reclassified
Items that may be reclassified subsequently to profit or loss:
Gains/(losses) on cash flow hedges arising during the year
Transferred to profit or loss on cash flow hedges
Exchange differences on translation of foreign operations
Other comprehensive income and expense for the year
Net comprehensive income and expense for the year
Attributable to:
Equity shareholders of the company
Non-controlling interests
Notes on pages 111 to 175 form part of these financial statements.
2019
US$m
115.8
2018
US$m
58.2
(31.1)
(21.8)
7.3
1.2
(23.8)
(20.6)
4.8
(0.3)
(7.7)
(3.2)
(1.0)
(0.6)
(20.5)
(22.1)
(27.0)
(42.7)
88.8
15.5
69.0
19.8
88.8
(2.7)
18.2
15.5
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December
Non-current assets:
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments in joint ventures
Other equity investments
Deferred tax assets
Pension surpluses
Trade and other receivables
Current assets:
Inventories
Trade and other receivables
Other equity investments
Pension surpluses
Cash and cash equivalents
Assets of disposal group and non-current assets classified as held for sale
Total assets
Current liabilities:
Trade and other payables
Current income tax liabilities
Bank overdrafts and other borrowings
Lease liabilities
Retirement benefit obligations:
-
-
Funded schemes
Unfunded schemes
Provisions
Liabilities of disposal group classified as held for sale
Net current assets
Notes
2019
US$m
13
14
15
16
16
17
10
19
18
19
16
10
30(f)
32(c)
21
23
15
10
10
25
32(c)
2018
US$m
284.2
282.2
-
10.6
6.1
19.2
42.6
21.4
291.0
276.3
63.4
11.4
6.1
16.2
13.8
20.1
698.3
666.3
172.5
261.2
0.1
4.7
177.4
1.5
617.4
185.4
253.8
0.6
6.1
135.7
51.4
633.0
1,315.7
1,299.3
(284.4)
(17.8)
(43.8)
(14.1)
(27.5)
(6.2)
(12.8)
-
(406.6)
210.8
(302.7)
(15.5)
(20.3)
-
(16.0)
(6.0)
(16.3)
(17.9)
(394.7)
238.3
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONTINUED
31 December
Non-current liabilities:
Trade and other payables
Deferred tax liabilities
Borrowings
Lease liabilities
Retirement benefit obligations:
-
Funded schemes
Unfunded schemes
-
Provisions
Total liabilities
Net assets
Equity:
Share capital
Share premium account
Own shares
Translation reserve
Capital reduction reserve
Other reserves
Retained loss
Equity shareholders’ funds
Non-controlling interests
Total equity
Rajiv Sharma
Group Chief Executive
Notes
21
24
23
15
10
10
25
26
27
26, 27
27
27
27
27
27
2019
US$m
(18.2)
(8.2)
(283.5)
(50.9)
(71.6)
(94.5)
(30.7)
(557.6)
(964.2)
2018
US$m
(23.1)
(10.5)
(338.1)
-
(99.5)
(95.5)
(39.0)
(605.7)
(1,000.4)
351.5
298.9
89.6
10.5
(5.7)
(75.9)
59.8
248.7
(5.9)
321.1
30.4
351.5
88.5
10.4
(6.8)
(68.5)
59.8
244.2
(56.7)
270.9
28.0
298.9
Simon Boddie
Chief Financial Officer
Approved by the Board 4 March 2020
Company Registration No.103548
Notes on pages 111 to 175 form part of these financial statements.
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CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
Share
capital
US$m
Share
premium
account
US$m
Own
shares
US$m
Translation
reserve
US$m
Capital
reduction
reserve
US$m
Other
reserves
US$m
Retained
loss
US$m
Balance as at 1 January 2018
87.5
7.7
(7.7)
Profit for the year
Other comprehensive income
and expense for the year
Dividends (see note 12)
–
–
–
–
–
–
Issue of ordinary shares
1.0
2.7
–
–
–
–
0.9
–
–
–
–
–
–
–
–
88.5
10.4
(6.8)
-
-
-
-
-
-
1.1
0.1
-
-
-
-
-
-
-
-
-
-
1.1
-
-
(48.8)
–
(19.7)
–
–
–
–
–
(68.5)
-
(7.4)
-
-
-
-
-
Movement in own shares
Share based payments
Deferred tax on share
schemes
Balance as at
31 December 2018
Profit for the year
Other comprehensive income
and expense for the year
Dividends
(see notes 12 and 27)
Issue of ordinary shares
(see note 26)
Movement in own shares
Share based payments
Deferred tax on share
schemes
Balance as at
31 December 2019
59.8
245.8
–
–
–
–
–
–
–
–
(1.6)
–
–
–
–
–
Total
US$m
285.7
39.2
(41.9)
(21.1)
3.0
0.9
7.4
(58.6)
39.2
(20.6)
(21.1)
(0.7)
–
7.4
(2.3)
(2.3)
59.8
244.2
(56.7)
270.9
-
95.7
95.7
Non-
controlling
interests
US$m
24.6
19.0
Total
equity
US$m
310.3
58.2
(0.8)
(14.8)
(42.7)
(35.9)
–
–
–
–
3.0
0.9
7.4
(2.3)
28.0
20.1
298.9
115.8
-
-
-
-
-
-
-
4.5
(23.8)
(26.7)
(0.3)
(27.0)
-
-
-
-
-
(24.4)
(24.4)
(17.4)
(41.8)
(1.1)
(0.2)
6.1
0.1
0.9
6.1
(1.5)
(1.5)
-
-
-
-
0.1
0.9
6.1
(1.5)
89.6
10.5
(5.7)
(75.9)
59.8
248.7
(5.9)
321.1
30.4
351.5
Notes on pages 111 to 175 form part of these financial statements.
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CONSOLIDATED STATEMENT
OF CASH FLOWS
Year ended 31 December
Cash inflow from operating activities:
Cash generated from operations
Interest paid
Taxation paid
Net cash generated by operating activities
Cash outflow from investing activities:
Investment income
Net capital expenditure and financial investment
Acquisitions and disposals of businesses
Net cash absorbed in investing activities
Cash outflow from financing activities:
Receipts from exercise of share options
Dividends paid to equity shareholders
Dividends paid to non-controlling interests
Payment of lease liabilities
Net decrease in borrowings
Net cash absorbed in financing activities
Net increase in cash and cash equivalents
Net cash and cash equivalents at beginning of the year
Foreign exchange gains/(losses) on cash and cash equivalents
Net cash and cash equivalents at end of the year
Reconciliation of net cash flows to movements in net debt
Net increase in cash and cash equivalents
Net decrease in other borrowings
Change in net debt resulting from cash flows (free cash flow)
Notes
30(a)
30(b)
30(c)
30(d)
30(e)
30(f)
2019
US$m
205.4
(15.2)
(46.3)
143.9
0.3
(39.1)
25.8
(13.0)
0.2
(24.1)
(17.4)
(17.3)
(52.3)
(110.9)
20.0
115.7
0.2
135.9
20.0
52.3
72.3
Increase in lease liabilities on adoption of IFRS 16
1
(57.7)
Net movement in lease liabilities during the period following the adoption of IFRS 16
Other non-cash movements
Foreign exchange gains/(losses)
Decrease in net debt
Total net debt at the start of the year
Total net debt at the end of the year
Notes on pages 111 to 175 form part of these financial statements.
(6.8)
(0.7)
0.7
7.8
(222.7)
(241.5)
30(f)
(214.9)
(222.7)
2018
US$m
171.1
(19.1)
(50.1)
101.9
1.6
(45.6)
(0.1)
(44.1)
3.0
(21.1)
(14.8)
-
(20.4)
(53.3)
4.5
116.8
(5.6)
115.7
4.5
20.4
24.9
-
-
(0.7)
(5.4)
18.8
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NOTES TO THE FINANCIAL STATEMENTS
1 Principal accounting policies
The following are the principal accounting policies adopted in preparing the financial statements.
Critical accounting judgements and key sources of estimation uncertainty
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 year and/or
the carrying values of assets and liabilities in the consolidated financial statements:
Critical judgements in applying the Group’s accounting policies
In the course of preparing the financial statements, no judgements have been made in the process of applying the Group’s accounting
policies, other than those involving estimations (which are dealt with separately below) that have had a significant effect on the amounts
recognised in the financial statements.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other sources of estimation uncertainty at the balance sheet date, that may have
a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below.
UK retirement benefit obligations
The UK retirement benefit obligations recognised in the consolidated statement of financial position 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 inflation rates. Changes in
any or all of these assumptions could materially change the employee benefit obligations recognised in the consolidated statement
of financial position. The carrying values of the Group’s pension obligations as well as a sensitivity analysis relating to changes in discount
rates, beneficiary mortality and inflation rates are included in note 10.
During the year ended 31 December 2019 critical accounting judgements and key sources of estimation uncertainty were reassessed.
Classification of exceptional and acquisition related items (note 4) are no longer considered a critical judgement in applying the Group’s
accounting policies as the total impact of these on profit before taxation was reduced in 2019. The classification of the North America
Crafts business as held for sale (note 32) is no longer a critical accounting judgement after its disposal during the year. Provisioning for
Lower Passaic River environmental matters (note 28) is not considered a key source of estimation uncertainty at 31 December 2019 as,
whilst there remains an estimation uncertainty in the longer term, there is not a significant risk of a material adjustment to this provision
before 31 December 2020.
a) Accounting convention and format
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union and therefore comply with Article 4 of the EU IAS Regulations. The financial statements are prepared under the
historical cost convention except for investments and derivatives which are stated at fair value, disposal groups which are held at fair
value less costs to sell and retirement benefit obligations which are valued in accordance with IAS 19 Employee Benefits.
Except for the changes arising from the adoption of new accounting standards (as detailed in note 1), and the changes to operating
segments (as detailed in note 2) 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 2018.
b) Basis of preparation
Subsidiaries
Subsidiaries are consolidated from the effective date of acquisition or up to the effective date of disposal, as appropriate, or the
subsidiary meets the criteria to be classified as held for sale. The effective date is when control passes to or from the Group. Control is
achieved when the Group has the power over the investee and is exposed, or has the rights to variable returns from its involvement with
the investee and has the ability to use its power to affect its returns. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered in determining the existence or otherwise of control. Where necessary, adjustments are made
to the financial statements of subsidiaries to align their accounting policies with those used by the Group.
Where subsidiaries are not 100% owned by the Group, the share attributable to outside shareholders is reflected in non-controlling
interests. Non-controlling interests are identified separately from the Group’s equity, and may initially be measured at either fair value or
at the non-controlling interests’ share of the fair value of the subsidiary’s identifiable net assets. The choice of measurement is made on
an acquisition-by-acquisition basis. Changes in the Group’s interests in subsidiaries, that do not result in a loss of control, are accounted
for as equity transactions. Where control is lost, a gain or loss on disposal is recognised through the consolidated income statement,
calculated as the difference between the fair value of consideration received (plus the fair value of any retained interest) and the Group’s
previous share of the former subsidiary’s net assets. Amounts 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.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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.
Discontinued operations
In January 2019 the Group announced the agreement to sell the North America Crafts business to Spinrite Acquisition Corp and the sale
was completed on 20 February 2019, the date which control passed to the acquirer. The North America Crafts business was classified as
held for sale at 31 December 2018 and its results presented as a discontinued operation in the financial statements of the Group for the
year ended 31 December 2018. Note 32 provides further details on the results of North America Crafts.
Going concern
Giving due consideration to the nature of the Group’s business and taking account of the following matters: the financing facilities
available to the Group; the Group’s foreign currency exposures; 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 60.
c) Functional currency
The functional currency of Coats Group plc continued to be United States dollars (‘USD’) during the year ended 31 December 2019.
d) Foreign currencies
Foreign currency translation
The Group’s presentation currency is USD. Transactions of companies within the Group are recorded in the functional currency
of that company. Currencies other than the functional currency are foreign currencies.
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 currency differences that represent a net investment in a
foreign operation, which are taken directly to equity until disposal of the net investment, at which time they are recycled through the
consolidated income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rate as at the date of initial transaction.
Group companies
Assets and liabilities of subsidiaries whose presentation currency is not USD 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.
The principal exchange rates (to the US dollar) used in preparing these financial statements are as follows:
Average
Period end
Sterling
Euro
Brazilian Real
Chinese Renminbi
Indian Rupee
Turkish Lira
Sterling
Euro
Brazilian Real
Chinese Renminbi
Indian Rupee
Turkish Lira
2019
0.79
0.90
3.95
6.91
2018
0.75
0.85
3.65
6.62
70.41
68.41
5.78
0.75
0.89
4.02
6.96
71.35
5.95
4.84
0.78
0.87
3.87
6.88
69.77
5.29
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
e) Operating segments
Operating segments are components of the Group about which separate financial information is available that is evaluated by the
Coats Group plc Group Executive Team in deciding how to allocate resources and in assessing performance. The reportable segments
were changed in 2019 to Apparel & Footwear and Performance Materials and therefore comparative information for the year ended 31
December 2018 has been restated on a consistent basis. Previously the reportable segments for the year ended 31 December 2018
comprised the continuing industrial thread business and the discontinued North America Crafts business which was sold in February
2019. See note 2 for further details.
f) Operating profit
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.
g) Exceptional and acquisition related items
The Group has adopted an income statement format which seeks to highlight significant items within the Group results for the year.
Exceptional 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, gains or losses arising from significant one off changes to the assumptions
underlying the defined benefit pension obligations, regulatory investigation costs and impairment of assets. Acquisition related items
include amortisation of acquired intangible assets, acquisition transaction costs, contingent consideration linked to employment and
adjustments to contingent consideration. Please see note 4 for further details on why management consider these items to be
exceptional.
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,
materiality is a key consideration and qualitative factors, such as frequency or predictability of occurrence, are also considered. This is
consistent with the way financial performance is measured by management and reported to the Board.
h) Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairments.
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
Leasehold improvements
Plant and equipment
Vehicles and office equipment
50 years to 100 years
10 years to 50 years or over the term of the lease if shorter
3 years to 20 years
2 years to 10 years
Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each period end.
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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 tested 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 smallest group of
assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Negative goodwill is recognised immediately in the income statement.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value
at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation
and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
The estimated useful lives (other than the Coats Brand) are as follows:
Brands and trade names
Technology
Customer relationships
5 years to 20 years
4 years to 10 years
9 years to 14 years
The useful life of the Coats Brand is considered to be indefinite.
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 amortisation charge for both acquired and other intangibles assets is included within the distribution costs and administrative
expense lines in the consolidated income statement.
Impairment of property, plant and equipment and intangible assets excluding goodwill
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to
depreciation or 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.
an asset is created that can be separately identified;
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:
•
•
•
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.
it is probable that the asset created will generate future economic benefits; and
the development costs can be measured reliably.
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j) Leases
The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17. The details of accounting policies under IAS 17 are disclosed separately.
Policy applicable from 1 January 2019
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and
a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as
leases with a lease term of 12 months or less) and leases of low value assets (defined as assets with a value of US$5,000 or less when
new). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the
lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are
consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing
rate.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
•
the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability
is remeasured by discounting the revised lease payments using a revised discount rate;
•
•
the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the
lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); and
a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured by discounting the revised lease payments using a revised discount rate.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment
losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or
restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured
under IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’. The costs are included in the related right-of-use asset, unless
those costs are incurred to produce inventories.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers
ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the
related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of
the lease.
Variable rents that do not depend on an index are not included in the measurement of the lease liability and the right-of-use asset. The
related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.
Policy applicable before 1 January 2019
In the comparative period, as a lessee the Group classified leases that transferred substantially all of the risks and rewards of ownership
as finance leases. When this was the case, the leased assets were measured initially at an amount equal to the lower of their fair value
and the present value of the minimum lease payments. Subsequent to initial recognition, the assets were accounted for in accordance
with the accounting policy applicable to that asset.
Assets held under other leases were classified as operating leases and were not recognised in the Group’s statement of financial position.
Payments made under operating leases were recognised in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received were recognised as an integral part of the total lease expense, over the term of the lease.
k) Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the relevant
financial instrument.
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Financial assets
(i) Investments in equity securities
Investments in equity securities 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, with movements recorded in other
comprehensive income. 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.
(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 at fair value (which ordinarily reflects the invoice amount) and carried at amortised cost, less an
allowance for expected lifetime losses as permitted under the simplified approach in IFRS 9. Fully provided balances are not written
off from the balance sheet until the Group has decided to cease enforcement activity.
Financial liabilities
(i) Trade payables
Trade payables are not interest-bearing and are recognised at fair value, and measured subsequently at amortised cost.
(ii) Borrowings
Interest-bearing loans and overdrafts are initially measured at fair value, net of direct issue costs. These financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised over the period
of the relevant liabilities.
(iii) Compound instruments
The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the
substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing
market interest rate for a similar non-convertible instrument, and this amount is recorded as a liability at amortised cost. The equity
component is the fair value of the compound instrument as a whole less the amount of the liability component, and is recognised in
equity, net of income tax effect, without subsequent remeasurement.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts, and the host contracts are not measured at fair value with changes
in fair value being recognised in the income statement.
(iv) Derivative financial instruments and hedge accounting
The Group’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates.
The use of financial derivatives is regulated by the Board or that of the relevant operating subsidiary in accordance with their respective
risk management strategies. Changes in values of all derivatives of a financing nature are included within investment income and finance
costs in the income statement.
Derivative financial instruments are initially measured at fair value at contract date and are remeasured at each reporting date.
The Group designates hedging instruments as either fair value hedges, cash flow hedges or hedges of net investments in foreign
operations. Hedges of 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.
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(vi) Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred in
equity. Once the related hedged item is recognised in the income statement, the amounts deferred in equity are recycled through the
consolidated income statement. The gain or loss arising from any ineffective portion of the hedge is recognised immediately through
the consolidated income statement.
(vii) Hedges of net investments in foreign operations
Gains and losses on hedging instruments relating to the effective portion of such hedges are recognised through the translation reserve,
and recycled through the consolidated income statement on disposal of the respective foreign operations. The gain or loss arising from
any ineffective portion of such hedges is recognised immediately through the consolidated income statement.
l) Revenue
Revenue comprises the fair value of the sale of goods and services, net of sales tax and discounts and rebates, and after eliminating sales
within the Group. Revenue is recognised as follows:
(i) Sales of goods
Sales of goods are recognised in revenue at a single point in time when control of the goods has been transferred to the buyer. The
point in time at which control is deemed to have transferred varies depending on the commercial terms agreed with the buyer.
(ii) Sales of services
Sales of services are recognised in the period in which the services are rendered, as follows:
•
Software implementation and licensing income – performance obligations are satisfied over a period of time and therefore revenue
is recognised by reference to the stage of completion at the period end. The Group uses labour hours expended to assess the stage
of completion as it is deemed to be the most appropriate basis to measure progress.
• Maintenance income – performance obligations are satisfied evenly over a fixed period of time and therefore revenue is recognised
on a straight line basis over the maintenance period.
Advances received from customers are included within contract liabilities.
(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.
m) 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.
n) 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.
Current and past service costs, along with the impact of any settlements or curtailments, are charged to the consolidated income
statement. The net interest expense on pension plans’ liabilities and the expected return on the plans’ assets is recognised within
finance expense in the consolidated income statement.
In addition, pension scheme administrative expenses including the Pension Protection Fund (PPF) levy and actuary, audit, legal and
trustee charges are recognised as administrative expenses.
The retirement benefit and other post employment benefit obligation recognised in the consolidated statement of financial position
represents the deficit or surplus in the Group’s defined benefit schemes. Any surplus resulting from this calculation is limited to the
present value of any economic benefits available in the form of refunds from the schemes or reductions in future contributions to the
schemes and refunds expected from the schemes to fund other Group defined benefit schemes, in accordance with relevant legislation.
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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
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.
To satisfy awards under this Plan, shares may be purchased in the market by an Employee Benefit Trust 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.
(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.
o) 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 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.
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p) 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 are recognised in the income statement in the period in which they are incurred.
q) 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.
r) 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.
s) 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.
t) 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.
IFRS 16 (‘Leases’);
New IFRS accounting standards, interpretations and amendments adopted in the year
During the year, the Group has adopted the following standards, interpretations and amendments:
•
• Amendments to IFRS 9 (‘Prepayment features with negative compensation and modifications of financial liabilities’);
• Amendments to IAS 19 (‘Plan amendments, curtailments or settlements’);
• Amendments to IAS 28 (‘Long-term interests in Associates and Joint Ventures’);
• Annual Improvements to IFRS’s 2015 – 2017 cycle;
•
•
The adoption of these standards has not had a material impact on the financial statements of the Group, except for the adoption of IFRS
16 ‘Leases’ as set out below.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7).
IFRIC 23 Uncertainty over Income Tax Treatments; and
IFRS 16 ‘Leases’
In the current year, the Group, for the first time, has applied IFRS 16 ‘Leases’. The date of initial application of IFRS 16 for the Group is 1
January 2019.
This standard provides a single model for lessees which recognises a right-of-use asset and lease liability for all leases, exemptions can be
applied to low value and short-term leases. The distinction between finance and operating leases for leases is removed.
Details of the impact of adopting IFRS 16 is set out below. Significant judgements applied in the adoption of IFRS 16 included
determining the lease term for those leases with termination or extension options and determining an incremental borrowing rate where
the rate implicit in a lease could not be readily determined.
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Approach to IFRS 16 transition
The Group has adopted the modified retrospective approach from the transitional date, and therefore comparatives have not been
restated. This involved calculating the right-of-use asset and lease liability based on the present value of remaining lease payments on all
applicable lease contracts as at the transition date. IFRS 16 also has a number of practical expedients for first time adoption.
The Group has utilised the following practical expedients at the transition date:
• Apply a single discount rate to a portfolio of leases with reasonably similar characteristics;
•
• Use hindsight to determine the term;
• Use onerous contract assessment under IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ immediately before
Exclude initial direct costs from the measurement of the right-of-use asset on transition;
transition instead of performing an impairment review under IAS 36 ‘Impairment of Assets’;
•
•
For leases with a remaining term of less than 12 months at 1 January 2019, the short-term lease exemption in IFRS 16 was taken;
and
Leases comprising of both an asset and a non-lease service component will not be separated and both asset and service cost will be
included in the calculation of the initial asset and liability.
The Group also considered the implications of IFRS 16 on other, more judgmental, contractual arrangements such as solar panels,
biomass generators and other manufacturing contracts. Of the contractual arrangements reviewed those relating to biomass generators
and solar panels were determined to be leases. However, the lease payments for the solar panels vary with output of the underlying
asset and are therefore expensed under IFRS 16.
Financial impact of the adoption of IFRS 16
The adoption of IFRS 16 had the following impact on the Group’s consolidated statement of financial position at 1 January 2019:
Consolidated statement of financial position
Increase in right-of-use assets
Increase in lease liabilities
Decrease in property, plant and equipment
Decrease in provisions
Decrease in prepayments
1 January
2019
US$m
58.5
(57.7)
(0.2)
1.3
(1.9)
The table below presents a reconciliation from operating lease commitments disclosed at 31 December 2018 to lease liabilities
recognised at 1 January 2019. When measuring lease liabilities for leases that were classified as operating leases, the Group discounted
lease payments using its incremental borrowing rate at 1 January 2019. The weighted average rate applied is 6%.
Operating lease commitments disclosed under IAS 17 at 31 December 2018 (as restated)1
Short term and low value lease commitments straight-line expensed under IFRS 16
Payments due in periods covered by extension options that are included in the lease term
Effect of discounting
Lease liabilities recognised at 1 January 2019
Less: Liabilities relating to discontinued North America Crafts business (classified as held for sale on 31 December 2018)
Lease liabilities from continuing operations recognised at 1 January 2019
1 January
2019
US$m
82.8
(2.9)
11.0
(19.4)
71.5
(13.8)
57.7
1. Subsequent to the 2018 year end the Group identified as part of its IFRS 16 assessment operating lease commitments of $2.4 million which were omitted from the 2018 disclosure and as such have
now been included in the operating lease commitments disclosed under IAS 17 at 31 December 2018.
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The adoption of IFRS 16 has had the following impact on the Group’s results from continuing operations for the year ended
31 December 2019:
Consolidated income statement
Increase in operating profit
Decrease in profit before tax
Decrease in profit after tax
Consolidated cash flow statement
Increase in cash flows from operating activities
Decrease in cash flows from financing activities
2019
US$m
2.3
(1.4)
(1.0)
17.3
(17.3)
Following the adoption of IFRS 16 ‘Leases’, payments of obligations under leases from 1 January 2019 are reported within cash flows
from financing activities and are deducted in arriving at free cash flow. For the year ended 31 December 2018 before the adoption of
IFRS 16 there were immaterial amounts of payments under finance leases included within cash flows from financing activities.
As lease liabilities are included within net debt, the transition to IFRS 16 has resulted in an increase in net debt of $64.1 million as at
31 December 2019. For the definition and calculation of net debt see note 30 (f). For financial covenant purposes, the Group’s leverage
remains calculated on the basis without the impact of IFRS 16.
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 2020:
• Amendments to References to the Conceptual Framework in IFRS Standards;
• Definition of a Business (Amendments to IFRS 3); and
• Definition of Material (Amendments to IAS 1 and IAS 8).
From the year beginning 1 January 2021:
•
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, although the full assessment is not complete.
IFRS 17 Insurance Contracts.
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2 Segmental analysis
Operating segments are components of the Group’s business activities about which separate financial information is available that is
evaluated regularly by the chief operating decision maker (the Group Executive Team). The Group’s customers are grouped into two
segments Apparel & Footwear and Performance Materials which have distinct different strategies and differing customer/end-use market
profiles.
The reportable segments were changed in 2019 to Apparel & Footwear and Performance Materials and therefore comparative
information for the year ended 31 December 2018 has been restated on a consistent basis.
Previously the reportable segments for the year ended 31 December 2018 comprised the continuing industrial thread business and the
discontinued North America Crafts business which was sold in February 2019. The results of the discontinued North America Crafts
business is set out in Note 32.
Following its integration with the wider Latin America business, the smaller Latin America Crafts business is reported within the Apparel
& Footwear segment.
a) Segment revenue and results
Year ended 31 December 2019
Revenue
Segment profit
Exceptional and acquisition related items (note 4)
Operating profit
Share of profits of joint ventures
Finance income
Finance costs
Profit before taxation from continuing operations
Year ended 31 December 2018 (Restated)
Revenue
Segment profit
Exceptional and acquisition related items (note 4)
Operating profit
Share of profits of joint ventures
Finance income
Finance costs
Profit before taxation
Apparel &
Footwear
US$m
Performance
Materials
US$m
1,063.1
156.3
325.6
41.7
Apparel &
Footwear
US$m
Performance
Materials
US$m
1,083.0
148.1
331.7
46.8
Total
US$m
1,388.7
198.0
(7.0)
191.0
1.1
4.3
(29.6)
166.8
Total
US$m
1,414.7
194.9
(47.8)
147.1
0.1
1.7
(26.1)
122.8
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Exceptional
and acquisition related items are not allocated to segments. In addition no measures of total assets and total liabilities are reported for
each reportable segment as such amounts are not regularly provided to the chief operating decision maker.
The accounting policies of the reportable operating segments are the same as the Group’s accounting policies described in note 1.
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b) Geographic information
Year ended 31 December
Europe, Middle East & Africa (EMEA)
UK
Rest of EMEA
Americas
USA
Rest of Americas
Asia & Rest of World
India
China and Hong Kong
Vietnam
Other
Revenue by origin
Revenue by destination
Non-current assets
2019
US$m
11.3
254.5
145.1
178.1
168.5
177.9
202.0
251.3
2018
US$m
2019
US$m
2018
US$m
2019
US$m
2018
US$m
11.3
263.9
145.5
203.1
171.1
182.3
184.0
253.5
13.0
239.6
147.0
185.6
164.1
164.9
182.3
292.2
14.0
264.4
261.7
249.5
77.1
74.1
145.2
206.6
166.7
155.8
166.8
310.1
57.1
45.9
58.1
51.9
35.6
74.9
50.5
43.0
42.2
37.4
32.8
62.5
1,388.7
1,414.7
1,388.7
1,414.7
665.0
604.2
Non-current assets excludes derivative financial instruments, pension surpluses and deferred tax assets.
3 Revenue
An analysis of the Group’s revenue is as follows:
Year ended 31 December
Continuing operations:
Goods transferred at a point in time
Software solutions services transferred over time
Other operating income
Finance income
Discontinued operations:
Goods transferred at a point in time
Other operating income
2019
US$m
2018
US$m
1,376.6
12.1
1,388.7
2.9
4.3
1,403.4
11.3
1,414.7
0.8
1.7
1,395.9
1,417.2
14.0
1.6
15.6
121.8
3.6
125.4
1,411.5
1,542.6
The elimination of revenue from continuing operations to North America Crafts discontinued operations of $0.8 million for the period to
the date of disposal on 20 February 2019 (year ended 31 December 2018: $5.7 million) is presented within discontinued operations.
The software solutions business is included in the Apparel & Footwear segment.
The Group had no revenue from a single customer, which accounts for more than 10% of the Group’s revenue.
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Disaggregation of revenue
The following table shows revenue disaggregated by primary geographic markets which reconciles with the Group’s reportable
segments:
Year ended 31 December
Continuing operations:
Asia
Americas
EMEA
Continuing operations:
Apparel & Footwear
Performance Materials
2019
US$m
799.7
323.2
265.8
2018
US$m
790.9
348.6
275.2
1,388.7
1,414.7
1,063.1
1,083.0
325.6
331.7
1,388.7
1,414.7
4 Exceptional and acquisition related items
The Group’s consolidated income statement format includes results before and after exceptional and acquisition related items. Adjusted
results exclude exceptional and acquisition related items to reflect the underlying performance of the business and to provide
a more meaningful comparison of how the business is managed and measured on a day-to-day basis. Further details on alternative
performance measures are set out in note 37.
Judgement is used by the Group in assessing the particular items, which by virtue of their scale and nature, are presented in the income
statement and disclosed in the related notes as exceptional items. In determining whether an event or transaction is exceptional,
materiality is a key consideration and qualitative factors, such as frequency or predictability of occurrence, are also considered. This is
consistent with the way financial performance is measured by management and reported to the Board.
Total exceptional and acquisition related items charged to operating profit for the year ended 31 December 2019 were $7.0 million
(2018: $47.8 million) comprising exceptional items for the year ended 31 December 2019 of $4.8 million (2018: $40.5 million) and
acquisition related items for the year ended 31 December 2019 of $2.2 million (2018: $7.3 million).
Exceptional items
Exceptional items charged/(credited) to operating profit during the year ended 31 December 2019 are set out below:
Year ended 31 December
Exceptional items:
Connecting for Growth programme reorganisation costs:
-
-
-
Cost of sales
Distributions costs
Administrative costs
Profit from sale of property:
-
Other operating income
Total Connecting for Growth programme exceptional items
Cost of sales:
Brazil indirect taxes
Administrative expenses:
US environmental costs
UK pension scheme consolidation
UK Guaranteed Minimum Pension Equalisation
2019
US$m
2018
US$m
3.1
2.8
5.3
11.2
(2.9)
8.3
4.4
4.5
13.9
22.8
-
22.8
(3.5)
-
-
-
-
8.0
(0.5)
10.2
Total exceptional items charged to operating profit from continuing operations
4.8
40.5
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Connecting for Growth programme – Connecting for Growth was a two-year transformation programme designed to drive
speed, agility, innovation and lower costs across the organisation, whilst enabling the next phase of growth at Coats and accelerating
our transition from the industrial age to the digital age. The programme has now finished. The programme focused on simplification
across many aspects of the organisation and included transitioning from market-focused support functions to realigned globally
integrated support functions, redesigning the way the Group services a number of its peripheral markets and moving from a business
operated by individual local management teams to scalable clusters. Exceptional reorganisation costs of $11.2 million have been incurred
in the year ended 31 December 2019 (2018: $22.8 million) comprising severance costs of $7.4 million (2018: $20.5 million), fixed asset
disposals and write offs of $2.2 million (2018: $0.6 million) and closure and other one-off costs of $1.6 million (2018: $1.7 million).
Connecting for Growth programme – property disposals - During the year ended 31 December 2019 a profit of $2.9 million
(2018: $nil) was made from the sale of properties in peripheral markets in connection with the Connecting for Growth Programme.
Brazil indirect taxes – During the year ended 31 December 2019 a final and unappealable Supreme Court decision was received by
one of the Group’s subsidiary companies in Brazil relating to payments of indirect taxes dating back to 2005. This Supreme Court
decision grants the company the right to exclude Brazilian ICMS (indirect tax on goods and services) from the calculation basis of PIS
(Program of Social Integration) and COFINS (Contribution for the Financing of Social Security) indirect taxes. As a result, estimated
refunds have been recognised in the results for the year ended 31 December 2019 with an exceptional credit of $3.5 million included in
cost of sales of and exceptional interest income recognised of $2.6 million (see note 6).
Legal filings have been advanced in respect of the Group’s other subsidiary in Brazil in respect of the same matter which dates back
approximately 15 years but the Supreme Court ruling has not yet been received. This represents a contingent asset and no amounts have
been recognised in the results for the year ended 31 December 2019 for this. At this stage it is not practicable to quantify the potential
amount of this contingent asset.
Exceptional items in the year ended 31 December 2018 also included the following:
US environmental costs – In 2010, the US Environmental Protection Agency (‘EPA’) 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. An
additional provision of $8.0 million was made during the year ended 31 December 2018 to cover legal and professional fees in respect of
this matter (see note 28).
UK pension scheme consolidation – Following agreement with the UK Pension Schemes’ Trustees and with effect from the 1 July
2018 the assets and liabilities of the Coats UK, Brunel and Staveley schemes (the Previous Schemes) were transferred to a single new
scheme (named the Coats UK Pension Scheme). The Previous Schemes were wound-up and as part of this process a number of the
Previous Schemes’ members with small pension entitlements were given the option to exchange their pension entitlement for a cash
lump sum. This process resulted in an exceptional credit of $1.8 million during the year ended 31 December 2018. Costs incurred in
connection with the UK pension scheme consolidation were $1.3 million and as a result the net credit for the year was $0.5 million.
UK Guaranteed Minimum Pension Equalisation – During the year ended 31 December 2018 an estimated past service charge
of $10.2 million was recognised following the Lloyds Banking Group judgement in October 2018 and the requirement for all UK pension
schemes to equalise male and female members’ benefits for the effect of Guaranteed Minimum Pensions. This represented an increase
of approximately 0.35% of pension scheme liabilities.
Exceptional items: Discontinued operations – During the year ended 31 December 2019 exceptional charges in relation
to discontinued operations were $0.6 million (2018: $18.4 million). See note 32 for further details.
Acquisition related items
Acquisition related items are set out below:
Year ended 31 December
Acquisition related items:
Administrative expenses:
Contingent consideration
Acquisition transaction costs
Amortisation of acquired intangible assets
Total acquisition related items before taxation
2019
US$m
2018
US$m
(1.7)
1.0
2.9
2.2
4.3
0.7
2.3
7.3
The Group has made acquisitions with earn-outs to allow part of the consideration to be based on the future performance of the
businesses acquired and to lock in key management. Where consideration paid or contingent consideration payable in the future is
employment linked, it is treated as an expense and part of statutory results. However, all consideration of this type is excluded from
adjusted operating profit and adjusted earnings per share as in management’s view, these items are part of the capital transaction.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Acquisition transaction costs and amortisation of intangible assets acquired through business combinations are not included within
adjusted earnings. These costs are acquisition related and management consider them to be capital in nature and they do not reflect
the underlying trading performance of the Group.
Excluding amortisation of intangible assets acquired through business combinations and recognised in accordance with IFRS 3 ‘Business
Combinations’ from adjusted results also ensures that the performance of the Group’s acquired businesses is presented consistently with
its organically grown businesses. It should be noted that the use of acquired intangible assets contributed to the Group’s results for the
years presented and will contribute to the Group’s results in future periods as well. Amortisation of acquired intangible assets will recur
in future periods. Amortisation of software is included within adjusted results as management consider these costs to be part of the
underlying trading performance of the business.
5 Profit for the year (including discontinued operations)
Year ended 31 December
Profit for the year is stated after charging/(crediting):
Amortisation of intangible assets
Depreciation of owned property, plant and equipment
Depreciation of right-of-use assets
Profit on disposal 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 (gains)/losses
Rental income from land and buildings
Inventory as a material component of cost of sales
Inventory write-downs to net realisable value
Operating lease rentals relating to short term and low value leases are detailed in note 15.
6 Finance income
Year ended 31 December
Income from investments
Other interest receivable and similar income
2019
US$m
2018
US$m
8.0
29.9
15.2
(2.9)
0.6
1.5
0.3
0.2
2.6
-
-
5.6
0.2
(0.8)
(0.2)
9.2
31.2
-
(6.7)
0.6
1.6
0.3
0.1
2.6
10.4
13.7
3.0
1.2
2.5
(0.4)
555.5
599.5
2.8
4.6
2019
US$m
2018
US$m
0.1
4.2
4.3
0.1
1.6
1.7
Other interest receivable and similar income for the year ended 31 December 2019 includes exceptional income of $2.6 million (2018:
$nil) relating to Brazil PIS/COFINS refunds (see note 4 for further details).
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7 Finance costs
Year ended 31 December
Interest on bank and other borrowings
Interest expense on lease liabilities
Net interest on pension scheme assets and liabilities
Other finance costs including unrealised gains and losses on foreign exchange contracts
8 Staff costs
The average monthly number of employees was:
Year ended 31 December
Continuing operations:
Manufacturing
Other staff
Discontinued operations1
Total number of employees
Comprising:
UK
Overseas
The total numbers employed at the end of the year were:
Continuing operations:
UK
Overseas
Discontinued operations
Total number of employees
1. The 2019 average number of employees for the discontinued North America Crafts business are for the period until disposal on 20 February 2019 (see note 32).
Year ended 31 December
Employee aggregate remuneration comprised (including directors)2:
Continuing operations:
Wages and salaries
Social security costs
Other pension costs (note 10)
Discontinued operations
2. This does not include any contingent consideration on acquisitions that is treated as an expense, due to it being linked to continued employment (see note 4).
2019
US$m
14.5
3.7
5.5
5.9
2018
US$m
15.9
-
3.8
6.4
29.6
26.1
2019
2018
13,430
3,446
16,876
555
14,171
3,710
17,881
563
17,431
18,444
187
17,244
17,431
184
16,957
17,141
-
192
18,252
18,444
185
17,453
17,638
550
17,141
18,188
2019
US$m
2018
US$m
267.3
269.7
27.8
7.9
27.8
8.4
303.0
305.9
4.8
37.7
307.8
343.6
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9 Tax on profit from continuing operations
Year ended 31 December
UK Corporation tax at 19% (2018: 19%)
Overseas tax charge
Deferred tax (charge)/credit
Total tax charge
The tax charge for the year can be reconciled as follows:
2019
US$m
–
2018
US$m
–
(48.3)
(53.0)
(2.2)
4.0
(50.5)
(49.0)
Year ended 31 December
Profit before tax
Expected tax charge/(credit) at the UK
statutory rate of 19% (2018: 19%)
Differences between overseas and UK
taxation rate
Non-deductible expenses
Non-taxable income
Local tax incentives
Utilisation of unrecognised deferred
tax assets
Recognition of previously unrecognised
deferred tax assets
Potential deferred tax assets not
recognised
Impact of changes in tax rates
Prior year adjustments
Withholding tax on remittances
(net of double tax credits) and
other taxes not based on profits
Income tax expense/(credit)
Effective tax rate
Underlying
US$m
176.7
33.6
4.2
2.6
(0.1)
(0.6)
(6.4)
-
3.6
(1.8)
1.4
14.4
50.9
29%
2019
2018
Exceptional
and
acquisition
related
items
US$m
Other
adjustments1
US$m
Total
US$m
Underlying
US$m
Exceptional
and
acquisition
related
items
US$m
Other
adjustments1
US$m
Total
US$m
(5.5)
166.8
174.4
(47.8)
(3.8)
122.8
(4.4)
(0.8)
(1.1)
0.8
(0.6)
–
–
–
(1.0)
31.8
(0.3)
–
–
–
–
–
2.8
3.4
(0.7)
(0.6)
(6.4)
-
1.7
0.9
6.2
–
–
–
-
–
–
–
(1.8)
1.4
14.4
(0.4)
50.5
0%
7%
30%
33.1
7.0
6.3
(0.4)
(0.9)
(7.1)
(2.8)
1.8
(1.5)
(0.3)
18.7
53.9
31%
(9.1)
(1.7)
0.5
–
–
–
–
(0.7)
23.3
(0.1)
–
–
–
–
–
5.2
6.8
(0.4)
(0.9)
(7.1)
(2.8)
5.5
0.7
8.0
–
–
–
–
–
–
(1.5)
(0.3)
18.7
(4.8)
10%
(0.1)
49.0
3%
40%
1. Other adjustments consist of net interest on pension scheme assets and liabilities of $5.5 million (2018: $3.8 million).
The Group’s underlying effective tax rate is higher than the blended rate of the countries we operate in primarily due to the impact of
unrelieved tax losses in countries where we are not currently able to recognise deferred tax assets in respect of those losses and the
impact of withholding taxes on the repatriation of earnings and royalties to the UK.
Excluding exceptional and acquisition related items and the impact of IAS19 finance charges, the underlying effective rate on pre-tax
profits reduced by 200bps to 29% (2018: 31%). The lower tax rate was driven by a reduction in withholding taxes, a favourable change
in profit mix for the period and the impact of a reduction in the headline India corporation tax rate during the year.
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Uncertain tax positions
The Group’s current tax liability includes a number of tax provisions, which although individually are relatively small, together they total
$14.1 million (2018: $15.7 million). These provisions relate to management’s estimate of the amount of tax payable on open tax returns
yet to be agreed with the local tax authorities. The Group evaluates uncertain tax items, which are subject to interpretation and
agreement of the position with the local Tax Authorities and consequently agreement may not be reached for a number of years.
Primarily the tax items for which a provision has been made relate to the interpretation of transfer pricing legislation and practices across
the jurisdictions in which the Group operates.
The final outcome on resolution of open issues with the relevant local Tax Authorities may vary significantly due to the uncertainty
associated with such tax items and the continual evolution and development of local Tax Authorities. There is a wide range of possible
outcomes and any variances in the final outcome to the provided amount will affect the tax financial results in the year of agreement.
However, it is not expected that a material adjustment would be required to these provisions within the next year.
The amount provided for uncertain tax positions has been made using the best estimate of the tax expected to be ultimately paid, taking
into account any progress on the discussions with local Tax Authorities, together with expert in-house and third-party advice on the
potential outcome and recent developments in case law, Tax Authority practices and previous experience.
Taxation paid
During the year the Group made Corporate Income Tax payments in respect of continuing operations (including withholding and
dividend distribution taxes) of $46.3 million (2018: $51.4 million). The amount of tax paid in each jurisdiction is as follows:
Year ended 31 December
UK
Vietnam
India
Indonesia
Singapore
Bangladesh
Turkey
China
USA
Sri Lanka
Colombia
Poland
Thailand
Pakistan
Hong Kong
Egypt
Mexico
Others (17 countries each less than $0.5 million)
Total Corporate Income Tax paid
2019
US$m
11.7
12.7
5.7
3.2
1.8
1.7
1.5
1.5
1.3
1.1
0.7
0.7
0.7
0.6
0.1
0.1
0.1
1.1
2018
US$m
11.5
11.0
7.0
5.7
1.3
1.6
3.0
1.4
(0.2)
0.3
1.1
0.3
0.5
1.9
0.7
0.6
1.1
2.6
46.3
51.4
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
The taxes paid in the UK and Singapore are primarily withholding taxes on royalties, group charges and dividends, deducted and paid at
source in the following jurisdictions:
India
Bangladesh
Indonesia
Vietnam
China
Thailand
Pakistan
Colombia
Turkey
Sri Lanka
Others (each less than $0.5 million)
Total withholding taxes paid
2019
US$m
2018
US$m
2.3
2.4
2.8
1.5
1.0
0.2
0.1
0.6
0.4
0.3
1.9
1.8
1.8
1.8
1.3
1.1
0.6
0.6
0.6
0.4
0.2
2.6
13.5
12.8
10 Retirement and other post-employment benefit arrangements
a) Pension and other post-employment costs
Pension and other post-employment costs charged to operating profit for the year were (continuing and discontinued operations):
Defined contribution schemes
Defined benefit schemes –
Coats US funded
Other funded and unfunded
Past service (credit)/cost
Settlements
Administrative expenses for defined benefit schemes
Year ended
31 December
2019
US$m
3.0
US$m
1.9
3.4
US$m
3.5
3.9
Year ended
31 December
2018
US$m
3.6
5.3
(3.2)
0.1
5.5
10.7
7.4
10.6
(1.9)
7.9
27.6
Included in the table above are $0.7 million (2018: $10.2 million) of past service costs and $Nil (2018: $1.8 million) settlement gains that
have been presented as exceptional items in the Consolidated Income Statement (see note 4). Also included in the table above is a $1.8
million past service credit (non-cash) on the US post-retirement medical scheme relating to the discontinued NA Crafts business (see note
32).
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 (2018: $0.7 million).
c) Defined benefit schemes
The Coats UK Pension Scheme is administered by a trustee and holds assets held in funds that are legally separated from the Group and
are subject to UK legislation with oversight from the Pensions Regulator. The trustee board is composed of representatives of both the
Group and scheme members together with two independent trustees. The trustee board is required by law and the scheme’s rules to act
in the interest of the scheme’s members and other stakeholders in the scheme (for example the Group). The trustee board is responsible
for setting the scheme’s investment policy following consultation with the Group.
The sponsor of the Coats UK Pension Scheme is Coats Limited and the Company provides a guarantee to the Coats UK Pension Scheme.
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In addition, the Group has the Coats North America Pension Plan (‘Coats US’) which is a defined benefit scheme the assets of which are
held in funds that are legally separated from the Group. During the year the Group agreed to amend the Plan to close to new hires from
1 January 2020, and to cease future accrual for current employees from 1 January 2022. The amendment resulted in a $2.6 million past
service credit in 2019.
Finally, the Group also operates various other pension and other post-retirement arrangements in most of the countries in which it
operates (most significantly in Germany). Detailed disclosures in respect of the UK plans and the Coats US plan are given in this note as
the defined benefit obligations under these schemes represent around 96% of all defined benefit obligations.
The Coats UK Pension Scheme operates an investment policy whereby a portion of the fund is invested in assets (Bonds and derivatives)
that broadly match movements in the value of the scheme’s liabilities and a portion in assets that are anticipated to deliver a return in
excess of the change in value of the liabilities.
The following disclosures do not include information in respect of schemes operated by joint ventures.
i) Principal risks
The Group is exposed to actuarial and investment risks, the principal risks are:
Risk
Interest rate risk
Description
Commentary
The present value of the defined benefit plan liabilities is
calculated using a discount rate determined by reference
to bond yields. A decrease in bond yield rates will increase
defined benefit obligations.
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.
Longevity risk
Investment 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.
The scheme assets are shown on a mark-to-market basis.
A decrease in asset values at a relevant measurement date,
to the extent assets do not hedge liabilities, would lead to
an increased disclosed deficit or reduced surplus.
The impact of the movement in discount rates are shown
on page 138. The Trustees of the UK and US schemes
hedge these sensitivities through physical bonds and
derivatives. Following consolidation of the UK schemes
and completion of the 2018 actuarial valuation, the
Coats UK Pension Scheme is currently over 80% (2018:
80%) hedged against interest rate movements by
reference to the Technical Provisions liability.
The impact of the movement in inflation rates are shown
on page 138. The Trustees of the UK and US schemes
hedge these sensitivities through physical bonds,
derivatives and real assets. Following consolidation of the
UK schemes and completion of the 2018 actuarial
valuation, the Coats UK Pension Scheme is currently over
80% (2018: 80%) hedged against inflation rate
movements by reference to the Technical Provisions
liability.
The impact of an increase in life expectancy is shown
on page 138. Currently this is not a risk that is hedged by
the Group’s pension schemes.
The UK funded scheme is diversified by asset class, at
individual securities level; geography; and by investment
managers. To the extent that any assets are not Sterling
denominated the scheme hedges the majority of this
currency exposure back to Sterling.
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.
In addition the schemes’ investment policies recognise
the need to generate cash flows to meet members’
benefits as they fall due.
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ii) UK funding commitments
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 2019.
On 6 March 2019 Coats Limited and the Trustee of the Coats UK Pension Scheme agreed the first valuation of the Coats UK Pension
Scheme with a 1 July 2018 effective date. This agreement resulted in ongoing annual deficit recovery payments of £20 million ($27
million) per annum increasing annually by the increase in the Retail Prices Index (first increase in January 2020) based on a Technical
Provisions deficit of £252 million ($334 million). As before the Group will also meet Scheme administrative expenses and levies estimated
in future at £4 million ($5 million) per annum (i.e. total ongoing payments of $32 million per annum). The new deficit recovery payments
were effective from 1 April 2019 and are payable until 31 December 2028. The Scheme’s next triennial valuation will have an effective
date of 31 March 2021 to realign with the valuation cycle of the previous UK schemes.
The actuarial valuation deficit above is used to determine the level of deficit repair contributions that the Group is required to pay into
the Coats UK Pension Scheme. The actuarial valuation is different to the IAS 19 accounting valuation (set out below), which is based on
accounting rules concerning employee benefits and shown on the consolidated statement of financial position. The actuarial valuations
are generally based on the more prudent ‘Technical Provisions’ basis than that used for accounting purposes and as a result the actuarial
deficits are generally higher than the accounting deficits. It should also be noted that the accounting deficit figures are calculated as at
the balance sheet date of 31 December 2019.
The most recent actuarial valuation for the Coats UK pension scheme had a 1 July 2018 effective date and the most recent actuarial
valuation for the Coats US scheme was 1 January 2019.
iii) Principal assumptions
The principal assumptions for the UK and US schemes are as follows:
Principal assumptions at 31 December 2019
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Principal assumptions at 31 December 2018
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Coats UK Pension
Scheme
%
Coats US
%
Other
%
-
Various
2.0
3.1
3.0
-
3.2
2.2
5.1
3.5
3.9
4.1
Coats UK Pension
Scheme
%
Coats US
%
Other
%
–
Various
2.8
3.3
3.0
–
4.2
2.5
5.2
3.7
4.5
3.9
The rate of increase for pensions in payment for members of the combined Coats UK Pension Scheme vary in accordance with each
member’s former scheme category and period of membership. For former Coats UK plan members the increases for pensions in payment
are assumed to be at a rate of 3.0% (2018: 3.1%). For former Staveley scheme members, the majority of the increases for pensions in
payment fall within the range 2.5%-3.0% (2018: 2.4%-3.1%). For former Brunel scheme members, the majority of the increases for
pensions in payment fall within the range 3.0%-4.0% (2018: 3.1%-4.0%).
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 2019
Year ended
31 December 2018
Coats UK
Pension Scheme
Years
Coats US
Years
Coats UK
Pension Scheme
Years
Coats US
Years
25.6
27.7
27.1
29.3
24.8
27.0
26.6
28.7
26.1
28.2
27.6
29.8
24.9
27.1
26.7
28.8
iv) Amounts recognised in the consolidated income statement
Amounts recognised in income in respect of these defined benefit schemes are as follows (both continuing and discontinued operations):
Year ended 31 December 2019
Current service cost
Past service credit
Settlements
Administrative expenses
Interest on defined benefit obligations – unwinding of discount
Interest income on pension scheme assets
Effect of asset cap
Coats UK
Pension
Scheme
US$m
Coats US
US$m
-
-
-
(4.6)
(4.6)
(73.2)
70.6
-
(2.6)
(1.9)
2.6
-
(0.8)
(0.1)
(4.7)
7.4
(1.2)
1.5
Other
US$m
(3.4)
0.6
(0.1)
(0.1)
(3.0)
(5.2)
1.3
(0.5)
(4.4)
Year ended 31 December 2018
Current service cost
Past service cost
Settlements
Administrative expenses
Interest on defined benefit obligations – unwinding of
discount
Interest income on pension scheme assets
Effect of asset cap
Coats UK
Pension
Scheme
US$m
–
(10.2)
–
(3.7)
(13.9)
(34.6)
33.6
–
(1.0)
Coats US
US$m
Coats UK
US$m
Staveley
US$m
Brunel
US$m
Other
US$m
(3.5)
–
–
(0.8)
(4.3)
(5.2)
8.1
(0.8)
2.1
–
–
1.6
(2.2)
(0.6)
(28.4)
27.5
–
(0.9)
–
–
0.1
(0.7)
(0.6)
(4.0)
4.1
–
0.1
–
–
0.1
(0.4)
(0.3)
(2.8)
2.5
–
(0.3)
(3.9)
(0.4)
0.1
(0.1)
(4.3)
(5.0)
1.5
(0.3)
(3.8)
Group
US$m
(5.3)
3.2
(0.1)
(5.5)
(7.7)
(83.1)
79.3
(1.7)
(5.5)
Group
US$m
(7.4)
(10.6)
1.9
(7.9)
(24.0)
(80.0)
77.3
(1.1)
(3.8)
Included in the table above is a current service cost for the year ended 31 December 2019 of $0.3 million (2018: $1.9 million) which has
been included in discontinued operations relating to the disposed North America Crafts business.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
v) Amounts recognised in the consolidated statement of comprehensive income
Actuarial gains and losses were as follows:
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Remeasurement on assets (excluding interest income)
Adjustment due to surplus cap
Included in the statement of comprehensive income
Year ended
31 December
2019
US$m
Year ended
31 December
2018
US$m
50.7
(308.1)
(1.4)
278.9
(51.2)
(31.1)
(37.4)
172.0
(36.5)
(125.5)
5.6
(21.8)
vi) Amounts recognised in the consolidated statement of financial position
The amounts included in the consolidated statement of financial position arising from the Group's defined benefit arrangements
are as follows:
Year ended 31 December 2019
Cash and cash equivalents
Equity instruments:
US
UK
Eurozone
Other regions
Debt instruments:
Corporate bonds (Investment grade)
Corporate bonds (Non-investment grade)
Government/sovereign instruments
Global real estate
Derivatives:
Total return, interest and inflation swaps
Assets held by insurance company:
Insurance contracts
Diversified investment fund
Other
Total market value of assets
Actuarial value of scheme liabilities
Net (liability)/asset in the scheme
Adjustment due to surplus cap
Recoverable net (liability)/asset in the scheme
Coats US
US$m
7.3
Other
US$m
4.5
Total
US$m
130.0
Coats UK
Pension
Scheme
US$m
118.2
119.1
10.3
30.8
47.1
30.7
3.4
9.1
15.0
1,014.7
108.1
272.4
901.5
267.4
(34.8)
6.7
72.6
113.2
2,939.2
1.4
65.5
-
0.1
0.5
-
(35.1)
206.0
0.8
150.6
-
-
4.7
-
4.9
-
-
0.2
13.7
39.9
66.8
1,127.7
273.8
967.0
267.6
-
(34.7)
1.1
7.1
0.2
8.3
79.7
78.3
23.5
3,168.7
(3,030.8)
(118.3)
(126.5)
(3,275.6)
(91.6)
-
(91.6)
87.7
(69.8)
17.9
(103.0)
(4.6)
(107.6)
(106.9)
(74.4)
(181.3)
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Year ended 31 December 2018
Cash and cash equivalents
Equity instruments:
US
UK
Eurozone
Other regions
Debt instruments:
Corporate bonds (Investment grade)
Corporate bonds (Non-investment grade)
Government/sovereign instruments
Global real estate
Derivatives:
Total return, interest and inflation swaps
Assets held by insurance company:
Insurance contracts
Diversified investment fund
Other
Total market value of assets
Actuarial value of scheme liabilities
Net (liability)/asset in the scheme
Adjustment due to surplus cap
Recoverable net (liability)/asset in the scheme
Coats US
US$m
2.3
Other
US$m
3.9
Coats UK
Pension
Scheme
US$m
34.2
249.4
26.3
43.8
118.2
792.7
130.6
651.6
236.3
(20.3)
2.4
290.5
84.3
2,640.0
25.4
2.4
4.0
15.8
111.3
1.4
39.0
–
–
0.5
–
(9.7)
192.4
(2,748.6)
(127.7)
(108.6)
–
(108.6)
64.7
(16.6)
48.1
Total
US$m
40.4
275.8
28.7
47.8
139.0
909.4
132.0
690.6
236.5
1.0
–
–
5.0
5.4
–
–
0.2
–
(20.3)
1.2
6.1
0.3
4.1
296.6
74.9
23.1
2,855.5
(126.1)
(103.0)
(4.8)
(107.8)
(3,002.4)
(146.9)
(21.4)
(168.3)
2019
US$m
2018
US$m
13.8
42.6
4.7
6.1
(27.5)
(6.2)
(71.6)
(94.5)
(16.0)
(6.0)
(99.5)
(95.5)
(181.3)
(168.3)
The amounts are presented in the consolidated statement of financial position as follows:
Year ended 31 December
Non-current assets:
Funded
Current assets:
Funded
Current liabilities:
Funded
Unfunded
Non-current liabilities:
Funded
Unfunded
The schemes disclosed as part of the 'other' column in the tables above include surplus positions of $0.4 million (2018: $0.4 million).
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Current service cost
(increase)/decrease in liabilities on settlements
Past service credit/(cost)
Interest on defined benefit obligations – unwinding of discount
Actuarial (losses)/gains on obligations
Contributions from members
Benefits paid
Other adjustments to defined benefit obligation
Exchange difference
At 31 December
Movements in the fair value of scheme assets were as follows:
At 1 January
Interest income on scheme assets
Remeasurement on assets (excluding interest income)
Assets distributed on settlements
Contributions from members
Contribution from sponsoring companies
Benefits paid
Administrative expenses paid from plan assets
Exchange difference
At 31 December
Administrative expenses paid from plan assets excludes those expenses paid directly by the Group.
The reconciliation of the effect of the asset ceiling is as follows:
Unrecognised surplus at 1 January
Interest cost on unrecognised surplus
Changes in the effect of limiting a net defined benefit asset to the asset ceiling (excluding interest)
Exchange difference
Unrecognised surplus at 31 December
Year
ended
31 December
2019
US$m
Year
ended
31 December
2018
US$m
(3,002.4)
(3,389.3)
(5.3)
(0.1)
3.2
(83.1)
(258.8)
(0.1)
183.8
-
(112.8)
(7.4)
28.7
(10.6)
(80.0)
98.1
(0.2)
187.4
(0.5)
171.4
(3,275.6)
(3,002.4)
2,855.5
3,252.7
79.3
278.9
-
0.1
28.5
(183.8)
(0.9)
111.1
3,168.7
21.4
1.7
51.2
0.1
74.4
77.3
(125.5)
(26.8)
0.2
26.7
(187.4)
(0.9)
(160.8)
2,855.5
26.6
1.1
(5.6)
(0.7)
21.4
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
vii) Assets without a quoted price in an active market
For the Coats UK Pension Scheme, all assets in the table above, except for cash and cash equivalents, do not have a quoted price in an
active market.
For the Coats US scheme, included in the tables above are $0.4 million (2018: $0.2 million) of US equity instruments, $108.1 million
(2018: $111.3 million) of corporate bonds (Investment grade), $1.4 million (2018: $1.4 million) of corporate bonds (Non-investment
grade), government/sovereign instruments of $24.2 million (2018: $12.9 million), $0.5 million (2018: $0.5 million) of insurance contracts
and $35.0 million (2018: $12.2 million) of other liabilities without a quoted price in an active market. All other assets have a quoted price
in an active market.
viii) Basis of asset valuation
Under IAS 19, plan assets must be valued at the bid market value at the balance sheet date. For the main asset categories:
•
• Other bonds are measured using a combination of broker quotes and pricing models making assumptions for credit risk, market
Equities and bonds listed on recognised exchanges are valued at closing bid prices;
risk and market yield curves;
• Global real estate assets are valued on either a fair value approach as provided by the investment manager or notional bid valuations
provided by the investment managers due to investments being held within a single priced pooled investment vehicle. Valuations are
prepared in accordance with the current RICS Valuation – Global Standards (1 July 2017) and the RICS Valuation – Professional
Standards UK January 2014 (revised April 2015);
• Certain unlisted investments, for example derivatives and insurance contracts, are valued using a model based valuation such as a
discounted cash flow; and
• Diversified investment funds are valued at fair value which is typically the Net Asset Value provided by the investment manager.
ix) Recoverability of plan surplus
The recoverable surplus on the Coats 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. Following
the disposal of North America Crafts, Coats retains the previously incurred pension obligations from the business. The pension scheme
was in a surplus position of $87.7 million at 31 December 2019 of which a recoverable surplus of $17.9 million is recognised on the
Balance Sheet. This recoverable surplus has reduced from $48.1 million at 31 December 2018 as a result of fewer serving employees
remaining in the Group following disposal of North America Crafts and the amendment to close the scheme to future accrual (see note
32).
For the Coats UK Pension Scheme, which is in IAS 19 deficit, committed contributions to the plan at the balance sheet date are expected
to put the scheme into an IAS 19 surplus position. The Group notes that in the event that a surplus emerges in the Coats UK Pension
Scheme, it would have an unconditional right to a refund of the surplus assuming the gradual settlement of the liabilities over time and
therefore no additional minimum funding requirement has been recognised.
x) Duration of plan liabilities
The weighted average duration of benefit obligations is 15 years (2018: 15 years) for the Coats UK scheme and 8 years (2018: 8 years)
for the Coats US scheme.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
xi) Sensitivities
Sensitivities regarding the discount rate, inflation (which also impacts the rate of increases in salaries and rate of increase for pension in
payments assumptions for the UK scheme) and mortality assumptions used to measure the liabilities of the principal schemes, along with
the impact they would have on the scheme liabilities, are set out below. Interrelationships between assumptions might exist and the
analysis below does not take the effect of these interrelationships into account:
Coats UK Pension Scheme discount rate
Coats US discount rate
Coats UK Pension Scheme inflation rate
Coats US inflation rate
Year ended
31 December
2019
-0.25%
US$m
Year ended
31 December
2018
-0.25%
US$m
+0.25%
US$m
112.9
(97.2)
2.5
(90.2)
-
(2.6)
65.9
0.1
102.8
2.7
(65.9)
(0.1)
+0.25%
US$m
(113.6)
(2.4)
82.3
-
If members of the Coats UK Pension Scheme live one year longer the scheme liabilities will increase by $142.3 million (2018: $128.1
million). If members of the Coats US scheme live one year longer scheme liabilities will increase by $3.9 million (2018: $3.2 million),
however, there would be no overall impact on the recoverable surplus.
In presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected
unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation
liability recognised in the consolidated statement of financial position. There was no change in the methods and assumptions used
in preparing the sensitivity analysis from prior years.
Sensitivity of medical schemes to medical cost trend rate assumptions:
Effect on total service cost and interest cost components of other schemes
Effect on defined benefit obligation of other schemes
Year ended
31 December
2019
-1%
US$m
(0.1)
(1.2)
Year ended
31 December
2018
-1%
US$m
(0.1)
(1.8)
+1%
US$m
0.1
2.0
+1%
US$m
0.1
1.4
xii) Expected contributions for 2020
The total estimated amount to be paid in respect of all of the Group's retirement and other post-employment benefit arrangements
during the 2020 financial year (excluding administrative expenses paid by the Company) is $31.3 million.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
11 Earnings per ordinary share
The calculation of basic earnings per ordinary share from continuing operations is based on the profit from continuing operations
attributable to equity shareholders and the weighted average number of Ordinary Shares in issue during the year, excluding shares
held by the Employee Benefit Trust but including shares under share incentive schemes which are not contingently issuable.
The calculation of basic earnings per ordinary share from continuing and discontinued operations is based on the profit attributable to
equity shareholders. The weighted average number of ordinary shares used for the calculation of basic earnings per ordinary share from
continuing and discontinued operations is the same as that used for basic earnings per ordinary share from continuing operations.
For diluted earnings per ordinary share, the weighted average number of ordinary shares in issue is adjusted to include all potential
dilutive ordinary shares. The Group has two classes of dilutive potential Ordinary Shares: those share options granted to employees
where the exercise price is less than the average market price of the Company’s ordinary shares during the year and those long-term
incentive plan awards for which the performance criteria would have been satisfied if the end of the reporting period were the end
of the contingency period.
Year ended 31 December
Profit from continuing operations attributable to equity shareholders
Profit from continuing and discontinued operations attributable to equity shareholders
Year ended 31 December
Weighted average number of ordinary shares in issue for basic earnings per share
Adjustment for share options and LTIP awards
Weighted average number of ordinary shares in issue for diluted earnings per share
Year ended 31 December
Continuing operations:
Basic earnings per ordinary share
Diluted earnings per ordinary share
Continuing and discontinued operations:
Basic earnings per ordinary share
Diluted earnings per ordinary share
12 Dividends
Year ended 31 December
2019 interim dividend paid – 0.55 cents per share
2018 final dividend paid – 1.16 cents per share
2018 interim dividend paid – 0.50 cents per share
2017 final dividend paid – 1.00 cents per share
2019
US$m
96.2
95.7
2018
US$m
54.8
39.2
2019
Number
of shares
m
2018
Number
of shares
m
1,443.8
1,420.1
13.7
27.3
1,457.5
1,447.4
2019
cents
2018
cents
6.66
6.60
6.63
6.57
2019
US$m
7.8
16.6
-
-
24.4
3.85
3.78
2.76
2.70
2018
US$m
-
-
7.0
14.1
21.1
The proposed final dividend of 1.30 cents per ordinary share for the year ended 31 December 2019 is not recognised as a liability in the
consolidated statement of financial position in line with the requirements of IAS 10 Events after the Reporting Period and, subject to
shareholder approval, will be paid on 26 May 2020 to ordinary shareholders on the register on 1 May 2020.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
13 Intangible assets
Cost
At 1 January 2018
Currency translation differences
Additions
Disposals
At 31 December 2018
Currency translation differences
Additions
Reclassifications
Disposals
At 31 December 2019
Cumulative amounts charged
At 1 January 2018
Currency translation differences
Amortisation charge for the year
Disposals
At 31 December 2018
Currency translation differences
Reclassifications
Amortisation charge for the year
Disposals
At 31 December 2019
Goodwill
US$m
Brands &
trade names
US$m
Technology
US$m
Customer
relationships
US$m
Total
acquired
US$m
Computer
software
US$m
Acquired intangibles
26.0
(1.1)
–
–
24.9
-
1.0
-
-
25.9
–
–
–
–
–
-
-
-
-
-
244.8
(0.1)
–
(0.8)
243.9
-
0.1
-
(1.3)
242.7
2.4
–
0.3
(0.8)
1.9
0.1
-
0.2
(1.3)
0.9
241.8
242.0
13.9
(0.6)
–
–
13.3
(0.1)
3.8
-
-
7.0
(0.3)
–
–
265.7
(1.0)
–
(0.8)
6.7
263.9
-
-
-
-
(0.1)
3.9
-
(1.3)
17.0
6.7
266.4
2.4
(0.1)
1.4
–
3.7
-
-
2.2
-
5.9
11.1
9.6
0.9
(0.1)
0.6
–
1.4
-
-
0.5
-
1.9
4.8
5.3
5.7
(0.2)
2.3
(0.8)
7.0
0.1
-
2.9
(1.3)
8.7
257.7
256.9
87.9
(2.0)
3.2
(1.7)
87.4
(0.4)
2.8
7.4
(2.6)
94.6
81.0
(1.9)
6.9
(1.0)
85.0
(0.4)
0.1
5.1
(2.6)
87.2
7.4
2.4
Total
US$m
379.6
(4.1)
3.2
(2.5)
376.2
(0.5)
7.7
7.4
(3.9)
386.9
86.7
(2.1)
9.2
(1.8)
92.0
(0.3)
0.1
8.0
(3.9)
95.9
291.0
284.2
Net book value at 31 December 2019
Net book value at 31 December 2018
25.9
24.9
The carrying value of Coats brands at 31 December 2019 and 31 December 2018 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 and medium-term plan approved by the Board, covering
the period to 31 December 2022, applying a pre-tax discount rate of 10.0% (2018: 9.8%) and long-term growth of 2.8% (2018: 2.9%).
Management believes that no reasonable potential change in any of the above key assumptions would cause the carrying value to
exceed its recoverable amount.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (‘CGUs’) that are expected to
benefit from that business combination. Following the acquisition of ThreadSol in February 2019, the software solutions business was
relaunched as Coats Digital. The aim of this was to bring together all of the Group’s software solutions under a new single brand which
more closely describes and aligns with the offering to customers. As the cash inflows of Fast React Systems, GSD and ThreadSol are
complementary and inter-dependent, the Group considers goodwill arising from these acquisitions to be allocated to the single CGU of
Coats Digital. This is consistent with the information used by the Board to monitor the goodwill arising from these acquisitions for
impairment. Comparative information for the year ended 31 December 2018 has been restated on a consistent basis. The carrying
amount of goodwill has been allocated as follows:
Year ended 31 December
Gotex
Patrick Yarn
Coats Digital
Other
2019
US$m
12.9
2.3
8.6
2.1
2018
US$m
13.1
2.3
7.4
2.1
25.9
24.9
The carrying value of the goodwill allocated to the CGUs has been tested for impairment during the year by comparing the carrying
value of the CGU to their value in use. The value in use calculations were based on projected cash flows, derived from the latest budgets
approved by the Board and factoring in the most recent trading activity. Projected cash flows are, discounted at CGU specific, risk
adjusted, discount rates to calculate the net present value.
The calculation of ‘value in use’ is most sensitive to the following assumptions:
• CGU specific operating assumptions that are reflected in the budget and medium-term plan periods for the financial year
to December 2022;
discount rates; and
growth rates used to extrapolate risk adjusted cash flows beyond the medium-term period.
•
•
CGU specific operating assumptions are applicable to the cash flows for the years 2020 to 2022 and relate to revenue forecasts,
expected project outcomes and forecast operating margins. A short-term growth rate is applied to the December 2022 plan to derive
the cash flows arising in 2023–2024 and a long-term rate is applied to 2024 to determine a terminal value.
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. Directors do not currently expect any significant
change in the present pre-tax base discount rate of 10.0% (2018: 9.8%). 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 13.0% to 16.8%
(2018: 15.4% to 16.4%) pre-tax discount rates.
Management believes that no reasonable potential change in any of the above key assumptions would cause the carrying value
of any of the above CGUs to materially exceed their recoverable amount.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
14 Property, plant and equipment
Cost
At 1 January 2018
Currency translation differences
Additions
Transfer to non-current assets held for sale
Disposals
At 31 December 2018
Currency translation differences
Subsidiaries bought externally
Additions
Transfer to non-current assets held for sale
Reclassifications
Disposals
At 31 December 2019
Cumulative amounts charged
At 1 January 2018
Currency translation differences
Depreciation charge for the year
Transfer to non-current assets held for sale
Disposals
At 31 December 2018
Currency translation differences
Depreciation charge for the year
Impairment charge
Transfer to non-current assets held for sale
Reclassifications
Disposals
At 31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
Assets charged as security for borrowings:
31 December 2019
31 December 2018
Land and
buildings
US$m
Plant and
equipment
US$m
174.4
(7.1)
13.9
(15.1)
(8.8)
157.3
(0.5)
-
7.2
(2.4)
(0.2)
(1.1)
160.3
84.0
(3.3)
4.5
(10.2)
(4.0)
71.0
(0.9)
4.3
-
(0.9)
(0.1)
(1.0)
72.4
87.9
86.3
616.0
(29.9)
29.4
(47.2)
(11.0)
557.3
(8.6)
0.1
27.0
-
(1.3)
(11.9)
562.6
433.0
(21.6)
23.0
(41.3)
(11.2)
381.9
(5.2)
21.6
1.2
-
(1.1)
(11.3)
387.1
175.5
175.4
Vehicles
and office
equipment
US$m
103.9
(3.3)
1.7
(6.0)
(2.6)
93.7
Total
US$m
894.3
(40.3)
45.0
(68.3)
(22.4)
808.3
(1.0)
(10.1)
-
4.4
-
(7.4)
(3.5)
86.2
80.0
(2.5)
3.7
(5.4)
(2.6)
73.2
(1.0)
4.0
0.1
-
(0.1)
(2.9)
73.3
12.9
20.5
0.1
38.6
(2.4)
(8.9)
(16.5)
809.1
597.0
(27.4)
31.2
(56.9)
(17.8)
526.1
(7.1)
29.9
1.3
(0.9)
(1.3)
(15.2)
532.8
276.3
282.2
-
–
-
0.1
-
–
-
0.1
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Analysis of net book value of land and buildings 31 December
Freehold
Leasehold improvements:
Over 50 years unexpired
Under 50 years unexpired
15 Leases
2019
US$m
72.6
2018
US$m
71.2
2.0
13.3
87.9
1.1
14.0
86.3
The Group leases several assets including buildings, plants, vehicles and office equipment. The average lease term is 3 years. The Group’s
consolidated balance sheet includes the following amounts relating to leases:
Right-of-use assets
Net carrying amount
At 1 January 2019
At 31 December 2019
Depreciation expense for the year ended
31 December 2018
31 December 2019
Land and
buildings
US$m
Plant and
equipment
US$m
Vehicles
and office
equipment
US$m
38.8
47.5
-
9.3
12.6
9.8
-
2.5
7.1
6.1
-
3.4
Additions to the right-of-use assets during the year ended 31 December 2019 were $22.2 million.
Lease liabilities
Year ended 31 December
Current
Non-current
Maturity analysis
Payable within one year
Payable between one and five years
Payable after more than five years
Total
US$m
58.5
63.4
-
15.2
2019
US$m
14.1
50.9
65.0
14.1
33.5
17.4
65.0
Following the adoption of IFRS 16, lease liabilities of $57.7 million were recognised at 1 January 2019. The net increase in lease liabilities
during the year ended 31 December 2019 was $7.3 million which includes foreign exchange gains on lease liabilities of $0.4 million. The
total cash outflow for leases in the year ended 31 December 2019 was $17.3 million.
The Group’s consolidated income statement includes the following amounts relating to leases:
Year ended 31 December
Depreciation expense
Interest expense on lease liabilities
Expenses relating to short term leases
Expenses relating to leases of low value assets
Expense relating to variable lease payments not included in the measurement of the lease liability
Income from subleasing right-of-use assets
2019
US$m
15.2
3.7
3.0
0.1
0.3
(0.2)
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
The Group subleases some of its right-of-use assets. At the balance sheet date, the Group had contracted with tenants for receipt of the
following minimum lease payments:
Year ended 31 December
Receivable within one year
Receivable between one and five years
16 Non-current investments
Year ended 31 December
Interests in joint ventures (see below)
Investments in equity securities:
Unlisted investments
Other investments included within current assets were $0.1 million at 31 December 2019 (2018: $0.6 million).
Interests in joint ventures
At 1 January 2019
Dividends receivable
Share of profit after tax
At 31 December 2019
Year ended 31 December
Share of net assets on acquisition
Share of post-acquisition retained profits
Share of net assets
2019
US$m
2018
US$m
0.2
0.2
0.4
2019
US$m
11.4
6.1
17.5
2019
US$m
10.6
0.8
11.4
0.2
0.4
0.6
2018
US$m
10.6
6.1
16.7
US$m
10.6
(0.3)
1.1
11.4
2018
US$m
10.6
–
10.6
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/(loss) after tax
Year ended 31 December
Summarised balance sheet information:
Non-current assets
Current assets
Liabilities due within one year
Net assets
2019
US$m
2018
US$m
25.1
1.4
(0.3)
1.1
22.9
–
(0.1)
(0.1)
2019
US$m
2018
US$m
5.9
13.9
19.8
(8.4)
11.4
6.4
11.2
17.6
(7.0)
10.6
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
17 Deferred tax assets
Year ended 31 December
Deferred tax assets
The Group’s deferred tax assets are included within the analysis in note 24.
The movements in the Group’s deferred tax asset during the year were as follows:
At 1 January
Currency translation differences
Acquisition/disposal of subsidiaries
Reclassified from deferred tax liability
Transfer to current tax
Charged to the income statement
Credited to other comprehensive income and expense
Charged to equity
At 31 December
18 Inventories
Year ended 31 December
Raw materials and consumables
Work in progress
Finished goods and goods for resale
19 Trade and other receivables
Year ended 31 December
Non-current assets:
Income tax assets
Trade receivables
Other receivables
Derivative financial instruments
Current assets:
Trade receivables
Current income tax assets
Prepayments and accrued income
Derivative financial instruments
Other receivables
2019
US$m
16.2
2018
US$m
19.2
2019
US$m
19.2
(0.4)
(0.7)
2.8
(0.3)
(3.4)
0.5
(1.5)
16.2
2019
US$m
75.1
29.8
67.6
2018
US$m
24.6
(0.9)
-
–
-
(2.2)
–
(2.3)
19.2
2018
US$m
84.5
29.2
71.7
172.5
185.4
2019
US$m
2018
US$m
1.5
0.7
14.6
3.3
20.1
3.7
-
17.4
0.3
21.4
208.7
203.5
5.5
6.9
0.9
39.2
3.1
10.9
2.6
33.7
261.2
253.8
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 (including discontinued operations) is 57 days (2018: 53 days). Interest charged in
respect of overdue trade receivables is immaterial.
Included within trade receivables is $5.8 million (2018: $6.9 million) relating to software solutions revenue contracts, for which
performance obligations are fulfilled over a period of time (see note 21).
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which requires the use of the
lifetime expected loss provision for all trade receivables. Credit risk is minimised due to the quality and short-term nature of the Group’s
trade receivables as well as the fact that the exposure is spread over a large number of customers. An allowance has been made for
expected losses on trade receivables of $8.1 million (2018: $9.6 million).
The Group monitors receivables for any significant increases in credit risk, and fully provides for trade receivables which are more than
6 months overdue, unless there are specific circumstances which would indicate otherwise. For all other trade receivables, when
determining expected losses, the Group takes into account the historical default experience and the financial position of the
counterparties, as well as the future prospects considering various sources of information. The loss allowance has been determined
as follows:
Expected loss rate
Gross carrying amount (US$m)
Loss allowance provision (US$m)
Expected loss rate
Gross carrying amount (US$m)
Loss allowance provision (US$m)
1-3
months
past due
3-6
months
past due
6 +
months
past due
0%
23.9
0.1
8%
2.5
0.2
96%
8.1
7.8
1-3
months
past due
3-6
months
past due
6 +
months
past due
1%
29.9
0.2
15%
93%
2.6
0.4
9.7
9.0
Current
Nil
183.0
-
Current
Nil
183.4
–
Total
2019
217.5
8.1
Total
2018
225.6
9.6
Included within the 2018 analysis is gross receivables of $12.7 million and a loss allowance of $0.2 million relating to the North America
Crafts disposal group that was presented as held for sale as at 31 December 2018 (see note 32).
The movements in the expected loss allowance are analysed as follows:
At 1 January
Currency translation differences
Charged to the income statement
Amounts written off during the year
At 31 December
20 Derivative financial instruments – assets
Derivative financial instruments within non-current and current assets comprise:
Year ended 31 December
Fair value through the income statement:
Forward foreign currency contracts
Fair value hedges through the statement of comprehensive income:
Interest rate swap contracts
Amounts shown within non-current assets
Amounts shown within current assets
2019
US$m
9.6
(0.4)
0.2
(1.3)
8.1
2018
US$m
10.4
(1.0)
1.2
(1.0)
9.6
2019
US$m
2018
US$m
2.9
1.6
1.3
4.2
3.3
0.9
1.3
2.9
0.3
2.6
The fair values of these financial instruments are calculated by discounting the future cash flows to net present values using appropriate
market interest and foreign currency rates prevailing at the year end.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
21 Trade and other payables
Year ended 31 December
Amounts falling due within one year:
Trade payables
Amounts owed to joint ventures
Other tax and social security payable
Other payables
Accruals
Contract liabilities
Derivative financial instruments
Employee entitlements (excluding pensions)
Amounts falling due after more than one year:
Other payables
Contract liabilities
Employee entitlements (excluding pensions)
Derivative financial instruments
2019
US$m
2018
US$m
170.7
192.0
16.2
5.6
35.8
37.7
5.8
0.3
12.3
11.6
6.0
32.9
40.4
6.6
1.3
11.9
284.4
302.7
15.0
18.2
0.5
1.5
1.2
0.8
1.2
2.9
18.2
23.1
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.
Contract liabilities amounting to $6.6 million (2018: $5.7 million) which were outstanding at 31 December 2018 were released to
revenue during the year ended 31 December 2019, with the remainder expected to be released in 2020.
22 Derivative financial instruments – liabilities
Derivative financial instruments within non-current and current liabilities comprise:
Year ended 31 December
Fair value through the income statement:
Forward foreign currency contracts
Fair value hedges through the statement of comprehensive income:
Other derivative financial instruments
Amounts shown within non-current liabilities
Amounts shown within current liabilities
2019
US$m
2018
US$m
1.5
0.7
-
1.5
1.2
0.3
3.5
4.2
2.9
1.3
The fair values of these financial instruments are calculated by discounting the future cash flows to net present values using appropriate
market interest and foreign currency rates prevailing at the year end.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
23 Borrowings
Year ended 31 December
Bank overdrafts
Borrowings repayable within one year
Due within one year
Borrowings repayable between one and two years
Borrowings repayable between two and five years
Due after more than five years
Due after more than one year
Bank overdrafts
Series A and Series B Senior Notes
Bank and other borrowings
2019
US$m
41.5
2.3
43.8
0.3
183.2
100.0
283.5
41.5
225.0
60.8
327.3
2018
US$m
20.0
0.3
20.3
0.2
112.9
225.0
338.1
20.0
225.0
113.4
358.4
On 6 December 2017 the Group issued $125.0 million of 3.88% Series A Senior Notes due 6 December 2024 and $100.0 million of
4.07% Series B Senior Notes due 6 December 2027 in a US private placement. Interest is payable semi-annually in arrears on 6 June
and 6 December of each year beginning on 6 June 2018. The Senior Notes are unsecured and rank equally with all the Group’s other
unsecured and unsubordinated indebtedness.
On 6 December 2017 the Group also entered into a $350.0 million five year bank facility. The facility bears interest at LIBOR plus a
margin.
The currency and interest rate profile of the Group’s borrowings is included in note 34 on page 166.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
24 Deferred tax liabilities
At 1 January
Currency translation differences
Acquisition/disposal of subsidiaries
Transferred to held for sale
Reclassified from deferred tax assets
Transfer to current tax
Credited to the income statement
Credited to other comprehensive income and expense
At 31 December
2019
US$m
10.5
(0.2)
(0.3)
-
2.8
3.4
(1.2)
(6.8)
8.2
2018
US$m
17.9
(0.6)
-
(0.5)
–
1.1
(6.2)
(1.2)
10.5
2018
2019
The Group’s net deferred tax liabilities/(assets) are analysed
as follows:
Accelerated tax depreciation on tangible fixed assets
Other temporary differences
Revenue losses carried forward
Capital losses carried forward
Investment in subsidiaries
Brands
Retirement benefit obligations offset against brands
Retirement benefit obligations
Provided/
(recognised)
US$m
Unprovided/
(unrecognised)
US$m
Provided/
(recognised)
US$m
Unprovided/
(unrecognised)
US$m
14.4
(9.0)
(13.8)
-
7.5
40.7
(40.7)
(7.1)
(8.0)
(10.2)
3.7
(303.7)
(254.1)
5.7
-
-
(3.5)
(562.1)
16.1
(15.1)
(18.5)
–
8.3
40.7
(40.7)
0.5
(8.7)
(9.9)
(11.4)
(294.1)
(248.8)
4.3
–
–
(4.5)
(564.4)
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for
financial reporting purposes:
Deferred tax assets (note 17)
Deferred tax liabilities
(16.2)
8.2
(8.0)
(19.2)
10.5
(8.7)
At the year end, the Group had approximately $1.5 billion (2018: $1.5 billion) of unused gross income tax losses and approximately
$1.4 billion (2018: $1.4 billion) of unused gross capital losses available for offset against future profits. A deferred tax asset of $13.8
million (2018: $18.5 million) has been recognised in respect of $50.5 million (2018: $68.0 million) of such income tax losses. No deferred
tax asset has been recognised in respect of the remaining losses due to lack of certainty regarding the availability of future taxable
income. Such losses are only recognised in the financial statements to the extent that it is considered more likely than not that sufficient
future taxable profits will be available for offset.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
The Group’s income tax losses can be analysed as follows:
Expiring within 5 years
Expiring in more than 5 years
Available indefinitely
2019
US$m
33.0
15.5
1,481.4
1,529.9
2018
US$m
38.1
16.6
1,427.0
1,481.7
At 31 December 2019, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which
deferred tax liabilities have not been recognised is $5.7 million (2018: $4.3 million). Deferred tax on distribution of these profits has not
been provided on the grounds that the Group is able to control the timing of the reversal of the remaining temporary differences and it
is probable that they will not reverse in the foreseeable future.
25 Provisions
Year ended 31 December
Provisions are included as follows:
Current liabilities
Non-current liabilities
Provisions are analysed as follows:
Year ended 31 December
Property related provisions
Other provisions
2019
US$m
2018
US$m
12.8
30.7
43.5
2019
US$m
2.2
41.3
43.5
Property
related
provisions
US$m
Other
provisions
US$m
16.3
39.0
55.3
2018
US$m
4.0
51.3
55.3
Total
US$m
55.3
(0.1)
At 1 January 2019
Currency translation differences
Onerous lease provision reclassified to right-of-use assets
Utilised in year
(Credited)/charged to the income statement
At 31 December 2019
4.0
0.1
(1.3)
(0.1)
(0.5)
2.2
51.3
(0.2)
-
(1.3)
(21.9)
(22.0)
12.1
41.3
11.6
43.5
Following the adoption of IFRS 16 ‘Leases’, the Group applied the practical expedient in the standard which permits the use of onerous
contract assessment under IAS 37 immediately before transition instead of performing an impairment review under IAS 36 Impairment.
As such on 1 January 2019 the onerous lease provision of $1.3 million within property related provisions above was reclassified to adjust
the right-of-use asset balance on transition. See note 1 for further details.
Other provisions include the amounts set aside to cover certain legal and other regulatory claims, including in respect of the Lower
Passaic River (see note 28 for further details), which are expected to be substantially utilised within the next ten years.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
26 Share capital
Year ended 31 December
Ordinary Shares of 5p each
2019
Number
US$m
Number
1,444,816,041
89.6
1,427,492,032
2018
US$m
88.5
During the year ended 31 December 2019 the Company issued 17,324,009 ordinary shares of 5p each (2018: 14,191,384) following the
exercise of share options as set out below:
At 1 January 2019
Issue of ordinary shares
At 31 December 2019
Number
of shares
1,427,492,032
17,324,009
1,444,816,041
US$m
88.5
1.1
89.6
The own shares reserve of $5.7 million at 31 December 2019 (2018: $6.8 million) represents the cost of shares in Coats Group plc
purchased in the market and held by an Employee Benefit Trust to satisfy awards under the Group's share based incentive plans.
The number of shares held by the Employee Benefit Trust at 31 December 2019 was 14,591,071 (2018: 17,165,314).
During the year ended 31 December 2019 524,745 (2018: 4,313,304) options under the Group’s 2002 share option scheme were
exercised and 64,960 (2018: 1,932,396) options lapsed.
Details of share awards outstanding under the Group’s LTIP and Deferred Bonus Plans are set out in note 35.
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27 Reserves and non-controlling interests
At 1 January 2019
Dividends
Currency translation differences
Increase in fair value of cash flow hedges
Transfer to income statement
Actuarial losses on employee benefits
Tax on actuarial gains and losses
Issue of ordinary shares
Movement in own shares
Share based payments
Deferred tax on share schemes
Profit for the year
At 31 December 2019
Share
premium
account
US$m
Own
shares
US$m
Translation
reserve
US$m
Capital
reduction
reserve
US$m
Other
reserves
US$m
Retained
loss
US$m
Non-
controlling
interests
US$m
10.4
(6.8)
(68.5)
59.8
244.2
-
-
-
-
-
-
0.1
-
-
-
-
-
-
-
-
-
-
-
1.1
-
-
-
-
(7.4)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4.8
(0.3)
-
-
-
-
-
-
-
10.5
(5.7)
(75.9)
59.8
248.7
(56.7)
(24.4)
-
-
-
(31.1)
7.3
(1.1)
(0.2)
6.1
(1.5)
95.7
(5.9)
28.0
(17.4)
(0.3)
-
-
-
-
-
-
-
-
20.1
30.4
The table below shows financial information of non-wholly owned subsidiaries of the Group that have non-controlling interests:
EMEA
Asia & Rest of World
Profit allocated to non-
controlling interests
Accumulated non-
controlling interests
Year ended
31 December
2019
US$m
Year ended
31 December
2018
US$m
31 December
2019
US$m
31 December
2018
US$m
0.1
20.0
20.1
0.9
18.1
19.0
2.0
28.4
30.4
2.0
26.0
28.0
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 181 to 186.
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28 Contingent liabilities and environmental matters
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. Over
100 PRPs have been identified by EPA. Approximately 50 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 primary 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.
In March 2016, EPA issued a Record of Decision selecting a remedy for the lower 8 miles of the LPR 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 a remedial alternative proposed by the CPG for the upper 9 miles, or it may select a different remedy. Discussions with EPA
regarding the nature and timing of such a decision are ongoing.
EPA has entered into an administrative order on consent (‘AOC’) with Occidental Chemical Corporation (‘OCC’), which has been
identified as being responsible for the most significant contamination in the river, concerning the design of the selected remedy for the
lower 8 miles of the LPR. Maxus Energy Corporation (‘Maxus’), which provided an indemnity to OCC that covered the LPR, has been
granted Chapter 11 bankruptcy protection, but OCC remains responsible for its remedial obligations even in the absence of Maxus’
indemnity. The approved bankruptcy plan also created a liquidating trust to pursue potential claims against Maxus’ parent entity, YPF
SA, and potentially others, which could result in additional funding for the LPR remedy. While the ultimate costs of the remedial design
and the final remedy are expected to be shared among hundreds of parties, including many who are not currently in the CPG, the
allocation of remedial costs among those parties has not yet been determined.
In March 2017, EPA notified 20 parties not associated with the disposal or release of any contaminants of concern as being eligible for
early cash out settlements. As expected, EPA did not identify CC as one of the 20 parties. EPA has invited approximately 80 other parties,
including CC, to participate in an allocation process to determine their respective allocation shares and potential eligibility for future cash
out settlements. In the upcoming allocation, CC intends to present factual and scientific evidence that it is not responsible for the
discharge of dioxins, furans or PCBs – the contaminants that are driving the remediation of the LPR – and that it is a de minimis party.
The allocation process is underway and is expected to be completed at the end of 2020, although that date may be extended.
On 30 June 2018, OCC filed a lawsuit against approximately 120 defendants, including CC, seeking recovery of past environmental costs
and contribution toward future environmental costs. OCC released claims for certain past costs from 41 of the defendants, including CC,
and is not seeking recovery of those past costs from CC. OCC’s lawsuit seeks resolution of many of the same issues being addressed in
the EPA sponsored allocation process, and does not alter CC’s defences or CC’s belief that it is a de minimis party.
In 2015, a provision of $9.0 million was recorded for remediation costs for the entire 17 miles of the LPR. This provision was based on
CC’s estimated share of de minimis costs for EPA’s selected remedy for the lower 8 miles of the LPR and the remedy proposed by the
CPG for the upper 9 miles. 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. During the year ended 31 December 2018, an additional provision of $8.0 million was recorded as an exceptional item (see
note 3) to cover legal and professional fees for continuation of the EPA allocation and defence of OCC’s litigation against approximately
120 parties, including CC. The Group will continue to mitigate additional costs as far as possible through insurance and other avenues.
As at 31 December 2019, $9.2 million of this provision had been utilised. The remaining provision at 31 December 2019, taking into
account insurance reimbursement, was $14.6 million (2018: $17.6 million). The process concerning the LPR continues to evolve and
these estimates are subject to change based upon legal defence costs associated with the EPA sponsored allocation and OCC’s lawsuit,
the scope of the remedy selected by EPA for the upper nine miles, 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, additional provisions could be recorded and such provisions could increase materially based on further
decisions by EPA, negotiations among the parties, and other future events.
Following the sale of the North America Crafts business, including CC, announced on 22 January 2019, Coats North America
Consolidated Inc. (the seller) retains the control and responsibility for the eventual outcome of the ongoing LPR environmental matters,
including related insurance reimbursements.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
29 Capital commitments
As at 31 December 2019, the Group had commitments of $5.8 million in respect of contracts placed for future capital expenditure
(2018: $8.0 million).
30 Notes to the consolidated cash flow statement
a) Reconciliation of operating profit to cash generated from operations
Year ended 31 December
Operating profit
Depreciation of owned property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Decrease/(Increase) in inventories
Increase in debtors
(Decrease)/Increase in creditors
Provision and pension movements
Foreign exchange and other non-cash movements
Discontinued operations
Cash generated from operations
b) Taxation paid
Year ended 31 December
Overseas tax paid
Discontinued operations
c) Investment income
Year ended 31 December
Dividends received from joint ventures
d) Capital expenditure and financial investment
Year ended 31 December
Acquisition of property, plant and equipment and intangible assets
Disposal/(acquisition) of other equity investments
Disposal of property, plant and equipment
Discontinued operations
2019
US$m
191.0
29.9
15.2
8.0
10.4
(6.5)
(13.8)
(33.5)
4.4
0.3
2018
US$m
147.1
29.5
-
9.2
(6.8)
(18.5)
8.8
(4.5)
6.1
0.2
205.4
171.1
2019
US$m
(46.3)
-
2018
US$m
(51.4)
1.3
(46.3)
(50.1)
2019
US$m
0.3
0.3
2019
US$m
(44.3)
0.4
4.3
0.5
2018
US$m
1.6
1.6
2018
US$m
(47.6)
(5.4)
3.2
4.2
(39.1)
(45.6)
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e) Acquisitions and disposals of businesses
Year ended 31 December
Acquisition of businesses
Disposal of businesses
f) Summary of net debt
Year ended 31 December
Total cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents
Other borrowings
Net debt excluding lease liabilities
Lease liabilities
Total net debt
2019
US$m
(4.9)
30.7
25.8
2019
US$m
177.4
(41.5)
135.9
(285.8)
(149.9)
(65.0)
2018
US$m
(1.8)
1.7
(0.1)
2018
US$m
135.7
(20.0)
115.7
(338.4)
(222.7)
-
(214.9)
(222.7)
Total cash and cash equivalents at 31 December 2019 include an amount of $25.5 million which are under a notional cash pooling
arrangement which a number of the Group’s UK subsidiaries participate in. Cash and overdraft balances under this arrangement are
reported on a gross basis. On a net basis at 31 December 2019 cash and cash equivalents are $151.9 million and bank overdrafts are
$16.0 million.
Total net debt of $214.9 million (2018: $222.7 million) comprises of borrowings of $285.8 million (2018: $338.4 million), net cash and
cash equivalents of $135.9 million (2018: $115.7 million) and lease liabilities of $65.0 million (2018: $nil). Movements in total net debt
during the year included the net cash repayments of borrowings of $52.3 million (2018: $20.4 million), increase in net cash and cash
equivalents of $20.0 million (2018: $4.5 million), increase in lease liabilities of $64.5 million (2018: $nil), foreign exchange gains of $0.7
million (2018: $5.4 million loss) and other non-cash movements of $0.7 million (2018: $0.7 million).
31 Acquisitions
a) Acquisition of ThreadSol
On 12 February 2019 the Group completed the acquisition of 100% of the voting equity of Intellosol Softwares India Private Limited
(‘ThreadSol’), a company incorporated in India that is a cloud-based digital applications provider. ThreadSol's technology focuses on
fabric usage optimisation in apparel manufacturing and helps customers reduce fabric waste and cost, and establish accurate product
costing. The Group acquired ThreadSol in order to expand the offerings of the Coats Digital business.
The initial consideration transferred for the acquisition was $3.8 million and net of cash and cash equivalents acquired was $3.7 million.
In addition consideration of $0.6 million was paid following finalisation of certain completion consideration adjustments based on the
amount of cash and net working capital at the acquisition date.
Contingent deferred consideration amounts are also payable. For these amounts to be paid, in addition to financial targets being met,
certain employees must also remain with the Group. Contingent deferred consideration amounts will therefore be charged to the
income statement over the period of service they relate to. Up to $6.4 million is payable over a service period of four years to 31
December 2022. The charge to the income statement for contingent deferred consideration for the year ended 31 December 2019 was
$0.5 million.
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Fair values of the identifiable assets and liabilities of ThreadSol as at the date of acquisition were as follows:
Assets:
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Liabilities:
Trade and other payables
Deferred tax liabilities
Total identifiable net assets acquired at fair value
Goodwill recognised on acquisition
Total consideration paid
Fair value
recognised
US$m
3.9
0.1
0.6
0.1
4.7
(0.7)
(0.6)
3.4
1.0
4.4
the technical expertise of the acquired workforce;
In accounting for the acquisition, adjustments were made to the book values of the net assets of the company acquired to reflect their
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. The assessment of the fair value of assets and liabilities acquired was completed during the year
ended 31 December 2019 within 12 months of the acquisition date.
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 the amounts above in accordance with paragraph 23 of IFRS 3 (revised).
The excess of the fair value of the consideration paid over the fair value of the assets and liabilities acquired is represented by software of
$2.1 million, in process technology of $1.7 million and brands and trade names of $0.1 million, with residual goodwill arising of $1.0
million.
The goodwill represents:
•
•
•
None of the goodwill arising on the acquisition is expected to be deductible for tax purposes.
ThreadSol revenues of $0.8 million and loss before tax of $1.6 million from the date of acquisition to 31 December 2019 has been
included in the results from the continuing operations of the Group. If the acquisition had taken place at the beginning of the year,
revenue would have been $1.0 million and the loss before tax would have been $1.8 million based on unaudited management accounts
for the year ended 31 December 2019.
Transaction costs of $0.1 million were expensed and included in administrative expenses in the consolidated income statement for the
year ended 31 December 2019. Transaction costs paid in the year ended 31 December 2019 were $0.6 million and are included in the
cash flows absorbed in investing activities in the condensed consolidated cash flow statement.
The total cash outflow in the year ended 31 December 2019 relating to the acquisition of ThreadSol was $4.9 million representing the
consideration paid net of cash and cash equivalents acquired of $4.3 million and transaction costs paid of $0.6 million.
the opportunity to leverage this expertise across the Group; and
the ability to exploit the Group’s existing customer base.
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b) Acquisition of Pharr High Performance Yarns
On 10 February 2020 the Group completed the acquisition of the trade and assets of Pharr High Performance Yarns (“Pharr HP”), a
market leading manufacturer of high performance engineered yarns, based in McAdenville, North Carolina, US. Pharr HP specialises in
providing technical yarn solutions to the growing markets of Industrial Thermal Protection, Defence and Fire Service industries. Its
manufacturing capabilities and customer base will provide the Group with further expertise within Personal Protection, a key end-use
market in the Performance Materials operating segment. Other parts of Pharr, such as the carpet yarns business and specialty flooring
products business are not included as part of the acquisition.
The initial consideration transferred on the date of acquisition to acquire the Pharr HP business was $37 million.
Transaction costs relating to the acquisition totalling $0.9 million have been expensed and are included in administrative expenses in the
consolidated income statement. Transaction costs paid in connection with the acquisition in the year ended 31 December 2019 were
$0.3 million and are included in the cash flows absorbed in investing activities in the consolidated cash flow statement.
The Group is in the process of completing the assessment of the fair value of assets and liabilities acquired of the Pharr HP business,
including any intangible assets. Given the completion date of the acquisition of Pharr HP was after the 31 December 2019 year end and
given the acquisition is for the trade and assets of the Pharr HP business which requires separation from other parts of Pharr that have
not been acquired, it has not been practical to complete this assessment as yet.
As of the completion date it is expected that the amount of the net tangible assets of Pharr HP will be broadly similar to the initial
consideration paid of $37 million, which may be subject to adjustment for the actual level of net working capital at completion, and
before any adjustments to book values of net tangible assets to reflect their fair values to the Group and before the alignment of
accounting policies to those of the Group where appropriate.
As the acquisition was completed after the 31 December 2019 year end, the results of Pharr HP have not been consolidated in these
financial statements.
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32 Sale of North America Crafts
In January 2019, Coats agreed to sell its non-core North America Crafts business to Spinrite Acquisition Corp for cash consideration
payable at completion of $37 million. The sale proceeds, which were on a debt and cash free basis, were subject to an adjustment for
the level of net working capital as at the time of completion.
The assets and liabilities at 31 December 2018 of the North America Crafts business were reclassified as a disposal group held for sale
and the results of the business are reported as discontinued operations in the income statement, including prior period amounts. The
sale was completed on 20 February 2019, the date which control passed to the acquirer.
a) Discontinued operations
The results of discontinued operations are presented below. All amounts relate to the North America Crafts business unless stated:
Year ended 31 December
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating (loss)/profit and (loss)/profit before taxation
Tax on (loss)/profit
Profit from discontinued operations
Losses on disposal (note 32 (b))
Loss arising on measurement to fair value less cost to sell (see note 32 (c))
Total loss from discontinued operations
2019
US$m
14.8
(10.4)
4.4
(3.7)
(2.4)
1.6
(0.1)
0.2
0.1
(0.6)
-
(0.5)
2018
US$m
128.3
(88.5)
39.8
(29.2)
(11.5)
3.6
2.7
0.1
2.8
-
(18.4)
(15.6)
Revenue in the table above includes inter-company sales of $nil for the year ended 31 December 2019 (2018: $0.8 million). External
revenue of the North America Crafts business for the year ended 31 December 2019 was $14.8 million (2018: $127.5 million).
The loss per ordinary share from discontinued operations is as follows:
Year ended 31 December
Loss per ordinary share from discontinued operations:
Basic loss per ordinary share
Diluted loss per ordinary share
The table below sets out the cash flows from discontinued operations:
Year ended 31 December
Net cash inflow from operating activities
Net cash inflow from investing activities
Net cash flows from discontinued operations
2019
Cents
2018
Cents
(0.03)
(0.03)
(1.09)
(1.08)
2019
US$m
2018
US$m
0.3
0.5
0.8
1.5
5.9
7.4
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b) Loss on disposals
The major classes of assets and liabilities disposed relating to North America Crafts as of the disposal date on 20 February 2019 were
as follows:
Property, plant and equipment
Right-of-use assets
Inventories
Trade and other receivables
Total assets
Trade and other payables
Deferred tax liabilities
Lease liabilities
Total liabilities
Net assets disposed
Consideration received
Disposal costs and completion adjustments
Curtailment gain on post-retirement medical liabilities
Total exceptional loss on disposal of North America Crafts
Profit on disposal of legacy UK Crafts property
Exceptional loss on disposals – discontinued operations
US$m
-
13.8
35.3
13.6
62.7
(13.2)
(0.2)
(13.6)
(27.0)
35.7
(34.6)
1.4
(1.4)
1.1
(0.5)
0.6
Following the sale of the North America Crafts business, Coats North America Consolidated Inc. (the seller) retains the control and
responsibility for the eventual outcome of the ongoing LPR environmental matters (see note 28).
In addition Coats retains the previously incurred pension obligations and post-retirement medical liabilities from the business. The
pension scheme, which includes both Crafts and Industrial operations in North America, was in a surplus position of $64.7 million at 31
December 2018 with a recoverable surplus of $48.1 million recognised on the balance sheet. As a consequence of the disposal during
the year ended 31 December 2019 the recoverable surplus recognised on the balance sheet was reduced by $10.6 million (although
there was no change in the gross surplus in the scheme) and a curtailment gain arose on the post-retirement medical liabilities of $1.4
million, net of tax.
c) Assets and liabilities held for sale
Assets and liabilities classified as held for sale are set out below. The assets and liabilities of the disposed North America Crafts were
classified as a disposal group held for sale at 31 December 2018:
31 December
Assets of the disposal group classified as held for sale
Other non-current assets classified as held for sale1
Total assets of the disposal group and non-current assets classified as held for sale
Liabilities of the disposal group classified as held for sale
Total net assets classified as held for sale
2019
US$m
-
1.5
1.5
-
1.5
2018
US$m
50.6
0.8
51.4
(17.9)
33.5
1. The other non-current assets held for sale of $1.5 million (31 December 2018: $0.8 million) are property, plant and equipment that do not relate to North America Crafts.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
The major classes of assets and liabilities held for sale relating to North America Crafts at 31 December 2018 are as follows:
31 December
Property, plant and equipment
Inventories
Trade and other receivables
Total assets of the disposal group classified as held for sale
Trade and other payables
Deferred tax liabilities
Total liabilities of the disposal group classified as held for sale
2018
US$m
–
34.0
16.6
50.6
17.4
0.5
17.9
As at the date of reclassification of the North America Crafts disposal group to held for sale, the fair value less cost to sell was less
than the carrying amounts. The loss arising on measurement to fair value less costs to sell was $18.4 million which has been included
as an exceptional charge within the loss from discontinued operations and includes transaction costs incurred for the year ended
31 December 2018.
The loss arising on measurement to fair value less costs to sell was applied to reduce the carrying amounts of property plant and
equipment by $10.8 million to $nil and inventories by $3.5 million to $34.0 million with additional liabilities and costs of $4.1 million
being recognised as of 31 December 2018.
33 Related party transactions
Remuneration of key management personnel
Following the disposal of the North America Crafts business in 2019 and the change in the Group’s operating segments to Apparel &
Footwear and Performance Materials, the Group Executive Team are deemed to be the key management personnel of the Group. In the
prior year the key management personnel were the directors of Coats Group plc and therefore comparatives have been restated on a
consistent basis. The remuneration of the Group Executive Team, is set out below in aggregate for each of the categories specified in IAS
24 – Related Party Disclosures. Further information regarding the remuneration of individual directors is provided on pages 70 to 85 in
the audited part of the Directors’ Remuneration Report.
Year ended 31 December
Short-term employee benefits
Share based payments
2019
US$m
8.6
2.8
Restated
2018
US$m
8.7
2.4
11.4
11.1
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Trading transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its joint ventures are disclosed below.
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
Joint ventures
Sale of goods
Purchase of goods
2019
US$m
3.8
2018
US$m
3.7
2019
US$m
55.1
2018
US$m
50.9
Amounts owing by/(to) joint ventures at the year end are disclosed in notes 19 and 21. All transactions with joint ventures are
at an arm’s length and payment terms are consistent with normal trading terms with third parties.
34 Derivatives and Other Financial Instruments
The Group’s main financial instruments comprise:
cash and cash equivalents;
Financial assets:
•
•
•
trade and other receivables that arise directly from the Group’s operations; and
derivatives, including forward foreign currency contracts and interest rate swaps.
trade, other payables and certain provisions that arise directly from the Group’s operations;
Financial liabilities:
•
•
•
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:
Year ended 31 December
Financial assets carried at amortised cost (loans and receivables):
Cash and cash equivalents
Trade receivables (note 19)
Other receivables (note 19), net of non-financial assets $22.1 million (2018: $25.4 million)
Financial assets carried at fair value through the income statement:
Derivative financial instruments (note 20)
Other financial assets carried at fair value through the statement of comprehensive income:
Other investments (note 16)
Derivative financial instruments (note 20)
Total financial assets
2019
US$m
2018
US$m
177.4
209.4
31.7
135.7
216.0
29.8
418.5
381.5
2.9
2.9
6.2
1.3
7.5
1.6
1.6
6.7
1.3
8.0
428.9
391.1
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Financial liabilities
The Group’s financial liabilities are summarised below:
Year ended 31 December
Financial liabilities carried at amortised cost:
Trade payables (note 21)
Amounts owed to joint ventures (note 21)
Other financial liabilities
Provisions (note 25)
Lease liabilities (note 15)
Borrowings (note 23)
Financial liabilities carried at fair value through the income statement:
Derivative financial instruments (note 22)
Derivatives designated as effective hedging instruments and carried at fair value through
the statement of comprehensive income:
Derivative financial instruments (note 22)
Total financial liabilities
Other financial liabilities include other payables, other than taxation and other statutory liabilities.
Fair value of financial assets and liabilities
The fair value of the Group’s financial assets and liabilities is summarised below:
2019
US$m
2018
US$m
170.7
205.3
16.2
93.6
2.2
65.0
327.3
675.0
11.6
97.8
3.9
-
358.4
677.0
1.5
0.7
-
3.5
676.5
681.2
Year ended 31 December
Primary financial instruments:
Cash and cash equivalents
Trade receivables
Other receivables
Other investments
Trade payables
Amounts owed to joint ventures
Other financial liabilities and provisions
Borrowings
Derivative financial instruments:
Forward foreign currency contracts
Interest rate swaps
Net financial liabilities
Book
value
US$m
177.4
209.4
31.7
6.2
2019
Fair
value
US$m
177.4
209.4
31.7
6.2
Book
value
US$m
135.7
216.0
29.8
6.7
2018
Fair
value
US$m
135.7
216.0
29.8
6.7
(170.7)
(170.7)
(205.3)
(205.3)
(16.2)
(95.8)
(16.2)
(95.8)
(327.3)
(327.3)
(11.6)
(101.7)
(358.4)
(11.6)
(101.7)
(358.4)
1.4
1.3
1.4
1.3
0.9
(2.2)
0.9
(2.2)
(182.6)
(182.6)
(290.1)
(290.1)
Market values have been used as proxies for the fair value of all listed investments. Unlisted investments are stated at fair value. For
floating rate financial assets and liabilities, and for fixed rate financial assets and liabilities with a maturity of less than 12 months, it has
been assumed that fair values are approximately the same as book values. Fair values for forward foreign currency contracts have been
estimated using applicable forward exchange rates at the year end. All other fair values have been calculated by discounting expected
cash flows at prevailing interest rates.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Fair value measurements recognised in the statement of financial position
The following tables provide an analysis of financial instruments that are measured subsequent to initial recognition at fair value,
grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
•
•
Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 3 fair value measurements are those derived from valuation techniques which include inputs for the asset or liability that are
not observable market data (unobservable inputs).
Financial assets measured at fair value
Year ended 31 December
2019
Financial assets measured at fair value through the income statement:
Total
US$m
Level 1
US$m
Level 2
US$m
Level 3
US$m
Trading derivatives
2.9
-
2.9
-
Financial assets measured at fair value through the statement of
comprehensive income:
Other investments
Derivatives designated as effective hedging instruments
2018
Financial assets measured at fair value through the income statement:
6.2
1.3
10.4
1.2
-
1.2
-
1.3
4.2
5.0
-
5.0
Trading derivatives
1.6
–
1.6
–
Financial assets measured at fair value through the statement of
comprehensive income:
Other investments
Derivatives designated as effective hedging instruments
Financial liabilities measured at fair value
Year ended 31 December
2019
Financial liabilities measured at fair value through the income statement:
Trading derivatives
Financial liabilities measured at fair value through the statement of
comprehensive income:
Derivatives designated as effective hedging instruments
2018
Financial liabilities measured at fair value through the income statement:
Trading derivatives
Financial liabilities measured at fair value through the statement of
comprehensive income:
Derivatives designated as effective hedging instruments
6.7
1.3
9.6
1.7
–
1.7
–
1.3
2.9
5.0
–
5.0
Total
US$m
Level 1
US$m
Level 2
US$m
Level 3
US$m
(1.5)
-
(1.5)
(0.7)
(3.5)
(4.2)
-
-
-
–
–
–
(1.5)
-
(1.5)
(0.7)
(3.5)
(4.2)
-
-
-
–
–
–
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Level 1 financial instruments are valued based on quoted bid prices in an active market. Level 2 financial instruments are measured by
discounted cash flow. For interest rates swaps future cash flows are estimated based on forward interest rates (from observable yield
curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk of the various
counterparties. For foreign exchange contracts future cash flows are estimated based on forward exchange rates (from observable
forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk
of the various counterparties. Equity instruments that are classified as level 3 financial instruments relate to the Group’s investment in
Twine Solutions Limited which was acquired in December 2018. Given the business is still at start-up phase and there have been no
indications of impairment, the carrying value is deemed to approximate to fair value.
The main risks arising from the Group’s financial instruments are as follows:
•
•
•
capital risk;
• market price risk;
•
liquidity risk; and
•
The Group’s policies for managing those risks are described on pages 164 to 170 and, except as noted, have remained unchanged
since the beginning of the year to which these financial statements relate.
interest rate risk;
currency risk;
credit risk.
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 Sterling, Euro, Indian Rupee and Brazilian Real. The Group’s investments reflect the requirements of its
customers, which results in investments in potentially more volatile developing market currencies. However, as a diverse global business,
there are many natural offsets within the Group that tend to mitigate the risk associated with any individual currency volatility.
The Group uses forward foreign currency contracts to mitigate the currency exposure that arises on business transacted by group
companies in currencies other than their functional currency. Such foreign currency contracts are only entered into when there is a
commitment to the underlying transaction. The contracts used to hedge future transactions typically have a maturity of between three
months and one year.
Interest rate risk
In 2019, the Group financed its operations through shareholders’ funds, bank borrowings, Senior Notes and overdrafts. The Group’s
trading subsidiaries use a mixture of fixed and floating rate debt. The Group also has access to committed bank facilities amounting to
some $350.0 million, of which $60.0 million had been drawn down at year end and $225.0 million of Senior Notes (see note 23).
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. In order to achieve hedge
effectiveness, when entering into interest rate swap contracts, the cash flows, interest rate references and maturity of the underlying
exposure of the hedged item are considered so as to match the hedging instrument. The ratio of fixed to floating rate hedging is
established according to Group policy which prescribes a banded range for the fixed to floating ratio. The ratio of fixed to floating will
decrease over a rolling 5-year period.
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 reduce profit before tax by approximately $0.7 million
(2018: $1.0 million), and would reduce shareholders’ funds by approximately $3.5 million (2018: $8.9 million).
Trade and other receivables and trade and other payables are excluded from the following disclosure (other than the currency
disclosures) as there is limited interest rate risk.
Capital risk management
The Group manages its capital so as to ensure that the Company and the Group will be able to continue as a going concern.
The Group’s capital structure comprises cash and cash equivalents and borrowings (see Summary of net debt on page 155), and share
capital and reserves attributable to the equity shareholders of the Company.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Currency exposure
The table below shows the extent to which Group companies have financial assets and liabilities, excluding forward foreign currency
contracts, in currencies other than their functional currency. Foreign exchange differences arising on retranslation of these assets and
liabilities are taken to the Group income statement. The table excludes loans between Group companies that form part of the net
investment in overseas subsidiaries on which the exchange differences are dealt with through reserves, but includes other Group
balances that eliminate on consolidation.
Net foreign currency financial assets/(liabilities)
Functional currency 2019
Sterling
US dollars
Euros
Indian Rupees
Brazilian Reals
Other currencies
Functional currency 2018
Sterling
US dollars
Euros
Indian Rupees
Brazilian Reals
Other currencies
Sterling
US$m
-
(21.9)
0.9
-
-
-
(21.0)
Sterling
US$m
–
(24.6)
US
dollars
US$m
0.4
-
1.6
1.8
(2.5)
(10.1)
(8.8)
US
dollars
US$m
6.2
–
0.8
(3.9)
–
–
(0.1)
(23.9)
6.6
0.8
(23.0)
(13.3)
Euro
US$m
1.4
(1.3)
(0.5)
-
5.8
5.4
Euro
US$m
(3.8)
(12.9)
–
(0.9)
–
12.4
(5.2)
Indian
Rupees
US$m
Brazilian
Reals
US$m
-
0.1
-
-
-
-
0.7
0.8
Other
US$m
1.9
(7.9)
(0.5)
-
-
-
Total
US$m
3.7
(31.1)
2.1
1.3
(2.5)
(3.6)
(6.5)
(30.1)
-
-
-
-
-
-
-
Net foreign currency financial assets/(liabilities)
Indian
Rupees
US$m
Brazilian
Reals
US$m
–
–
–
–
–
–
–
–
0.1
–
–
–
–
0.1
Other
US$m
0.6
28.9
0.6
–
0.1
(0.8)
29.4
Total
US$m
3.0
(8.5)
(2.5)
5.7
0.9
(11.5)
(12.9)
The following table shows the impact on pre-tax profit and shareholders’ funds of reasonably possible changes in exchange rates against
each of the major foreign currencies in which the Group transacts:
2019
Increase in US dollar exchange rate
(Decrease)/increase in profit before tax
(Decrease)/increase in shareholders’ funds
2018
Increase in US dollar exchange rate
(Decrease)/increase in profit before tax
(Decrease)/increase in shareholders’ funds
Sterling
US$m
10%
(3.7)
(7.6)
Sterling
US$m
10%
(4.3)
(12.3)
Euro
US$m
10%
(0.3)
1.5
Euro
US$m
10%
(0.9)
0.4
Indian
Rupees
US$m
Brazilian
Reals
US$m
10%
(0.2)
4.1
10%
0.2
1.8
Indian
Rupees
US$m
Brazilian
Reals
US$m
10%
(0.7)
3.7
10%
(0.1)
3.2
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Currency profile of financial assets
The currency profile of the Group’s financial assets was as follows:
Cash and
cash
equivalents
US$m
Trade and
other
receivables
US$m
Derivative
financial
instruments
US$m
Total
US$m
Investments
US$m
Cash and
cash
equivalents
US$m
Trade and
other
receivables
US$m
Derivative
financial
instruments
US$m
2019
2018
Total
US$m
31
December
Investments
US$m
Currency:
Sterling
United
States
dollars
Euros
Indian
Rupees
Brazilian
Reals
Other
currencies
Total
financial
assets
-
5.0
0.1
1.1
-
-
0.6
7.3
60.5
68.4
114.1
90.1
(110.3)
98.9
5.7
18.1
1.8
37.1
23.0
24.3
22.2
74.2
(2.9)
25.9
14.3
57.8
(1.2)
22.8
43.8
155.1
–
5.0
0.1
1.1
–
0.5
0.2
9.0
–
9.2
65.8
103.1
(46.1)
127.8
3.5
10.5
5.5
50.2
25.6
24.8
18.1
65.2
(3.9)
25.3
18.0
54.4
(7.8)
15.8
42.7
158.6
6.2
177.4
241.1
4.2
428.9
6.7
135.7
245.8
2.9
391.1
The investments included above comprise listed and unlisted investments in shares and bonds.
Currency and interest rate profile of financial liabilities
The currency and interest rate profile of the Group’s financial liabilities was as follows:
Floating
rate
US$m
Fixed
rate
US$m
Interest
free
US$m
Lease
liabilities
US$m
Derivative
financial
instruments
US$m
2019
Total
US$m
Floating
rate
US$m
Fixed
rate
US$m
Interest
free
US$m
Derivative
financial
instruments
US$m
2018
Total
US$m
1.3
-
10.8
5.4
(35.3)
(17.8)
0.2
–
15.2
(60.4)
(45.0)
95.2
220.0
126.7
5.5
-
-
-
-
-
12.5
38.4
12.6
11.2
3.2
16.0
0.6
9.2
462.3
143.8
200.1
148.4
31.8
524.1
19.7
40.9
10.4
-
54.4
7.1
20.3
–
–
–
–
0.8
0.1
16.2
44.4
12.6
81.8
31.5
–
–
58.1
44.4
13.4
1.3
86.2
2.7
2.6
81.7
28.6
0.8
116.4
3.0
104.7
222.6
282.7
65.0
1.5
676.5
157.4
201.0
318.6
4.2
681.2
31
December
Currency:
Sterling
United
States
dollars
Euros
Indian
Rupees
Brazilian
Reals
Other
currencies
Total
financial
liabilities
The benchmark for determining floating rate liabilities in the UK is LIBOR for both sterling and US$ loans.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Details of fixed and non interest-bearing liabilities (excluding derivatives and trade and other payables) are provided below:
Fixed rate
financial
liabilities
Weighted
average
interest
rate
%
-
3.61
11.58
3.70
Weighted
average
period for
which rate
is fixed
(months)
-
61
12
60
2019
Financial
liabilities
on which
no interest
is paid
Weighted
average
period until
maturity
(months)
18
-
-
18
Fixed rate
financial
liabilities
Weighted
average
interest
rate
%
-
3.47
-
3.47
Weighted
average
period for
which rate
is fixed
(months)
-
61
-
61
2018
Financial
liabilities
on which
no interest
is paid
Weighted
average
period until
maturity
(months)
18
-
-
18
Year ended 31 December
Currency:
Sterling
United States dollars
Other currencies
Weighted average
Currency profile of foreign exchange derivatives
Year ended 31 December
Currency:
Sterling
United States dollars
Euros
Indian Rupee
Brazilian Real
Other currencies
2019
US$m
97.8
42.7
-
Assets
2018
US$m
2019
US$m
Liabilities
2018
US$m
62.3
59.1
(1.9)
(1.9)
(163.5)
(134.8)
–
(22.7)
(35.4)
14.3
18.0
-
-
–
(8.3)
57.0
59.2
(14.0)
–
(7.8)
(17.8)
211.8
198.6
(210.4)
(197.7)
Market price risk
The Group has equity and bond investments at 31 December 2019 of $6.2 million (2018: $6.7 million) held for strategic rather than
trading purposes. The Group does not actively trade these investments and is not materially exposed to price risk.
The sensitivity analyses below have been determined based on the exposure to reasonably possible price changes for the investments
held at the year end.
Year ended 31 December
Impact of a 10% increase in prices:
Increase in pre-tax profit for the year
Increase in equity shareholders’ funds
2019
US$m
2018
US$m
-
0.6
–
0.7
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Liquidity risk
The Group typically holds cash balances in deposits with a short maturity. Additional resources can be drawn through committed
borrowing facilities at operating subsidiary level. During the year the Group has complied with all externally imposed capital
requirements.
The Group had the following undrawn committed borrowing facilities in respect of which all conditions precedent had been met
at the year-end:
Year ended 31 December
Expiring between two and five years
Maturity of undiscounted financial assets (excluding derivatives)
The expected maturity of the Group’s financial assets, using undiscounted cash flows, was as follows:
Year ended 31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Maturity of undiscounted financial liabilities (excluding derivatives)
The expected maturity of the Group’s financial liabilities, using undiscounted cash flows, was as follows:
Year ended 31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
2019
US$m
290.0
2018
US$m
235.0
2019
US$m
404.1
7.7
3.2
6.0
2018
US$m
368.5
7.6
2.1
10.0
421.0
388.2
2019
US$m
339.6
19.0
212.2
123.7
694.5
2018
US$m
333.3
7.1
115.5
225.0
680.9
The above table comprises the gross amounts payable in respect of borrowings (including interest thereon), trade and other non-
statutory payables and certain provisions, over the period to the maturity of those liabilities.
Maturity of undiscounted financial derivatives
The maturity of the Group’s financial derivatives (on a gross basis), which include interest rate and foreign exchange swaps, using
undiscounted cash flows, was as follows:
Year ended 31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
2019
US$m
174.0
24.3
15.3
-
Assets
2018
US$m
2019
US$m
Liabilities
2018
US$m
199.6
(172.5)
(198.5)
0.3
–
–
(24.0)
(13.9)
-
(0.7)
(1.6)
(0.4)
213.6
199.9
(210.4)
(201.2)
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Credit risk
Year ended 31 December
The Group considers its maximum exposure to credit risk to be as follows:
Cash and cash equivalents
Derivative financial instruments
Trade receivables (net of impairment provision)
Other receivables
Financial assets considered not to have exposure to credit risk:
Other investments
Total financial assets
Analysis of trade receivables over permitted credit period:
Trade receivables up to 1 month over permitted credit period
Trade receivables between 1 and 2 months over permitted credit period
Trade receivables between 2 and 3 months over permitted credit period
Trade receivables between 3 and 6 months over permitted credit period
Trade receivables in excess of 6 months over permitted credit period
Total trade receivables (net of impairment provision) in excess of permitted credit period
Trade receivables within permitted credit period
Total net trade receivables
Analysis of trade receivables impairment provision:
Trade receivables up to 1 month over permitted credit period
Trade receivables between 1 and 2 months over permitted credit period
Trade receivables between 2 and 3 months over permitted credit period
Trade receivables between 3 and 6 months over permitted credit period
Trade receivables in excess of 6 months over permitted credit period
Total impairment provision
2019
US$m
2018
US$m
177.4
135.7
4.2
2.9
209.4
216.0
31.7
29.8
422.7
384.4
6.2
6.7
428.9
391.1
17.0
22.0
5.1
1.7
2.3
0.3
26.4
183.0
209.4
0.1
-
-
0.2
7.8
8.1
5.5
2.2
2.2
0.7
32.6
183.4
216.0
0.1
–
0.1
0.4
9.0
9.6
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 review, or more frequent if appropriate, review of their credit limits and credit periods.
The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which requires the use of the
lifetime expected loss provision for all trade receivables.
The Group monitors receivables for any significant increases in credit risk, and fully provides for trade receivables which are more than
6 months overdue, unless there are specific circumstances which would indicate otherwise. For all other trade receivables, when
determining expected losses, the Group takes into account the historical default experience and the financial position of the
counterparties, as well as the future prospects considering various sources of information.
The Group does not have a significant credit risk exposure to any single customer.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
interest rate risk – using interest rate swaps; and
currency risk – using forward foreign currency contracts.
Hedges
During 2019, the Group has hedged the following exposures:
•
•
At 31 December 2019, the fair value of such hedging instruments was a net asset of $2.7 million (2018: $1.3 million net liability). During
the year a gain of $4.8 million (2018: $1.0 million loss) in respect of interest rate swap hedges was recognised in other comprehensive
income.
In addition a profit of $0.3 million (2018: $0.6 million) was reclassified from other reserves to the profit and loss account.
Cash flow hedges outstanding at 31 December are expected to increase/(decrease) the income statement in the following periods:
Year ended 31 December
Within one year
Within one to two years
Within two to five years
In more than five years
2019
US$m
0.4
0.3
0.6
-
1.3
2018
US$m
0.3
(0.4)
(1.6)
(0.4)
(2.1)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is three months’ LIBOR.
The Group holds both interest rate swaps exchanging floating rate amounts for fixed rate amounts and exchanging fixed rate amounts
for floating amounts. This ensures that the Group holds an appropriate level of both fixed rate and floating rate borrowings, in line with
Board approved policies. The amount accumulated in equity is reclassified to profit or loss over the period that the interest payments
on debt affect profit or loss.
35 Share-based payments
The total cost recognised in the consolidated Income Statement in respect of equity settled share-based payment plans was as follows:
Year ended 31 December
Long Term Incentive Plan (‘LTIP’)
Deferred bonuses
2019
US$m
2018
US$m
5.9
0.8
6.7
7.5
0.6
8.1
The average share price for the year ended 31 December 2019 was 78.0p (2018: 79.8p).
LTIP
Under the terms of the Coats Group 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 1 January
Granted during the year
Vested during the year
Lapsed during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2019
Options
58,634,695
9,780,094
(4,252,860)
(2,233,488)
2018
Options
69,840,970
12,553,061
(9,831,730)
(3,502,615)
(17,524,116)
(10,424,991)
44,404,325
11,891,514
58,634,695
6,752,045
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
The options outstanding at 31 December 2019 had a weighted average remaining contractual life of 7.3 years (2018: 7.0 years).
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% (2018: 20%) 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
Fair value per share
2019
3 years
81.5p
Nil
0.82%
0%
2018
3 years
82.0p
Nil
0.84%
0%
32.65%
30.92%
48.0p
49.0p
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% to 40% deferred 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.
The options outstanding at 31 December 2019 had a weighted average remaining contractual life of 3.0 years (2018: 2.2 years).
Share option scheme
The Company granted a number of awards under a share option scheme prior to 2010. There are no outstanding or exercisable share
options under this scheme as of 31 December 2019 as set out below:
Outstanding at 1 January
Lapsed during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2019
Weighted average
exercise price
25.95p
25.95p
25.95p
-
-
Options
589,705
(64,960)
(524,745)
-
-
Options
6,835,406
(1,932,397)
(4,313,304)
589,705
589,705
2018
Weighted average
exercise price
47.92p
50.00p
50.00p
25.95p
25.95p
The options outstanding at 31 December 2019 had a weighted average remaining contractual life of nil years (2018: 0.5 years).
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
36 Post balance sheet events
On 10 February 2020 the Group completed the acquisition of the trade and assets of Pharr High Performance Yarns (see note 31 for
further details).
37 Alternative Performance Measures
This Annual Report contains both statutory measures and alternative performance measures which, in management’s view, reflect the
underlying performance of the business and provide a more meaningful comparison of how the Group’s business is managed and
measured on a day-to-day basis.
The Group’s alternative performance measures and key performance indicators are aligned to the Group’s strategy and together
are used to measure the performance of the business. A number of these measures form the basis of performance measures for
remuneration incentive schemes.
Alternative performance measures are non-GAAP (Generally Accepted Accounting Practice) measures and 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. Alternative performance measures, however, are not a measure of financial performance under International Financial
Reporting Standards (‘IFRS’) as adopted by the European Union and should not be considered as a substitute for measures determined
in accordance with IFRS. As the Group’s alternative performance measures are not defined terms under IFRS they may therefore not be
comparable with similarly titled measures reported by other companies.
A reconciliation of alternative performance measures to the most directly comparable measures reported in accordance with IFRS
is provided on pages 172 to 175.
a) Organic growth on a constant exchange rate (CER) basis
Organic growth measures the change in revenue and operating profit before exceptional and acquisition related items after adjusting
for acquisitions. The effect of acquisitions is equalised by:
•
•
in the following year, removing the revenue and operating profit for the number of months equivalent to the pre-acquisition
period in the prior year.
removing from the year of acquisition, their revenue and operating profit; and
The effects of currency changes are removed through restating prior year revenue and operating profit at current year exchange rates.
Organic revenue growth on a CER basis measures the ability of the Group to grow sales by operating in selected geographies and
segments and offering differentiated cost competitive products and services.
Adjusted organic operating profit growth on a CER basis measures the underlying profitability progression of the Group.
Adjusted operating profit is calculated by adding back exceptional and acquisition related items (see note 4 for further details).
Year ended 31 December
Revenue from continuing operations
Constant currency adjustment
Revenue on a CER basis
Revenue from acquisitions
Organic revenue on a CER basis
2019
US$m
2018
US$m
%
Growth
1,388.7
1,414.7
(2)%
-
(40.4)
1,388.7
1,374.3
1%
(0.8)
-
1,387.9
1,374.3
1%
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Year ended 31 December
Operating profit from continuing operations1
Exceptional and acquisition related items (note 4)
Adjusted operating profit from continuing operations
Constant currency adjustment
Adjusted operating profit on a CER basis
Operating loss from acquisitions
Organic adjusted operating profit on a CER basis
2019
US$m
191.0
7.0
2018
US$m
147.1
47.8
%
Growth
30%
198.0
194.9
2%
-
(5.9)
198.0
189.0
5%
1.6
-
199.6
189.0
6%
1. Refer to the consolidated income statement for a reconciliation of profit before taxation to operating profit from continuing operations.
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group
excluding the effects of depreciation, amortisation and impairments and excluding exceptional and acquisition related items.
During year ended 31 December 2019 the Group adopted IFRS 16 ‘Leases’. The Group has adopted the modified retrospective approach
from the 1 January 2019 transitional date, and therefore comparatives have not been restated (see note 1). Accordingly to enable
comparison with prior periods adjusted EBITDA does not exclude the effect of depreciation of right-of-use assets.
Operating profit from continuing operations before exceptional and acquisition related items and before depreciation and amortisation
(Adjusted EBITDA) is as set out below:
Year ended 31 December
Operating profit from continuing operations1
Exceptional and acquisition related items (note 4)
Adjusted operating profit from continuing operations
Depreciation of owned property, plant and equipment
Amortisation of intangible assets
Adjusted EBITDA
2019
US$m
191.0
7.0
2018
US$m
147.1
47.8
198.0
194.9
29.9
5.1
29.5
6.9
233.0
231.3
1 Refer to the consolidated income statement for a reconciliation of profit before taxation to operating profit from continuing operations.
Net debt excluding lease liabilities recognised following the adoption of IFRS 16 at 31 December 2019 was $149.9 million (2018: $222.7
million).
This gives a leverage ratio of net debt excluding lease liabilities to Adjusted EBITDA at 31 December 2019 of 0.6 (2018: 1.0).
Net debt including lease liabilities following the adoption of IFRS 16 at 31 December 2019 was $214.9 million. Adjusted EBITDA
excluding the effect of depreciation on right-of-use assets for the year ended 31 December 2019 was $248.2 million. This gives a
leverage ratio at 31 December 2019 of 0.9 on an IFRS 16 basis.
For the definition and calculation of net debt excluding lease liabilities see note 30 (f).
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
c) Underlying effective tax rate
The underlying effective tax rate removes the tax impact of exceptional and acquisition related items and net interest on pension
scheme assets and liabilities to arrive at a tax rate based on the underlying profit before taxation.
A significant proportion of the Group’s net interest on pension scheme assets and liabilities relates to UK pension plans for which there
is no related current or deferred tax credit or charge recorded in the income statement. The Group’s net interest on pension scheme
assets and liabilities is adjusted in arriving at the underlying effective tax shown below and, in management’s view, were this not
adjusted would distort the alternative performance measure. This is consistent with how the Group monitors and manages the
underlying effective tax rate.
Year ended 31 December
2019
US$m
Profit before taxation
Exceptional and acquisition related items (note 4)
Net interest on pension scheme assets and liabilities
Underlying profit before taxation from continuing operations
Taxation charge from continuing operations
Tax credit in respect of exceptional and acquisition related items and net interest on pension scheme assets and liabilities
Underlying tax charge from continuing operations
Underlying effective tax rate
2018
US$m
122.8
47.8
3.8
166.8
4.4
5.5
176.7
174.4
50.5
0.4
50.9
29%
49.0
4.9
53.9
31%
d) Adjusted earnings per share
The calculation of adjusted earnings per share is based on the profit from continuing operations attributable to equity shareholders
before exceptional and acquisition related items as set out below. Adjusted earnings per share growth measures the underlying
progression of the benefits generated for shareholders.
Year ended 31 December
Profit from continuing operations
Non-controlling interests
Profit from continuing operations attributable to equity shareholders
Exceptional and acquisition related items net of non-controlling interests (note 4)
Tax credit in respect of exceptional and acquisition related items
Adjusted profit from continuing operations
Weighted average number of Ordinary Shares
Adjusted earnings per share (cents)
Adjusted earnings per share (growth %)
2019
US$m
116.3
(20.1)
96.2
4.4
-
100.6
2018
US$m
73.8
(19.0)
54.8
47.6
(4.8)
97.6
1,443,824,641
1,420,069,352
6.97
1%
6.87
The weighted average number of Ordinary Shares used for the calculation of adjusted earnings per share for the year ended 31
December 2019 is 1,443,824,641 (2018: 1,420,069,352), the same as that used for basic earnings per ordinary share from continuing
operations (see note 11).
e) Adjusted free cash flow
Net cash generated by/(absorbed in) operating activities, a GAAP measure, reconciles to changes in net debt resulting from cash flows
(free cash flow) as set out in the consolidated cash flow statement. A reconciliation of free cash flow to adjusted free cash flow is set
out below. Adjusted free cash flow measures the Group’s underlying cash generation that is available to service capital demands.
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NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
Year ended 31 December
Change in net debt resulting from cash flows (free cash flow)
Acquisition of businesses (note 30(e))
Acquisition of other equity investment
Disposal of businesses (note 32)
Net cash inflow from discontinued operations (note 32)
Net cash outflow in respect of exceptional reorganisation costs
Payments to UK pension schemes
UK pension consolidation costs
Net cash flows in respect of other exceptional and acquisition related items
Receipts from exercise of share options
Dividends paid to equity shareholders
Tax inflow in respect of adjusted cash flow items
Adjusted free cash flow
2019
US$m
72.3
4.9
-
(30.7)
(0.8)
4.3
26.7
-
6.2
(0.2)
24.1
-
106.8
2018
US$m
24.9
1.8
5.0
-
(7.4)
20.7
24.0
2.2
7.5
(3.0)
21.1
(0.6)
96.2
f) Return on capital employed
Return on capital employed (‘ROCE’) is defined as operating profit before exceptional and acquisition related items divided by period
end capital employed as set out below. ROCE measures the ability of the Group’s assets to deliver returns.
Year ended 31 December
Operating profit from continuing operations before exceptional and acquisition related items1
Non-current assets:
Acquired intangible assets
Property, plant and equipment
Right-of-use assets
Trade and other receivables
Current assets:
Inventories
Trade and other receivables
Current liabilities:
Trade and other payables
Lease liabilities
Non-current liabilities:
Trade and other payables
Lease liabilities
Capital employed
ROCE
2019
US$m
198.0
41.8
276.3
63.4
20.1
172.5
261.2
2018
US$m
194.9
40.0
282.2
-
21.4
185.4
253.8
(284.4)
(302.7)
(14.1)
-
(18.2)
(50.2)
467.7
42.3%
(23.1)
-
457.0
42.6%
1. Refer to note 4 for details of exceptional and acquisition related items.
During the year ended 31 December 2019 the Group adopted IFRS 16 ‘Leases’. The Group has adopted the modified retrospective
approach from the 1 January 2019 transitional date, and therefore comparatives have not been restated (see note 1). Return on capital
employed at 31 December 2019 was 42.2% (2018: 42.6%) excluding right-of-use assets and lease liabilities from capital employed in
the calculation of ROCE.
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COMPANY BALANCE SHEET
Year ended 31 December
Fixed assets:
Investments
Current assets:
Cash at bank and in hand
Creditors: amounts falling due within one year:
Loans from subsidiary undertakings
Trade and other payables
Net current liabilities
Net assets
Capital and reserves:
Share capital
Share premium account
Capital redemption reserve
Share options reserve
Capital reduction reserve
Own shares
Profit and loss account
Shareholders’ funds
Notes
2019
US$m
2018
US$m
4
1,244.2
1,244.2
0.8
0.4
(69.0)
(0.6)
(68.8)
(67.0)
(0.3)
(66.9)
1,175.4
1,177.3
5
5
89.6
10.5
14.1
18.5
59.8
(5.7)
988.6
88.5
10.4
14.1
18.5
59.8
(6.8)
992.8
1,175.4
1,177.3
The Company reported a profit for the financial year ended 31 December 2019 of $21.9 million (2018: $25.3 million).
Rajiv Sharma
Group Chief Executive
Approved by the Board 4 March 2020
Company Registration No.103548
Simon Boddie
Chief Financial Officer
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COMPANY STATEMENT OF CHANGES IN EQUITY
1 January 2018
Profit and total comprehensive
income for the year
Issue of ordinary shares
Movement in own shares
Dividends to equity shareholders
Share
capital
US$m
87.5
–
1.0
–
–
Share
premium
account
US$m
Capital
redemption
reserve
US$m
Share
options
reserve
US$m
Capital
reduction
reserve
US$m
7.7
–
2.7
–
–
14.1
18.5
59.8
–
–
–
–
–
–
–
–
–
–
–
–
31 December 2018
88.5
10.4
14.1
18.5
59.8
Profit and total comprehensive
income for the year
Issue of ordinary shares
Movement in own shares
Dividends to equity shareholders
-
1.1
-
-
-
0.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Own
shares
US$m
(7.7)
Profit and
loss
account
US$m
Total
equity
US$m
983.9
1,163.8
–
–
0.9
–
(6.8)
-
-
1.1
-
25.3
(0.7)
5.4
(21.1)
992.8
21.9
(1.1)
(0.6)
(24.4)
988.6
25.3
3.0
6.3
(21.1)
1,177.3
21.9
0.1
0.5
(24.4)
1,175.4
31 December 2019
89.6
10.5
14.1
18.5
59.8
(5.7)
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COMPANY CASH FLOW STATEMENT
Year ended 31 December
Net cash flows from operating activities:
Operating profit
Decrease in debtors
Decrease in creditors
Movement in provisions
Net cash flows from operating activities
Net cash flows from investing activities:
Investments in subsidiary undertakings
Net cash flows from investing activities
Net cash flows from financing activities:
Proceeds from sale of own shares
Receipts from exercise of share options
Dividends paid to equity shareholders
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash at bank and in hand at the beginning of the year
Cash at bank and in hand at the end of the year
2019
US$m
2018
US$m
24.5
-
(0.7)
-
23.8
21.8
0.1
(0.7)
(0.8)
20.4
-
-
(8.5)
(8.5)
0.5
0.2
(24.1)
(23.4)
0.4
0.4
0.8
6.3
3.0
(21.1)
(11.8)
0.1
0.3
0.4
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
1 Accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the year and to the
preceding year.
a) General information and basis of accounting
The financial statements have been prepared under the historical 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.
Functional currency
The functional currency of Coats Group plc continued to be United States dollars (‘USD’) during the year ended 31 December 2019.
b) Fixed assets – investments
Investments in subsidiary undertakings are reflected at cost less provisions for any impairment.
c) Financial assets and liabilities
Financial assets and financial liabilities are recognised when the Company 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 assets 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
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, when 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.
To satisfy awards under this Plan, shares may be purchased in the market by an Employee Benefit Trust (‘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 values of investments are assessed annually for indicators of impairment. If an impairment review is required judgement
is involved in calculating the recoverable amount. No indicators of impairment were identified during the year ended 31 December 2019.
There are no sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing material adjustment
to the carrying amounts of assets and liabilities within the next financial year.
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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 profit
for the year attributable to shareholders was $21.9 million (2018: $25.3 million).
Details of directors’ remuneration are set out on pages 70 to 85 within the Remuneration Report and form part of these
financial statements.
3 Dividends
Dividends amounting to $24.4 million in respect of the year ended 31 December 2019 were payable to Coats Group plc shareholders
during the year (2018: $21.1 million). Details of the proposed final dividend for the year ended 31 December 2019 are set out in note 12
of the consolidated financial statements.
4 Investments
At 1 January 2018
Additions
At 31 December 2018
At 31 December 2019
Investments
in subsidiary
undertakings
US$m
1,235.7
8.5
1,244.2
1,244.2
5 Share capital and reserves
There are 1,444,816,041 Ordinary Shares of 5p issued and fully paid at 31 December 2019 (2018: 1,427,492,032).
The movement in share capital during the year is set out in note 26 of the consolidated financial statements.
The own shares reserve at 31 December 2019 of $5.7 million (2018: $6.8 million) 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 2019 was 14,591,071 (2018: 17,165,314).
As at 31 December 2019 the Company had distributable profits of $220.4 million (2018: $222.5 million).
6 Related party transactions
Amounts due from and to other Group companies are disclosed on the face of the Balance Sheet on page 176.
Interest payable to other Group companies during 2019 was $Nil (2018: $0.9 million).
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GROUP STRUCTURE
The Company, through various subsidiaries, has branches in several different jurisdictions in which the business operates outside the UK.
Unless otherwise indicated, all shareholdings owned directly or indirectly by the Company represents 100% of issued share capital
of the subsidiary.
Subsidiaries:
Direct holdings of the Company
Country of
Incorporation
Company name
Registered office address
Share class
United Kingdom
Arrow HJC
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
B. M. Estates Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Contractors' Aggregates Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
GPG (UK) Holdings Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
GPG March 2004 Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
MFC (Predecessors) Limited
Mazars Llp, 45 Church Street, Birmingham, B3 2RT, United Kingdom
£1.00 Ordinary
United Kingdom
S G Warburg Group Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
Australia
Australia
Australia
Australia
Subsidiaries:
Indirect holdings of the Company
Country of
Incorporation
Company name
Registered office address
Argentina
Coats Cadena S.A. – Argentina
Tucuman 1, 4th Floor, (1049) Capital Federal, Argentina
Australian Country Spinners Pty Limited1
Australian Country Spinners Unit Trust1
c/o Jagen Pty. Ltd, Level 1, 26-29 Beatty Avenue, Armadale VIC 3143,
Australia
c/o Jagen Pty. Ltd, Level 1, 26-29 Beatty Avenue, Armadale VIC 3143,
Australia
Share class
ARS1.00 Ordinary
Nominal
AUD1.00 Ordinary
AUD1.00 Units
Coats Australian Pty Ltd
Unit 2, 56 Keys Road, Moorabbin VIC 3189, Australia
AUD0.54 Ordinary
GPG Services Pty Limited
c/o BDO, Level 11, 1 Margaret Street, Sydney NSW 2000, Australia
AUD1.00 Ordinary
Australia
Guinness Peat Group (Australia) Pty Limited
c/o BDO, Level 11, 1 Margaret Street, Sydney NSW 2000, Australia
AUD1.00 Ordinary,
AUD14,977.77
Redeemable
Preference
Australia
Sabatica Pty Limited
c/o BDO, Level 11, 1 Margaret Street, Sydney NSW 2000, Australia
AUD1.00 Ordinary
Bangladesh
Coats Bangladesh Limited
Tower 117, 117/A Tejgaon Industrial Area, Dhaka 1208, Bangladesh
Bangladesh
Coats Crafts Bangladesh Limited
Novo Tower, 270 Tejgaon Industrial Area, Dhaka 1208, Bangladesh
BDT100.00 Ordinary
(80%)
BDT100.00 Ordinary
(80%)
Brazil
Brazil
Bulgaria
Canada
Canada
Chile
Chile
China
China
China
China
China
Colombia
Ecuador
Coats Corrente Ltda
Rua do Manifesto, N 705, Bloco A, Ipiranga, Sao Paulo, SP BR, Brazil
BRL1.00 Ordinary
Corrente Sociedade de Previdência Privada
Rua do Manifesto, N 705, Bloco A, Ipiranga, Sao Paulo, SP BR, Brazil
Civil association
Coats Bulgaria Eood
Coats Canada Inc
Tharigradsko shouse bld 7th Km, Sofia 1748, Bulgaria
10 Roybridge Gate Blvd, Vaughan ON L4H 3M8, Canada
Staveley Services Canada Inc
44 Chipman Hill, Suite 1000, Saint John NB E2L 2A0, Canada
BGL50.00 Ordinary
Common (no par
value)
CAD Common,
CAD Class A Pref 1,
CAD Class A Pref 2
Coats Cadena Ltda
Enrique Gomez Correa 5750, 3er piso, Oficina No.4, Macul, Santiago, Chile US$1.00 Ordinary
The Central Agency Limited - Chile
Enrique Gomez Correa 5750, 3er piso, Oficina No.4, Macul, Santiago, Chile US$1.00 Ordinary
Coats Opti Shenzhen Limited
Coats Shenzhen Limited
Guangzhou Coats Limited
Qingdao Coats Limited
Shanghai Coats Limited
Shenzhen Coats Industrial Park, Fuyong Town, Baoan District, Shenzhen,
China
Shenzhen Coats Industrial Park, Fuyong Town, Baoan District, Shenzhen,
China
Art Street 11, 1106 Xin Gang Road, Haizhu District, Guanghou, 510310,
China
Qingdao Huanhai, Economic+Technological Development Zone,
Chengyang, Qingdao 266108, China
No.8 Building, Export Processing Garden, Songjiang Industrial Zone 201613,
Shanghai, China
US$1.00 Ordinary
(90%)
US$1.00 Ordinary
(90%)
HKD1.00 Ordinary
(90%)
US$1.00 Ordinary
(90%)
US$1.00 Ordinary
(90%)
Coats Cadena Andina SA - Colombia
Avenida Santander, N.5E-87, Pereira, Colombia
Coats Cadena SA Ecuador
De las Avellanas E, 2-74 y El Juncal, Quito, Ecuador
COP20.63 Ordinary
US$1.00 Ordinary
1. 100% owned by the joint venture ACS Nominees Pty Limited.
coats.com/investors
Coats Group plc Annual Report 2019
181
Strategic report
Corporate governance
Financial statements
Other information
GROUP STRUCTURE
CONTINUED
Country of
Incorporation
Egypt
Egypt
Egypt
Company name
Coats Craft Egypt
Registered office address
Share class
Industrial Area Zone B3, Plot 78, 10th of Ramadan City, Cairo, Egypt
EGP1.00 Ordinary
Coats Egypt for manufacturing and dyeing
sewing thread SAE
Industrial Area Zone B3, Plot 78, 10th of Ramadan City, Cairo, Egypt
US$10.00 Ordinary
Coats Industrial Trading Egypt
Industrial Area Zone B3, Plot 78, 10th of Ramadan City, Cairo, Egypt
EGP4000.00
Ordinary
El Salvador
Coats El Salvador, S.A. de C.V.
Zona Franca Export Salva, Edificio No 18C, San Salvador, El Salvador
US$100.00 Ordinary
Coats Eesti AS - Estonia
Ampri tee 9/4, Lubja küla 74010 Viimsi Vald, Harjumaa, Estonia
€63.90 Ordinary
Estonia
France
Germany
Germany
Germany
Germany
Guatemala
Guatemala
Honduras
Hong Kong
Hong Kong
Hungary
India
India
Coats France S.A.S.
Coats GmbH
8 avenue Hoche, 75008, Paris, France
Huefingerstrasse 28, D-78199, Braunlingen, Germany
Coats Opti Germany GmbH
1 Suedwieke 180, 26817 Rhauderfehn, Germany
Coats Thread Germany GmbH
Huefingerstrasse 28, D-78199, Braunlingen, Germany
Schwanenwolle Tittel & Krueger AG i. L
RHS, Stadtstrasse 29, 79104 Freiburg, Germany
Guatemala
Centraltex de Guatemala, S.A.
26 Avenida No. 7-27, Zona 4, Mixco oficina 11, Guatemala
Guatemala
Coats de Guatemala, S.A.
13-78 Zona 10, Edif. Intercontinental Plaza Torre Citigroup Nivel 17,
Oficina 1702, Ciudad, Guatemala
Guatemala
Crafts Central America, S.A.
26 Avenida No. 7-27, Zona 4, Mixco oficina 11, Guatemala
Distribuidora Coats de Guatemala, Sociedad
Anomina
39 Avenida, 3-47 Zona 7, Colonia El Rodeo, Guatemala, Guatemala
GTQ1.00 Ordinary
Guatemala Thread Company Sociedad Anonima 39 Avenida, 3-47 Zona 7, Colonia El Rodeo, Guatemala, Guatemala
GTQ10.00 Ordinary
Coats Honduras, S.A.
Hong Kong
China Thread Development Company Limited
Hong Kong
Coats (China) Limited
Hong Kong
Coats China Holdings Limited
Hong Kong
Coats Hong Kong Limited
Hong Kong
Coats Opti Hong Kong Limited
Hong Kong
Coats Thread HK Limited
Edificio #13 Zona Libre Inhdelva, 800 mts. Carretera a la Jutosa,
Choloma, Cortes, Honduras
Suite 23-25, Langham Place Office Tower, 8 Argyle Street, Mongkok,
Kowloon, Hong Kong
Suite 23-25, Langham Place Office Tower, 8 Argyle Street, Mongkok,
Kowloon, Hong Kong
Suite 23-25, Langham Place Office Tower, 8 Argyle Street, Mongkok,
Kowloon, Hong Kong
Suite 23-25, Langham Place Office Tower, 8 Argyle Street, Mongkok,
Kowloon, Hong Kong
Suite 23-25, Langham Place Office Tower, 8 Argyle Street, Mongkok,
Kowloon, Hong Kong
Suite 23-25, Langham Place Office Tower, 8 Argyle Street, Mongkok,
Kowloon, Hong Kong
HNL100.00
Ordinary
HKD10.00 Ordinary
HKD10.00 Ordinary
HKD10.00 Ordinary
HKD10.00 Ordinary
(90%)
HKD1.00 Ordinary
HKD10.00 Ordinary
Fast React Asia (HK) Limited
Room 2203 22/F, Tower 1, Lippo Centre, 89 Queensway, Hong Kong
HKD1.00 Ordinary
Fastreact Systems (Far East) Co Limited
Room 2203 22/F, Tower 1, Lippo Centre, 89 Queensway, Hong Kong
HKD1.00 Ordinary
Coats Magyarorszag Cernagyarto es Ertekesito
Korlatolt Felelossegu Tarsasag
Intellosol Softwares India Private Limited
Madura Coats Private Limited
1044 Budapest, Vaci ut 91, Hungary
Ground Floor, S-606-B School Block, Shakarpur Delhi, East Delhi, DL –
110092 India
7th Floor, Jupiter 2A, Prestige Tech Park, Sarjapur Marathalli Ring Road,
Bangalore, 560103, India
Indonesia
PT. Coats Rejo Indonesia
JI RA Kartini No 26, Jakarta 12430, Indonesia
Indonesia
PT Coats Trading Indonesia
Israel
Italy
Coats (Israel) Ltd
Coats Italy S.r.l.
Ventura Building, 4th Floor, Jl RA Kartini No 26, Cilandak, Jakarta 12430,
Indonesia
2 Shidlovsky Road, Yavne, Israel
Sesto San Giovanni (MI), Via Milanese, 20 CAP, 20099, Milan, Italy
Korea, Republic of
Coats Korea Co., Limited
74 Siu-ro, Danwon-gu, Ansan City, Republic of Korea, 15436
Madagascar
Coats (Madagascar) International
Madagascar
Coats (Madagascar) S.AR.L (EPZ)
First Immo, Galaxy Industrial Estate, Rue du Dr. Raseta, Andraharo,
Antananarivo, Madagascar
First Immo, Galaxy Industrial Estate, Rue du Dr. Raseta, Andraharo,
Antananarivo, Madagascar
Malaysia
Coats Thread (Malaysia) Sdn. Bhd.
49-B Jalan Melaka Raya 8, Taman Melaka Raya, 75000 Melaka, Malaysia
Mauritius
Mauritius
182
J & P Coats (Mauritius) Ltd
Allee des Mangues, Pailles, Mauritius
Coats Indian Ocean Holding Co Limited
2nd Floor, IBL House, Caudan, Port-Louis, Mauritius
US$100.00 Ordinary
Coats Group plc Annual Report 2019
coats.com/investors
€0.60 Ordinary
€12,000,000.00
Ordinary
€1.00 Ordinary
€1.00 Ordinary
DEM1.00 Ordinary
GTQ100.00
Ordinary
GTQ1.00 Ordinary
GTQ100.00
Ordinary
HUF100,000.00
Ordinary
INR10.00 Ordinary
INR10.00 Ordinary
IDR415.00
Ordinary-A,
IDR627.00
Ordinary-B,
US$1.00 Preference
USD1.00 Ordinary
US$400.00 Ordinary
€5,000,000.00
Quota
KRW10,000.00
Ordinary
MGF100,000.00
Ordinary
MGF100,000.00
Ordinary
RM10.00 A,
RM10.00 B,
RM10.00 C (99%)
Rs100.00 Ordinary
Strategic report
Corporate governance
Financial statements
Other information
GROUP STRUCTURE
CONTINUED
Country of
Incorporation
Mexico
Mexico
Morocco
Morocco
Company name
Coats Assets de Mexico SA de CV
Coats Mexico S.A. de C.V.
Registered office address
Periferico Sur #3325 Piso 8, Col. San Jerónimo Lídice, Magdalena Contreras,
Mexico City, CP10200, Mexico
Periferico Sur #3325 Piso 8, Col. San Jerónimo Lídice, Magdalena Contreras,
Mexico City, CP10200, Mexico
Coats Maroc
220 Bld Chefchaouni, Ain Sebaa, Casablanca, Morocco
Mercerie Industrielle de Casablanca
220 Bld Chefchaouni, Ain Sebaa, Casablanca, Morocco
Share class
MXN1.00 Series A
Fixed
MXP1.00 Ordinary-
A, MXP1.00
Ordinary-B
MAD100.00
Ordinary
MAD100.00
Ordinary
Netherlands
Coats Industrial Europe Holdings B.V.
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands
Coats Industrial Thread Holdings B.V
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands
Coats Northern Holdings B.V.
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands
Coats South America Holdings B.V.
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands
Coats South Asia Holdings B.V.
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands
Coats Southern Holdings B.V.
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands
Guinness Peat Group International Holdings BV Naritaweg 165, 1043 BW, Amsterdam, Netherlands
New Zealand
Coats Patons (New Zealand) Ltd
3 Mana Place, Wira, Auckland, New Zealand
€500.00 Ordinary
NZD1.00 Ordinary
Nicaragua
Pakistan
Peru
Poland
Portugal
Portugal
Romania
Coats de Nicaragua SA
Altamira d'este, Rotonda Madrid #235, Managua, Nicaragua
NIO100.00 Ordinary
J & P Coats Pakistan (Pvt) Limited
Suites 112-113, Prime Office Lobby, Park Towers, Shahrah-e-Firdousi,
Clifton, Karachi, 75600, Pakistan
Coats Cadena SA - Peru
Av. Republica de Panama 3461, Piso 9, San Isidro, Lima, Peru
Coats Polska Spolka z oganiczona
odpowiedzialnoscia
Coats - Comercio de Linhas, Fechos e
Acessorios, Para a Industria SA
91-214 Lodz, ul, Kaczencowa 16, Poland
Praca do Almada, No 10, 4490, Povoa do Varzim, Portugal
PKR100.00 Ordinary
PEI0.01 Ordinary
(99%)
PLN1,000.00
Ordinary
€1.00 Ordinary
Bearer Shares
Companhia de Linha Coats & Clark S.A.
Praca do Almada, No 10, 4490, Povoa do Varzim, Portugal
€1.00 Bare Shares
Coats Romania SRL
Municipiul Odorheiu Secuiesc, Str. Nicolae Balcescu, Nr. 71, Judetul
Harghita, Romania
RON169.38
Ordinary
Russian Federation
Coats LLC
53 Lenin Street, Oktyabrsky, Lubertsy, 140060, Moscow Region, Russia
SUR173.55 Ordinary
Singapore
Singapore
Coats International Pte. Limited
10 Changi Business Park Central 2, #05-01 HansaPoint, 486030, Singapore
SGD1.00 Ordinary
Coats Overseas Pte Ltd
10 Changi Business Park Central 2, #05-01 HansaPoint, 486030, Singapore
SGD1.00 Ordinary
South Africa
Coats South Africa (Proprietary) Limited
107 Escom Road, New Germany, 3620, KZN, Natal, South Africa
ZAR0.01 Ordinary,
ZAR0.01 Cumulative
Redeemable
Preference, ZAR0.01
Non-redeemable
Preference Shares,
ZAR0.01
Non-redeemable
Non-cumulative
Variable Rate
Convertible Preference
South Africa
Cotnat Properties (Proprietary) Limited
107 Escom Road, New Germany, 3620, KZN, Natal, South Africa
ZAR1.00 Ordinary
Spain
Spain
Sri Lanka
Sri Lanka
Sweden
Coats Spain, S.L.
Gotex S.A.
Poligono Industrial Can Roqueta, Avda.Ca N'Alzina nr.79, Calle N'Alzina,
Sabadell, Barcelona, Spain
Poligono Industrial Can Roqueta, Calle N'Alzina, 79 Sabadell, Barcelona,
Spain
Coats Thread Exports (Private) Limited
479, 8th Floor, HNB Towers, T.B. Jayah Mawatha, Colombo 410, Sri Lanka
Coats Thread Lanka (Private) Limited
479, 8th Floor, HNB Towers, T.B. Jayah Mawatha, Colombo 410, Sri Lanka
Coats Industrial Scandinavia AB
Box 109, SE-516 22 Dalsjofors, Sweden
€1.00 Ordinary
€6.02 Ordinary
LKR100.00 Ordinary
(99%)
LKR10.00 Ordinary
(99%)
SEK1,000.00 Bearer
Switzerland
Coats Stroppel AG
c/o Haussmann Treuhand AG, Seefeldstrasse 45, 8008 Zurich, Switzerland
CHF2,500.00
Thailand
Tunisia
Tunisia
Turkey
Ukraine
Coats Threads (Thailand) Ltd
39/60 Moo 2 Tambol Bangkrachaw, Amphur Muang, Samutsakorn Province
74000, Thailand
THB1,000.00
Ordinary
Coats Industrial Tunisie
52, rue du Tissage, Douar Hicher, Manouba, 2086, Tunisia
TND10.00 Ordinary
Coats Trading Tunisie
52, rue du Tissage, Douar Hicher, Manouba, 2086, Tunisia
Coats (Turkiye) Iplik Sanayii AS
Organize Sanayi Bolgesi Mavi Cad. No 2, 16220 Bursa, Turkey
Coats Ukraine Ltd
Moskovskiy ave. 28A, litera B, Kiev, 04655, Ukraine
TND10.00 Ordinary
TRY1.00 New
Ordinary (92%)
UAH1.00 Ordinary
coats.com/investors
Coats Group plc Annual Report 2019
183
Strategic report
Corporate governance
Financial statements
Other information
GROUP STRUCTURE
CONTINUED
Country of
Incorporation
Company name
Registered office address
Share class
United Kingdom
Allied Mutual Insurance Services Ltd
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Anfield 1 Limited
Mazars Llp, 45 Church Street, Birmingham, B3 2RT United Kingdom
£1.00 Ordinary
United Kingdom
Anfield 2 Limited
Mazars Llp, 45 Church Street, Birmingham, B3 2RT United Kingdom
£1.00 Ordinary,
£1.00 Deferred
United Kingdom
Barbour Threads Limited
Cornerstone, 107 West Regent Street, Glasgow, G2 2BA, United Kingdom
£10.00 Ordinary
United Kingdom
Brown Shipley Holdings Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Brunel Pension Trustees Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Cardpad Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats (UK) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary,
£1.00 Ordinary-A
United Kingdom
Coats Finance Co. Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Global Services Limited2
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Group Finance Company Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£0.33 Ordinary
United Kingdom
Coats Holding Company (No. 1) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£0.125 Ordinary
United Kingdom
Coats Holding Company (No. 2) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£0.25 Ordinary
United Kingdom
Coats Holdings Ltd
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Industrial Thread Brands Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Industrial Thread Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Patons Limited
Cornerstone, 107 West Regent Street, Glasgow, G2 2BA, United Kingdom
£0.25 Ordinary
United Kingdom
Coats Pensions Trustee Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Property Management Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Shelfco (BDA) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Shelfco (CV Nominees) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats Shelfco (VV) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£0.01 Ordinary,
£0.075 Deferred
United Kingdom
Coats Thread (UK) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Coats UK Pension Scheme Trustees Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Corah Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
United Kingdom
D. Byford & Co Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£0.25 Ordinary,
£1.00 4.2%
Cumulative
Preference
£0.20 Ordinary,
£1.00 Preference
United Kingdom
Embergrange
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Fast React Systems (Bangladesh) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Fast React Systems Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
United Kingdom
GPG (UK) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary,
£1.00 Special
redeemable non-
voting shares
£1.00 Ordinary,
AUD1.00 Ordinary
United Kingdom
GPG Europe Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
€1.00 Ordinary
United Kingdom
GPG Securities Trading Ltd
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Griffin SA Ltd
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
GSD (Corporate) Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
GSD Holdings Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary-A,
£1.00 Ordinary-B
2. Change of name to Coats Digital Limited on 28 February 2020.
184
Coats Group plc Annual Report 2019
coats.com/investors
Strategic report
Corporate governance
Financial statements
Other information
GROUP STRUCTURE
CONTINUED
Country of
Incorporation
Company name
Registered office address
Share class
United Kingdom
Guinness Peat Overseas Holdings Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Hicking Pentecost Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£0.50 Ordinary
United Kingdom
I.P. Clarke & Co. Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
J.& P. Coats, Limited
1 George Square, Glasgow G2 1AL, United Kingdom
£1.00 Ordinary
United Kingdom
Marshaide Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Needle Industries Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Patons & Baldwins Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Patons Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary,
£1.00 7%
Preference
United Kingdom
Simpson, Wright & Lowe, Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Sir Richard Arkwright & Co. Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
SIRBS Pension Trustee Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Staveley 2005 No 3 Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Staveley Industries Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Staveley Services Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
The Central Agency Limited
Cornerstone, 107 West Regent Street, Glasgow, G2 2BA, United Kingdom
£10.00 Ordinary
United Kingdom
The Coats Trustee Company Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom
Thomas Burnley & Sons, Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£10.00 Ordinary
United Kingdom
Tootal Group Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£0.25 Ordinary,
£1.00 3.5 %
Cumulative
Preference
United Kingdom
Tootal Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
£1.00 Ordinary
United States
Coats American Inc
CT Corporation System, 820 Bear Tavern Road, West Trenton, NJ 08628,
USA
United States
Coats Garments (USA) Inc
United States
Coats Holdings Inc
United States
Coats HP Holding Inc
United States
Coats HP Inc
United States
Coats North America Consolidated Inc
United States
Coats North America de Republica Dominica Inc
United States
Coats Puerto Rico Inc
United States
Coats Sales Corporation
CT Corporation System, Corporation Trust Centre, 1209 Orange Street,
Wilmington, DE 19801, USA
CT Corporation System, Corporation Trust Centre, 1209 Orange Street,
Wilmington, DE 19801, USA
CT Corporation System, 160 Mine Lake Ct., Suite 200, Wake NC 27615-
6417, USA
CT Corporation System, 160 Mine Lake Ct., Suite 200, Wake NC 27615-
6417, USA
CT Corporation System, Corporation Trust Centre, 1209 Orange Street,
Wilmington, DE 19801, USA
c/o CT Corporation System, 225 Hillsborough Street, Raleigh, Wake County,
North Carolina 27603, USA
CT Corporation System, 150 Fayetteville Street, Box 1011, Raleigh NC
27601, USA
CT Corporation System, 820 Bear Tavern Road, West Trenton, NJ 08628,
USA
US$10.00
COMMON,
US$5.00 5%
Cumulative
Preference
US$1.00 Ordinary
US$1.00 Ordinary
US$1.00 Ordinary
US$1.00 Ordinary
US$0.10 Ordinary,
US$1.00 Class B
Voting Shares
US$1.00 Ordinary
US$1.00 Ordinary
US$100.00 Ordinary
United States
Jaeger Sportswear Ltd
CT Corporation System, 111 8th Avenue, New York, NY 10011, USA
US$ Common
United States
Patrick Yarn Mill, Inc.,
700 S Railroad Avenue, Kings Mountain NC 28086-3360, USA
United States
Staveley Inc
The Corporation Trust Co., 1209 Orange Street, Wilmington, DE 19801,
USA.
US$1.00 Class A
voting, Class B non-
voting
US$0.01 Ordinary
United States
The Calico Printers Association (U.S.A.) Limited CT Corporation System, 111 8th Avenue, New York, NY 10011, USA
US$1.00 Ordinary
United States
Westminster Fibers, Inc.
c/o The Corporation Trust, 1209 Orange Street, Wilmington, Delaware, USA
Uruguay
Vietnam
Coats Cadena S.A. - Uruguay
Rufino Dominguez 1864, Montevideo, Uruguay
Coats Phong Phu Limited Liability Company
No. 48 Tang Nhon Phu Street, Tang Nhon Phu B Ward, District 9, Ho Chi
Minh City, Vietnam
US$1.00 Ordinary
(64%)
US$1.00 Common
shares
UYU0.05 Ordinary
coats.com/investors
Coats Group plc Annual Report 2019
185
Strategic report
Corporate governance
Financial statements
Other information
GROUP STRUCTURE
CONTINUED
Joint Ventures
Country of
Incorporation
Company Name
Australia
ACS Nominees Pty Limited
Registered Office address
c/o Jagen Pty. Ltd, Level 1, 26-29 Beatty Avenue, Armadale VIC 3143,
Australia
China
China
India
Guangying Spinning Company Limited
2 Yuan Cun Xi Jie Guangzhou, 510655, China
Tianjin Jinying Spinning Co Ltd
Jinlai Road Liqizhuang, Xi Qing District, Tianjin, 300381, China
S&P Threads Private Limited
Delite Theatre Building, III Floor, Asaf Ali Road, New Delhi, 110 002, India
United Kingdom
Coats VTT Limited
4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE, United Kingdom
Share class
AUD1.00 Ordinary
(50%)
US$1.00 Ordinary
(50%)
US$1.00 Ordinary
(50%)
INR10.00 Ordinary
(50%)
US$0.01 Ordinary
(50%)
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Corporate governance
Financial statements
Other information
FIVE-YEAR SUMMARY
For the year ended 31 December
Continuing operations
(before exceptional and acquisition related items)1:
Revenue2
Cost of sales
Gross profit
Operating costs2
Operating profit
Share of profits from joint ventures
Finance income
Finance costs
Profit before taxation
Taxation
2015
US$m
2016
US$m
2017
US$m
2018
US$m
20194
US$m
1,270.5
1,276.0
1,356.1
1,414.7
1,388.7
(803.6)
(789.2)
(849.7)
(901.9)
(898.1)
466.9
486.8
506.4
512.8
490.6
(353.9)
(347.6)
(345.8)
(317.9)
(292.6)
113.0
139.2
160.6
194.9
198.0
1.5
10.5
0.8
4.3
1.3
2.1
0.1
1.7
1.1
1.7
(41.7)
(35.9)
(25.4)
(26.1)
(29.6)
83.3
108.4
138.6
170.6
171.2
(37.1)
(41.0)
(44.6)
(53.8)
(50.5)
Profit from continuing operations
46.2
67.4
94.0
116.8
120.7
Adjusted earnings per share (cents)
Dividend per share (cents)
Adjusted free cash flow ($m)
Return on capital employed (%)
2.73
4.02
–
1.253
44.6
58.9
5.70
1.44
76.4
6.87
1.66
6.97
1.85
96.2
106.8
30.7%
35.2%
35.4%
42.6%
42.3%
Notes:
1. The results for 2015-2017 have been restated following the disposal of the North America Crafts business.
2. Revenue and operating costs have been restated for 2015-2017 following the Group’s adoption of IFRS 15 ‘Revenue from contracts with customers’ on 1 January 2018.
3. On a pro-forma basis (final dividend in 2016: 0.84c per share).
4. The Group adopted IFRS 16 ‘Leases’ from 1 January 2019 using the modified retrospective approach and therefore results for 2015-2018 are not restated.
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Strategic report
Corporate governance
Financial statements
Other information
SHAREHOLDER INFORMATION
UK registered members
To manage your shareholding online,
please visit: www.investorcentre.co.uk
United Kingdom
4 Longwalk Road,
Stockley Park,
Uxbridge,
UB11 1FE
Tel: 020 8210 5000
www.coats.com
Incorporated and registered
in England No. 103548
Registered office:
4 Longwalk Road,
Stockley Park,
Uxbridge,
UB11 1FE
Location of share registers
The Company’s register of members is maintained in the United Kingdom
Register enquiries may be addressed direct to the Company’s share registrars named below:
Registrar
Telephone and postal enquiries
Inspection of Register
UK Main Register:
Computershare Investor
Services PLC
The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
Tel: 0370 707 1022
Facsimile: 0370 703 6143
The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
188
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